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[2011] ZAECPEHC 50
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MG Reynolds (Pty) Ltd v Crown Chickens (Pty) Ltd t/a Sovereign Foods (3228/2010) [2011] ZAECPEHC 50 (24 November 2011)
REPORTABLE
IN THE HIGH COURT OF SOUTH AFRICA
(EASTERN CAPE, PORT ELIZABETH)
Case No: 3228/2010
In the matter between:
M G REYNOLDS (PTY) LTD
…............................................................................
Plaintiff
And
CROWN CHICKENS (PTY) LTD t/a
SOVEREIGN FOODS
…........................
Defendant
Coram:
Chetty, J
Date Heard:
7 and 8 November 2011
Date Delivered:
24 November 2011
Summary:
Contract
–
Supply Agreement –
Whether evidence established that defendant repudiated agreement –
No such repudiation established
– breach caused by plaintiff’s
failure to supply agreed quantity of bales – Plaintiff’s
claim dismissed
– Defendant’s counter-claim upheld.
________________________________________________________________
JUDGMENT
________________________________________________________________
Chetty, J
[1] The defendant company is a large
scale chicken producer conducting business on thirteen (13) broiler
farms in the city of Port
Elizabeth and its environs. In conformity
with its production methodology the day old chicks are from day
zero
1
,
introduced into and confined in chicken houses. The defendant has one
hundred and ten (110) chicken houses in total ranging from
four (4)
to thirteen (13) per farm. To achieve optimum production results,
wood shavings are evenly spread throughout the rearing
area in the
chicken houses to a depth of thirteen (13) millimetres to which the
chicks are confined pending their eventual slaughter,
forty two (42)
days hence, a period, euphemistically referred to in the evidence as,
a crop cycle. The shavings are then removed
and a new bed laid for
the next crop cycle. During the latter half of 2008, the plaintiff’s
principal, Mr
Martin
Reynolds
(
Martin
)
was introduced to the defendant’s head of agricultural
purchases, Mr
Andre Kapp
(
Andre
),
by its general manager as a potential supplier of wood shavings. Its
existing major supplier was a company based in the East
London area.
I shall henceforth refer to the various witnesses who testified by
name, in conformity with the manner they were referred
to during the
trial.
[2] The plaintiff’s business had
hitherto not encompassed the manufacture of wood shavings. It owned
land in fairly close
proximity to the defendant’s major broiler
farms and over the passage of time had accumulated a vast quantity of
raw material
necessary for producing wood shavings. This confluence
provided the catalyst for the parties to conclude a written agreement
for
the plaintiff to manufacture, supply and sell wood shavings to
the defendant. The plaintiff could generate an income from a hitherto
dormant commodity and the defendant could access an essential
component of its production requirements locally with its attendant
cost savings.
[3] Following upon the initial
discussions between the parties,
Martin
gave
Andre
the assurance
2
that he could commence production by 1
August 2008 initially producing five hundred (500) to a thousand
(1000) bales of shavings
(bales) for the first month and thereafter
to increase production to six (6000) to seven thousand (7000) bales
monthly. Mollified
by
Martin’s
assurance and cognisant that given the
exigencies of poultry farming, a secure and long term supplier of
wood shavings was of paramount
importance, the parties concluded a
written agreement based upon the plaintiff’s guarantee of a
continuous supply of fine
pine wood shavings for five (5) years
3
,
during which the plaintiff would supply no less than six thousand
five hundred (6500) bales per month to the defendant commencing
on 1
December 2008. In addition to the aforegoing terms, the other
essential terms of the agreement were that the plaintiff undertook
to
supply the defendant solely; the mass of each bag would be at least
twenty five (25) kg; for the duration of the five (5) year
term, the
price per bag would be R21.95 for the period 1 December 2008 to 20
November 2009, payable thirty (30) days from month
end statement,
with a settlement discount of 2.5%; annual price escalations would be
determined by the official consumer price
index (CPI); further price
increases, necessitated by fluctuations in the price of electricity
and diesel, would be determined
according to a specified formula as
per clause 7 of the agreement.
