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[2019] ZAWCHC 22
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Hodgkinson v K2011104122 (Pty) Ltd and Another (10019/2013) [2019] ZAWCHC 22; [2019] 2 All SA 754 (WCC) (5 March 2019)
Republic
of South Africa
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case No:
10019/2013
In
the matter between:
PETER
DAYTON
HODGKINSON
Plaintiff
/ Respondent
vs
K2011104122
(PTY)
LTD
First
Defendant
OLGA
CORNELIA MARIA VAN DER WEERD
Second
Defendant / Excipient
Hearing:
13 February 2019
Judgment:
5 March 2019
JUDGMENT
De Waal AJ:
[1]
This
Judgment deals with an exception taken by the Second Defendant
against claims for post-cancellation and
mora
damages contained in the Plaintiff’s amended particulars of
claim, dated 2 October 2018. It is not disputed
that,
if upheld, the disposal of these claims by way of exception will
result in a significant saving of time and costs at trial.
It
is accordingly appropriate to rule on the exception even though it
does not relate to all the Plaintiff’s claims.
[2]
The
matter has a long history and it is necessary to briefly sketch the
background in order to place the present round of litigation
in
context.
[3]
On
or about 18 November 2011, First Defendant and the
Plaintiff entered into a so-called “
green
book agreement
”
which governed the rights and obligations of the parties in respect
of the addition of a new floor to the Plaintiff’s
existing
dwelling in Camps Bay for the contract sum of R1 254 343.77
including VAT. I shall refer to this agreement
as “
the
project agreement
”
and when appropriate to the Plaintiff and the First Defendant in
context of that agreement as, respectively, “
the
employer
”
and “
the
contractor
”.
The contractor was required to remove the existing roof of
Plaintiff’s house; manufacture wooden modules and
to install
these as the second floor; and to construct and install internal
walls and a new roof system.
[4]
Subsequent
to the conclusion of the project agreement, Second Defendant executed
a performance guarantee in terms of which she guaranteed
First
Defendant’s performance subject to the limitation of her
liability to R250 000.00. The performance guarantee
was
granted on 16 April 2012.
[5]
The
project commenced a little more than a week earlier, on
7 April 2012. At that time, the parties agreed to a
revision of the initial construction program which resulted in an
extended completion date of 6 July 2012. The
Plaintiff made interim payments to the First Defendant in accordance
with the timelines set in the first revision.
[6]
The
first extension proved to be insufficient. On 1 August 2012,
the parties agreed to adjust the timelines again.
In terms of
the second revision, the date for the completion of the modular
system in the First Defendant’s factory
was set at
31 August 2012 and installation had to commence on site by
3 September 2012.
[7]
By
31 August 2012, First Defendant had allegedly failed to
acquire all the materials needed and to provide any supervision,
labour, plant, materials and equipment required to produce the
modular system.
[8]
On
7 September 2012, the Plaintiff delivered a written notice
(“
the
first notice
”)
to the First Defendant recording First Defendant’s defaults and
informing First Defendant that unless it took practical
steps to
remedy those defaults, the Plaintiff would cancel the project
agreement. The wording of the first notice is of importance
in
the present matter and will be dealt with in detail below. A
7-day period was set for the First Defendant to remedy the
defaults.
[9]
First
Defendant failed to take the required practical steps to remedy its
defaults within the 7-day period.
[10]
On
17 September 2012, i.e. ten days after the first notice was
sent to the First Defendant, the Plaintiff notified the
latter that
he was cancelling the project agreement (“
the
second notice
”).
On 1 October 2012, Second Defendant was also notified of
the cancellation and the intention to institute
court proceedings
against her.
[11]
Plaintiff
then appointed another contractor to complete the works.
[12]
On
26 June 2013 the Plaintiff issued summons against the First
and Second Defendants, claiming damages under various heads.
[13]
The
subject matter of the exception is damages in the form of the
additional expenses incurred by the Plaintiff to bring the
construction
project to completion. These damages allegedly
amount to R448 521.48.
The Rule 33(4)
application for a separation of issues
[14]
The
First Defendant folded its cards relatively early. Judgment by
default in the amount of R530 489.89 was granted against
it on
29 January 2016.
[15]
This
left the claim against Second Defendant arising from the performance
guarantee. Second Defendant could of course avail
herself of
any defence which First Respondent had.
[1]
[16]
Second
Defendant pleaded and thereafter brought an application in terms of
Uniform Rule 33(4) in terms of which she sought
a separation of
issues. In the latter she requested that the question of
whether the Plaintiff validly cancelled the project
agreement be
decided upfront.
[17]
The
Plaintiff opposed the application
inter
alia
on the basis that it would deprive him of his right to lead evidence
to establish facts to support an alternative ground of cancellation,
namely that the First Defendant’s conduct amounted to the
repudiation of the agreement. If there was repudiation, the
Plaintiff contended, he did not have to invoke the
lex
commissoria
or strictly comply with its terms in order to cancel the project
agreement.
[18]
Second
Defendant, on the other hand, contended that the separation would be
beneficial because if the Plaintiff did not validly
cancel the
project agreement, he was not entitled to post-cancellation damages
and there would be no need for extensive and expensive
expert
testimony at trial concerning the quantum of those damages.
