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[1994] ZASCA 96
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Metalmil (Pty) Ltd v AECI Explosives & Chemicals Ltd (206/92) [1994] ZASCA 96; 1994 (3) SA 673 (AD); [1994] 4 All SA 7 (AD) (1 June 1994)
\ihg
CASE NO 206/92
IN THE SUPREME COURT OF SOUTH AFRICA
(
APPELLATE DIVISION)
In the matter between:
METALMIL (PTY)
LIMITED
Appellant
and
AECI
EXPLOSIVES AND
Respondent
CHEMICALS LIMITED
CORAM
: SMALBERGER, HOWIE JJA et MAHOMED AJA
DATE OF HEARING:
16 MAY 1994
DATE OF JUDGMENT:
1 JUNE 1994
JUDGMENT
HOWIE JA et, MAHOMED AJA:
2
Appellant unsuccessfully sued respondent in the
Witwatersrand Local Division for damages for breach of contract and now appeals
with
the leave of the trial Court.
On 23 April 1986, appellant, a
dealer in scrap metal, entered into a written agreement for the supply, over
three years, of scrap
cable to respondent for use in its business as a
manufacturer of chemicals and explosives.
Appellant's case was that the relevant agreement was repudiated; that it
accepted the repudiation and cancelled; and that it had consequently
suffered
damages in the sum of Rl 047 340,18.
The trial Judge (Streicher J) held that although respondent had breached
the agreement in a certain respect the evidence failed to
show that such breach
evinced the intention no longer to be bound. Appellant had accordingly failed to
prove the alleged
3 repudiation. The learned Judge held, further,
that appellant had in any event failed to prove its damages.
The
relevant provisions of the agreement are these -
"PREAMBLE
The scope of this agreement provides for the supply by Metalmil of scrap
cable to AECI (essentially for the winning of copper and
lead which will be used
as raw materials in AECI's business) - as per written instructions issued from
time to time by
AECI.
(1)
Metalmil
will procure scrap cable (containing copper and lead) and guarantees to be able
to supply to AECI sufficient scrap cable
to produce a maximum of 80 mt of copper
per month. Actual quantities required by AECI will be specified by AECI monthly
in advance
and such quantities are expected to range between 40 and 80 mt of
copper per month.
(2)
In the
event that Metalmil is unable to supply AECI's requirements of scrap cable, then
AECI reserves the right to purchase the shortfall
of scrap cable or copper
elsewhere and charge to Metalmil any excess in price over the price ruling as
per the price formulae agreed.
In addition AECI reserves the right to procure
scrap copper in other forms if
it
4
desires at any time up to maximum of 10 mt per month of
copper.
(3)
PRICING
The scrap cable will be sold by Metalmil to AECI on the following price
formulae. Price/t Delivered AECI's Modderfontein Factory =
R0,8 (0,4 x Republic
Copper Price + 0,2 Tsumeb Lead Price) - R110. This price is based on an average
copper content of 40% and average
lead content of 20% (in the scrap cable
procured). The actual averages will be accurately measured and the formulae
adjusted every
quarter to take into account any variations. The methods of
adjustment and measurement are detailed in Clause 6. Any action taken
by
Government such as the re-imposition of export restrictions or the imposition of
an export tax which results in copper scrap prices
being depressed will be
compensated for in the formulae.
(4) Any by-product from the stripping
operation becomes the
property of AECI and
will be marketed as follows:
6.1 Plastics will be marketed by
AECI
6.2 Metalmil will have the first option
to sell any metallic
products not
required by AECI. The price which
Metalmil
pays will be negotiated at
the time of
sale.
(5) Metalmil have an option to buy from AECI
any excess arisings
of recovered copper
5
scrap after AECI's requirements have been met. AECI will pay for scrap cable
according to the formulae in Clause 3. Metalmil will
pay to AECI 0,85 x Republic
Copper Price for the copper which they buy back from AECI.
(6) The copper and lead contents in the cable will be measured in the
following manner:
6.1 Incoming cable will be passed over AECI's Modderfontein Factory's
weigh-bridge. This mass will be used to determine the price
to be paid to
Metalmil.
6.2 Incoming cable will as far as possible be kept in separate lots and will
be used on a first in first out basis.
6.3 The mass of copper and lead will be determined on transfer to AECI's
copper sulphate and lead nitrate plants by passing over AECI
Modderfontein
Factory's weigh-bridge
6.4 Metalmil have the right to be present at any mass determinations and
audit any mass determination records.
6.5 The average copper and lead contents as determined above for a three
month period will be used to adjust the formulae in Clause
3 to reflect the
actual averages. This formulae will then be applied to the following
quarter.
6.6 A retrospective adjustment will be passed each quarter.This amount will
be determined by the difference
6
between the predicted average copper and lead contents and the actual
average content determined by the mass balance.
(12)
BREACH AND TERMINATION
In the event of either Party breaching a material term of this Agreement and
failing to remedy such breach within 30 (thirty) days
of being called upon in
writing by the other Party to do so, such other Party shall be entitled, by
notice in writing to the Party
in breach, forthwith to cancel this Agreement
without prejudice to any claim for damages or other relief to which it may be
entitled."
In the particulars of claim,
after summarising the salient terms of the agreement, appellant made the
following allegations:
"5. At the time of entering into the agreement the parties
contemplated:
5.1 that the defendant would monthly
require a quantity of
scrap
cable necessary to produce
between 40 and 80 tons
of copper
per month;
5.2 that the plaintiff would make a
profit on the supply of
cable
and would suffer a loss if the
7
defendant should order no scrap
cable at all; and the agreement was entered into on that basis.
6. The plaintiff was at all relevant times
able to supply all
scrap cable that the
defendant required.
