Steinhoff Timber Group (Pty) Ltd v Cachecorp Procument (Pty) Ltd (9962/08) [2009] ZAKZPHC 56 (25 September 2009)

80 Reportability

Contract Law

Brief Summary

Contract — Conditional counterclaim — Defendant's counterclaim based on alleged contract with entities other than the Plaintiff — Plaintiff excepted to counterclaim on grounds of vagueness and embarrassment — Court found that the counterclaim failed to clearly identify the contracting party and the basis for the claim against the Plaintiff — Exception upheld as the Defendant's allegations did not sustain a claim against the Plaintiff, rendering the counterclaim vague and embarrassing.

Comprehensive Summary

Summary of Judgment

1. Introduction

These proceedings were an exception to a pleading, brought in the High Court of South Africa, KwaZulu-Natal Division, Pietermaritzburg. The plaintiff, Steinhoff Timber Group (Pty) Ltd, had instituted action against the defendant, Cachecorp Procurement (Pty) Ltd, for payment allegedly arising from the supply of timber poles. The defendant delivered a plea in which it denied any contractual relationship with the plaintiff and, together with its plea, delivered a conditional counterclaim for damages arising from alleged non-delivery of timber.

The plaintiff delivered a Rule 23(1) notice and thereafter excepted to the conditional counterclaim on three grounds. At the hearing it was accepted that the first ground was the principal complaint, although the plaintiff did not abandon the remaining grounds. The matter therefore came before Govindasamy AJ for determination of whether the counterclaim, as pleaded, was excipiable.

The dispute, in general terms, concerned the identity of the contracting party (whether the defendant contracted with the plaintiff or with other “Steinhoff” entities), and whether the defendant’s counterclaim was pleaded with sufficient clarity to enable the plaintiff to plead to it, particularly in circumstances where the counterclaim was framed as conditional upon the plaintiff proving it was the contracting entity.

2. Material Facts

The defendant’s conditional counterclaim was expressly pleaded as being premised on the plaintiff proving that it was the entity which contracted with the defendant, because the defendant alleged it had only one contract to purchase timber for export from a company or companies bearing “Steinhoff” in their names. The defendant then pleaded that, in late 2005, it entered into a partly oral and partly written supply agreement with a group of Steinhoff companies, identified as Steinhoff Timber Industries, Steinhoff African Sourmilling (Pty) Ltd, Steinhoff Southern Cape Ltd, and PG Bison, which were collectively described in the counterclaim as “the supplier”. The defendant annexed communications (Annexures “A1” to “A14”) as written components of that alleged supply agreement.

The defendant pleaded further express, implied, or tacit terms relating to volumes of timber poles to be supplied, places of origin, delivery arrangements linked to export requirements, and payment of agreed or reasonable prices. The defendant alleged that, as a result of the supplier’s failure to deliver timber in accordance with the agreement and the defendant’s requests, it suffered damages quantified at R20,296,382.74.

In considering whether the counterclaim was vague and embarrassing, the court had regard to the plaintiff’s pleaded case in the main action. From the particulars of claim, the court understood the plaintiff to allege a credit application involving Steinhoff Africa Holdings (Pty) Ltd (as a holding company) and its subsidiaries, described collectively as “the Supplier”, with standard terms that contemplated that future contracts for goods might be concluded with any of the subsidiaries. The plaintiff pleaded further that a subsequent contract for delivery of poles was concluded specifically between the defendant and the plaintiff (as one such subsidiary), with the consequence that the right to payment vested in the plaintiff.

The defendant, in its plea, denied that it contracted with the plaintiff or purchased any goods from it. Notwithstanding that denial, and while making its counterclaim conditional on the plaintiff proving it was the contracting entity, the defendant’s counterclaim nevertheless pleaded a contract with entities none of which included the plaintiff. The court treated this as a material feature in assessing whether the counterclaim clearly identified the alleged contracting party and the party against whom damages were claimed.

3. Legal Issues

The central question was whether the conditional counterclaim was excipiable as vague and embarrassing, particularly because it appeared to oscillate between a premise that the plaintiff might be the contracting party and a pleaded agreement identifying different Steinhoff entities as “the supplier”. This was principally a question concerning the adequacy and clarity of pleading (a procedural and legal assessment), coupled with an evaluative inquiry into whether any lack of clarity caused prejudice to the plaintiff in pleading.

Additional issues arose from the second and third grounds of exception. The second was whether the defendant failed to plead material facts necessary to sustain its counterclaim, specifically regarding the allegation that deliveries would occur after reasonable notice and whether such notice was pleaded. The third was whether the defendant’s damages were pleaded with sufficient particularity to enable the plaintiff reasonably to assess quantum. These issues concerned the application of pleading requirements to the pleaded allegations and whether any deficiency justified upholding an exception.

