Solomon N.O. and Others v Spur Cool Corporation (PTY) Ltd and Others (3215/00) [2002] ZAWCHC 1 (30 January 2002)

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[2002] ZAWCHC 1
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Solomon N.O. and Others v Spur Cool Corporation (PTY) Ltd and Others (3215/00) [2002] ZAWCHC 1; 2002 (5) SA 214 (C); [2002] 2 All SA 359 (C) (30 January 2002)

REPORTABLE
JUDGMENT dated 30 January 2002
BINNS-WARD AJ:
Introduction
The first defendant leased premises in ‘The Pinnacle’ building
in central Cape Town from the trustees of the Pinnacle Trust
(the
plaintiffs) for the purpose of conducting a restaurant business. The
contract provided for an initial lease period of ten
years, until
2008. The second and third defendants stood as sureties for the
fulfilment by the lessee of its obligations. The lessee’s
restaurant did not prosper and, after less than a year of the lease
had elapsed, the plaintiffs were informed that the premises
were to
be vacated. The first defendant’s repudiation of the contract was
accepted, so terminating the lease. It took some time
before the
trustees were able to find a replacement tenant. The replacement
tenant, Cape Town Tourism (‘Captour’), concluded
a lease for
only five years and the rental that it agreed to pay was slightly
less than the landlords would have received during
the same period
had the lease with the first defendant survived. The limited
duration of the replacement lease meant that a tenant
was not
assured for the premises for the period 2005-2008. Shortly before
the new tenant took occupation, the building was sold
and
transferred by the trustees to a company. That was the factual
background to the action for R991 108 in damages (with an ancillary
claim against the sureties) which came to trial before me in October
2001.
The matter raised a number of issues for determination; one of them,
unexpectedly, apparently novel.
The first one went to the plaintiffs’ legal standing to institute
and prosecute the action at all. The property had been mortgaged
to
Syfrets Bank. The mortgage bond contained a cession of claims
clause. The first and second defendants contended that the effect
of
this was that at the time the summons was issued the claim had
vested in the mortgagee and not in the plaintiffs. If the contention
were to be upheld, the further question arose whether the court
could nevertheless entertain the action at the plaintiffs’
instance
if the claim had since revested in the plaintiffs after the
cancellation of the mortgage bond and the repayment of the debt
secured
thereby.
Also in issue was the proper approach to the quantification of
damages in the context of the peculiar facts of the case. This was
the issue that had an element of novelty. After the institution of
proceedings, ‘The Pinnacle’ was sold by the trust to a company
and then resold by that company not long afterwards to another
company. The first and second defendants contended that these
transactions
bore on the proper calculation of the damages sustained
as a consequence of the termination of the lease. The plaintiffs
maintained
that the sales were not relevant to the quantification of
damages.
The other salient issue in the trial was the construction and effect
of a limitation of liability clause in the deed of suretyship
signed
on behalf of the second defendant.
The Cession Clause in the Mortgage Bond
‘The Pinnacle’ was only one of a number of properties mortgaged
to Syfrets Bank under the bond. The mortgagors were not only
the
trustees of the Pinnacle Trust, but also three of the plaintiffs in
their personal capacities. The mortgaged properties had
been given
as security in respect of a R60m credit facility.
Clause 8 of the mortgage bond read as follows:
‘
CESSION OF RENTALS AND
REVENUES
The Mortgagor cedes,
transfers and assigns to the Bank all the Mortgagor’s rights title
and interest in and to all rentals and other
revenues of whatsoever
nature, which may accrue from the mortgaged property as additional
security for the due repayment by the Mortgagor
of all amounts owing
to or claimable by the Bank at any time in terms of this bond, with
the express right in favour of the Bank
irrevocably and
in
rem suam
-
to institute proceedings
against lessees for the recovery of unpaid rentals, and/or eviction
from the mortgaged property;
to let the mortgaged
property or any part thereof, to cancel or renew and enter into
leases in such manner as the Bank decides,
to evict any trespasser
or other person from the mortgaged property;
to collect on behalf of the
Mortgagor any monies payable in respect of the alienation by the
Mortgagor of the mortgaged property
or any portion thereof;
provided, however, that the
cession, transfer, assignment and the authorities and powers
specified above shall not be acted upon by
the Bank without the
consent of the Mortgagor unless the Mortgagor has failed to comply
with any term or condition of this bond or
any loan secured thereby
or has otherwise committed a breach thereof. The Bank is further
entitled to charge a commission of five
(5) percentum of the gross
amount of all rentals and other revenues collected and to recover
such commission under this bond.
’
It was common cause that the provisions of clause 8 constituted a
form of agreement of cession
in securitatem debiti
. It was
also common cause that the plaintiffs’ damages claim involved the
exercise by them of their right and interest as owners
and landlords
in the rentals or ‘other revenues of whatsoever nature’ accruing
from the mortgaged property. In issue was whether
the affected right
had been transferred in terms of the agreement.
Mr
Owen Rogers
, who appeared for the first and second
defendants, submitted that the effect of clause 8 of the bond was
that the plaintiffs had
divested themselves of any right to the
rentals and other revenue of whatever nature which might accrue from
the property and had
transferred such right to the mortgagee. The
plaintiffs had therefore lacked
locus standi
to institute the
claim. It was contended that the cession clause in the instant case
was practically indistinguishable from the
cession in issue in
P.G.
Bison Ltd and Others v The Master and Another
2000 (1) SA
859
(SCA)
and that, consistently with the result in that case,
the attack on the plaintiffs’ legal standing should be upheld.
Mr
Louw
, who appeared for the plaintiffs, contended that the
cession was subject to suspensive conditions and became effective
only upon
the happening of one or the other of the events stated in
the proviso to the clause; viz. the consent of the mortgagors, or
the
non-compliance with or breach of the mortgage contract or any
agreement of loan in respect of which the mortgage bond afforded

security. Plaintiffs’ counsel relied on
Louw v WP
Koöperatief Bpk en Andere
[1994] ZASCA 54
;
1994 (3) SA 434
(A)
and
Ovland Management (Tvl) (Pty) Ltd and Another v Petrin (Pty)
Ltd
1995 (3) SA 276
(N)
, being cases in which attacks
on the cedents’ legal standing to prosecute claims subject of
cessions
in securitatem debiti
had failed.
While reference to the cases cited by counsel has been useful, none
of them affords direct authority for their conflicting contentions.
In each case the result turned on the proper construction of the
contracts in issue. The effect of clause 8 of the mortgage bond
is
also a matter of construction. The cession provisions in the three
cases referred to by counsel were not on all fours with each
other,
nor with the wording of clause 8 of the mortgage bond.
In
Louw’s
case,
supra
, Smalberger JA, after
quoting the succinct summary of the usual legal consequences of
cessions
in securitatem debiti
in
Land- en Landboubank
van Suid Afrika v Die Meester en Andere
1991 (2) SA 761
(A)
at
771C-F, remarked, at 443F-G, ‘
’n Sessie
in
securitatem debiti
het dus tot gevolg (tensy die partye
anders ooreenkom) dat die sedent ontdoen word van sy reg om die
gesedeerde skuld in te vorder,
en gevolglik geen
locus
standi
het om dit af te dwing nie.
’ The words in
parentheses confirm that the ordinary or usual consequences of a
cession
in securitatem debiti
may be varied in the context of
the parties’ agreement. A cession is a bilateral contract and its
consequences are determined
by the terms and conditions agreed upon
by the contracting parties. Cf.
