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2015
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[2015] ZAKZDHC 83
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AECI Limited t/a Nulandis v Dellis (595/15) [2015] ZAKZDHC 83 (23 October 2015)
In the High Court of
South Africa
KwaZulu-Natal Local
Division, Durban
Case No : 595/15
DATE: 23 OCTOBER 2015
In the matter between :
AECI Limited t/a
Nulandis
.........................................................................................................
Plaintiff
And
Shane
Dellis
...............................................................................................................................
Defendant
Judgment
Lopes J
[1] The plaintiff in this action, AECI
Limited, which trades as ‘Nulandis’, sued the defendant,
Shane Dellis, for payment
of the sum of R160 000 together with
interest and costs.
[2] The facts which are common cause
between the parties are as follows :
(a) Mr Tatham, the Regional Sales
Manager of Nulandis in KwaZulu-Natal, sought out Mr Dellis as a
prospective agent for the promotion
and sale of Nulandis products in
the area covering Eshowe, the Nkwaleni Valley and Melmoth in
KwaZulu-Natal..
(b) On the 5th March 2014 the parties
concluded a written agreement, the material terms of which were :
(i) that Mr Dellis would be appointed
as the exclusive agent of Nulandis in the areas of Eshowe, the
Nkwaleni Valley and Melmoth,
with the right to procure purchase
orders for selling Nulandis’s products to its customers in the
area;
(ii) the agreement commenced on the 1st
March 2014, and was to continue for an initial period (referred to
as the ‘critical
period)’;
(iii) Nulandis undertook to pay Mr
Dellis a fixed commission of R40 000,00 per month during the critical
period, until such time
as Mr Dellis could operate on a commission
basis only. The critical period would not exceed 24 months;
(iv) that if the agreement was
terminated during the critical period for any reason other than one
of the reasons set out in clause
10.1.2 of the agreement, Mr Dellis
would be liable in terms of clause 10.1.1 to pay back the plaintiff
the fixed commission (or
‘Allowance’ as it is also
described) paid to him;
(v) Mr Dellis agreed not to act as an
agent, for a period of one year after the termination of his contract
with plaintiff, for
any other company, within the areas of Eshowe,
the Nkwaleni Valley and Melmoth.
(c) At least four payments were made by
Nulandis to Mr Dellis. They were :
(i) R34 226,72 on the 25th March 2014;
(ii) R30 922,48 on the 25th April 2014;
(iii) R30 922,48 on the 24th May 2014;
(iv) R30 992,48 on the 25th June 2014.
(d) A further payment of R50 000 was
made by Nulandis to Mr Dellis. The parties were uncertain of the
date when it was paid, and
Mr Dellis was unsure whether it was paid
at all. It plays no part in the deliberations in this action.
(e) On the 25th June 2014, four months
after starting work as an agent for Nulandis, Mr Dellis tendered his
resignation. He proffered
no reasons for doing so in his letter of
resignation.
(f) After resigning Mr Dellis
immediately went to work for Farm-Ag, who had, prior to his
resignation, approached him and requested
him to do so. Farm-Ag
supplies farmers with similar products to Nulandis, and operates in
direct opposition to it.
(g) Mr Dellis regarded his function as
agent for Nulandis as being required to establish the Nulandis brand
of farming products,
open accounts for farmers, and sell products to
them. The products are mainly chemicals used in the production of
sugar cane, timber,
citrus crops, avocado pears, macadamia nuts and a
small quantity of vegetables.
(h) Ancillary to the function of
selling products, Mr Dellis would work with farmers, giving advice on
the benefits of the Nulandis
products and their application to crops.
(i) In the four months during which he
operated as an agent for Nulandis, Mr Dellis opened 15 to 16
accounts, and made sales of
approximately R11 000, resulting in a
gross profit on sales of some R300.
(j) In addition, Mr Dellis attended
various training courses, and was involved in the S A Avocado Growers
Association and the Macadamia
Growers Association. He also erected
or constructed a storage area for products supplied to him by
Nulandis on a consignment basis.
Mr Dellis continues to use that
depot for the storage of Farm-Ag products.
