Absa Technology Finance Solutions (Pty) Ltd v Hattingh t/a Corner Savings Supermarket (5580/06) [2009] ZAGPPHC 37 (29 April 2009)

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[2009] ZAGPPHC 37
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Absa Technology Finance Solutions (Pty) Ltd v Hattingh t/a Corner Savings Supermarket (5580/06) [2009] ZAGPPHC 37 (29 April 2009)

IN THE HIGH COURT
OF SOUTH AFRICA
(NORTH
GAUTENG HIGH COURT, PRETORIA)
CASE NO: 5580/06
NOT REPORTABLE DATE:
29/4/2009
In the matter
between:
ABSA
TECHNOLOGY FINANCE SOLUTIONS (PTY) LTD
…....................................
Plaintiff
and
LEON
HATTINGH t/a CORNER SAVINGS
SUPERMARKET
…....................................
Defendant
JUDGMENT
________________________________________________________________
MURPHY J
1. The
plaintiff has issued summons against the defendant for payment of a
sum of R113 732, 51 together with interest thereon
at a rate of 6%
above the prime bank lending rate.
2. The
plaintiff’s cause of action is based on a master rental agreement
(“the agreement”) entered into between the plaintiff
and the
defendant on or about 19 April 2005 in terms of which the defendant
leased certain office automation equipment against
payment of a
monthly rental of R2018,94. It is common cause that the defendant
fell into arrears with his payment and that the
plaintiff then
elected to cancel the agreement in terms of clause 9 thereof.
Clause 9 of the agreement reads as follows:
“
9. BREACH;
if User defaults in the punctual payment of any monies as it falls
due in terms of this agreement; or fails to comply
with any of the
terms and conditions of, or its obligations under this agreement;
or commits any act of insolvency, or being
a natural person,
assigns, surrenders or attempts to assign or surrender his estate;
or allows a default judgement to remain
unsatisfied for a period of
seven days or be refused rescission within fourteen days of any
default judgement, or is sequestrated
or placed under judicial
management or wound up, whether provisionally or finally; or
abandons the goods; or compromises with
any of its creditors or
endeavours or attempts to do so; or makes any incorrect or untrue
statement or representations in connection
with this agreement or
User’s financial affairs or any particulars relevant thereto; or
breaches any rights, under this agreement,
then and upon the
occurrence of any of these events Hirer may elect without prejudice
to any of its rights to;
9.1 Immediately
terminate this agreement, take possession of the goods, retain all
amounts already paid by User and claim all
amounts which are in
arrears at date of termination together with as pre-estimated
liquidated damages, the future rentals which
would have fallen due
in terms of this agreement from the date of termination until the
end of the period stipulated in the
schedule on which this
agreement could have terminated by notice, or,
9.2
Without terminating this agreement, claim immediate payment of all
amounts which are due and/or all rentals which would
have fallen
due in terms of this agreement until the earliest possible date on
which this agreement could have terminated by
notice, all of which
shall be immediately due and payable. The Hirer shall, pending
payment of those amounts, be entitled
to be possessed of the goods
and to retain possession thereof on condition that against such
full payment the Hirer shall return
the goods to the User who shall
not be entitled to any rebate or abatement of rentals of other
amounts by reason of its loss
or possession.
9.3
User shall pay the Hirer interest on any amounts owing in terms of
clause 9.1 and 9.2 at 6% above the publicly quoted prime
interest
rate of the Hirer’s bankers at the nominal annual rate compounded
monthly. Said interest shall accrue from due
date for payment to
date of payment receipt by Hirer.
9.4
Hirer may appropriate any payments made by or on behalf of User to
any indebtedness of whatsoever nature of User to Hirer.
3. The
plaintiff claims that the defendant is indebted in the amount
claimed in the summons, such amounts being made up of an
arrears
rental amount of R10 766,57 and future rentals in the amount of R102
965,94.
4. During
the course of the proceedings it became common cause that the
defendant was indeed in arrears. He however denied that
he had any
further obligations to the plaintiff on the grounds that the
plaintiff had repudiated the contract which repudiation
he had
accepted. More specifically he pleaded that during December 2005
the representative of the plaintiff unlawfully and without
his
consent repossessed the goods and that such constituted a
repudiation. The defendant has also raised the further defences

that the pre-estimated damages in the sum of the future rentals
amounts to an unreasonable penalty in terms of the Conventional

Penalties Act 15 of 1962, and furthermore that the plaintiff failed
to mitigate its damages.
