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[2011] ZAECPEHC 58
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Emadyl Industries CC t/a Raydon Industries v Formex Industries (Pty) Ltd t/a Formex Engineering (1699/09) [2011] ZAECPEHC 58; 2012 (4) SA 29 (ECP) (20 December 2011)
IN
THE HIGH COURT OF SOUTH AFRICA NOT REPORTABLE
EASTERN
CAPE, PORT ELIZABETH
Case
No.: 1699/09
Dates
Heard: 16 March 2011
6-17
June 2011
31
October 2011
Date
Delivered: 20 December 2011
In
the matter between:
EMADYL
INDUSTRIES CC
t/a
RAYDON INDUSTRIES
….....................................................
Plaintiff
and
FORMEX
INDUSTRIES (PTY) LTD
t/a
FORMEX ENGINEERING
…...............................................
Defendant
JUDGMENT
EKSTEEN
J:
[1] The plaintiff claims damages
arising from the defendant’s alleged breach of contract. It is
common cause that the defendant
was a supplier of components to
Toyota South Africa (Pty) Ltd (to which I shall refer as “Toyota”).
The defendant entered
into a number of contracts with the plaintiff
in terms of which the plaintiff manufactured certain stainless steel
brackets for
the defendant and which the defendant would in turn
supply to Toyota. The contracts in issue were concluded at different
times
over the period from December 2005 and 2007. From the time of
the conclusion of each contract until 3 July 2008 the plaintiff
manufactured
these brackets in quantities as ordered by the defendant
from time to time.
[2] On 3 July 2008 the defendant
advised that Toyota no longer required further parts and instructed
the plaintiff forthwith to
halt production. The plaintiff contends
that the said communication constituted a repudiation of the
contract. As at 3 July 2008
the plaintiff had a number of completed
products available and ready for delivery which it had manufactured
in terms of the contracts.
It also had a quantity of raw material
which it had already purchased for the production of parts which the
plaintiff contends
that the defendant had already ordered. All the
material, it is common cause, consists of coils of stainless steel
pre-cut to meet
the requirements of the production of these brackets.
It is accordingly, so the plaintiff contends, worthless for any other
purpose.
[3] The plaintiff’s claims are
to be compensated for the parts manufactured at the agreed prices and
for the raw material
at the cost incurred in securing same. Plaintiff
tenders delivery thereof to the defendant.
The contracts
[4] It is common cause that the
parties concluded five agreements in terms of which the plaintiff
would produce certain stainless
brackets for catalytic convertors
which the defendant was committed to supply to Toyota. The brackets
in issue are described as
TSA
37, TSA 42
, TSA
43, TSA 44
and TSA 45
respectively. The agreed prices in respect of the supply of each of
these parts are not in dispute. The plaintiff contends
that the
further express, alternatively implied, alternatively tacit terms of
the agreement were as follows:
‘
5.3
The Defendant shall place “forward orders” in writing
with the Plaintiff for the production (of) the aforesaid parts
for a
period of up to five months after date of order, on receipt of which
the Plaintiff shall take immediate steps to enable timeous
production
of the parts detailed and ordered.
5.4
The Defendant shall take delivery of the parts produced by the
Plaintiff pursuant to the said forward orders placed by the Defendant
with the Plaintiff;
5.5.
Payment shall be effected within 30 days of the date of production
and delivery of the parts by the Plaintiff;
5.6
Notice of cancellation of the contract must be given for a period of
three months, alternatively, for the period for which the
“forward
orders” have been placed with the Plaintiff by the Defendant,
whichever period is the longer;
5.7
…’
[5] The defendant pleads, however,
that it was always within the contemplation of the parties that the
purpose of the agreement
was to enable the defendant to supply parts
to Toyota. Accordingly, it contends that it was within their
contemplation that the
defendant would not be liable to any
“extrinsic or special damages” sustained by the plaintiff
in the event of the
defendant breaching or repudiating the agreement.
[6] The defendant proceeds to
allege:
“
5.4
The following were the material either express,
alternatively
implied,
further
alternatively
tacit terms of the oral agreements, as pleaded by the Defendant:
5.4.1
jobs TSA 37, 42, 43, 44 and 45, which related to, and formed a
component of, the Defendant’s expected performance between
itself and Toyota South Africa, pursuant to an agreement concluded
between itself and Toyota South Africa;
5.4.2
jobs TSA 37, 42, 43, 44 and 45, as between the Plaintiff and
Defendant was relative to Toyota South Africa’s order(s)
for
metal components with the Defendant pursuant to an agreement
concluded between Toyota South Africa and the Defendant;
5.4.3
in the event of Toyota South Africa reducing or terminating its
demand for the supply of metal components, to be delivered
to it by
the Defendant, and which related to the Defendant’s expected
performance to Toyota South Africa (pursuant to an
agreement
concluded between itself and Toyota South Africa), then, as an
immediate consequence, the Defendant would reduce or terminate
its
order which relates to jobs TSA 37, 42, 43, 44 and 45 with the
Plaintiff;
5.4.4
it was incumbent on the Plaintiff to purchase sufficient raw
materials which would have he effect that it was eight weeks
ahead in
the production of components, to be utilized in the preparation of
jobs TSA 37, 42, 43, 44 and 45;
5.4.5
the Defendant would not be liable for any of the Plaintiff’s
anticipated extrinsic loss, in the event of a material
breach of a
contractual term by the Defendant, and/or cancellation of the
agreement by whichever party,
alternatively
by a breach of a
material term of an agreement between Toyota South Africa and the
Defendant,
further alternatively
by the repudiation and/or
cancellation of an agreement between the Defendant and Toyota South
Africa;
5.4.6
risk of impossibility of performance did not pass to the Defendant;
5.4.7
in the event of either one of the parties cancelling and/or
repudiating and/or terminating any or all agreements, an amount
equivalent of three months’ supply is to be paid by the
Defendant to the Plaintiff, and in accordance with customary industry
practice;
5.4.8
included in (or as a component of) sub-paragraph 5.4.7, and again in
the event of either one of the Plaintiff or the Defendant,
alternatively the Defendant and Toyota South Africa cancelling and/or
repudiating and/or terminating any or all agreements, and
in respect
of the Plaintiff’s finished goods:
(i)
a sum calculated on two weeks’ worth of production is to be
paid by the Defendant to the Plaintiff, in settlement of its
obligations to the Plaintiff;
5.4.9
included in (or as a component of) sub-paragraphs 5.4.7 and 5.4.8,
and again in the event of either one of the Plaintiff or
the
Defendant,
alternatively
the Defendant and Toyota South Africa
cancelling and/or repudiating and/or terminating any or all
agreements, and in respect of
the Plaintiff’s raw materials on
hand:
(i)
an amount equivalent to three months’ worth of raw materials is
to be paid by the Defendant to the Plaintiff, in settlement
of its
obligations to the Plaintiff.
