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[2013] ZAGPPHC 139
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Mineral-Loy (Pty) Ltd v Evraz Highveld Steel & Vanadium Corporation Ltd and Another (34312/10) [2013] ZAGPPHC 139 (3 June 2013)
IN
THE NORTH GAUTENG HIGH COURT,
PRETORIA
HELD AT PRETORIA
Case
No: 34312/10
DATE:03/06/2013
In
the matter between:.
MINERAL-LOY
(PTY) LTD
….......................................................................................
Plaintiff
and
EVRAZ
HIGHVELD STEEL & VANADIUM CORPORATION LTD
(formerly
known as HIGHVELD
STEEL
AND VANADIUM
LIMITED)
............................................................................
1st
Defendant
TRANSALLOYS
(PTY)
LTD
..........................................................................................
2nd
Defendant
JUDGMENT
The
parties
1.
The plaintiff is MINERAL-LOY (PTY) LTD, a company with limited
liability duly registered and incorporated in terms of the company
laws of the Republic of South Africa, with principal place of
business at Iron Gate, 16 Stirrup Lane, Woodmead Park, Sandton.
2.
The first defendant is EVR.AZ HIGHVELD STEEL AND VANADIUM LTD,
(formerly known as HIGHVELD STEEL AND VANADIUM LIMITED), a public
company duly registered and incorporated in terms of the company laws
of the Republic of South Africa, with registered address
at Portion
83, Farm Schoongezicht, No 308JS, district Emalahleni, 1039.
3.
The second defendant is TRANSALLOYS (PTY) LTD, a company with limited
liability duly incorporated and registered in accordance
with the
South African company laws with principal place of business at Clewer
Road, Emalahleni, Mpumalanga. The second defendant
was previously
known as Island House Trading 86 (Pty) Ltd.
The cause of action
4.
The plaintiff relies for the relief it seeks, whether against the
first or second defendant, in the first instance upon an agreement,
said to be partially written, alternatively oral, entered into with
the first defendant in October 1985. This agreement is described
as a
distribution agreement which was entered into while the plaintiff as
represented by C Stofberg. The agreement was entered
into with the
first defendant’s Transalloys Division, represented at the time
by A L Melvill.
5.
The written portion is alleged to be a letter signed by A L Melvill,
who described himself as the General Manager, Ferro-Alloy
Operations,
dated the 11th October 1985. it is addressed to Mr C Stofberg at the
plaintiff’s postal address. The body of
the letter reads as
follows:
'Dear
Chris,
This
serves to confirm our recent telephonic discussion in which it was
agreed that Transalloys would appoint Mineral-Loy as its
sole
distributor of medium carbon ferromanganese in South Africa, subject
to Tranalloys having the right to exclude certain customers.
Attached
is a schedule of these exclusions.
It
was further agreed that this arrangement would be based upon “Good
Faith” and that there would be no formal agreement.
We
are confident that this arrangement will work to the benefit of both
parties and look forward to receiving your market reports
in due
course.’
6.
Annexed to this letter was a list of consumers of medium carbon
ferromanganese, consisting mainly of major participants in the
steel
manufacturing and steel industry, such as ISCOR (now known as
Arcelor-Mittal).
7.
Plaintiff further alleges that the 1985 agreement entitled it to
exclusively promote the sale of medium carbon ferromanganese
produced
by the first defendant. As counter performance it would provide
technical assistance to purchasers of these goods, irrespective
of
whether the ferromanganese had been purchased directly from the first
defendant or from the plaintiff.
8.
The technical assistance provided by the plaintiff did Include, as
part of plaintiff’s express, alternatively implied,
alternatively tacit obligations in terms of the parties’
agreement, the provision of expert metallurgists who would assist
the
purchasers of first defendant’s products to optimally use the
material in the creation of manganese steel alloys. This
assistance
did extend to advice relating to the most economical method to use
the product to maximum effect and financial benefit.
9.
In addition, plaintiff promoted the use of the first defendant’s
pure ferromanganese as against ferromanganese extracted
from recycled
or ‘scrap’ materials that might have become contaminated
by trace-elements that would negatively influence
its quality, or
might exhibit varying levels of ferromanganese concentration.
10.
Plaintiff had to liaise with all customers concerning their product
and technical needs to establish market trends, and report
to first
defendant theranent. At first defendant’s request, specific
market trends would be investigated. Plaintiff would
further supply
bi-annual market reports containing sales, production and marketing
information of both ferromanganese and silico-
manganese market
conditions.
11.
In return plaintiff would be entitled to a 2% commission on the
invoice price on all sales effected by first defendant directly
to
its excluded customers. In order to calculate the 2% commission,
first defendant would inform plaintiff telephonically at the
end of
each calendar month of the value of sales of ferromanganese effected
by first defendant during the course of that month
to its excluded
customers, and of the commission payable to the plaintiff.
12.
Reasonable notice would be given of any intention to cancel the
agreement by either party.
13.
Plaintiff further alleges that the agreement was orally amended to
extend the services rendered by plaintiff in respect of
ferromanganese to silico- manganese produced by the first defendant.
Such amendment was effected orally while plaintiff was represented
by
Mr Stofberg and first defendant by Mr Winstanley. In return for these
additional services first defendant would pay commission
at 2% of the
invoice price of sales by first defendant to Ozz Industries, and 3%
of the invoice price to all other customers, excluding
sales by first
defendant to ISCOR as ArcelorMittal was then known; and all sales to
the Scaw Metal Group. Plaintiff was informed
of all relevant sales of
silico- manganese in the same fashion as in respect of
commission-earning sales of ferromanganese.
14.
Plaintiff would raise tax invoices in respect of the commissions as
advised by the first defendant monthly in arrears and payment
would
be effected within 30 days from date of invoice.
15.
