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[2019] ZAGPPHC 53
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Billion Property Developments (Pty) Ltd v Rhino Log Furniture and Lapas CC and Another (51992/2016) [2019] ZAGPPHC 53 (4 March 2019)
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REPUBLIC OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA
GAUTENG DIVISION, PRETORIA
COURT
CASE NO: 51992/2016
4/3/2019
In the matter between:
BILLION PROPERTY
DEVELOPMENTS (PTY) LTD Plaintiff
(REG NO
2007/004487/07)
and
RHINO LOG FURNITURE
AND LAPAS CC
First
Defendant
(REG NO
2004/035020/23)
T/A LOG FURNITURE
MATTHEWS, PIETER
JOHN
Second
Defendant
(ID NO [….])
J U D G M E N T
UNTERHALTER
J
INTRODUCTION
1.
The
Plaintiff, Billion Property Developments (Pty) Ltd (“Billion “)
instituted an action against Rhino Log Furniture
and La Pas CC
(“Rhino”) and Pieter John Matthews (“the Defendants
“). Billion claims that Rhino breached
its lease with Billion
and claims the arrears. Billions also claims the arrears from Mr.
Matthews who, it is alleged, bound himself
as surety and co-principal
debtor with Rhino for the payment of the arrears.
2.
The
Defendants have pleaded to the claim. They contest their liability to
Billion and bring a counterclaim alleging that Billion’s
agent,
duly authorized, made various misrepresentations to Rhino that
induced Rhino to conclude the lease with Billion, as a result
of
which Rhino suffered damages.
3.
Billion
excepts to the plea and counterclaim on various grounds. I proceed to
consider these exceptions in turn.
THE FIRST EXCEPTION
4.
By
its first exception, Billion contends that the tacit term pleaded in
paragraph 3.2 of the plea is repugnant to the express provisions
of
clause 14 and clause 17 of the lease, and consequently, the tacit
term relied upon does not disclose a defence or is vague and
embarrassing.
5.
Paragraph
3.2 of the plea states that it was a tacit condition (by which from
the context is meant a tacit term) that: “
the
premises would be suitably fit for its intended purpose and that the
First Defendant would have free and undisturbed beneficial
use and
occupation of the leased premises
.”
6.
Clause
14 of the written lease, which the Defendants admit was concluded,
contains two relevant commitments. First, it reads in
relevant part:
“
The
leased premises shall be used for the sole purpose of a log furniture
(sic). The lessor shall trade under the name Log Furniture”.
Second, “The lessor does not warrant that the property or the
leased property or the leased premises are suitable for the
purpose
of the lessee’s business…
“.
7.
Clause
17 provides that the Lessor does not warrant that that the leased
premises are fit for the purpose intended by the Lessee.
8.
Billion
contends that the cumulative force of these provisions precludes
reliance by the Defendants on the tacit term in paragraph
3.2 of
their plea.
9.
In
my view, this exception cannot be upheld. The tacit term refers to
the premises being suitably fit for
its
intended
purpose. On a generous reading, this means that the premises must be
suitably fit for the intended purpose to which such
premises can be
put. That may be something different to the purposes of the lessee’s
business. In other words, the tacit
term postulates that the premises
must be fit for some purpose which is not repugnant to the warranty
that excludes liability if
the premises are not fit for the purposes
of Rhino’s business or for Rhino itself. The ambit of the
tacit term and
whether it assists the Defendant, on the facts, is an
issue to be explored at trial. The tacit term, so interpreted, is not
repugnant
to the express provisions of the lease. And in consequence
this exception must fail.
THE SECOND EXCEPTION
10.
In
paragraph 3.3 of the plea, the Defendants plead that it was an
implied term ( more accurately a tacit term ) of the lease agreement
that Billion or its duly appointed agent would properly market the
building so as attract custom for the tenants. This term is
said to
derive from clause 9 of the lease that requires the lessee to
contribute to a marketing fund to be utilized by the lessor
for the
promotion of trading in the building.
11.
Billion
complains that the Defendants cannot rely upon this tacit term
because it contradicts the actual terms of the lease. And
in any
event, the pleading is vague and embarrassing.
12.
