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[2012] ZAGPPHC 111
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Morgan Trading (Pty) Ltd v National Brands Ltd (15453/2010) [2012] ZAGPPHC 111 (15 June 2012)
NOT
REPORTBLE
IN
THE HIGH COURT OF SOUTH AFRICA
(NORTH
GAUTENG, PRETORIA)
Case
No.: 15453/2010
DATE:15/06/2012
In
the matter between:
MORGAN
TRADING (PTY)
LTD
................................................................................
PLAINTIFF
and
NATIONAL
BRANDS
LIMITED
..................................................................................
DEFENDANT
JUDGMENT
HIEMSTRA
AJ
[1]
The plaintiff instituted action against the defendant for payment of
the sum of R67 150.36 for potatoes delivered to the defendant
in
terms of a written agreement. The defendant counter-claimed for an
amount of R646 250.95 on the grounds set out in due course
in this
judgment.
[2]
The plaintiff, Morgan Trading (Pty) Ltd, conducts farming operations,
including the cultivation of potatoes. It entered into
a contract
with the defendant for the supply of 750 tons of a cultivar known as
Up-to-date potatoes of the quality and size set
out in an annexure to
the agreement. The defendant is National Brands Limited, the
manufacturer of the potato chips brand, Willard.
The plaintiff's sole
director is Mr George Barnard and he represented the plaintiff at all
times. Mr Jaco Joubert represented the
defendant in all dealings
between the parties.
[3]
As stated, the plaintiff claims payment of R67 150.37 in respect of
potatoes delivered in terms of the agreement. The agreement
provides
that payment must be made to the supplier within 7 days after receipt
of a faxed or electronic copy of the original invoice.
In the event
of a party being in breach of any of the provisions of the agreement,
the aggrieved party shall give the defaulting
party seven days to
comply, failing which the aggrieved party may forthwith cancel the
agreement without prejudice to any right
it may have to claim
damages. The plaintiff issued an invoice for the amount of R67 150.37
on 22 October 2009, which was payable
on 29 October 2009. The
defendant failed to pay this amount, and on 3 November 2009 the
plaintiff caused its attorneys to write
a letter of demand to the
defendant. On 8 November 2009 the defendant received the letter of
demand at the Rivonia post office.
Despite the said demand the
defendant failed to pay the amount as a result of which the plaintiff
cancelled the agreement by letter
from its attorneys, which letter
the defendant collected at the Rivonia post office on 26 November
2009. The defendant initially
made an issue of the fact that the
letters of demand and cancellation were sent by express post
("spoedpos") instead
of by registered post as required by
the agreement. This caused the plaintiff to call a secretary in the
office of the plaintiff's
attorney and two witnesses in the employ of
the defendant to prove that the letters had been dispatched to the
defendant and had
been received by the defendant. During closing
argument counsel for the defendant abandoned this point. It must
therefore be accepted
that the agreement was duly cancelled and that
the defendant is indebted to the plaintiff for R67 150.37.
[4]
The defendant counter-claimed for an amount of R646 250.95. This
claim is founded on clause 1.4.2 of the agreement, which provides
that the defendant may purchase potatoes from other suppliers if the
plaintiff fails to deliver within 10% of the contracted 750
tons of
potatoes. The amount claimed is the difference in price for which the
parties had contracted and the price paid for potatoes
sourced
elsewhere. Clause 1.4 of the agreement reads as follows:
"1.4
The SUPPLIER shall be liable to supply the quantity of potatoes
contracted for in annexure C.
1.4.1
Should the total quantity supplied be within 10% above or below the
contracted
quantity,
the contract will then be deemed to be fulfilled.
1.4.2
Any short supply greater than 10% may be purchased elsewhere by NBL
and the
price
differential will be for the account of the SUPPLIER, unless it can
be proved that the yield shortage was due to natural disasters.
1.4.3
NBL reserves the right of first refusal to purchase any excess crop
at a mutually
agreed
price. Should the parties fail to agree on a price within 5 days, the
right will lapse automatically and the SUPPLIER will
be free to
dispose of the excess crop as he deems fit."
[5]
It is common cause that the plaintiff supplied only 316 tons of
potatoes to the defendant, leaving a shortfall of 359 tons.
It is
further common cause that the defendant purchased the following
quantities of potatoes from other suppliers on the following
dates:
1.