7. In breach of its obligations in terms of
annexure "A", the
defendant
7.1 at all relevant times since the conclusion of the agreement in annexure
"A" purchased copper, alternatively scrap copper in excess
of 10 metric tons per
month from a third party; 7,2 after the 23rd January 1987
failed to specify any requirements for scrap cable at all; and 7.3 in a
letter dated 21st July 1987 in writing
stated:
7.3.1 Expressly, that the
limitation
of defendant's right to purchase
elsewhere
contained in Annexure
"A" related only to the
purchase
of "scrap copper";
7.3.2 by implication, that it was
entitled to purchase
elsewhere
copper, regardless of the volume
and
plaintiff's ability to
supply defendant's requirements;
and thereby repudiated the agreement.
8. The plaintiff accepted, alternatively
hereby accepts,
defendant's repudiation
8
and cancelled alternatively hereby cancels the agreement.
9. As a result of defendant's breach, the plaintiff has suffered and will in
future suffer, damages in the amount of Rl 047 340,18
which amount is calculated
as set out in the schedule attached hereto as Annexure
"B".
Respondent's
answer to these averments was
formulated as follows in its plea:
"4.
AD PARAGRAPH 5.1
The defendant denies these allegations and pleads that it "expected" to
require scrap cable sufficient to enable it to recover "between
40 and 80 mt of
copper per month".
5.
AD PARAGRAPH 5.2
The defendant admits these allegations. The defendant pleads however that
it was not obliged in any given month to order any scrap
cable whatsoever from
the plaintiff.
6.
AD PARAGRAPH 6
The defendant admits that the plaintiff from time to time supplied
certain quantities of scrap cable. The defendant states however,
that the
plaintiff was not able, in breach of the agreement, to supply sufficient
suitable scrap cable for
9
processing by the machines procured by the
defendant.
7
AD PARAGRAPH 7
(a) The defendant admits that it has
from time to time
purchased
copper granules in excess of 10
metric tons
per month from a
third party.
The defendant states that it was not precluded in terms of the agreement
from purchasing such copper granules.
(b) The defendant denies
the
allegations contained
in
paragraph 7.2 and pleads
further
i) That is was not obliged to purchase any scrap cable during the course
of any given month.
ii) That on several occasions and in particular in telexes dated 24 July
1987 and 26 August 1987, it offered to purchase 100 tons
of scrap cable for
delivery by the 28th August 1987 and during the month of September
respectively.
iii) That on 10 June 1987, 8 July 1987 and 10 November 1987 it offered to
continue with the contract which offer was wrongfully refused
by the
plaintiff.
(c) The defendant admits the writing
of the letter dated 21
July
1987, the terms of which appear
from the letter
itself, but
denies that what is stated
therein
constitutes a breach by
the defendant of its obligations
10
or a repudiation of the agreement.
(c) bis. In fundamental breach of its obligations, the plaintiff has
alleged that the defendant has repudiated the agreement and has
purported to '
cancel the agreement and has stated unequivocally that it is not bound
thereby.
(c) ter. In the circumstances the
defendant, as it was lawfully entitled to do, by letter dated 19 November
1987 from defendant's attorneys to plaintiff's attorneys,
cancelled the
agreement, alternatively, hereby cancels the agreement.
(d) Save as aforesaid and save for
stating that until the
agreement
was lawfully cancelled by
defendant on 19
November 1987,
defendant was at all material
times
willing and able to
perform its obligations under
the
agreement, the defendant
denies these allegations.
8.
AD PARAGRAPH 8
The defendant admits that the plaintiff has purported to cancel the
agreement but denies that it was entitled to do so and:
a)
repeats its
denial that it repudiated the agreement as alleged or at
all;
b)
denies that the
plaintiff's purported cancellation of the agreement is effective, more
particularly in that the plaintiff failed whether
properly or at all to place
the defendant in mora in terms of clause 12 of the
agreement.
9.
AD PARAGRAPH
9
The defendant denies these allegations.
10. Alternatively to paragraphs 7, 8, 9, 10,
11 and 12 above,
and in the event of it
being found that the defendant was
in
breach of its obligations in terms of the
11
agreement and that the plaintiff has lawfully cancelled the agreement and
has suffered damages as alleged or at all, then the defendant
pleads that
plaintiff could have mitigated its damages and suffered no damages whatsoever
more particularly in that subsequent to
the purported cancellation of the
agreement by the plaintiff, the defendant has, unconditionally, offered to
purchase from the plaintiff
such quantities of scrap cable as it would have been
obliged to purchase in terms of the agreement".
In addition to its plea, respondent filed a claim in reconvention. It
contained three Separate counterclaims. Two were abandoned.
The remaining
counterclaim was for an order confirming that the respondent had validly
cancelled the agreement. That prayer was granted
by the trial Court.
On appeal argument was addressed by Counsel on four issues:
a) Whether appellant was correct in its contention that respondent had
repudiated the agreement between the parties.
12
b) If so, whether the appellant had properly
cancelled the
agreement.
c)
whether
appellant had proved its claim for damages against
respondent.
d)
Whether
appellant could and should have mitigated the damages alleged to have been
suffered by it.
THE PROPER INTERPRETATION OF THE
AGREEMENT.
In its plea and during the
proceedings in the court a quo respondent contended that it was an implied term
of the agreement that the
cable to be supplied by appellant would be suitable
for processing by machinery which was to be procured by respondent.
Alternatively
it was contended that the agreement should be rectified by
inserting after the words "scrap cable" in paragraph 1, words to the effect
that
the cable to be so supplied would be suitable "for processing by machinery to be
procured by the defendant, which machinery
would be
13 capable of
processing scrap cable which, or the individual strands of which, had a minimum
diameter of 3/8". These contentions
were correctly rejected by Streicher J and
not persisted in on appeal by counsel for respondent. The rights and the duties
of the
parties in terms of the agreement must therefore be determined without
reference to these contentions.