Louw’s
case at
443A-B,
Bank of Lisbon and South Africa Ltd v The Master and
Others
1987 (1) SA 276
(A)
at 294E-F;
PG Bison
,
supra
, at para [7], 863B-D and
Jerome Investments (Pty)
Ltd v Gluckman
1970 (3) SA 67
(W)
at 69H-70.
In determining the meaning of the clause it is appropriate to
construe its language having regard to the contract as a whole,

including its the nature and purpose, as well as to the to the
matters probably present to the minds of the parties when they
contracted.
If the language is on the face of it ambiguous,
consideration may be given to prior negotiations and correspondence
between the
parties and to the subsequent conduct of the parties
showing the sense in which they acted on the document. See
Coopers
and Lybrand v Bryant
[1995] ZASCA 64
;
1995 (3) SA
761
(A) at 768A-E.
Certain features of clause 8 of the mortgage bond are indeed
comparable to the provisions of the contract in issue in the
P.G.
Bison
case. The most notable is the recordal of the cession
in both contracts in the present tense, suggesting the immediate
transfer
of rights. However, the apparent immediate and
unconditional transfer of rights inferable from the use of the
present tense was
also manifest in the cession provisions in the
agreements in issue in the
Louw
and
Ovland
Management
cases. By itself, that feature was not sufficient
to override other indications in both those agreements that an
immediate effective
transfer of rights was not intended.
The P.G. Bison contract provided that the cession would not be
‘implemented’ by the cessionary unless the cedent fell 30 days
or more into arrears in servicing the secured indebtedness and then
only after seven days notice. That provision is equivalent
on the
face of it to the proviso in clause 8 to the effect that the cession
would not be ‘acted upon’ unless the cedents were
in breach of
their principal obligations. As appears from the judgment, however,
the word ‘implement’ was amenable to different
constructions,
including one which would denote that the cession had been
incomplete. See
PG Bison
,
supra
, at paragraphs
[9]-[12]; 863F-864B. The appropriate connotation of the word was
determined with reference to contextual features
of the deed of
cession and the identified purpose and object of the parties.
An important feature of the agreement in
P.G. Bison
,
which finds no equivalent in clause 8 of the mortgage bond, was the
provision that in collecting payment of its book debts during
the
currency of the agreement the cedent would be acting as the agent of
the cessionary. That provision was irreconcilable with
any notion
that, in proceeding against its debtors, the cedent in
P.G.
Bison
would be acting in the exercise of its own rights.
That provision (which confirmed the incidence of the ordinary
consequences of
a completed cession
in securitatem debiti
–
compare
Bank of Lisbon and South Africa
,
supra
,
at 294C-D ) materially influenced the court’s determination of the
proper construction of the deed of cession. See
P.G. Bison
,
supra
, at paragraph [13], 864D-G. A further indication of the
divestment by the cedent in
P.G. Bison
of its rights
in the ceded book debts was the clause confirming the right of the
cessionary ‘
at any time or
times hereafter to give notice of this cession to all or any of
my/our debtors and to take such steps as they may
deem fit to
recover the amounts respectively owing by my/our debtors to me/us
from time to time and for the time being
..’, which it
could exercise simply by terminating the cedent’s mandate to act
as collection agent.
In terms of the proviso to clause 8 of the mortgage bond, the
mortgagee was not entitled, without the consent of the mortgagors,
to exercise any of the ordinary rights of a cessionary such as
notifying the debtors of the cession and requiring payment from
them, unless the mortgagors were in default in respect of their
relevant obligations to the mortgagee. Ordinarily, the only title
a
cedent
in securitatem debiti
retains in the rights that have
been ceded is the bare dominium or ‘reversionary interest’. The
provision in clause 8 that
the mortgagee might act on the cession
only with the consent of the mortgagors is inconsistent with the
retention by the mortgagors
of only a ‘reversionary interest’ in
the relevant ‘rentals and other revenues’. The provision is
inconsistent with an effective
transfer of the subject rights. An
effective transfer of the rights did not occur if the rights could
not be exercised without
consent, the grant or refusal of which was
entirely within the discretion of the mortgagors.
The additional and alternative provision that the mortgagee could
exercise any of the rights described in sub-clauses 8.1-8.3 of
the
bond in the event of the
mortgagors failing to comply with any term or condition
of the bond or any loan secured thereby or being otherwise in breach
thereof
falls, particularly when considered in its juxtaposition to
the consent provision, to be characterised as a suspensive
condition.
There was no suggestion in the evidence that the
condition to which the effective transfer of rights was subject was
fulfilled.
Accordingly, I consider that the mere conclusion of the mortgage
contract, including the ancillary agreement in terms of clause
8
thereof, did not, without more, achieve an effective transfer by the
plaintiffs to the mortgagee of the rights which the plaintiffs
sought to exercise by the institution of this action. I am fortified
in this conclusion by the following additional considerations.
The nature of the plaintiffs’ commercial enterprise in the
ownership of the property was the letting of the space in the
building
at the best return they could achieve. The collection and
appropriation of the periodic rentals was an essential feature of
this
business. The right to enforce payment of the rentals and penal
interest on late payments was an important integral aspect of the
efficient administration of the business. If the cessionary was not
to have the right to enforce payment of the rentals, which
is the
clear effect of the proviso, it would seem to follow that the
intention was that the plaintiffs retained the right to do
so. In
the context of the agreement as a whole, and the purpose it was
intended to serve, there is no doubt in my mind that the
intention
was that the mortgagors were to continue to collect the rentals for
their own benefit, unless and until the cession was
made complete by
being ‘acted upon’ by the bank in either of the situations
contemplated by the proviso to clause 8.
‘The Pinnacle’ is central business district commercial property.
There was no direct evidence of the nature of the 28 other
properties mortgaged in terms of the bond, but many of them,
particularly those with Roggebaai erf numbers, are identifiable by
anyone with local knowledge as situate in the central business
district. The mortgage bond was registered in February 1998. The
market value of ‘The Pinnacle’ was determined in July 2001 as
being over R77 million. Mr
Rogers
suggested (in another
connection) that this value was unlikely to have been materially
less in July 2000. The circumstances therefore
suggest that the
value of the 29 mortgaged properties probably far exceeded the
maximum extent of the credit facility which the
bond secured.
Clause 8 of the bond was directed at the provision of ‘additional
security’. Where the mortgaged property provided more than
adequate security for the liquidation of the capital debt, the
practical need for such additional security, in the form of a right
to the revenues of the mortgaged property, would arise if there were
a default by the debtor in its obligation to timeously and
efficiently service the debt. In the context of their already having
provided adequate capital security, it is understandable that
the
mortgagors would wish to retain the right to enforce their rights as
lessors in their own names in the ordinary course of business.
Acknowledging the Bank’s interest in a scrupulous discharge by the
mortgagors of their periodical executory obligations as debtors,
the
furnishing of additional security on an appropriately contingent
basis would effectively address the interests of both the
Bank and
the mortgagors. There is nothing unbusinesslike in those
circumstances in construing the provision to make the cession
effective only in the event of the debtor defaulting in its periodic
payment obligations. By contrast, in the
PG Bison
case, if the cession were not construed as having been immediately
effective or complete, the starkly unbusinesslike result would
have
been that the agreement would have provided the creditor with no
security whatsoever, thereby negating its very object and
purpose.
