About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
1990
>>
[1990] ZASCA 47
|
|
Caxton Ltd. and Others v Reeva Forman (Pty) Ltd. and Another (393/88) [1990] ZASCA 47; 1990 (3) SA 547 (AD); [1990] 2 All SA 300 (A) (17 May 1990)
IN THE SUPREME COURT OF SOUTH AFRICA
(
APPELLATE DIVISION
)
In the appeal of :-
CAXTON LIMITED
First Appellant
MARILYN
LOUISE HATTINGH
Second Appellant
LIN SAMPSON
Third
Appellant
C T P WEB PRINTERS (PROPRIETARY)
LIMITED
Fourth
Appellant
NATIONAL NEWS DISTRIBUTORS
Fifth Appellant
CENTRAL
NEWS AGENCY LIMITED
Sixth Appellant
and
REEVA FORMAN (PROPRIETARY)
LIMITED
First Respondent
REEVA SUCCESS DYNAMICS
(PROPRIETARY)
LIMITED
Second Respondent
CORAM
: CORBETT CJ, HOEXTER, E M GROSSKOPF JJA, FRIEDMAN et NIENABER
AJJA.
DATES OF APPEAL
: 5 & 6 March 1990.
DATE OF JUDGMENT
: 17 May 1990
2
JUDGMENT
CORBETT
CJ:
The first respondent, Reeva Forman (Proprietary)
Limited, carries on business in South Africa as an importer, distributor and
seller
of cosmetics and beauty products. It markets its products by means of
what is termed the
"direct-selling" system. I shall later describe this in
more detail. The second respondent, Reeva Success Dynamics (Proprietary)
Limited,
carries on the business of offering training courses to the public and
to persons engaged in selling the products of first respondent
by means of
so-called "beauty consultants" and "business management" schools. First and
second respondents share the same principal
place of business, which is located
in Johannesburg.
The founder of and driving force behind first and
3 second respondents is Miss Reeva Forman. She holds 80% of the shares in
each of the companies and is their chief executive officer.
She also lectures in
the schools run by second respondent. The remaining 20% shareholdings in the
companies are held by a Mr C Vassiliades.
The first appellant, Caxton Limited, whose principal place of business is
also in Johannesburg, publishes a monthly magazine called
"Style", which is
distributed to the public throughout South Africa through the medium of fifth
appellant, National News Distributors,
and of sixth appellant, Central News
Agency Limited. Second appellant, Miss M L Hattingh, is the editor of "Style"
and fourth appellant,
C T P Web Printers (Proprietary) Limited, prints it. In
the July 1985 edition of "Style" there appeared an article under the following
title:
4
"
QUESTION
HOW DID REEVA FORMAN GET TO BE SO SUCCESSFUL?
ANSWER
:
SHE BELIEVES IN GOD, SELF-PROMOTION (and a couple of other little
things)."
As the title indicates, the article is
devoted to Miss
Forman and her two companies, first and second
respondents.
It was written by third appellant, Miss L Sampson.
This particular edition of "Style" was published
and
distributed to the trade on 25 June 1985. On the same
day Miss Forman and
first and second respondents, claiming that the article was defamatory of them,
applied to Kriegler, J in the
Witwatersrand Local Division for an order
interdicting the further distribution of the article. The Court granted a rule
nisi
. The appellants opposed the confirmation of the rule upon various
grounds, including the defence that what had been said in the article
was true
and had been published in the public interest. The interdict
5 proceedings
were protracted and voluminous affidavits were filed. The case was widely
reported in the press. Eventually appellants
undertook not to continue to
publish the article and the rule was extended as against certain of the
appellants until the final determination
of a trial action to be instituted by
Miss Forman and first and second respondents. This action was commenced by the
issue of a combined
summons in the Witwatersrand Local Division on 1 August
1985. The matter came to trial before Curlewis J on 28 April 1988. Shortly
before the commencement of the trial Miss Forman's claim for damages in respect
of the injury to her good name and reputation (she
figured as first plaintiff in
the pleadings) was settled by the payment to her of R3 5 000 and costs. The
action proceeded at the
instance of first and second respondents. Each claimed
two items of damages: (i) impairment to or loss of goodwill and (ii) nett
loss
of profit. First respondent's claim, as
6 finally computed, amounted to R2
079 694 under item (i) and R250 000 under item (ii); and second respondent's
claim was R119 029
and R75 000 under each item respectively. The respondents
also asked for the rule
nisi
granted by Kriegler J in the interdict
proceedings to be made final. After a lengthy hearing, during which in all
seventeen witnesses
were called and much documentary evidence was placed before
the Court, Curlewis J gave judgment in favour of the respondents, ordered
a
final interdict and awarded first respondent damages in the sums of R250 000 and
Rl 800 000 (in respect of loss of goodwill and
loss of profit respectively) and
the second respondent damages in the globular sum of R75 000, these amounts to
carry interest from
the date of judgment. He also ordered the appellants to pay
the costs of the suit (apart from the trial costs of two particular days),
such
costs to be taxed on the scale as between attorney and client. With leave
granted by this
7 Court, appellants noted an appeal against the whole of the
judgment, apart from the order of a final interdict.
Before considering the issues raised on appeal it is necessary to say
something about the businesses run by first and second respondents,
the nature
of the defamatory article and its alleged impact upon the respondents.
The business of first respondent is, as I have indicated, the marketing of
cosmetics and beauty preparations. It does so not through
the ordinary retail
outlets or from shop premises of its own, but by means of a sales force of
individuals, almost exclusively women,
who are recruited for this purpose (hence
the term "direct-selling"). A new recruit to the organization is given a
preliminary training
course relating to the product to be marketed and to the
method of demonstrating the product and concluding sales. She also receives
what
is known as a "basic kit", consisting of the product range, which she uses
8
for demonstration purposes and for which she pays. She is then
termed a "beauty adviser" and may commence selling the products direct
to
customers. She does so not as an employee or agent of first respondent, but as
an independent saleswomán on a commission
basis. Goods sold are invoiced
by her to the customer. The saleswoman collects the goods from first
respondent's office, pays the
full price as per invoice to first respondent and
delivers the goods to the customer against payment of the price. The commission
accruing on sales is calculated and paid by first respondent to the saleswoman
monthly.
Saleswomen are encouraged to attend the course for beauty consultants run by
second respondent - after which they can call themselves
"beauty consultants" -
and the business management course, also run by second respondent and designed
to teach marketing and proper
business methods. Fees are charged for these
courses. Before a saleswoman
9 can give a beauty treatment known as "a
facial" it is necessary for her to attend a beauty consultant's course.
A saleswoman is also encouraged to recruit other saleswomen as part of a
"team". If she succeeds in building up a team of at least
three other saleswomen
and the team achieves a certain level of sales of cosmetics (at the time R3 000
worth) in one calendar month,
she may become what is described as a
"distributor". While maintaining what is termed a "retail sales volume" at a
certain level
the distributor is entitled to an overriding commission of 40 per
cent on the team sales volume, out of which she would have to pay
commissions to
her team members, on a sliding scale, on their individual sales. A saleswoman
can also qualify to become a distributor
by a combination of retailing a
proportion of the R3 000 volume through her team's efforts (the team being a
minimum of three beauty
advisers) and by purchasing the balance of the R3 000
volume
10
in the same calendar month; or by making a single payment of
"such amount for stocks as may be determined by the Company (first respondent)
from time to time" (see chapter 11 of the Reeva Forman Training Manual, exhibit
"FF"). Team members may, by doing the necessary recruiting,
establish teams of
their own and qualify to become distributors in their own right. Where this
happens the original distributor becomes
a senior distributor.
The whole organization thus has a pyramid-like structure, with the first
respondent at the apex and the individual saleswoman at the
base, the two linked
by a network of teams, headed bý distributors and senior distributors.
Since the product is marketed
through the efforts of the individual saleswoman
it is obvious that the more saleswomen there are the greater the sales are
likely
to be. Accordingly the growth of the business depends upon
ever-increasing recruitment. And, since for various
11
reasons there is a continuous drop-out of saleswomen from the
organization, recruitment is necessary even to maintain the
status quo
.
Recruitment is done through personal contact and by means of advertising.
Customers are canvassed also by personal contact and by
what are termed
"promotions" at other functions. The giving of a facial is often a prelude to
the establishment of a supplier/customer
relationship. To achieve maximum sales
it is thus necessary to be a beauty consultant. Some distributors establish
their own business
premises; others work from their homes. That briefly is the
modus operandi
of the business.
First respondent commenced business in 1975. In its first four years the
growth of the business, as measured by sales, was steady
but not spectacular. In
about 1980, however, the picture changed and the business went into a phase of
very rapid growth. This continued
into 1985. By then first respondant had
established regional offices or
12 branches, staffed by full-time employees,
in Pretoria, Bloemfontein, Cape Town, Durban and Port Elizabeth. These offices
assisted
distributors and beauty consultants in their areas, saw to the
necessary administration and carried the stocks required by saleswomen.