(k) Mr Dellis conceded that when he
tendered his resignation, he was aware of the clause in the contract
requiring him to pay back
the fixed commission he received, as well
as the restraint of trade.
[3] In his plea, Mr Dellis advanced two
reasons why he should not have to repay Nulandis the allowances paid
to him :
(a) he was an employee, and not an
independent contractor or agent;
(b) the repayment of the allowances
would constitute a conventional penalty in terms of the Conventional
Penalties Act, 1962. In
this regard, the penalty which Nulandis
sought to enforce was excessive and out of proportion to the
prejudice suffered by Nulandis.
[4] Mr Tatham testified for Nulandis,
and Mr Dellis gave evidence on his own behalf. I accept that both
witnesses gave their evidence
honestly, and no credibility issues
arise in respect of either of them. Mr Dellis did not suggest that
he regarded himself as
an employee in terms of the
Basic Conditions
of Employment Act, 1997
.
[5] Mr Veerasamy, who appeared for Mr
Dellis submitted that the defence raised in the pleadings that Mr
Dellis was an employee,
was a red herring. This is because even if
Mr Dellis was an employee, the conventional penalty argument would
still be applicable.
Mr Veerasamy did not advance any submissions
that Mr Dellis should be regarded as an employee. I have accordingly
not dealt with
this issue, which I consider, in any event, to have no
merit.
[6] Mr Veerasamy accepted that Mr
Dellis bore the onus of demonstrating that the alleged penalty was
disproportionate to the prejudice
suffered by Nulandis. He submitted
that the prejudice to Nulandis was non-existent because :
(a) Mr Dellis worked for four months,
covering 40 000 hectares over the Eshowe, Nkwaleni Valley and Melmoth
areas, trying to establish
recognition for the Nulandis brand and for
Nulandis products, where little or no recognition previously existed;
(b) No suggestion was made by Nulandis
that Mr Dellis had not tried to do so diligently and honestly;
(c) If Mr Dellis had to repay the
commission of R40 000 per month, he would have worked for nothing,
and Nulandis would have had
the benefit of his labours free of
charge.
[7] Mr Els, who appeared for Nulandis
submitted that the provisions of the agreement did not constitute a
penalty stipulation, particularly
where Mr Dellis had left to pursue
employment with a direct competitor. Mr Els submitted that Mr Dellis
had obtained the full
benefit of the allowances, and, in terms of the
agreement, he was obliged to repay those amounts to Nulandis.
[8] The relevant clauses in the
agreement were, inter alia, :
’10.1 In consideration for its
services to the Company in terms of this Agreement, the Company shall
pay to the Agent a fixed
commission of R40,000.00 (Forty Thousand
Rand) per month. The payment of a fixed commission will be reviewed
from time to time
until such a date whereby the Agent will be able to
operate on a commission basis only. The critical period will not
exceed 24
(Twenty Four) months.
10.1.1 If the Agreement is terminated
for any reason other than those listed in subsection 10.1.2, the
Allowance paid to the Agent
in terms of this subsection will become
payable by the Agent to the Company on the date of such termination.
10.1.2 If the Agreement is terminated
as a result of the Agent’s death, or objective inability to
continue acting as Agent
in terms of the Agreement resulting from the
Agent’s death or physical or mental disability to reasonably
continue, then
the Allowances then due shall not be reclaimable by
the Company from the Agent. The proof of such disability shall rest
upon the
Agent and shall be buttressed by two independent and
suitably qualified medical practitioners.
10.1.3 The Company may, in its sole and
absolute discretion, waive and abandon any of its rights to claim the
Allowance(s) from
the Agent depending on the circumstances
surrounding the termination of the Agreement.
[9] The Conventional Penalties Act,
1962 provides :
‘1. Stipulations for penalties in
case of breach of contract to be enforceable. –
(1) A stipulation, hereinafter
referred to as a penalty stipulation, whereby it is provided that any
person shall, in respect of
an act or omission in conflict with a
contractual obligation, be liable to pay a sum of money or to deliver
or perform anything
for the benefit of any other person, hereinafter
referred to as a creditor, either by way of a penalty or as
liquidated damages,
shall, subject to the provisions of this Act, be
capable of being enforced in any competent Court.
