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[2012] ZAKZPHC 36
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Revertex Chemicals (Pty) Ltd v Climax Lift Hire (Pty) Ltd (369/2002) [2012] ZAKZPHC 36 (1 June 2012)
IN THE
KWAZULU-NATAL HIGH COURT, PIETERMARITZBURG
REPUBLIC
OF SOUTH AFRICA
APPEAL CASE NO.: 908/2010
KZN HC - DURBAN CASE NO.: 369/2002
In the
matter between:
REVERTEX
CHEMICALS (PTY) LIMITED
…...............................................
Appellant
and
CLIMAX
LIFT HIRE (PTY) LIMITED
…....................................................
Respondent
______________________________________________________________
J U D G M E N T
______________________________________________________________
KOEN
J
:
INTRODUCTION
:
[1] This is an appeal against a judgment by Sishi J granting judgment
in favour of the respondent (the plaintiff in the court
a quo)
for
payment of the sum of R229 329.61, interest thereon at the rate of
15,5 % per annum calculated from 22 January 2002, and the
costs of
the action. Leave to appeal to this court was granted by the Supreme
Court of Appeal.
[2] The parties shall be referred to as in the court
a quo
.
[3] The plaintiff instituted action against the defendant on a number
of claims. Save for the claim for contractual damages in
the sum of
R229 329.61 forming the subject of this appeal, the remaining claims
were all either abandoned or dismissed.
BACKGROUND
:
[4] On the 6th of November 1997 the plaintiff and defendant concluded
a written agreement in respect of 'equipment hire' in terms
whereof
the defendant would hire five Clark fork lifts at a monthly rental of
R2 784.00 per unit per month together with value
added tax for a
period of sixty months terminating in October 2002.
[5] Clause 5.1 of the agreement provides:
‘
In the event of unsatisfactory or
inefficient levels of service being provided, the customer may tender
a 30 (thirty) day notice
of intent to cancel this agreement. Climax
shall be obliged to remove all of its contract Equipment at the
conclusion of the said
notice period without financial loss to the
Customer.’
[6] During 2000 the defendant complained of what it considered to be
poor levels of service. A meeting was held during October
2000 in an
attempt to resolve various issues. The meeting ended when Mr Hogno of
the plaintiff stormed out of the meeting.
[7] The defendant thereafter continued to use the fork lifts. On the
29th of March 2001 the defendant sent a cancellation notice
to the
plaintiff giving notice that the agreement would come to an end on 30
April 2001.
[8] In May 2001 the plaintiff retrieved the five fork lifts from the
defendant.
[9] Payment was made by the defendant in full for the 42 months
ending 30 April 2001.
THE PLAINTIFF’S CLAIM:
[10] The plaintiff treated the defendant's letter of cancellation as
a repudiation which it averred it had accepted, alternatively
accepted at the time of the issue of summons. The plaintiff’s
claim is accordingly one for damages arising from the defendant's
alleged breach of the agreement.
[11] The plaintiff's damages are calculated as set
forth in Annexure B to the summons. It comprises lost rental in
respect of the
five fork lifts for the period from May 2001 to the
date the contract would have extended, namely October 2002 (save in
respect
of fork lift number 310 which was sold and in respect of
which rental is only claimed to March 2002), from which is deducted
the
total ‘monthly maintenance rate’, representing the
maintenance costs that would have been incurred in respect of the
use
of the fork lifts. The loss of rental claimed consists of a uniform
claim of R3 420.11 per month in respect of each of the
five units
until November 2001 and thereafter R3 591.12 from December 2001 to
October 2002 (save in respect of unit number 310
where the amount of
R3 591.12 is only claimed from December 2001 to March 2002). The
monthly maintenance rate claimed in respect
of each machine is a flat
rate of R756.00 per month for the entire period from May 2001 to
October 2002.
