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[2011] ZASCA 5
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Smith v Van den Heever NO and Others (136/2010) [2011] ZASCA 5; 2011 (3) SA 140 (SCA) (4 March 2011)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No 136/2010
In the matter between:
F
J SMITH
..............................................................................................................
Appellant
and
T
W VAN DEN HEEVER NO
....................................................................
First
Respondent
E
M MOTALA NO
...............................................................................
Second
Respondent
J
D PEMA NO
.........................................................................................
Third
Respondent
Neutral
citation:
Smith v Van den Heever
(136/10)
[2011] ZASCA 5
(4 March 2011)
Coram:
Harms DP, Nugent and Bosielo JJA
Heard:
21 February 2011
Delivered:
4 March 2011
Summary:
Contract – exceptio non adimpleti contractus – breach
– calculation of damages
_____________________________________________________________________
ORDER
______________________________________________________________________
On appeal from:
North West High
Court (Mafikeng) (Hendricks J and Kgoele and Moloto AJJ sitting as
Full Court):
The appeal is upheld with costs.
The order of the full court is set
aside and replaced with an order in the following terms:
The appeal of the liquidators is
upheld with costs.
The cross-appeal of the defendant is
upheld with costs.
The order of the trial court is
amended to read: ‘Claim and counterclaim are both dismissed
with costs.’
______________________________________________________________________
JUDGMENT
______________________________________________________________________
HARMS DP (NUGENT AND BOSIELO JJA
concurring)
INTRODUCTION
[1] The plaintiffs (the present
respondents) are the joint liquidators of Agrichicks (Pty) Ltd (in
liquidation). The defendant,
Mr F J Smith, farms in the Zeerust
district. Initially, the plaintiffs sued Mr Smith for goods sold and
delivered but later amended
their summons and filed a declaration
claiming payment of R469 604.96 allegedly due in terms of a written
innominate agreement
between Mr Smith and the company. The
declaration quoted the terms of the agreement extensively and
concluded by alleging that
the company had performed all its
obligations in terms of the agreement and that the said amount was
owing ‘in respect of
day old chickens, poultry feed, medication
and vaccination delivered’ to Mr Smith under the agreement. Mr
Smith admitted
the agreement but denied liability based on breaches
by the company. In essence his plea raised the
exceptio non
adimpleti contractus
. He, in addition, instituted a counterclaim
for damages, alleging that the company had breached the contract in a
number of respects.
[2] The trial court (Landman J) upheld
the claim in part and granted judgment against Mr Smith for R242 628.
The counterclaim was
upheld to the extent of an award of damages in
the sum of R317 366.50. Both parties appealed to the Full Court of
the North West
High Court, Mafikeng, comprising of Hendricks J and
Kgoele and Moloto AJJ. The plaintiffs’ appeal was upheld and Mr
Smith’s
cross-appeal was dismissed. The net effect of that
judgment was that Mr Smith was ordered to pay the plaintiffs’
claim in
full and that his counterclaim was dismissed. Mr Smith
sought and obtained special leave to appeal to this court.
THE CONTRACT
[3] I do not intend to quote the terms
of the contract at any length but will set out its general scheme. As
Hendricks J pointed
out, the contract was not a ‘simple’
contract of purchase and sale but rather regulated the relationship
between the
company as supplier of day-old chickens and feedstuff and
Mr Smith, on the other hand, as contract farmer-grower. The company
had
to supply Mr Smith with day-old chickens, with the required
poultry feed for the different stages of their short lives, and with
medication and vaccination as and when required. Mr Smith had to rear
them until they reached the marketable age at about 37 days.
The
company, within 45 days after supply of the day-old chickens, had to
collect the live broilers, weigh and slaughter them and
market them
as processed broilers (‘slaghoenders’).
[4] Ownership of the chickens, poultry
feed, medication and vaccination did not pass to Mr Smith but
remained the property of the
company. The goods were to be used
exclusively for rearing the company’s chickens and Mr Smith was
not entitled to purchase
feedstuff from other sources or to dispose
of chickens to third parties.
[5] An important aspect of the
agreement is the fact that it operated in cycles. A cycle commenced
with the first day of delivery
of a consignment of day-old chickens
and it ended with the delivery of the next batch – an agreed
average period of 56 days.
However, as mentioned, the company had to
collect the broilers for slaughter within 45 days after the inception
of a cycle. The
final date of collection within a cycle was referred
to as the date of completion of that particular crop. This meant that
the
chicken houses were to be empty for about 11 days, presumably to
prepare them for the next batch.