5.5
The remainder of the averments in paragraph 5 (sub-paragraphs
included) inconsistent with the above are denied.
5.6
In addition to the aforegoing, the Defendant pleads that the implied
terms, as reflected in sub-paragraphs 5.4.8(i) and 5.4.9(i),
which
relate to amounts to be paid for finished goods and ‘stock-on-hand’,
have become a matter of implied custom by
trade usage in this
industry. Additionally, the Defendant pleads as follows:
5.6.1
This custom is made from the presumed common intention of the
Plaintiff and the Defendant, to include the terms customarily
included (reflected at sub- paragraphs 5.4.8(i) and 5.4.8(i);
5.6.2
the custom is within the Plaintiff’s knowledge;
5.6.3
the custom is universally and uniformly observed within the trade
industry, and
5.6.4
the custom is established, well-known, reasonable, certain and not in
conflict with the law, or the general provisions of
their agreement.”
[7] Later, and still in response to
paragraph 5 of the Particulars of the Plaintiff’s Claim the
defendant avers that it was
an express, alternatively, implied,
alternatively tacit term of each agreement that the risk of
impossibility would not pass to
the defendant and by virtue of
Toyota’s sudden termination of demand the purpose for which
defendant had contracted had become
“objectively impossible”.
In these circumstances defendant contends that it is relieved by
performance.
The onus
[8] It is now well settled that a
party alleging a contract must prove the terms of the agreement which
he seeks to enforce. (Compare
McWilliams v First Consolidated
Holdings (Pty) Limited
1982 (2) SA 1
(A).)
[9] This onus may involve the proof
of a negative, for example that an additional term alleged by the
defendant was not agreed upon
by the parties. (Compare
Kriegler
v Minitzer
and Another
1949 (4) SA 821
(A); and
Topaz Kitchens (Pty) Limited v Naboom Spar (Edms) Beperk
1976 (3) SA 470
(A).)
[10] Notwithstanding this general
rule where a party seeks to imply a trade usage as a term of the
agreement the party alleging
the implied term will bear the onus of
establishing the trade usage. (See
Golden Cape Fruits (Pty)
Limited v Fotoplate (Pty) Limited
1973 (2) SA 642
(C) 646A.)
[11] Similarly, where a defendant
seeks to rely on impossibility of performance he bears the onus to
establish the impossibility.
The nature of the agreement
[12] It appears from the pleaded
terms that the plaintiff contends for an agreement to manufacture the
identified parts at the agreed
prices as ordered from time to time.
That is not in dispute and it appears to be common cause on the
evidence, to which I shall
revert below. The precise quantities which
the plaintiff was required to produce from time to time and the time
for delivery of
such components therefore depends upon the orders
which are placed from time to time. Agreements of this nature,
usually referred
to as
pacta de contrahendae
, are well known
in our law. In
Hirschowitz v Moolman and Others
1985
(3) SA 739
(A) at 765I Corbett JA said:
‘
A
pactum
de contrahendo
is simply an agreement to make a contract in future (see
Montrose
Diamond Mining Co v Dyer
1912 TPD 1
at 5;
Lugtenborg
v Nichols
1936 TPD 76
at 79; Wessels
Law
of Contract
2
nd
ed para 217; De Wet and Yeats
Kontraktereg
en Handelsreg
4
th
ed at 29; Joubert
Law
of South Africa
vol 5 para 117). It was a class of contract “very well known in
the Civil Law” (see
McIlrath
v Pretoria Municipality
1912 TPD 1027
at 1037 – per WESSELS J, BRISTOWE J concurring).’
[13] In
McIlrath’s
case to which reference is made by Corbett JA McIlrath entered into
an agreement with the Pretoria Municipality to perform a certain
cartage work at agreed prices whenever required by the Municipality
to do so. Where an agreement of this nature results in a firm
offer
and it is not too vague it will be enforceable. In the circumstances
where the remuneration or the price is ascertainable
the contractual
duties must be performed whenever demanded within limits fixed by the
agreement (the
pactum)
. (Compare also
H Merks and Co.