[4] On 5 August 2010,
Martin
e-mailed
Andre
conveying his decision to cancel the
agreement by reason of what he contended was the defendant’s
breach, or repudiation (or
a combination of both) of the agreement,
and in due course instituted an action for damages. In its plea the
defendant denied being
in breach of the agreement and pleaded that
the plaintiff was in breach by consistently being unable to fulfil
its contractual
obligations to supply it with six thousand five
hundred (6500) bales of shavings per month. Consequently, it
contended that by
reason of the
“
breach
(es) and repudiation”
,
the defendant cancelled the agreement
with effect from April 2010. It counter-claimed, seeking damages for
R963 672.00 and
R3 158 295.00, the first amount
representing the additional amount expended by it for payment of
shavings which the plaintiff
failed to deliver, and the second, being
the difference, over the remaining five (5) year period of the
agreement, between the
contractual amount and that which it would in
future have to pay to another supplier
4
.
[5] At the commencement of the hearing
before me and, at the behest of the parties, I ordered a separation
of the merits of the
action, the quantum component to stand over for
later determination. Prior to closing the plaintiff’s case, I
acceded to
Mr
van Rooyen’s
application to amend the plaintiff’s
particulars of claim by substituting paragraph 7.3 with a new claim
reading: -
“
7.3
From about July 2009, the Defendant refused to pay for shavings in
accordance with the provisions of clause 7.5 of the contract,
and
unilaterally altered the period in the clause to 60 days”
and amending clause 9 by the addition
of the words
“
[a]nd/or
pay on 30 days as provided in the said clause 7.5.”
,
the amended clause now
reading:-
“
The
defendant refused to place orders on (sic) the plaintiff and/or
accept any price increase and or pay on 30 days as provided
in the
said clause 7.5”
[6] During his closing argument Mr
van
Rooyen
submitted that the
plaintiff was entitled to cancel the agreement by reason of the
defendant having repudiated it in three vital
respects, viz, its
refusal (i) to order the agreed monthly quota of six thousand five
hundred (6500) bales; (ii) to accept and
implement the price increase
in accordance with the provisions of the agreement and, (iii) to make
payment on thirty (30) days
as stipulated in the agreement.
[7] The first leg of the argument is
premised on the repeated allegation in the particulars of claim that
the defendant was contractually
bound to order a minimum of six
thousand five hundred (6500) bales of shavings per month. Although
the agreement itself makes no
reference to orders being placed,
Martin
testified
that by virtue of the constraints attendant upon delivering to
thirteen (13) farms, practical considerations required
that orders in
respect of a particular farm’s requirements be either
telephonically placed or e-mailed to the plaintiff to
facilitate
deliveries. Consequently, in order to comply with its contractual
obligations, it awaited such orders to be placed by
the defendant and
suggested that clause 6.2 of the agreement was a material term of the
contract. Neither in the particulars of
claim nor in argument before
me did Mr
van Rooyen
contend that clause 6.2 was a material
term of the agreement.
[8] In my judgment, clause 6.2 was
merely a provision inserted into the contract to regulate deliveries.
It constitutes an operational
requirement and was clearly not a term
of the contract. The distinction between a provision and a term was
succinctly articulated
by Cameron J.A., in
Absa
Bank Ltd v Swanepoel N.O.
5
where the learned judge stated the
following
6
:-
“
[6]
At its simplest, a contract is an enforceable promise to do or not do
something. But when parties record an agreement in writing,
they
often add provisions that do not embody such promises. A contract may
have a preamble. It may contain 'recordals' and 'recitals'.
It may
document prior events, or record the parties' future intentions. It
may contain clarificatory or explanatory statements.
The parties may
place on record matters that bear on the interpretation of what they
have undertaken. It is therefore wrong to
approach a written contract
as though every provision is intended to create contractual
obligations.