In July 2007, the first defendant concluded a written purchase and
sale agreement with the second defendant in terms of which
first
defendant’s Transalloys division was sold to the second
defendant with effect from the 1st July 2007. This agreement
is
common cause between the parties.
16.
The plaintiff’s case is further that it continued to render
services in connection with its agreement with the first defendant
to
the latter, notwithstanding the sale of the said division, and that
first defendant continued to effect payment to it from July
2007 to
March 2008. In April 2008 the plaintiff still invoiced the first
defendant after having been informed of the commission
due to it in
terms of the existing practice. During May 2008, however, the
plaintiff was notified by one Claudine Wait on behalf
of the first,
alternatively the second, further alternatively on behalf of both
defendants, while plaintiff was represented by
Ms P Wright, duly
authorised to do so, that plaintiff should re-issue its April 2008
invoice to the second defendant and should
issue all future invoices
to the second defendant.
17.
During May to September 2008 the plaintiff fulfilled its contractual
obligations as usual. One W Nkosi would inform it at the
end of each
month of the value of sale effected by second defendant in respect of
ferromanganese and silico- manganese and of the
commission due to the
plaintiff. Plaintiff was paid in respect of commission due to it for
the period April 2008 to July 2008 inclusive.
18.
The second defendant did, however, fail to pay the commissions due
for the months of August and September 2008, which amounts
remain
unpaid.
19.
Plaintiff further asserts that the second defendant assumed the
first defendant’s rights and duties of the agreement
with the
plaintiff, either in July 2007 or with effect from 1st April 2008 and
therefore became obliged to notify the plaintiff
monthly of the value
of the sales of ferromanganese and silico- manganese and to pay the
properly calculated commission in respect
thereof to the plaintiff.
20.
The assumption of the first defendant’s rights and obligations
under the contract also placed the duty upon the second
defendant to
give reasonable notice in the event of the second defendant being
desirous to terminate the contract.
21.
In its claim against the second defendant the plaintiff asserts that
the former refused as from October 2008 to disclose the
value of the
direct silico- manganese sales effected by the second defendant or
the commission due to the plaintiff. This conduct
signified that
second defendant did not intend to hold itself bound to the contract
and therefore constituted a repudiation which
plaintiff accepted and
thereby terminated the agreement.
22.
Plaintiff alleges that a reasonable notice period to terminate the
contract would have been a period of twelve months and therefore
claims the average monthly commission earnings for a year as damages.
23.
In the alternative plaintiff alleges that second defendant interceded
on behalf of the first defendant and agreed to be liable
to plaintiff
under the agreement jointly and severally with the first defendant,
with the result that first and second defendants
are jointly and
severally, the one to pay, the other to be absolved, for the damages
the plaintiff has suffered.
24.
In an alternative claim against the first defendant the plaintiff
alleges that, should the court find that the first defendant
did not
assign its rights and obligations in terms of the agreement with the
plaintiff, the first defendant remained bound to inform
the plaintiff
of all relevant sales and remained obliged to pay plaintiff the
agreed commission.
25.
First defendant is then alleged to have failed to inform plaintiff of
all relevant sales and of having failed to pay the agreed
commission
and since May 2008 to have failed to comply with its obligations,
which conduct constituted a repudiation which plaintiff
has accepted.
26.
First defendant is in that event liable for plaintiff’s
damages, the plaintiff asserts.
27.
Both defendants entered the lists in defending the action against
them.
28.
In its plea, the first defendant admitted that an oral agreement had
been entered into between it and the plaintiff in 1985
appointing the
plaintiff as sole distributor of medium carbon ferromanganese in
South Africa, with the exclusion of certain customers.
It admitted
that the appointment would be based upon ‘good faith’ and
admitted the letter written by its senior employee
annexed to the
particulars of claim, but denied the existence of a formal agreement.
It also denied all the terms alleged by the
plaintiff .as well as the
alleged amendment of the contract the plaintiff relied on.
29.
First defendant pleaded further that the sale agreement of the
Transalloys division had transferred all its rights and obligations
to the second defendant. Consequently, so it said, any services
rendered by the plaintiff after the first of July 2007 until April
2008, were rendered to the second defendant, and any payments made by
first defendant to the plaintiff in this period were made
on the
second defendant’s behalf.
30.
The arrangements made in April 2008, leading to the second defendant
being invoiced by the plaintiff, were made at second defendant’s
request and all further transactions were concluded between the
plaintiff and second defendant.
31.
First defendant denied any further involvement with the plaintiff or
the execution of the distribution agreement and disputed
any
liability toward the plaintiff, demanding the dismissal of all claims
against it.
32.Second
defendant, in turn, denied the existence of any agreement between the
plaintiff and first defendant as well as any amendment
thereof. It
admitted the sale agreement between and the purchase of the
Transalloys division from first defendant. The second defendant’s
plea adds that in terms of the said agreement of sale all the first
defendant’s existing contractual obligations were delegated
to
the second defendant in the manner and fashion provided for in the
written sale agreement. It denied that any consent was procured
from
the plaintiff to the delegation of its agreement, if any, with first
defendant and so disputed any liability even if an agreement
did
exist between plaintiff and first defendant. It denied having
notified the plaintiff of the need to invoice the second defendant
for any services rendered, admitted having made payments to the
plaintiff after April 2008 but pleaded that this payments were
made
in the bona fide and reasonable, but mistaken belief that these
payments were due, which they were in fact not.
33.
Second defendant therefore denied any liability toward plaintiff.
34.lt
added that it had concluded a tolling agreement with a third party in
September 2008, effective 1st July 2008, in terms of
which second
defendant would process ore exclusively for the third party. It
therefore ceased any sales to any customers falling
within the terms
of plaintiffs alleged agreement with the first defendant and
consequently the plaintiff would in any event not
have earned any
commission after the first day of July 2008.