1
THE ISSUES
:
[12] The issues arising for consideration, both in
the court
a quo
and
on appeal are:
(a) Whether the defendant's cancellation of the contract by invoking
the provisions of clause 5.1 thereof, was proper or whether
such
cancellation amounted to a repudiation of the agreement; and if so
(b) Whether the plaintiff suffered damages in the amount determined.
WHAT IS MEANT BY ‘UNSATISFACTORY OR
INEFFICIENT LEVELS OF SERVICE
’
:
[13] The agreement is silent on what is meant by ‘unsatisfactory
or inefficient levels of service.’ The enquiry is
an important
one as it constitutes the threshold requirement upon which the
defendant, as customer, may tender a notice of intent
to cancel.
[14] The agreement was one proposed and drafted by
the plaintiff. In the event of any ambiguity the agreement must be
interpreted
against the interests of the plaintiff, in accordance
with the
contra proferentem
rule, as the plaintiff had it within its powers to
spell out exactly what it meant by ‘unsatisfactory or
inefficient levels
of service being provided.’
[15] Provided the evidence established
‘unsatisfactory or inefficient levels of service’ being
provided, the defendant
would be entitled to cancel the agreement as
the materiality of the breach is irrelevant where the right to cancel
is provided
for in terms of a
lex
commissoria
2
.
[16] The enquiry as to what is meant by ‘unsatisfactory or
inefficient levels of service’ must be judged objectively.
The
right to cancel cannot simply accrue to the defendant should the
defendant subjectively and unreasonably adopt the view that
the
service it received was unsatisfactory or inefficient.
[17] Counsel appeared to approach the matter on
the basis that the defendant has a discretion to decide whether
service levels are
unsatisfactory on inefficient or not, but that
such discretion had to be exercised reasonably
arbitrium
boni viri
and that the decision of the
defendant must have been ‘a reasonable decision’
3
[18] The defendant clearly had an election if the services provided
were unsatisfactory or inefficient to continue with such services
or
to cancel. But the words ‘unsatisfactory or inefficient levels’
must be judged objectively.
[19] In the absence of a definition of those phrases, it would seem
that the words ‘unsatisfactory or inefficient levels
of service
being provided’ must be assessed against the standards
applicable in that industry. That must necessarily be what
the
parties would have contemplated and is therefore implied.
THE EVIDENCE
:
[20] The evidence of Mr Hogno for the plaintiff established that the
standard service procedure would be for a mechanic to visit
the fork
lifts weekly for the purpose of service checks. Thereafter complete
lubrication services would be carried out at approximately
200
metered hour operation intervals.
[21] Mr Hogno testified that each forklift indeed received a visit
and a service from a mechanic at least once a week. The mechanics
employed by the plaintiff were required to fill out service reports
when they did their weekly check and when they serviced the
machines.
Even when there was nothing to be done on the machine they were still
required to fill out a service report.
[22] An inspection of the plaintiff's own service
records however shows that the five machines were not service checked
weekly,
leaving aside any lubrication services. Not surprisingly, and
with respect correctly, the court
a quo
concluded that Mr Hogno's evidence was
totally inconsistent with the plaintiff’s service record,
exhibit ‘D’,
insofar as the service of the machines was
concerned, and that the evidence of the defendant’s expert, Mr
Lott, that the
five fork lifts had been badly serviced and maintained
was corroborated by the plaintiff's own service records.
THE FINDINGS OF THE COURT
A QUO
:
[23] The court
a quo
correctly found that the argument by the
plaintiff that the service levels of the fork lifts were justified by
the hours used,
was without merit. The evidence showed that the fork
lifts were in constant use as the factory operated 24 hours for 7
days a week,
closing down only for a 2 week period in December. The
complaints received by a Mr Edmunds who had become responsible for
the contract
on behalf of the defendant in July 2000, from the
drivers of the fork lifts, were conveyed to the plaintiff. These
complaints regarded
lack of service, and are corroborated by the
finding of the expert Mr Lott who examined the fork lifts on the 14
February 2001.
