Brief Summary

Contract — Breach of contract — Validity of contract — Plaintiff, Filyat 4 CC t/a Ambient Control, sued defendant, Kimgas Refrigeration and Appliance Centre CC, for payment following alleged repudiation of a subcontract agreement by Kimgas's director. The court considered whether a valid contract existed between the parties, with Kimgas denying the existence of an agreement and claiming mutual cancellation. The evidence presented by Ambient Control was accepted as credible while Kimgas's evidence was found less satisfactory. The court held that a valid contract had been formed and was only repudiated on the 29th October 2007, thus ruling in favor of Ambient Control.

Comprehensive Summary

Summary of Judgment

1. Introduction

This was a trial in the High Court of South Africa (Northern Cape Division, Kimberley) in which the plaintiff pursued a contractual damages claim arising from an alleged breach (repudiation) of an agreement connected to a public tender. The proceedings were framed primarily as a claim for payment of R129 231.22 (Claim 1), together with additional claims (Claims 2 and 3) dealt with separately in the final order.

The plaintiff was Filyat 4 CC t/a Ambient Control CC (“Ambient Control”), a close corporation conducting business in Kimberley and specialising in air conditioning and related installation and repair work. The defendant was Kimgas Refrigeration and Appliance Centre CC (“Kimgas CC”), a Kimberley-based close corporation engaged in gas distribution and allied activities.

Procedurally, the dispute came before the court for determination of a narrow issue: whether a valid contract between the parties had come into existence. This narrow focus arose against the backdrop of a concession by counsel for Kimgas CC that the evidence of Ambient Control’s witnesses (Mr and Mrs Reineke) should be accepted as credible, and that the evidence of the defendant’s witnesses (Mr Jonkers and Ms Bredenhann) should be regarded as less satisfactory.

The general subject-matter of the dispute concerned the parties’ collaboration in relation to a government tender for installation work at the Northern Cape Civic Theatre, and whether Kimgas CC had contracted to appoint Ambient Control to perform the work (in substance, to do the work and receive the tender proceeds), with Kimgas CC receiving a limited “facilitating commission”, and whether Kimgas CC later repudiated that arrangement.

2. Material Facts

The court accepted that the Department of Transport, Roads and Public Works of the Northern Cape (acting on behalf of the Department of Sports, Arts and Culture) invited tenders for the installation of air conditioning, ventilation and electrical services for the Northern Cape Civic Theatre in Kimberley. A compulsory site inspection occurred on 17 August 2007, where the principals (including the Reinekes and Mr Jonkers) met and discussed collaboration.

Following that meeting, the parties held a further meeting at Ambient Control’s premises, where they agreed that if Kimgas CC were awarded the tender, Ambient Control would be appointed to perform the tendered work. The rationale for the arrangement was linked, on the evidence accepted by the court, to the fact that Ambient Control was not Black Economic Empowerment compliant, whereas Kimgas CC was; conversely, Ambient Control had the resources and expertise to execute the work, while Kimgas CC did not.

Pursuant to the arrangement, Mr Reineke compiled the tender documentation in Kimgas CC’s name, with the involvement of Ms Bredenhann and with Mrs Reineke present. The costing documentation (referred to as “Exhibit B”) reflected detailed itemisation and pricing, and the accepted evidence was that the projected profit on completion would be R139 231.22, calculated as the contract price less completion costs.

Ambient Control’s pleaded case was that it would perform the work using its own labour and materials, while Kimgas CC would receive R10 000.00 (described in evidence as a facilitating amount linked to the use of Kimgas CC’s name). The defendant’s plea denied the asserted R10 000.00 arrangement and did not plead an alternative allocation of profits. During cross-examination and later in Mr Jonkers’ evidence, Kimgas CC advanced (as its version) that the profits were to be shared 50/50 and that Kimgas CC would provide two workers to join Ambient Control’s workforce. The court treated this as emerging during the trial rather than being properly set out in the pleaded case.