The Judgment of
Samela J, dated 16 August 2017
[19]
The
Rule 33(4) application was argued before Samela J on 19 and
20 June 2017.
[20]
I
was informed from the bar at the hearing of the present matter by
Mr Quixley, who appeared for the Second Defendant, that
there
was an agreement reached at the hearing before Samela J in terms
of which the learned Judge would not only determine
whether there
should be a separation, but also deal with the merits of the dispute
on whether the project agreement was validly
cancelled.
Mr Walther, who appeared for the Plaintiff, accepted that there
was such an agreement but disputed that it
extended to the validity
of cancellation on any and all grounds. Mr Walther contended
that the issue before Samela J
was whether the
lex
commissoria
was properly invoked and not whether the project agreement could be
cancelled on the basis of repudiation or whether damages could
be
claimed on other grounds such as
mora
.
I shall revert to this aspect below when dealing with Second
Defendant’s exception on the basis that the matter before
me is
res
judicata
.
[21]
Samela J
held that where a contract lays down a procedure for cancellation, it
must be followed for the cancellation to be
effective. The
learned Judge further held that in order for the innocent party to
succeed, he has to show that he complied
strictly with the peremptory
provisions of the
lex
commissoria
in question. In applying the principle to the facts of the
matter, Samela J held that the provisions of clause 12.1
of
the project agreement were peremptory and that the cancellation
notice did not comply with those provisions. In particular,
the
First Defendant was not afforded the contractually agreed time period
within which to remedy the alleged breach (it was afforded
7 days
instead of 14) and the purported cancellation by the Plaintiff was
consequently premature and ineffective.
[2]
The Judgment of the
Full Bench, dated 16 May 2018
[22]
The
Judgment of Samela J went on appeal to the Full Bench.
Parker J authored the Judgment of the Full Bench, with
Bozalek J
and Fortuin J concurring.
[23]
The
issue before the Full Bench was defined in exactly the same terms as
in Samela J’s Judgment, namely whether the Plaintiff
had
validly cancelled the project agreement in accordance with that
agreement. The Full Bench confirmed the Judgment of Samela
J. I
deal below with the extent to which the Full Bench can be said to
have dealt with cancellation on grounds of repudiation.
The amendment of
the particulars of claim
[24]
Subsequent
to the Judgment of the Full Bench, the Plaintiff gave notice of his
intention to amend his particulars of claim.
[25]
In
the amendments, the Plaintiff firstly made clear that he contends
that by 31 August 2012 there had already been “
material
”
breaches of the undertaking to complete the modular system in First
Defendant’s factory.
[26]
In
the amendments, the Plaintiff further sought to overcome the
rejection of his reliance on the
lex
commissoria
by pleading that the project agreement was cancelled on one of the
following two grounds:
26.1.
The
first is that the First Defendant did not take any practical steps to
remedy its default within the 7-day period stipulated
in the first
notice, nor within the 14-day period stipulated in clause 12.1
of the project agreement. Insofar as the
latter period may be
held to be applicable, it does not matter that the first notice was
defective because the contractor in any
event failed to remedy the
defaults within the contractually stipulated 14-day period.
26.2.
The
second (alternative) ground for cancellation is that First
Defendant’s “
failure
to remedy the defaults set out in the breach notice, taken together
with his failure to secure or procure the funds required
and/or to
satisfy Plaintiff that it possessed such funds exhibited a deliberate
and unequivocal intention not to be bound by the
project agreement
which conduct constituted repudiation of the agreement
”.
The second notice “
constituted
an election by the Plaintiff to terminate the agreement following
First Defendant repudiation thereof
”.
[27]
It
is apparent that the Plaintiff, having all along contended that his
failure to strictly follow the provisions of the
lex
commissoria
was not fatal, changed tack in the amended particulars and now
contends
inter
alia
that repudiation justified cancellation.
[28]
The
Plaintiff also introduced a second, and different, basis for claiming
the damages to bring the project to completion.
This ground is
that since time was of the essence, First Defendant’s breach of
its undertakings by 31 August 2012
placed it in
mora
automatically. It is then contended that a party in
mora
is liable for any “
actual
patrimonial loss suffered by the opposing party
”,
as a result of the breach. Such damages would include the
R448 521.48 to bring the project to completion.
[29]
In
the amendments, the Plaintiff further sought to increase the claim
against Second Defendant by claiming interest at the rate
prescribed
by law on the sum of R250 000.00 or such lesser amount as the
Court may grant judgment on, calculated from date
of service of
summons to the date of final payment.
Second
Defendant’s notice of exception in terms of Rule 23(1
)
[30]
Second
Defendant excepted to the amended particulars of claim on the grounds
that they did not sustain a cause of action.
Four grounds of
exception are raised:
30.1.
The
first is that the Plaintiff’s conduct as pleaded is
inconsistent with the alleged repudiation. Plaintiff elected to
follow
the
lex
commissoria
rather than to rely on First Defendant’s repudiation and the
Plaintiff is bound by that election.
30.2.
The
second is that the placing of First Defendant in
mora
did not absolve the Plaintiff from following the
lex
commissoria
.
Unlike repudiation,
mora
is not a separate basis for cancelling the project agreement outside
the
lex
cancellation clause.
30.3.
The
third is that the introduction of repudiation as a ground for
cancellation would undermine and indeed be subversive of the Judgment
of Samela J and the Full Bench.
30.4.
The
fourth is that the claim for interest is impermissible as the
performance guarantee limits the Second Defendant’s total
liability to R250 000.00.