[6] Each cycle had to be accounted for
individually. The company had to credit Mr Smith’s account with
the agreed ‘price’
per live kilogram of broilers
collected for slaughter and had to debit his account with the agreed
‘price’ of the day-old
chickens, feed, medication and
vaccination. The accounting date was to be 30 days subsequent to the
date of completion of any particular
crop, and any credit balance of
that particular crop had to be paid to Mr Smith on that date.
[7] Any debit balance, however, had to
be carried forward as the opening balance of the next cycle. Should
the debit balance of
any specific cycle be carried forward more than
two times as the opening balance of the following cycle, the amount
of the debit
balance had to be paid by Mr Smith to the company.
[8] The agreement also made provision
for the issue of certificates of indebtedness by the company’s
auditor who could certify
the balance of payments between the parties
‘for any specific cycle’ – it did not permit the
issue of a certificate
on any day within a cycle or in respect of any
other indebtedness.
THE CLAIM AND THE EXCEPTIO NON
ADIMPLETI CONTRACTUS
[9] The commencement date of the
contract, which was signed during February 1999, was 15 June 1999 and
it was to continue for five
years from this date. Mr Smith required a
signed contract to obtain financing from the Land Bank to build the
necessary infrastructure
for rearing chickens. However, a few days
after the commencement date, on 2 July, the company was placed under
judicial management
and it remained under such management until its
liquidation on 14 August 2002.
[10] In view of the fact that the
claim and counterclaim both relate to the last two cycles it is
necessary to consider them closer.
The first of these was the May
2002 cycle. It commenced on 15 May and the broilers were slaughtered
on 26 June. On the accounting
date a month later it transpired that
Mr Smith had suffered a loss and his account was debited with R87
154.49. This amount, in
terms of the agreement, had to be carried
over to the next cycle as its opening balance.
[11] The second cycle (referred to as
the August cycle) began on 12 July which implied that the anticipated
slaughter date was to
be 22 August, a week after liquidation. The
company supplied chickens, feed and medication for this cycle for a
total of either
R322 088.95 (or R321 576.95 on Mr Smith’s
version). However, on about 9 August the company became unable to
deliver the required
feed and medicines in terms of the agreement. Mr
Smith was informed accordingly. He was also told that the company was
abandoning
the chickens and that he was free to destroy or dispose of
them.
[12] To limit his losses he purchased
broken maize – which does not qualify as a balanced diet –
and other feed when
that became available. No one on behalf of the
company in liquidation took any steps to collect the broilers for
slaughter on the
anticipated date, and between 25 and 30 August he
disposed of the chickens to third parties. Only on 18 September the
provisional
liquidators, cynically, sought to reclaim possession of
the chickens. The application was not successful.
[13] Mr Smith was
taken to task during cross-examination at both the liquidation
inquiry and the trial in lawyerly language for
having sold the
chickens in spite of the reservation of ownership. I fail to
understand the problem. In the light of his uncontested
evidence the
company abandoned its ownership and the chickens became
res
derelictae
.
Mr Smith appropriated them and became owner by means of
occupatio
.
See
Reck
v Mills
1990
(1) SA 751
(A). In any event, it is not permissible to question
witnesses on legal issues – the more so if the cross-examiner’s
knowledge of the law is not up to scratch – and courts and
chairpersons conducting inquiries should not permit this type
of
debate.
[14] As mentioned,
Mr Smith’s main defence is the
exceptio
non adimpleti contractus
.
The principles of this defence are well established and a detailed
restatement is not required. As stated in the title
‘
Contract’
in 5(1)
Lawsa
2 ed para 210,
1
in the case of
reciprocal contracts, one party undertakes to perform specifically in
exchange for a particular counter performance
by the other. In such
cases, the principle of reciprocity applies: the first party is not
entitled to demand counter performance
from the other party unless
the first party has him or herself performed or is prepared to
perform, as the case may be.
[15] In
Motor
Racing Enterprises
,
2
the court laid
stress on the following relevant principles: First, the
exceptio
presupposes the
existence of mutual obligations which are intended to be performed
reciprocally, and that the parties’ intention
is to be sought
primarily in the terms of their agreement. Second, interdependent
promises are prima facie reciprocal. Third, the
exceptio
is often a
temporary defence raised in order to compel the other contracting
party to perform unfulfilled obligation(s) but only
if defective
performance of an
obligatio
faciendi
can
still be remedied. It is otherwise a complete defence. Fourth, the
applicability of the
exceptio
is (subject to the
de
minimis
principle)
not dependent on the degree of non-performance.