Clause
9, in my view, does not only impose a duty on the tenant to
contribute to the fund. The obligation to contribute is for a
specific purpose. If the lessor declined to utilize the fund at all
or for a purpose other than one for which the funds were required,
I
do not consider that the lessor would be acting in accordance with
the agreement. The stipulation of purpose carries with it
an
obligation on the part of the lessor to utilize the fund for its
given purpose. It would strain good faith, which underpins
all
contracts, if the lessor could require the contributions, but elect
whether to utilize the funds for the stated purpose.
13.
Once
the lessor is required to use the funds for the purpose for which
they are contributed, the question is whether the tacit term
is
repugnant to clause 9, properly interpreted? The tacit term is one
way in which the duty resting upon Billion could be discharged.
Whether it is the only way to do so and, if it is not, whether the
agreement nevertheless required such utilization appear to me
to be
matters better explored at trail. The tacit term pleaded cannot be
impugned for repugnancy because there may be factual circumstances
in
which the term may be an application of the lessor’s duty in
terms of Clause 9.
14.
Nor
do I consider that the tacit term is vague and embarrassing. It is no
less specific than the express language used in clause
9 as to the
purpose for which the fund must be used. Further particularity may be
secured for trial. But the formulation of the
tacit term is neither
unintelligible, nor incapable of response.
15.
The
second exception is also dismissed.
THE THIRD EXCEPTION
16.
By
its third exception Billion complains that paragraph 4 of the
Defendant’s plea is vague and embarrassing for its want of
particularity as to how Billion failed , “
to
provide the shopping centre, access to the shopping centre, access to
the leased premises in a manner fit for its intended purpose
“
17.
There
is some merit to this complaint. It is not at all clear what is meant
by Billion’s failure “ to provide the shopping
centre”
, how such failure breaches an obligation resting upon Billion, nor
how this failure is distinct from the failure
to give access to the
shopping centre ? This gives rise to ambiguity and may be prejudicial
in that, if it is unclear what obligation
required Billion to provide
the shopping centre, and how such obligation was breached, it will be
difficult for Billion to plead.
18.
In
addition, since the plea, as I have observed, is predicated on the
leased premises being fit for its purpose, rather than the
purpose of
Rhino’s business, there is a need, given this demarcation, to
aver what Billion has failed to do.
19.
It
is certainly so, as the Defendants’ counsel submitted, that
some particularity is given in paragraph 5 of the counterclaim
as to
the falsity of representations made by Billion. But these averments
are made in respect of the Defendants’ counterclaim
for
actionable misrepresentation. There is ambiguity as to whether the
averments in paragraph 5 of the counterclaim also identify
the
breaches of contract pleaded in paragraph 4 of the plea. This
ambiguity also renders the pleading prejudicial to Billion in
determining the case it must meet.
20.
Furthermore,
where the Defendants wish to rely on the failure of the lessor to
provide beneficial occupation and use, the pleading
cannot simply
reference the obligation, but must say something as to how the
obligation was breached. This is all the more
so when the
agreement of lease includes quite specific exclusions of liability
that favour the landlord.
21.
This
exception is accordingly upheld.
THE FOURTH EXCEPTION
22.
By
its fourth exception, Billion objects to the first portion of
paragraph 5 of the plea. There the Defendants allege an agreement
between Billion and Rhino that Rhino would attempt to pay a stated
amount of rental whenever possible and that Rhino was otherwise
excused its obligations to pay rent. Billion submits that absent
averments as to whether the agreement was oral or in writing,
whether
Billion’s representative was authorized and to what extent, if
any, the Defendants complied with the agreement, the
pleading sets
out no defence, alternatively it is vague and embarrassing.
23.
It
is not correct that the pleading fails to set out a defence. The
agreement alleged may appear commercially improbable, but that
is
irrelevant to the question as to whether the pleading founds a true
exception. If the obligation to pay rent was varied so as
to require
Rhino to pay R10 000 – R12000 “whenever possible”,
then such variation would not permit Billion to
claim arrears under
the terms of the written agreement. The pleading does disclose a
defence.
24.
As
to whether the pleading is nevertheless vague and embarrassing, I am
inclined to think not. The want of compliance with Rule
18 does not
strike at the whole of the cause of action.
[1]
As to failure to plead that the representative of Billion was duly
authorized, that is a matter that Billion may plead, if its
representative was not so authorized. The pleading is not ambiguous
or unclear. And lastly, the failure to plead compliance does
not
render the defence lacking. The variation of the written
agreement that is pleaded suffices at this stage to disclose
a
defence - whether or not Rhino complied with the varied
agreement. This and other complaints of particularity may be dealt
with by way of seeking further particulars.