Between 1 and 9 October 2009: 80 tons from a certain Maritz and
96,525 tons from a certain Kruger at respectively R4,00 and R4,50
per
kilogramme.
2.
Between 6 and 11 November 2009: 191,7 tons from Easy Greens at R3,50
per kilogramme.
The
total tonnage purchased elsewhere is 368,225, slightly more than the
359 tons that the plaintiff had not delivered. The counter-claim
is
in respect of the price differential between 359 tons of these
purchases and the price agreed between the parties hereto. The
defendant claims that it had been obliged to purchase these potatoes
because of the plaintiff's failure to supply the required
quantity of
750 tons within a 10% margin stipulated in clause 1.4.1.
[6]
Before dealing with the plaintiff's defence to the counter-claim, it
is necessary to set out some of the further relevant background
facts.
1.
The plaintiff planted potatoes during May 2009. He had a similar
contract with Nature's Choice for the supply of potatoes, but
for
larger potatoes. Mr Werner Naude represented Nature's Choice. During
the growing phase Mr Joubert and Mr Naude made regular
inspections on
the plaintiff's farm to monitor the progress of the plaintiff's crop.
2.
During September 2009 Barnard, Joubert and Naude met on Plaintiff's
farm and carried out an inspection of a sample to establish
whether
the crop was ready for harvesting. It was decided between them that
the crop should be harvested during the second week
of October 2009.
3.
On 12 October 2009 a meeting was held between various farmers on the
one hand, and the defendant on the other, regarding the
defendant's
decision to purchase potatoes in the following year from a small
group of farmers, excluding the plaintiff and others.
The group of
farmers became known as the "Up-to-Date Consortium" under
the chairmanship of Mr Barnard. Although there
was no evidence to
that effect, it was put to Mr Barnard that the defendant had assured
the farmers that it did not intend to exclude
any farmers but wished
to deal with a single entity comprising all the farmers in the area.
4.
Harvesting took place in the second week of October 2009 and the
plaintiff made its first delivery of the season on 13 October
2009.
On 14 October 2009 the plaintiff also delivered potatoes to Simba. Mr
Barnard admitted that the delivery to Simba had caused
the plaintiff
to have insufficient potatoes of the required quality and size to
meet its obligations to the defendant. He also
admitted that the
plaintiff had not previously supplied potatoes to Simba, but that he
had done so because the prevailing market
price was almost double
what the defendant was liable to pay in terms of the agreement. He
said that that the plaintiff could still
meet its obligations towards
the defendant by purchasing potatoes from other suppliers.
5.
On 14 or 15 October 2009 Mr Joubert, accompanied by another supplier,
Mr Willem Veldsman, visited the plaintiff's farm. Mr Veldsman
was
asked to accompany Mr Joubert as kind of mediator between the
plaintiff and the defendant. Mr Barnard on that occasion assured
the
defendant that the plaintiff would comply with its contractual
obligations.
6.
On 15, 16, 17 and 19 October 2009 the plaintiff made further
deliveries of potatoes to the defendant.
7.
On 22 October 2009 Mr Barnard informed Mr Joubert that he was
sus-pending the delivery of potatoes to the defendant. He did so
as a
result of the unhappiness about the defendant's indication that it
would in the future only contract with a small group of
suppliers,
excluding the plaintiff.
8.
On 28 October 2009 the defendant caused its attorneys to address a
letter of demand to the plaintiff calling upon the plaintiff
to
furnish an undertaking to that it would comply with its obligations
in terms of the agreement. On 28 October 2009 before the
plaintiff
had received the letter, Mr Barnard had a reconciliatory discussion
with Mr Joubert and he undertook to continue deliveries.
He did so on
28, 29 and 30 October 2009.
9.
On 2 November 2009 Mr Barnard visited the plaintiff's attorney, Mr
Beyers. By that time the defendant had not yet paid the plaintiff's
invoice. Mr Beyers advised Mr Barnard that pending payment of the
invoice, he was not obliged to make further deliveries.
10.
31 October 2009 was the last day of harvesting. The final consignment
of potatoes was rejected by the defendant because they
did not comply
with the criteria specified in the agreement.
11.
As already stated, the plaintiff cancelled the agreement with effect
from 26 November 2009 because of the defendant's failure
to pay the
outstanding invoice.
12.