35.
Second defendant therefore demanded the dismissal of plaintiff’s
claim and instituted a counterclaim for the repayment
of all payments
made to plaintiff after the first day of May 2008. Plaintiff
reiterated its averments in its plea to the counterclaim.
It further
pleaded that the second defendant had received the benefit of its
services and was not entitled to repayment of any
sum paid to
plaintiff. It prayed that the counterclaim be dismissed.
36.
Prior to the commencement of the hearing the parties argued a
proposed limitation of the issues for decision by this court.
Fabricius J issued an order limiting the present disputes for
decision to all those relating to the merits of the disputes as set
out above, but excluding any consideration of what would constitute a
reasonable notice period for the termination of plaintiff’s
agreement with the first defendant, (if any), and any potential
damages suffered by plaintiff if its factual averments were to
be
accepted. Any reference to the tolling agreement was also excluded.
The evidence
37.
The plaintiff’s first witness was a former general manager of
the first defendant’s Transalloys division, Mr'Simon
Hendrik
van Niekerk, who had already retired from this position, He.
confirmed that Mr Winstanley had been his predecessor. He
had in turn
been preceded by Mr Melvill
38.
Mr Van Niekerk found an existing agreement with the plaintiff when he
became general manager of the Transalloys division. Monthly
reports
of sales would be prepared by the Highveld Finance division of the
first defendant, which plaintiff received and used to
prepare
invoices. These were in turn sent to the finance division, where
payment was effected.
39.
He confirmed that plaintiff did market research and advised the first
defendant in respect of price structures, possible adjustments
thereof, purchases by various clients and analyses of potential
future developments. When the internal shareholding of the plaintiff
company changed, first defendant was advised thereof during 2006 and
he arranged a meeting with the members of the plaintiff. Chris
Stofberg had been an expert on the foundries using first defendant
products, and the new chief executive officer and managing director,
Mr Duff, needed to be introduced to cement the future relationship.
40.
On the 21st December 2006, the first defendant’s Transalloys
division’s sales department addressed a memorandum
to the
witness detailing the clients in respect of whom the plaintiff was
entitled to a 2% commission and laying down the procedure
to be
followed in preparing invoices together with monthly visitation
reports to the first defendant’s clients.
41.
The witness did not know whether the memorandum had been presented
to the plaintiff, but underlined that he had never had any
problems
with the services the plaintiff provided.
42.
He confirmed that the Transalloys division was sold to an overseas
company on 2007. Some of its employees moved with the division
to
become employees of the new owner, others like himself did not. He
moved back to the mother company. Up to that stage he was
satisfied
with the service he received from the plaintiff.
43.
The first defendant declined the opportunity to cross-examine the
witness, but second defendant did so.
44.
In cross-examination Mr Van Niekerk was unable to state whether the
first defendant regarded the agreement of 1985 as legally
binding but
continued to do business with plaintiff while he was in control of
the Transalloys division. He was unaware of the
fact that plaintiff
claimed commission for sales to the excluded clients, but was of the
view that they were entitled to commission
on sales to their own
clients while rendering the services that he had detailed in his
evidence in chief. He agreed that if no
services were rendered, no
commission was payable. He also agreed that plaintiff was not
involved in export sales, but only in
supply to local clients, and
was therefore not entitled to commission on exports.
45.
He was not involved in the negotiations preceding the sale agreement
of the Transalloys division, but was involved in the due
diligence
investigation preceding the actual transfer of the business to the
purchaser.
46.
His attention was drawn to the terms of the latter agreement, and the
list of principal contracts the division was bound to
honour. The
plaintiffs contract was not included in this list and it was
suggested to the witness that the first defendant did
not regard the
agreement alleged by plaintiff as such. The witness could - obviously
- not comment on this suggestion, nor would
his evidence have been
admissible had he ventured an opinion.
47.
Plaintiff’s next witness was Ms Patricia Margaret Wright, long
standing secretary and sales consultant in plaintiff’s
service.
She was responsible for obtaining the sales result figures at the end
of each month from the first defendant, normally
from Mr Nkosi. She
would work out the 2% commission, prepare an invoice that would be
signed off by Boet de Beer and would submit
the same to Nkosi for
payment.
48.
On the 7th May 2008 she was informed by one Sandra McKenzie of the
first defendant that invoices had to be submitted from April
2008 to
second defendant. She was requested to issue a credit note to first
defendant for the last month, April 2008 and to issue
an invoice to
second defendant. She complied with this request and faxed an invoice
to Claudine Wait for payment. The following
invoices were also
submitted to Mr Nkosi, now acting for the second defendant. This
procedure was followed until October 2008,
when no more -sales
figures or payments were forthcoming.
49.
She was referred to a senior gentleman in second defendant’s
service, who informed her that the plaintiff had no contract
with the
second defendant and that no business would be done with the
plaintiff. She referred the matter to Mr De Beer.
50.
Again, first defendant did not cross-examine, Second defendant put it
to her that the defendants had agreed that first defendant
would
manage the business of Transalloys for a year after the purchase and
sale thereof on behalf of the second defendant. The
witness bore no
knowledge of this averment.
51.
Lastly plaintiff called Mr Robert Charles Duff, plaintiff’s
executive director. He had acquired shares in plaintiff through
his
family trust and had become involved in plaintiff in 2006. A due
diligence was performed when he acquired the shares from Mr
Stofberg,
who unfortunately passed away shortly before the trial, and
Stofberg’s co-director. During this process he was
informed of
the existing agreement with the first defendant and sought a meeting
with first defendant’s Mr Van Niekerk and
Mr Pienaar, who was
the first defendant’s executive director at the time. He was
assisted by Mr Boet de Beer, who possessed
the institutional
knowledge of plaintiff’s affairs and its relationship with the
first defendant. Mr Boet de Beer was already
seventy years old at the
time of the trial and was not well enough to attend or to testify.