5. The
plaintiff called three witnesses while the defendant closed his case
without calling any.
6. Mr
Jannie Vermeulen, the legal manager of the plaintiff, testified that
the plaintiff is a financier of office automation equipment
and that
the equipment in this case was bought from a supplier and then
rented to the defendant. He confirmed his signature
on the
certificate of indebtedness and confirmed that this certificate
indicated that the defendant is indebted to the plaintiff
in the
amount claimed in respect of both arrear and future rentals.
7. It
emerged in cross-examination that during November 2005 an amount of
R6000 had been paid in respect of the equipment but
was not
allocated to the defendant’s account due to no proper reference
number on the deposit slip. This amount was credited
to the
defendant’s account only after receipt of the defendant’s plea
and the amount of the claim was reduced accordingly.
It seems that
this payment was made by or on behalf of a third party in whose
possession the goods were placed by the defendant.
This payment
does not detract from the fact that the defendant was still in
arrears at the time the goods were repossessed by
virtue of the fact
that the last payment received from the defendant personally was on
19 April 2005 and that a letter of demand
dated 27 July 2005
indicated the arrear amount as being R6072,71. At the time when the
R6000 was received in November 2005,
a further four months rental
had not been paid by the defendant. Accordingly, there can be no
doubt that the defendant was in
fact in breach at the time the goods
were repossessed in December 2005.
8. Mrs
Brenda Freislich testified that she was employed by the plaintiff as
a credit controller. Her duties include, after receiving
a debtors
age analysis, contacting a client to make arrangement for the
payment of any arrear amounts. The defendant was one
of the clients
on her list of clients in arrears. She made various phone calls to
the defendant and left messages which were
never returned. A letter
of demand was sent to the defendant and he failed to respond to
this. She accordingly instructed the
loss-control department to
send a risk mitigation official to visit the defendant’s business
premises and to collect the arrears,
obtain new debit details and to
ask for an explanation from the defendant for failing to contact
her.
9. The
risk mitigation official, Mr William Botha, responded to this
instruction. His written notes indicate that the defendant
was
overseas until December 2005. During October 2005, Botha left a
business card at the defendant’s premises.
10. Freislich
testified that some time after this, the exact date not being clear,
she was contacted by a person from the supplier
of the equipment,
Ronmar, who informed her that the defendant had sold the business
about four months earlier and that the new
owner would pay an amount
of R6000 for the three months he had used the equipment. According
to her this payment was never made.
However, as I have explained,
it was in fact made but not correctly referenced and only discovered
at a later date. Being unaware
of any payment she then instructed
loss-control to repossess the equipment. She stated that she
believed the plaintiff had the
right to repossess the equipment,
because it was in possession of a third party.
11. It
would seem that Freislich was also of the view that she had the
entitlement to take possession of the goods in terms of
clause 9 of
the agreement which on breach gives the plaintiff the right to
terminate the agreement and take possession of the
goods, to retain
all amounts already paid and to claim future rentals. The first
breach was obviously the failure to pay the
monthly rentals.
However, the defendant acted contrary to the terms of clause 13 of
the agreement by surrendering possession
of the goods to a third
party without the consent of the plaintiff. The relevant clause is
clause 13.1 which reads as follows:
“
13. USE OF
THE GOODS
13.1
User shall at all times keep the goods in its possession and under
its control and shall take reasonable care in the use
of goods.
User shall at its own expense maintain the goods in proper working
order and keep the goods free from attachment,
hypothec, or other
legal charge or process. User shall not sell, let, loan, pledge,
transfer or otherwise encumber or alienate
the goods in any way or
permit any lien to arise in respect of the goods and shall not
cede, assign or delegate any of its
rights or obligations in terms
of this agreement. The goods shall be operated at User’s cost
and controlled only by properly
trained, licensed and qualified
persons. User shall comply with the specification, instructions
and recommendations of the
manufacturer for the operation, service,
maintenance and/or repair of the goods or any part thereof.”