If it can be said that Mr
Rogers
’ argument as to the
meaning and effect of clause 8 nevertheless has an arguably valid
basis on a strictly grammatical analysis
of the clause, it has to be
acknowledged that Mr
Louw’s
contentions also find support
in the language of the provisions. In the context of the ambiguity
thus demonstrated, it is relevant
to have regard to the evidence of
Mr Jeffrey Solomon, the third plaintiff, that he had specifically
stipulated in negotiations
with the mortgagee prior to the
conclusion of the credit facility agreement that the cession of
rental and other revenue should
not be effective unless the
mortgagors were in default. This evidence was relevant also on the
basis that if the contracting parties
intended the wording to bear a
particular meaning any linguistic analysis would have to defer to
the parties’ common intention;
cf.
Louw’s
case,
supra
, at 445B-D.
Mr Solomon was under the impression that the wording of the proviso
to clause 8 of the mortgage bond had been especially inserted
to
cater to his aforementioned stipulation. It appeared from other
evidence that the mortgage bond was actually one of the standard
form documents used by the Bank. I do not consider that that
evidence materially detracted from the evidence of Mr Solomon that
the proviso to clause 8 reflected the stipulation he made in
negotiating the credit facility with various named officials of the
Bank. Mr Solomon considered that the proviso met his requirement and
it seems to me that the representatives of the Bank may have
considered, correctly in my judgment, that the standard form
document used for this transaction was sufficient to satisfy Mr
Solomon’s
stipulation. The evidence that Mr Solomon made the
stipulation and that the Bank’s representatives agreed to it was
not challenged,
save on the basis of the contention that the
language of clause 8 did not give effect to it. A bank official
testified that in
practice the proviso was applied in accordance
with the plaintiffs’ understanding of its tenor, which affords
further support
to the existence of a common understanding to that
effect.
There was no suggestion that the mortgagee had ‘acted upon’ the
cession of revenues provision in the bond. I am of the view
therefore that the cession did not become effective and that the
defendants’ challenge to the plaintiffs’
locus standi
must
fail.
As a consequence of this finding it is strictly unnecessary to deal
with the effect of a related amendment to the particulars of
claim
introduced by Mr
Louw
, against the objection of Mr
Rogers
.
In the amended pleading it was alleged, in the alternative, that if
the provisions of clause 8 had effected a transfer of rights,
the
rights had revested in the plaintiffs upon the cancellation of the
mortgage bond subsequent to the institution of the action,
but prior
to the trial. The pleaded alternative allegation was that any
initial lack of legal standing to institute the action
had therefore
been cured and the claim should be entertained.
However, when I allowed the amendment, I undertook to furnish my
reasons for doing so in this judgment and accordingly, and in
case
this case goes further, I shall do so, briefly. I shall also
indicate what effect the amendment would have had in the event
of my
having upheld the defendants’ argument on the proper construction
of clause 8.
Mr
Rogers
accepted that, as he put it, ‘the preferred view’
is that if the debt secured by a cession
in securitatem debiti
has been finally liquidated, the ceded rights automatically revest
in the cedent; cf.
National Bank of SA Ltd v Cohen’s Trustee
1911 AD 235
at 246-7;
Bank of Lisbon and South Africa Ltd
,
supra
, at 294D-F and Scott,
The Law of Cession
2
nd
ed at238-9.
Marais en Andere NNO v Ruskin NO
1985
(4) SA 659
(A)
at 671A can be read to hold that the cedent must
obtain a re-cession of the rights; see also
African
Consolidated Agencies (Pty) Ltd v Siemens Nixdorf Information
Systems (Pty) Ltd
1992 (2) SA 739
(C)
at 746D-G.
However, in
Incledon (Welkom) (Pty) Ltd v Qwaqwa Devlopment
Corporation Ltd
[1990] ZASCA 85
;
1990 (4) SA 798
(A)
at 804H-I (where
the cedent’s ‘reversionary interest’ is also described as the
entitlement ‘to claim the re-cession of
the rights’), the
passages in the
Bank of Lisbon
and
Marais en
Andere NNO
cases, just cited, are referred to without any
suggestion of a perception of any conflict between them. If there
had been any intention
in
Incledon
or
Marais
to disapprove the authority of the passage in the
National
Bank
case,
supra loc cit
, I am confident the point
would have made expressly. The difference in approach apparent in
the cases may perhaps be explained
on the basis of the sometimes
differentiated treatment of cessions
in securitatem debiti
as
either pledges (which are accessory in nature) or out and out
cessions subject to reversionary rights. Cf. also
Johnson v
Incorporated General Insurances Ltd
1983 (1) SA 318
(A)
at 332, which affords authority for the notion of tacit resolutive
agreements in respect of cessions.
Counsel did not argue these nice points of distinction and I do not
consider in any event that it would have been necessary to
make a
determination on them. The provisions of clause 8 are integral to
the mortgage bond. Had it been necessary to decide the
case on the
alternative basis, I would have inferred that the parties intended
that a cancellation of the bond would also terminate
the ancillary
agreement in terms of clause 8 thereof. It would be artificial in
the extreme to maintain that any cession in terms
of clause 8
required termination by an express re-cession as a separate act to
the cancellation of the bond.
The defendants opposed the amendment on technical and practical
grounds. Mr
Rogers
argued that it is trite that a cause of
action, vested in the plaintiff, must exist at the institution of an
action. I agree that
this is the ‘general rule’ (cf
Philotex
(Pty) Ltd and Others v Snyman and Others; Textilaties (Pty) Ltd v
Snyman and Others
1994 (1) SA 710
(T)
at 717B-C).
Contending that the effect of the clause 8 of the mortgage bond was
that the plaintiffs had no cause of action when
the summons was
issued, counsel submitted that to allow the amendment would be an
impermissible infringement of the rule. The practical
basis of
objection was directed to the lateness of the application and the
prejudice potentially attendant on investigating and
dealing with
the factual issue of the revesting of the claim in the plaintiffs.
An amendment of the nature sought by the plaintiffs has previously
been allowed in a number of cases. A useful collection of references
to relevant authority and comment is to be found in
Marigold
Ice Cream Co (Pty) Ltd v National Co-Operative Dairies Dairies Ltd
1997 (2) SA 671
(W)
at 677H-679B. The approach has been that,
subject to considerations such as the absence of any prejudice to
the defendant which
cannot be cured by an appropriate relief such as
an order for costs or a postponement or otherwise, the court may, in
the exercise
of its discretion, entertain a claim which, by reason
of a cession, did not vest in the plaintiff when action was
instituted. It
has been stated that the court will exercise its
discretion in favour of the plaintiff in special or extraordinary
circumstances.
As appears from the passage from the unreported
judgment of Howie J (as he then was) in
Simonsig Landgoed and
Coastal Wines (Pty) Ltd v Theron van der Poel Brink Roos
(CPD 26 August 1991- the judgment has gone missing from the court
record), quoted in
Marigold Ice Cream
,
supra
,
at 679D-680B, special or extraordinary circumstances may include the
fact that to refuse the amendment would unnecessarily result
only in
the subsequent reappearance of the same parties on the same issue in
a fresh action. Common sense and considerations bearing
on the
efficient administration of justice should not be unduly stultified
by objections based on pure technicality; cf.