[16] The
plaintiffs’ declaration stated, as it had to, that the company
had performed all its obligations in terms of the
contract and that
the claimed amount represented the debit balance on Mr Smith’s
account with the company, which had been
carried forward for more
than two cycles, as contemplated in the agreement. But it is here
where the plaintiffs’ case broke
down. The amount of R87
154.49, which represented the loss incurred in respect of the May
cycle, was not carried forward for more
than two cycles due the
company’s breach of contract and, accordingly, did not become
payable. And although it is fair to
accept that the company supplied
chickens, feed and medication for the August cycle for some R322
088.95, the company failed to
comply with its obligation to supply
the necessary feed etc for the full cycle and, instead, abandoned the
chickens and Mr Smith.
As the plaintiffs themselves realized when
they amended their summons, the company did not ‘sell’
chickens and feed
and the like in batches or at all. In spite of this
the plaintiffs sought to rely on an auditor’s certificate which
certified
the alleged balance on a date during the August cycle
while, as mentioned, it could only certify the balance of payments
between
the parties ‘for any specific cycle’.
3
[17] Landman J, in the first instance,
and the full court in the second instance, although conscious of the
nature of the contract
and Mr Smith’s defence, did not deal
squarely with the issue. It would appear that sight was lost of the
impact of their
own findings that that the agreement operated in
cycles and was, within a cycle, not divisible, and that the company
had failed
to comply with its obligations during the August cycle and
that the May debit had not become payable.
[18] Landman J
referred to the fact that Mr Smith used the feed and this, too,
appears to have influenced the full court. Obviously,
as was said in
Motor
Racing Enterprises
in
connection with the fourth point mentioned above, a plaintiff who
fails to prove full and proper performance is not necessarily
remediless. If a proper case is made out for such relief, he may be
entitled to claim a lesser amount than that provided for in
the
agreement. However, unless the lesser amount is claimed, it is not
for the court to speculate what the amount should be. In
claiming a
lesser amount, it is necessary for the plaintiff to allege and
prove:
4
(a) that the employer has utilised his
or her work to the employer’s own advantage even though it fell
short of the required
contractual standards;
(b) the cost of remedying defects and
supplementing shortfalls;
(c) that it would be equitable to
award the contractor some remuneration even though he or she breached
the agreement;
(d) that the circumstances as a whole
are such that the court ought to exercise its discretion in awarding
the contractor a reduced
contract price.
The liquidators did not seek to avail
themselves of this alternative and it need not be considered. In any
event, it is questionable
that they would have succeeded in the light
of the facts of the case.
[19] It follows that the plaintiffs’
submission that it is immaterial that the company did not comply with
its contract after
9 August because Mr Smith’s indebtedness was
for payment in respect of chickens and goods actually supplied before
that date
is fatally flawed. This means that the plaintiffs’
claim in convention should have been dismissed at the outset and that
both courts below have erred in granting judgment against Mr Smith.
THE COUNTERCLAIM
[20] As mentioned, Mr Smith’s
counterclaim, which was based on particular breaches of contract, was
upheld by Landman J but
dismissed by the full court. The two
breaches, which were also used to ground the exceptio, will be dealt
with briefly for reasons
that follow.
[21] The plaintiffs submitted that
they suffered under a disability in conducting their case because
they could not reasonably be
expected to have had direct knowledge of
events prior to the winding-up of the company and that, consequently,
the dearth of evidence
on their side should not be held against them.
The submission is without merit. The company was at all relevant
times under judicial
management and there is no indication that the
judicial manager or the employees could not supply the necessary
evidence.
[22] Mr Smith relied on a tacit term
of the contract which obliged the company to deliver F1 day-old
chickens. F1 crosses or hybrids
are high quality because, in terms of
Mendel’s law, they tend to be uniform. Instead, he alleged, the
company breached this
term by having provided poor quality day-old
chickens instead of F1 chickens. In this regard he was able to show
that F1 chickens
were used industry-wide for producing broilers, that
the company initially provided F1s, that as the company’s
financial
difficulties increased it began supplying cheaper F2s, and
that it instructed its employees to hide the change from the
farmer-growers.
All this, as found by Landman J, sufficed to
establish the tacit term and it is not an answer to a reliance on a
tacit term to
hold, as the full court did, that the written contract
did not mention F1s but ‘chicken’ only. If the word in
context
cannot include bantam or ostrich chickens there is little
reason to hold that it cannot in context be limited to F1 chickens.
[23] The other ground on which Mr
Smith relied was that that the company delivered sub-standard chicken
feed in contravention of
the Fertilizers, Farm Feeds, Agricultural
Remedies and Stock Remedies Act 36 of 1947. There were two aspects to
this part of his
case: it meant that having acted illegally the
company was not entitled to recover the contract price and also that
the company
had breached a tacit term that only standard feedstuffs
would be supplied. Landman J found in favour of Mr Smith but the full
court,
relying on an interpretation of the Act, held otherwise.
Although I prefer the approach of Landman J, it is not necessary to
decide
the point for reasons that follow.