(Pty) Limited v B-M Group (Pty) Limited
[1995] ZASCA 45
;
1996 (2) SA 225
(A)
233D-235G.) In such circumstances each demand or order initiates a
separately identifiable contracts containing some of its
own terms
and some terms imported by the
pactum
.
[14] In the present case the
description of the parts and the price agreed are set out in the
pactum
. The quantities to be manufactured and the time for
delivery depends upon each order placed and each order placed brings
about
a separate agreement.
[15] A central dispute which emerges
in this matter relates to what constituted the orders placed. The
additional terms contended
for by the defendant are terms which it
contends are contained in the
pactum.
The evidence
[16] Mr Donovan van Rensburg (Mr van
Rensburg) and Mrs Esperanza van Rensburg (Mrs van Rensburg) are both
members of the plaintiff.
They testified on behalf of the plaintiff.
[17] It is not in dispute that the
pactum
was concluded orally in each case. It is admitted on
the pleadings that the plaintiff was represented on each occasion by
Mr van
Rensburg whilst the defendant was represented by Johan Swart
and/or Adrian Chantson and/or Alana Oliver. None of the alleged
representatives
who were engaged in the conclusion of the agreement
on behalf of the defendant testified. The evidence of Mr van Rensburg
must
accordingly prevail in respect of the oral and tacit terms of
the agreement. Mr Rensburg testified that he had dealt only with the
defendant and at no time did he have any dealings with Toyota. He was
not privy to the contract between the defendant and Toyota
and he had
never seen it. The terms of the agreement between the defendant and
Toyota were accordingly not known to him.
[18] Mr van Rensburg testified that
after the conclusion of the
pactum
, which is not in dispute,
the defendant’s supplied to plaintiff schedules containing
particulars of “call-offs”
indicating the number of each
component which the defendant would require for each week, usually
extending five to six months in
advance. These schedules were
referred to in evidence as “releases” and I shall refer
to them accordingly. Mr van Rensburg
testified that it was his
understanding that the figures represented in the releases
constituted orders. In this regard Mr van
Rensburg testified as
follows:
“
COURT
:
So when you get that document that is an order placed until that
time? --- That is the figures that we work with yes.
I
am not asking you whether those are the figures you work with. I
understand that those are the figures which the defendant anticipates
or the defendant knows that it has to supply to Toyota. Does the
delivery of that document to you constitute the order for those
parts? --- We took it as such because this was always the paperwork
supplied to us as an order, and if we were short on their volume
as
indicated here they would hence supply us with another e-mail saying
we short supplied, we need to obtain X amount of components.
No
other documentation? --- No other documentation as far as the orders
go.”
[19] The evidence shows that over
and above the releases there were indeed isolated e-mails in which
the defendant required a number
of products at variance with the
schedules. From the discovered documentation five of these e-mails
were received between February
and July 2008. One of these commences
with the opening line: “Please find order for next three
weeks”. Two commenced
with the words: “Please find my
order according to our three week plan”. One refers to an order
for “week 24/week
25” and one for an order only in
respect of “week 21”. These orders accordingly refer to
fixed periods varying
from one week to three. Mr van Rensburg states
that he regarded these e-mails as variations on the orders previously
placed in
terms of the releases.
[20] Mr van Rensburg states that
upon receiving the releases from time to time the plaintiff made its
own calculations to make the
necessary alterations with their
suppliers in order to ensure that they had sufficient raw material to
produce such stock. I pause
to mention that a considerable volume of
evidence and cross-examination was dedicated to Mr van Rensburg’s
evidence that
because of the variations in quantities on orders the
plaintiff calculated its raw material needs in accordance with the
historical
orders rather than the forward orders contained in the
releases. By virtue of the conclusion to which I have come I do not
think
that this evidence has any relevance to the adjudication of
this matter and I accordingly do not set out all that evidence
herein.
[21] It is the undisputed evidence
that all these releases were documents which originated from the
defendant not directly from
Toyota. It appears that these releases
were provided monthly and that the number of parts required, looking
forward, varied from
release to release.
[22] During or about the first half
of June 2008 Mr van Rensburg says that he got word that Toyota
intended terminating the production
of these components. He thereupon
telephoned Mr Shabodien, a senior employee in the defendant with whom
he had a long relationship.
He enquired from Mr Shabodien as to the
future of the production of these parts. Mr van Rensburg testified
that Mr Shabodien explained
to him on the telephone that they were
going to have a meeting with Toyota in Durban to confirm what would
take place and at what
point there would be a run out or a
termination of production of these components.
[23] In the week proceeding 13 June
2008 Mr van Rensburg testified that he again contacted Mr Shabodien
to enquire as to whether
any certainty had been achieved. Mr
Shabodien advised that there was definitely an end to the production
and that they would be
contacting the plaintiff with relevant
details. Shortly thereafter on 13 June 2008 an e-mail was received
from Ms Alana Oliver
of the defendant. In the e-mail Ms Oliver states
as follows:
“
Please
find attached a spreadsheet with the latest figures received from
Toyota where the call-off ends in November 2008. I think
you can work
and plan on this.”
[24] Attached to the e-mail was a
release covering the period 2 June 2008 to 24 November 2008 setting
out the number of parts required
in respect of each component. The
evidence of Mr van Rensburg is undisputed that after receipt of this
e-mail he spoke to Ms Oliver
to verify that she was sure of the
figures and that the figures represented the end of the run. She
confirmed this.