Marigold Ice
Cream
,
supra
, at 676H and
Ritch v Bhyat
1913 TPD 589
at 593. A further factor that weighed with me in
granting the application was that even if the defendants’
construction of clause
8 were to be held to be correct, the
plaintiffs’ view of the construction of the clause was reasonable
and their institution
of the action had not occurred with cavalier
disregard for the general rule.
The amendment was moved at a very late stage, during argument after
the conclusion of the evidence. However, some material which
supported the allegations had already been introduced during the
evidence and I was in any event not persuaded that there was any
prejudice to the defendants that could not have been cured by a
postponement at the plaintiffs’ cost. Mr
Louw
tendered that
relief when he argued the application for amendment. Implicit in the
plaintiffs’ tender was an invitation to the
defendants, if
necessary, to obtain further discovery, to reopen their case or
recall the plaintiffs’ witnesses for further cross-examination.
I
considered that Mr
Louw’s
tender met the practical
considerations urged by Mr
Rogers
in support of the
defendants’ opposition to the application. As it was, after a
short adjournment to consider his position, Mr
Rogers
elected
not to take up the tendered postponement.
The evidence established that the secured debt had been repaid and
the mortgage bond had been cancelled. In the circumstances,
had I
upheld the defendants’ contentions on the proper construction of
clause 8 of the mortgage bond, I would have found that
the ceded
rights had revested in the plaintiffs and proceeded to determine the
quantum of their damages.
The Calculation of
the Plaintiffs’ Damages
I turn now to the quantification of the plaintiffs’ damages.
The fundamental principle in the quantification of contractual
damages is that the object is, as far as it is possible without
undue hardship to the party in breach to do so by an award in money,
to place the innocent party in the position that party would
have
been had the contract not been breached or repudiated. See e.g.
Victoria Falls & Transvaal Power Co Ltd v Consolidated
Langlaagte Mines Ltd
1915 AD 1
at 22;
Culverwell
and Another v Brown
1990 (1) SA 7
(A)
at 29F and
Rens
v Coltman
[1995] ZASCA 118
;
1996 (1) SA 452
(A)
at 458E. How that
object is to be achieved will depend on the peculiar facts of a
case.
As mentioned earlier in this judgment, the plaintiffs sold the
property. It was sold to Solomon Brothers Property Holdings (Pty)
Ltd for R45million. The contract of sale was concluded in July 2000
and transfer was effected to the purchaser on
12 September 2000.
Being part of an ‘internal re-arrangement’ of the Solomon
family’s proprietary affairs, the transaction
was not at arms
length and the selling price did not reflect the true market value
of the property. This was borne out by the subsequent
sale of the
property by Solomon Brothers Property Holdings to Shay Properties 1
(Pty) Ltd (‘Shay’), not long afterwards, for
nearly R78m. At the
time of its acquisition of ‘The Pinnacle’, Shay was a wholly
owned subsidiary of a company which was in
the process of obtaining
a public listing. As the property was to be described in the listing
prospectus of the holding company,
an independent professional
valuation of the property was obtained and used in the determination
of the price paid by Shay. The
defendants did not dispute that the
sale to Shay occurred at a fair open market price.
The five-year replacement lease of the premises to Captour was
concluded subsequent to the initial close of pleadings. The
plaintiffs’
claim was amended to make allowance for the mitigatory
effect of the conclusion of a replacement lease. Captour became
liable to
pay rental with effect from 1 October 2000. (The rental in
terms of the Captour lease was payable monthly, in advance.) It was

not suggested by the defendants that a replacement tenant could have
been found earlier, or on terms more advantageous to the landlords.
The first defendant had also been liable to pay rental monthly, in
advance. It had last paid rent under the lease in respect of
the
payment due on 1 September 1999.
The pleaded formulation of the plaintiffs’ damages took no account
of the alienation of the property by the plaintiffs on 12
September
2000. The claim, as amended, was formulated on the basis of a loss
of rental from 1 October 1999 until 30 September 2000,
plus the
difference between the value of the ‘rental stream’ which would
have been payable in terms of the lease between the
plaintiffs and
the first defendant during the period October 2000 until 1 October
2008 and that of the ‘rental stream’ under
the Captour lease
from its commencement on 1 October 2000 until 1 September 2005,
actuarially discounted to the date of trial.
A consequence of the alienation of the property by the plaintiffs
was that, as trustees of the Pinnacle Trust, they ceased to be
entitled to the receipt of the rental revenue of the ‘The
Pinnacle’ once it had been transferred to the purchaser. This
consequence
would have obtained even if the lease with the first
defendant had not been cancelled. The transaction’s character as
an ‘internal
re-arrangement’ of the Solomon family’s affairs
did not affect the legal consequences of the alienation of the
property by
the trust to a company. Therefore, having regard to the
fundamental principle of contractual damages referred to above, I
consider
that the plaintiffs’ formulation of their damages with
reference to the comparative values of future rental streams after
the
alienation of the property was misconceived, in the particular
circumstances.
I was informed by counsel that they had been unable to find any
authority on the quantification of a landlord’s damages in a
factual setting analogous to that in this case. This was surprising,
as the situation cannot be unprecedented; but I have also
not found
a reported case closely in point.
It is clear that from date of the transfer of the property by the
trustees to the company, the plaintiffs suffered no damages due
to
loss of rental. It is conceivable that the vacant space in the
building or the less advantageous replacement lease could have
adversely affected the market value of the property. If that were
so, it would have been appropriate for the plaintiffs to have
formulated their damages claim with regard to the value of lost
rental up to the date of the transfer of the property and the

adverse effect of the loss of the tenant on the market value of the
property.
Reference to any consequent differential in the market value price
obtainable for the property may be relevant in cases like the
present one because it can enable a quantification of damages in
accordance with the fundamental principle of contractual damages,
referred to above.
Mr
Louw
, however, sought to support the plaintiffs’
formulation of damages by contending that the sale of the property
was irrelevant.
He characterised it as
res inter alios acta
.
He submitted that the plaintiffs’ damages accrued on the date of
the plaintiffs’ acceptance of the first defendant’s repudiation
of the lease. Mr
Louw
equated the effect of the cancellation
of the lease to that of the loss or destruction of tangible
property. In his written argument,
he submitted that the lease had
‘
had an economic value and
constituted part of the plaintiffs’ patrimony. The cancellation of
the lease necessarily led to a diminution
of the plaintiffs’
patrimony. The damages fall to be determined at the date of
cancellation
’.
Mr
Louw
cited
Culverwell’s
case,
supra
,
in support of his contention.
Culverwell’s
case
concerned the calculation of damages sustained by the plaintiff as a
consequence of the cancellation of an agreement of sale
upon the
acceptance by the seller of the purchaser’s repudiation of the
contract.
On my reading of them, neither of the judgments given in
Culverwell’s
case supports the plaintiffs’
approach. In the majority judgment, Hefer J.A. (as he then was) held
that there is no fixed rule
as to the relevant date for the
computation of damages for contractual breach; the determination
must be coupled with the fundamental
principle that the innocent
party is to be placed as far as possible in the position it would
have occupied had the agreement been
fulfilled. At pages 30 –31 of
the judgment, the learned Judge of Appeal said, in respect of the
calculation of damages sustained
consequent upon the cancellation of
agreements of sale, ‘
It
does not follow, however, that the assessment should in all cases of
an accepted repudiation be made in relation to the time
of the
acceptance. In cases, for example, where the
res
vendita
is
resold or similar goods repurchased it would often be inappropriate
to do so. In such cases the resale or the repurchase itself
may, of
course, be regarded as a tacit acceptance but cases do occur where
it is preceded by an express acceptance. In that event,
provided
there is no undue delay either in the acceptance or in the resale or
repurchase, it is the price fetched on resale or
paid for similar
goods in the market that has to be taken into account. This
principle has been established in a long line of cases.