52.
The relationship between the two parties was confirmed during the due
diligence process. Plaintiff would be the first defendant’s
eyes and ears in the market, would service clients, study market
trends and report to first defendant on all matters germane to
the
manganese ore trade, including the activities of competitors.
53.
Plaintiff duly performed its functions and earned its 2% commission
as the past practice had been, which he had established
during the
due diligence process. This business relationship continued through
2007.
54.
During this year he was informed that an unbundling had taken place
at first defendant and that the Transalloys division had
been sold to
a new owner. He was never informed by either the first defendant or
the new owner of any material change that had
taken place and
business continued as usual. He never saw the agreement in terms of
which Transalloys changed hands until it was
discovered during the
litigation process.
55.
In July 2008 the payments for plaintiff’s services stopped
without any prior notification and for no apparent reason.
He sought
a meeting with second defendant’s senior official, Mr Kriek,
who agreed to a meeting at which he denied any knowledge
of any
agreement with plaintiff. He told Duff that he had never seen any
market report, denied any business relationship and practically
showed Mr Duff the door. He sent copies of past market reports to
Kriek to no avail.
56.
The agreement was therefore at an end. Plaintiff accepted that the
situation could not be improved and litigation ensued.
57.
In cross-examination he was first confronted by second defendant’s
counsel - first defendant again having failed to put
any questions to
the witness - with the fact that the plaintiff had been a close
corporation until 2007 when it was transformed
into a company and
that plaintiff could therefore not have entered into an agreement
with first defendant in 1985. Nothing much
was made of this point,
though, and rightly so.
58.
The witness confirmed that plaintiff was entitled to commission as
set out before for the services it rendered to the first
defendant
and thereafter to the second defendant. He denied that commission was
only payable of actual advice and assistance had
been given to
specific clients, as suggested by second defendant’s counsel.
Part of plaintiff’s service was its constant
availability to
clients by expert metallurgists who could be consulted at any time.
59.
The clients on the so-called exclusion list who received their
purchases of ferromanganese directly from the first or second
defendant did not always remain the same as the list was adapted from
time to time. It was put to the witness that plaintiff was
not the
sole distributor appointed by the first defendant, which he denied.
60.lt
was common cause that the Transalloys business was bought from first
defendant by the second defendant. The witness obviously
had no
personal knowledge of this contract, the terms of which will be
discussed in more detail below. The witness could not confirm
or deny
that the agreement between the defendants was in terms thereof
effective from 1st July 2007.
61.
He also had no knowledge of a tolling agreement allegedly entered by
second defendant with another company, Afro Minerals Trading
AG
(ATM), which was said to provide that second defendant would sell its
entire ore production to this company. This agreement,
it was put to
Mr Duff, was effective as from the 1st July 2003. Although the
witness had no knowledge of this agreement, he had
no doubt about the
fact that plaintiff’s rights would be infringed if second
defendant bound itself in this fashion and ceased
to supply the
plaintiff without proper notice of termination of the existing
agreement. As the ATM agreement falls outside the
issues the court
has been requested to determine, no further reference is necessary to
its terms and its potential effect upon
the relationship between the
plaintiff and the defendant.
62.
In re-examination Mr Duff explained why he regarded the notice
period of twelve months, alleged to be reasonable in the pleadings,
as the appropriate notice period. This was mainly because of the fact
that the South African manganese market is very small with
only a few
producers and a limited number of foundries.
63.lt
emerged in further cross-examination that plaintiff had purchased
minerals from AMT.
64.
Mr Duff concluded his evidence with an affirmation that there
existed a contractual relationship between plaintiff and first
defendant since 1985, and after April 2008 with the second defendant.
65.
This evidence concluded plaintiff’s case.
66.
Second defendant applied for absolution from the instance, which
application was refused.
67.
First defendant thereafter closed its case without leading evidence.
68.Second
defendant called its administrative manager, Mr Steyn, as its
witness. He had held his appointment since the beginning
of November
2007. His responsibilities included finance, costing, IT, procurement
and stores. He testified that the business of
the first defendant’s
Transalloys division was transferred to the second defendant as from
August 2007.
69.
When he arrived at the second defendant’s offices he conducted
a feasibility study of all services agreement, although
the first
defendant was still contractually obliged to continue providing
management support to second defendant. At that stage
the general
manager, Mr Van Niekerk, left the second defendant to be replaced by
Mr Rademeyer. Although management was still in
the hands of the first
defendant, Steyn was tasked with investigating the state of the
business and to make recommendation regarding
its conduct to the new
owners.
69.
Stores personnel and other employees such as Mr Nkosi and Sandra
McKenzie transferred to the new employer when the purchase
agreement
became effective. The purchase and sale agreement provided for the
transfer of existing contracts of which a large number
had been
listed as an annexure to the contract document. Steyn, the general
manager and the legal advisor had to approach the third
parties who
had contracted with the first defendant and had to obtain their
consent to the assignment of the rights and obligations
arising from
these contracts from first defendant to second defendant. This was a
lengthy process.
70.
The agreement allegedly concluded between plaintiff and first
defendant was not listed in the annexure to the purchase agreement
and as far as Steyn was concerned, was never disclosed. He was
further of the opinion that the plaintiff never consented to the
transfer or assignment of its agreement - if it did exist - and
therefore it never became the second defendant’s obligation
in
any event.
71.
In his view the first defendant’s sales office erroneously
gave information regarding plaintiff’s contract to Ms
Wright,
which resulted in monthly calls being made to Mr Nkosi. As far as
Steyn was concerned, no invoices were received from plaintiff
and no
market reports were made to second defendant. Mr Kriek discovered the
commission payments that had been made and was given
a report by
Nkosi and Wright, but nobody had any further information, which
resulted in an instruction that no further contact
was to be had with
plaintiff and that no further payments were to be made to it.