[31]
It
is convenient to deal with the third ground of exception first.
I deal with this aspect under the heading “
res
judicata
”.
Res judicata
[32]
The
question is essentially whether Samela J or the Full Bench
dismissed the possibility of post-cancellation damages on the
basis
of repudiation.
[33]
In
paragraph 2 of his Judgment, Samela J defined the issue
before him as whether the Plaintiff validly cancelled the project
agreement as defined in the Plaintiff’s particulars of claim
in
accordance with its terms
.
This indicates that the only issue before Samela J was whether
Plaintiff’s cancellation notice complied with
the time periods
and other requirements set in the
lex
commissoria
and not whether the Plaintiff did or could have cancelled the project
agreement on the basis of repudiation.
[34]
The
Full Bench recorded in its Judgment that it was only at the stage of
opposing the separation application, that the Plaintiff
raised the
issue of anticipatory breach (repudiation). The Plaintiff, the
Full Bench further recorded, claimed that he was
entitled to raise
this issue because of the decision of the SCA in
Data
Colour International (Pty) Ltd v Inta Market (Pty) Ltd
[2000] ZASCA 82
;
2001 (2) SA 284
(SCA). According to the Plaintiff,
Data
Colour
stands for the proposition that a party is allowed to rely on an
alternative ground of cancellation not overtly raised in a letter
of
demand. The Full Bench rejected this contention, holding that
although the Plaintiff had gone through the process of placing
the
First Defendant in
mora,
this
was done in a manner which was non-compliant with the strict
cancellation provisions and that “
this
act is clearly inconsistent with the [Plaintiff] having relied on
cancellation of the contract pursuant to an alleged repudiation
”.
[3]
[35]
There
are indications in the Full Bench Judgment that it decided that the
Plaintiff could not rely on repudiation as an alternative
justification for cancellation. For instance, the Full Bench:
35.1.
Listed
the requirements that an innocent party has to allege in its
pleadings, and ultimately prove, in order to succeed with a
claim
based on cancellation for repudiation.
[4]
The Full Bench then stated that the Appellant’s conduct was not
consistent with the requirements for repudiation and
that in its view
“
the
alternative argument of repudiation in the form of anticipatory
breach by the First Defendant is not sustainable
”.
[5]
35.2.
Held
that the Judgment of Samela J was final in effect because it
“
irreversibly
disposed
”
of Plaintiff’s claim to being entitled to rely upon the
cancellation of the agreement in order to claim post-cancellation
damages in the action.
[6]
The Full Bench held that this aspect is
res
judicata
.
[7]
35.3.
Held
that the Judgment of Samela J on the issue of a separation of
issues was sound because the “
validity
or otherwise of the cancellation of the project agreement would be
dispositive of the trial or at least a substantial part
thereof
”.
[8]
[36]
The
above seems to indicate that the Full Bench regarded a separation to
be convenient as it would dispose of the issue of whether
the
Plaintiff was entitled to post-cancellation damages. It is also
logical to assume that the parties would not have gone
through the
trouble of arguing the matter twice merely for the purpose of
determining of whether
one
ground
for cancellation (the invocation of the
lex
commissoria
)
should be eliminated.
[37]
Whilst
the matter is not free from doubt, I nevertheless find, for the
reasons set out below, that the Full Bench did not decide
the issue
of whether cancellation was justified on the ground of repudiation.
I reach this conclusion on the basis of the
following statements in
the Full Bench Judgment:
37.1.
The
Full Bench stated that the Plaintiff was “
not
necessarily precluded from subsequently trying to convince the Court
to uphold its claim based on the alternative ground of
cancellation
”.
[9]
37.2.
The
Full Bench further held that it was not convinced that on the facts
of the case it was possible to infer repudiation from the
pleadings.
[10]
37.3.
Whilst
the Full Bench stated that it agreed that the alternative argument of
cancellation due to repudiation is “
wholly
untenable
”,
it went on to hold that “
the
repudiation was neither pleaded nor proved
”.
[11]
[38]
In
my view, the true basis for the Full Bench’s Judgment was that
repudiation was not pleaded properly and that the claim
on this basis
could not succeed on the pleadings as they stood at the time.
[39]
It
follows that I do not believe that the claim for post-cancellation
damages based on repudiation was a matter that was decided
by
Samela J or the Full Bench and the Plaintiff could accordingly
introduce such a claim by way of an amendment to the particulars
of
claim.
First ground for
cancellation: the first notice matured into effectual
cancellation
[40]
It
will be re-called that the amended particulars of claim seek to
introduce two “
new
”
grounds of cancellation which are pleaded in the alternative.
[41]
The
first is that the First Defendant failed to take any practical steps
to remedy its defaults within 7 days of receipt of the
breach notice
and
within the 14-day period contemplated in clause 12.1 of the
project agreement. As I understand it, the argument is that
it
does not matter that the First Defendant was afforded only 7 days to
remedy the defaults instead of the 14 days prescribed by
the
lex
commissoria,
because the breach was in any event not remedied within the latter
period or at all.
[42]
Unlike
the issue of repudiation, this aspect was pertinently dealt with in
the Judgment of the Full Bench.
[12]
In the Full Bench Judgment the contention is described as a
“
premature
cancellation
”
which had, in time, “
matured
into a perfectly effectual cancellation
”.
[13]
In dealing with this contention, the Full Bench distinguished the
present matter from situations where there were two cancellations:
a
premature (unlawful) one and then a second (lawful) cancellation.
