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[2017] ZAKZPHC 63
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Bernadis-Larratt and Another v Custom Capital (Pty) Ltd (AR 368/16) [2017] ZAKZPHC 63 (27 June 2017)
IN
THE HIGH COURT OF SOUTH AFRICA,
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
CASE NO:
AR
368/16
In
the matter between:
BIANCA
BERNADIS-LARRATT
FIRST APPELLANT
LANCE
LARRATT
SECOND APPELLANT
and
CUSTOM
CAPITAL (PTY) LTD
RESPONDENT
JUDGMENT
Delivered on: 27 June 2017
MNGADI
AJ
[1]
This is an appeal against the judgment
of the magistrate Mrs P Kitchener, sitting at Durban Magistrate's
Court, dated 13 July 2015
in favour of the respondent for:
1.1
Payment in the sum of R1 589.98
in respect of arrear rental;
1.2
Interest thereon at the rate of
6% above the prime lending rate from due date to date of payment;
1.3
Payment in the sum of R29 414.63
in respect of future rentals for the period 1 February 2014 to 28
February 2017;
1.4
Interest thereon at the
prevailing rate from date of judgement;
1.4 Cost
of suit on an attorney and client scale with such costs to include
Counsel's
fees.
[2]
On 15 February 2012 the appellants, who
were married to each other and practising attorneys entered into a
written lease agreement
with the respondent, a private financing
company in terms of which the appellants leased a new Samsung PABX
office serve 7070 with
one 38n button DS keyset, one economic keyset,
8 single line telephones, one voicemail auto attendant channel, a
lightning protector
and a battery backup (the equipment) for a period
of sixty months at a monthly rental of R794.99 from the respondent.
The first
rental was payable on 1 March 2012 and the last due on 28
February 2017. The equipment was supplied and installed by SAMCOM
Telecommunications
(SAMCOM).
[3]
The
appellants, in the court
a quo
and
in their plea dated 18 March 2013, admitted being indebted to the
respondent for the arrear rental and tendered payment thereof
together with costs on an attorney and client scale.
[4]
They
denied liability for future rental and alleged that:
4.1
The lease agreement was cancelled with
effect from 31 January 2013 and subsequent to the cancellation, the
leased equipment was
returned to SAMCON, the respondent's duly
authorised agent and accepted by the respondent in April 2013.
4.2
The respondent was obliged to mitigate its contractual damages by
taking reasonable measures such
as selling or leasing out the
equipment but failed to do so.
4.3
The contractual terms on which the claim for future rentals were
based was
contra bones mores
and
unenforceable.
[5]
In terms of the rental agreement the
appellants agreed:
5.1
To
pay the rental monthly, in advance, on or before the first day of
each succeeding month thereafter.
5.2
That
in the event of them breaching any of the terms and conditions of the
agreement or failing to pay any amount payable in terms
of the
agreement on due date, then the respondent would have the right to,
inter alia,
without
terminating the agreement, to treat as immediately due, owing and
payable, all rentals which would otherwise have become
due and
payable under the unexpired period of the agreement and to claim and
recover from the appellants, the aggregate amount
of such rentals.
5.3
That
the respondent shall retain the right pending payment of such rentals
to take possession of the equipment and to retain possession
thereof
on condition that against full payment, the respondent shall return
the equipment to the appellants who shall not be entitled
to any
rebate or abatement of rentals or other amounts by reason of any loss
of possession and enjoyment while the equipment was
in possession of
the respondent.
[6]
Mr
Scrimgeour, the respondent's legal manager testified that the
respondent provides finance for office equipment rental. SAMCOM
introduced the appellants to the respondent. Once the financing
arrangement had been agreed to, SAMCOM invoiced the respondent
for
the equipment and upon payment, installed the equipment. On 24 April
2013 he was advised that the appellants had vacated the
premises in
which the equipment had been installed. He then arranged for the
removal and safe keeping of the equipment. The equipment
was sold as
second hand on 13 February 2014 for R1 000.00.
[7]
The
first appellant testified that she and the second appellant ran their
legal practice until 30 November 2012 and on 1 December
2012 merged
their partnership with another firm. In April 2013 she advised the
respondent through SAMCOM that they had let out
the premises in which
the equipment had been installed with effect from 1 May 2013 and that
the new tenant was not prepared to
take over the equipment. She
requested that the equipment be removed and sold as second hand or
hired out as the respondent would
hold the appellants liable for
rental for the full period of the lease.
[8]
The
appellants, having admitted the terms of the rental agreement and the
performance by the respondent of its obligations, attracted
the onus
to establish their defence as regards the future rentals on a
preponderance of probabilities.