The attitude adopted by respondent in paragraphs 5 and 7 of the plea and
in certain correspondence which preceded the action was that
"it was not obliged
in any given month to order any scrap cable whatsoever from the plaintiff" and
that it was entitled to purchase
copper granules in excess of 10 metric tons a
month from a third party during the currency of its agreement even if appellant
was,
at the relevant time, willing and able to procure for respondent sufficient
copper in the form of scrap cable to satisfy its objective
requirements. This
attitude was, in our view,
14 clearly untenable and based on a
misinterpretation of the rights and duties of the parties in terms of clauses 1
and 2 of the agreement.
The agreement indeed did not bind respondent to order a
monthly minimum from appellant during the currency of the agreement but it
did
oblige respondent to order all its objective requirements of copper (except for
the maximum of 10 metric tons per month referred
to in clause 2) from appellant
and it was prohibited from acquiring such supply from any third party whilst
appellant was able to
procure sufficient scrap cable to meet those needs. This
was eventually conceded by respondent but only on the second day of the
trial.
REPUDIATION
.
The agreement was concluded on 23 April 1986. From May 1986 to January
1987 respondent ordered and appellant delivered scrap cable
to respondent. Any
shortfall in the quantities delivered had been rectified
15 by an
additional delivery made in November 1986. No delivery effected by appellant was
ever rejected by respondent. Throughout
this period from May 1986 to January
1987 the objective requirements of respondent for copper were greater than the
amount ordered
from appellant. Respondent met its total needs for this period by
purchasing copper granules from a third party. Its purchases in
each month
during this period (except for June 1986) exceeded the maximum of 10 metric tons
referred to in clause 2 of the agreement.
After the end of January 1987
respondent ceased to order any cable whatever from appellant and satisfied all
its objective needs
for copper by purchases of copper granules from third
parties.
Appellant sought to justify its conduct in
acquiring copper
from third parties on two grounds. The
first ground which is
articulated in paragraph 6 of the
respondent's plea was that
appellant "was not able
16 to supply sufficient suitable scrap
cable for processing by the machines procured by the defendant". The agreement
between the
parties, however, imposed no obligation on appellant to supply scrap
cable which was
suitable
for processing by the machines which respondent
procured. It obliged appellant only to procure "sufficient scrap cable to
produce
a maximum of 80 metric tons of copper per month". Respondent failed to
establish the implied term or the grounds for rectification
which could have
established that appellant was obliged to ensure that the cable which it
supplied to respondent was suitable for
processing by the machinery which
respondent had procured.
The second ground upon which respondent sought to justify its purchase of
copper granules from third parties to satisfy its objective
copper needs during
the currency of the agreement was that on a proper construction of the agreement
it was always entitled at
17 its own option to satisfy its objective
needs for copper from any source it chose. This stance manifests itself in
certain portions
of the plea, in its conduct throughout the relevant period and
in certain correspondence between the parties or their representatives
which
preceded the trial.
Not only did respondent continue to acquire large quantities of its
objective copper requirements from third parties throughout the
relevant period,
but from February 1987 it ceased to order any cable whatever from appellant
notwithstanding appellant's requests
that it should do so. On 20 May 1987 the
attorneys acting for appellant wrote to respondent recording that in the
preceding three
months respondent had not specified any quantities of scrap
cable which it required, that during this time appellant had at all times
procured sufficient quantities of scrap cable to discharge its obligations in
terms of the agreement and that respondent had repudiated
18
the agreement by failing to specify to appellant the
quantities of scrap cable which it required and by obtaining "same" from another
supplier during this period. The letter stated that appellant was accepting that
repudiation.
The reaction of respondent to this letter was set out in a letter dated
10 June 1987 from respondent's attorneys. It denied that respondent
had
repudiated the agreement and asserted that respondent was not bound to purchase
any minimum quantity from appellant if "it did
not require scrap cable for any
period of time". It went on to record that respondent had not purchased any
scrap cable from any
other source but failed to disclose that respondent had
satisfied its objective requirements of copper by purchasing copper granules
from other suppliers. Appellant's attorneys reacted to this letter on 1 July
1987 disputing respondent's interpretation of its obligations
in terms of the
agreement and repeating
19 appellant's contention that respondent
had repudiated the agreement. It recorded that employees of respondent had
admitted to appellant
that respondent had been buying copper granules from other
suppliers in excess of 10 metric tons per month. It accepted that respondent
had
not been buying
scrap cable
from any other source but it drew the
attention of respondent to the fact that clause 2 of the agreement prohibited
respondent from
procuring
copper
in excess of 10 metric tons in any
month. The attorneys for respondent replied to this letter on 8 July 1987. They
did not deal with
the appellant's interpretation of the agreement or its
averment that respondent had repudiated the agreement by acquiring copper
from
other suppliers in excess of the maximum permitted to it in terms of clause 2 of
the agreement. They also gave no undertaking
that respondent would refuse to do
so in the future. But the letter does contain a sentence to the effect that
respondent was
20
"quite prepared to abide by the agreement". This letter
was
followed by a further letter from respondent's
attorneys dated 21
July 1987 referring to the previous
correspondence including the letter from appellant's
attorneys dated 1st July 1987 and it contains the
following paragraph:
"We do not propose replying to your letter under reply in detail save to
say that the limitation imposed upon our client in clause
2 of the agreement
relates to the purchase of scrap copper. Our client has not purchased scrap
copper".
What all this conduct and correspondence
manifests is that respondent was not in fact ordering
from appellant its objective needs for copper in excess
of the maximum of 10 metric tons per month provided for
in clause 2 of the agreement, that it had consistently
been acquiring copper from other suppliers in excess of
that maximum, and that on its interpretation of the
agreement it was perfectly entitled to do so and that it
had the right to choose when and how much scrap cable
21
containing copper it would order from appellant,
regardless of its objective needs. For the reasons which we have previously
referred
to this is clearly an incorrect interpretation of its obligations in
terms of the agreement. Its consequential conduct, (based on
this
misinterpretation), in acquiring its objective requirements of copper in excess
of the maximum provided for in the agreement
from other suppliers, its
insistence that it was entitled to do so and its refusal to place with appellant
sufficient orders for
scrap cable to accommodate its needs in excess of the
maximum referred to in clause 2, constituted in our view a clear and material
breach of its obligations in terms of the agreement.