The latter would stand even if the former is bad.
In the
present matter there was no such further fresh cancellation and, at
the time that the Plaintiff cancelled (on 17 September 2012)
he was not entitled to cancel (at least not in terms of the
lex
commissoria
).
[14]
[43]
To
this one can add that First Defendant would have been quite within
its rights to disregard the first (defective) notice, and
to await a
further proper notice giving it the required 14-day period to remedy
its defaults. The innocent party cannot expect
the guilty party
to read the notice as if it contained the correct time period and to
rectify within that period. If the
notice is defective, the
guilty party is entitled to require the innocent party to reboot the
procedures for invoking the
lex
commissoria
from scratch or find another ground of cancellation.
[44]
This
disposes of the first new ground for cancellation introduced by the
amended particulars of claim.
Repudiation
[45]
The
alternative ground for cancellation is that the First Defendant’s
failure to remedy the defaults set out in the breach
notice, taken
together with its failure to secure or procure the funds required
and/or to satisfy Plaintiff that it possessed such
funds, exhibited a
deliberate and unequivocal intention not to be bound by the project
agreement, which conduct constitute repudiation
of the project
agreement.
[46]
The
facts which gave rise to repudiation can be divided into two
categories:
46.1.
The
first is that by 31 August / 3 September 2012 it
became apparent that the First Defendant did not have the funds
to
manufacture the modular system for the second floor. The First
Defendant did not utilise the funds provided for purposes
of
constructing the modular system and this rendered it impossible for
it to perform.
46.2.
The
second is that the response to the first notice, or rather the lack
of a proper response thereto, in itself confirmed that First
Defendant had no intention to perform its obligations under the
project agreement. In this regard, reference was made to
an
email and sms from First Defendant in which it promised that its
attorneys would provide a response to the first notice, which
response never saw the light of day.
[47]
I
should emphasise that I am not called upon to decide whether the
requirements for repudiation were met by 31 August or by
7 September or by 17 September 2012. If the
exception fails, the issue of whether there was at any stage conduct
or omissions which displayed an unequivocal intention on the part of
First Defendant no longer to be bound by the project agreement,
will
be decided at the trial. I must assume that the
requirements for repudiation have been met.
[48]
The
question before me is a narrow one. It is whether the Plaintiff
forfeited his entitlement to rely on repudiation as a
ground for
cancellation because he elected to invoke the
lex
commissoria.
[49]
The
lex
commissoria
in the contract agreement provides as follows:
“
Default
by Contractor
12.1 If the Contractor
abandons the Works, refuses or fails to comply with a valid
instruction of the Employer or fails to proceed
expeditiously and
without delay, or is, despite a written complaint, in breach of the
Contract, the Employer may give notice referring
to this Sub-Clause
and stating the default.
12.2 If the Contractor
has not taken all practicable steps to remedy the default within 14
days after the Contractor’s receipt
of the Employer’s
notice, the Employer may issue a second notice given within a further
7 days [to] terminate the Contract.”
[50]
It
is apparent that clause 12 needs to be followed even if the
contractor abandons the works; or fails to adhere to instructions;
or
delays or otherwise remains in breach despite written complaint.
[51]
What
did the Plaintiff do when the 31 August / 3 September 2013
deadlines set in the second revision were not met?
In order to
consider this aspect it is unfortunately necessary to consider rather
lengthy passages from the first and second notice.
[52]
The
first notice was a letter from the Plaintiff’s attorneys which
stated
inter
alia
the following (my underlining):
“
22.
Our client met with your Mr Van der Weerd at your factory on
14 August 2012 and recorded in a written complaint
in terms
of clause 12.1 of the agreement that, in further default of the
agreement and your final programme, you had failed
to expeditiously
proceed with the agreement, your instructions and commitments in
that, amongst other defaults you had not made
sufficient progress on
the modular system and would not be in a position to order windows,
doors and roof cladding and deliver
and install the modular system as
per your final programme.
23. In a desperate
attempt to mitigate loss and assist in completing the works, our
client provided additional funding by paying
an amount of R30,217.77
on 27 August 2012, directly to a supplier (Somerset
Timbers) in respect of materials delivered
to your factory for
construction of the modular system. Our client provided this
additional funding in reliance on your representative
to our client
that you had secured funding which would be received into your bank
account before the end of August 2012 which,
in turn, would
enable you to expediently implement and meet the times in your final
programme.
24. You have failed to
take all practical steps to remedy your default within 14 days of our
client’s aforesaid notice and
multiple, subsequent
notifications and instructions insisting on compliance and evidence
of progress during August.
25. You remain in
default in that you have failed to inter alia:
25.1 Sufficiently
construct or deliver the modular system to the site;
25.2 Procure or
deliver materials required for the construction of the walls, roof
beams, roof boxes, insulation, mag board, windows
and doors;
25.3 Produce or
furnish a Structural Certificate from an, or propose an ECSA
Registered Structural Engineer for your specialist
timber design in
order to comply with the City of Cape Town plan approval condition.
26. Our client and his
family are simply no longer in a position to condone further delays
and defaults. Time is of the essence.
Our client must be
in a position to move back into his house and complete the works as a
matter of urgency.
27. From the history
of this matter and your communications regarding your financial
position,
it would appear that it is impossible for you to
complete the works within your revised schedule, or at all
.
