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[2008] ZAWCHC 326
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Shell South Africa Marketing (Edms) Bpk and Another v Bar-B-Que Distributors (Edms) Bpk (A519/2007) [2008] ZAWCHC 326 (25 January 2008)
IN THE HIGH COURT OF
SOUTH AFRICA
(WESTERN CAPE HIGH COURT,
CAPE TOWN)
CASE
NUMBER: A519/2007
DATE:
25
JANUARY 2008
In
the matter between:
SHELL
SOUTH AFRICA MARKETING (EDMS) BPK
…....................
Appellant
and
BAR-B-QUE
DISTRIBUTORS (EDMS) BPK
….............................
Respondent
JUDGMENT
DAVIS,
J
:
Appellant sued the
respondent for payment of the sum of R499 654,39, together with
interest and costs in respect of the balance
due to the appellant,
arising from the sale and delivery of paraffin to the respondent. At
the trial, the appellant's claim was
conceded by the respondent.
Judgment in favour of the appellant was granted, together with
interest and costs. The respondent
counterclaimed in the sum of R712
551,77, together with interest and costs in respect of damages due
to it as a result of breaches
of certain contractual obligations
alleged to have been owed by the appellant to the respondent. The
capital sum claimed by respondent
was then amended to a sum of R687
770,51.
The counterclaim was
essentially based upon an allegation that it was a tacit term of the
agreement concluded between the parties,
alternatively a term
implied by law, that prior to the installation of an underground
tank on the premises, the plaintiff would
comply with all statutory
requirements which may have been applicable, and that plaintiff had
acted in breach of this term, thereby
causing the defendant loss.
The underground tank concerned the storage of paraffin.
The
court a
quo
found
that the appellant had owed the respondent the contractual duties
alleged by it and that in breach of such obligations,
appellant had
caused the respondent to suffer damages. The damages arose from the
fact that the respondent was obliged to vacate
the premises from
which it had previously conducted business and to relocate to
alternative premises. These findings were not
the subject of the
appeal.
The
appeal itself is confined to an appeal against the quantum of
damages found by the court a
quo
to
be owing to respondent, being R664 675,88, together with interest.
In particular, the appeal focused on the following issues:
That the respondent had
proved that it suffered a loss of business as a result of
relocation.
Respondent was entitled
to damages constituted by rental, allegedly due and owing to the
landlord of its former premises for
the months of September,
October, November 2005.
The respondent was
entitled to damages constituted by the erection, design and
manufacture of certain sign boards.
In the alternative, and
in the event that the court found that the respondent did prove he
was entitled to claim the various
damages, that he was, in addition
to compensation of such loss, also entitled to claim for wasted
wages paid by it in June
2005.
1.
Claim
of Loss of Business due to Relocation
:
Mr
Gordon
,
who appeared most ably on behalf of the appellant, referred
extensively to a decision of the House of Lords in
British
Westinghouse Electric & Manufacturing Company Limited v
Underground Electric Railway Company of London Limited
[1911-1913]
ALL ER 63
(HL). In that case, the appellant contracted to supply to
the respondent certain machines in accordance with particular
specifications.
In breach of the agreement, the machines did not
comply with the specifications. Respondents elected, for a period,
to utilise
the machines, but later replaced them with far superior
machines to mitigate the loss.
In an arbitration,
respondent counterclaimed damages from the appellant, constituted by
the excessive coal usage of the machines
over their life, which was
some 20 years. The arbitrator found that respondents had acted
reasonably and properly in mitigating
the damages by purchasing the
superior machines, but found that the purchase of these machines was
the overall pecuniary advantage
to respondents. If the appellants
had supplied them with machines complying with the contractual
specifications, it would have
been to the respondents pecuniary
advantage to replace these with superior machines. Accordingly, the
arbitrator found that the
respondents had not suffered any damages.
When the matter finally
reached the House of Lords, Viscount Haldane, LC stated the
following:
"When in the course
of his business (the plaintiff) was taking action arising out of the
transaction, which action has diminished
his loss, the effect in the
actual diminution of the loss which he has suffered, may be taken
into account even though there
was no duty on him to act." at
69h.