In order to stimulate and motivate its sales force first respondent
periodically ran competitions, the prize for which was a free
holiday in some
attractive location. In May 1983 it was in Greece, in March 1984 it was at
Umhlanga in Natal and in May 1985 it was
a trip to Rio de Janeiro. In each case
the competition ran for a period prior to the holiday trip (in the case of the
"Rio trip",
as it was called, the period was approximately the 9 months ending
with March 1985) and in order to qualify for the trip a saleswoman
had to
achieve certain levels as regards personal sales volume, team volume and/or
recruitment. After 1985 there were similar holidays
in Thaba'Nchu (April
13
1986) and Israel (June 1987), but the Rio trip seems to have engendered the
greatest interest and provided the greatest stimulation.
I turn now to the defamatory article. It is a lengthy one, occupying
four-and-a-half pages of fairly small print. Respondents' counsel
divided it
into five portions. It is convenient to do likewise. The first portion is
devoted to the writer's impressions of Miss
Reeva Forman, gleaned during an
interview given in the latter's flat in Johannesburg and at lunch in a nearby
restaurant. The writing
is full of brittle satire and the general tone is
cruelly critical of Miss Forman. The author mocks her gestures, her appearance,
her philosophy, her devotion to her dog (recently deceased) and her way of life.
She purports to penetrate what she perceives to
be a facade and to find a person
who is basically insecure. The opening sentences read:
14
"Reeva Forman talks for four hours: she lectures. On reflection it seems a time
dominated by hair, lips and the
cliché."
I guote, too, other
illustrative extracts:
"She appears to belong to that group of women who, although shrewd when it comes
to making money, have chosen to market themselves
as innocents, full of wonder
and sweetness. She is much occupied with the sauntering prospect of ever-lasting
youth."
"The hours are consumed by a set of gestures that as the day progresses seem to
assert a pattern on the proceedings, rather like
punctuation in a story. There
is the Confident Nose Wrinkle (let's be friends), Big Brown Eyes (wonder), Hand
on Chest (coy), Hands
in Prayer (pleading), Hands Clasped (surprise). Sometimes
she pounds the air with a tiny clenched feminine fist (anger, sort of).
It is
when these gestures are used in conjunction that her vivacity becomes
threatening, almost like a physical
15
onslaught."
"She curls and twirls her long legs against the fern pattern of her bamboo
sofa as she happily rifles through the luxurious landscape
of one-line
destiny-makers."
"She tells me that Ronald Reagan is her hero. Then she says something which
might partly explain her appointment to the board of the
SABC: 'I don't think
it's lying or falsifying to present the
positive
side of a
situation."
"Sometimes her expression slips the braces of buoyancy and positive thought
and slips into an anxious and unsettled gaze declined
by a high, small laugh.
Here perhaps is the insecure teenager who although terribly short-sighted would
not wear glasses, the girl
whose hand shook so much she could not hold a glass
at a party, the child who found it difficult to make friends at school, the
little
girl who spent six months in bed with rheumatic fever. Here is the woman
who stayed with her parents until they died, her
16
father only four years ago, her mother seven."
The second portion deals with Miss Forman's business achievements, the
success of her companies, her -business philosophies and the
methods employed on
the business management courses run by second respondent. Thus, the article
mentions that in 1983 Miss Forman
won the Businesswoman of the Year Award and
that her direct sales -cosmetic company- has an annual growth of 50 per cent and
a turnover
of more than RlOm per annum. An ex-employee is quoted as having been
told by a fellow employee when she joined the organization:
"Of course you'll be
able to make money with Reeva because God looks after this company and God looks
after Miss Forman". There are
other passing references to Miss Forman's
religious beliefs.
The article goes on to refer to "one of the largest direct-selling cosmetic
companies" in the United
17 States of America, Mary Kay, which is described
as being "based on a partnership of God and Mary Kay Ash, its founder". An
article
on Mary Kay in the English Sunday Times supplement is quoted as
saying:
"The elementary commercial purpose of the company is all too easily obscured by
the spiritual cloaks which are heaped upon it. Everyone
in this church of
materialism is dedicated to turning their gaze away from its pyramid
structure."
The writer (third
appellant) proceeds to refer to other deceptions upon which the Mary Kay company
is based, chief of which is -
"...the fiction that Mary Kay Ash is a being of superhuman qualities. The
creation of a cult of personality around the dumpy figure
of Mary Kay Ash is a
miracle of projection;..."
The article
then wonders at "people who are able to regard a
18
cosmetic company and its figurehead as a fount of divine
revelation" (a further citation from the Sunday Times article), but says
such
people do exist and proceeds to guote a former employee of "Reeva Cosmetics"
(first respondent) to the effect that she started
a business management course
hating the sight of Reeva Forman and ended it thinking of her "like a god".
(Thus a link is forged between
Mary Kay and the respondents.)
The rest of the second portion of the article is devoted to quoting
descriptions by former members of the courses run by second respondent
and to a
reference to a certain William Pénn Patrick. The former course members
are referred to as Lucy, Janie and Martha
(the names are fictitious). They
describe the courses as "a lot of brainwashing", a "process designed to break us
down" and as presenting
Miss Forman "as if she were a god". According to them, a
lot of music was played, the hours were excessively
19
long and "they tried to condition us". Course members were
encouraged to confess things in the past of which they were ashamed, such
as
haying an illegitimate child. An incident is recounted of a course member who,
after listening during a lecture to a tape by Miss
Forman talking about faith,
lay on the floor "crying and carrying on". The lecturer told the class to leave
her alone, not to touch
her as she was "going through the breakdown process,
getting rid of everything." The girl lay there for about an hour and a half
and
afterwards was "pale and shaky" and "felt dreadful". She did not want to come
the next day but was told she must. Martha is quoted
as saying,
inter alia
(with reference to Miss Forman) - "I now think her attitude about caring was
false. When you really want somêthing, when you
really have a problem,
then the door is closed".
The article states that during the interview Miss Forman stated that "her
mentor" was William Penn Patrick, by
20
whom she was trained in the United States, and that it gave
her "such a kick to know that in South Africa we have a model of the same
thing". The author then proceeds to do what is commonly known as a "hatchet job"
on William Penn Patrick, who apparently also used
pyramid selling techniques to
build a corporate empire around the cosmetics company, Holiday Magic, and in
conjunction therewith
ran courses in "leadership dynamics". Newsweek magazine
and the English Sunday Times are quoted as alleging that these courses relied
on
physical assault and abuse, psychological torment, sexual confrontation and
general brainwashing in order to achieve their objects.
Again a link is forged
between the courses run by Patrick's companies, with all their bizarre
characteristics, and the business of
Miss Forman and her companies; and this is
driven home by a statement prominently featured in large type in a "box" in the
middle
of the page reading -
21
"Her mentor William Penn Patrick's leadership course was a 'bizarre enterprise
that relied on physical and psychological
torment'".
The third portion of the
article describes a visit by the writer to the "Reeva Offices" in Cape Town. She
gives an unflattering description
of the offices and their furnishings ("the
word 'tacky' would not be an exaggeration") and of the lady employee whom she
interviewed
("a girl who has on so much purple eyeshadow that it is rather like
being confronted by the Hex River mountains at sunset"). There
is again emphasis
on the so-called "cult" of Reeva Forman. The article quotes the motto: "A
beautiful life with Reeva" appearing
on "battered posters" in the office.
The fourth portion describes, with reference to the Reeva Forman training
manual, the character of the business run by first respondent
- the teams of
saleswomen,
22
consisting of beauty advisers, distributors and senior
distributors, the commissions, how one becomes a distributor and the vital
need
for recruitment. It is emphasized that prospects are held out of "very large
earnings", but that -
".... the most curious aspect of the manual is that nowhere does it mention that
you have to pay for a course before you start
selling."
Then reference is made to the
tightening of local laws on
pyramid selling "after Holiday Magic
reached South Africa"
and to the Trade Practices Act of 1976. This
portion
concludes with the observation -
"But the fact that Kubus surfaced buoyantly and legally last year illustrates
that the Law is still full of loopholes. Finally a
bill is to be tabled in
Parliament in the near future which will try to cope with this
problem."
(The reference to "Kubus" is
to a notorious, pyramid selling
23 scheme which amounted to a fraud upon the
public.)
The fifth and final portion of the article commences:
"It seems that while some people do experience 'a beautiful life with Reeva',
many do not."
The article goes on to
stress the "largedrop-out rate" and says -
"The story becomes particularly nasty during a recession when all direct sales
companies boom .... catering to the
desperate."
The experiences of Mrs B,
Lucy, Martha and Kathy are then quoted. There is a common theme to their
stories: being persuaded by false
promises of rich earnings to part with (for
them) large sums of money and getting little or nothing in return. A statement
by Mrs
B -
"So far I've spent Rl 000 and I've only made
24
R4 which I haven't even received" is highlighted by being
repeated in a "box headline" in the middle of the page. The husband of one
woman
is quoted as saying that his wife was "conned into the whole thing". Other
snippets from their complaints read: "They seduce
you
with large
numbers...."; "the other thing I think was
iniquitous was that they
encouraged us to borrow money"; "the whole thing turned out to be a lot of
brainwashing"; "after you've bought
in they really lose interest in you"; and
Kathy's husband: "You know Kathy, if you had never joined Reeva we would have
the car by
now".