28. Our instructions
are to
notify you, pursuant to provisions of clause 12.1 of
the agreement
, as we hereby do, that you that you are required
you to sufficiently catch up with and implement your final programme.
29. Should it not be
evident,
within seven days of delivery
of this notice, that:
29.1 You have secured
sufficient cash to procure materials and labour and complete and
deliver the modular system, and
29.2 You have taken
demonstrable, practical steps which will reasonably satisfy our
client that you will have caught up with the
items and time lines in
your final programme to the extent that the completed modular system
has been delivered to the site and
that you have properly paid for
related materials and services in accordance with suppliers terms and
that it is likely that our
client will be able to move back into the
site on or about 12 October 2012; and
29.3 You have
committed to furnishing a Structural Certificate as per
paragraph 25.3 above,
our client will
terminate the agreement without further notice.
30. In regard to the
aforegoing, our client is securing estimates from other contractors
who have indicated they would be prepared
to continue with the
partially complete modular system and materials which are owned by
our client, stored at your factory and
in respect of which you have
both ceded and waived any lien.
31. You are advised
that, should the agreement be cancelled, it would be in your
interests to mitigate further damages to our client
by handing over
the materials and all partially constructed modular systems and
components, on which materials, components and
systems a value can be
placed in reduction of restitution of the amount overpaid by our
client.
32. All of our
client’s rights in respect of penalties and damages occasioned
by your default, and in general, are expressly
reserved.”
[53]
The
second notice stated
inter
alia
as follows:
“
2.
We acknowledge receipt of your Mr Van der Weerd’s email
dated 13 September 2012, in respect of our letter
of
07 September 2012.
3. In addition, our
client acknowledges receipt of your Mr Van der Weerd’s sms
communication received by him on 14 September 2012
at 13h18
pm.
4. In your email dated
13 September 2012, you indicated that you would be
consulting your attorney in order to “officially”
comment
on our letter dated 07 September 2012. In your sms
you stated that your “official reply” would
be delivered
per email on 14 September 2012.
5. Neither we, nor our
client, have received the “official” reply you undertook
to provide.
6. Insofar as you have
failed to produce any concrete indications or assurances, as required
in paragraph 29 of our letter
dated 7 September 2012,
your breach has not been remedied and the agreement is terminated.”
[54]
Second
Defendant’s exception is based on the contention that it is
clear from the above that the Plaintiff elected to invoke
clause 12,
i.e. the
lex
commissoria
,
and that he is bound by that election. As only 7 days were
given to remedy the defaults, the Plaintiff did not comply with
the
requirements of clause 12 and the cancellation in the second
notice was accordingly defective, as was also found by Samela J
and the Full Bench.
[55]
Ordinarily,
when faced with repudiation or any other circumstances which allows
him to cancel, an innocent party has to elect whether
he wishes to
enforce the contract or cancel. He is not allowed to approbate
and reprobate the contract; he cannot blow hot
and cold.
[15]
[56]
It
is not in dispute that the Plaintiff conveyed his election not to
cancel in the first notice. It is further apparent that
the
First Defendant was afforded an opportunity to remedy the defaults,
although within a shorter period than that required by
the
lex
commissoria
.
[57]
The
Plaintiff however contends for a different reading of the first
notice with reference to the Judgment of the Supreme Court of
Appeal
in
Primat
Construction CC v Nelson Mandela Bay Metropolitan Municipality
2017 (5) SA 420
(SCA). In that matter, the SCA held that a
party entitled to cancel on the ground that there was repudiation, is
allowed
to afford the guilty party an opportunity to “
relent
”
or “
repent
”
and then, if the response is unsatisfactory, change his election and
cancel the agreement. The reasoning is that one
cannot expect
an innocent party who gives the guilty party a chance to repent then
wait for an entirely new and fresh act of repudiation
before
cancelling – if there is persistent breach, the innocent party
must be allowed to change his election and cancel based
on the first
act of repudiation.
[58]
The
passages relief upon by the Plaintiff from
Primat
Construction
are the following (my underlining):
[25] But as
Nicholas AJA observed in Culverwell, after referring to Ras v
Simpson, even where the aggrieved party has elected
to abide by the
contract, in the face of persistent breach despite the opportunity to
relent, the aggrieved party may elect to
cancel. Where the defaulting
party is clearly determined not to purge the breach, and shows an
unequivocal intention not to be
bound by the contract, the aggrieved
party may abandon his or her futile attempt to claim performance and
change the election,
claiming cancellation and damages. This is the
view taken by GB Bradfield in Christie's Law of Contract in South
Africa 7 ed (2016)
at 639 where it is suggested that 'persistence'
should be understood 'as a further indication of intention to
repudiate after having
been given an opportunity to reconsider', in
which case 'what is involved is an election to cancel based on
repeated breach rather
than a change of mind'.
[26] The requirement
of a new and independent act of repudiation by the Municipality
before Primat could change its election and
exercise its
right to cancel and claim damages is not one mentioned in any of the
earlier authorities. And, as Primat
submits, it makes no sense
because it would allow the defaulting party who steadfastly refuses
to comply with the contract to keep
the contract alive until it
commits another act of repudiation.