…
2. Prohibition on accumulation of
remedies and limitation on recovery of penalties in respect of
defects or delay. –
…
(2) A person who accepts or is obliged
to accept defective or non-timeous performance shall not be entitled
to recover a penalty
in respect of the defect or delay, unless the
penalty was expressly stipulated for in respect of that defect or
delay.
3. Reduction of excessive penalties. –
If upon a hearing of a claim for a
penalty, it appears to the Court that such penalty is out of
proportion to the prejudice suffered
by the creditor by reason of the
act or omission in respect of which the penalty was stipulated, the
court may reduce the penalty
to such extent as it may consider
equitable in the circumstances : Provided that in determining the
extent of such prejudice the
court shall take into consideration not
only the creditor’s proprietary interests, but every other
rightful interest which
may be affected by the act of omission in
question.’
[10] In his evidence, Mr Dellis
conceded that his termination of the contract was not for any of the
reasons set out in clause 10.1.2
of the agreement, and accordingly
clause 10.1.1 became operative. The R160 000 which had been paid by
Nulandis to Mr Dellis became
repayable on the date of his termination
of the agreement, which was the 25th June 2014.
[11] The issues which remain for me to
decide are :
(a) whether clause 10.1.2 constituted
a conventional penalty in terms of the Act; and if so;
(b) whether the penalty is out of
proportion to the prejudice suffered by Nulandis by reason of the
resignation of Mr Dellis.
[12] It is clear from the evidence in
this matter, and in particular that given by Mr Dellis, that he
terminated the agreement
by resigning. There was no suggestion that
he did so because of any conduct on the part of Nulandis or its
employees. Mr Dellis
admitted in evidence that the reason for his
resignation was an offer made to him by Farm-Ag, which included
better terms than
he was given by Nulandis.
[13] In Sun Packaging (Pty) Ltd v
Vreulink
[1996] ZASCA 73
;
1996 (4) SA 176
(A) the Appellate Division held that unless
the liability of the debtor to pay a penalty derived from a breach
of contract, the
stipulation relied upon by the creditor would not
qualify as a penalty.
[14] In Maiden v David Jones (Pty) Ltd
1969 (1) SA 59
(N) the Court considered the question of who bore the
onus of establishing that the penalty was out of proportion to the
prejudice
suffered by the creditor. At page 63 A the court stated :
‘The nature of the prejudice
suffered by the creditor may vary greatly from case to case, and it
may be that in some cases
the prejudice may for all practical
purposes be equivalent to damages and nothing else. It may also be
that it is for the creditor
who contends that he has suffered
prejudice, other than pecuniary loss, to establish that he has
suffered such prejudice. In
our view, however, the Legislature did
not intend that in all cases where a penalty or liquid damages have
been agreed upon, the
creditor would first have to prove his damages
before he could recover.’
[15] At page 64 E the court continued :
‘In the result, if in this matter
we are left in doubt as to whether or not the penalty is markedly or
unfairly out of proportion
to the prejudice, then the penalty falls
to be enforced as agreed. If, therefore, in this case, we are left
with no data enabling
us to establish that there was a disproportion
or the extent of such disproportion, then the magistrate correctly
awarded the creditor
the full amount of the agreed penalty.’
[16] In Chrysafis and Others v Katsapas
1988 (4) SA 818
(A) at 828 H, Hoexter J.A stated :
‘Upon a reading of the affidavits
filed in the application so it seems to me, it does not appear prima
facie that the penalty
stipulated is out of proportion to the
prejudice suffered by the sellers. Accordingly the onus is on the
debtor (the respondent)
to show that the forfeiture is
disproportionate to the prejudice suffered by the creditors; and to
what extent it should be reduced.
See Smit v Bester
1977 (4) SA 937
(A) at 941 A – 943 A.’
[17] In Smit, the court held that a
court can mero motu reduce the penalty when it prima facie appears
from the pleadings that
the penalty is out of proportion to the
prejudice which the creditor suffered.
[18] In this matter Nulandis agreed to
pay Mr Dellis a fixed commission of R40 000 per month on condition
that if he terminated
his employment prior to the expiry of the
period of two years, he would be liable to repay the commission
unless he resigned for
one of the reasons set out in clause 10.1.2..