The author comments
-
"The complaints form a dialogue of
disappointment against the tinkling sound of
Miss Forman's voice saying: 'I attribute my
success to sound basic principles such as
honesty, caring and
trust'."
25
The article concludes with the following two paragraphs:
"It is an interesting mathematical speculation that if each distributor recruits
only one distributor a month, that means that the
number of distributors doubles
every month. After ten months the number of distributors will have increased by
a factor of more than
a thousandfold. After 20 months the number of distributors
will have increased more than a millionfold. After three years the number
of
distributors will exceed the total population of the world.
I end with a quote from the Reeva Marketing Plan: 'It is somewhat sad to come to
the realisation that in many businesses today some
share the belief that to tell
a few "white lies", to bend ethics a degree, to sacrifice integrity and
principle for a moment, and
sometimes to out and out "lie, cheat and steal" is
essential to compete successfully'."
It
is common cause that the article is defamatory, though the parties are not ad
idem
as to its precise
26
meaning. It is respondents' case that the article not only
injured generally their respective business reputations and
goodwill, but also actually caused them special patrimonial
loss in the
form of reduced profits. A trading corporation
has a right to sue for damages
in respect of a defamatory
statement which is calculated to injure its
business
reputation (see
Dhlomo N 0 v Natal Newspapers (Pty) Ltd
and
Another
1989 (1) SA 945
(A), at 948 G - 953 G); and it
is
common cause that such a corporation may also claim damages
to
compensate it for any actual loss sustained by it by
reason of the
defamation. It is not necessary in this case
to decide whether this latter
claim falls under the
actio
iniuriarum
or is rather to be classed as Aquilian (cf
Bredell v
Pienaar
1924 CPD 203
, at 213;
Van Zyl v African
Theatres
Ltd
1931 CPD 61
, at 64-5;
Die Spoorbond and
Another v South
African Railways; Van Heerden and Others v
South African Railways
1946 AD 999
, 1011). The question
27
as to whether and to what extent the article in all its
facets was calculated to injure respondents in their respective business
reputations is one to be decided by reference to the nature
of the defamation,
the character of the businesses conducted by them and the likely impact thereon
of the defamation; and the damages
must be assessed in accordance with the
principles relating to claims for defamation, bearing in mind that a corporation
has "no
feelings to outrage or offend" (
per
Schreiner JA in
Die
Spoorbond
case,
supra
, at 1011). And the further question as to
whether the article caused the respondents actual patrimonial loss, and the
guantum of
such loss, must be determined on the evidence adduced. I shall in due
course deal in detail with this evidence. For reasons of convenience
rather than
because the nomenclature is necessarily correct I shall refer to the damages for
injury to business reputation as "general
damages" and to damages
28
for actual loss as "special damages".
On appeal basically four matters were argued. They were:-
(1) A ruling by the trial Judge that the appellants were not entitled to lead
certain evidence. Appellants' counsel contended that
in so ruling the trial
Judge erred and that in the circumstances the judgment should be set aside and
the matter remitted to Curlewis
J to enable him to hear the evidence and, having
done so, to come to a fresh decision; or, preferably, that a trial de
novo
be ordered. Respondents' counsel supported the Judge's ruling.
(2) The quantum of damages. Appellants' counsel submitted that the general
damages awarded to each of the respondents was excessive.
As regards special
damages, appellants' counsel initially (ie
29 in their heads of argument) put in issue whether any actual loss was proved
to have been
caused
by the defamatory article. In oral argument, however,
Mr
Shaw
, who led for the appellants on appeal, conceded that respondents
had probably suffered actual loss because of the article, but contended
that
respondents had failed to establish the quantum of such loss. This was disputed
by respondents' counsel who supported the awards
of the trial Judge.
(3) The applicability of the regulations framed in terms of sec 15 of the Trade
Practices Act 76 of 1976. It was the contention of
the appellants that in terms
of these regulations the business conducted by the respondents constituted a
"pyramid selling scheme";
that as a result certain of their income, at least,
was earned in
30
contravention of the regulations; and that they were not entitled in law to
recover damages which would in effect compensate them
for the loss of unlawful
earnings. Respondents denied that the business conducted by them constituted a
pyramid selling scheme or
that it contravened the regulations in any
way.
(4) The award of attorney client costs.
Appellants
contended that in awarding costs ón this scalé the
trial Judge had wrongly exercised his discretion and that costs on a
party-and-party basis ought.to have been awarded. Respondents
supported the
award
I shall deal with each of these matters in
turn.
The Ruling on the Evidence
In their
particulars of claim (paras 21 and 22) the respondents (and Miss Forman) set
forth in detail
31 those averments in the article concerning them which they
alleged to be defamatory. In doing so they paraphrased the relevant passages
to
point to the sting of the defamation. In dealing with defamatory material
pertinent to first and second respondents, the pleader
highlighted the averments
that the business was conducted on the lines of a cult, with Miss Forman being
portrayed as a godlike figure;
that participants or trainees in the beauty
consultants and management schools were brainwashed, manipulated and exploited
and that
the courses relied on physical abuse, psychological torment and sexual
confrontation; that the name and sanctity of the Almighty
were exploited and
defiled; that trainees were recruited by dishonestly misleading them, by
improper pressure and by confidence tricks;
that first respondent was dishonest
in its professed concern for the well-being of trainees; that first respondent
conducted its
business "close to the wind"
32
by exploiting loopholes in existing legislation; and that
references to Mary Kay and William Penn Patrick implied that the aspects
of
their business criticized in the article applied to, or were the inspiration of,
respondents' businesses. In addition, an innuendo,
or perhaps quasi-innuendo,
was pleaded with reference to the suggestion that the business was a pyramid
selling operation, which
was in the nature of a confidence trick and would in
the end collapse and result in participants losing their money, as had happened
in the case of the so-called "Kubus scheme".
In their plea (para 9(a) ) the appellants gave their version of what the
article meant. They stated that it would be understood by
a reasonable reader to
mean that -
"(i) The business with which the first plaintiff was associated had features
which were similar to those of the 'pyramid selling schemes'
which had been
33
made the subject of control in terms of the Trade Practices Act 1976, and the
features of the business included the following
(aa) a participant who recruited another person into the business received a
percentage of the price of products sold by that person;
(bb) participants in the business were encouraged to recruit other
participants.
(ii) It was a matter of mathematical logic
that all
participants in such a scheme
could not in practice continue to
recruit
other participants indefinitely.
(iii) The operation of the business had
been
structured in such a manner as to avoid
the provisions of one or more of the controls on 'pyramid selling schemes'
which had been imposed in terms of the Trade Practices
Act, but in substance it
was still such a scheme insofar as it incorporated the features referred to in
(i) above. (iv) Participants
and potential participants in the business are
diverted from applying their minds to the true
34
structure of the business by conditioning
purporting to have a spiritual and theological foundation. (v) The business is
in fact a
materialistic operation, the true nature of which is obscured by a
philosophy purporting to be based upon a theological foundation
and by the
personality of the first plaintiff, and is accordingly deceptive and misleading
and in this respect is conducted on lines
similar to that pf the business
conducted by Mary Kay Ash. (vi) Unwary participants in the business
are
misled and exploited to the benefit of the plaintiffs. (vii) The first
plaintiff attributes her success to her faith, and participants
in training
courses associated with her business are encouraged to accept that her
philosophy and teaching are based upon fundamental
truths revealed in the
scriptures. (viii) The first plaintiff is held out as having insight into divine
revelation. (ix) The structure
upon which the business was based was inspired by
William Penn
35
Patrick, and modelled upon the business operated by him."
The appellants further admitted that the meanings given in sub-paras (iv),
(v) and (vi) were defamatory of the respondents, but pleáded
that in
these respects the article was true and for the public benefit or,
alternatively, constituted fair comment on a matter of
public interest (para 9
(b) ) . As to the meanings in the other six sub-paragraphs, it was in the first
place denied that they were
defamatory; and then, alternatively, it was pleaded
that if these meanings were defamatory, they were true and published for the
public benefit or, alternatively, constituted fair comment on a matter of public
interest (para 9(c) ). Otherwise the relevant averments
in the particulars of
claim were denied (para 9(d) ).
It will be evident from a comparison of my summary of the averments in the
particulars of claim concerning the
36
defamatory material with para 9 (a) ( i) - (ix) of the plea
that there is a wide gulf between the respective interpretations placed
by the
parties on the defamatory article. In giving further particulars to the plea and
further particulars for trial appellants
appeared to narrow down the ambit of
the plea, particularly sub-paras (iv), (v) and (vi), and thus to widen the
gulf.
In his opening address Mr
Kuper
, who led for the respondents both at
the trial and on appeal, submitted that the defamatory meanings pleaded in para
9(a)(iv), (v)
and (vi), which appellants proposed to justify, were so far
removed from the actual sting of the article that appellants were not
entitled
to lead evidence in justification thereof and indicated that he would at the
appropriate time object to such evidence. Later,
while evidence was being
presented on behalf of the appellants, their counsel indicated that the next
witnesses would be persons
who had
37
attended various courses run by second respondent and that
their evidence would be relevant to para 9(a)(iv), (v) and (vi) of the
plea in
that they would depose to what had happened on the courses. In view of
respondents' attitude, as indicated by Mr
Kuper
in his opening, the Court
was asked to give a ruling on the issue.