’
In
Rens v Coltman
,
supra
, the Court stressed
the fundamental object of contractual damages and, with regard to
quantifying a claim in damages arising in
connection with remedial
work to a building where the cost of repairs was the appropriate
measure, approved the following passage
in
Chitty on Contracts
26th ed vol 1 at para 1780:
'The
time at which the cost of repairs should be assessed is when it was
reasonable for the plaintiff to begin repairs, which may
be as late
as the date of the hearing if the plaintiff was acting reasonably in
not mitigating earlier
.’ See
Rens’s
case at 458B-459F.
The judgments in
Culverwell
and
Rens
,
supra
, illustrate that while on the facts of a case the dates
of due performance, repudiation or cancellation may well be
important in
the appropriate computation of contractual damages, the
overriding consideration is the calculation of a figure which fairly
achieves
the object of putting the innocent party in the position it
would have occupied had the agreement been fulfilled. See also
Mostert NO v Old Mutual Life Association Co (SA) Ltd
2001 (4) SA 159
(SCA)
at 187B-E. Whichever approach to
quantification achieves that object most effectively in the context
of the peculiar facts of a
case is the appropriate one. This entails
the application of pragmatism and common sense rather than
formalism. It will in general
be appropriate in quantifying
contractual damages which, from the perspective of the dates of
breach or cancellation, involve a
component of prospective loss, to
have regard to the effect of relevant events intervening between
those dates and the trial insofar
as that will facilitate a more
accurate achievement of the object. In the present case, that means
that the effect of the trust’s
alienation of the property is
relevant.
The flaw in Mr
Louw’s
argument with regard to the proper
approach to the computation of the plaintiffs’ damages is that it
does not recognise the necessity
of adopting a method of computation
which will achieve a fair award in realisation of the object of the
fundamental rule. It fixes
the computation of the plaintiffs’
damages in aspic, subject only to the consequences of any successful
mitigation of loss, as
at the date of the cancellation and excludes
any cognisance of subsequent relevant events unrelated to
mitigation. Its application
would in many cases (the present one
affords an example) subvert the fundamental rule.
The contention that the effect of the sale of the property fell to
be left out of account in the quantification of the plaintiffs’
damages as
res inter alios acta
was misconceived. The maxim
properly pertains in the context of an issue as to whether a
particular extraneous source of recoupment
is to be regarded as
legally irrelevant to the quantum of damages recoverable by a
plaintiff from a defendant; cf.
H.K. Outfitters (Pty) Ltd v
Legal & General Assurance Society Ltd
1975 (1) SA 55
(T)
at 63G-64. The proceeds of the sale of the property did not
constitute a collateral recoupment. The effect of the sale, quite
apart
from its proceeds, was to render it inappropriate to allow the
plaintiffs any damages calculated with reference to loss of rental
from the date of the alienation of the property – hence its
relevance to the issue of computation.
It is necessary then to consider the evidence on the market value of
the property.
It is the effect, if any, of the cancellation of the lease on the
market value of the property at the time of the first sale that
is
relevant. The interval between the first sale of the property at an
artificially low value and the subsequent sale to Shay at
market
value was short. It may be accepted that the market valuation
undertaken for the purposes of the second sale provided a
reasonable
approximation of the property’s value at the time of the first
sale. Mr
Louw
did not take issue with Mr
Rogers’
submission to this effect.
Mr Jeffrey Solomon, who has considerable experience dealing in
commercial property, gave evidence under cross-examination about
the
basis upon which the property was valued for the purpose of the
second sale. The valuation was done on the basis of a capitalisation
of the first year’s net rental proceeds of the property at a yield
determined by the valuator’s estimation of the period within
it
would be reasonable, having regard to the marketability of the
property, for the notional purchaser to achieve a gross recoupment
of the purchase price. A certificate by the registered valuer, Mr
G.C. Fraser, appeared in the listing prospectus of Shay’s holding
company. The relevant part thereof recorded that ‘
As
all of the properties are income producing properties, we
(sic)
have adopted the Investment method of valuation whereby the expected
Net Income for the first year is calculated and capitalised
at a
market related rate to yield the estimated market value of each
property.
’
Mr Solomons testified that shorter leases with ‘weaker’ tenants
were characteristics which would impact negatively on the

anticipated yield of an income producing property and result in a
lower market value being attributed to it. Implicit in this evidence
was the suggestion that the market value of ‘The Pinnacle’ had
been adversely affected by the shorter duration of the Captour
lease
and by the less commercially attractive character of a lease with
Captour (a company incorporated in terms of s 21 of the
Companies
Act) than one with a commercial tenant with a ‘national brand’
attached to it, like the first defendant.
The considerations mentioned by Mr Solomons are not implausible.
Assuming, however, that the market value of ‘The Pinnacle’
was
affected by the cancellation of the lease with the first defendant
and the subsequent conclusion of the shorter replacement
lease with
Captour, no evidence was tendered by the plaintiffs as to the
measure of any such effect. If the market value determined
by Mr
Fraser would have been higher had the lease with the first defendant
still been in place, it would have been expedient for
the plaintiffs
to have adduced his evidence to this effect.
It is not feasible to calculate the relevant differential in market
value by applying the capitalisation rate used by Mr Fraser
to the
rental receipts assuming the continuation of the lease to the first
defendant and deducting from the product thereof the
product of the
same calculation using the Captour lease rentals. Firstly, there was
no evidence as to what the comparable ‘net
income’ figures would
have been (see the passage from Mr Fraser’s certificate, quoted
above). Secondly, on the basis of Mr
Solomons’ evidence, it is
questionable whether the application of the capitalisation rate used
by Mr Fraser would be appropriate
in both calculations, for it was
determined with no regard to the existence of the first defendant’s
lease. Mr
Rogers
, however, handed in a note showing that an
exercise of the sort just postulated would render a result in favour
of the plaintiffs
in the sum of just under R60 000. Mr
Rogers’
calculation was done on the basis (correctly, in my view) that the
date of the first sale was the relevant date for the market
valuation. Using the date of the second sale as the relevant date,
Mr
Louw
arrived at a figure of about R66 500 as the amount of
the diminution of the market value of the property. The property was
in fact
sold to Shay at a price more than R84 000 higher than its
attributed market valuation.
In the circumstances, the plaintiffs have failed to prove any
component of damages corresponding to the possible diminution in
market value of the property when they disposed of it.
The loss of rental for the period between 1 October 1999 and 30
September 2000 was R250 990 (R19 000 for the month of October 1999
and thereafter R21 090 per month for the 11 months between 1
November 1999 and 30 September 2000). From that amount falls to be
deducted that portion of the September 2000 rental, in the sum of
R12 654, in respect of the period after date of the alienation
of
the property on 12 September. This gives a resultant amount of R238
336, in respect whereof the first defendant is liable to
the
plaintiffs in damages. (Consistently with the calculations submitted
by both counsel, I have left out of account the R57 000
deposit paid
by the first defendant to the plaintiffs. Its repayment is a
separate issue, which was not gone into. I have also
excluded any
provision in respect of income tax – it seems to me
prima facie
that the damages calculated with direct reference to the loss of
rental are of a revenue nature and therefore taxable in the hands
of
the trustees, but this is a matter between the plaintiffs and the
Revenue Service; cf.