[9]
The
court
a quo
found
that there was no merit in the applicant's defences and did not
consider the mitigation of loss independently of the provisions
of
the Conventional Penalties Act 15 of 1962.
[10]
The issue was raised in the plea and the
court
a quo
was
required to consider it. In that regard the court
a
quo
misdirected
itself. The appellants', even if so inclined, could not raise a
defence that the terms of the lease agreement imposed
a burden on
them and was therefore unenforceable. In
BANK
OF LISBON AND SOUTH AFRICA LTD v DE ORNELAS AND ANOTHER
[1]
Joubert
JA held that the
exceptio
doli generalis ,
a
common law defence enabling a party to avoid the consequences of a
contract on the basis that it resulted in burdensome obligations
which were unfair was held not to form part of our law.
[11]
The
appellants' anchored their case on the ground that the respondent was
bound to mitigate its damages by either selling the equipment
or
leasing it out at an early stage and therefore it acted unreasonably
in failing to do so. It was common cause that the equipment
was
returned after 10 months in a lease agreement of 60 months. The
equipment was kept and it was only sold by the respondent on
13
February 2014 for R1 000-00.
[12]
The appellants submit that:
12.1
If
the equipment was sold earlier, more than R1 000-00.00 would have
been realised for it.
12.2
There
is no evidence of any measures taken by the respondent to sell the
equipment earlier.
12.3
A
reasonable person in the position of the respondent would have sold
or hired out the equipment at an early stage.
[13]
The respondent submits that:
13.1
The
claim is for contractual damages and it was not necessary for it to
have mitigated the damages in a contractual claim.
13.2
Even if the respondent is required to mitigate its damages, there is
no evidence that it acted in an unreasonable
manner.
13.3
It
was not bound to accept the repudiation of the contract by the
appellants and it immediately reminded the appellants of their
obligations in terms of the contract.
13.4
The
contract stipulated that the respondent remained the owner of the
equipment and, therefore, it cannot be expected that an owner
should
sell his property as an act of mitigating damages for the defaulting
party.
13.5
The
contract provided that despite the return of the equipment to the
respondent, on payment of the full amount outstanding, the
appellants
were entitled to have the equipment returned to them.
13.6
There is no evidence that the
respondent did not act in a reasonable manner, it was not in the
business of hiring out movable assets
nor in the business of selling
second hand equipment, and that it was notoriously known that there
was no market for the second
hand equipment and this was pointed out
to the appellants at an early stage.
[14]
It is necessary to determine whether the
principles of mitigation of damages apply. If so, which party bears
the onus and the nature
of the onus, and then to examine the evidence
presented before the court a
quo.
[15]
In
the particulars of claim the respondent seeks relief for damages
following from the breach of contract. The contract provided
for the
method of calculation of damages in the event of a breach of the
contract.
[16]
An
action for damages originating from a breach of contract does not
arise
ex
contractu
in
the sense that it is primarily created by agreement between the
parties to a contract. It is a secondary obligation created by
breach
of the primary contractual obligation causing damage. In view of
this, there is no material difference between damage claims
based on
breach of contract and claims based on delict as far as their origin
is concerned.
[2]
[17]
In
SMITH
v WEEKS
[3]
Stratford
J held that the principle that a lessor is obliged to mitigate its
damages can have no possible application when it has
elected to
enforce the contract instead of accepting repudiation and claiming
damages. In that case the appellant, who was the
lessor, leased a
house to the respondent at £8 per month on a monthly tenancy,
commencing at the beginning and terminating
at the end of each
calendar month. The appellants alleged that the respondent vacated
the house on 1 October, without giving proper
notice, that the house
had been untenanted since that date and that he had consequently
suffered damages to the extent of £16.
The respondent pleaded
that he notified the appellant that he was vacating the premises
before noon on 1 October 1921, that the
premises had been untenanted
due to the appellant's fault; that he (respondent) found a tenant for
the apellant at the same rental,
but that the appellant had increased
the rental by £1 per month.
[18]
Stratford
J held that the appellant was entitled to claim the rental for
October because the respondent did not treat the lease
as cancelled
during October and the uncontradicted evidence was that the house
keys were delivered to him until towards the end
of October. He found
that for November the appellant accepted and took possession of the
keys. He issued summons on 18 November
before the rent for that month
was due. He held that:
Therefore,
his action is for damages and then the rule as to his obligation to
mitigate damages, so far as he reasonably can applies
... the
landlord must mitigate damages if he can reasonably do so.
This
rule is of modern growth and has been expressly and frequently
recognised in our Courts
(see
VICTORIA FALLS POWER CO. v
CONSOLIDATED LANGLAAGTE MINES,
1915, A.D.