CANCELLATION
It was contended on behalf of respondent, however, that even if it had
acted in breach of the agreement, appellant was not entitled
to cancel
the
22
agreement, as it purported to do, without placing
respondent in mora by giving to it a notice in terms of clause 12 of the
agreement
calling on it to remedy such breach. No such notice was given by
appellant in the present matter.
Clause 12 of the agreement creates
a contractual ground for cancellation by the innocent party where the defaulting
party has failed
to remedy the breach of a material term within thirty days
after being called upon to do so by the innocent party. The innocent party
is
not compelled, however, to comply with the machinery created by clause 12 if the
conduct of the defaulting party is such as to
constitute a repudiation of the
contract. The innocent party has in such circumstances the option to insist on
the performance of
the contract or to accept the repudiation and cancel it. If
it elects to cancel the contract it has no obligation to put the defaulting
party in mora in terms of a
23
contractual provision which would otherwise require it to
do so where the defaulting party is in breach of a material term. [
Landau v
City Auction Mart
1940 AD 284
;
Van Achterberq v Walters
1950 (3) SA
734
(T) at 743 H;
Moodley and Another v Moodley and Another
1990 (1) SA
427
(A) at 431 A-I].
Counsel for the respondent submitted, however, that Streicher J was
correct in concluding that respondent had not, in fact, repudiated
the
contract.
In seeking to sustain that submission counsel for respondent was
confronted with the difficulty that respondent had not only consistently
acquired supplies of copper from other suppliers in breach of its obligation
towards appellant but that it had maintained that it
was entitled to do so and
that it was not obliged to place any orders with appellant to meet respondent's
objective requirements
of copper in excess of the maximum of 10 metric tons per
month provided for in clause 2 of the
24
agreement. Counsel sought to meet this difficulty by
referring to evidence and documents which were said to be supportive of the
inference
that respondent had never intended to sever its contractual ties with
appellant. Our attention was in this regard drawn to a statement
made in the
letter dated 10 June 1987 from respondent's attorneys to appellant's attorneys
in which it was said that the reason why
no orders for scrap cable had been
placed with appellant was because there was a backlog of such scrap cable which
was being processed
and that once this had been completed respondent would again
commence ordering scrap cable from appellant. This reference is fortified
by
other references to the oral testimony of witnesses on behalf of respondent who
said that the problem which respondent experienced
with the scrap cable which
appellant had delivered was that it was much too thin for processing by the
machinery which respondent
had procured.
25
There is indeed evidence on the record which supports the
suggestion that the real reason why respondent stopped ordering supplies
of
scrap cable from appellant was because it considered that the cable which
appellant had supplied was not suitable for processing
by the machinery which
respondent had and that it sought and acquired cheaper and more efficient
sources of copper from other independent
suppliers, because on its
interpretation of the agreement, it had a right to do so and appellant was under
an obligation to ensure
that the cable which it supplied to respondent was
suitable for processing by respondent's machinery. It was an incorrect view but
it constituted the essential basis upon which respondent wanted to continue
business relations with appellant. It is perfectly true
that respondent never
said and never intended to say that it would not acquire scrap cable from
appellant and it might indeed have
been anxious to retain appellant as a
source
26
of supply but the attitude which it manifested was that it
would continue business with appellant on respondent's interpretation of
the
agreement: it was free to acquire concurrent supplies in excess of the maximum
referred to in clause 2 from other independent
suppliers, it could at its
discretion also order supplies of cable from appellant and appellant was obliged
to ensure that such cable
was suitable for processing by respondent's machinery.
Regard being had to context and the objective circumstantial evidence, this
was
the true meaning of the assertion that respondent was "quite prepared to abide
by the agreement", contained in the letter from
respondent's attorneys dated 8
July 1987.
It is probably correct to say that respondent was bona fide in its
interpretation of the agreement and that subjectively it intended
to be bound by
the agreement and not to repudiate it. This fact does not, however, preclude the
conclusion that its conduct
27
constituted repudiation in law. Respondent was
not
manifesting any intention to conduct its relations with
appellant and to discharge its duties to appellant in
accordance with what it was obliged to do on an objective
interpretation of the agreement. In effect it was
insisting on a different contract however bona fide it
might have been in its belief that it was not. As was
stated by Lord Wright in the case of
Ross T Smyth &
Co
Ltd v T D Bailey, Son & Co
[1940] 3 All E R 60
(H L)
at
72 B -
"I do not say that it is necessary to show that the party alleged to have
repudiated should have an actual intention not to fulfil
the contract. He may
intend in fact to fulfil it, but may be determined to do so only in a manner
substantially inconsistent with
his obligations, and not in any other
way".
The objective conduct of respondent in this case, in our view, entitled
appellant to cancel the contract on the grounds that respondent
had repudiated
it even if respondent believed that it was abiding by the
28
contract,
"Om 'n ooreenkoms te repudieer, hoef daar nie, soos in die aangehaalde
woorde uit
Freeth v Burr
te kenne gegee word, 'n subjektiewe bedoeling te
wees on 'n einde aan die ooreenkoms te maak nie. Waar 'n party, bv, weier om 'n
belangrike bepaling van 'n ooreenkoms na te kom, sou sy optrede regtens op 'n
repudiering van die ooreenkoms kon neerkom, al sou
hy ook meen dat hy sy
verpligtinge behoorlik nakom". [
Van Rooyen v Minister van Openbare Werke en
Gemeenskapsbou
1978 (2) SA 835
(A) at 845 in fine to 846
A],
The test which must be applied is
whether respondent "acted in such a way as to lead a reasonable person to the
conclusion that he
did not intend to fulfil his part of the contract"
[
Universal Cargo Carriers Corporation v Citati
[1957] 2 Q B 401
at 436;
Van Rooyen v Minister van Openbare Werke en Gemeenskapsbou
(supra) at 845
A - C]. In our judgment a reasonable person in the position of appellant in the
present case was, in all the circumstances,
entitled to infer from the conduct
of respondent that it did not intend to fulfil its duties in terms of the
objective and correct
interpretation of the
29
contract and was only prepared to abide by its
interpretation of the contract. Appellant was therefore entitled to put the
contract
at an end by cancelling it.