Not only were Mr Lott's findings corroborated by the
plaintiff's own service records, but they were also not disputed by
the evidence
of the plaintiff's expert, Mr Wilson.
[24] Notwithstanding the aforesaid findings, during the course of the
judgment the court
a quo
seemed to have been influenced by the
following considerations:
(a) Mr Lott's findings detailing complaints were never communicated
to the plaintiff;
(b) It took the defendant some six weeks after receipt of Mr Lott's
report which was dated the 16 February 2001 to come to the
conclusion
that the plaintiff's service levels were unsatisfactory or
inefficient entitling the defendant to cancel the contract,
which in
the view of the learned Judge indicated that the defendant was in
itself not confident enough that it was justified in
invoking the
provisions of Clause 5.1 of the contract until receipt of Mr Lott's
report;
(c) Under normal circumstances the defendant would have given the
plaintiff a notice to remedy the alleged breach. If the breaches
of
the contract were not brought to the attention of the plaintiff, the
plaintiff had no way of knowing those alleged breaches.
The defendant
therefore could not hide behind the allegation that there was no
obligation on the defendant to give the plaintiff
notice to remedy
the breaches. At the very least the defendant had an obligation to
bring to the attention of the plaintiff those
alleged breaches prior
to terminating the contract.
Accordingly the court found that the cancellation of the contract was
not justified and amounted to a repudiation.
DID THE DEFENDANT REPUDIATE THE AGREEMENT?
[25] I am, with respect to the learned judge in the court
a quo,
not persuaded that notification was required. What the agreement
required, by necessary implication, was that the service levels
throughout had to be satisfactory and efficient. That is the
obligation the plaintiff attracts of its own volition, even if it
may
be burdensome. If the plaintiff wished to protect itself against any
possible temporary lapse in service delivery, then it
had it within
its powers to have stipulated that prior notice would be required
granting it the opportunity to remedy any alleged
defect within a
specified time before cancellation would be competent.
[26] Provided the service was unsatisfactory or inefficient the
defendant would be entitled to cancel the agreement even if it
did
not give notice to remedy to the plaintiff, provided it exercised
that election within a reasonable time. I do not believe
that the
delay from the time that the contents of Mr Lott’s report
became available to the defendant until it communicated
its intention
to terminate the agreement to the plaintiff was unreasonable.
[27] Objectively speaking, the service provided was unsatisfactory
and inefficient. Accordingly, the defendant became entitled
to cancel
the agreement and its notice of termination did not constitute a
repudiation which would found a claim for damages in
favour of the
plaintiff. The plaintiff's claim should accordingly have been
dismissed with costs.
DID THE PLAINTIFF PROVE IT’S QUANTUM OF DAMAGES?
[28] However, even if I am wrong in my aforesaid findings, the
plaintiff had not proved its damages on a balance of probabilities.
[29] Even accepting the escalation in rental, as set out in annexure
B to the Particulars of Claim, to be calculated correctly
in terms of
the agreement, the plaintiff's calculation of its quantum viewed
against the background evidence is contradictory and
unsatisfactory,
and does not constitute satisfactory proof of its quantum of damages
on a preponderance of probabilities.
[30] A party claiming contractual damages should
be placed in the position it would have been in had the contract been
performed
properly. The onus is on the plaintiff to adduce evidence
and proof of the damages which he claims to have suffered
4
.
[31] Broadly stated, the plaintiff would in principle be entitled to
the rentals it would have earned but no longer could earn
due to the
defendant's repudiation, less any rentals it could earn from letting
out the fork lifts having now regained possession
thereof during the
remainder of the rental period, in order to mitigate its loss, but
after deduction of the service costs that
it would have had to incur
in respect of the operation of the fork lifts whether they were hired
by the defendant or by any third
party.
[32] The defendant also submitted that a portion of the plaintiff's
fixed business costs such as rental, salary, taxes, levies,
and other
costs would also have to be taken into account on some sort of
actuarial basis to properly calculate what the plaintiff's
loss of
profit would be. I have serious reservations as to the inclusion of
these items relating to fixed costs in a calculation
of any damages.
