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[2021] ZAKZDHC 6
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Tetra Pak S.A (Pty) Limited v Blakey Investments (Pty) Limited (14082/2011) [2021] ZAKZDHC 6; 2021 (6) SA 252 (KZD) (11 March 2021)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
LOCAL DIVISION, DURBAN
REPORTABLE
CASE
NO:
14082/2011
In the matter
between:
TETRA
PAK S.A (PTY) LIMITED
Plaintiff
and
BLAKEY INVESTMENTS
(PTY) LIMITED
First
Defendant
SUMAN
PANDAY Second
Defendant
ORDER
(a)
The judgment granted by the registrar on 6 March 2020 is rescinded
and set aside.
(b)
The penalty provided for in the settlement agreement of 17 May 2019
is reduced to nil and
clause 4 thereof declared unenforceable.
(c)
It is declared that the defendants have complied fully with their
obligations under
the settlement agreement.
(d)
The plaintiff (the respondent in the application) is ordered to pay
the costs of the application.
JUDGMENT
Delivered
on: 11 March 2021
Ploos
van Amstel J
[1]
The applicants in this matter (the defendants in the action) seek an
order declaring
that they have complied fully with their obligations
under a settlement agreement, and, in the alternative, an order
reducing to
nil, or setting aside, a penalty of R15 million provided
for in the settlement agreement.
[2]
The background of the matter is as follows. In May 2019 an action
between Tetra Pak
S.A. (Pty) Limited, as plaintiff, and Blakey
Investments (Pty) Limited and Suman Panday, as defendants, came up
for trial. The
cause of action was fraud and the claim substantial.
The defendants complained about the plaintiff’s discovery and
threatened
to ask for an adjournment. This led to settlement
discussions, and on 17 May 2019 a written settlement agreement was
concluded.
It provided for an undertaking by the defendants to pay to
the plaintiff the sum of R25 million and to execute a consent to
judgment
in that amount. It provided further that ‘the
aforesaid’ was compromised on the basis that the defendants
would pay
to the plaintiff the sum of R10 million in instalments. The
balance of the R25 million would only be payable in the event of any
of the instalments not being paid timeously.
[3]
Pursuant to the settlement agreement the defendants paid a sum of R5
million to the
plaintiff by way of an electronic fund transfer. The
balance of R5 million was payable in eight equal consecutive monthly
instalments,
commencing on 30 June 2019, each in the sum of R625 000.
Interest on the reducing balance would be paid simultaneously with
the last instalment on 31 January 2020. The agreement provided that
the balance of R5 million would be secured by eight post-dated
cheques, each in the sum of R625 000. The cheques were duly
provided to the plaintiff.
[4]
From the end of June 2019 the plaintiff presented a cheque at the end
of each month,
and they were duly paid. The cheque presented at the
end of December 2019 was however not paid, as the bank was unable to
contact
Mr Panday for his confirmation. He was overseas on vacation.
[5]
In January 2020 the plaintiff notified the defendants that the
instalment that was
due at the end of December had not been paid.
This was rectified on Mr Panday’s return, and a payment was
made by electronic
fund transfer. The plaintiff however adopted the
stance that as a result of the late payment the amount of R25 million
had automatically
become due and payable. It applied for
judgment on the confession to judgment, which was granted by the
Registrar.
[6]
In the notice of motion the applicants sought an order for the
judgment to be rescinded
on the basis that the plaintiff had failed
to give the notice required in terms of the settlement agreement.
This was not disputed
on the papers. The application for rescission
was not opposed and will be granted.
[7]
The main issues before me are whether the instalment in question was
paid timeously,
and, if it was not, whether the provision relating to
the payment of R25 million was a penalty as defined in the
Conventional Penalties
Act 15 of 1962.
The
payment of the December instalment
[8]
I think it will be convenient to continue to refer to the parties as
they were in
the action. Counsel for the defendants submitted that
the delivery of the post-dated cheques constituted payment of the
instalments
referred to in the settlement agreement, provided that
the cheques were not dishonoured. He based the submission on ‘an
express
term of the settlement agreement that payment would be
discharged by cheque. No other means of payment would suffice, and
that
is the mechanism the parties chose’. There is no such term
in the settlement agreement. Clause 3.2 provides for payment of
R5
million by electronic fund transfer and the balance of R5 million in
eight equal monthly instalments. There is no provision
in the
agreement that payment had to be made by cheque. The post-dated
cheques served as security for the balance. Nothing in the
agreement
precluded the defendants from paying one or more of the instalments
by electronic fund transfer.