72.
In cross-examination Steyn confirmed that he came to the second
defendant as a complete outsider with no knowledge of any of
its
business. Only after the second defendant took over the running of
its business from the seller at the beginning of April 2008
did he
commence with a creditors’ check and saw to it that creditors
were advised that they should invoice the second defendant
as from
that date, while the first defendant had to account to second
defendant for its administration of the business until that
date.
74.
After the agreement with AMT was drawn up the entire production was
sold to this company. He spoke only to clients who called
to discuss
the situation.
75.
Ms Claudine Wait was the second defendant’s debtors’
clerk. She was unaware of the contractual relationships between
the
parties to the sale of the division and the sale of its products, as
far as Steyn knew.
76.
When the second defendant stepped into the shoes of the first
defendant he had to acquaint himself with all existing commercial
relationships and had to analyse what support services the second
defendant might require. He had to make recommendations, originally
to Mr Basson of the first defendant’s executive committee.
Whereas Mr van Niekerk had been responsible for first defendant’s
marketing Mr Kriek was made responsible for the second defendant’s
activities in this sphere from July or August 2008.He
would fly in
once a month from the Golf Estate upon which he resided and would
consult Van Niekerk.
77.
Steyn was of the view that there was no agreement in existence
between the plaintiff and the first defendant. This view he
appeared
to hold because of the fact that he never saw a written agreement and
did not come across one in the first defendant’s
data room when
the due diligence inspection was performed. He conceded that oral
agreements were as binding as those reduced to
writing, and he also
had to admit that the list of agreements annexed to the sale contract
was not an exclusive record of all contracts
first defendant had
entered into. Steyn remained unwilling, however, to accept that there
was any contractual arrangement between
the first defendant and the
plaintiff because he never saw any documentation that might have had
a bearing on such an oral contract.
In terms of the sales agreement
all relevant documentation should have been made available to the
purchaser.
78.The
first time he became aware of any payments to the plaintiff was in
July 2008, He was had no knowledge of any list of non-material
contracts the first defendant might have entered into and which were
not listed in the contract document’s annexure. When
it was
pointed out to him that the first defendant was in possession of
numerous invoices it had received from plaintiff over the
years at
the time the due diligence was performed, Steyn answered that he had
not seen any of these and couldn’t comment
on documents that
might have been available. He himself had not been involved with the
persons who carried out the due diligence
investigation While he
could not deny that staff members and clerks were aware of the
payments being made to plaintiff, he saw
no reason to make any
payments to the latter as nobody had informed him that a valid
agreement did exist. He denied that second
defendant had taken over
or had the plaintiff’s contract assigned to it. There was a
written record of all assignments, which
did not include the
plaintiff’s contract. As plaintiff’s contract was not on
that list, it either did not exist or
had not become the second
defendant’s obligation. He discussed the matter with Kriek who
told him to investigate further.
He spoke to persons at the first
defendant and to Mss Wait and McKenzie, who could not provide him
with a valid reason to make
any payments to the plaintiff.
73.
When he was questioned on his failure to contact the plaintiff
directly to discuss the reasons for the invoices that had been
Issued, he replied that it was not his duty to chase up creditors. If
he instructed the staff to stop paying creditors whose claims
he
doubted, and told them to stop supplying their goods or services,
‘...the cockroaches would come out of the woodwork When
the
court put it to him that he might be infringing the creditors’
rights by treating them like cockroaches he answered that
stopping
payment was the best way to get a reaction from them.
74.
Pressed further on the fact that there was documentary proof of at
least five clients having been serviced by the plaintiff,
he adopted
the attitude that these might have been historical clients of the
first defendant who did not concern the second defendant.
Earlier
payments effected by the first defendant to the plaintiff appeared to
him to have been a ‘cosy arrangement through
which plaintiff
obtained money from the first defendant without any counter
performance. He also felt in no way obliged to debate
the matter with
the plaintiff’s directors as the second defendant had no need
of their services. He also did not see any
need to establish what
these services were.
81.On
the morning of the 20th March 2013, while still under
cross-examination, he belatedly expressed regret at having referred
to the plaintiff as cockroaches, adding that the term had been used
figuratively.
82.
In re-examination he insisted that second defendant had not infringed
any of the plaintiff’s rights as these were never
transferred
to the second defendant. His evidence concluded the case for the
second defendant.
The purchase and safe agreement
83.
Before analysing the evidence attention must be paid to the agreement
entered into between the first and second defendants in
terms of
which the Transalloys division was sold. It was common cause between
the parties. The following clauses are of importance
for purposes of
the present dispute:
a)
“Contracts” is defined as
all
written contracts with customers and suppliers of the Business, all
orders placed in connection with the Business with suppliers
and all
other contracts entered into in connection with the Business as at
the Effective Date, including, but not limited to, the
Material
Contracts....
b)
The effective date is the 1st July 2007;
c)
‘Material Contracts’ are those listed in the Schedule to
the agreement;
d)
‘Sale Assets’ include the contracts as defined;
e)
The agreement provides in clause 13.1 and 13.2 thereof that
13.1
The Agreement constitutes the necessary cession and delegation of the
Contracts as at the Effective Date to the Purchaser.
On or as soon as
possible after the Closing Date, the Seller shall deliver to the
Purchaser such documents, duly prepared and completed
by the relevant
third parties at the Purchaser’s own cost as may be necessary
and/or required to cede and delegate to the
Purchaser all the
Seiler's rights and obligations respectively under such Contracts and
to vest ownership in and to such Contracts
in the Purchaser with
effect from the Effective Date
13.2
Both the Seller and the Purchaser undertake together to approach the
other party or parties to any of the Contracts as at the
Effective
Date to which the Setter is a party with a view to procuring the
consent of such other party or parties....