The purported cancellation was
first effected by the letter from appellant's attorneys dated 20 May 1987 on the
grounds that the conduct
of respondent in the preceding period constituted a
repudiation of the agreement. This was followed by the further exchange of
correspondence
between the parties to which I have referred in which respondent
persisted in its interpretation of the agreement. Counsel for appellant
nevertheless relied on a telex dated 24 July 1987 ordering a further supply of
scrap cable and specifying that it had to be "only
scrap cable in accordance
with our contract". Reliance was placed on this order and a further order by
telex on the 26 August 1987
for 100 tons of scrap cable, in support of the
contention that respondent did not intend to repudiate the
agreement.
30 There are, in our view, two answers to the reliance
based on the orders which respondent had purported to place on 24 July and
7
August 1987. In the first place respondent did not abandon its interpretation of
the agreement, and the limited nature of its duties
based thereon, when it sent
these telexes. In the letter of 21 July 1987, very shortly before the order
sought to be placed on 24
July, respondent was still maintaining the attitude
that its right to purchase copper from independent sources was not a breach of
the agreement because it only "relates to the purchase of scrap copper. Our
client has not purchased scrap copper". Respondent in
the meanwhile continued
such purchases from other sources. There were therefore reasonable grounds for
appellant to conclude that
respondent had not abandoned its previous attitude
and that it was only offering to make purchases from appellant on the
interpretation
of the agreement it had previously advanced and which it
in
31
fact continued to advance until the second day of
the
trial.
The second answer is that the order of 24 July
1987 was placed after appellant had cancelled the
agreement
on 20 May 1987. If this was a valid act of
cancellation, there was
no subsisting obligation on
appellant to effect any further supplies
pursuant to this
order and this is exactly what respondent said in a
telex
dated 7 August 1987.
"We regard the agreement as cancelled as a result of your repudiation
thereof and are therefore not prepared to deliver any scrap
cable to
you".
The further order on 26 August 1987
was after that reaction and therefore also after the purported
cancellation.
It was contended on behalf of respondent, however, that the purported
cancellation of the agreement by appellant on 20 May 1987 was
premature and
therefore
32
ineffective. Counsel for appellant said that the letter of
20 May 1987 might have been premature but that in any event a valid cancellation
had been effected in respondent's telex dated 7 August 1987 which I have
quoted.
We are not persuaded that the purported cancellation of 20
May 1987 was indeed premature. Respondent had consistently been acquiring
a part
of its objective needs for copper from other sources during virtually the whole
of the preceding twelve months, it had ceased
placing any orders with appellant
in the preceding three months, it had earlier in the year in communications to
appellant made it
perfectly plain that on its interpretation of the agreement
respondent was not obliged to accept deliveries of cable "containing
copper with
specifications that are not acceptable to us which cable we are unable to
process with our equipment". The objective
facts which existed at the time when
the letter
33 of 20 May 1987 was written therefore justified
appellant in concluding that respondent had no intention of carrying on business
with appellant except on its own terms based on its interpretation of the
agreement.
Even if we are wrong in that conclusion, we are satisfied
that the telex of the appellant dated 7 August 1987 constituted a valid
act of
cancellation because the persistent conduct of respondent in the interim in
continuing to obtain supplies of copper from independent
sources in breach of
its obligations in terms of the agreement and its insistence in the
correspondence on its version of the agreement,
reasonably justified appellant
in concluding that respondent was not intending to abide by its duties cm a
proper interpretation
of the agreement. Counsel for respondent sought to avoid
this conclusion by arguing that the telex of 7 August 1987 did not constitute
an
act of cancellation at all because it simply stated that "we regard the
agreement as
34
cancelled". This, it was submitted, was simply
a
reference to the previous purported cancellation of
20
May and not a fresh cancellation. We are unable
to
agree. There is no reference in this telex to
the
previous letter of 20 May 1987. It says in simple terms
that appellant regards the agreement as cancelled. It
is, in my view, a sufficient indication of appellant's
state of mind that it regarded the contract as being at
an end.
"The inquiry is not whether he has 'accepted' the repudiation but whether he
has elected to keep the contract in being or to cancel
it" -[Kerr,
The
Principles of the Law of Contract
Fourth Edition page
436]
What the telex of 7 August 1987 makes
clear is this very election. It is made known to respondent that appellant has
elected not to
keep the contract alive but to cancel it.
It accordingly follows that in our judgment respondent did repudiate the
contract and that appellant
35
was entitled to cancel the contract as it in fact did
without giving to respondent a notice in terms of clause 12 of the
agreement.
DAMAGES
The next question to be
considered is whether appellant succeeded in establishing damages.
At the start of the trial two spreadsheets of figures were handed in by
consent. Designated C1 and C2 respectively, they had been
prepared by one
Vorster, the accountant in respondent's chemicals division. They represented the
result of Vorster's calculation
of appellant's alleged damages, which
calculation was based on a variety of facts and assumptions. C1 and C2 were
annexed to a Rule
36(9) notice in which respondent signified its intention to
call Vorster as a witness and in which his proposed evidence was
summarised.
For reasons to which I shall come, it is
36
unnecessary to explain the respect in which C1 differs
from C2. They can, by referring to them, for convenience, as "the schedule",
be
taken for present purposes as identical.