4. Court’s Reasoning

On the principal exception, the court evaluated the internal coherence of the conditional counterclaim against the background of the plaintiff’s pleaded structure of contracting arrangements (involving a holding company, subsidiaries, and standard terms contemplating future supply contracts). The court accepted that while the plaintiff was part of the Steinhoff group, it did not follow that a contract concluded for sale of timber with one subsidiary would automatically create legal relationships with all subsidiaries in the group. The court treated this as a key point undermining the defendant’s apparent approach in its counterclaim.

The court considered that the defendant’s conditional counterclaim purported to accept, conditionally, that the plaintiff might be the contracting party, yet it pleaded the relevant agreement as being concluded with a defined “supplier” consisting of multiple named entities not including the plaintiff. In the court’s assessment, this created uncertainty as to whom the defendant alleged it contracted with and, correspondingly, against whom it alleged a breach and claimed damages. The court highlighted this lack of clarity by reference to the defendant’s allegation that it “requested delivery” in terms of the agreement, without making clear from whom delivery was requested, and noted that the pleading could not, on its face, be interpreted as referring to the plaintiff in light of how “the supplier” was pleaded.

Applying the standard for an exception for vagueness and embarrassment, the court held that the plaintiff was entitled to complain because the conditional counterclaim was vague and embarrassing to the extent that it prejudiced the plaintiff in pleading. Having reached that conclusion, the court considered it unnecessary to address every subsidiary complaint articulated under the first exception, because the central prejudice-producing vagueness had been established.

In relation to the second exception, the court addressed the contention that the defendant had not pleaded that it gave the supplier reasonable notice to make deliveries. The defendant relied on an allegation in the counterclaim that there had been repeated demands for specific deliveries, which it submitted was wide enough to cover the notice requirement. The court agreed with that submission and held that the exception could not be upheld on this ground.

As to the third exception concerning the formulation of damages, the court noted that it was not seriously pursued in argument. The court recorded that certain outstanding information had subsequently been provided and that the plaintiff’s counsel conceded that, in the ordinary course, a complaint of this nature was better pursued through procedural mechanisms dealing with irregular proceedings. The court therefore declined to uphold the exception on this basis.

On costs, the court concluded that the plaintiff had been substantially successful because the main exception succeeded. The court accepted the request that the costs of senior counsel be included, and further that the costs should include those related to the drafting of the Rule 23(1) notice, given the importance and complexity of the exception for both parties.

5. Outcome and Relief

The court upheld the exception with costs. The defendant (as respondent in the exception proceedings) was granted twenty (20) days to amend the conditional counterclaim if so advised. The costs order included the costs of engaging senior counsel in respect of the exception and the costs of drafting the Rule 23(1) notice.

Cases Cited

No cases were cited or relied upon expressly in the judgment.

Legislation Cited

No legislation was cited expressly in the judgment.

Rules of Court Cited

The Uniform Rules of Court, Rule 23(1) was cited and applied in relation to the exception procedure.

Held

The court held that the defendant’s conditional counterclaim was vague and embarrassing in a manner that prejudiced the plaintiff in pleading, because it conditionally premised liability on the plaintiff being the contracting party while simultaneously pleading a contract with other identified entities as “the supplier”, without clarifying the identity of the contracting party against whom breach and damages were alleged. The exception was therefore upheld, with the defendant afforded an opportunity to amend, and with a costs order that included senior counsel’s costs and the costs of the Rule 23(1) notice.

LEGAL PRINCIPLES

A pleading may be struck by exception where it is vague and embarrassing in a manner that causes prejudice to the opposing party, including prejudice in formulating a proper plea.

A conditional pleading does not in itself render a claim excipiable; however, the conditional formulation must still plead a cause of action with sufficient clarity, including clear identification of the contracting parties and the basis on which liability is alleged.

The fact that entities form part of a corporate group does not mean that a contract concluded with one entity automatically establishes contractual relationships with other group entities; clear pleading is required to identify which entity contracted and is alleged to have breached the contract.

An exception based on an alleged failure to plead a material fact will not succeed where the pleading, properly interpreted, sufficiently covers the requirement complained of, and where the court is satisfied that the pleading is not deficient in a manner justifying the striking out of the claim.

Complaints concerning the particularity of damages may, depending on their nature, be more appropriately addressed through procedural mechanisms dealing with irregularities, rather than by exception, particularly where the issue is not pursued and/or information is subsequently provided.