[9]
Nevertheless, it seems plain that the parties had agreed that payment
could be made
by cheque. Although the agreement provided that the
balance of R5 million would be secured by eight post-dated cheques,
the cheques
were the mode of payment. The plaintiff presented one of
the cheques every month, and six instalments were paid in this
fashion.
In
Eriksen Motors (Welkom) Ltd v Protea Motors, Warrenton
& another
1973 (3) SA 685
(A) at 693F-G Holmes JA said the
following:
‘
In
general, payment by cheque is
prima facie
regarded as
immediate payment subject to a condition. The condition is that the
cheque be honoured on presentation. When the cheque
is so honoured,
the date of payment of the debt is the date of the giving of the
cheque. Conversely, if the cheque is dishonoured
there has been no
payment.’
[10]
Counsel for the plaintiff accepted this, but submitted that the
cheque was never honoured and
that therefore its delivery to the
plaintiff did not constitute payment. Section 45(1)(a) of the Bills
of Exchange Act 34 of 1964
provides that ‘a bill is dishonoured
by non-payment if it is duly presented for payment and payment is
refused or cannot
be obtained’. It is common cause that the
payment of the cheque had not been stopped, and that there were
sufficient funds
in the account to meet it. There is no evidence on
the papers that the bank refused payment of the cheque, or that
payment could
not be obtained. The position appears to be that, as
part of the bank’s security checks where large value cheques
are issued
for processing, the cheque processing centre makes
telephonic contact with the drawer. Because Mr Panday was oversees on
vacation
the bank was unable to make contact with him. I do not
consider that to have been a refusal of payment. It was rather a
delay in
payment pending a security check. Counsel for the plaintiff
accepted that if confirmation from Mr Panday was obtained a day or
two later, and payment made by the bank in early January, that would
have been a timeous payment of the December instalment.
[11]
The reason why the cheque was never honoured was that it was not
presented again, as the instalment
was paid by electronic transfer.
The cheque was therefore not dishonoured. In those circumstances
there was no late payment and
the sum of R25 million did not become
payable.
[12]
In case this conclusion is wrong, and there had been a late payment,
I consider the consequences
thereof.
The
Conventional Penalties Act
[13]
Counsel for the defendants submitted that the provision relating to
the payment of R25 million
was a penalty as defined in the Act, that
the plaintiff suffered no prejudice, and that the penalty should be
reduced to nil or
set aside in terms of s 3 of the Act.
[14]
Counsel for the plaintiff contended that the provision was a
discount, not a penalty, in the
sense that the amount owing was R25
million, discounted to R10 million on condition that the instalments
were paid on due date.
He submitted that the consequence of the late
payment was that the defendants forfeited the discount and became
liable to pay the
full amount owing.
[15]
I turn to consider the nature and effect of the provision. If it is
not a penalty, then it cannot
be moderated.
[16]
Section 1(1) of the Act provides as follows:
‘
A
stipulation, hereinafter referred to as a penalty stipulation,
whereby it is provided that any person shall, in respect of an
act or
omission in conflict with a contractual obligation, be liable to pay
a sum of money or to deliver or perform anything for
the benefit of
any other person, hereinafter referred to as a creditor, either by
way of a penalty or as liquidated damages, shall,
subject to the
provisions of this Act, be capable of being enforced in any competent
court.’
Section
3 provides that:
‘
If
upon the hearing of a claim for a penalty, it appears to the court
that such penalty is out of proportion to the prejudice suffered
by
the creditor by reason of the act or omission in respect of which the
penalty was stipulated, the court may reduce the penalty
to such
extent as it may consider equitable in the circumstances…’
[17]
Counsel for the plaintiff placed considerable reliance on the
decision in
Optic Powerlines (Pty) Ltd v Hattingh
2016 JDR
1730 (FB). The plaintiff in that matter had applied for summary
judgment in an amount of R394 024, on a claim
for rentals in
respect of earthmoving machinery. A settlement agreement was
concluded in terms of which the defendant undertook
to settle a
stipulated reduced amount of R250 675, which included the costs
of the summary judgment application, by way of
three payments on
specified dates, failing which it was agreed that the defendant would
be obliged to pay the larger balance of
R394 024 dealt with in
the application for summary judgment. The defendant paid the last two
instalments late, and the plaintiff
applied for judgment on the
settlement agreement, for the balance of the larger amount. The
judgment was granted. In a subsequent
application for it to be
rescinded the defendant argued that the provision relating to payment
of the larger amount was a penalty
stipulation and should be deleted.