[24] I am prepared to assume for
purposes of the judgment that the terms of the contract and the
breaches have been established
and that Mr Smith is in principle
entitled to recover any losses suffered in consequence of the
breaches. However, I am not satisfied
that Mr Smith has suffered any
recoverable loss and will consequently limit the judgment to that
aspect.
[25] A certain Dr Viljoen was called
by Mr Smith to quantify his loss. Landman J accepted Dr Viljoen’s
assumptions and calculations
and held that the loss amounted to R317
366.50 This was only R9.00 less than Dr Viljoen’s calculation.
Because the full court
had found that the breaches were established
its findings about quantum were obiter and can be discounted.
[26] The counterclaim was limited to
losses suffered during the May and August cycles. During the May
cycle Mr Smith received 85
889 day-old chickens and produced and
delivered 65 784 broilers to the company but, as mentioned, he
suffered a loss of R87 154,49
after deducting the cost of the
chickens, feed etc. During the August cycle he received 63 927
day-old chickens. We do not know
the mortality rate or how many were
sold as broilers but one can fairly assume that not more than 60 000
would so have been sold.
One could also assume in Mr Smith’s
favour that if the company had complied with the relevant contractual
obligations the
mortality rate would have been lower and that he
would have been able to deliver some 80 000 chickens during the May
cycle. This
means that one has to determine what Mr Smith’s
reasonable margin of profit on 140 000 broilers should have been.
[27] The evidence of Dr Viljoen was
that a reasonable return per broiler would have been between 70c and
R1.00 each. He later sought
to up the figure to R1.77 with reference
to the profit made during the relevant period by another farmer, Mr
Harman, who also produced
broilers under contract with the company
and, presumably, received more or less the same type of day-old
chickens and feedstuff.
Although Mr Harman’s results are prima
facie destructive of Mr Smith’s case that the losses suffered
were as a result
of the company’s breaches, I am prepared to
assume in his favour that his return would have been R1.00 per
broiler, giving
a total of R140 000.
[28] In assessing Mr Smith’s
loss, if any, it is necessary to take into account any benefits
received from the company and
his income from the sale of the
abandoned broilers to third parties. It will be recalled that Mr
Smith did not pay the company
anything for the goods received during
the August cycle. The only expenses which can be taken into account
for present purposes
were the costs relating to the purchase of feed
after the company had reneged on its contract. These amounted to R58
595.00. But
with sales of R249 743.48 it means that Mr Smith made a
profit of some R191 148.48, which is substantially more that the
projected
loss of R140 000.00. It would have been different if he had
paid or had to pay the company or the plaintiffs, in which event his
loss in respect of the August cycle would have been R130 428.47 plus
the assumed R80 000.00 loss in relation to the May cycle.
CONCLUSION
[29] This means that the correct order
in the high court should have been a dismissal of both the claim and
the counterclaim. Since
both were upheld the parties were justified
in appealing and the full court should have upheld both appeal and
cross-appeal. The
appeal in this court has to succeed. Costs are to
follow the different results.
[30] The following order issues:
The appeal is upheld with costs.
The order of the full court is set
aside and replaced with an order in the following terms:
The appeal of the liquidators is
upheld with costs.
The cross-appeal of the defendant is
upheld with costs.
The order of the trial court is
amended to read: ‘Claim and counterclaim are both dismissed
with costs.’
______________________
L T C Harms
Deputy President
APPEARANCES:
APPELLANTS:
A G Schoombie (Attorney)
Schoombee
Attorneys, c/o Smith Stanton Inc, Mafikeng
Vermaak
& Dennis Inc, Bloemfontein
FIRST
RESPONDENT: J W Steyn
De
Vries Inc, c/o M P Panchia Attorneys, Mafikeng Matsepes Inc,
Bloemfontein
1
By
A D J van Rensburg, J G Lotz and T A R van Rijn (update by R D
Sharrock).
2
Motor
Racing Enterprises (Pty) Ltd (In Liquidation) v NPC (Electronics)
Ltd
[1996] 4 All SA 601
(A) also reported as
Motor
Racing Enterprises (Pty) Ltd (In Liquidation) v NPS (Electronics)
Ltd
1996 (4) SA 950
(A)
per H J O van Heerden JA.
3
It
is not necessary to deal with the other palpable defects in the
certificate such at that it does not purport to have been issued
by
the company’s auditor or that it merely stated what the
company books reflected and the effect of an alleged admission
at
the pre-trial conference. Furthermore, as Landman J correctly found,
the amount certified was even on the plaintiffs’
case patently
incorrect.
4
P
M Nienaber in ‘Building and Engineering Contract’ in
2(1)
Lawsa
2 ed para 503.