Mr
Gordon
employed
this judgment in support of his argument that benefits to the
respondent from the move to the larger, more extensive
premises, had
to be taken into account in any calculation of damages. In Mr
Gordon
's
view, the two critical features derived from the test as set out in
British
Westinqhouse
.
were the action taken must be in the course of business of the
plaintiff and the action must derive from the transaction in
respect
of which the offending part is in breach. Applying this test to the
facts as established, Mr
Gordon
submitted
that the inquiry which ultimately led to the establishment of the
appellant's breach in this matter, and the need for
the respondent
to relocate, was of the appellant to establish whether capacity at
the former premises could be increased.
The respondent had some
three months prior to the critical events in the matter, entered
into a further three year lease with
the landlord, expiring on 29
February 2009. The monthly rental payable in respect of the premises
was R35 000,00, including VAT,
and the extent of the leased premises
was 750 square metres. As a result of the appellant's breach, the
respondent was obliged
to relocate. It required alternative premises
in close proximity and at the same rental. The alternative premises
were 1 400
square metres in extent, almost double the size of the
previous premises. Revenue generated by the respondents for the year
ending
2004, was some R11 million and the ratio of revenue to cost
was 55%. The revenue generated by the respondents in the following
year (2005), was of the order of R12 million and the ratio of
revenue to cost was 52%. The revenue generated by the respondents
in
the year ending 2006 was R13 million and the ratio of revenue to
cost was 55%. The revenue generated by the respondent in
the year
ending 2007 was some R17 million and the ration of revenue cost was
56%.
Accordingly,
in the first full financial year in which the respondents occupied
the premises, Mr
Gordon
noted
an increase in revenue of some 30%. The reason for the increase, in
his view, was at least partially attributable to the
larger
premises. In short, the submission was that as a result of the
breach by the appellant, respondent had acted diligently
and in
terms of his duties to mitigate losses, and had therefore concluded
a new lease agreement in respect of larger premises,
with the result
that its business was able to expand significantly beyond the
constraints placed upon it by the former premises.
But for the
breach, the respondents would have remained in its former premises
at least until 29 February 2008, its business
would have remained
restricted by the established capacity constraints at such premises.
The problem with this
submission, in my view, is at least twofold:
1.
Westinqhouse
has
been employed in South African law, but as authority for the general
proposition that a plaintiff has a duty to mitigate damage.
It has
not, in my view, been extended to deal with the kind of scenario
envisaged in the factual matrix of that case.
2.
Even though
Westinqhouse
has
been cited with approval by
Corbett
,
J, (as he then was), in
Everett
& Another v Marion House (Ptv) Ltd
1970
(1) SA 198
(C) at 205, the facts were very different. In that case a
tenant refused to vacate premises which had been bought by a new
owner,
who therefore could not obtain vacant possession thereof. The
new owner was forced to pay the tenants and to forfeit certain
rentals in order to procure their movement out of the premises. He
claimed these amounts in damages. The question arose as to whether
the rentals which had been received by him during the period, should
be taken into account in the calculation of damages. After
citing
the
British
Westing house
case,
Corbett
.
J said at 205G-H:
"In
the present case the pecuniary advantages in the form of rental,
which accrued to the respondent, could be described,
with every
justification, as having risen out of the consequences of the
appellant's breach of contract, inasmuch as had there
been no
breach, this advantage would not have accrued. It was the continued
occupation by the tenants of the premises, which
at the same time
caused the breach of contract and produced the pecuniary advantage.
Until 31 August 1967, no real loss could
be caused to respondent by
reason of their continued occupation, but after this date the loss
would have been real and substantial
and it was to mitigate this
prospective loss that the payment of R750,00 was made. In all the
circumstances it seems to me that
this pecuniary advantage cannot be
regarded as completely collateral or merely
res
alios acta
and
that it should be offset against the respondent's claim for R750,00.
This
is a different factual matrix from that which pertains in this case,
where production declined during the period of the move,
that is
when respondent had to vacate the old premises before commencing
operations in the new premises. In his judgment in the
court
a
quo,
Koen
.
AJ, at para 29, said:
"The loss of profit
claim was based upon evidence given by Mr Le Roux of actual
production figures during the period in question,
compared to
expected or budgeted figures. It was apparent from the evidence that
the production decreased significantly during
the period June/July
2005, when compared to the actual production for previous years and
compared to what had been planned. The
loss of profit claim was thus
based on the fact that fewer firelighters had been manufactured and
that as a result fewer would
be sold."