Fischer AJ found that in the settlement agreement the defendant had
acknowledged that it owed
two amounts and that if it performed
timeously it would receive a discount, failing which the larger
amount it admitted it owed
would become payable. He said it followed
that nothing more accrued to the plaintiff than was agreed upon and
in fact already owing
to him. The larger amount was therefore not a
penalty.
[18]
In
Parekh v Shah Jehan Cinemas
(Pty) Ltd & others
1982 (3) SA 618
(D) it was contended that an acceleration clause in a
settlement agreement constituted a penalty. Leon J at 625D-E referred
to
a judgment by Wessels JA in
Da Mata v Otto
NO
1972 (3) SA 858
(A) in which he held that
in order to decide whether a stipulation amounted to a penalty it had
to be ascertained ‘whether
the parties intended the stipulation
to operate
in terrorem
,
ie as a penalty in the common law sense, (in Afrikaans - “by
wyse van straf”).’
Leon J said at
626A-B that ‘
in terrorem
’
has been judicially interpreted as applying to a stipulation to force
a party to comply with the terms of a contract by
means of ‘onbillike
dwang’. He concluded that the common law read with the Act
showed that in order to constitute a
penalty there must be something
added to a debtor’s obligation to pay his debt. He said a
stipulation which ensures that
a debtor pays no more than he owes
cannot be regarded as being ‘
in
terrorem’
, i.e. forcing the debtor to
comply with the terms of his contract by means of ‘onbillike
dwang’. He held that the acceleration
clause only obliged the
defendants to pay what they admitted they owed, and was not a
penalty.
[19]
In
Massey-Ferguson (South Africa) Ltd v Ermelo Motors (Pty) Ltd
& others
1973 (4) SA 206
(T), which was relied on by
counsel for the defendants, the approach was the same. The plaintiff
had instituted an action in which
it claimed payment of two amounts,
totalling R84 570, with interest and costs. The defendant
delivered a plea and a counterclaim.
The action was later settled.
The defendant acknowledged liability in, and undertook to pay, a sum
of R65 000 by way of a
first payment and the balance in monthly
instalments. The settlement agreement provided that should any one
instalment not be paid
on due date, then the plaintiff would be
entitled to re-instate the action and apply for judgment in the full
amount of its claim
as set out in the combined summons, less any
amounts paid as at the date of the application for judgment. The
defendant fell in
arrears with the instalments, in consequence of
which the plaintiff applied for judgment for payment of the amounts
originally
claimed in the action, less what had been paid. Viljoen J
held that no matter what the plaintiff might have proved in the
trial,
a settlement had been reached whereby the defendant
acknowledged liability in an amount of R65 000 and whereby the
parties
agreed in what manner the amount would be paid. He said a
transactio
was effected and the original debt was wiped out.
He held that the stipulation to pay, on breach, the full amount of
the
claim in the summons constituted, in so far as that amount
exceeded the amount agreed upon in the settlement, a penalty in terms
of the Act. In other words, the defendant would have had to pay an
amount that was higher than what it was liable for.
[20]
De Pinto & another v Rensea Investments
(Pty) Ltd
1977 (2) SA 1000
(A) is an example of a case where a clause in a
lease agreement was held not to be a penalty. De Villiers JA said the
test was
whether the parties intended the clause to operate
in
terrorem
, i.e. as a penalty in the common law sense. He held that
it did not, and provided for a discount on the rentals on the basis
that
the lease would be maintained. If it was not, the defendant
would be liable for the rentals it had agreed to pay in terms of the
original lease.