[27]
The
Municipality argues, on the other hand, that to allow a change of
election would negate the fundamental principle that on breach,
an
aggrieved party must make an election and is then bound by it. The
argument fails to take into account the fact that the doctrine
of
election is not inviolable: the double-barrelled procedure,
sanctioned as early as Ras v Simpson, allows the aggrieved party
to
claim in the same action specific performance, and, in the event of
non-compliance, cancellation and damages. The repentance
principle
does just that. The aggrieved party gives the defaulting party the
opportunity to repent of the breach, and to perform.
If the
defaulting party continues to refuse or to fail to perform, the
aggrieved party should then be entitled to change its election,
and
cancel and claim damages
.
[28] In my view, the
Municipality persisted in its repudiation. It refused Primat access
to the site, appointed new contractors
and said that the contract was
terminated. The objective construction of that conduct showed an
unequivocal intention on the part
of the Municipality no longer to be
bound. That was how Primat reasonably perceived it.”
[59]
With
reference to this authority, the Plaintiff contends that first notice
was, on a proper construction thereof, not a notice in
terms of the
lex
commissoria
,
but rather an invitation to the First Defendant to repent.
[60]
The
Plaintiff’s arguments in this regard can be summarised as
follows:
60.1.
The
part of the first notice which states that “
it
would appear that it is impossible for [the First Defendant] to
complete the works within your revised schedule, or at all”
,
records that there had already been repudiation.
60.2.
The
contention in the first notice that First Defendant had
misappropriated Plaintiff’s money and that First Defendant was
the author of its own inability to perform if it was unable to secure
alternative finance of its own, indicates that First Defendant
could
not perform and had repudiated.
60.3.
Plaintiff
sought to convey in the first notice that it wanted the First
Defendant to complete the contract but did not believe that
the
latter was or would be in a position to do so.
60.4.
The
first notice asked the First Defendant to “
show
me the money so I can be sure that you’re not wasting valuable
time
”.
Without the money there could be no hope of any breach being
remedied.
60.5.
Given
that it was an opportunity to repent (and not to invoke clause 12)
it mattered not how long the First Defendant was given
to remedy the
defaults.
60.6.
It
was further clear from the failure of the First Defendant’s
attorney to provide the promised response, that First Defendant
did
not intend to comply with its obligations under the contract.
60.7.
There
is no reference in the second notice (the cancellation letter) to the
lex
commissoria
which
means that the cancellation was on a different basis than clause 12.
[61]
The
Plaintiff further stressed the well-established principle that an
exception cannot succeed unless it is shown that upon any
construction of the pleadings no cause of action is disclosed.
Plaintiff’s argument is that the question of whether
the first
notice constituted an invocation of the
lex
commissoria
or an invitation to repent is a factual one which must be determined
at trial.
[62]
In
my view, the Plaintiff’s arguments raise the following two
questions:
62.1.
Whether
Primat
Construction
,
and the possibility of a change in election, applies to contracts
which contain a
lex
commissoria
?
62.2.
In
which manner should the election to afford a guilty party an
opportunity to repent should be conveyed by the innocent party in
cases where a contract contains a
lex
commissoria
?
[63]
The
cases that established the principle that a
lex
commissoria
need not be followed in the case of repudiation are premised on the
idea that the invocation of a cancellation clause would be
“
an
exercise of futility
”
in the case of repudiation. The reasoning was that it would be
absurd to require an innocent party to afford the repudiator
an
opportunity to remedy her breach when the latter already
unequivocally indicated that she no longer intends to be bound by the
contract.
[16]
Primat
Construction
now allows the innocent party to afford the guilty party an
opportunity to “
repent
”,
even in the case of repudiation. Arguably, the parties to a
contract must now be allowed to remove any possibility
for
contestation and dispute by agreeing expressly that all forms of
breach are covered by a
lex
commissoria
.
And the provisions of a lex commissoria may have to be interpreted to
determine whether this much was not agreed by necessary
implication.
Take, for example, the terms of the clause 12.1 of the project
agreement. It provides
inter
alia
that the
lex
commissoria
must be followed even if the contractor “
abandons
the works
”.
That indicates that conduct which would almost certainly amount to
repudiation is nevertheless covered by the
lex
commissoria
in some instances. Clause 12.1 also has a “
catch-all
”
provision, requiring a complaint and then the invocation of the
lex
commissoria
for all forms of breach not specifically referred to in the clause.
At least arguably, this kind of
lex
commissoria
was intended to “
occupy
the entire field
”
as far as cancellation is concerned.
[64]
In
Primat
Construction
it
made sense to allow the innocent party to design and implement his
own repentance regime because there was no cancellation clause
in the
contract in question. A guilty party can hardly complain about
being given an opportunity to save the day by repenting
in such a
situation. But the reasoning has less force when there is a
lex
commissoria
.
An innocent party who then wants to give the guilty party a chance to
make amends has the choice to avoid any confusion
by following the
clear route to cancellation prescribed by the
lex
commissoria
.
This was one of the main points made by Mr Quixley on behalf of
the Second Respondent at the hearing.
[65]
The
answer to the first question may be fact dependant. In other
words, if the
lex
commissoria
covers only a limited number of well-defined forms of breach, then
one can easily imagine a repentance regime operating side by
side
with the
lex
commissoria
.
However, in the case of a very widely worded
lex
commissoria
,
such as the one under consideration in the present matter, the
cancellation clause may oust any possibility of a parallel repentance
regime.
[66]
However,
after some reflection, I decided to refrain from deciding the first
question. For the reasons set out below, it is
not necessary to
do so. Moreover, the parties argued the matter on the basis
that the
lex
commissoria
did not have to be followed if there was repudiation. In the
circumstances it is not appropriate to consider the first question.