In doing so Curlewis J held that the public would not understand the article
to mean what was set out in para 9(a)(iv), (v) and (vi)
of the plea and that
theevidence was accordingly irrelevant to the plea of justification and on that
ground inadmissible. It was
argued by appellants' counsel, in the alternative,
that the evidence was relevant and admissible as partial justification of the
defamation and, therefore, in mitigation of the damages to be awarded. The
learned Judge rejected this contention, seemingly for
two reasons: (i) that
where a defendant in a defamation suit pleads a meaning which is not a meaning
which the
38
public would attach to the defamatory statement, evidence to
justify that meaning is irrelevant not only to justification but also
to partial
justification; and (ii) that partial justification in reduction of damages has
to be specifically pleaded. (This need
to plead partial justification had
virtually been conceded by appellants' counsel in argument.) He consequently
ruled that on the
pleadings as they stood no evidence could be led to establish
the averments in para 9(a)(iv), (v) or (vi) of the plea.
After a short adjournment appellants' counsel made application for an
appropriate amendment of the plea in order to allege the substance
of para
9(a)(iv), (v) and (vi) in mitigation of damages. In a supporting affidavit it
was stated that there were twelve witnesses
whom appellants wished to call on
this issue, if the amendment were granted. The application was opposed by the
respondents. The
Court refused the application with costs. In the result
39
appellants were precluded from adducing this evidence.
I understood Mr
Shaw
, in oral argument before us, to concede that the
defamation went much further than the very limited meanings attributed to it in
para 9(a) of the plea. Consequently, evidence in support of plea 9(a),would not
sustain a defence of justification. As Innes CJ remarked
in
Sutter v
Brown
1926 AD 155
, at 169:
" the justification to be effective must
be as broad as the slander...."
In this
respect, therefore, the ruling of the trial Judge, which related specifically to
sub-paras (iv), (v) and (vi), was unquestionably
correct. Mr
Shaw
argued,
however, that though these sub-paragraphs and the proposed evidence in support
thereof would not amount to justification,
they were relevant to the quantum of
damages on the basis of the so-called "partial justification" principle.
40
This principle is referred to in the case of
Sutter v
Brown
,
supra
. In that case Sutter, an hotel proprietor in Warmbaths,
Transvaal, published of the manager of a rival establishment in the town
the
following defamatory statement: "Brown is nothing but a damned illicit liquor
seller". In the action for defamation which ensued
Brown (the plaintiff)
assigned to these words the meaning that he had committed the crime of selling
liquor to coloured persons against
the law. The defendant (Sutter) pleaded,
inter alia
, that the words merely meant that the plaintiff had sold
liquor contrary to the terms or outside the provisions of his hotel liquor
licence and that thus understood the words were true and their publication for
the public benefit. The trial Court found that the
meaning assigned to the words
by the plaintiff was the correct one and that this meaning was more harmful to
the reputation of the
plaintiff than the meaning pleaded by the defendant.
41 The plea of justification accordingly failed and damages were awarded
to the plaintiff. In assessing the damages the trial Judge
took into account
evidence adduced by defendant in support of his unsuccessful plea of
justification to the effect that plaintiff
had on several occasions sold liquor
in breach of the conditions of his licence. On appeal it was argued that the
trial Judge had
erred in so doing. The argument was rejected by this Court. Said
Innes CJ (at p 172):
"Here evidence which could not be objected to was led in support of a plea which
justified
the slanderous language in the sense in which appellant contended that ithad
been used. He failed in his contention. as to the interpretation
of the words;
but the facts adduced which established justification in the less harmful sense
should clearly be taken into account
in mitigation of
damages."
(See also
Williams v
Shaw
(1884) 4 EDC 105
, at 163; cf
42
Leibenguth v Van Straaten
1910 TS 1203
, at 1208,
1210-11; and as to the English law on the topic, see
Gatley on Libel and
Slander
, 8th ed, par 357;
Duncan & Neill on Defamation
, 2nd ed, p
52-3).
In his final judgment on the merits the learned trial Judge stated his
reasons for refusing the amendment. These may be summarized
as follows: the late
stage of the application for amendment and the lack of an acceptable
explanation; the prejudice to respondents
resulting from the inevitable
postponement of the matter ("plaintiffs are entitled.... in a defamation action
particularly to have
the matter speedily resolved"); the issues raised by the
amendment could cause the matter to "drag on"; the facts stated in the proposed
amendment would not "persuade any reasonable man to reduce the damages claimed
for reasons of moral disapproval of the plaintiffs
or because there was any
43
possibility that those facts contributed to those damages as
claimed".
The correctness of the trial Judge's refusal of the amendment may be open to
debate. Although the decision whether to grant or refuse
an application to amend
a pleading rests in the discretion of the court, this discretion must be
exercised with due regard to certain
basic principles. These principles are well
summed up in the judgment of Caney J in
Trans-Drakensberg Bank Ltd-(Under
Judicial Management) v Combined Engineering (Pty) Ltd and Another
1967 (3)
SA 632
(D), at 640 H - 641 C. In portion of the passage referred to Caney J
states (at 641 A) -
"Having already made his case in his pleading, if he wishes to change or add to
this, he must explain the reason and show
prima facie
that he has
something deserving of consideration, a triable issue; he cannot be allowed to
harass his opponent by an amendment which
has no foundation.
He
44
cannot place on the record an issue for which he has no supporting evidence,
where evidence is required, or, save perhaps in exceptional
circumstances,
introduce an amendment which would make the pleading
excipiable".
With this should be read
the remarks of De Villiers JP in
Krogman v Van Reenen
1926 OPD 191
, at
195 -
"....he must show, for instance, that the matter involved in the amendment is
óf sufficient importance to justify him in putting
the Court and the
other party to the manifold inconveniences of a
postponement..."
It should further be
noted that in the
Trans-Drakensberg Bank
case,
supra
, it was held
that-mere delay in bringing forward an amendment is no ground for refusing it
(see p 642
H).
It seems to me that the most cogent reason advanced by the trial Judge for
refusing the amendment was that the facts stated in the
proposed amendment,
if
45
substantiated by evidence, could not possibly affect the
quantum of damages. If this is correct, then it is arguable that the amendment
did not raise a "triable issue" or was not a matter of "sufficient importance"
to justify the inconveniences résulting from
an amendment.
Assuming, however, in favour of the appellants that the trial Judge erred in
refusing the amendment (and thereby excluding the evidence
which the appellants
proposed to lead), the question arises as to whether this refusal" warrants the
setting aside of the judgment
and a referral back. Upon this assumption. the
Court a
quo
committed an irregularity. This would entitle the appellants
to have the proceedings set aside unless this Court is satisfied that
the
irregularity did not prejudice the appellants (see
Jockey Club of South
Africa and Others v Feldman
1942 AD 340
, at 359). The onus to so satisfy the
Court is on the respondents (see
Le Roux and Another v Grigg-Spall
1946
AD
46
244, at 254). The enquiry is thus whether prejudice was suffered by the
appellants.
In this connection it is instructive to look at what, according to the heads
of argument of appellants' counsel, the proposed evidence
would have embraced.
There-in it is stated (in para 6.8) that a number of persons who attended one or
other of the courses offered
by second res-pondent would have been called as
witnesses in order to establish
" (i) that the real nature and structure of the business was as set out in
para-graph 6.4(i) above (viz 'a materia-listic operation'
with the structure of
a 'pyramid selling scheme', in which participants could not be re-cruited
'indefinitely'). This was to be established
from the course manuals distributed
at the schools and the lectures delivered;
(ii) that in the course of the training offered by the Plaintiffs,
participants were in fact diverted from a proper analysis of the
47
business by being subjected to conditioning purporting to have a
philosophical or theological basis and that the true structure of
the business
was obscured. There was to be the evidence of a number of witnesses who would
have told the court how in the course
of their instruction:
(a) they were influenced to
believe that their success
depended
entirely on
themselves and their faith;
(b) that they were told to seek
their guidance only from
successful
people, who were
identified as the achievers in
the Reeva organisation,
and
not outsiders;
(c) it was demonstrated to them
theoretically that virtually
any amount
of money was within
their reach if they accepted
what was being taught to
them;
(d) they were influenced to
believe that it was sinful to
be poor;
48
(e) induced by this, they were
ehcouraged to invest money
in
the organisation and if
necessary take out loans to do
so, on the
principle that they
had to give if they wanted to
receive;
(f) at no stage were they told
that in reality substantial
numbers of
people earned
nothing or very little, and
that the logical extension
of
the principles, which they
were being taught would bring
them great reward, was that
there would be more and more
people all trying to do the
same thing;
(iii) that people who attended such courses had in fact been induced to part
with money and had thereby been exploited."