A practical dispute later arose around 8 October 2007 when Mr Jonkers communicated that consultants (Mekan Engineering Services) indicated that heavy equipment would need to be offloaded on site on 10 October 2007, requiring a crane. The evidence accepted by the court was that Mr Jonkers effectively passed the obligation to arrange this to Ambient Control, and that Mrs Reineke raised objections including the lack of a formal appointment letter, the short notice for arranging a crane, the fact that Mr Reineke would be out of town, and the risk associated with handling expensive equipment.

Kimgas CC’s pleaded position was that the agreement was cancelled by mutual consent on 8 October 2007. In support, it referred to a letter from Mrs Reineke dated 8 October 2007. The court, however, found that the letter did not reflect any intention by Ambient Control to cancel or repudiate the agreement, and that there was no evidence in the letter of a consensual cancellation.

The court further accepted evidence (including telephone records and delivery documentation) indicating continued interactions after 8 October 2007, and it accepted Ambient Control’s version that repudiation occurred only later, at the earliest on or about 29 October 2007. A letter dated 30 October 2007 (delivered to Kimgas CC) recorded Ambient Control’s view that Kimgas CC appeared to be repudiating the agreement and invited a meeting, failing which repudiation would be accepted and legal steps taken.

On the accepted facts, the defendant later used Ambient Control’s costing documentation (with some modification) in connection with the tender.

3. Legal Issues

The central legal questions the court was required to determine were whether a valid and enforceable contract came into existence between Ambient Control and Kimgas CC, and, in consequence, whether there could have been a repudiation or breach giving rise to damages.

Within that overarching question, a specific issue was whether an essential term was missing: namely whether the amount payable by Ambient Control to Kimgas CC (described as a commission/facilitating fee) was sufficiently determined or determinable to support contractual validity. The defendant argued that because the evidence suggested a range (between R5 000 and R10 000) rather than a single fixed amount, there was no enforceable agreement.

A further issue of mixed fact and application of law to fact concerned Kimgas CC’s pleaded assertion that the agreement had been cancelled by mutual consent on 8 October 2007, versus Ambient Control’s claim that Kimgas CC repudiated the agreement later (around 29 October 2007). The determination of repudiation was intertwined with credibility and with the interpretation of contemporaneous documents.

Overall, the dispute required determination of fact (what was agreed; whether cancellation occurred), and application of legal principles governing contractual formation and enforceability (including determinability of terms) to those facts.

4. Court’s Reasoning

The court’s reasoning proceeded from the limited scope of the trial, namely whether a contract existed, and it did so against the backdrop of the defendant’s concession on credibility in favour of Ambient Control’s witnesses. On the accepted evidence, the court found that the parties did reach an agreement connected to the tender: Kimgas CC would submit the tender and, if successful, Ambient Control would perform the work and effectively receive the benefit of the tender proceeds, subject to a limited payment to Kimgas CC.

In dealing with the defendant’s claim of mutual cancellation on 8 October 2007, the court examined the contemporaneous letter of that date relied upon by Kimgas CC. The court found that the letter did not contain an intention to cancel or repudiate, and did not evidence a consensual cancellation. The court also accepted documentary material showing communications after 8 October 2007, which undermined the defendant’s version that the relationship had ended by agreement on that date.

The court further considered the defendant’s argument that no contract existed because the commission payable to Kimgas CC was allegedly not agreed with sufficient certainty. It noted, as a matter of pleading, that Kimgas CC had admitted in its plea that a contract to subcontract came into being, and that this admission had not been withdrawn by amendment. This was treated as significant in assessing the overall contention that no contract existed.