[67]
I
shall accordingly assume that clause 12 the project agreement
does not oust the possibility of a repentance regime.
Turning
to the second question, in my view, in cases where a contract
contains a
lex
commissoria
,
the election by the innocent party to implement his own repentance
regime must be communicated clearly and in a manner which leaves
the
guilty party in no doubt as to what is required of her. Put in
another way, the innocent party cannot send mixed messages
to the
guilty party in a case such as the present one as it would leave the
latter in an intolerable position as to what is required
of her.
The guilty party cannot be expected to guess whether the
lex
commissoria
is being invoked or not. This will almost invariably be the
case when there is a reference to the cancellation clause in
the
notice, such as in the present matter, but the notice does not comply
with the time periods stipulated in that clause.
[68]
It
is not a question of interpreting the first notice. As a matter
of law, the first notice had to stipulate clearly that
the First
Defendant was given the opportunity to repent and that clause 12
of the project was not invoked. But the first
notice, at best
for the Plaintiff, conveyed a mixed message, which was compounded by
the conduct of the Plaintiff afterwards and
more particularly the
insistence of the Plaintiff that the notice substantially complied
with the requirements of the
lex
commissoria
.
Against this background, it would be untenable to allow the
Plaintiff to now introduce a fall-back position to the effect
that
the notice contained a repentance regime with reference to
Primat
Construction
.
[69]
In
the circumstances, the exception against the introduction of
repudiation as ground for cancellation is upheld.
Mora
damages
[70]
This
part deals with the different basis for claiming the damages incurred
to bring the contract to completion. It is contended
that,
because time was of the essence, the breach of various undertakings
by the First Defendant by 31 August 2012 (completion
of the
modular system in the factory) and by 3 September 2012
(commencement of installation on site) automatically placed
the First
Defendant in
mora
.
This entitled the Plaintiff to damages including the costs incurred
in having the work completed, less the balance of the
contract price
which would have had to be paid under the contract if the defaulting
party had timeously completed the work.
[71]
In
my view, this ground for claiming damages has no merit. First
Defendant fell in
mora
on 31 August 2012 and cancellation followed 17 days after
on 17 September 2012. Plaintiff’s damages
claim
does not relate to damages caused by the 17-day delay but to the
costs of employing a different contractor to finish the
works, i.e.
cancellation damages.
[72]
Late
completion is in any event specifically dealt with in clause 7.4 of
the project agreement, which provides as follows:
“
If
the Contractor fails to complete the project within the Time for
Completion, the Contractor’s only liability to the Employer
for
such failure shall be to pay the amount stated in the Appendix for
each day for which he fails to complete the Works.”
[73]
The
Appendix provides for payment of R1 000.00 per day for delay.
In the particulars, Plaintiff contends that the project
was delayed
by 72 days and that this entitles him to claim R72 000.00 in
damages. No exception was raised against this
claim and it will
be decided at trial. In the absence of cancellation, the
Plaintiff’s claim for damages due to delay
is in my view
limited to the above amount.
[74]
Any
claim for
post-cancellation
damages based on
mora
would in any event run into the same difficulties as Plaintiff’s
claim for such damages based on repudiation, and more.
It is of
course so that when time for performance is fixed and the debtor
fails to perform by that time, the latter is in breach
and the
creditor may then cancel in circumstances where time is of the
essence.
[17]
But I fail
to see how this can ever be the case where the very same contract
specifies the amounts which may be claimed per
day for delay (clause
7.4) and where delay may be a ground for cancellation (clause 12).
The very existence of the
lex
commissoria
already indicates that the parties contemplated that the right to
cancellation only accrues, in the case of delay, after the guilty
party was given an opportunity to remedy its defaults within a
certain period of time.
[75]
But
even if this is not so, cancellation based on
mora
/ time is of the essence suffers from the same shortcoming as that
based on repudiation. If the first notice was an attempt
to
invite the First Defendant to repent and not to invoke clause 12,
then this should have been clearly conveyed, which was
not done in
the present matter.
[76]
In
the result, the exception against the claim for damages on the basis
of
mora
/ time is of the essence, must also be upheld.
The R250 000.00
limit in the performance guarantee
[77]
In
terms of the amended particulars of claim, the Plaintiff introduced a
prayer for interest a
tempore
morae
on the capital amount of R250 000.00 which the Plaintiff claims
is owed to him by the Second Respondent, based on the performance
guarantee.
[78]
On
this aspect, the Plaintiff contends that interest is recognised as a
form of damages suffered by the creditor if there is no
payment on
the due date, and such interest becomes payable by operation of law,
in particular, the
Prescribed Rate of Interest Act 55 of 1975
.
[79]
The
Prescribed Rate of Interest Act deal
with three issues. The
first is the rate of interest applicable in cases where the parties
have not agreed on such a rate;
the second is interest on a judgment
debt; and the third is when interest starts running in respect of
unliquidated debts.
[80]
In
respect of the third aspect, the Act provides as follows:
“
2A
Interest on unliquidated debts
(1)
Subject
to the provisions of this section the amount of every unliquidated
debt as determined by a court of law, or an arbitrator
or an
arbitration tribunal or by agreement between the creditor and the
debtor, shall bear interest as contemplated in
section 1.