On two occasions, the first during the beginning of November 2009,
and the second towards the middle of November 2009 Mr Joubert
invited
Mr Barnard to source potatoes elsewhere in order to meet the
plaintiff's obligations. On both occasions Mr Barnard said
that he
would do so once the outstanding invoice is paid.
13.
It is common cause that Mr Veldsman, who testified on behalf of the
defendant, had concluded an identical contract with the
defendant for
the supply of potatoes. Mr Veldsman agreed under cross-examination
that did not plant and cultivate any potatoes
during 2009 and that he
had supplied the quantities that he had contracted for by purchasing
from other suppliers.
14.
According to Mr Barnard, it is common practice for suppliers
contracted to the defendant in terms of identical agreements to
purchase potatoes from other producers in order for them to supply
the tonnage for which they had contracted.
15.
It appears from a schedule compiled by the defendant that of seven
suppliers contracted to the defendant in 2009, six, including
the
plaintiff, supplied less than their contracted tonnage. Mr Veldsman,
who delivered 2235 tons short, was not held liable for
the price
difference, and Mr Botha, who delivered 359 tons short, was allowed
to purchase 232 tons elsewhere.
16.
According to the defendant's statistics the different suppliers
delivered 3385 tons short during 2009. The defendant purchased
in
1674 tons, leavIng a shortage of 1711 tons.
17.
Mr S.J. Erasmus, a member of Easy Greens CC, is also a supplier to
the defendant. He testified that if the plaintiff had asked
to
purchase potatoes of the required quality and size towards the end of
November 2009, Easy Greens would have been able supply
to it. He also
said that the plaintiff had sold potatoes to Easy Greens during 2008
in order to make up Easy Greens's short supply.
[7]
The plaintiff raised several defences against the counter-claim. They
are all premised on the assumption that the plaintiff
was entitled to
purchase potatoes from other sources in order to comply with its
obligation to supply 750 tons of potatoes of the
size and quality
specified in the agreement. The primary defence is that the
defendant's purchases from other suppliers, in respect
of which the
defendant seeks to hold the plaintiff liable for the price difference
between these purchases and the contract price,
is precipitous.
[8]
Clause 6 of the agreement provides that the agreement shall endure
for the period set out in annexure C. Annexure C provides
that
delivery shall be in October/November 2009. Mr C.F. Heyns, appearing
for the plaintiff, submitted that the plaintiff therefore
had until
midnight on 30 November 2009 to deliver the 750 tons. He submitted
accordingly that the purchases which the defendant
made from other
suppliers during October and November 2009 were premature and not in
accordance with clause 1.4.2. He further maintained
that insofar as
the plaintiff could not deliver the full tonnage from its own crops,
it was entitled to purchase potatoes of the
same specifications and
quality from other producers in order to supply the full 750 tons by
midnight on 30 November 2009.
[9]
Mr Hitchings, appearing on behalf of the defendant, argued that it
had become apparent already on 31 October 2009 that the plaintiff
would not be able to supply the full 750 tons, mainly because it had
delivered part of its crop to Simba instead of to the defendant.
On
31 October 2009 the plaintiff harvested the last of its crop. He
argued that on a proper interpretation of the agreement, the
plaintiff had been obliged to supply the potatoes from its own crop,
and had not been entitled to purchase-in from other suppliers.
[10]
According to Mr Hitchings, there are several indications in the
wording of the agreement that point to the conclusion that
the
plaintiff was only entitled to supply potatoes planted, cultivated
and harvested on its own farm. These are the following:
1. The
preamble reads as follows:
"
WHEREAS
NBL
manufactures and distributes potato chips and extruded snacks;
The
SUPPLIER cultivates potatoes and is willing to supply potatoes to
NBL;
NBL
is prepared to buy potatoes from the SUPPLIER in terms of this
agreement
THEREFORE
IT IS AGREED AS FOLLOWS:
1. SUPPLY OF POTATOES
1.1
The SUPPLIER undertakes to plant and cultivate potatoes and to supply
NBL in accordance with the price as per annexure A, the
quality grade
as per annexure B, and the quantity as per annexure C. Any input
costs of the Supplier, if any, paid by NBL for whatever
reason,
remain the liability of the SUPPLIER and is repayable as agreed. The
parties specifically agree that NBL retains the right
to set off the
amounts so owing against the first accounts payable to the SUPPLIER
for potatoes supplied."
The
following words and phrases, so goes the argument, would be
superfluous if the parties had contemplated that it would be
permissible
for the plaintiff to deliver potatoes sourced elsewhere:
1.