Omega Africa Plastics (Pty) Ltd v
Swisstool Manufacturing Co (Pty) Ltd
1978 (3) SA 465
(A)
at 475-6
; De Koker,
Silke on South African Income Tax
(Memorial ed) Vol I (loose leaf) at § 3.23 and Visser,
The
Law of Damages
at pp200-203.)
There were some additional components to the plaintiffs’ damages
claim. These comprised claims for compensation in respect of
certain
costs incurred in obtaining Captour as a replacement tenant. The
plaintiffs were liable in terms of the replacement lease
to provide
the new tenant with a ‘clean shell’. The cost of complying with
this requirement was estimated at R50 000. The plaintiffs
were also
responsible in terms of the replacement lease to make an investment
of R125 000 in respect of fixtures and fittings.
In order to secure
the contract with Captour, the plaintiffs had to agree to let a
parking bay to the new tenant, with effect from
1 October 2000, at
R250 per month instead of the R500 per month rental ordinarily
obtainable for the amenity. They also had to
agree to make Captour a
R50 000 interest free loan, repayable in 20 monthly instalments of
R2 500 commencing on 1 October 2000.
The evidence in support of the R50 000 claim for delivery of a
‘clean shell’ concerned the expenditure of R54 622,56 (excluding
VAT) on the installation of air-conditioning units and a related
vent. An unspecified further amount was expended on labour, paint,
glazing, locks and keys and other sundries. Mr
Rogers
submitted that the proven expenditure under this head was actually
in respect of the capital improvement of the premises and there
was
no evidence of any reduction in the patrimony of the trust as a
consequence of its incurrence. I consider that the point was
well
made. Where a plaintiff claims for the cost of mitigating its
damages, it is entitled only to its net pecuniary loss, being
the
difference between the expenditure in so doing and the beneficial
results, if any, thereof. See
Sandown Park (Pty) Ltd v Hunter
Your Wine & Spirit Merchant (Pty) Ltd and Anothe
r
1985 (1) SA 248
(W)
at 256C-D. It also seems to me that the
installation of air-conditioning was a separate issue to the cost of
the provision of a
‘clean shell’. There was no evidence to
substantiate the cost of the provision of the ‘clean shell’ and
accordingly nothing
will be allowed under this head.
In terms of the replacement lease, the fixtures and fittings
provided by the plaintiffs at a cost of R125 000 were to remain the
property of the landlords until the end of the initial period of the
Captour lease, whereupon they were to become the property
of the
tenant. It seems to me improbable that this essentially contingent
vesting of ownership in the landlords would have contributed
to any
increase in the market value of the property or in any other way
have commensurately maintained the value of the trust’s
patrimony.
In my view, the expenditure of R125 000 on fixtures and fittings in
terms of the Captour lease was a cost of mitigation,
which the
plaintiffs are entitled to recover from the first defendant as part
of their damages.
The plaintiffs disposed of the property before any loss was
sustained in respect of the agreement to let Captour have a parking
bay at a discount of R250 per month. There was no evidence that this
incidence of the Captour lease resulted in the reduction of
the
market value of the property. Accordingly, no amount will be allowed
for this component of the plaintiffs’ claim.
The R50 000 interest free loan
by the trust to Captour obviously carried a cost. In the
quantification of the plaintiffs’ pleaded
claim, the cost was
actuarially calculated on the basis of an ‘implied interest cost’
of 17% p.a. on the reducing balance,
calculated monthly in arrears
for 20 months. The rate of 17% was used because it was consistent
with the rate of interest (prime
+ 3%) that would have been payable
by the first defendant in terms of its lease with the plaintiffs on
any amounts overdue under
the contract. It was an arbitrary and
inappropriate basis to formulate the quantum of the claim. I accept,
however, that in the
context of the significant commercial interests
and operations of the trust it would no doubt have been virtually
impossible for
the plaintiffs to prove empirically the cost of
making a R50 000 interest free loan, repayable over 20 months. In
the circumstances,
being satisfied that the plaintiffs did suffer a
loss, I consider that it would be appropriate to award an amount
robustly estimated
to be fair and reasonable. Cf. e.g.
Esso
Standard SA (Pty) Ltd v Katz
1981 (1) SA 964
(A)
at 969H-970H
and
Thompson v Scholz
[1998] ZASCA 87
;
1999 (1) SA 232
(SCA)
at 248J-249C.
With regard to the actuary’s
evidence on prime rates over the last two years, I consider that an
implied interest cost at 10%
p.a. before tax, while perhaps
conservative, is more realistic. Taking into account the steadily
diminishing capital balance of
the 20-month loan, I consider that
the plaintiffs would be adequately compensated if I were to award
R2000 under this head. The
amount involved does not warrant a
reference back for actuarial calculation.
The total sum of the damages
award to be made in the plaintiffs’ favour against the first
defendant is therefore R365 336 (R238
336 + R125 000 + R2000).
Interest on Damages
The capital sum of the
plaintiffs’ claim for damages was computed including an
actuarially calculated provision for 17% p.a. interest.
This was
done on the basis that damages constituted some form of substitute
for the rentals payable under the lease and with regard
to a term of
the lease entitling the landlord to payment of interest at three
percent above prime on amounts overdue in terms of
the contract. The
computation of the damages including an interest component on this
basis was misconceived. It overlooked that
a consequence of the
cancellation of the contract was that specific performance of any of
its provisions, save insofar as the right
to enforce a particular
provision had fully accrued before cancellation, was thereafter not
an available remedy. Astute to the
frailty in the plaintiffs’
computation, Mr
Louw
asked in the alternative for
mora
interest at the prescribed rate on any damages awarded on the usual
basis, calculated from date of service of the summons.
In my view, it is appropriate in
awarding interest to distinguish between the three components of the
total sum of damages awarded.
See
s 2A(5)
of the
Prescribed Rate of
Interest Act 55 of 1975
.
The main component of R238 336
became capable of calculation at the earliest only when the Captour
lease was concluded on 17 July
2000. The summons was served on 10
May 2000. Considering that this component of the damages claim is
intended to compensate the
plaintiffs for a loss of rental during
the period October 1999 to September 2000, I think it would be fair
to direct that this
component of the damages award bear interest at
the prescribed rate from 10 May 2000.
There was no evidence as to
precisely when the plaintiffs incurred the expenditure of R125 000
in respect of the provision of fixtures
and fittings in terms of the
Captour lease. It is, however, reasonable to infer that it would
have been during the interval between
the conclusion of the lease on
17 July 2000 and the effective commencement of the lease on 1
October 2000. Accordingly, I propose
to award interest at the
prescribed rate on this component of the damages with effect from
1
October 2000.
Interest at the prescribed rate
on the third component of R2000 will be awarded with effect from the
date of this judgment.
Second Defendant’s liability
under the Deed of Suretyship
The second defendant executed a
deed of suretyship in favour of the Pinnacle Trust for the due and
proper fulfilment by the first
defendant of its obligations under
the lease and for the payment of all sums which might be due,
arising in any way whatsoever
out of the lease, including any
cancellation thereof.