12. Mr
William Botha, the risk mitigation official, testified that his
duties were to attend to the clients who were in arrears.
He would
make demand of the arrears, collect them, and make additional
arrangements for payment. He confirmed that he received
an
instruction from the plaintiff to visit the business premises of the
defendant.
13. On
the day that he repossessed the goods in December 2005, he visited
the defendant’s premises where he was informed by
a woman there
that she and her associates were the new owners of the business.
The staff of the business then pointed out the
equipment to him
which was packed in boxes and stored in a storeroom at the back of
the business. He then proceeded to the defendant’s
home address
but was unable to find the defendant there. He contacted the
defendant by telephone, who told him that he was out
of town and
would not be able to come to the business premises. Botha then
returned to the business premises and repossessed
the equipment in
the presence of the new owner, a representative of Renmor and a
colleague who had accompanied him. He testified
that the new owner
of the business indicated to him that he did not have any use for
the equipment as he had already acquired
other equipment and that
the equipment was taking up room. In other words, the new owner of
the business did not object to the
repossession of the goods and in
fact consented to it.
14. As
I indicated at the outset, the defendant closed his case without
testifying or calling any witness to testify on his behalf,
despite
the fact that both he and his wife were present at court.
15. Having
regard to the admitted fact that the defendant was indeed in arrears
with his payment and that he had failed to keep
the goods in his
possession and under his control, one may safely conclude that the
defendant was in breach of the agreement;
and thus that the
plaintiff was entitled to terminate the agreement and to seek the
remedies afforded by clause 9 of the agreement.
16. The
defendant has contended that the plaintiff was obliged to convey its
election to cancel the agreement to the defendant
but failed to do
so until issuing summons. I am prepared to accept for the purposes
of argument that the first occasion on which
the plaintiff formally
communicated to the defendant that it had elected to cancel the
agreement was with the issuing of summons.
An argument could be
made that the repossession of the goods by Botha was tantamount to
cancellation and that such had been
communicated by such action.
However, for reasons that will become apparent presently, it is
unnecessary to determine whether
that indeed was the case in this
instance.
17. It
is common cause that the plaintiff repossessed the goods without the
intervention of a court order. I accept the criticism
leveled at
Botha’s evidence by counsel for the defendant that his testimony
regarding the telephonic discussion on the date
of repossession was
somewhat vague. Botha has done approximately ten thousand
repossessions since the repossession of the defendant
and hence it
is understandable that he could not give precise evidence as to
whether or not the defendant had consented to the
repossession. On
this premise, therefore, the defendant argued that the repossession
amounted to a repudiation.
18. There
was some debate in argument about whether or not clause 9.1 could be
interpreted to mean that the plaintiff may take
possession of the
goods without a court order. Counsel for the defendant submitted
that to interpret the agreement in such a
way would be contrary to
policy in that it violated the fundamental principle that no person
should be allowed to take the law
into his own hands. Proceeding on
the basis of that argument, he submitted further that the plaintiff
by repossessing the goods
without a court order or the consent of
the defendant repudiated the agreement, that the defendant accepted
that repudiation
and hence was relieved from the obligation to
perform or tender performance in terms of the agreement.
19. I
am prepared to accept for the sake of argument that clause 9 would
normally oblige the plaintiff to take possession of goods
only with
the consent of the debtor or in terms of a court order. However,
the principle disallowing repossession without consent
or a court
order applies only to dispossessing a dissenting person in
possession. The evidence in this case shows that the defendant
had
in fact abandoned possession of the goods in breach of clause 13 of
the agreement and had wrongfully delegated his obligations
under the
agreement to the third party. Moreover, the uncontested evidence of
Botha is that the third party consented to his
repossessing the
goods.
20.
Clause 2 of the agreement is also relevant. It reads as follows:
“
Ownership
of the goods shall vest in the Hirer and nothing in this agreement
shall be construed as conferring on the User or
any other person on
its behalf any right, title or interest in the goods other than as
User. The User shall not acquire ownership
on the delivery or
during or after the determination of this agreement.”