1)
It is a rule
of course applicable to all cases of breach of contract and has been
so applied both in England and in this country.
Nowhere can I find
that an exception has been recognised in the cases of an action for
damages by the lessor against his tenant
who has broken his contract
of lease by abandoning the property and refusing to pay rent... the
rule is clearly stated... in the
following words:
"The
damages for the abandonment of a lease by the tenant are measured by
the difference between the rent agreed to be paid
and the sum the
landlord could have realised from the premises by the use of
diligence after they came into his possession. That
paragraph, I
think, admirably states our law as well (see also
TOS
v ANGELO OUTFITTING STORES,
1915,
T.P.D. 22).
It is difficult, if not impossible, to state in general
terms what are the exact efforts which a lessor is bound to make, it
is
a question of fact in each case".
[4]
[19]
It is clear that Stratford J found that
the appellant had not acted unreasonably in holding the respondent
liable for the October
rental.
In
casu
it follows that there is no
merit in the argument that because the respondent is claiming
contractual damages, the principle of
the mitigation of loss does not
apply.
[20]
The respondent, despite the lease
agreement, remained the owner of the leased equipment. The appellants
returned the equipment to
the respondent and the respondent accepted
it. The appellants advised the respondent, with no objection from the
respondent, that
the equipment was of no use to them. The appellants
were unable to find somebody to take over the lease. The equipment
was returned
to the respondent for the respondent to lease out or
sell to reduce the appellant's liability to the respondent. The
respondent,
through SAMCOM undertook to endeavour to find another
company to take over the system. It is clear that the appellants
placed the
respondent in a position to take whatever measures deemed
appropriate to mitigate its loss. The respondent did not respond to
the
plea when it was alleged that it failed to take reasonable
measures to mitigate its loss.
[21]
The
essence of the mitigation of loss is that the respondent's
unreasonable failure to mitigate its damages after the event is a
ground for reducing its recovery. The respondent will not be
compensated for such portion of his loss as could have been avoided
by taking reasonable steps. The failure to mitigate consists in the
omission of taking reasonable measures to minimise damage already
caused or to avert further harm. When a contract has been breached,
the innocent party is not entitled to sit back and allow damages
to
multiply.
[5]
The issue is whether the respondent took any reasonable measures to
mitigate its loss.
[22]
The applicability of the provisions of
the Conventional Penalties Act 15 of 1962 was not raised in the
pleadings. However, with
the leave of the court
a
quo,
it was raised for the first
time in argument. The court
a quo
found that the acceleration clause
was a penalty clause but found that it was not shown that it was not
in proportion to the loss
suffered by the respondent. The issue is
not raised in the grounds of appeal by the appellants and is thus not
before this court.
[23]
The
onus is on the appellants to prove that the respondent has
unreasonably failed to take measures to mitigate its loss. The duty
arises only after the respondent has proved that it suffered damages.
Where the appellants prove an unreasonable failure to mitigate,
it is
for the respondent to prove what its damage would have been if it had
mitigated, that is, what sum it is entitled to recover
from the
appellants.
[6]
[24]
Scrimgouer testified that when the equipment was collected from the
appellants by SAMCOM in April
2013, SAMCOM kept the equipment and was
supposed to find somebody to take over the lease. In September 2013
he enquired from SAMCOM
whether the equipment was still with them.
They confirmed that it was still with them and asked what should they
do with the equipment.
In April 2014 he collected the equipment from
SAMCOM and sold it for R1 000.00. Scrimgouer's evidence indicates
that they were
in constant contact with various suppliers of similar
equipment and who were in turn in contact with the users of the
equipment.
[25]
It is fair to conclude that his evidence was to the effect that the
respondent took no measures
to lease out the equipment although it
was in a position to do so. It did not make it known in any manner
that such equipment was
available to be leased out. The respondent
has accordingly failed to take any reasonable measures to lease the
equipment which
could have resulted in a reduction of its damages.
[26]
The respondent bears the onus of proving both the fact and the
quantum of its damages it is entitled
to recover from the appellants.
It is accepted that it may be difficult to prove quantum. Likewise it
may be difficult to prove
the amount with which respondent's claim
would have been reduced if the respondent had taken reasonable
measures to mitigate its
loss. In
ESSO
STANDARD SA (PTY) LTD v KATZ
[7]
Diemont
JA stated:
It
has long been accepted that in some types of cases damages are
difficult to estimate and the fact that they cannot be assessed
with
certainty or precision will not relieve the wrongdoer of the
necessity of paying damages for his breach of duty....Not only
is the
principle not a novel one but the English precedents which have given
some guidance on the problem have gone so far as to
hold that the
court doing the best it can with insufficient material may have to
form conclusions on matters on which there is
no evidence and to make
allowances for contingencies even to the extent of making a pure
guess... Whether or not a respondent should
be unsuited depends on
whether he had adduced all the evidence reasonably available to him
at the trial.