Clause 8 of the Deed of Suretyship
(Certificate of indebtedness)
In terms of clause 8 of the deed
of suretyship, the parties had agreed that a certificate signed by
the landlord as to the amount
of the surety’s indebtedness under
the suretyship would constitute
prima facie
proof thereof.
The plaintiffs handed in a certificate in terms of this clause,
dated 22 October 2001, stating that the amount of
the second
defendant’s indebtedness to the plaintiffs under the suretyship
was
R848 546.
It was argued on behalf of the
plaintiffs that the production of the certificate cast an evidential
duty on the second defendant
to rebut its content. If at the end of
the case the certificate remained ‘unrebutted’, the plaintiffs
were entitled to judgment
in the amount stated in the certificate.
No evidence was tendered by the second defendant and accordingly, so
contended plaintiffs’
counsel, with reference to
Bank of
Lisbon International Ltd v Venter and Another
1990 (4) SA
463
(A)
at 481H-482C and
Berlesell (Edms) Bpk v Lehae
Development Corporation
1998 (3) SA 220
(O)
, the
plaintiffs were entitled to judgment against the second defendant in
the sum of R848 546.
In the cases cited, despite the
criticism to which some of the relevant evidence was amenable, there
was nothing at the relevant
stage of the cases (the judgment in
Berlesell
concerned an application for absolution at
the close of the plaintiff’s case) to displace the
prima facie
evidence afforded by the certificates put in to prove the extent of
the defendants’ liability. Evidence which, when it is admitted,
amounts to
prima facie
proof of a question in issue becomes
sufficient proof if, at the end of the case, it is unaffected by
other evidence; see
Senekal v Trust Bank of Africa Ltd
1978 (3) SA 375
(A)
at 382
in fine
-383. The certificate
evidence in the two cases relied on by Mr
Louw
was therefore
regarded as sufficient proof of the quantum of the respective claims
in issue there. The present case is distinguishable
from the cases
cited by Mr
Louw
. The claim against the second defendant is
in respect of an ancillary liability that arose from and is
contingent upon the primary
obligation of the first defendant. The
second defendant’s liability could not exceed that of the first
defendant. As the first
defendant’s liability has been determined
in the trial in an amount different to and lower than that stated in
the certificate,
the content of the certificate cannot prevail.
Clause 20 of the Deed of
Suretyship (Limitation of surety’s liability)
The plaintiffs had agreed to a
stipulation by the second defendant that its potential liability
under the suretyship should be limited.
Clause 20 of the deed was
intended by the parties to give effect to this agreed limitation of
liability. The clause provided:
‘
Notwithstanding anything
to the contrary contained or implied in this Suretyship, our
liability under this Suretyship in the aggregate
(in the event that
more than one claim is made under this Suretyship) shall be limited
to an amount determined in accordance with
the following formula:
X = a + (b x 1,2)
Where:
X = the limitation of our
liability in the aggregate, under this Suretyship;
a = all or any amounts
payable by the Tenant to the Landlord which are overdue as at then
(sic)
notice date and in respect whereof the Landlord has notified the
Tenant;
b
= the aggregate of all monthly rentals payable by the Tenant to the
Landlord under the Lease during the 24 (twenty four) month period
reckoned from the first day of the calendar month immediately
following the notice date,
and for the purposes of this
clause 20 the “notice date” shall mean the date on which the
Landlord, in its discretion, invokes
the provisions of this
Suretyship on written notice to the Tenant to such effect.
’
Mr
Rogers
argued that a
proper construction of clause 20 of the suretyship agreement
precluded any liability by the second defendant for
any sum for
which the first defendant might be liable in damages as a
consequence of the cancellation of the lease. Referring to
the role
of the ‘notice date’ in the limitation of liability formula, he
submitted (I quote from his written argument) that
‘[I]n order to be valid, a notice under clause 20 would have to be
issued during the existence of the lease. This is apparent
from the
following considerations:
1.The introductory portion of
clause 20 contemplates the possibility that several claims might be
made under the suretyship. That
presupposes the continuation of the
lease beyond the giving of notice.
2.Component “a” of the
formula assumes that rent could notionally be due up to the date of
the notice, while component “b”
is premised on the proposition
that rent would remain payable after the giving of notice…
’.
On this premise, Mr
Rogers
contended that as the lease had
been cancelled before the giving of notice as contemplated by the
provisions of clause 20, there
was no scope for the operation of the
suretyship obligation to be ‘triggered’. Defendants’ counsel
developed his argument
further by suggesting that the use of the word
‘rentals’ in component ‘b’ of the formula was inconsistent
with the notion
of damages and connoted a liability which could
obtain only during the currency of a lease - not consequent upon its
termination.
He sought to equate the position of the second defendant
with that of the surety in
Arenson v Bishop
1926 CPD
73
.
The reliance on
Arenson’s
case was misplaced. In
Arenson’s
case, the surety undertook to be liable
for the payment of any rent not paid by the principal debtor on due
date. The Court held,
with particular reference to the word ‘rent’,
that the surety had not undertaken any contingent liability for
damages
sustained by the creditor consequent upon the
cancellation of the lease due to the default of the principal
debtor. The second
Defendant, however, bound itself as surety and
co-principal debtor ‘
for
the due and proper fulfilment of all the obligations of, and for the
punctual payment of all sums which are or may become due
by
[the
first defendant]
in
terms of, or in connection with or arising in any way whatsoever out
of the Agreement of Lease (or any amendment or renewal
or
cancellation thereof)….
’. I consider that the
undertaking to be liable to pay any amount becoming due by the
tenant to the landlord arising in any way
whatsoever out of the
cancellation of the lease includes an undertaking to pay any damages
for which the tenant becomes liable
to pay the landlord upon a
termination of the lease due to a default by the tenant. Cf.
Beaufort West Municipality v Krummeck's Trustees
5
S.C. 5
;
Demetriou v O’Flaherty and Another
1973 (4) SA 691
(D)
at 694C-695H and
Norex Industrial
Properties (Pty) Ltd v Monarch SA Insurance Co Ltd
1987
(1) SA 827
(A)
at 840F-H.
Clause 20 of the deed of suretyship executed by the second defendant
was not intended to define the nature of the suretyship obligation
undertaken; it was intended only to limit the monetary amount of any
liability which might arise. The words ‘
the
aggregate of all monthly rentals payable by the Tenant to the
Landlord under the lease
’, used in the definition of
component ‘b’ in the formula, are intended to provide a basis
for the computation of the maximum
extent of the surety’s monetary
liability. They do not require the actual existence of the
obligation to pay rent between tenant
and landlord when the landlord
seeks performance from the surety. The maximum extent of the
surety’s liability is determined
not in relation to an actual
liability by the tenant to pay 24 month’s rental, but in relation
inter alia
to an amount equivalent to 24 month’s rental
subject to a multiple of 1,2. The reference to 24 month’s rental
in conjunction
with a ‘notice date’ provided that the maximal
extent of the surety’s liability potentially increased in line
with the escalation
of the rentals payable under the lease during
its 10-year anticipated duration. (It is not necessary in the
context of the present
claim to address the question of any
difficulties which might conceivably have arisen in respect of the
application of the limitation
formula in the event of multiple
claims being made over a period of time.)