This must be compared with the substance - the real stings -in the defamatory
article, as I have analysed it above. Practically all
the matters ref erred to
in para 6.8 of
49 counsels' heads are of a non-defamatory, indeed innocuous,
nature. Take, for example, par (ii)(a): that trainees were influenced
to believe
that their success depended entirely on themselves and their faith. To say that
this happened on training courses is certainly
not defamatory of either of the
respondents and consequently evidence aimed at establishing the truth of the
averment would have
been absolutely pointless. Possibly there is some defamatory
sting in the statement that trainees had been induced to part with money
and had
thereby been exploited. The statement is vague. The word "exploited" has a
pejorative ring to it, but without more detail
it is difficult to assess the
significance of the averment. In any event, it pales into insignificance when
set against the background
of the actual defamation relating to the courses -
the brainwashing, manipulation and exploitation of trainees and the reliance on
physical abuse, psychological torment and
50
sexual confrontation - and all the other defamatory statements
contained in the article. Accordingly, I am satisfied that the evidence
which
appellants proposed to lead in partial justification would have had no
significant influence on the quantum of damages awarded;
and that consequently
appellants suffered no prejudice from being prevented from leading this
evidence. (Cf.
Sutter v Brown
,
supra
, at 170-1.) Appellants'
argument that the judgment must be set aside and the case remitted accordingly
fails.
The Quantum of Damages
I shall deal first with the question of special damages. The evidence adduced
by respondents with regard thereto fell broadly into
two categories: (1) the
testimony of six saleswomen who marketed first respondent's products over the
relevant period and who deposed
to the alleged effect of the defamatory article
on their sales and their
51 ability to attract new recruits; and (2) evidence
as to the financial performance of the respondents before and after the
publication
of the article, and an analysis thereof with a view to showing a
decline in profits attributable to such publication. In the light
of Mr
Shaw
's concession (which incidentally was rightly made) that the
publication did cause some actual (but, according to him, unproven) loss
to
respondents, the evidence of the six saleswomen loses much of its importance and
I shall concentrate mainly on the. guestion as
to whether the other evidence
adduced established the alleged loss of profits and was sufficient for this loss
to be guantified.
In doing so I shall commence with the claim by first
respondent.
In order to demonstrate the loss, and the guantum thereof, suffered by first
respondent evidence was given of the sales (net of discounts)
achieved by first
respondênt over the period July 1981 to December 1986. The relevant
52
figures were extracted from first respondent's books of account, verified and
when necessary adjusted. Their correctness is not
in dispute. These figures
(given on an annual, half-yearly and a quarterly basis) showed a steady annual
growth in sales up to June
1985. Using the year July 1981 to June 1982 as the
base year, respondents' expert witnesses determined an average annual growth
rate
up to June 1985 (ie over a period of 3 years) of ± 41%. During the
first quarter after June 1985 there was a material slowdown
in the growth-rate
and in the ensuing three quarters there was an unprecedented "negative growth",
ie an actual decline in sales
as compared with the corresponding periods of the
previous year; and during the last two quarters of 1986 (and during the first
two
guarters of 1987) there was a partial recovery. To quantify the alleged loss
respondents' experts extrapolated hypothetical sales
for the period July 1985 to
December 1986 on the supposition that an
53
annual growth rate of 41 % would have been maintained over
that period. From this figure they deducted the actual sales over this
period in
order to determine lost sales. From the figure for lost sales they deducted the
estimated cost of such sales and other
expenses so as to arrive at the lost
profit. The calculation, in summary, gave the following result:
Total extrapolated sales
July 1985 to December 1986 R10 911 815
Actual sales for the same
period
6 474 456
Lost sales 4 437 359
Less
cost of lost sales and
other expenses
2 357 665
Lost profit R2 079 694
And accordingly R2 079 694
represented the amount of the
claim for special damages. These calculations
and the
figure for the cost of lost sales and other expenses are not
in dispute.
54
In respect of this claim the trial Judge awarded, as I have
indicated, an amount of R1 800 000. His reasons for not accepting in its
entiréty the figure put forward by first respondent were, it would seem,
a feeling that the "optimistic prognostications"
of hypothetical sales made by
first respondent's expert witnesses might not have been realised ("... there are
slips between the
cup and the lip"); and the fact that in years when there was
no overseas convention (as in the case of 1986) real growth tended to
drop. On
the other hand, there is no indication in the judgment as to how or on what
basis the learned Judge arrived at the figure
of Rl 800 000. Presumably it was
an estimate based upon the general parameters provided by the figures put
forward by first respondent.
It was submitted on behalf of the appellants that the calculation by
respondents' expert witnesses and the trial Court's computation
of damages
failed to take account
55
of four factors and were consequently flawed. These were:-
(a) . the Rio incentive scheme;
(b) the economic recession during 1985 and 1986;
(c) price increases in October 1985; and
(d) a change in advertising policy.
I do not propose to say much
about (c) and (d). The evidence shows that first respondent raised the price of
its products in October-
each year. In October 1985 the increase was 24,4%
overall. This was substantially higher than the increases in previous and
subsequent
years. (In 1984 the increase was 18,9% and in 1986 18,6%.) It was
suggested that this unusual increase in 1985 might have caused
the slump in
first respondent's sales after June 1985. There is nothing to support the
suggestion (indeed it hardly explains reduced
growth between June and October
1985) and Mr
Shaw
did not rely upon this factor in oral
56
argument.
A change in advertising policy, as a cause of retarded growth, was a theory
advanced by one of appellants' experts, Prof C G Robinson.
His evidence on the
point was, in my view, not convincing and again no reliance was placed on this
factor by Mr
Shaw
. It may be disregarded.
As to (a), I have already
referred to the Rio trip. The incentive provided by the very successful
competition to qualify for this
trip gave sales and recruitment prior to the
closing date in March 1985 a tremendous boost, especially in the first quarter
of 1985.
During this quarter sales showed an increase of 94% over the
corresponding quarter in 1984 and 1 100 new saleswomen were recruited,
as
compared with 1 684 recruits in the six months ending December 1984 and 1 477 in
the first six months of 1984. Furthermore, as
pointed out by Mr Stride, one of
respondents' experts, sales for the year ending March 1985
57
(during which period the competition was in progress)
showed
an abnormal 52% increase over the sales for the year ending March
1984.
On behalf of appellants it was submitted that it was fallacious to include
the growth in this abnormal year in the figures used to
obtain the average of
41% and then to use that average to extrapolate over the next 18 months. The Rio
competition not only distorted
the figures for average annual growth, but also
caused a natural slump after the end of March 1985, which would have occurred
whether
or not the article had been published: once the Rio incentive had been
removed there would inevitably have been a falling off in
the momentum of
recruiting and sales.
There is some substance in these arguments, but I do not think that they have
great practical effect. One cannot entirely ignore the
effect of the Rio trip:
as I have shown, such incentives were part of first respondent's
58
modus operandi
. From the figures placed on record it
would
seem that the distorting effect of the Rio competition was
really
confined to the first quarter of 1985, which showed
this abnormal growth rate
of 94%. The growth rates of the
previous three quarters, viz. 46%, 48% and
26% (average:
40%) are not out of the ordinary. If one were to take
this
average of 40% and project it into the first quarter of 1985
then it
would seem to have the following effect on the
average growth rate based on
the quarterly figures from July
1982 to June 1985:
Average growth rate (including 94,16%
for first quarter 1985): 43,7%
Average growth rate (including 40%
for first quarter 1985): 39,2%
And coincidentally it
was common cause between the expert
witnesses at the trial that the average
annual growth rate
for the three years up to March 1984 (which thus
excludes
the year affected by the Rio competition) was 39%.
The actual growth rate used by respondents'
59
experts in calculating the claim was 41,47%. Recalculating the
claim on the basis of a 39% growth rate would seem to yield a total
extrapolated
sales figure for July 1985 to December 1986 of R10 643 748, which is R268 067
less than that arrived at using a growth
rate of 41 ,47%. In order to determine
the effect of such a reduction in total sales upon the calculation for loss of
profit the
figure for cost of sales and other expenses would also have
to be
adjusted, but bearing in mind the various
imponderables in any such
computation of damages I do not think that this figure of R268 067, which
incidentally is slightly less
than the difference between first respondent's
claim and the trial Judge's award, is very significant.
I come now to the question of the recession. According to Prof Robinson there
was a "downturn" in the South African economy, starting
in the third quarter of
1984 and continuing through until the third quarter of 1986. It
60 was
brought about by a tightening of monetary policy by the Government in response
to what was regarded as an "overheated" economy.
During this downturn retail
sales in all three primary categories of consumer goods, ie durable goods,
semi-durable goods and non-durable
goods (which would include cosmetics)
declined substantially. Prof Robinson roughly estimated the overall decline over
the two years
in real terms as 12% and in monetary terms (taking into account
inflation) as 48%. There was, in Prof Robinson's words, "a major
change in the
South African economy". Moreover, the recession differed from previous downturns
in that for the first time since the
1960's it caused a drop in the retail sales
of
non-durable
goods. This evidence, substantiated as it was by reference
to authoritative statistical data, was not seriously in dispute.