[27]
The
court
a quo
failed
to take into account that:
27.1
The
appellants returned the equipment to the respondent.
27.2
The
respondent could have had the equipment valued.
27.3
The
respondent bought the equipment from the supplier and had all the
details relating to the cost of the equipment.
27.4
The
respondent, being in the business of financing similar equipment,
knew what would be a reasonable rental for such equipment.
27.5
The
respondent when it desired to sell the equipment, readily sold it.
27.6
It
did not have the equipment valued or sold by soliciting the highest
offer for the equipment.
[28]
The respondent refused during the trial
to disclose how much it paid for the equipment and how the rental was
calculated. The appellants
placed before the court the total of the
accelerated rentals which was claimed from them, although they were
not using the equipment
and it had been returned to the respondent.
The court
a quo
misdirected
itself in failing to take this into account. There was no other
evidence that could be forthcoming from the side of
the appellants..
The appellants had the use of the equipment from December 2012 to
April 2013. They continued to pay rentals up
to December 2013 which
was an effort to afford the respondents a reasonable period to take
measures to mitigate its loss.
[29]
I am of the view that to hold the
appellants liable for the accelerated rental is disproportionate to
the benefit they obtained
from the rental agreement. Further, for the
respondent to receive payment of the full amount of the accelerated
rental whereas
the equipment was returned to it after only 10 months
of the lease of 60 months is disproportionate to its expense. If the
respondent
had made it known that there was such equipment at half
the rental there might have been persons or entities interested in
leasing
the equipment. It would in the least have resulted in the
appellants being liable for a reduction in the total amount of the
accelerated
rental. It is not required that the appellants establish
with certainty what would have happened if the respondent had taken
reasonable
measures to mitigate its loss. I consider a reduction of
50% of the accelerated rental after the R1 000.00 had been deducted
to
be appropriate in the circumstances. Accordingly the appellants
should be liable for 50% of R29 414.63 less R1 000.00, that is,
for
R14 207.31.
[30]
The costs of instituting action and
appealing the matter has far exceeded the amount claimed. Both
parties believed they were correct
and this Court in arriving at its
decision had to take into account various considerations and is of
the view that it would be
just and equitable that each party pays
their own costs. Further, the appellant's tendered the arrear rental
in their plea and
should thus only be responsible for interest on the
arrear rental from date hereof.
[31]
I propose the following order.
1.
The
appeal is upheld.
2.
The
judgement of the court
a quo
is
set aside and replaced with the following:
2.1
The
appellants are directed to make payment to the respondent as follows:
2.1.1
In the sum of R1 589.98.
2.1.2
Interest thereon at the rate of 6% above
the prime lending rate from date of judgment to date of payment.
2.1.3
In the sum of R14 207-31 in respect of
future rentals for the period February 2014 to 28 February 2017 .
2.1.4
Interest thereon at the prevailing rate
from date of judgement to date of payment.
2.2
Each
party to pay his own costs.
MNGADI
AJ
I
agree and it is so ordered.
BALTON
J
APPEARANCES
Date
of hearing:
13 March 2017
Date
of judgment:
27 June 2017
Counsel
for the Appellants:
Adv S Hoar
(Instructed by Romer Attorneys)
Tel: (031) 267 2435
Ref.:
MR/C13/19
Counsel
for the Respondent:
Adv Aldworth
(Instructed by Garlicke &
Bousfield Inc)
Tel:
(031) 570 5300
Ref.: Mrs
Bernadis-Larratt/sn/L
[1]
1988 (3)SA 580 (A) at 607 A-B
[2]
See Van Aswege n Sam e loo p 313 quoted in footnote 73 Potg ieter
et
al
in Visser & Potgieter Law of Damage-s 3ed Para 1.5.5,
Page 8
[3]
1922 TPD 235
[4]
At 237-238
[5]
See Boberg The Law of Delict Volume 1 Pages 403, 436, 479, 493, 541,
622, 625 - 627
[6]
KRUGELL v SHIELD VERSEKERINGS-MAATSKAPPV BK
1982 (4) SA 95
(T) at 99G;
JAVBER (PTY) LTD v MILLER
198 0 (4) 280
(W) at 285 - 6 [noted w it h approval by
AJ Kerr
(1981) 89
SAU 306]
[7]
1981 (1) SA 96
4 (A) at 969 H - 970 E