[25] On 3 July Mr van Rensburg
testifies that an e-mail was received by the plaintiff from Alana
Oliver indicating that this would
be the end of production and that
plaintiff was to cease production forthwith. Shortly thereafter he
was advised by Mrs van Rensburg
that she had verified with Ms Oliver
the correctness of the instruction and that it was indeed true. He
thereupon also phoned Ms
Oliver and spoke to her himself, whereafter
he contacted Mr Shabodien, however, alas, it was confirmed that he
should halt production.
[26] Mr van Rensburg states that Mr
Shabodien advised him that the plaintiff would need “to start
gathering (their) totals
of components etc and Toyota would be
following up with a visit to (them) in order for them to validate
that (plaintiff) had material
and/or components on hand, as well as
to validate the costing to themselves for these components and
material.” Toyota, however,
never visited them. Mr van Rensburg
states that correspondence flowed between the plaintiff and the
defendant to find out what
exactly was happening and when Toyota
would be arriving to finalise the details so that the plaintiff could
be reimbursed for the
work and material purchased for the production
of the components. However, nothing occurred.
[27] Mr van Rensburg testifies that
3 July 2008 was the Thursday of the week starting 30 June 2008 and
that the plaintiff was ready
and able to deliver the parts due for
that week on the following day. At that stage Mr van Rensburg
testifies that the plaintiff
had 11 000 parts of TSA 37, 9 689
parts of TSA 42, 7 814 parts of TSA 43, 17 856 parts of TSA
44 and 5 050
parts of TSA 45 already manufactured and in stock.
[28] In addition Mr van Rensburg
testified that the plaintiff already had a considerable amount of raw
material either in stock
or which had already been ordered and
pre-cut to width required for these specific components. The
plaintiff, with the assistance
of their supplier VRN, sought for
months to resell some of this raw material in order to mitigate its
damages. It has been admitted
at the pre-trial conference that the
plaintiff succeeded in selling some of this raw material for an
amount of R 67 322,40.
[29] In addition to the amount of
stock held by VRN at the time Mrs van Rensburg testified in respect
of the quantities of materials
at hand on the premises of the
plaintiff at the time of the cancellation of the agreement. Those
figures are not disputed and I
shall revert to them below.
[30] Mrs van Rensburg was not
involved in the conclusion of the agreement. Her evidence can cast no
further light on the terms of
the agreement. She too is a member of
the plaintiff and testifies that she was actively involved in the
operation of the plaintiff’s
business, however, more on the
administrative side.
[31] Mrs van Rensburg testified as
to the background to the agreement. As recorded above the defendant
was contracted to Toyota
to supply parts. The defendant experienced
considerable difficulty in producing these parts in the volumes
required by Toyota from
time to time. By virtue of the fact that the
plaintiff had recognised expertise the defendant requested the
plaintiff to take over
the production of these parts. The machinery
utilised belonged to the defendant. Initially the defendant took care
of the purchase
of raw materials and provided same to the plaintiff.
Later it was agreed that the plaintiff would take over the purchasing
of raw
material as well.
[32] Mrs van Rensburg says that she
was in almost daily contact with Ms Oliver at the defendant
discussing the logistics relating
to the delivery. Mrs van Rensburg
testified at some length in respect of her regular discussions with
Ms Oliver in respect of the
manner of the ordering of raw materials
and logistical difficulties associated therewith. By virtue of the
conclusion to which
I have come in this matter I do not consider that
evidence to be material.
[33] Mrs van Rensburg confirmed the
evidence of Mr van Rensburg relating to the communication between
plaintiff and the defendant
in June and July 2008 where they were
instructed to terminate production. She confirms too that she was in
regular contact with
defendant, and more in particular with Mr
Shabodien, in respect of the anticipated reconciliation which they
had been advised that
Toyota would do in respect of parts already
manufactured and raw material on hand. She says that she had
approximately 17 calls
to Mr Shabodien. On 8 December Mr Shabodien
advised her to put in a claim to the defendant as Toyota would only
be visiting the
defendant and would do so during January 2009. She
accordingly produced a schedule, annexed to the Particulars of Claim,
which
sets out the parts which they had on hand, the material which
they had on hand and the material which had already been ordered and
prepared and was on hand on the premises of VRN as of 3 July 2008.
[34] Mr Henkemeier testified as an
expert on behalf of the plaintiff and Mr Victor on behalf of the
defendant. Their testimony relates
to the alleged trade usage pleaded
by the defendant. Mr Henkemeier’s evidence is that there is a
general practice in the
automotive industry that, in the absence of
an agreement to the contrary, where an ongoing production process is
cancelled or terminated
users are paid an amount equivalent to
between three and five months worth of raw material and an amount
equivalent to two weeks
worth of production (finished goods). It is
accordingly flexible. In the rule 36(9)(b) summary of the evidence of
Mr Victor he
states that in the motor industry “release
forecasts” are common. The purpose of a release forecast, he
says, is to
advise the client of the customers expected output. The
summary goes on to say that a “release forecast” is not a
“firm
order” but merely an indication to the customer of
the expected sales. On a receipt of such a forecast, Mr Victor’s
summary records, a supplier in ordinary circumstances would order
enough material to ensure that its “lead time” was
three
months from the date of order. In respect of these three months Mr
Victor considers that the first two weeks of the twelve
weeks are
known as “firm orders”. Thereafter the next two to four
weeks are known as ”firm forecasts” with
the remaining
weeks being merely a forecast. On this basis Mr Victor contends that
where a manufacturer terminates an agreement
during the currency of
one of these forecasts it would be liable to pay the supplier twelve
weeks worth of production. This would
equate to two weeks worth of
finished product and a further ten weeks of raw material. In
explaining these concepts in evidence
Mr Victor says:
“
You
take the release and, looking at the demand that is drawn out for
you, you need to ensure that you have capacity, you have to
have
production capacity to meet those requirement, okay. You need to
ensure that your supply chain is alive okay … That
is the
greater overview of the release, if you will. Closer to your current
week or looking at your current week due to supply
okay, the standard
practice that I have been working with and have been groomed on is,
in your firm period okay, it’s where
you then, tying up with
your supplier, what you need in the immediate foreseeable future
okay. Typically you would give a four
week firm period, what that
entails is, that it is authorisation for your supplier to have two
weeks of finished product for you
and it covers two weeks of his work
in progress, be it in its production or in its raw material store,
perhaps something has been
delivered, it’s continuously moving
okay. Outside of that, you would give another eight weeks as a
minimum …, you
would pass it on as a minimum, so at least give
the guy a twelve week window that he can see what’s going on,
he can ensure
and feel comfortable with his stock on his, his
finished goods or in his production facility, and it gives him the
opportunity
to order and the assurance to maintain his supply chain.”