25.
Accordingly,
the fourth exception is dismissed.
THE FIFTH EXCEPTION
26.
The
Defendants plead that the suretyship does not comply with certain of
the requirements of the General Law Amendment Act 50 of
1956 (“the
Act”).
27.
Billion
excepts on the basis that the defects complained of do not give rise
to invalidity under the Act. Counsel for the Defendants
concedes that
that is so and that the defence relied upon by the Second Defendant
is ill-founded. This concession was properly
made.
28.
Accordingly,
this exception is upheld.
THE SIXTH EXCEPTION
29.
By
its sixth exception, Billion points to the averment in paragraph 2 of
the Defendants’ counterclaim that Billion in the
period January
2014 to July 2014 made a number of material and false representation
that induced Rhino to enter into the lease.
Billion’s complaint
is that the pleaded representations could not have induced the
agreement because the lease itself (see
clause 22) makes it plain
that Rhino made an irrevocable offer when it signed the document on 7
December 2013. The agreement was
only concluded when the offer was
accepted by Billion on 23 May 2014. However, since the
actionable representations occurred
after Rhino made the irrevocable
offer, the representations did not induce the contract. And absent a
pleaded case that, if proven,
can make out the requirement of
causation, the counterclaim fails to make out a cause of
action.
30.
The
Defendants’ response to this complaint is that the pleading can
survive the challenge because the offer was not irrevocable,
and
hence the offer could have been withdrawn prior to acceptance. For
this reason the representations remained causally relevant
because
absent the representations the offer might have been withdrawn.
31.
The
difficulty with this response is that clause 22 plainly states
that Rhino’s offer is irrevocable. And hence the
causation
problem raised by Billion is not cured by the possibility that Rhino
may have withdrawn the offer. To this, counsel for
the Defendants
points out that the agreement reflects in two places that there was
an amendment to the agreement dated 24 June
2014, that is after
acceptance of the irrevocable offer on 24 May 2014.
32.
It
is not clear to me how this cures the problem raised by Billion. In
paragraphs 2, 3 and 4 of the counterclaim, the Defendants
allege that
the representations induced Rhino to enter into the lease agreement.
But that cannot be so because Rhino had made an
irrevocable offer to
lease the premises on the terms reflected in the written lease,
attached to the particulars of claim, on 7
December 2013. It is that
offer that was accepted on 23 May 2014 by Billion. No representations
are alleged that induced the irrevocable
offer and hence the contract
came into being not as a result of the alleged misrepresentations,
but simply because Billion accepted
the irrevocable offer.
33.
The
fact that the agreement that was concluded on 23 May 2014 was amended
in June 2014 does not avoid the problem. The Defendants’
case
is not that the misrepresentations induced the amendments, but rather
that the misrepresentations induced the lease which,
ex
facie
the
pleadings, was concluded on 23 May 2014. And so the problem of
causation remains in that the contents of the written lease,
relied
upon by the Defendants, are at odds with the averment in the
counterclaim that misrepresentations in 2014 induced an agreement
to
which Rhino was irrevocably committed in December 2013.
34.
The
exception is accordingly upheld.
THE SEVENTH EXCEPTION
35.
By
its seventh exception, Billion complains that the misrepresentations
relied upon by the Defendants concern opinions not facts
and are thus
not actionable. In the alternative it is said that the pleading is
vague and embarrassing because Billion cannot ascertain
whether the
representations were relied upon, how the opinion could have been
relied upon as a representation of fact, and how
Rhino can claim
reliance on the representations given the exclusionary force of
clause 21 of the lease.
36.
In
my view, the representations pleaded are indeed actionable. The
representations as pleaded are certainly capable of being understood
as stating Billion’s existing expectations. Such expectations
may constitute actionable representations
[2]
and should be tested at trial.
37.
As
to the complaint that the pleading is vague and embarrassing, the
Defendants say it induced the agreement and, subject to the
causation
issue canvassed above, Billion is not left in any doubt as to whether
it is the Defendants’ case that the misrepresentations
were
relied upon and induced the lease agreement. Whether the
misrepresentations are actionable rather than mere opinion is a
matter that must, for the reasons given, go to trial. Lastly, the
Defendants appear to allege that the misrepresentations are
fraudulent
(see paragraph 6). If that be so, then clause 21
would not be availing to exclude liability.