[7] It may be difficult to
determine whether a written provision is intended to embody a promise
to do or not do something, or whether,
without itself constituting an
undertaking, it merely bears upon what the parties have undertaken. A
recent illustration of a dispute
about the extent of a contract's
operational provisions, about which this Court was divided, is MAN
Truck & Bus (SA) (Pty)
Ltd v Dorbyl Ltd t/a Dorbyl Transport
Products and Busaf. But the question whether a contractual provision
has operational content
is fundamental to the ambit of the
obligations the parties undertake, and it precedes the application of
rules designed to establish
the proper interpretation of their
undertakings. Only once it is determined that a provision was
intended to have contractual effect
will the Court try to interpret
it so as to give it business efficacy. If it was not so intended,
those rules of interpretation
do not come into play. No 'business
meaning' can be conjured out of a clause that was not intended to
have contractual effect at
all.”
There can be no question that in
casu
,
the clause was intended to have any contractual effect. It was a
provision to facilitate delivery to the various farms and nothing
more.
[9] It is not in issue that a delivery
was preceded either by a telephone call followed by an e-mailed
purchase order or merely
a purchase order sent by e-mail. It is
common cause that prior to a delivery taking place,
Martin
and
Andre
met and the defendant’s
requirements for the pending crop cycle discussed. The dispute that
exists relates to whether the
order placed by the defendant was
limited to the amount of shavings the plaintiff was able to supply or
not. According to
Martin
,
the volume of the orders placed was entirely at the whim of the
defendant and not occasioned by his supposed inability to produce
the
required volume of six thousand five hundred (6500) bales.
Was the plaintiff able to
produce and supply the required 6500 bales per month?
[10] On the probabilities
Andre’s
evidence must be preferred. He
testified that given the problems encountered by the plaintiff’s
failure to supply the agreed
six thousand five hundred (6500) bales,
he held meetings with
Martin
in order to establish the amount of
shavings the plaintiff would be able to supply. Once that amount had
been determined orders
commensurate therewith would be placed and the
balance of the defendant’s requirements sourced from other
suppliers. On
Martin’s
version the meeting would be
superfluous – all it needed to do was to telephone the
defendant and enquire where the bales
were to be delivered. It is not
in issue that notwithstanding the initial commitment to supply six
thousand five hundred (6500)
bales per month, the plaintiff was
unable to do so. The commencement date for the supply was 1 December
2008. By 9 December 2008
no deliveries had been made,
Martin
advising
Andre
of a host of problems which he, rather
optimistically, considered would be hastily resolved. By the end of
January 2009 the plaintiff’s
problems persisted and
Martin
advised
Andre
to continue sourcing the shavings from
his existing supplier pending the resolution of his supply problems.
On 10 February 2009,
Martin
assured
Andre
that the plaintiff was
“
fully
operational”
five
(5) days a week and producing fifty (50) bales per day and that
production would be significantly increased once a second machine
had
been purchased. By 26 February 2009 the plaintiff’s production
capacity had not increased. On 5 March 2009,
Martin
finally admitted that he could not
comply with his contractual obligations and proposed that the parties
form a joint venture to
enable him to produce wood shavings. Further
discussions ensued over the following weeks but nothing materialised.
Martin
testified
that it was only in September 2009 that he was able to produce the
required six thousand five hundred (6500) bales of
shavings. That
evidence is entirely inconsistent with the content of his e-mails to
the defendant prior to December 2009. By his
own admission he had
failed to honour his contractual obligations for the entire first
year of the agreement. The excuses proffered
for his inability to
render performance in terms of the contract ranged from adverse
weather conditions to machinery malfunction
and lack of capacity.
[11] On 8 April 2009,
Andre
provided
Martin
with a copy of the defendant’s new
trading terms and conditions and invited his response. Although
Martin
thereafter dispatched several e-mails to the defendant
concerning the anticipated increase in production, it was only on 29
July
2009 that he requested the defendant to continue with the agreed
payment terms. No favourable response was forthcoming. By 13 August
2009, production had still not increased. On 30 November 2009,
Martin
gave the defendant notice of the plaintiff’s price increase
effective from 1 December 2009 as per the supply agreement. The
defendant responded by rejecting the proposed increase on the basis
of the plaintiff’s continued failure to supply in terms
of the
agreement. On 1 December 2009,
Martin
begrudgingly admitted
the correctness of the defendant’s averments but once more made
extravagant promises to comply with
the agreement.