At the trial appellants sought to use the
61 recession as one of the factors which, to the exclusion of the defamatory
article, caused the decline in first respondent's business
after June 1985. This
contention is untenable and, as I have indicated, was not persisted in on
appeal. What was argued cm appeal,
however, was that the trial Judge ought to
have taken the recession into account, as a substantial factor, in the
quantification
of first respondent's loss.
It is clear from his judgment that Curlewis J rejected the recession as even
a material factor in the decline of first respondent's
growth rate. He did so
partly because the saleswomen who gave evidence stated that the recession did
not affect their sales; and
partly because of the general contention that the
recession did not affect direct selling businesses, like that of first
respondent.
With respect, I do not find the evidence of
the
62
saleswomen on this point very cogent. Mrs Lombard, so far as I
can ascertain, was not asked about the recession. Mrs Hewson preferred
not to
express any view about the recession. Mrs Fowler was not aware that there had
been a recession in 1985. Mrs James was "not
very much concerned with the
economy"; she noticed that interest rates went up, but did not notice that sales
"were vastly reduced";
everyone seemed "to spend money like water". Mrs Le Roux
did not consider that a recession made it more difficult to sell first
respondent's
products. Mrs Boyd-White also rejected the suggestion that a
recession caused sales to drop, but neither she nor Mrs Le Roux was
able to
rationalize her replies effectively. Both deposed to reduced sales and
recruitment after June 1985, but ascribed this to
the article. They do not
appear to have adverted to the possibility of the negative effect of the
article
63
having been aggravated by the recession or
vice versa
;
and, even if they had done so, I doubt whether they would really have been in a
position to give worthwhile evidence on the topic.
In order to determine whether, unlike other retail enterprises,
direct-selling businesses were unaffected by the recession reference
was made in
the evidence to the experience of certain other direct-selling companies. The
evidence relating to two of these, Housewares
Limited and a company referred to
in the evidence as Springtex, is not particularly relevant. Housewares Ltd
markets crockery and
glassware; Springtex pots and pans. On the other hand, the
experience of two others, Avroy Shlain Cosmetics (Pty) Ltd ("Avroy" )
and
Justine (Pty) Ltd ("Justine"), both involved almost exclusively in the marketing
of cosmetics and first respondent's major competitors,
is very relevant.
64
Prof Robinson was forced to concede, for reasons that need not
be detailed, that the information about Justine, however, was not helpful.
It
may conseguently be disregarded.
With reference to Avroy there were placed before the Court its guarterly
turnover figures in regard to cosmetics for the calendar
years 1982 and 1983 and
its monthly turnover figures for the calendar years 1984 to 1986 inclusive (see
exhibits S31 to 535). These
figures are inclusive of trade discounts allowed and
conseguently for the purpose of comparing them directly with first respondent's
figures (which are net of discounts) they had to be adjusted. This was done as
regards annual figures and the results were incorporated
in an exhibit (S51).
The gross figures in exhibits S31 to S35 can, nevertheless, be used to
demonstrate how by its own standards
Avroy fared
65
during the years under consideration. To do so I have
drawn
up the following tables reflecting annual and half-
yearly turnovers and
growth rates (in the cosmetic side of
the business only) on lines similar to
those appearing in
paras 2 and 3 of Mr Stride's summary of expert opinions
in
respect of first respondent. These tables are merely a
matter of
mathematical calculation from the figures provided
by exhibits S31 to
S35.
Annual turnover
(in rands):
1982 1983
1984
1985 1986
6 894 328 9 989 424 12 984 357 13 943 549 17 118 677
Annual growth (year on year)
:
1982/83 1983/84
1984/85
.
1985/86
44,9% 30% . .. 7,4% 22,8%
Half-yearly turnover
(in
rands):
To
1982 1983 1984 1985 1986
June 2 923 245 3 966 754 6 537 295 6 808
751 7 571 274 Dec 3 971 083 6 022 670 6 447 062 7 134 798 9 547 403
66
Half-yearly growth
(Year on year)
:
To
1982/83
1983/84
1984/85
1985/86
June
35,7% 64,8% 4,2% 11,2%
Dec 51,7% 7% 10,7% 33,8%
Exhibit S51 which reflects the "corrected figures" (ie less trade discounts)
for Avroy gives the following annual growth rates for
the company:
1982/83 1983/84 1984/85 1985/86
42,9% 32,6% 3,5% 29,7%
These tables (as also the figures shown in S51) indicate that in the second
half of 1984 there was a sudden drastic decline in Avroy's
growth rate and that
this persisted until the second half of 1986. This more
67
or less corresponds with the period of the economic downturn.
And in Prof Robinson's opinion there was a very strong correspondence
between
Avroy's túrnover figures and the downturn in the economy.
It is true that Avroy represents only one other direct-selling cosmetics
company, but it is an important one, showing an annual turnover
substantially
greater than that of first respondent. And it appears that there were no
statistics available for direct-selling cosmetics
companies as a group. It is
possible that the dip in Avroy's growth rate was caused by some factor other
than the recession, but
none was suggested; and the correspondence between this
dip and the period of the recession seems, on the face of it, to be more
than
coincidental.
The trial Judge took the view that no inferences favouring appellants' case
could be drawn from a comparison
68
between first respondent and Avroy. He emphasized that they
acted "in a quite different fashion both before the article and after
the
article". And in this connection he pointed to the facts that (as shown in
exhibit S51) in 1984 Avroy showed a decline in growth
(compared with 1983),
whereas first respondent's growth figures for these years showed an increase;
and that in 1986 Avroy showed
a healthy growth increase, whereas first
respondent did not.
I must point out that these remarks were made with reference to the thesis
then being put forward by appellants that the recession,
and not the article,
was the cause of the decline in first respondent's turnover. And certainly in
this context first respondent's
failure to recover in 1986, contrasted with
Avroy's recovery in that year, is a valid point. But the learned Judge does not
appear
to have considered the significance of the evidence concerning Avroy's
turnover during the recession as an indication that
69
direct-selling companies marketing cosmetics were affected by
the recession and that, therefore, the recession probably aggravated
the effects
of the defamatory article.
With regard to the learned Judge's observation that in 1984 Avroy had a
decline in growth, whereas first respondent experienced the
converse, there are
two points to be made. Firstly, as the tables which I have compiled in regard to
Avroy show, this decline commenced
in the second half of 1984 (which more or
less coincided with the onset of the recession); the first half of the year
showed very
healthy growth. Secondly, while it is true that in 1984 first
respondent enjoyed a growth of 35% over 1983 and that this was carried
over into
the first guarter of 1984, this movement against the recessionary trend may well
have been due to the Rio competition,
which as we know had a powerful disturbing
effect upon the figures.
A further point which seems to me to have some
70
relevance in this connection is the relatively poor turnover
achieved by first respondent in the guarter ending June 1985, ie immediately
after the Rio competition closed. The growth figure, as compared with the
corresponding period in 1984, of 23,66% was well below
the average of 41% (or
39%, whichever figure one takes) and indeed the sales for June 1985 were
actually
less
than those for June 1984, resulting in negative growth for
that month (see exhibit 05). This
was never satisfactorily explained by
respondents' witnesses
and would seem to point to the onset of a measure of
decline prior to, and therefore unconnected with, the publication of the
article.
The onus was upon the f irst respondent to establish the special damages
claimed by it. It sought to do so by projecting its average
turnover for the
previous three years into the period of 18 months after the publication of the
defamatory article and by asking
the
71 Court to infer that the difference
between the extrapolated figure thus obtained and its actual turnover during the
period represented
loss of business due to the article. This process of
reasoning is valid provided that the general circumstances pertaining to the
conduct and success of the business remained broadly the same during the
18-month period as they had been prior thereto. In that
event, in the absence of
other possible causes, the inference may be
drawn. But in this case it is
common cause that
circumstances did not remain static. For part, at any rate,
of that period there was a severe economic recesslon, which
prima facie
appears to have had a sharply adverse effect on the business of one of first
respondent's main competitors. This recession as a possible
contributory cause
cannot be ignored. And in my view the onus was upon first respondent to show
that the recession did not in any
way contribute to the loss apparently
indicated by the drop
72
in turnover. (Cf
International Tobacco Co (SA) Ltd v United
Tobacco Co (South) Ltd (1)
1955 (2) SA 1
(W), at 19
A-G). In other words,
the onus was upon the first respondent to show as a matter of probability that
but for the defamation its turnover
for the 18 months would have been as high as
the extrapolated figure. It could do so only if the recession would not have
affected
its business during the period in question. In my view, first
respondent failed to discharge this onus. It follows that in dismissing
the
recession as being of any relevance the trial Court erred. In the circumstances
the question of the quantum of first respondent's
special damages must be
considered afresh.
It was argued by Mr
Shaw
that because first respondent had not
quantified the likely effect of the recession upon first respondent's turnover
during the 18
months, it had altogether failed to prove its special
73
damages. I do not agree. It has not been suggested that there
is other evidence on the point which first respondent should reasonably
have
placed before the Court. In my view, this is the type of case where the Court
must do the best it can on the material available
(cf.
Esso Standard SA (Pty)
Ltd v Katz
1981 (1) SA 964
(A), at 969 H - 970 H and the cases there cited).