38.
This
exception cannot be upheld.
THE EIGHTH EXCEPTION
39.
By
its eighth exception Billion contends that the Defendants in
paragraph 2.6 of the counterclaim allege that Billion’s chief
executive officer made a fraudulent misrepresentation, but that the
pleading is a conclusion of law without supporting facts.
40.
The
pleading should have stated that the chief executive officer made the
misrepresentation knowing it to be false. However,
that is what
a fraudulent misrepresentation amounts to. And I do not
consider that the omission of these words means that
the Defendants
have failed to make out a cause of action, nor that there is any
prejudice to Billion, since the allegation of a
fraudulent
misrepresentation entails that the chief executive officer knew the
representation to be false. It is not necessary
to plead the evidence
as to how the Defendants intend to establish the chief executive
officer’s knowledge.
41.
This
exception also fails.
THE NINTH EXCEPTION
42.
By
its ninth exception, Billion references paragraph 6 of the
Defendants’ counterclaim, where the Defendants plead the
damages
they allege that Rhino suffered as a result of the fraudulent
misrepresentations of Billion. Billion complains that the damages
claimed are based upon the cost of setting up Rhino’s business
and
its
loss of nett profits for the 3 year period of the lease. This Billion
says, constitutes an impermissible duplication of damages
because an
injured party cannot claim both its cost of setting up the business
and the lost profits attributable to the business.
43.
The
Defendants contend that there is no impediment of legal principle to
the claim by Rhino of both reliance and expectation losses
caused by
a fraudulent misrepresentation. It is a question of evidence, and
that is a matter for trial.
44.
The
classic statement in our law as to the difference in principle
between damages that may be claimed for breach of contract
and
damages claimed in delict is to be found in
Trotman
v Edwick
[3]
.
There the following was said :
“
A
litigant who
sues on contract sues to have his bargain or its equivalent in money
or in money and kind. The litigant who sues on
(sic) delict sues to
recover the loss which he has sustained because of the wrongful
conduct of another, in other words that the
amount by which his
patrimony has been diminished by such conduct should be restored to
him …”
45.
This
formulation states a well-known distinction between damages that
serve an expectation interest and damages that serve a reliance
interest. An expectation interest gives the person wronged the
benefit of their bargain. In cases of breach of contract, damages
seek to place the plaintiff in the position she would have enjoyed
had the contract been fully performed. A reliance interest seeks
to
place the plaintiff in the position she would have occupied absent
the wrongdoing, by compensating her for any losses she may
have
suffered. In the case of a delict suffered by a plaintiff, damages
seek to restore the plaintiff to the position she would
have been in
had the wrong not been done to her. This distinction is sometimes
described as the difference between a forward looking
(and positive)
and a backward looking (or negative) conception of damages.
46.
Each
of these ways of thinking about damages uses a base-line for making
the determination. The base-line used however is different.
The
reliance interest seeks to restore the plaintiff to the position she
occupied before the wrong. The expectation interest seeks
to make
good the position the plaintiff expected to be in had the contract
been fully performed or had the representations been
true.
47.
The
apparent clarity of this distinction has not always permitted of easy
application. In the law of contract, the award of damages
for breach
of contract based on expectation interest, affirmed in
Holmdene
[4]
,
was
found in
Probert
[5]
not
to preclude an award of damages so as to place the plaintiff in the
position she would have been in had the contract not been
concluded.
A position rejected by the majority in
Hamer
[6]
.
48.
In
determining the measure of damages in the case of a fraudulent
misrepresentation, relied upon by a party that induces a contract,
our courts have long sought to adhere to the distinction originally
made in
Trotman
v Edwick,
but with no small measure of controversy as to whether our courts
have in fact applied a reliance standard to the quantification
of
damages.
49.
A
fraudulent misrepresentation is a delict. The losses caused by the
fraudulent misrepresentation, as a matter of principle, should
seek
to place the plaintiff in the position she would have occupied had
the fraudulent misrepresentation not been made. In that
position, the
plaintiff would not have entered into the contract because it was the
fraudulent misrepresentation that induced the
contract. It follows,
therefore, that to restore the plaintiff to the position she would
have enjoyed had the fraudulent misrepresentation
not been made, she
is entitled to the expenditure needlessly incurred in undertaking the
transaction. That is sometimes referred
to as the out of pocket rule
and restricts the plaintiff to her reliance interest. What this
measure does not permit is to
put the plaintiff in the position she
would have occupied if the representations made had been true. If
that would have placed
the plaintiff in a position to make a profit,
that loss of profits is not compensable – it is an expectation
loss that finds
application in a damages action for breach of
contract.