The opening words of clause 20, ‘
Notwithstanding
anything to the contrary contained or implied in this Suretyship…
’
do not detract in any way from the nature of, or range of the
obligations in respect of which the second defendant undertook
a
contingent liability. The words merely stress the absolute extent of
the limitation on the monetary amount of such liability
in the face
of any provisions, elsewhere in the deed, which might otherwise have
been amenable to suggest that the amount of the
liability was
qualified only by the amount of the principal debt.
Notwithstanding argument to the contrary by defendants’ counsel, I
do not think that anything turns on the indication in the
introductory words of clause 20, which
contemplate the possibility that several claims might be
made under the suretyship. Construed in the context of the
suretyship agreement
as a whole, the wording admits of the
possibility of claims being made during the currency of the lease,
but does not exclude any
relevant claim after its termination.
The quantification of the maximum extent of the surety’s liability
under the suretyship agreement is determined with reference
to the
date upon which the landlord exercises its right to claim payment
from the surety. The clause states that this is to occur
on written
notice by the landlord ‘to
the Tenant
to such effect’,
but the context suggests that the reference to ‘the Tenant’ was
per incuriam
. What the parties probably intended was that the
suretyship was to be invoked upon notice to the surety. (A finding
that this was
the parties’ common intention is justified on the
basis of paragraph 8.3.3. of the plaintiffs’ amended particulars
of claim,
in which a rectification of clause 20 to this effect is
sought, and the content of a letter from the second defendant to the
plaintiffs,
dated 8 September 2000 (exhibit C1), which shows that it
was understood in that way by the second defendant.) Even so, the
literal
meaning of the provisions, even if modified to require
notice to the surety rather than to the tenant, would indicate that
the
landlord could unilaterally increase the maximal extent of the
liability of the surety simply by delaying the giving of notice.
Such a construction would, however, defeat the object of the clause.
As it happened, the only notice given by the plaintiffs to the
second defendant invoking the suretyship was by means of the summons
served on 10 May 2000, some seven months after the cancellation of
the lease.
Mr
Rogers
argued that service of the summons did not
constitute the giving of notice in terms of clause 20 because it was
apparent from the
amount the plaintiffs initially claimed from the
second defendant and from their response to a question put at the
pre-trial conference
that the plaintiffs, at least until their
counsel’s opening address at the trial, had contended that their
damages claim was
not subject to the limitation imposed by the
formula. I agree that the plaintiffs did not originally conceive of
the summons as
a notice in terms of clause 20, but that does not
mean it did not nevertheless have that effect. In my view, the
plaintiffs’
initially misconceived opinion of the applicability of
clause 20 was irrelevant. Objectively, the second defendant can have
been
under no illusion when it received the summons that the
plaintiffs were exercising their right under the suretyship.
Accordingly,
I consider that the summons did serve the purpose of
giving notice within the meaning of clause 20.
Having regard to the object of clause 20, I consider that there is a
compelling argument to be made in favour of the tacit imposition
of
a duty upon the plaintiffs, in the event of them exercising their
discretion to invoke the suretyship, to give notice of their
intention within a reasonable period of the accrual of the right.
The giving of notice in terms of clause 20 is not a prerequisite
to
second defendant’s liability under the suretyship agreement; it is
merely a factor in the computation of the sum of the second
defendant’s maximum liability under the contract. The plaintiffs
could not validly purport to increase the sum of that maximum
liability by unreasonably delaying the giving of notice.
The question as to by when the plaintiffs should reasonably have
given notice in terms of clause 20 was not an issue on the pleadings
and it was not explored in the evidence. Nothing turns on this.
Applying the formula on the assumption that notice had been given
at
the beginning of October 1999, as soon as the rent payable by the
tenant on 1 October 1999 was not paid, and taking ‘a’
as nil,
the maximum sum of the second defendant’s liability under the
suretyship would have been R635 506,68 (arrived at on the
basis of
the rental that would have been payable under the lease for the
24-month period 1 October 1999-1 September 2001 multiplied
by 1,2)
whereas if, with reference to the date of service of summons, the
calculation is done using the period 1 June 2000 to 1
May 2002 as
the relevant period for the computation of component ‘b’, the
resultant maximum limit is higher because of the
incidence of the
escalation of rental which would have occurred with effect from 1
November 2001. Where the sum of the principal
debt has been
determined in an amount below
R635 000, the failure by the
plaintiffs to give notice in terms of clause 20 at any stage earlier
than 10 May 2000 is clearly not
a matter of any consequence.
The plaintiffs are therefore entitled to obtain judgment against the
second defendant in an amount equal to the sum of damages
awarded
against the first defendant. The liability of the first and second
defendants to pay the said amount to the plaintiffs
is joint and
several.
Rectification of
clause 20
I should mention that the plaintiffs amended their particulars of
claim to introduce an alternative claim for the rectification
of
clause 20 of the deed of suretyship. Save to the extent stated in
paragraph [78], above, no basis was laid in the evidence to
justify
the claim for rectification. It is not necessary in the
circumstances to say anything more about it.
The Third
Defendant
There was no appearance at the trial by or on behalf of the third
defendant. This prompted Mr
Louw
to ask for default judgment
to be granted against the third defendant. The third defendant had
delivered a plea, but his attorneys
had subsequently withdrawn and
thereafter continued to represent only the first and second
defendants. There was no indication
on the papers that the third
defendant had been given notice of the setdown of the trial. In the
circumstances, I declined to entertain
the application for default
judgment.
Costs
The trial lasted 4 days. The evidence was completed fairly early on
the second day. Argument of the case lasted approximately a
day. The
extra time taken up was consequent upon the application by the
plaintiffs to amend their particulars of claim to cater
for the
contingency that I might uphold the defendants’ argument in
respect of the proper construction of clause 8 of the Syfrets
mortgage bond. The opposition to the application was not
unreasonable. In the circumstances, I intend to allow the plaintiffs

the costs of only the first three days of the trial and to award the
first and second defendants the costs of the fourth day.
In the context of the amendment of the claim consequent upon the
obtaining of a replacement tenant and the subsequent sale of the
property, the actuarial evidence tendered by the plaintiffs was
unnecessary. However, the employment of the services of an actuary
to assist in the computation of the plaintiffs’ claim as
formulated at the time action was instituted was appropriate.
Accordingly,
only the costs attendant on obtaining the actuarial
report annexed to the original particulars of claim will be allowed
as part
of the plaintiffs’ costs of suit.
Order
1. Judgment is accordingly granted in favour of the plaintiffs
against the first and second defendants, jointly and severally, the
one paying the other being absolved, for:
Payment of the sum of R365 336;
(i) Interest
a tempore morae
on the component amount of R238
336 at 15,5% per annum from10 May 2000;
(ii) Interest
a tempore morae
on the component amount of R125
000 at 15,5% per annum from 1 October 2000
(iii) Interest
a tempore morae
on the component amount of R2
000 at 15,5% per annum from the date of this judgment
Costs of suit; which costs shall, in respect of the trial, be
limited to the costs of the first three days of the hearing, and
in
respect of the qualifying fees of the actuary, Mr I.W. Morris, be
limited to the costs attendant on the preparation of his report
dated 02/03/2000, annexed as annexure ‘PPC5’ to the plaintiffs’
particulars of claim, dated 14 April 2000.
2. The plaintiffs are ordered to pay the costs incurred by the first
and second defendants in respect of the fourth day of the hearing.
BINNS-WARD, AJ