And in the nature of tnings the Court's assessment of the loss here cannot be
more
than a rough estimate.
In order to provide some basis for this estimate I have worked on the
postulate that even if the defamatory article had not been published,
on the
probabilities the recession would have retarded first respondent's growth rate
to the extent that in the period July 1985
to June 1986 it would have been 20%
and in the period July to December 1986, 35%. I do not think that this postulate
does injustice
to either side. A recalculation of first
74 respondent's loss
of profit using the method set forth in Mr Stride's expert summary in accordance
with these growth rates yields
the following:
Total expected sales
To June 1986: R4 517 624 +
20% R5 421 149
To Dec 1986: R5 421 149 + 35% (6
months)
3
659
275
R9 080 424
Actual
sales
6
474
456
Lost Sales
R2 605 968
Less
Cost of lost sales (40%) Rl 042 387
Railage (1,1%) 28 665
Manager commission (2,3%) 59 937 Distributor commission
(6,26%) 163 134
Convention 60 000
1 354 113
Lost Profit
Rl 251
855
It was argued on first respondent's behalf that even if the recession ought
to have been taken into account whatever effect it might
have had would be
counter-balanced
75
by what were termed the various "buffers or margins" built
into its computation of the special damages. It was said that the most
significant of these was the cut-off date of December 1986, there being "no
doubt" that first respondent continued to suffer "very
considerable loss"
thereafter. I am not convinced that such loss after December 1986 was
established. In fact, Stride stated in evidence
that in calculating first
respondent's loss he deliberately chose December 1986 as the cut-off point
because that was within three
months of the closing of the competition for the
Israeli conference, which would have had distorting effects similar to those
caused
by the Rio conference. But in any event, first respondent chose to limit
its claim for special damages in this way and consequently
I do not think that
it is open to it to advance this argument.
In all the circumstances I am of the view that an award to first respondent
of special damages in the sum of
76 Rl 200
000 would meet the justice of the
case.
I turn now to the award to first respondent of R250 000 as general damages.
This, it is to be noted, is the amount which first respondent
claimed under this
head. Mr Stride estimated the goodwill attaching to first respondent's
undertaking as at February 1985 in the
sum of R2m. Seen against that figure the
award does not appear to be excessive. On the other hand, in the case of a
trading corporation
such general damages are intended as compensation for injury
to trade reputation. The injury to trade reputation would normally be
reflected
to a large extent in a reduced volume of business and lower profits. But injury
by way of loss of profits is catered for
by an award of special damages. I
recognize that there is room in a case such as this for claims for both special
and general damages
- indeed the contrary was not argued by appellants' counsel
- but it cannot be denied that
77 notionally there is a measure of
overlapping between the two claims; and I consider that this is a factor which
must be taken into
account in computing the general damages in this case. It is
not clear to me that the trial Judge did so.
The defamation was undoubtedly a very serious one. Here I would emphasize (i)
the cult and divine inspiration themes; (ii) the allegations
or insinuations of
brainwashing, manipulation and exploitation of trainees on courses and the
concomitant physical abuse, psychological
torment and sexual confrontation;
(iii) the suggestions of illegality with reference to the business conducted by
fifst respondent
and the Kubus "smear"; (iv) the alleged misleading of recruits,
improper pressure, confidence tricks etc; and (v) the emphasis upon
hard luck
stories of saleswomen who had "invested" what were for them large sums of money
for little or no return. The allegations
concerning the courses involve second
respondent directly,
78
but also first respondent indirectly, as it is calculated to
have an adverse effect on recruiting generally. Both respondents are
particularly sensitive to public opinion and, therefore, very vulnerable to this
kind of defamation. There are also certain aggravating
factors. These, however,
were relied upon by the trial Judge in deciding to make a special order as to
costs, viz. costs on the scale
as between attorney and client. It would not be
equitable to rely upon the same factors to inflate the award of damages.
The award of R250 000 for general damages for defamation is, so far as I
ám aware, far higher than any other award made by
our courts. It is true
that in making comparisons with past awards allowance must be made for the
erosive effect of inflation, but
nevertheless the figure is a very high one.
Defamatory statements concerning the way a trading corporation conducts its
business
can no doubt prove very damaging but, as I have shown, this is
largely
79
compensated for where special damages are awarded. And unlike
a natural person a trading corporation does not need a
solatium
for
wounded feelings, etc.
Having given the matter careful consideration, I am of the view that had I
been seized of this matter at first instance I would not
have have awarded more
than R150 000 for general damages. The disparity between that figure and the
amount awarded by the trial judge
is sufficient, in my view, to warrant
interference by this Court.
I now proceed to consider the award of damages to second respondent. As
indicated above, the claim was initially R75 000 as general
damages and R119 029
as special damages. The general basis of the claim for special damages was the
same as that adopted by first
respondent: a projection into the period after
June 1985 of the general trend of turnover prior thereto and a claim founded
upon
the
80
difference between that projection and the actual turnover
during that period. I do not propose to enter into the details of this
calculation becaúse, owing to the fact that second respondent's
accounting records proved "deficient and unreliable" (the
phrase used in
respondents' own heads of __ argument) it could not be used in computing second
respondent's special damages. The
learned trial Judge concluded - rightly in my
view - that second respondent did suffer actual loss of profits, but in view of
the
difficulties of guantification flowing from the defects in the company's
accounting records he awarded a lump sum of R75 000 to cover
both general and
special damage. I do not think that any good ground for interfering with this
award has been advanced.
To sum up the position in regard to damages, I am of the view that the award
to first respondent should be áltered by reducing
it to R150 000 general
damages and
81
R1 200 000 special damages; and that the award of R75 000 to
second respondent for both general and special damages should stand.
The Trade Practices Regulations
The regulations in question were
promulgated in Government Gazette No 6880 of 14 March 1980. They contain a long
and complex definition
of a "pyramid selling scheme" (reg 1) and various
prescriptions and prohibitions in regard to how such a scheme is to be operated.
For the regulations to have any relevance to the computation of damages in this
case it had to be shown (and in this respect it was
common cause that, at
lowest, a duty rested on appellants to adduce evidence in this regard) (a) that
the business operations carried
on by the respondents fell within the definition
of a "pyramid selling scheme", and (b) that in the manner of conducting their
business
82
operations respondents had breached the regulations.
Appellants did not lead any evidence in this regard, but relied upon the
testimony
of the six saleswomen called by respondents.
The definition of "pyramid selling scheme" appears to contemplate a trading
scheme relating to the provision of goods or services
and involving three
persons or groups of persons: (1) the person promoting the scheme (Afrikaans:
"die persoon wat die skema instel"),
referred to in the regulations as."the
promoter"; (2) a person to whom or for whom goods or services are to be
supplied, whom I shall
call "the consumer"; and (3) a person (other than the
promoter) who participates in the scheme and effects the transactions in terms
of which the consumer is supplied with goods or services (such a person being
designated in the regulations "a participant"). The
definition prescribes that
in order to constitute a pyramid selling scheme the trading
83
scheme in question must contain various elements. These
include -
(i) that the goods or services are to be provided by the promoter or under
arrangements to which he is a party (para (a) of the definition);
(ii) that the
goods or services are to be supplied "to or for" consumers under transactions
effected by a participant (para (b) );
and (iii) that the transactions, or most
of them, are to be effected elsewhere than at the premises at which the promoter
or the
participant effecting such transactions carries on business (para (c)
).
In regard to element (ii) appellants argued that the evidence showed that the
goods in question (first respondent's cosmetic products)
are supplied "to or
for" consumers by participants in that beauty advisers, beauty consultants and
distributors conclude transactions
with
84
consumers of the goods and that pursuant to these transactions
goods are supplied by first respondent
for
those consumers. This argument
is based on the premise that para (b) contemplates the supply of
goods
"to or for" consumers or the provision of
sérvices
"to or for"
consumers. The premise is, in my view, ill-founded. It is clear to me from a
consideration of the ordinary meaning of
the language used and its context that
what para (b) contemplates is the supply of goods to consumers and the supply of
services
for
consumers. Linguistically, it is more correct to speak of
supplying goods to consumers and , supplying services
for
consumers. And
in regard to context, para (d) of the definition contains the following:
"(iii) the supply of goods to other
participants;
(iv)
the supply of training facilities
or other services
for
other
participants;
(v) transactions effected by other
85
participants under which goods are to be supplied to, or
services are to be supplied
for
, other
persons;....."
(My emphasis.)
It is thus clear to me that in para (b) the word "to" relates to goods and
the word "for" to services; "to" and "for" do not relate
to both goods and
services. First respondent does not supply its goods to consumers: the
goods
are supplied to the beauty advisers, beauty
consultants and distributors (who may be regarded as "participants"), who in
turn supply to goods to consumers. This element in the
definition is, therefore,
not satisfied.
As to element (iii), the evidence does not, in my opinion, show, or even
suggest, that all the transactions, or most of them, are
effected elsewhere than
at the premises at which the promotor or the participant (ie the beauty adviser,
beauty consultant or distributor)
effecting the
86
transactions carries on business. The evidence establishes
that the transactions in terms of which first respondent sells its products
to
beauty advisers, etc are concluded at the offices of first respondent. And as
regards the transaction between the beauty adviser,
etc and the consumer, it has
not been shown that it is effected at any particular place, let alone wholly or
mostly elsewhere than
at the business premises of the beauty adviser, etc.