50.
The
principle that losses caused by a fraudulent misrepresentation are
not compensated by allowing for recovery as if the representation
was
true ( the so called benefit of the bargain ) was
confirmed by the majority in
Ranger
v Wykerd
[7]
.
Trolllip
JA declined to follow the minority judgment of Jansen JA. Jansen
JA held that: “
It
would lead to less misunderstanding
if
it is frankly recognized that in our law, for reasons of policy , in
actions based on fraudulent misrepresentation bearing upon
the
conclusion of a contract, a contractual measure of damages ( viz.
making good the representation ) may be applied in appropriate
circumstances, despite the fact that the representee’s action
is not based upon the contract, but founded in delict”
(at
989)
51.
Trollip
JA reasoned that the claims of the appellant were founded in delict
and the appellant could only recover the appropriate
delictual
measure of damages which, following
Trotman
v Edwick,
is
not the benefit of the bargain, but the amount by which his patrimony
is diminished. (At 991). As to the actual computation,
Trollip JA
held that while the cost of repairing the swimming pool may appear to
be a contractual measure of damages because it
makes good the
representation that the swimming pool was sound, the computation was
also consistent with the delictual measure
of damages because it
measured the appellant’s patrimonial loss. If, as the Court
found, the actual value of the property
in the condition represented
( i.e. with a sound swimming pool ) was the price paid for the
property, the cost of repairs represents
the patrimonial loss
sustained by the appellant, as a result of the representation, in
having bought the property with a defective
swimming pool (at 993)
52.
Put
differently, the majority in
Ranger
v Wykerd
may be understood to have determined that the cost of repairing the
swimming pool was an out of pocket expense that accounts for
the
difference between what the appellant gave up as a result of the
fraud, that is the price of the property, and what was received
by
the appellant – the value of the property with an unsound
swimming pool. That difference is the cost of repairs.
On this
view of the case, the majority affirmed that damages for a fraudulent
misrepresentation look backwards to restore the appellant
to the
patrimonial position he enjoyed before the sale. In that position,
the appellant had the money that he paid over as the
purchase price.
The appellant received a property with an unsound swimming pool. The
difference between these two values restores
the appellant to the
position he enjoyed before the wrong was committed.
53.
The
supremacy of the reliance interest as the touchstone in our law for
determining delictual damages has long endured. Counsel
for the
Defendants relied upon the decision of the Appeal Court in
Transnet
Ltd v Sechaba Photoscan (Pty) Ltd
[8]
and
submitted that this case recognized expectation interests in the law
of delict.
54.
In
Sechaba,
the
respondent had lost a tender as a result of a fraudulent tender
process. The respondent sued for its damages. The appellant
admitted
that the respondent had suffered damages and the issue that went to
trial was to determine the quantum of the damages.
The damages
awarded were based on the nett profits, over three years, that the
respondent would have earned had it been awarded
the contract. On
appeal, the appellant contended that the respondent was not entitled
to have its bargain made good, but being
a claim in delict, the
respondent was confined to its out of pocket expenses.
55.
Howie
P cited the
dictum
in
Trotman
v Edwick
referenced
above and then wrote the following:
“
[10]
The dictum in Trotman v Edwick reads as follows:
‘
A
litigant who sues on contact sues to have his bargain or its
equivalent in money or in money and kind. The litigant who sues on
delict sues to recover the loss which he has sustained because of the
wrongful conduct of another, in other words that the amount
by which
his patrimony has been diminished by such conduct should be restored
to him.’
It does not seem to me that
that statement assists the appellant. First, Trotman’s case was
one of fraud inducing a purchase
where the land bought was, because
of the fraud, not worth the price paid. In our case the fraud
prevented the purchase of a business
that had, on the evidence, a
highly desirable profit-earning potential. Accordingly, there, it was
a case of diminution of the
value of the plaintiff’s assets;
trading profits did not come into it. Here, by contrast, it is all
about the trading profits
that the respondent was due to be able to
make but where the opportunity to earn them was deviously denied.