84.
There can be little doubt that, if it were to be held that a contract
did in fact exist between the plaintiff and the first
defendant as at
the Effective Date of the purchase and sale agreement, such contract
would be included in clause 13 thereof.
Assessment of the evidence
84.
Mr Van Niekerk and Mr Duff were patently honest witnesses who
conveyed their observations, convictions and opinions and the
facts
as they were known to them in a simple and unadulterated fashion.
From their account there can be no doubt whatever that
the plaintiff
and the first defendant did business with one another from about 1985
continuously until the sale of the business
of Transalloys to the
second defendant. For months after the effective date of that sale
the same persons who had dealt with one
another in the pursuit of the
mutual relationship continued to do business in the same fashion as
they had done for more than two
decades until April 2008.The same
persons who had represented first defendant in the regular
transactions with the plaintiff then
informed the latter that the
second defendant should be invoiced for the
work
done to date for the first defendant against the background of the
transfer of the business to second defendant.
85.
Mrs Wright’s evidence in this regard was not challenged in any
meaningful fashion.
86.
The second defendant’s Mr Steyn did not make a positive
impression upon the court. On the contrary, he came across as
arrogant, self-satisfied, rude and opinionated, a bully totally
dismissive of the rights of others who was willing to run the risk
of
breaching existing agreements to see whether the ‘cockroaches’
would come out of the woodwork to protect their interests.
He was
unwilling to take the elementary trouble of establishing the nature
of the first defendant’s relationship with the
plaintiff from
those who had been involved in the transactions and arrogated the
power to himself to do away with existing services
without a second
thought - as long as these services were supplied by entities who
were small in comparison to the second defendant.
Gentlemen’s
agreements entered into with a handshake and in good faith are
concepts that are clearly alien to him. Although
he attempted to
erase the excruciatingly poor impression created by his use of the
term ‘cockroaches' to describe the plaintiff,
it exhibited
complete disdain for the interests and rights of businesses that had
been associated with first defendant for decades.
87.
Unless his evidence is supported by objective fact it has to be
dismissed wherever it conflicts with that given on behalf of
the
plaintiff.
The resolution of the issues
88.
From the evidence set out above the following conclusions emerge and
are
accepted
as established on a balance of probabilities:
1.
The plaintiff and the first defendant did conclude an agreement
during about 1985 on the terms and conditions alleged by the
plaintiff. Plaintiff was appointed as sole distributor for first
defendant’ ferromanganese products, with the exception of
some
excluded clients to whom first defendant would deliver directly.
Plaintiff would render support and expert metallurgical services
to
all the first defendant’s clients and would report regularly to
the first defendant on market conditions in South Africa
and would
advise and make suggestions regarding the ferromanganese trade to
first defendant. In return, commission calculated at
2% of all sales
to the excluded clients by first defendant would be paid to the
plaintiff on a monthly basis.
2.
The agreement was amended to include silico-manganese as well for
which commission would be calculated at 2% for sales to Ozz
Industries and 3% to all other customers, excluding ArcelorMittal and
Scaw Metals.
3.
Plaintiff continued delivering its services to the first defendant
from July 2007 to March 2008; invoiced the first defendant
and was
paid by the latter - although the latter was then acting as manager
of the business that belonged to the second defendant;
4.
Plaintiff similarly rendered services in April 2008 to first
defendant and invoiced first defendant as usual after having been
advised of the sales figures as usual;
5.
Plaintiff invoiced first defendant in respect of commission as usual;
6.
Plaintiff was notified in May 2008, not by Claudine Wait as alleged,
but by . Ms McKenzie on behalf of first and second defendants
that
plaintiff was
required
to te-issue the invoice for April 2008 directed to first defendant to
second defendant;
7.
All further invoices were to be issued to second defendant
represented by Claudine Wait;
8.
The instruction to plaintiff to direct future invoices to the second
defendant was the final step that had to be performed by
first and
second defendants to cede and assign the plaintiff’s contract
to second defendant. In terms of clause 13 of the
sale and purchase
agreement as quoted above, the second defendant was obliged to accept
the assignment of plaintiff’s contract.
The individuals who
informed the plaintiff to redirect invoices to second defendant and
to continue to deliver services to the
second defendant were
authorised to act on behalf of the second defendant - whatever Mr
Steyn may have said about a contract he
knew nothing about and did
not take the trouble to inform himself of. The plaintiff’s
contract was therefore duly assigned
to the second defendant, the
plaintiff having agreed to render future services to the latter. The
second defendant was at all times
thereafter obliged to comply with
the terms of this agreement;
9.
Plaintiff rendered services to second defendant from May to September
2008;
10.
Plaintiff was informed as usual by Mr Nkosi, now acting for the
second defendant, during this period at the end of each month
of the
value of sales by second defendant of silico-manganese and
ferromanganese and the amount of commission payable to the plaintiff;
11.
lt is common cause that the second defendant failed to pay any
commission for August and September 2008 and thereafter;
12.
lt is also common cause that the second defendant refused from
October
2008
and thereafter to disclose the volume of sales of silico-manganese
and the commission due to the plaintiff, and refused to
effect any
further payments to the plaintiff.
13.
The second defendant submitted in argument that its actions did not
amount to a repudiation of the contract and that the plaintiff
was
therefore not entitled to accept such repudiation and terminate the
contract. Given the factual background of the parties’
relationship the refusal to comply with the second defendant’s
obligations was compatible with one intention only - to terminate
the
relationship between the parties. As Nienaber J said in Datacoior
International (Pty) Ltd v Intamarket (Pty) Ltd
[2000] ZASCA 82
;
2001 (2) SA 284
(SCA)
at:
[16]
“Where one party to a contract, without lawful grounds,
indicates to the other party In words or by conduct a deliberate
and
unequivocal intention no longer to be bound by the contract, he is
said to “repudiate” the contract... Where that
happens,
the other party to the contract may elect to accept the repudiation
and rescind the contract.