In uncontested evidence,
Mr Le Roux, the director of respondent, placed the evidence before
the court, regarding the record of
units manufactured.
Significantly, whereas in the period June 2003-4, 234 844 units had
been manufactured and 224 125 were made
in the comparative period
2004-5, the decline in 2005-6 for the same period until June, was 69
005. It was clear from the evidence
of Mr Le Roux, that there had
been a significant decline in the production of the units and
further that respondents net profit
before tax, had declined this
during the relevant period. In this connection, the relevant figures
are as follows, February 2004,
R1 041 912,00, February 2005, R1 561
213,00, February 2006, R572 117,00, February 2007. R836 402,00.
This evidence was never
placed in issue under cross-examination, and neither was the fact
that during June and July 2005, a decline
of 187 533 units of
manufacture took place in comparison with the comparative period in
the previous year. Mr Le Roux's calculation
of the average
production cost per unit was also never disputed. Hence, the
calculation of the damages suffered because of the
breach of
agreement, cannot be contested, given the uncontested nature of the
evidence.
In
relation to the
British
Westing house
case,
Mr
Gordon
's
essential assumption is, that an increase in product took place
thereafter. It was as a result of the move to larger premises,
the
larger premises being equated to the turbines of
British
Westinghouse
.
This court should effectively extend the law by the development of
this proposition and accordingly, notwithstanding the adverse
calculation of damages, set the benefits off against those damages
so as effectively to award no damages. That, in essence, was
the
basis of the debate before this court.
Having
set out the approach adopted by
Corbett
.
J in
Everett
supra,
it is, in my view, relevant, briefly, to refer to the evidence of Mr
Le Roux under cross-examination when it was suggested
to him that
the increased premises in the new building, had been the real cause
of the increased in turnover and, therefore,
profit. The passage
reads:
"— Ek sien
nie die relevansie van die grootte van die perseel of die invloed
daarvan op die syfers nie.
U kon meer produksie...
-— Nee dit is nie waar nie.
U het meer inkomste. —-
Ons het meer produksie gehad, maar so het ons kapasiteit gehad by
die ou perseel.
Ekskuus tog? — Ons
het ook ekstra produksie-kapasiteit by die ou perseel gehad.
So die perseel het nie
bygedra tot die vergrote omset nie. Dis hoekom u wil die tweede tenk
he nie ne. Dis hoekom u wil die tweede
tenk h§ daar by die
eerste perseel, is dit korrek? — Dis reg, omdat ons nog
kapasiteit daar gehad net.
Maar nou het u die
kapasiteit daar by die nuwe perseel. — Dis reg, dieselfde.
En dis wat gehelp het om
hierdie 17 miljoen bruto inkomste te kry, is dit korrek? Die grootte
in die syfers hierso het te doen
met die groei in die besigheid en
omset. Ja en die nuwe perseel met meer kapasiteit het daarin gehelp
ne. — Dit kon dit
makliker gemaak het, maar ek sien nie *n
direkte bydra nie."
Try
as one might, with the most energetic process of hermeneutic
exercise, this evidence cannot be forced into the
British
Westinqhouse
matrix,
even if we were to do what no court has done so far, and adopt this
principle fully.
Mr
Gordon
was
correct to submit that the onus is on the respondent, but there is
some evidential burden placed upon the appellant to show
this court
why the increased production and, therefore, profit, flowed from the
move to the new premises in circumstances where
it can be
extrapolated that the production was a result of those premises in
the same way as it could be argued that increased
production flowed
from the new turbines as opposed to the old. That simply is not this
case.
If
one returns to the dictum which I cited earlier from
Corbett
.
J in
Everett
,
it cannot be said, in my view, that the pecuniary advantages in the
form of increased production, accrued to the respondent
from having
arisen out of the consequence as a breach, inasmuch as if there had
been no breach, the advantage would not have
so accrued. Precisely
the opposite was suggested by Mr Le Roux in his evidence. Without
more, there is no evidence to justify
disturbing this particular
finding of the court a
quo.
2.