[11]
Second, the court approved the perennially true statement
that the
aim in awarding delictual damages is to put the injured party in the
same position as he would have been in but for the
delict.
[12]
Third, the court in Trotman was careful to guard against laying
down
a formula applicable to all cases of fraud of the nature involved
there, that is, fraud inducing a contract. It did not seek
to comment
at all on fraud having the results involved here. Finally, even in
the quoted passage the formulation of the delictual
measure of
damages is wide enough to include, in a suitable case, loss of
profits.
…
[14]
Turning to the third base of the appellant’s argument, the
legal
position is briefly this. The Roman id quod interest
(literally, that which is between; broadly, that which makes up the
difference)
could afford a damages claimant not only out-of-pocket
losses but loss of profits as well. In medieval times the word
interesse
came into use but it simply denoted all the damages that
had to be paid. Voet defined interesse as ‘the deprivation of a
benefit and the suffering of a loss through such fraud or negligence
on the part of an opponent as he is liable to make good and
as is
assessed in fairness by the duty of the judge’ (Gane’s
translation). It was nineteenth century German scholarship
that drew
the distinction between positive and negative interesse. Specifically
with regard to delict, this court has referred
to the difference
between the patrimonial position of the plaintiff before and after
the delict, being the unfavourable difference
caused by the delict.
[15]
It is now beyond question that damages in delict (and contract)
are
assessed according to the comparative method. Essentially, that
method, in my view, determines the difference, or, literally,
the
interesse. The award of delictual damages seeks to compensate for the
difference between the actual position that obtains as
a result of
the delict and the hypothetical position that would have obtained had
there been no delict. That surely says enough
to define the measure.
There appears to be no practical value in observing the distinction
between positive and negative interesse
in determining delictual
damages It is a distinction that tends to obscure rather than
clarify. If to award the difference means
necessarily awarding loss
of profits then it does not assist first to ask what positive
interesse and negative interesse comprise.
[16]
The idea that loss of profit is not recoverable in delict
is not
historically founded. Indeed, the converse is the case. Moreover, it
is commonly the subject of an award of damages for
loss of earning
capacity in personal injury cases. Why should it matter that the
injury is not physical but economic, as long as
the loss is one of
earning capacity? Take the example of the owner of a taxi that is
negligently damaged. He has a claim for the
profit lost while the
vehicle is out of action. Can it make any difference if, subject to
quantification, the delict is committed
when he has just bought the
vehicle, before commencing business? I think not. Nor can it matter
if the loss were caused by fraudulent
conduct, not negligence.
Clearly, the loss would impair his earning capacity and that is part
of his patrimony. The claimant in
the present case is a company. Once
again, that can make no difference. Its patrimony has been impaired
by having the bargain that
it was on the point of acquiring
dishonestly snatched away.”
56.
I
have set out these passages as some length because it might be
thought that
Sechaba,
whilst
seemingly recognizing the distinction between contractual and
delictual damages, in fact overthrows this long-held distinction,
holding that the respondent was entitled to the loss of profits it
would have enjoyed had it been awarded the contract, that is
to say,
the benefit of the bargain. Such an interpretation of the case would
suggest that the Appeal Court recognized the respondent’s
expectation interest as a proper basis to award damages for the
commission of a delict. That would indeed be a striking doctrinal
departure.
57.
In
my view, this is not the correct interpretation of
Sechaba.
Rather,
the case recognizes that in order to place the respondent in the
position it would have occupied had the fraudulent
tender process not
taken place, there are circumstances in which it is necessary to
recognize that the injured party has given
up opportunities that it
would have enjoyed, but for the delict. These opportunities,
sometimes referred to as opportunity costs,
have a value and that
value may sound in a loss of profits. Accordingly, a delict may give
rise to damages for loss of profit if
the consequence of the delict
is that the plaintiff is deprived of the opportunity to earn profits
that it would otherwise have
made. In
Sechaba,
the
fraudulent process deprived the respondent of the opportunity to
acquire a business that would have secured profits for the
respondent. This is not a case where a fraudulent representation
induced a contract and the respondent sought to recover as if
the
representation were true (an expectation loss) Rather, the respondent
was deprived of an opportunity to secure a contract from
which it
would have profited. The damages for profits lost places the
respondent back in the position it would have occupied if
the fraud
had not been committed. And thus the damages are entirely consistent
with the reliance interest that our courts have
recognized as the
basis for determining damages in delict.