These two elements are consequently missing in the case of the business
undertaking carried on by the respondents and thus it is ndt
a "pyramid selling
scheme" as defined. The regulations do not apply and the argument based thereon
collapses. In view of this finding
it is not necessary to consider the further
argument of respondents' counsel, viz that even if the business undertaking did
constitute
a pyramid selling scheme, there had not been any breach of the
regulations.
87
Attorney and Client Costs
In deciding to award
respondents attorney and client costs the learned trial judge took into account
a number of factors. These may
be briefly referred to as
(1) The instigation by the appellants of certain newspaper reports concerning
the age of Miss Forman in May 1986.
(2) The manner in which the writer of the article (third appellant) and the
editor of Style (second appellant) published it, viz
recklessly and without
checking its truth and without giving Miss Forman an opportunity to respond - in
fact after having fobbed
off Miss'Forman's enquiries as to its contents.
(3) The ineffective and improper plea of
justification.
88
(4) The publication of the article in the absence of evidence of its truth.
(5) The role of the appellants in requesting the publication of an article in
The Sunday Star in June 1985.
The reluctance of a
court of appeal to interfere with the exercise by a trial judge of his
discretion in awarding costs is well-known.
In the present case the only ground
of attack upon the order was that the trial Judge misdirected himself in that
the evidence did
not establish factor (5) above.
The key piece of evidence in this connection is a computer print-out, which
was discovered and disclosed by . the appellants. The
evidence establishes that
the print-out emanates from the computer operated by The Star newspaper and that
the information contained
in the print-out was fed into the computer in about
June 1985 by a Mr
89
Brendon Nicholson, who at the time was news editor of The
Sunday Star. The print-out reads as follows:
"Counsel for Style have been granted an
adjournment to allow
them to present an
affidavit from a key witness (a disillusioned
former Reeva
employee).
They will send
you a complete set of
affidavits.
The lawyers
say they expect Reeva's counsel
will try to have proceedings delayed
until
Monday morning.
They say
it would help if we published our
Reeva story because it would help
Style's
lawyers prove that the material in the
magazine was álready widely
known.
Now that this key
witness has come to light
they have changed the in (sic) tactics and
have
deleted the last para of Mrs Quayle's
affidavit to avoid any risk of being
accused
of collusion (between us and
Style).
Now a Mr
Steinhower (from Style's legal team)
has phoned to "
It is not
in dispute that in terms of secs 3 and 4
90
of the Computer Evidence Act 57 of 1983 the print-out was
admissible "as evidence of any fact recorded in it of which direct oral
evidence
would be admissible" and that it has "the evidential weight which the court in
all the circumstances of the case attaches
to it".
The background facts are that for some time prior to the publication of the
Style article a Mrs Anne Quayle, a journalist working
on The Sunday Star, had
herself been engaged on investigating and "doing a story on" Miss Forman and her
business undertaking. She
wrote up the results of her investigation in the form
of an article and it was intended that it be published in The Sunday Star of
23
June 1985. Prior to this date Miss Forman was invited to comment on certain
allegations in the article and at her request it was
agreed that publication
would be deferred until 30 June 1985. This was the "our Reeva story" referred to
in the print-out.
91
As events turned out this story was anticipated by the Style
article, much to the annoyance of the editor of The Sunday Star. And
it seems
clear that the print-out relates to a communication to Mr Nicholson after the
interdict proceedings had been commenced and
while the appellants were in the
process of filihg opposing affidavits. These included an affidavit by Mrs
Quayle, which is also
referred to in the print-out.
It is respondents' contention that this print-out establishes
prima
facie
that lawyers then acting for appellants approached Mr Nicholson with a
view to persuading The Sunday Star to publish Mrs Quayle's
article to help prove
that the material in the Style article was "already widely known"; and that Mrs
Quayle's draft affidavit was
amended by the deletion of a paragraph in order to
avoid any risk of The Sunday Star and the publishers of Style being accused of
collusion.
92
There are two other pieces of evidence which are very
significant in this context. The first of these is a letter dated 27 June 1985
(exhibit JJ) from one of the firms of attorneys representing the appellants in
the Court a
quo
, Messrs Webber Wentzel & Co, addressed to the editor
of The Star and marked for the attention of Mr Tyson and Mr Nicholson. It
reads:
"Dear Sir,
REEVA FORMAN STORY
We enclose for your perusal a copy of the Supporting Affidavit, together with
the
relevant transcript in the above-mentioned matter.
We shall contact you early tomorrow morning to discuss with you any story which
The Star may wish to run in connection with this
matter.
If you have any queries, please contact Mr P Prinsloo of our
office."
93
It is accepted by appellants that this letter was signed by a
Miss P Stratten, a professional assistant in the employ of Webber Wentzel
&
Co. The supporting affidavit referred to in the letter is that of Mrs Quayle.
The second piece of evidence is that a comparison
between the copy of the
affidavit enclosed with the letter of 27 June 1985 (exhibit JJ) and the
affidavit as actually filed reveals
that in the latter the last paragraph
appearing in the former had been omitted. This appears to have a
direct-connection with what
is stated in the print-out.
Various members of the legal team which acted for appellants in the interdict
proceedings, advocates and attorneys, were called to
give evidence. They all
denied any complicity in, or knowledge of, the communication reflected in the
print-out or of any collusion
between appellants, or their legal advisers, and
The Sunday Star in regard to the "Reeva story".
94
Reading exhibit JJ and the print-out in conjunction with one
another, I find the inference virtually inescapable that the writer of
exhibit
JJ, evidently Miss Stratten, telephoned Mr Nicholson on 28 June 1985 and
communicated to him the information and suggestions
contained in the print-out.
Obviously the two key persons who could have given direct evidence on this issue
were Miss Stratten and
Mr Nicholson; but neither was called to do so. At the
time of the triaï Mr Nicholson was in Perth, Australia working on a
newspaper
there; and Miss Stratten was in London, working in the office there of
Messrs Shepstone and Wylie. There is no indication that any
attempt was made to
obtain their evidence.
In all the circumstances I consider that the learned trial Judge was fully
justified in coming to the conclusion that there had been
collusion along the
lines reflected in the print-out between an attorney acting on
95
behalf of the appellants and The Sunday Star newspaper. The
editor-in-chief of The Sunday Star, Mr H Tyson, agreed with counsel for
the
respondents that the request referred to in the print-out was a "disreputable"
one; and I do not think that the Court a
quo
can be said to have erred in
taking this factor into consideration when deciding to award attorney and client
costs. The appeal against
this portion of the order of the Court a
quo
accordingly fails.
Costs of Appeal
In the result the appeal succeeds to the extent that
the damages awarded to first respondent are reduced, in the case of general
damages,
from R250 000 to R150 000 and, in the case of special damages, from Rl
800 000 to R1 200 000. In all other respects the appeal fails.
Nevertheless,
although the reduction achieved in regard to first respondent's damages must be
accounted substantial
96
success
vis
-á-
vis
that party, I do not
think that appellants should be awarded all their costs of appeal. The issues
upon which they failed did not
occupy a very substantial portion of the appeal
record and consequently no special order in regard to the costs relating to the
record
is warranted. On the other hand the hearing of the appeal did take up two
full days before this Court. Had appellants not pursued
the preliminary point
concerning the alleged wrongful exclusion of evidence and the points relating to
the Trade Practices Regulations
and attorney and client costs, I have no doubt
that this hearing would have been completed in one day. In the circumstances, I
am
of the view that while appellants' substantial success as against first
respondent should carry the general costs of the appeal,
it would be equitable
if the costs occasioned by the second day of the hearing of the appeal before
this Court (ie 6 March 1990)
to both appellants and first respondent be.
97
borne by appellants.
Both appellants and respondents asked that all
costs
awarded in respect of the appeal should include the
costs occasioned by the
employment of three counsel. An
order to this effect was made by Curlewis J
in regard to the
trial costs awarded respectively to
appellants and
respondents. Having had regard to the length and
complexity
of the case and the importance thereof to the
parties concerned, I consider
that it is appropriate to
allow the costs of three counsel.
The Order
It is accordingly ordered as follows:
(1) As against
first respondent:-
(a) The appeal is allowed in part and para 2.1 only of the order of the Court a
quo
is altered to
read:
98
"Payment to the second plaintiff of the sums of R150 000 and
Rl 200 000, together with interest thereon from date of judgment at the
rate of
12% per annum".
(b) Appellants are entitled to the costs of
appeal, save those occasioned to
both
appellants and first respondent in connection
with the second day of
the hearing before
this Court on 6 March 1990, which costs shall
be borne
by the appellants.
(c) The costs of appeal awarded respectively to
appellants and
first respondent shall include
those occasioned by the employment of
three
counsel.
(2) As against second respondent, the appeal is dismissed with costs, including
the costs occasioned by the employment of three
counsel.
M M CORBETT
HOEXTER JA)
NIENABER AJA)