'The SUPPLIER cultivates potatoes ..."
2.
"The SUPPLIER undertakes to plant and cultivate potatoes ..."
3.
The contemplation of "input costs of the Supplier" being
paid by the defendant.
2.
The provision in clause 1.3 entitles the defendant "to suspend
the balance of
potatoes not yet harvested". It reads as
follows:
"1.3
In the case where:
1.3.1
any breakdown of machinery and/or installations of NBL's factory
occur;
1.3.2
any building and/or equipment of NBL becomes unusable, or threatens
to become unusable;
1.3.3
any other cause outside the reasonable control of NBL including but
not limited to, strikes, work stoppages, lockouts, affecting
production;
shall
entitle NBL to suspend the balance of potatoes not yet harvested, by
verbal notice to the SUPPLIER, until such time as the
abovementioned
production problems have been cleared
3.
Clause 1.4.2, entitles the defendant to purchase potatoes elsewhere
"unless it can be proved that that the yield shortage
was due to
natural disasters";
4.
In terms of clause 1.4.3 the defendant has a right of first refusal
"to purchase any excess crop at a mutually agreed price"
in
clause 1.4.3.
5.
Clause 2 restricts the harvesting of potatoes in adverse weather
conditions, and exposure of potatoes to the elements after
harvesting.
6.
Clause 3.1 provides that the risk of crop loss, rests with the
supplier.
[11]
These clauses are indisputably premised on the assumption that the
potatoes would be planted, cultivated and harvested by the
plaintiff
on its farm. Whether the agreement as a whole, properly interpreted
in its context, obliged the plaintiff to supply only
potatoes from
its own crop is, however, less clear. There is no provision that
specifically forbids of permits the supply from
other sources. It is
true that the starting point in interpreting written instruments such
as legislation and contracts is the
ordinary grammatical meaning of
the words and phrases in question. However, having regard only to the
literal meaning of the words
and phrases could lead to unintended,
absurd or unbusinesslike results.
[12]
In Coopers & Lybrand and Others v Bryan
1
Joubert JA dealt with the correct approach to interpretation of
contracts. He held that the provisions of the contract must, after
the literal meaning had been ascertained, be interpreted by having
regard to the context in which the words of phrases are used,
the
background circumstances which explain the genesis and purpose of the
contract, i.e. to matters probably present to the minds
of the
parties when they contracted.
[13]
Wallis JA restated the present state of the law on the interpretation
of various instruments lucidly in Natal Joint Municipal
Pension Fund
v Endumeni Municipality
2
It reads as follows:
"The
present state of the law can be expressed as follows. Interpretation
is the process of attributing meaning to the words
used in a
document, be it legislation, some other statutory instrument or
contract, having regard to the context provided by reading
the
particular provision or provisions in the light of the document as a
whole and the circumstances attendant upon its coming
into existence.
Whatever the nature of the document, consideration must be given to
the language used in the light of the ordinary
rules of grammar and
syntax; the context in which the provision appears; the apparent
purpose to which it is directed and the material
known to those
responsible for its production. Where more than one meaning is
possible each possibility must be weighed in the
light of all these
factors. The process is objective not subjective. A sensible meaning
is to be preferred to one that leads to
insensible or unbusinesslike
results or undermines the apparent purpose of the document. Judges
must be alert to, and guard against,
the temptation to substitute
what they regard as reasonable, sensible or businesslike for the
words actually used. To do so in
regard to a statute or statutory
instrument is to cross the divide between interpretation and
legislation. In the contractual context
it is to make a contract for
the parties other than the one they in fact made. The "inevitable
point of departure is the language
of the provision itself, read in
context and having regard to the purpose of the provision and the
background to the preparation
and production of the document."
[14]
The words and phrases referred to by Mr Hitchings are in isolation
clear and unambiguous. They are, as I have said, premised
on the
assumption that the plaintiff will supply the defendant with potatoes
from its own crop. Whether the plaintiff was obliged
by the agreement
to supply only from its own crop, is less clear. Annexures A, B and C
to the agreement, suggest that the defendant's
only interests were
the required quality, size, price and quantity. As Mr Heyns
submitted, somewhat facetiously, on Mr Hitchings's
interpretation of
the agreement, the defendant's interests can be satisfied even if the
potatoes were produced in Australia or
Cambodia, provided that the
land belonged to the supplier and the potatoes were planted,
cultivated and harvested by the plaintiff's
employees or agents.