[19] Mr Dellis could advance no reason
why he should not repay the sum of R160 000, save for stating that
various expenses which
he had incurred fell to be deducted from the
amount, and that he should not be called upon to repay the whole
amount. His evidence,
however, was extremely vague with regard to
what items should be deducted, let alone any quantification of
those items.
[20] In the circumstances I do not
believe that the stipulation that Mr Dellis repay the monies advanced
as commission to him falls
within the ambit of a conventional
penalty as set out in the Act. What the contract envisages is that
Mr Dellis would need some
funding assistance in order to establish
himself, and prior to being able to earn commission. There is no
doubt that this would
take some time and the parties’ agreement
on a period of 24 months is evidence of that. The evidence of both
parties was
that the fixed commission of R40 000 per month was in
the nature of assistance, and would cease to be paid in the event
that Mr
Dellis was so successful that the commissions payable to
him exceeded that amount, and he could, as it were, stand on his own
two feet.
[21] Mr Dellis, however, terminated his
employment because it suited him to do so, and in pursuit of greater
income. The repayment
is simply the return to Nulandis of monies
which were advanced to Mr Dellis in order to enable him to sustain
himself in the short
term. It is incorrect to suggest, as Mr
Veerasamy has done, that in the event that the money is ordered to be
repaid, Mr Dellis
would have provided his labour to Nulandis for no
reward whatsoever. The evidence of Mr Dellis was that during the
four months,
he underwent some training, and had considerable
exposure to clients in the area described above. That he then took
up employment
with a direct competitor, will no doubt ensure that the
training and experience he gained during his employment with
Nulandis
will operate in his favour in securing future sales of farm
products to Farm-Ag. It was no doubt for this very reason that a
restraint
of trade clause was included in the agreement, albeit that
it was not relied upon by Nulandis after Mr Dellis terminated his
employment.
[22] Mr Veerasamy submitted that in
terms of clause 10.1.2, Mr Dellis could only terminate his employment
upon death or disability,
without rendering himself liable to repay
the fixed commissions advanced to him. I do not agree. What the
provisions of clause
10.1.1 and 10.1.2 envisage is that if Mr Dellis
wished to terminate his employment within the 24 month period for his
own reasons,
he would be obliged to repay the advances paid to him.
These clauses do not in any way negate any rights which Mr Dellis may
have
had to terminate his employment consequent upon a breach of the
agreement by Nulandis. The clause does not in any way restrict
Mr
Dellis’s common law rights to cancel the contract for a breach
by Nulandis. In my view this is a clause in favour of
Mr Dellis, and
is similar in nature to that which was referred to in Sun Packaging.
It does not constitute a penalty stipulation,
and, whilst his
willingness to be employed by Farm-Ag may have constituted a breach
by him of the agreement with Nulandis, his
resignation per se did
not.
[23] In all the circumstances I am not
satisfied that Mr Dellis has discharged the onus upon him of
demonstrating that the amount
repayable was a penalty in terms of the
Act. Even if it was, no evidence has been led to demonstrate that it
was out of proportion
to any prejudice which may have been suffered
by Nulandis.
[24] Accordingly, Nulandis is entitled
to be paid the sum of R160 000. Mr Els agreed that the correct
interest rate applicable
should be nine per cent per annum from the
date of service of the summons. He (properly, in my view) sought
costs on the appropriate
Magistrates’ Court scale.
[25] In the circumstances I make the
following order :
(a) The defendant is directed to pay to
the plaintiff the sum of R160 000.
(b) The defendant is directed to pay
interest on the sum of R160 000 calculated at the rate of nine per
cent per annum from the
30th January 2015 to date of payment.
(c) The defendant is directed to pay
the plaintiff’s costs of suit, calculated on the appropriate
Magistrates’ Court
scale.
Date of hearing 19th October 2015
Date of judgment : 23rd October 2015
Counsel for the Plaintiff :A P J Els
(instructed by Thom Attorneys)
Counsel for the Defendant : I
Veerasamy (instructed by Gregor Erasmus Attorneys)