[35] Mr Victor was later asked
whether various categories of forecasts occur. His response was as
follows:
“
Yes,
in this context they do. If you wish to get technical, there is
different types of releases, different types of orders, but
the
industry in Port Elizabeth and the rest of the country with the
automotive industry I’ve dealt with, the guys give release
forecasts.”
[36] Later he was asked what the
affect would be if half way through the forecast a manufacturer were
to cancel the order. His response
was as follows:
“
It
was only a release, unless you give somebody for example a purchase
order with a globular amount, ‘I want six million over
three
years, there it is sign, value, terms and conditions, sign.’
Then you’ve bought three million …”
[37] He was thereafter asked if it
sometimes happens in the automotive industry that a company may place
an order for six months
or seven months in advance and he responded
as follows:
“
Yes
M’Lord. It does. They, different OE’S or companies use
different methodology okay, but the practice as it has become
in
South Africa okay, is to always attempt to give your supplier a
minimum of his lead time okay, so in the CAT industry, component
industry, with Columbus’ ordering of once a month, to get your
stock in the third month, you give them twelve weeks, so that
you
support them placed their order and you cover their exposure of the
material on their floor …. So you always try to
attain a
minimum of twelve weeks.”
[38] The twelve weeks Mr Victor says
is a minimum. He goes on to say:
“
Our
lead times as we know is, place your order in three months, it
arrives the next month, next one. So that is part and parcel
of how
it’s become industry practice to negotiate in and around those
twelve weeks.”
It seems to me that the evidence of
Mr Victor too is of a flexible practice. He recognises that where a
contract is made for a fixed
quantity over a fixed period the general
practice does not arise.
[39] Finally Mr Shabodien the
commercial manager of the defendant testified. Mr Shabodien, as
recorded above, had no involvement
with the conclusion of the
agreement. He cannot assist in casting light on the terms of the
contract. He testified that he is unsure
if there was a written
contract with Toyota. He gave extensive evidence of the manner in
which Toyota dealt with orders
vis-à-vis
the defendant.
He also explained his understanding of the manner in which companies
usually dealt with releases. He explained the
defendant’s
relationship in general with Toyota, which, by virtue of the
conclusion to which I have come below, I do not
think contributes to
the resolution of the present matter. Finally he testified that
defendant too was ignorant of the pending
abrupt termination of the
contract. The decision, he says, was taken in Japan and all players
in South Africa were taken off-sides.
Terms of the contract
[40] It seems to me that on either
version the contracts in issue necessarily constitute
pacta de
contrahendae
. Each order placed therefore constitutes a new
contract incorporating the terms of the
pactum de contrahendo
and the terms of the order which would relate to the number of parts
to be delivered and the specific times for delivery. The import
of
the defendant’s version is that a new contract comes into
existence each week as a further week is added as a “firm
order”. This, the defendant avers, arises by virtue of the
industry practice.
[41] It is immediately apparent,
both from the view of Mr Henkemeier and Mr Victor that this
“practice” to which they
refer applies only where no
other agreement is in place. Mr Victor acknowledges that sometimes
agreements are concluded for the
production of predetermined
quantities over a fixed period. If that has occurred the practice
does not arise.
[42] Whatever the general position
may be in the absence of the agreement, it seems to me that a firm
agreement did come into existence
on 13 June 2008. Ms Oliver did not
testify and the evidence of Mr van Rensburg in respect of the
telephonic communication on 13
June 2008 remains uncontradicted. It
is borne out by the e-mail sent by Ms Oliver on 13 June where she
records: “I think
you can work and plan on this.” It
seems to me that defendant has established a firm agreement concluded
on 13 June 2008
pursuant to the telephonic communication of 13 June
for the manufacture of all those components set out in the release
provided
on that day at the times stipulated. In these circumstances,
on an acceptance of the evidence of Henkemeier and Victor the general
practice finds no application. It follows that I think the plaintiff
has established that the terms contended for in para 5.4 of
defendant’s plea did not form part of the agreement. In any
event, even if I err in this regard I do not think that the trade
usage has been established.