Prima facie
they appear to me to play no role, as the fixed
costs for example the salary of a receptionist would be incurred
whether this agreement
was adhered to or cancelled. There was also
some suggestion by the defendant that any profit realized on the sale
of the fork lift
number 310 during or about March 2002 should operate
to reduce any claim for damages the plaintiff may have. I fail to see
how
that could be the case on the facts of the present matter. The
fork lift could in any event have been sold at the end of the rental
period. The only benefit the plaintiff now had resulting from the
breach of the agreement was that it could be sold some nine months
earlier. Any financial implications arising therefrom would be too
remote to affect the calculation of damages.
In view of the conclusion to which I have come, it is not necessary
to deal with these novel arguments any further and I accordingly
refrain from doing so.
[33] The plaintiff's claim for damages insofar as it comprises the
loss of rental, reflects a uniform rental amount being claimed
for
the periods from May 2001 to November 2001 and then from December
2001 to October 2002. The plaintiff was asked whether the
fork lifts
were hired out on a regular basis after they were returned to him, to
which he replied that ‘they were hired out
as and when the
market called for those capacity machines’. If they were hired
out, then the rental that was earned, and
which would mitigate the
plaintiff's loss, should be taken into account. No provision
whatsoever has been made for any rental thus
earned.
[34] Conversely, if seemingly contrary to the plaintiff's evidence it
would be suggested that the fork lifts lay largely idle and
that they
were hired out as and when the market called for those capacity
machines, as an exception rather than the rule, then
the uniform
deduction throughout the period from May 2001 to October 2002 in
respect of all of the machines in the sum of R756
per month, where
these monthly maintenance rates would be dependent on the metered
hours that the machines worked and had to be
lubricated, should be
nil or significantly less than the amounts claimed, or the amounts
should at least vary from one fork lift
to the next. The evidence
suggested that the amounts allowed in respect of maintenance were
based largely on an approximation and
by making an allowance of
maintenance of R4.20 per hour or per hour of usage. They were in fact
not the actual maintenance costs
in respect of the fork lifts. The
actual maintenance costs should be readily available to the
plaintiff.
[35] The plaintiff failed to prove its quantum of damages on a
balance of probabilities. Even if the defendant’s notice of
termination amounted to a repudiation, the court
a quo
should
have absolved the defendant from the instance.
ORDER
:
[36] The order issued is as follows:
(a) The appeal is upheld with costs
(b) The order of the court
a quo
is set aside and substituted
with an order dismissing the plaintiff's claims with costs.
KOEN J
MOKGOHLOA J
PLOOS VAN AMSTEL J
DATE OF HEARING: 8 FEBRUARY 2012
DATE OF
JUDGMENT:
APPELLANT'S
COUNSEL: ADV. K C McINTOSH
APPELLANTS
ATTORNEYS: COX YEATS
Ref.: P
Barnard/tm/07R310003
c/o
Stowell & Co
Ref.:
Mr G Campbell
RESPONDENT'S
COUNSEL: ADV. I L TOPPING
RESPONDENT'S
ATTORNEYS: LIVINGSTON LEANDY INC
Ref.: R
Argue
1
In
terms of the agreement the monthly rental was ‘subject to a 5%
(five per centum) per annum escalation factor, same to
be negotiated
at the conclusion of each 12 month contract period in the event of
costs escalating beyond that point’.
2
Oatorian
Properties (Pty) Limited v Maroun
1973 (3) SA 779
(A) at 787F.
3
Lobo
Properties Pty Limited v Express Lift Co (SA) Pty Limited
1961
(1) SA 704
C 708.
4
S
M Goldstein and Company Pty Limited v Gerber
1979
(4) SA 930
A and
Sommer
v Wilding
[1984] ZASCA 53
;
1984
(3) SA 647
A.