(2)
(a)
Subject to any other agreement between the parties and the provisions
of the National Credit Act, 2005 (Act 34 of 2005) the
interest
contemplated in subsection (1) shall run from the date on which
payment of the debt is claimed by the service on the debtor
of a
demand or summons, whichever date is the earlier.
[81]
Section
2A(1) records that interest on liquidated debts run at the prescribed
rate. Section 2A(2)(a), on the other hand,
abrogates the
common law, in terms of which a defendant cannot be in
mora
in respect of a claim for unliquidated damages until the quantum has
been determined by Court. In terms of section 2A(2)(a),
regardless of the common law, interest on unliquidated damages runs
from demand or summons, whichever is the earlier.
[82]
None
of this is disputed by the Second Defendant.
[83]
The
Second Respondent’s objection is rather that the
Prescribed
Rate of Interest Act does
not have the effect of increasing the
overall amount of liability which was fixed by the parties when the
performance guarantee
was granted.
[84]
In
terms of the performance guarantee, Second Defendant guaranteed and
bound herself jointly and severally as guarantor and co-principal
debtors to the employer for the due and faithful performance by
contractor of all the terms and conditions of the project agreement
subject to certain conditions. The relevant condition provides
as follows:
“
This
guarantee shall be limited to the payment of a sum of money”
“
The
guarantor’s total liability shall not exceed the sum of
R250 000.00
.”
[85]
In
my view, the exception should be upheld as the Second Defendant’s
overall liability, whether it be for damages or interest
or
penalties, was capped by performance agreement at R250 000.00.
The amended particulars of claim disregard the overall
cap on Second
Respondent’s liability.
Conclusion
[86]
In
the circumstances, the following orders are made:
(a)
The
exceptions against the amendments to paragraphs 20, 21 and 23 of
the particulars of claim and the insertion of a new prayer 2
after the existing prayer 1 are upheld, with costs.
(b)
The
Plaintiff is granted leave to amend his particulars of claim within
20 days of the date of this order.
______________
H J DE WAAL AJ
Acting Judge
of the High Court
Cape Town
5 March 2019
APPEARANCES
Plaintiff
/ Respondent’s counsel: Adv S
Walther
Plaintiff
/ Respondent’s attorneys: Andrew De Vos & Associates
Second
Defendant / Excipient’s counsel: Adv G Quixley
Second
Defendant / Excipient’s attorneys: Maurice Phillips
Wisenberg
[1]
A surety is generally
entitled to raise any defence that the principal debtor could raise.
See
Paulsen
v Slip Knot Inv 777 (Pty) Ltd
2014 (4) SA 253
(SCA) at para 23.
[2]
Judgment
of Samela J at para 14
[3]
Full
Bench Judgment at para 2.10
[4]
Full Bench Judgment at
para 54
[5]
Full Bench Judgment at
para 55
[6]
Full
Bench Judgment at para 12
[7]
Full
Bench Judgment at para 12
[8]
Full
Bench Judgment at para 26
[9]
Full
Bench Judgment at para 28
[10]
Full
Bench Judgment at para 51
[11]
Full Bench Judgment at
para 53
[12]
Full
Bench Judgment at para 42
[13]
Ibid
[14]
Full
Bench Judgment at para 48
[15]
Ocean Echo Properties
327 CC and Another v Old Mutual Life Assurance Company (South
Africa) Ltd
2018
(3) SA 405
(SCA) at para 14: “
It
follows that a contracting party, when faced with a breach of the
contract by the other party, must elect whether to terminate
or to
enforce the contract. Once an election is made, the party is bound
by it. Whether or not there has been such an election
to cancel is a
factual issue.
”
[16]
See, in this regard:
SA
Forestry Co Ltd v York Timbers Ltd
2005 (3) SA 323
(SCA) at para 37:
“
The
answer to York's argument is in my view to be found in those cases
where it was held that the requirement of notice prior
to
cancellation contemplated in clause 28.1 of the contracts does
not apply where the breach of contract complained of was
in the form
of anticipatory breach or repudiation (see eg Taggart v Green
1991
(4) SA 121
(W) at 124D - 126I; Metalmil (Pty) Ltd v AECI Explosives
and Chemicals Ltd
[1994] ZASCA 96
;
1994 (3) SA 673
(A) at 683G - I).”
But
Taggert
is premised on the idea that one cannot have contract
which says that, notwithstanding repudiation, the innocent may do
nothing
until he has gone through a process of entreating the guilty
to repent. See p. 126H-I. Both
Taggert
and
AECI
are further premised on the notion that the guilty part
must elect whether to insist on performance or accept the
repudiation
and cancel.
The
Full Bench held that it is trite that the
lex
commissoria
did not apply to repudiation. See para 50 of the
Judgment. But the implications of
Primat
Construction
for
this principle were not raised by the parties at the time and
accordingly not considered.
[17]
I am not making a
finding on the facts that time was not of the essence in respect of
the second revised deadlines of 31 August
and
3 September 2012. This issue cannot be decided on
exception. I however have grave doubts as to whether
the
Plaintiff would ever be able to show that performance by 31 August
/ 3 September 2012 became of the essence
when there had
already been two revisions of the timelines; when the only reason
for urgency was the desire of the Plaintiff
to move back into his
house; when one is dealing with what appears to be an ordinary
building project which was delayed; and
when there was a clause
which allowed the Plaintiff to claim R1 000.00 for every day of
delay.