In a pre-trial minute, the parties recorded that the schedule represented
Vorster's
"... calculations of the quantum of plaintiff's damages
...."
and that the significance of the
various figures, columns and other data in the schedule would be "explained
during the course of
the trial." The minute then proceeded to record that,
subject to two qualifications, certain specified figures in the schedule were
correct. These qualifications were, firstly, that the figures concerned were to
be read with the explanation given in the summary
of Vorster's intended evidence
and, secondly, that it was assumed that respondent had breached the agreement as
alleged by appellant.
Then followed this paragraph:
37
"8. The arithmetical calculations, based on the figures and assumptions
referred to (above), including the assumption that defendant
was in breach in
respect of any given month, are correct."
Appellant's counsel contended that on a proper reading of the plea and
this minute, not only had respondent admitted that appellant
had suffered
damages but the parties had finally agreed on the quantum of such damages. This
argument is unsound. To the extent that
in the plea respondent admitted
appellant's allegation that it was within the parties' contemplation that
appellant would make a
profit if it supplied respondent with scrap cable but
would suffer a loss were the latter to order nothing, this allegation was no
more than a commercial truism. The parties' contemplation was obviously an
invalid basis on which to establish that as a proven fact
appellant did suffer
damages.
Equally unhelpful to appellant are the terms of the minute. Read in
context, the reference to "the
38
quantum of plaintiff's damages" was clearly intended to
mean the alleged damages. The other terms of the minute make it equally plain
that the parties' agreement extended no further than to the correctness of
certain figures and the correctness of Vorster's calculations.
There was
therefore no agreement such as was contended for by appellant's counsel and
regard must be had to the relevant evidence.
The findings of the trial Judge in relation to the damages question may
be summarised as follows. Fundamental to the claim for damages
was the factual
premise that respondent's breach had caused appellant to lose profits; such loss
was the difference between the selling
price to respondent and the maximum price
at which agents employed by appellant had been instructed to buy scrap cable;
appellant
had failed to show that it "would have been able" to acquire cable at
less than the selling price to respondent; as evidence to that
effect
39 was probably available, but not adduced, the present was
not a case in which the Court was, on the authority of cases such as
Hersman
v Shapiro & Co
1926 TPD 367
, bound to do it best on the evidence to come
to some assessment; in the circumstances appellant had failed to prove its
damages.
From the trial Judge's reasoning, and particularly his
reference to the price at which appellant "would have been able" to buy cable,
it appears that he confined his attention to the period between the termination
of the agreement and the date on which it would have
terminated had it runs its
course. For convenience I shall call this "the post-cancellation period." He
does not seem to have considered
whether appellant proved any damages in
relation to the pre-cancellation period.
As far as the post-cancellation period is concerned the Court a quo was
justified in coming to the
40 conclusion it did. The only witness to
testify for appellant was one, Jullienne, who was one of its members and
directors. Although
well versed in matters pertaining to the scrap metal trade
and still involved in that trade throughout the post-cancellation period,
Jullienne gave no evidence as to the average monthly or even annual prices at
which he would have been able to acquire scrap cable
over that period and what,
based on his own knowledge and experience, the average copper content of such
cable would probably have
been. Nor did appellant attempt to obtain such proof
from any other scrap metal dealer or from the major sources of scrap cable such
as the mines and Escom. The missing evidence as to prices must, as an historical
fact, have been available and a suitably qualified
expert could have analysed
the copper content of the standard forms of cable used by major sources, which
standard forms would no
doubt have made up the bulk of the cable
which
41 appellant could have delivered. The only explanation
ventured by appellant's counsel for the omission to present such evidence
was
that invoices reflecting scrap cable sales almost invariably failed to show the
copper content of the purchased load, thus making
it impossible to ascertain
what had been paid specifically for the copper. This is no doubt true. One finds
it well illustrated by
the summary, handed in as exhibit B, in which are set out
the details of the invoices reflecting appellant's own cable purchases
during
the pre-cancellation period. However, this difficulty was no bar to the
presentation of the sort of evidence to which we have
referred. Jullienne's
uncontradicted evidence was that he would have been able to supply whatever
respondent required but without
any evidence as to the price at which appellant
would have been able to acquire scrap cable, or as to the likely copper content
in
such cable, one cannot find that appellant would have made any
42
profit at all during the post-cancellation period. To
essay a finding favourable to appellant in this regard would necessarily involve
unwarranted speculation. From attempting this exercise the trial Judge rightly
refrained.
As the difference between spreadsheets C1 and C2 pertained only to
certain data relative to the post-cancellation period, such difference
is, for
the aforegoing reasons, presently immaterial.
In so far as the pre-cancellation period is concerned, however, we
consider that appellant did prove that is had suffered damages
and that, on the
evidence, the quantum of such damages was sufficiently established.
Before discussing the relevant evidence it is necessary, perhaps, to
emphasize that that although the focus in the trial Court's judgment,
as also in
counsel's arguments on appeal, was upon the post-cancellation
43
period, it is quite clear that the damages claim was intended by appellant, and
always understood by respondent, to embrace the
entire contractual period. This
is manifest from the following: (i) The allegation in para 7 of the particulars
of claim that respondent
breached the agreement from its inception; (ii) The
allegation in para 9, and the accompanying reference to the total in column 21
of the schedule, which indicate that the sum claimed included losses during the
pre-cancellation period; and (iii) The absence of
any suggestion by or on behalf
of respondent, either in the pleadings, the evidence or in argument, that
appellant was not entitled
to damages in respect of that period. As to the
duration of the pre-cancellation period, it must be taken to have ended on 20
May
1987.
44
Even if the cancellation by appellant were to be found as
having been effected only later, it was on 20 May 1987 that appellant declared
its intention to supply no more cable and damages cannot be awarded in respect
of any period beyond that date.