If
he does so, the contract comes to an end upon communication of his
acceptance of repudiation and rescission to the party who
has
repudiated...” (per Corbett JA in Nash v Golden Dumps (Pty) Ltd
1985 (3) SA 1
(A) at 22D-F). This is the conventional exposition of
the operation of the doctrine of repudiation leading to rescission
with its
emphasis on the guilty party’s intention and the
innocent party’s acceptance. At the same time this court has
repeatedly
stated that the test for repudiation is not subjective but
objective (Ponisammy and Another v Versailles Estates (Pty) Ltd 1973
(1) S/A 372 (A) at 387A-C; Stewart Wrightson (Pty) Ltd v Thorpe,
supra, at 953E-H; Van Rooyen v Minister van Openbare Werke en
Gemeenskapsbou, supra, at 845A-846G; Tuckers Land and Development
Corporation (Pty) Ltd v Hovis, supra, at 653B-G; OK Bazaars (1929)
Ltd v Grosvenor Buildings (Pty) Ltd and Another
[1993] ZASCA 56
;
1993 (3) SA 471
(A)
at 480I-481H; Highveld 7 Properties (Pty) Ltd and Others v Bailes
1999 (4) SA 1307
(SCA) at 1315F-G; 1318A-E; 1318H- J). Thus it has
recently been said in Metalmil (Pty) Ltd v AECf Explosives and
Chemicals Ltd
[1994] ZASCA 96
;
1994 (3) SA 673
(A) at 684I-685B:
“
It
is probably correct to say that respondent was bona fide in its
interpretation of the agreement and that subjectively it intended
to
be bound by the agreement and not to repudiate it. This fact does
not, however, preclude the conclusion that its conduct constituted
repudiation in law. Respondent was not manifesting any intention to
conduct its relations with appellant and to discharge its duties
to
appellant in accordance with what it was obliged to do on an
objective interpretation of the agreement. In effect, it was
insisting
on a different contract, however bona fide it might have
been in its belief that it was not."
Conceivably
it could therefore happen that one party, in truth intending to
repudiate (as he later confesses), expressed himself
so
inconclusively that he is afterwards held not to have done so;
conversely, that his conduct may justify the inference that he
did
not propose to perform even though he can afterwards demonstrate his
good faith and his best intentions at the time. The emphasis
is not
on the repudiating party’s state of mind, on what he
subjectively intended, but on what someone in the position of
the
innocent party would think he intended to do; repudiation is
accordingly not a matter of intention, it is a matter of perception.
The perception is that of a reasonable person placed in the position
of the aggrieved party. The test is whether such a notional
reasonable person would conclude that proper performance (in
accordance with a true interpretation of the agreement) will not be
forthcoming. The inferred intention accordingly serves as the
criterion for determining the nature of the threatened actual breach.
[17]
As such a repudiatory breach may be typified as an intimation by or
on behalf of the repudiating party, by word or conduct
and without
lawful excuse, that all or some of the obligations arising from the
agreement will not be performed according to their
true tenor.
Whether the innocent party will be entitled to resile from the
agreement will ultimately depend on the nature and the
degree of the
impending non- or malperformance.
[18]
The conduct from which the inference of impending non- or
malperformance is to be drawn must be clearcut and unequivocal, i
e
not equally consistent with any other feasible hypothesis.
Repudiation, it has often been stated, is “a serious matter”
(cf Ross T Smyth & Co Ltd v T D Bailey, Son & Co
[1940] 3 All
ER 60
(HL) at 72B; Metalmill (Pty) Ltd v AECI Explosives and
Chemicals Ltd, supra, at 685B-C), requiring anxious consideration and
-
because parties must be assumed to be predisposed to respect rather
than to disregard their contractual commitments - not lightly
to be
presumed.
[19]
Since the test is objective and the matter is to be approached from
the vantage point of the innocent party (in this case the
defendant)
it follows that evidence of Hill, the author of the letters RW8 and
RW9, as to what the plaintiff had in mind when he
drafted them, would
have been irrelevant. By the same token the evidence of the
defendant’s witnesses, Wachsberger and Mayer,
as to what they
understood by, and how they reacted to, the letters was not
irrelevant But such evidence, although relevant, would
not be
conclusive since the approach is that a court, faced with the enquiry
of whether a party’s conduct amounted to a repudiation,
must
superimpose its own assessment of what the innocent party’s
reaction to the guilty party's action should reasonably
have been.
[20]
Consistent with that approach it further follows that a court in
making its assessment must take into account all the background
material and circumstances that should have weighed with the innocent
party. Such circumstances would in the present case include:
i)
the rumours that were current at the time that ICS had been taken
over by the Eichoff Group; that a restructuring and rationalisation
of its commercial interests in Southern Africa was imminent; and that
there was a realistic possibility that the defendant’s
distributorship might be terminated;
ii)
the meeting which Mayer had with Cornelius in Frankfurt early in June
1991 which left Mayer with the uneasy feeling that the
defendant
might have missed the boat;
Hi)
the telephonic conversation which Cornelius had with Mayer on 17 June
1991 when the latter was informed that the decision had
been taken
"to go” with Gosling’s company and that the
defendant would in due course be formally notified of that
decision.
No mention was made in the course of that conversation of a period of
notice;
iv)
and finally the two crucial letters, RW8 and RW9, quoted earlier,
which were telefaxed to the defendant, the one dated 24 June
1991 and
the other 2.5 June 1991, both signed by Hill, both reaching the
defendant at more or less the same time, probably on 25
June 1991,
and then forwarded by the plaintiff by registered post in compliance
with clause 23 of the agreement.