On the determinability point, the court rejected the defendant’s reliance on authority aimed at contracts of sale where price is an essential term. The court discussed Raymond v Abdulnabi & Others 1985(3) SA 348 (W), explaining that it concerned a sale of shares with the price to be fixed by a third party and that the agreement was unenforceable because the price was not fixed nor sufficiently determinable in circumstances requiring further agreement. The court considered that this reasoning did not assist the defendant in the present matter, because the agreement in issue was not a sale agreement and because, on the facts, the parties had fixed parameters for the facilitating commission.

On the accepted version, the payment to Kimgas CC was expressed as a commission between R5 000 and R10 000, not exceeding R10 000, with an indication that the amount would depend on how the contract proceeded and whether unforeseen extra costs were incurred. The court treated this as a sufficiently fixed and determinable stipulation for an agreement of this nature. It also relied on the factual context that the detailed costing was prepared and known to the parties, and that the defendant later used the costing documentation.

Having found that a valid agreement existed and that the defendant repudiated it (with the court accepting repudiation at the earliest around 29 October 2007), the court approached damages on the basis of the lost profit proven by Ambient Control. The court accepted the profit calculation (R139 231.22) and deducted the amount due to Kimgas CC (R10 000.00), arriving at R129 231.22 as the amount of damages proven for Claim 1.

The court also observed that although the arrangement may have been “disguised” as a subcontract, it was, in substance, not a subcontract in the ordinary sense; it referred to a definition of “subcontractor” drawn from authority. However, it emphasised that it had not been called upon to determine the propriety or ethics of the parties’ arrangement, and it indicated that, on its approach, the result would in any event have remained the same.

5. Outcome and Relief

The court granted judgment in favour of Ambient Control on Claim 1, ordering Kimgas CC to pay R129 231.22, together with interest at 15.5% from 7 December 2007 (the date of service of summons) to date of payment. The court stated that, in respect of Claim 1, costs would follow the result.

On Claim 2, the defendant consented to judgment, and the court ordered payment of R23 166.20, together with interest at 15.5% from 7 December 2007 to date of payment.

Claim 3 was abandoned, and it was ordered that there would be no order as to costs in relation to Claim 3.

Cases Cited

Raymond v Abdulnabi & Others 1985(3) SA 348 (W)

Street Pole Ads Durban (Pty) Ltd v Ethekwini Municipality 2008(5) SA 290 (SCA)

Legislation Cited

No legislation was cited in the judgment.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that a valid contract came into existence between Ambient Control and Kimgas CC in terms of which Kimgas CC would submit a public tender and, if successful, Ambient Control would execute the work and receive the benefit of the tender proceeds, while Kimgas CC would receive a facilitating commission (within agreed parameters).

It rejected Kimgas CC’s defence that the agreement had been cancelled by mutual consent on 8 October 2007, finding that the contemporaneous correspondence did not evidence cancellation and that the accepted factual matrix supported Ambient Control’s version that repudiation occurred later (at the earliest around 29 October 2007).

It further held that the commission term (expressed as a range capped at R10 000 and linked to performance contingencies) was sufficiently determined or determinable to found contractual enforceability in the circumstances of this case.

LEGAL PRINCIPLES

A contract is not invalid merely because a payment term is expressed within a range, provided that the term is sufficiently determined or determinable in context; determinability is assessed with regard to the nature of the agreement and the parameters fixed by the parties.

Authority dealing with the enforceability of agreements in which a price is left to future determination (particularly in contracts of sale) must be applied with attention to the nature of the contract and whether the allegedly uncertain term requires further agreement between the parties before it can be implemented.

A pleaded admission that a contract exists remains operative unless properly withdrawn (for example, by amendment), and such an admission may materially affect a later contention that no contract came into being.

Whether an agreement was repudiated (as opposed to being cancelled by mutual consent) is determined by evaluating the parties’ conduct and contemporaneous documents, and by applying contractual principles to the factual findings made by the court.

Filyat 4 CC t/a Ambient Control CC v Kimgas Refrigeration and Appliance Centre CC (1500/07) [2009] ZANCHC 9 (6 March 2009)