Turning to the evidence, it is
manifest that appellant was making a profit in respect of the scrap cable which
it sold to respondent.
These invoices, the contents of which are summarised in
exhibit B, were discovered and made available prior to the trial by appellant.
As is clear from the record, they were accepted on respondent's behalf as
admissible and relevant. Exhibit B was in fact compiled
by respondent's legal
advisers and introduced into the evidence by respondent's counsel during
Jullienne's cross-examination.
Those invoices which do reflect tonnages and prices per ton reveal that
between June 1986 and February
45 1987 appellant bought 922,77 tons
of scrap cable for an average price of R518,95 per ton. Although Jullienne
testified that the
price of scrap cable varies greatly -as exhibit B bears out -
and is not based on its copper content, if the prices he paid were
intended to
relate not only to the copper content but to other components as well, it simply
means that the copper content was being
acquired even more cheaply than
R518,95.
Vorster's calculation of appellant's copper claim was based on two
important assumptions: that appellant would never have paid more
for copper than
0,7 of the Republic Copper Price ("RCP") and that the cable so bought would have
had a copper content of 0,4. As
appellant was selling copper to respondent at
0,8 RCP his calculation formula was: claim tonnage x 0,1 x RCP x 0,4. The next
question,
therefore, is whether Vorster's assumptions were justified.
In Julliennes's evidence he sought to allege
46 that the copper content of the cable he delivered to respondent would
indeed have been of the order of 40%. Although appellant's
counsel contended
that Jullienne's evidence, particularly in this regard, should be accepted
because it was uncontradicted, it seems
to me that the witness's evidence on
this score was at times both unconvincing and ostensibly improbable. However,
assuming in his
favour that his assertions were the product of bona fide
recollections concerning the results of analyses which he said his own staff
performed on the cable which was later delivered to respondent, such assertions
clash with the results of analyses performed at various
times during the
pre-cancellation period by respondent's staff on that same cable. The results of
these analyses were introduced
in evidence though Trickett who had personal
knowledge of the conduct and results (if not the performance) of the analyses.
In any
event there can be no question of respondent's not being
47
bound by the data thus evidentially adduced through him.
There are two documents relevant in this regard. One was that Trickett
said reflected an exercise he performed in an attempt to ascertain
to what
degree the copper content of appellant's cable fell short of 40%, thus
warranting a credit adjustment in respondent's favour.
In his report in this
regard (p 1375 of the record) he stated the results of respondent's analyses (up
to the end of February 1987)
of the respective copper and lead components of the
cable delivered. The copper percentage appears there as 29,8% and the lead
content
as 9,5%. The other document (at p 1386) records the yields obtained by
respondent in samples of altogether 179 tons of cable analysed
up to the end of
March 1987. There, the copper content appears as 28,5% and lead as 7,8%. Those
very percentages were clearly the
basis of a calculation on the strength of
which respondent, in its attorney's letter of 8 May 1987 (p 1382),
claimed
48
reimbursement from appellant.
In these circumstances there is no reason to doubt the authenticity of
respondent's figures or their essential reliability.
It would be
taking it at its best for respondent and at its worst for appellant if one
concluded on this evidence that, on broadly
reliable average, the copper and
lead content of the cable delivered by appellant, and the cable which would have
been delivered
during the pre-cancellation period had respondent complied with
the contract, as 28% in respect of copper and 7% as regards lead.
The
possibility that respondent's analyses were somewhat less than totally -
reliable, can be catered for by a contingency allowance.
Admittedly this is not the most conclusive evidence of copper content
over the pre-cancellation period but Jullienne said that the
records of
appellant's own analyses had been lost and there is therefore no
49
better evidence that would have been presented. In the circumstances it is
appropriate to apply the
Hersman v Shapiro
approach to the assessment of
the pre-cancellation damages.
Between June 1986 and February 1987
the average RCP (taking the agreed figures in column 13 of the Schedule) was R3
134,45 per ton.
At a maximum average price for copper of R518,95, the appellant
was, on the copper content finding of 0,28, paying 0,59 RCP.
One is therefore justified in accepting Vorster's assumed maximum
acquisition price of 0,7 RCP as one of the foundational factors
in the
calculation of appellant's pre-cancellation copper claim even if the copper
content of the cable supplied to respondent was
0,28 and not 0,4.
Moreover it is significant that respondent's principal witness, one
Trickett, manager of the chemicals division at the factory where
the scrap cable
sold by
50 appellant was delivered, conceded in evidence that he had
pointed out in an internal memorandum early in 1987 that the cable respondent
was buying from appellant at about Rl 000 per ton was available at less than
R500 per ton. Of no less significance was the remark
by
respondent's
counsel when cross-examining Jullienne.
"....that you had a favourable rate there is no doubt, in
this contract?"
Whether appellant would have been able to maintain an average acquisition
price of R518,95 per ton until May 1987, or, in any event,
a price below the
R0,7 RCP level, one obviously cannot say for certain but, given the pattern
demonstrated by the figures in exhibit
B, and the short duration of the period
from February to May 1987, it is more likely, in our view, than not. However, in
fairness
to respondent it would be proper to make some contingency allowance for
the contrary
51
possibility.
The question whether appellant
would have been able, other than in May and June 1986, to fulfil respondent's
copper requirements,
is not really an issue. Jullienne gave an affirmative
answer and there is no good reason, on this point, to doubt what he
said.
As to the monthly claim tonnage, this is arrived at, firstly, by taking
the tonnage of copper which respondent acquired other than
from appellant and
deducting the 10 tons which respondent was entitled to buy elsewhere. This gives
one the tonnage that respondent
required and was bound to buy from appellant.
Then one calculates what tonnage of cable was needed to produce the amount of
copper
that respondent was thus obliged to buy from appellant. These figures are
in columns 7, 8 and 9 respectively of the schedule and
were all agreed.