[12] On 13 December 2009,
Martin
did a complete somersault. Notwithstanding his yearlong excuses for
not supplying the defendant with the requisite amount of wood
shavings, he now apportioned the blame to it because of their failure
to have ordered six thousand five hundred (6500) bales per
month.
Thereafter, and for the next two months the plethora of e-mails
continued unabated and by March 2010 the relationship had
all but
terminated. The defendant placed orders on an
ad hoc
basis in
conformity with the plaintiff’s increased price structure and
finally, on 9 July 2010,
Andre
, following a flurry of e-mails
between
Martin
and
Irma Rishworth
(
Irma
), the
defendant’s group procurement manager, berated
Martin
for his failure to perform his contractual obligations.
[13]
Martin’s
e-mail response on 12 July 2010 that
he had the ability and capacity to supply the defendant with six
thousand five hundred (6500)
bales per month was yet another example
of his extravagant promises. During his testimony he remained
steadfast that he could,
had the defendant placed orders for the
requisite amount of shavings, been able to supply same. It was clear
from
Andre
and
Irma’s
evidence that the plaintiff had
neither the capacity nor the ability to do so. His own e-mail
dispatches prove the contrary. It
is furthermore apparent from the
schedule
7
which
Andre
and
Martin
jointly compiled for trial purposes
that at no stage during the subsistence of the contract was there any
delivery made of six thousand
five hundred (6500) bales. Over the
period February 2009 to April 2010 the average monthly supply
amounted to two thousand six
hundred and fifteen (2615) bales,
considerably below that agreed upon.
[14] It follows from the aforegoing
that the submission advanced by Mr
van
Rooyen
that the contractual
breach was occasioned by the defendant’s refusal to accept the
proffered amount of six thousand five
hundred (6500) bales of
shavings per month is entirely misplaced. As adumbrated hereinbefore,
the submission is factually incorrect.
The evidence, both documentary
and
viva voce
,
conclusively establishes that it was the plaintiff’s failure to
supply the agreed amount of shavings that constituted the
breach.
Did the refusal to agree to the
price increase constitute a repudiation?
[15] It will be gleaned from the
aforegoing that
Martin
notified the defendant of the price
increase presaged in clause 7 of the agreement on 30 November 2009.
On the same day, the defendant
informed him that by virtue of the
plaintiff’s failure to supply it with the requisite amount of
shavings, it would not agree
to the increased price. As adumbrated
earlier, this refusal was said to constitute a repudiation of the
agreement. The short answer
to the submission is succinctly
articulated in
Moodley
and Another v Moodley and Another
8
where Nienaber J, said the following:-
“
.
. . that a party to a contract ought not to be allowed, by his own
wrongful conduct, to advantage himself or to disadvantage his
counterpart. To permit the repudiating party to take advantage of the
other side's failure to do something, when that failure is
attributable to his own repudiation, is to reward him for his
repudiation;”
The defendant’s refusal to agree
to the plaintiff’s price increase did not amount to a
repudiation of the agreement.
Did the defendant’s
unilateral variation of the payment terms amount to a repudiation?
[16] Clause 7.5 of the agreement
provides as follows:-
“
The
supplier will allow Crown payment terms, 30 days from month end
statement with settlement discount of 2.5%.