It
is quite clear from this clause that the parties intended the
plaintiff to remain owner of the goods both throughout and after
the
termination of the agreement. It is trite that an owner who has
been deprived of his property against his will is, as a
general
rule, entitled to vindicate it from any person who is in possession
of it. In our law that is so irrespective of whether
the person is
a
bona
or
mala
fide
possessor or occupier, and there is no
need to compensate him for its value even where the latter acquired
it justifiably. It
is furthermore irrelevant whether the owner
parted with possession of his property of his own accord, for
example by lending
or leasing it to a person (such as in this case)
who has then subsequently alienated it or delivered it to the
defendant -
Morum Bros
Ltd v Nepgen
1916 CPD 392
at 394.
21. When
the plaintiff discovered that the goods were unlawfully in the
possession of a third party, it was entitled as owner
to exercise
its rights of ownership and to vindicate the property by taking it
back into its possession. There is also no question
of an unlawful
spoliation, because the undisputed evidence is that the third party
consented to the repossession. Thereafter,
the right of
cancellation, communicated in the particulars of claim, was properly
exercised and the plaintiff became entitled
to invoke the rights and
remedies provided for in clause 9. By exercising its rights as
owner in terms of clause 2 read with
clause 13 of the agreement, and
by repossessing the equipment from the possession of a third party,
the plaintiff did not exhibit
a deliberate and unequivocal intention
not to be bound by the terms of the agreement. It was simply
asserting its rights of
ownership to protect the goods in
circumstances resulting from a breach of contract by the defendant.
Taking possession of the
goods from a consenting third party with no
right or interest in them does not of itself constitute a
repudiation of the contract.
22. As
I have stated, the defendant has pleaded that the plaintiff’s
claim for the future rental as pre-estimated liquidated
damages
constitutes a conventional penalty as contemplated in the
Conventional Penalties Act 15 of 1962. He submitted further
that
the amount is out of proportion to the prejudice suffered by the
plaintiff and accordingly sought a reduction of the penalty
in terms
of section 3 of the Act. Moreover, although it was not pleaded, the
defendant has enlarged upon that argument by contending
that the
plaintiff failed to mitigate its damages.
23. Section
1 of the Act reads:
“
(1)
A stipulation, herein after referred to as a penalty stipulation,
whereby it is provided that any person shall, in respect
of an act
or omission in conflict of a contractual obligation, be liable to
pay a sum of money or to deliver or perform anything
for the
benefit of any other person, herein after referred to as a
creditor, either by way of a penalty or as liquidated damages,

shall, subject to the provisions of this Act, be capable of being
enforced in any competent court.
(2)
Any sum of money for the payment of which or anything for the
delivery or performance of which a person may become so liable,
is
in this Act referred to as a penalty.”
24. Section
3 of the Act provides:
“
If
upon the hearing of a claim for a penalty, it appears to the court
that such penalty is out of proportion to the prejudice
suffered by
the creditor by reason of the act or omission in respect of which
the penalty was stipulated, the court may reduce
the penalty to
such extent as it may consider equitable in the circumstances:
provided that in determining the extent of such
prejudice the court
shall take into consideration not only the creditors proprietary
interest, but every other rightful interest
which may be affected
by the act or omission in question.”
25. The
parties are in agreement that the claim for future rentals allowed
in terms of clause 9.1 of the agreement is indeed a
penalty.
Usually a plaintiff who relies on a penalty need not prove his
damages for the penalty stipulation to come into operation.
The
onus of proof is on the defendant to convince the court that a
penalty ought to be reduced as well as the extent of such
moderation
-
Smit v
Bester
1977 (4) SA 937
(A). The basis for moderation of a penalty is that
it should be shown to be out of proportion to the prejudice suffered
by a
creditor.
26. The
starting point is to consider the actual and potential prejudice for
the plaintiff. The Act employs the concept of prejudice
and this
clearly includes more than patrimonial loss. A court is entitled to
have regard to every rightful interest of a creditor
that is
affected by the breach of contract and this concept may be widely
interpreted. It includes affective loss, inconvenience
etc., which
are not normally regarded as compensable. In
Van
Staden v SA Central Lands
and
Mines
1969 (4) SA 349
(W) at 352
Snyman J said:
“
Everything
that can reasonably be considered to harm or hurt, or be calculated
to harm or hurt a creditor and his property,
his person, his
reputation, his work, his activities, his convenience, his mind, or
in any way whatever interferes with his
rightful interests as a
result of the act or omission of the debtor, must, if it is brought
to the notice of the court, be
taken into account by the court in
deciding whether the penalty is out of proportion to the prejudice
suffered by the creditor
as a result of the act or omission of the
debtor.”