Rental
Payments to the Respondent's Former Landlord
:
As regards the alleged rental payments made by the respondent to Mr
Le Roux's family trust, Mr
Gordon
submitted
that best for respondents, the following payments were made. A
payment on 17 November 2005 in respect of the July rental,
of the
sum of R39 900,00, a payment on 9 December in respect of the August
rental. Mr
Gordon
submitted
that the respondent's claim in respect of the costs of associated
with the relocation had to be reduced by further R99
750,00, being
the sums claimed for rental for September, October, November 2005,
because there was no evidence that these amounts
had been paid.
What the evidence does
reveal clearly is:
1. That there was a
written lease agreement between the respondent and the Jeremiah
Trust, the owner of the property, in respect
of the hiring of the
particular premises
2. That the respondent
was obliged, on 13 June 2005, to stop production at those premises
for the reasons I have already described.
3. That new premises
were procured on 1 July 2005 and pursuant thereto, respondent had to
reinstall those premises so that production
only began at the end of
July 2005.
4. That payment for July
was made on 17 November and for August on 9 December 2005 and this
is reflected in bank statements forming
part of the record.
5. That payment for
September 2005 was effected on 25 January 2007 and that is also
supported by bank statements.
Mr
Gordon
submitted
that the claim was brought on the basis of payments for the entire
period and that at least, in his view, for the months
September,
October, November, there was no such evidence. But it is clear that
from the evidence as I have already set out, that
Koen
.
AJ was correct to find that a binding obligation to pay rent for the
relevant period was established and that for a series of
months
those payments were effected. The claim was based on an
unconditional obligation, evidenced partly by the payment and
by the
agreement. There is no reason to disturb the finding that it was as
a result of the breach of the contract that the rental
payments,
pursuant to that obligation, had to be effected, and to the extent
that they were, damages were suffered for that period.
3.
The
Sign Boards
:
A
claim was made for R7 687,65 in respect of a sign board for the
purpose of alerting respondent's customers to the fact that
it had
been relocated. On the face of it, Mr
Gordon
conceded
that the expense was reasonable. However, he submitted that the
overwhelming majority of the respondent's customers had
no need to
be advised of the relocation, because the respondent delivers
product to them. Accordingly there was no need for the
sign board.
This is surely beside the point. The expenses flowed from the
breach, because of the need to inform at least some
customers, maybe
only a few, of the move which had been effected pursuant to the
breach. There appears to be no basis by which
to suggest that that
particular expense did not flow directly from the need to relocate,
which itself flowed directly from the
breach of contract.
4.
Wasted
Wages
:
Finally
Mr
Gordon
reached
a point in his argument where, to some extent, the court had some
sympathy. He submitted if the court did not find in
favour of the
appellant in respect of the various contentions which are set out
above, certainly the "verspilde lone"
in the sum of R11
329,24 for the period during which the respondent claim for his loss
of businesses, needed to be deducted from
its claim. If the contract
had not been breached by the appellant and the respondent had had
manufactured product for the month
of June 2005, it would have been
obliged to pay these wages in order to generate business. I agree.
This is clearly a point where,
notwithstanding the breach, these
expenses would have flowed therefrom and they cannot be considered
to be directly attributable
to the breach of contract and must be
deducted from the overall amount which was awarded in favour of
respondent.
The
only question that therefore remains, is the question of costs. Mr
Gordon
submitted
that somehow this court should craft a costs order to take account
of the limited success achieved by the appellant.
In my view, the
success is so limited and the appeal so overwhelming fails, that it
would be incorrect for this court not to
effect the usual cost
order, which is to the idea that as overwhelming the respondent
succeeded, it is entitled to its costs.
For these reasons,
therefore, I would make the following order;
1.
The order of
Koen
.
AJ of 16 May 2007, is set aside and replaced by the following. In
respect of the claim in reconvention, the plaintiff is to
pay to the
defendant the sum of R653 346,44 (six hundred and fifty three
thousand, three hundred and forty six rand, forty four
cents),
together with interest thereon at the legal rate from 8 December
2005, being the date upon which the counterclaim was
delivered to
date of payment. Plaintiff is to pay the defendant's costs of suit.
2. As the appeal
substantially has failed, the appellant is ordered to pay
respondent's costs pursuant to the prosecution of this
appeal.
MOOSA.
J
:
I agree
MOOSA.
J
GOLIATH.
J
:
I agree.
GOLIATH.
J
DAVIS,
J
:
It is so ordered.
DAVIS,
J