In
the Defendants’ counterclaim, they allege that the duly
authorized agent of Billion made a number of material and false
representations that induced Rhino to conclude a lease with Billion.
The representations concerned the qualities of the shopping
centre
in which Rhino would lease premises and the marketing that Billion
would undertake to attract custom to the centre. These
misrepresentations, the Defendants allege, were made fraudulently,
as a result of which Rhino claims damages for the costs of
setting
up its business and the loss of nett profits for the three year
period of the lease.
Unlike
the position in
Sechaba,
where
the fraud did not induce a contract but prevented the plaintiff from
securing a contract
,
the
Defendants’ counterclaim is a claim that Billion’s
fraudulent misrepresentations induced Rhino to conclude the
lease.
This difference however does not, in my view, render the Defendants’
damages claim excipiable and for the following
reasons.
As
the
Sechaba
case
illustrates, damages resulting from a delict do not exclude
compensation for loss of profits. Is the delict of a fraudulent
misrepresentation an exception to this proposition? It is not. What
the authorities discussed above show is that the damages
recoverable
for a delict do not permit of the recovery of expectation loss. This
exclusion is of particular importance when the
delict is a
misrepresentation inducing a contract because the injured party
cannot claim the benefit of the bargain, that is
to say, there is no
recovery so as to make good the plaintiff’s position, as if
the representations were true.
It
does not follow from this exclusion that damages for a fraudulent
misrepresentation do not permit of recovery for loss of profit.
Where, absent the misrepresentation, the plaintiff would have
enjoyed an opportunity that has been lost, the plaintiff is entitled
to be compensated for the lost opportunity. Depending on the
nature of opportunity and what is ultimately proven at trial,
that
loss may be a loss of profits. Compensation of this kind seeks to
place the plaintiff in the position the plaintiff occupied
before
the wrong. Damages so justified are predicated upon a reliance
interest and not an expectation interest.
The
question that then arises is whether the Defendants’ claim for
loss of profits seeks compensation as if the representations
made to
Rhino were true or whether the loss of profits concerns some other
business opportunity that Rhino lost because it concluded
a lease to
conduct its business from the premises in Billion’s shopping
centre? For example, Rhino may have had other premises
available to
it to hire that would have afforded it better business prospects
than those that materialized at the premises leased
to it by
Billion.
The damages are pleaded so sparsely that it is not possible to
discern whether the Defendants claim for loss of profits is as
an
expectation or reliance interest. The pleading is suggestive of a
claim to place Rhino in the position it would have enjoyed
if the
representations were true. But as these are exception proceedings,
there must be no cause of action on every reasonable
interpretation
of the pleaded claim.
Accordingly,
I do not find that the claim for loss of profits fails to make out a
cause of action.
That
conclusion however does not end Billion’s challenge. Billion
contends that whether or not the loss of profits claim
is sound in
law, it is not permissible to claim both the costs of setting up a
business and the loss of profits sustained by
that business. As a
matter of basic commercial logic, costs are incurred to make a
profit, and if the claim is for a loss of
profits, costs would
necessarily have been incurred to make a profit and cannot be sought
from a defendant together with the
loss of profits. That would be an
impermissible burden that would give rise to compensation in excess
of Rhino’s loss.
This
reasoning would be sound if the Defendants’ claim for loss of
profits was intended to compensate Rhino for the profits
it would
have made had the representations as to the shopping centre been
true. In that event, Rhino would have had to incur
the costs of
setting up the business in the shopping centre as represented and
its expectation loss would have been limited to
the profits the
business might reasonably have expected to make had it been
conducted in the shopping centre as represented by
Billion.
But for the reasons I have already given, such a
claim cannot be made in our law.
However,
if the Defendants’ loss of profits claim is for Rhino’s
lost opportunity, then there is no impediment to
a claim for the
costs of setting up the business in the premises hired from Billion
and the loss of profits arising from the
opportunity cost of being
induced to enter a lease on the basis of false representations, when
Rhino had other options to hire
premises in another shopping centre
that would have permitted its business to prosper.