Trade usage
[43] Where a trade usage is known to
both parties the knowledge will be regarded as one of the surrounding
circumstances indicating
that a trade usage ought to be incorporated
into the contract as a tacit term. (See for example
Easigas
(Pty) Limited v Solgas (Pty) Limited and Another
2009 (4) SA
37
at 46 para [42] and
Christies
The Law of Contract in
South Africa
6
th
ed p. 168.) The circumstances in
which a trade usage of which one party has no knowledge will be
implied in a contract are set
out by Krause J in
Cook v Pedison
Limited
1927 WLD 62
at 71 and were fully discussed in
Golden
Cape Fruits
(
supra
) where Corbett J (as then was) at
645G said:
“
At
the trial it appeared that appellant - through its director,
Ashworth, who contracted upon its behalf - had no knowledge of the
alleged trade usage. This was accepted by the magistrate and his
finding in this regard was not challenged on appeal. Accordingly,
this is not a case where the trade usage could be said to have been
incorporated by the parties as an implied term of the agreement.
Nevertheless, despite its ignorance, appellant would be bound by -
and the contract in question would be subject to - the alleged
trade
usage provided that it is shown to be universally and uniformly
observed within the particular trade concerned, long-established,
notorious, reasonable and certain, and does not conflict with
positive law (in the sense of endeavouring to alter a rule of law
which the parties could not alter by their agreement) or with the
clear provisions of the contract.”
[44] I consider firstly whether the
“trade usage” contended for could be incorporated into
the contract as a tacit term.
In the present case Mr van Rensburg
testified as follows:
“
A
period of three to five months is what they would, the industry norm
would allow for as far as purchases went. As I described
earlier we
would need to order in advance of three months minimum, also have
another month on hand to cover the period of production
needs. The
norm differs slightly from product to product as can be noted that
some materials are more difficult to obtain than
others, so the norm
would apply within that time frame of a three to five month period as
far as raw materials go and as far as
the production of the
components go to a period of two weeks to four weeks would also be
the norm depending on the complexity of
the operation.”
[45] Under cross-examination Mr van
Rensburg stated as follows:
COURT:
Is there a universally accepted norm? --- M’Lord, it would be
as stated that you would work around the three month scenario.
Is
the three month scenario, universally accepted norm in the industry?
--- Yes it is M’Lord.”
[46] The evidence of Mr van Rensburg
seems to me to accord with that of Mr Henkemeier of a flexible
approach which would vary depending
on circumstances. Although there
is some difference between Mr Henkemeier and Mr Victor in respect of
the period, I think that
it appears from the evidence of Mr Victor
which I have set out above, that there is a very flexible guideline.
His conclusion that
the industry norm is “to negotiate in and
around those twelve weeks” is indicative thereof that the
guideline provides
for negotiation and settlement. I do not think
that the acknowledgment of Mr van Rensburg of this guideline could
possibly found
a tacit term incorporated into the contract. In
OK
Bazaars v Bloch
1929 WLD 37
at 44 Solomon J said:
“
I
think that the law is quite clear that, if I am to imply a term, the
term to be implied must be as certain (although it was never
mentioned between the parties) as if it had been carefully drawn up
and embodied in a written deed.”
[47] This accords with more recent
dictum in
Smith v Van Reenen Steel (Pty) Limited
[2001]
2 All SA 604
(D) at 614 where it is said:
“
It
would be almost impossible to draw a clause importing the necessary
implied term which would not be void of vagueness.”
[48] It seems to me that this dictum
is particularly apposite to the present facts when regard is had to
evidence of Mr van Rensburg,
Mr Henkemeier and Mr Victor. Certainly I
do not think that the industry norm which Mr van Rensburg professes
knowledge of is that
which the defendant contends for.
[49] To incorporate an implied term,
implied by law, on the strength of the trade usage alleged is even
more problematic. It would
require the trade usage long established,
notorious, reasonable and certain. I think that what emerges from
what is set out above
is that it is clearly not certain.
[50] Corbett J, as he then was, in
Golden Cape Fruits
(
supra)
stated as follows at
646A-646C:
“
Generally
speaking the Courts require convincing evidence of the existence of a
trade usage conforming to the requirements listed
above. In
van
Breda's
case,
supra
,
SOLOMON, J.A., speaking of the establishment of a custom having the
force of law and having referred to the views of Voet that
a
turba
of witnesses (not fewer than ten) was required in order to do so,
remarked (at p. 333) -
'I
think we should refrain from laying down any fixed rule on the
subject, as the requisite number of witnesses might very well
vary
with their character and with the nature of the custom which is set
up. Much must in every case be left to the discretion
of the Court,
which, however, must be satisfied beyond any reasonable doubt that
the alleged custom does in fact exist. It is desirable,
however, to
add that it is better for him who sets up a custom to err on the side
of calling too many rather than too few witnesses.'”
[51] Later, on the same page
opposite the letter H Corbett J stated:
“
While
these views may not be entirely harmonious, they indicate, in my
view, that, putting the position at its lowest, the evidence
required
to establish a trade usage must be clear, convincing and consistent.
It must, moreover, amount to something more than
mere opinion:
instances of the usage having been acted upon should be provided in
order to establish the fact of the existence
of the usage. No rule
can be laid down as to the number of witnesses required. This depends
very much upon the nature of the usage
in question, the character and
quality of the witnesses and the extent to which their evidence is
placed in issue by other evidence.
In the nature of things the Court
would not readily act upon the evidence of a single witness, even if
uncontradicted.”