[21]
Much debate was devoted in both courts below and in this one as to
the sense of, and the correlation between, these two letters.
RW9 was
“an official letter of termination". It was so described
in the other letter, RW8 (addressed to “Dear
Steve”). As
such RW9 would have been accorded, in the eyes of a reasonable person
standing in the defendant's shoes, at least
some precedence, in
keeping with the plaintiff’s own ranking thereof. Reading it on
its own both its formal tone and its
contents would have conveyed the
message that the agreement between the parties, far from continuing
into the future for at least
another twelve months, has been brought
to an abrupt end. But of course the reasonable reader would not have
read the letter in
isolation. He would have taken account of RW8 as
well. RW8 is written in an entirely different style and tone. While I
agree that
the two letters must be read together, each conveying its
own separate impression, I do not agree with the submissions of
plaintiff’s
counsel that they must be conflated into a single
letter with a reconstructed sequence of sentences. Ultimately it
remains a question
of what the reasonable reader in the defendant’s
position would have made of it; of the collective and cumulative
impression
created when the two letters are read in tandem.
[22]
Various constructions have been placed on the two letters when read
in conjunction with one another. These may be grouped together
as
follows:
i)
In terms of the fetters “the plaintiff gave notice to the
defendant terminating the agreement with immediate effect".
That
was the construction placed on them by the defendant in its
counterclaim which was initially admitted by the plaintiff in
its
plea thereto. During the cross-examination of the defendant’s
witnesses the plaintiff, however, sought an amendment which
despite
opposition was eventually granted. It is quoted in the next
sub-section.
ii)
“The plaintiff avers that the letters ‘RW8’ and
(RW9’ were intended to terminate the agreement as provided
for
in clause 16(a) with the requisite twelve months notice”. This
amendment was in line with the construction earlier placed
on RW8 and
RW9 by the plaintiff in its letter of cancellation of 19 July 1991,
quoted in para 10 above.
iii)
The letters seived as due notice of twelve months but with an open
invitation to the defendant to negotiate a reduced period
if that
would suit its convenience. That would seem to have been the
interpretation favoured by Heher J.
iv)
The letters “confirmed” the plaintiff’s decision
not to continue with the defendant as its chosen distributor;
otherwise they represented nothing more than an invitation to the
defendant to negotiate a premature termination of the agreement.
As
such the plaintiff did not repudiate the agreement. That was the
interpretation advanced on behalf of the plaintiff in argument
before
this court.
v)
The letters purported to terminate the agreement forthwith, with the
consequence that no further orders would be executed by
the
plaintiff; the plaintiff was nevertheless prepared to allow the
defendant time to close down their common business and to tie
up
loose ends such as the return of stock and the demonstration model
still in the defendant’s possession. That was essentially
the
effect of the evidence of Mayer and was the interpretation advanced
on behalf of the defendant in argument.
[23]
Counsel for the plaintiff advisedly did not seek to support the
assertion in the plaintiff’s own amended pleadings that
the
letters constituted due notice in terms of clause 16(a). In none of
the prior conversations between Cornelius and Mayer, nor
in the
letters themselves, was there any mention of the clause. The clause,
moreover, did not provide for a notice period of twelve
months but
for a notice period of not less than twelve months. RW8 and RW9 are
entirely silent as to what the notice period was
supposed to be and
when it was supposed to expire. The view advanced in the plaintiff’s
own pleadings and correspondence
that due notice was given can
accordingly be dismissed as fanciful. ....
[25]
In my opinion the two letters, read together against the background
of the prior exchanges between the parties, would convey
to the
reasonable person looking at the matter from the perspective of the
defendant that the termination of distributorship was
a fait accompli
and that no notice in terms of clause 16(a) would be forthcoming,
regardless of how the defendant responded to
the invitation contained
in RW8. The clear impression is that the plaint;ff was indifferent
to, and did not propose to comply with,
clause 16(a).
The
dominant message which the two letters conveyed was that the
defendant would not enjoy at least a further twelve months before
the
agency agreement with the plaintiff was brought to a conclusion. In
my view that was tantamount to an unequivocal intimation
on the part
of the plaintiff that it did not propose to perform its part of the
agreement for the remainder of the stipulated notice
period. As such
it was a wrongful repudiation of sufficient seriousness as to justify
cancellation of the agreement by the defendant’
14.
The failure to provide the sales figures, coupled with the failure to
effect payment of services rendered, and the intimation
to
plaintiff’s Ms Wright that there would be no further contact
between the parties clearly conveyed the second defendant’s
true intention not to be bound by any existing agreement. This was a
clear-cut repudiation.
15.
The plaintiff, after seeking an interview with Mr Kriek, in which Mr
Duff was treated in the spirit displayed by Mr Steyn and
was rudely
shown the door, was entitled to and did in fact accept the
repudiation set out above. This terminated the agreement:
and may,
depending on further evidence, entitle plaintiff to damages.
16.lt
is clear that the second defendant’s counterclaim must be
dismissed.
17.
It is also clear that there is no case against the first defendant.
89.
The following orders are made:
1.
Plaintiff succeeds against the second defendant in respect of each
and every issue identified in the Order of this Court on the
14th
March 2013 in paragraphs 1.1 to and including 1.19 with costs, such
costs to include the costs of the earlier postponement;
2.
The issues identified in paragraphs 1.23 to and including 1.27 are
decided against the second defendant in favour of the plaintiff;
with
costs, including the costs of the earlieF postponement;
3.
The issues recorded in par 1.20 fall away;
4.
The issues identified in par 1.21 .1 to 1.21.4 are decided in favour
of the first defendant with costs, such costs to include
the costs of
the earlier postponement.
Signed
at Pretoria on this day of June 2013.
E
BERTELSMANN
Judge
of the High Court.