[15]
The provisions referred to by Mr Hitchings are important and
rational. However, they do not determine the nature and purpose
of
the agreement. They are peripheral and their purpose is to provide
for certain unforeseen events and/or natural disasters. Clause
1.4.2
provides protection to the defendant in the event of short supply and
also protection to the supplier in the event of its
inability to
supply within 10% of the agreed tonnage owing to natural disasters.
The defendant is explicitly permitted to purchase
potatoes from other
suppliers to make up for short supply. There does not appear to be
any rational reason why the supplier should
not also be allowed to
source potatoes elsewhere in order to comply with its obligations.
[16]
The preamble to the agreement is clearly based on the assumption that
the defendant would purchase the potatoes produced the
plaintiff on
its own farm. The preamble, however, does not contain operative
provisions creating rights and obligations.
3
[17]
The purpose of the agreement is the sale and purchase of potatoes for
the manufacture of potato chips and extruded snacks.
Annexure B to
the agreement provides extensive provisions quality and size
parameters with which the potatoes must comply. The
cultivar, quality
and size, price and quantity of the potatoes are the defendant's
main, if not only interests. Furthermore, the
agreement provides that
the defendant may purchase potatoes elsewhere when the supplier fails
to supply the contracted quantity.
It further appears that other
suppliers, at least Vel^sman and Botha, had supplied potatoes sourced
from other farmers. In addition,
Mr Joubert had invited Mr Barnard on
two occasions during November to purchase potatoes from other
suppliers. It is plain from
the above that there is no practical,
nutritional, scientific or other rational reason why the potatoes
must come from a particular
farm.
[18]
I find therefore that, read in its context and with regard to the
material known to the parties when the contract was concluded,
they
could not have intended to prohibit the supplier from sourcing
potatoes elsewhere when it is for any reason unable to supply
them
from its own crop. As Wallis JA said in Natal Joint Municipal Pension
Fund v Endumeni Municipality
4
,
"[A] sensible meaning is to be preferred to one that leads to
insensible or unbusinesslike results or undermines the apparent
purpose of the document." It is not sensible or businesslike to
allow the defendant to make up for short supply by purchasing
elsewhere, while the plaintiff has no right to do so.
[19]
I therefore find that the plaintiff was entitled to purchase potatoes
from other suppliers in order to meet its obligations
to the
defendant. He had until midnight on 30 November 2004 to perform.
Therefore, the purchasing in by the defendant was precipitous.
[20]
As I have already found, the plaintiff lawfully cancelled the
agreement because of the defendant's failure to pay the plaintiff
in
accordance with its invoice. The defendant could not pre-empt the
cancellation by purchasing potatoes from other suppliers and
hold the
plaintiff liable for the price difference.
[21]
I therefore find that the counter-claim is misconceived. The
plaintiff had until midnight
In
the result I make the following order:
1.
The defendant is ordered to pay to the plaintiff the sum of R67
150.37;
2.
Interest on the sum of R67 150.37 at the rate of 15,5% per annum from
30 October 2009 to date of payment;
3.
The defendant is ordered to pay the plaintiff's costs on the scale of
the High Court.
4.The
defendant's counter-claim is dismissed with costs.
J.
HIEMSTRA
ACTING
JUDGE OF THE HIGH COURT
Date
heard:15 May 2012
Date
of judgment: 13 June 2012
Counsel
for the plaintiff: Adv G.F. Heyns
Attorney
for the plaintiff: Beyers & Day Attorneys
Counsel
for the defendant: Adv. B.D. Hitchings
Attorney
for the defendant: Friedland Hart Solomon & Nicolson
1
[1995] ZASCA 64
;
1995
(3) SA 761
(A) at 768A-E
2
2012(2)
All SA 626 (SCA) at 273 paragraph [18]
3
See
e.g.
Logista
Inc & others v Van der Merwe
2010
SA 105
(WCC) at 112, paragraph [11
];
Seven Eleven Corporation ofSA (Pty) Ltd v Cancun Trading No 150 CC
2005
(5) SA 186
(SCA) at 194 paragraph [20];
ABSA
Bank Ltd v Swanepoel NO
2004
(6) SA 178
(SCA) at 181 paragraph [6]
4
Supra
at 273 paragraph [18]