27. Once
the court has determined what it considers to be the extent of the
creditor’s prejudice, it must compare that prejudice
with the
penalty in order to ascertain whether or not it is out of proportion
to it. A court will normally only intervene if
the penalty deviates
markedly from the prejudice. In
Western
Credit
Credit
Bank Ltd v Kajee
1967 (4) SA 396
(N)
at 391 the court held:
“
The
words “out of proportion” do not postulate that the penalty
must be outrageously excessive in relation to the prejudice
for the
court to intervene. If that had been intended, the Legislature
would have said so. What is contemplated… is that
the penalty is
to be reduced if it has no relation to the prejudice, if it is
markedly, not infinitesimally, beyond the prejudice,
if the excess
is such that it would be unfair to the debtor not to reduce the
penalty; but otherwise, if the amount of the
penalty approximates
that of the prejudice, the penalty should be awarded.”
28. That
said there is obviously no precise measure which can be used and the
court may, when it considers a penalty to be excessive,
moderate
such penalty to the extent which it considers it to be equitable in
the circumstances. In this regard it may consider
factors such as
the conduct of the parties, their relationship, their relative
bargaining power, the nature of the plaintiff’s
business, the
reason for the breach of contract, and attempts by the debtor to
reduce the creditor’s damage - see Bamford
1972
SALJ
234.
The test is essentially one of reasonableness in which a court
should take cognizance of the legitimate aims and purpose of the

penalty and the reasonableness of the relationship between the
penalty and the creditor’s actual and potential prejudice.
29. In
National Sorghum Breweries v
International Liquor Distributors
[2000] ZASCA 159
;
2001
(2) SA 232
(SCA) at 241A-B the Supreme Court of Appeal upheld the
earlier Appellate Division decision in
Smit
v Bester
. In order to reduce the
amount of the forfeiture, the actual prejudice suffered by the
creditor must be proved by the debtor.
This was recently reaffirmed
in
Steinburg v Lazard
2006 (5) SA 52
(SCA) at 46C-D where the court held:
“
The
creditor does not have to prove any prejudice because the penalty
clause he seeks to enforce is in his favour… Although
the High
Court found that the appellant has failed to discharge the onus
which rested on him, it incorrectly described such
onus as the
burden of adducing evidence in rebuttal (weerleggingslas). What
burdened him was not just the duty to lead evidence
but the full
legal onus.”
30. From
the foregoing decisions it follows that the defendant bears the
burden of alleging and proving that the plaintiff has
suffered
prejudice in an amount less than the penalty and accordingly the
amount of the abatement of the plaintiff’s claim.
31. There
is not much before me in the way of evidence with regard to the
extent of the plaintiff’s prejudice. However, it
is common cause
that the plaintiff was the financier of the goods, rather than the
supplier thereof. The plaintiff thus only
facilitated the purchase
of the equipment from the supplier at the defendant’s special
instance and request in order to rent
the equipment to the
defendant. The equipment and its specifications were negotiated
directly between the supplier and the defendant.
The plaintiff made
an initial capital layout to the supplier and this amount has not
been repaid. The plaintiff is not in the
business of trading in
automated office equipment and thus has no showrooms at its disposal
in which to dispose of the repossessed
equipment. The plaintiff
therefore claims no more than it would have been entitled to in
terms of the agreement, if the defendant
had complied fully with his
obligations. It contended that it should not be required to mitigate
its losses by entering into
economically unviable transactions
involving second hand equipment.