[21]
I mention in passing that Botha JA said in
Bank of Lisbon
International Ltd v Venter en
'n Ander
1990 (4) SA 463
(A) at 476A that an intention
in terrorem
may
not in all cases be a requirement for a stipulation to qualify as a
penalty. In
Sun Packaging (Pty) Ltd v Vreulink
[1996] ZASCA 73
;
1996 (4) SA 176
(A) Nestadt JA said at 183H that he was not sure that the problem in
identifying a penalty is in truth one of interpretation. He
said,
with reference to
Auby and Pastellides (Pty) Ltd v Glen Anil
Investments (Pty) Ltd
1960 (4) SA 865
(A) that it may be that it
is basically one as to the legal effect of the clause. In that case
Schreiner JA said the following
at 872F-G:
‘
In
the revised edition of Williston on
Contract
the learned
author, in sec. 777, discusses the question how far the question of
penalty or liquidated damages is in truth a question
of
interpretation. It is difficult to disagree with his view that the
question is basically one as to the legal effect of the contract
and
that this does not depend simply on its meaning or on the expressed
intention of the parties.’
[22]
This brings me to the settlement agreement. The word ‘discount’
does not appear in
it. If the difference between the amounts of R25
million and R10 million was a discount, then it was a 60% discount.
There is no
explanation on the papers as to why such a substantial
discount was given, save for the statement that it was part of the
settlement.
The agreement itself says the amount of R25 million was
compromised on the basis that only R10 million would be paid,
provided
that it was paid in accordance with the agreement.
[23]
Counsel for the plaintiff sought to demonstrate with reference to the
pleadings that there was
in fact no penalty, as the plaintiff would
in the trial have been awarded at least that amount. The amount
claimed in the particulars
of claim, dated 8 December 2011, was
R10 048 122, with interest at the rate of 15,5%. This was
increased by way of an
amendment, in January 2016, to a sum of
R14 941 528, with interest at the same rate. The settlement
agreement was concluded
on 17 May 2019. He contended that if the
plaintiff had succeeded in the full amount of its claim, interest and
costs it would have
received more than R25 million.
[24]
The defendants dispute this. They say on their calculations the
plaintiff would have been entitled
to about R4 million plus interest
and costs, which would have amounted to about R10 million, which is
what they settled on.
[25]
Counsel for the plaintiff contended that the defendants had
acknowledged liability in the settlement
agreement for the amount of
R25 million. This is not what the agreement says. It contains no
admission of liability with regard
to the plaintiff’s claim in
the action. It records an undertaking by the defendants to pay the
plaintiff the sum of R25 million,
which ‘shall be compromised
on the terms below’. Those terms provided for payment to the
plaintiff of a sum of R10
million by way of instalments, and a
further provision that in the event of any instalment not being paid
timeously the amount
of R25 million would automatically become due
and payable.
[26]
The provision relating to the payment of R25 million seems to me to
be
in terrorem
. A late payment of one instalment would
increase the defendants’ liability from R10 million to R25
million. I think this
qualifies as ‘onbillike dwang’.
Further, the extra payment is not something that the defendants were
liable for from
the outset. That was not established, and they did
not acknowledge liability for it. The defendants plainly agreed to
the penalty
of R15 million because they were confident the R10
million would be paid when due, and not because they accepted
liability for
it, subject to a discount.
[27]
The provision relating to the payment of R25 million was therefore a
penalty stipulation. Counsel
for the plaintiff accepted that the
plaintiff earned interest on the late payment for the period of 16
days until it was paid.
He did not contend that the plaintiff
suffered any prejudice as a result of the late payment. It will
therefore be equitable to
reduce the penalty to nil.
[28]
It was common cause that the full amount of R10 million has been
paid, together with all interest
thereon. I think in those
circumstances it will suffice to declare clause 4 of the settlement
agreement unenforceable, and to grant
the declaratory order sought by
the defendants.
[29]
I make the following order:
(a)
The judgment granted by the registrar on 6 March 2020 is rescinded
and set aside.
(b)
The penalty provided for in the settlement agreement of 17 May 2019
is reduced to nil and
clause 4 thereof declared unenforceable.
(c)
It is declared that the defendants have complied fully with their
obligations under
the settlement agreement.
(d)
The plaintiff (the respondent in the application) is ordered to pay
the costs of the application.
Ploos
van Amstel J
Appearances:
For
the Plaintiff
: J Marais
SC
Instructed
by
: Norton Rose
Fulbright
:
Durban
For
the Defendants’
: A Stokes SC
Instructed
by
:
Larson Falconer
Hassan
:
Durban
Date
Judgment Reserved
:
24 February
2021
Date
of Judgment
: 11 March 2021