a The pricing will be said
to contain all costs including
b Transport cost
c Labour cost
d Product, treatment and
packaging cost”
On 8 April 2009 the plaintiff was
informed that the trading terms would be altered and payment effected
sixty (60) days from month
end statement. Although the plaintiff
testified that he did not consent in the change to the payment regime
future payments were
made in conformity therewith until the agreement
was terminated. After the first payment in terms of the new structure
was made,
further payments were made on a monthly basis. The
variation of the payment terms clearly did not constitute a
repudiation as contended
for by the plaintiff. As Nienaber JA,
trenchantly stated in
Datacolor
International (Pty) Ltd Intamarket (Pty) Ltd
9
:-
“
[16]'Where
one party to a contract, without lawful grounds, indicates to the
other party in words or by conduct a deliberate and
unequivocal
intention no longer to be bound by the contract, he is said to
''repudiate'' the contract. . . . Where that happens,
the other party
to the contract may elect to accept the repudiation and rescind the
contract. If he does so, the contract comes
to an end upon
communication of his acceptance of repudiation and rescission to the
party who has repudiated . . .' (per Corbett
JA in Nash v Golden
Dumps (Pty) Ltd
1985
(3) SA 1
(A)
at
22D - F). This is the conventional exposition of the operation of the
doctrine of repudiation leading to rescission, with its
emphasis on
the guilty party's intention and the innocent party's acceptance. At
the same time this Court has repeatedly stated
that the test for
repudiation is not subjective but objective (Ponisammy and Another v
Versailles Estates (Pty) Ltd
1973
(1) SA 372 (A)
at
387A - C; Stewart Wrightson (Pty) Ltd v Thorpe (supra at 953E - H);
Van Rooyen v Minister van Openbare Werke en Gemeenskapsbou
(supra at
845A - 846G); Tuckers Land and Development Corporation (Pty) Ltd v
Hovis (supra at 653B - G); OK Bazaars (1929) Ltd v
Grosvenor
Buildings (Pty) Ltd and Another
1993
(3) SA 471 (A)
at
480I - 481H; Highveld 7 Properties (Pty) Ltd and Others v Bailes
1999
(4) SA 1307
(SCA)
at
1315F - G, 1318A - E, 1318H - J). Thus it has recently been said in
Metalmil (Pty) Ltd v AECI Explosives and Chemicals Ltd
1994
(3) SA 673 (A)
at
684I - 685B:
[17] . . .
[18] The conduct from
which the inference of impending non- or malperformance is to be
drawn must be clearcut and unequivocal, ie
not equally consistent
with any other feasible hypothesis. Repudiation, it has often been
stated, is 'a serious matter' (cf Ross
T Smyth & Co Ltd v T D
Bailey, Son & Co
[1940] 3 All ER 60
(HL) at 72B; Metalmil (Pty)
Ltd v AECI Explosives and Chemicals Ltd (supra at 685B - C),
requiring anxious consideration and -
because parties must be assumed
to be predisposed to respect rather than to disregard their
contractual commitments - not lightly
to be presumed.”
[17] In applying the objective test
postulated by the aforegoing authorities, I am unable to find that
the variation in the payment
regime amounted to a repudiation.
[18] It follows from the aforegoing
that the plaintiff has not established that the defendant repudiated
the agreement. As adumbrated
hereinbefore, the agreement was breached
by the plaintiff’s failure to perform its contractual
obligations as a consequence
of which the defendant was obliged to
source the wood shavings from other producers.
[19] In the result the following
orders will issue:-
The plaintiff’s claim is
dismissed.
The counter-claim is upheld to the
extent that the plaintiff is liable to compensate the defendant for
such damages as it may
in due course prove by reason of the
plaintiff’s failure to supply it with the agreed minimum
quantity of wood shavings,
during the subsistence of the supply
agreement.
The plaintiff is ordered to pay
the defendant’s costs of suit.
________________________
D.
CHETTY
JUDGE
OF THE HIGH COURT
On behalf of the Applicant:
Adv R.P. Van Rooyen SC
instructed
by Friedman Scheckter, 75 Second Avenue, Newton Park, Port Elizabeth,
Tel: (041) 395 8412, Ref: Mr G. Friedman
On behalf of the Respondent:
Adv G. Richards
instructed by
Pagdens Attorneys, Pagdens Court, 18 Castle Hill, Central, Port
Elizabeth, Tel: (041) 585 2141, Ref: R.H. Parker
1
The
terminology used in the industry.
2
Martin’s
e-mail to Andre dated 22 July 2008 (Annexure “A1”)
3
Clause
2.1 of the Agreement
4
The
second leg of the counter-claim was not persisted with and nothing
further need be said about it.
5
2004
(6) SA 178 (SCA)
6
At
page 181 para [6] and [7]
7
Exhibit
“A” at pages 53-54
8
1990
(1) SA 427
(D) at 431G
9
[2000] ZASCA 82
;
2001
(2) SA 284
(SCA) at paragraphs [16] and [18].