[52] I think when measured up
against this test the defendant has failed to establish the usage
contended for. What is required
is evidence of specific instances
where the usage was applied, not an opinion. At best it seems to me
that the defendant has established
as a general guide in the industry
that the parties would negotiate a settlement of their differences
dependent upon the lead time
involved in the procurement of the
particular raw material in question using the twelve week period as a
point of departure. This
will only apply where no firm agreement has
been concluded.
Impossibility of performance
[53] It has been held that if
performance of a contract become impossible through no fault of the
debtor, the obligation is extinguished
unless the debtor agreed to
accept the risk of impossibility. See for example
Oerlikon SA
(Pty) Limited v Johannesburg City Council
1970(3) SA 579 (A)
585; and
Bischof Berger v Van Eck
1981 (2) SA 607
(W).
In view of the conclusion to which I have come below I make no
finding in respect of the question whether performance in this
case
has indeed become objectively impossible.
[54] It is no doubt correct that it
was within the contemplation of the parties when the
pacta
were concluded that the purpose of the agreement between the parties
was to provide components to the defendant which the defendant
was
obliged to provide to Toyota South Africa. The plaintiff was however
not privy to the contract between Toyota and defendant
and had no
knowledge of its terms relative to cancellation. I will accept for
purposes hereof that the defendant did not accept
the risk of
impossibility at the time of the conclusion of the
pactum
. On
13 June 2008, however, on the undisputed evidence of Mr van Rensburg,
Ms Oliver confirmed the correctness of the figures set
out in the
final release, which was no other than a production schedule, and
advised the defendant that it should work on those
figures. I
consider that the defendant thereby accepted the risk of
impossibility and that a firm agreement came about between
the
parties. I think that this is borne out by the undisputed conduct of
the parties subsequent to the cancellation whereby the
defendant
invited the plaintiff to provide figures in respect of components
already produced and raw materials on hand. This conduct
seems to me
to be irreconcilable with the position now contended for that
defendant had no obligation to the plaintiff.
[55] In all the circumstances, for
this reason alone, I do not think that the defence of impossibility
of performance has been established.
It is the only basis upon which
the allegation of a repudiation is resisted. It follows that I am of
the view that the defendant’s
conduct on 3 July 2008
constitutes an unlawful repudiation of the contract. The plaintiff
has pleaded that it orally advised the
defendant of its acceptance of
the repudiation. That communication was not denied in the defendant’s
plea. In the circumstances
I consider that the plaintiff is entitled
to recover such damages as it may establish that it has suffered in
consequence of the
defendant’s repudiation of the contract.
The quantum of damages
[56] The plaintiff alleges that at
the date of the repudiation it held in stock the number of completed
components recorded above.
In addition it alleges that it had an
amount of raw material on hand, some on its premises and some on the
premises of VRN. In
mitigation of its damages it, with the assistance
of VRN, sold some of its stock on hand in the amount of R67 322,40.
This,
as recorded above, is admitted. It transpires, as will appear
below, that the material which was sold in mitigation of damages
related exclusively to material utilised for TSA 42. There is
accordingly no claim made in respect of material relating to TSA 42.
[57] The manner of calculation of
the plaintiff’s claim is unusual. Ordinarily damages for breach
of contract are not intended
to compensate an innocent party for his
loss but to put him in the position that he would have been in had
the contract been properly
honoured. Van den Heever JA in
Trotman
and Another v Edwick
1951 (1) SA 443
(A) 449B-C said:
“
A
litigant who sues on contract sues to have his bargain or its
equivalent in money or in money and kind.”
[58] The plaintiff’s claim is
not formulated in this manner. The plaintiff does not claim the
profits which it would have
derived from the manufacture and sale of
the parts had the contract been honoured. Rather it claims to be paid
its contract price
for components produced in terms of the contract
prior to the repudiation and, only for its loss subsequent to the
repudiation,
namely that which it paid for the raw materials on hand.
In exchange it tenders delivery thereof.
[59] In
Hamer v Wall
1993 (1) 235 (T) it was held that it was not competent to formulate a
contractual claim in this manner. The majority judgment in
Hamer
held that a plaintiff was not entitled to “elect whether to
pursue either his negative or positive interesse”.
[60] In
Mainline Carriers
(Pty) Ltd v Jaad Investments CC
1998 (2) SA 468
(C), however,
Farlam J considered the award of damages with reference to
Hamer
.
Farlam J considered the position in a number of foreign
jurisdictions. He referred to the position in the Australian courts
where
the approach is adopted that a plaintiff was regarded as suing
for his expectation interest (positive interesse) even when seeking
to recover lost expenditure, on the basis that the law assumed that
if the contract had been performed the plaintiff would have
at least
have recovered such expenditure as had reasonably been incurred in
reliance on the defendant’s performance. In American,
English
and Canadian law, he concluded a plaintiff suing for expenditure
rendered futile because of the defendant’s breach
was regarded
as suing to protect his reliance (negative interesse). Farlam J
concluded that, subject to the rule that expectation
interest set the
limit of recovery, nothing much turned upon the different approaches
from a practical point of view. I think that
the conclusion reached
in
Mainline Carriers
is to be preferred. In the
circumstances I think that it is open to the plaintiff to approach
its claim for damages on the basis
which it has, subject thereto that
no greater damages can be recovered than would have been recoverable
had the contract been honoured.