32. Against
that though, Mr Vermeulen testified that after repossessing the
goods the plaintiff simply left them in its storeroom
without
attempting to sell or rehire them to other customers. The plaintiff
repossessed the goods approximately 9 months after
the commencement
of the agreement. Consequently, there remained 51 months of the
agreement to run when the plaintiff repossessed
the goods. He was
unable to give a satisfactory answer as to why the plaintiff did not
attempt to sell or rehire the goods in
some attempt to mitigate its
damages. Counsel for the defendant submitted by comparison that if
an owner of a fixed property
were to lease it for a period of 60
months and the agreement was cancelled after 9 months, the lessor
would undoubtedly have
a duty to attempt to mitigate its damages by
leasing the property to a new tenant during the remaining 51 months.
33. It
would seem to me that the starting point when a court is called upon
to decide whether to reduce a penalty should be the
principle
pacta
sunt servanda
. That much is evident
from section 1 of the Act which proceeds on the premise that
penalties and pre-estimates of liquidated
damages are enforceable.
In determining the question of proportionality it is not only the
relationship of the penalty to the
prejudice which is weighed and
considered, but, as discussed, also other non-pecuniary and other
rightful interests which may
be affected by the act or omission.
When a financier, as in this case, puts up finance to enable a
debtor to acquire goods from
a third party and includes within its
agreement with the debtor, as a protective measure, a clearly
stipulated penalty as a pre-estimate
of liquidated damages, and the
debtor enters into the contract on an equal basis with the creditor,
without any unusual inequality
in bargaining power or position, the
court should pause before imposing on the creditor a requirement to
mitigate its losses
compelling it to engage in the business of
marketing and selling or leasing equipment on what might prove to be
an economically
unviable basis. A financier normally should not be
expected to become a dealer in second hand equipment.
34. However,
that said, the fact remains that the equipment has a residual value
and remains in possession of the plaintiff.
Unfortunately, there is
no evidence as to the present value of the equipment and thus it
cannot be said that the defendant has
discharged its onus to
establish the extent of the abatement of the penalty he seeks.
While the equipment, consisting of computers,
computer equipment and
a photocopier, obviously will have some monetary value, it is not
clear whether it has any practical or
functional value to the
plaintiff. Unlike immovable property, office equipment is by nature
a depreciating asset. Moreover,
from the clauses of the contract it
is evident that had there been proper performance the plaintiff
would have received the 60
months rental and that at the end of the
period the goods in any event would have been returned to it.
Accordingly, as I see
it, the extent of the creditors prejudice
equates with the extent of non-performance under the contract. I can
only conclude
that the extent of the plaintiff’s prejudice is in
the amount of the monthly rentals of R2018,94 which it would have
received
over the entire period of the contract.
35. Additionally,
the manner in which the defendant behaved, causing as he did
considerable inconvenience to the plaintiff by
simply abandoning the
goods with a third party, is a significant relevant consideration.
From the limited evidence available
it appears to me that the
defendant made little or no attempt whatsoever to reduce the
plaintiff’s damage by taking responsibility
for the goods or by
acting effectively to novate the original contract with one that
assisted in diminishing the plaintiff’s
damages. I do not
consider in such circumstances that the penalty is out of proportion
to the prejudice suffered by the plaintiff.
There was accordingly
no duty on the plaintiff to mitigate its damages to an amount lower
than the penalty.
36. In
the result, therefore, the plaintiff should be entitled to succeed
in the claim. In the particulars of claim the plaintiff
seeks
interest from the date of the conclusion of the contract. However,
in argument the plaintiff conceded that interest is
payable at the
agreed rate from the date of summons to the date of payment. In
terms of clause 17.2 of the agreement, the plaintiff
is entitled to
its costs on an attorney and own client basis. There is no
submission or evidence justifying any departure from
that
contractual term.
37. In
the premises, the following orders are issued:
1. The
defendant is ordered to pay the plaintiff the amount of R113 732,
51 together with interest on that amount at the rate
of prime plus
6% per annum from the date of summons to the date of final
payment.
2. The
defendant is ordered to pay the costs of suit on an attorney and
own client basis.
JR MURPHY
JUDGE
OF THE HIGH COURT
Date
Heard: 3 & 4 September 2008
For the
Plaintiff: Adv JJ Durandt, Johannesburg
Instructed
By: JAY Mothobi Inc. c/o Surita Marais Attorneys, Pretoria
For the
Defendant: Adv APJ Els, Pretoria
Instructed
By: CP Vermaas & Cronje c/o Paul du Plessis Attorneys, Pretoria