As
a matter of principle, the two claims may compliment one another
rather than being alternatives. Reliance damages seek to put
the
plaintiff in the position the plaintiff would have occupied if the
wrong had never been done. Had the misrepresentations
never been
made, Rhino would,
ex
hypothesi
,
not have concluded the lease with Billion. In consequence, Rhino
would not have incurred any out of pocket expenses in setting
up its
business in the premises it hired from Billion. In addition, Rhino
might also be able to show that had it not hired premises
from
Billion, it would have hired other premises and been able to run a
profitable business. Rhino can thus claim the expenses
that it
needlessly incurred because it concluded the lease with Billion.
Rhino may also claim the value of the opportunity foregone
because
Rhino relied upon the representations made to it and entered into
the lease with Billion, when it might have concluded
a lease
altogether more favourable to the profitability of its business.
Both claims, if proven, constitute reliance damages
and seek to
restore Rhino to the position it would have occupied, but for the
delict.
This
conclusion is also warranted as a matter of authority. In
Sechaba
[9]
,
the
Appeal Court approved the proposition that damages may compensate a
claimant not only for out of pocket losses but also for
its loss of
profits. It went on to warn that there is little practical value in
marking out a distinction between positive and
negative
interesse
[10]
as a way of understanding damages in the law of delict.
I
conclude with two final observations. First, much of the modern
comparative law of damages in common law jurisdictions has been
greatly influenced by the recognition of the distinctions between
restitution, reliance and expectation interests. The classic
exposition of this way of thinking about damages in both contract
and delict is to be found in the 1936 and 1937 articles of
Lon
Fuller and William Perdue
[11]
.
Our case law has not always systematically applied these
distinctions. Second, the coherence of these distinctions has
been
under scrutiny for many decades in the academy
[12]
,
but it will be for the Appeal Court, and ultimately the
Constitutional Court, to determine whether the fundamental
distinction
between damages in contract and delict warrants
reconsideration.
The
Ninth exception is dismissed.
CONCLUSION AND COSTS
73.
It
follows that the third, fifth and sixth Exceptions are upheld and the
first, second, fourth, seventh, eighth and ninth Exceptions
are
dismissed.
74.
As
to the costs, Billion has prevailed in some of the exceptions and
failed in others. With this in mind, Billion is entitled to
50% of
its costs.
In the result:
i)
The
following exceptions are upheld: Exception 3, Exception 5 and
Exception 6.
ii)
The
following exceptions are dismissed: Exception 1, Exception 2,
Exception 4, Exception 7, Exception 8 and Exception 9.
iii)
The
Defendant’s plea is set aside in so far as the exceptions are
upheld.
iv)
The
Defendants are granted leave to amend within 20 days of this order.
v)
The
Defendants shall be jointly and severally liable for 50% of the
Plaintiff’s costs
Unterhalter J
Judge of the High Court
Date of Hearing:
14
February 2019
Judgment Delivered:
04
March 2019
Appearances:
Advocate for the Appellant: Advocate G Dobie instructed by Reaan
Swanepoel Attorneys
Advocate for the Respondent: Advocate M Louw instructed by Mark
Efstratiou Incorporated
[1]
See
Jowell v
Bramwell Jones
1998 (1) SA 836 (W) 902
[2]
Feinstein v Niggli
1981
(2) SA 684 (A)
[3]
Trotman v Edwick
1951
1 SA 443
(A) at 449
[4]
Holmdene Brickworks (Pty) Ltd V Roberts
Construction Co.Ltd
1977 3 SA 670
(A) at 697 B-F
[5]
Probert v Baker 1983 (3) SA 229 (D)
[6]
Hamer v Wall
1993
(1) SA 235
(T). See also the further consideration of this issue in
Mainline Carriers (Pty) Ltd v Jaad
Investments CC and Another
1998 (2) SA
468
(C) and
Drummond Cable Concepts v
Advancenet (Pty) Ltd 08179/14 GLD (
as
yet unreported )
[7]
Ranger v Wykerd and another
1977
(2) SA 976 (A)
[8]
Transnet Limited v Sechaba Photoscan (Pty) Ltd
2005 1 SA 299 (SCA)
[9]
At paragraph [14}, quoted above
[10]
A distinction, of 19 th century German
pedigree, that we might now relinquish or at least render in the
plain language of
interest.
[11]
L.L. Fuller and William R Perdue Jr.
The
Reliance Interest in Contract Damages I and II,
46
Yale LJ 52
( 1936 ) and
46 Yale LJ 373
(1937 )
[12]
See for example Richard Craswell,
Against
Fuller and Perdue,[2000]
Chicago Law
Review 99