[61] Reverting to the facts of this
matter, the release which was issued on 2 June 2008 (“the final
release”) and which
led to the conclusion of the agreement on
13 June 2008 provided for parts to be delivered on a weekly basis to
November 2008. The
plaintiff contends that the contract was
repudiated on 3 July, a Thursday, after the components due for
delivery on 4 July had
been manufactured. I pause to mention that
although there is some dispute in the evidence as to when the
plaintiff became aware
of the termination of the production the date
is not in dispute on the pleadings. It is not in dispute that the
plaintiff had on
hand already manufactured parts in the following
quantities:
TSA 37 11
000
TSA 42
9
689
TSA 43
7
814
TSA 44
17
856
TSA 45
5 050
[62] There was a suggestion that
some of these parts were due for delivery in respect of past weeks in
which the plaintiff had not
produced the numbers of components
required and that it had in fact fallen in arrears. On this basis the
plaintiff sought to bring
into consideration for purposes of
calculation its own previous breach of contract. I do not consider
that the defendant was obliged
to receive any components relating to
any period prior to the week commencing 30 June 2008.
[63] The final release which sets
out the quantities of parts to be produced in accordance with the
agreement of 13 June 2008 requires
the following quantities of parts,
in total, calculated from 30 June 2008 the end of the agreement:
TSA 37 70
158
TSA 42
34 860
TSA 43 33
403
TSA 44
32
962
TSA 45
22 227
[64] These figures constituted the
limit of the plaintiff’s expectation in terms of the contract.
Of these parts, however,
a significant number had already been
manufactured and were held in stock on hand.
[65] Both Mr and Mrs van Rensburg
testified in respect of a table prepared by Mrs van Rensburg setting
out the quantities of raw
material at hand and the number of parts
which could be manufactured from them. It is apparent from this table
that, by virtue
of the sale of material in mitigation of damages no
raw material remained in respect of TSA 42. No claim is accordingly
made in
respect of raw material relating to TSA 42. In respect of the
remainder of the parts the table shows that plaintiff had raw
material
on hand capable of producing the following numbers of
components:
TSA 37 38
160
TSA 43
83
863
TSA 44
42
913
TSA 45
90 182
[66] It is readily apparent, when
regard is had to the parts held in stock, that plaintiff had
considerably more raw material at
hand in respect of parts TSA
43,
TSA 44
and TSA 45 than was required to meet expectation in the
contract. In respect of TSA 43 the table, as read with the evidence
of
Mrs van Rensburg, shows that the raw material required had a mass
of 1.27kg/m and that 18 parts could be produced per meter. In
the
case of TSA 44 the raw material had a mass of 1.15kg/m and 42 parts
could be produced per meter. The mass of raw material in
the case of
TSA 45 was 0.63kg/m and 55 parts could be produced from each meter.
[67] As the plaintiff did not have
sufficient raw material on hand to meet the expectation of the
contract in respect of TSA 37,
I consider that it is accordingly
entitled to be compensated for the value of all the raw material on
hand in respect of TSA 37.
[68] On a consideration, however, on
the information above the plaintiff would have required 1 805,5
tons of TSA 43 material,
413,5 tons of TSA 44 material and 196 tons
of TSA 45 material in order to meet the requirements of the contract.
I consider that
the plaintiff is entitled to be compensated in
respect of the value of this quantity of material.
[69] The cost of the material is
reflected in annexure “R2” to the Particulars of Claim as
was further elucidated by
the evidence of Mr and Mrs van Rensburg. It
appears that there is in each case a charge per kilogram to which a
surcharge determined
by Columbus, the manufacturers of the stainless
steel, is added together with value added tax (“VAT”).
The cost per
kilogram and the surcharge in each case, exclusive of
VAT is as follows:
TSA 37 R9,61 per kilogram and a
surcharge of R4,
13
TSA 43
R9,29 per kilogram and a
surcharge of R5,43
TSA 44 R9,61 per kilogram and a
surcharge of R4,
13
TSA 45
R9,61 per kilogram and a
surcharge of R4,13
[70] Utilising these figures the
plaintiff is entitled to be compensated for the raw material on hand
in the volumes set out above
as follows:
TSA 37 R17 931,
72;
TSA 43
R30 297,
57;
TSA 44
R 6 476,89; and
TSA 45 R3 070,00, which amounts
include VAT. There is, as recorded above, no claim in respect of raw
materials relating to
TSA 42. The plaintiff is accordingly awarded
damages in respect of the raw material on hand at the time of the
repudiation in the
sum of R57 776,18.
[71] In respect of the completed
components the plaintiff is entitled to be compensated at the agreed
prices. The plaintiff is accordingly
entitled to the following
compensation in respect of the completed components in the quantities
set out before:
TSA 37 R9 240,
00
TSA 42
R8 913,88
TSA 43 R16 018,
70
TSA 44
R15 891,
84
TSA 45
R2 929,00
The plaintiff’s damages in
respect of the components is accordingly R52 993,42.
[72] In all the circumstances the
plaintiff is entitled to be compensated in the amount of R110 769,60.
[73] In the result I make the
following order:
1. The defendant is ordered against
delivery of all completed components and raw material to pay to the
plaintiff the amount of
R110 769,60 as and for damages.
2. Defendant is ordered to pay
interest on the amount of R110 769,60 calculated at the legal
rate from a date fourteen (14)
days after the date of judgment to the
date of payment.
3. The defendant is ordered to pay
the plaintiff’s costs of the suit.
____________________________
J W EKSTEEN
JUDGE OF THE HIGH COURT
Appearances:
For Plaintiff:
Adv S
Potgieter
instructed by Daniel Saks Inc Attorneys, Port
Elizabeth
For
Defendant
: Adv D
Smith
instructed by Goldberg & De Villiers Inc, Port Elizabeth