The difference between the theoretical maximum
52
tonnage which appellant could have been called on to sell
to respondent and the tonnage actually delivered, is shown in column 3 of
the
schedule. The tonnage delivered is shown in column 1 of the schedule and the
figures there are taken from respondent's weighbridge
tickets. At the pre-trial
conference respondent took up the attitude that it accepted its weighbridge
figures yet did not admit that
those quantities had in fact been delivered. This
stance warrants short shrift. Delivery to the weighbridge, and the recording
there
of the tonnage weighed, was exactly what the parties' agreement required.
Prima facie at least, appellant delivered the tonnages
measured and in the
absence of any worthwhile evidence from respondent's side to cast any real doubt
on the conclusion to be drawn
from the weighbridge records, it must be found
that the agreed tonnages reflected in column 1 of the schedule were indeed
delivered.
The second step in getting to the monthly claim
53
tonnage of cable is to take the lesser of the respective
amounts in columns 3 and 9. The claim tonnage is reflected in column 10 and
is,
as already mentioned, one of the factors in the copper claim calculation. In
column 10 a copper content of 40% is assumed and
the same assumption underlies
the use of the factor 0,4. For the reasons already given, Vorster's formula must
be applied using a
copper content factor of 0,28 instead of 0,4. That change
necessitates corresponding alterations to Vorster's figures in columns
3, 9, 10
and 15. Such alterations are mere matters of calculation.
The results of the calculation of the copper claim on the aforegoing
basis are set out in Annexure "A" attached to this judgment.
No claim is
properly maintainable in respect of May and June 1986 for appellant was not
able, according to Jullienne, to deliver
more than it did in those months and
there can therefore be no question of any contractual obligation
on
54 respondent to buy more than was delivered. Nor is a claim
maintainable in so far as September 1986 is concerned because in that
month more
was delivered than the contractual maximum saleable cable of 250 tons. On the
agreed and calculable data, therefore, and
subject to contingencies, appellant
is entitled in respect of its copper claim to R94 725,08.
As far as the lead claim is concerned, once on finds, as is the case in
respect of the copper claim, that appellant was contractually
entitled to have
respondent buy the quantity of cable reflected in the claim tonnage (column 4 of
Annexure "A") i e 1135,91 tons,
the next question is what percentage of lead
that quantity of cable would have contained. As already explained, the evidence
warrants
the conclusion that, subject to contingencies, the lead content of the
cable which was delivered, and thus the likely lead content
of the unbought
cable that would have been delivered, was
55 7%.
Subject
to altering the lead content factor from 0,2 to 0,07, Vorster's formula for
calculating the lead claim, was this: claim tonnage
x 0,8 x Tsumeb lead price x
0,07. The first and last of these four factors we have already dealt with. 0,8
was the contractually
agreed portion of the Tsumeb lead price which respondent
undertook to pay. The Tsumeb lead price from month to month was agreed.
One is
therefore able to apply the formula and so calculate the lead claim, again
subject to contingencies. The monthly claim tonnages
are set out in column 4 of
Annexure "A" and the lead price is shown in column 14 of the schedule. The
result of the calculation,
shown on a month by month basis is as
follows:
1986 July
R
424,89
August
2
237,31
October
11
777,56
November
6
295,55
December
4
286,84
1987 January
7
718,36
February
9
607,78
March
7
188,90
April
5
242,41
56
May
10 728,03
R
65 507,63
Appellant's counsel conceded the possibility
that appellant might have had to buy in lead with which
to
supply respondent if the cable delivered contained
less than 20% by weight of lead. Me do not see the
position
that way. Respondent's counsel argued, rightly.
We think, that
appellant was not entitled to compel
respondent' to take more lead
if the contractual
provisions regarding copper supply had been
complied
with. If enough cable had been delivered to fulfil
respondent's copper requirements, then neither party
could demand that any lead shortfall below 20% be
remedied. The contractual obligations of the parties
focused solely on the copper quantity. The only
provision regarding the lead content was that it was
expected to be 20% but that quarterly analyses would be
undertaken and any lead shortfall dealt with by way of a
57
credit adjustment in favour of respondent. The latter therefore simply had to
pay for such lead as it received. It had no greater
remedy, and appellant no
greater obligation.
Then, in so far as it might seem anomalous that the lead claim, as
calculated, is as large as it is when the lead content of the cable
was far less
than the copper content and lead was roughly only one-third of the price of
copper, it must be remembered that appellant
was having to pay for the copper
but was getting the lead for nothing. This much is the effect of Jullienne's
evidence. Alternatively,
if the price at which appellant bought cable covered
not only the copper in the cable but also the lead contact, then, although the
lead claim would be less, the copper claim would proportionally be greater.
Accordingly the copper and lead calculations recorded
above can, subject to what
follows, be left as they are. They add up to R160 232,71.
58
To that sum must be added R62 475,05. This reflects the
R55 difference between the respective costs components of the contract price
formula, [ROB (0,4 RCP + 0,2 T lead price) - 110] and the assumed maximum price
at which appellant would have bought cable [R07 (0,4
RCP) -165], i e R165 -
R110. This sum of R55 must then be multiplied by the number of tons in column 4
and Annexure "A". Although
appellant's agents bought nothing of any relevance to
this case they nontheless had to be paid their basic remuneration. R62 475,05
plus the copper and lead claims amount to R222 707,76.
From this sum must be deducted R62 150,00 being the total over the period
July 1986 to Nay 1987 of the monthly amount of appellant's
other costs. These
figures are in column 20 of the schedule and were agreed. The overall claim,
without a contingency allowance,
is thus R160 557,76.
As for a contingency deduction, there are a
59
number of considerations to be borne in mind.
Firstly,
the contract did not run until the end of May 1987,
it
terminated on 20 May. Secondly, it is possible that the
cable
analyses performed by respondent were not wholly
accurate or completely representative. Thirdly, scrap
cable price trends may have altered to appellant's
disadvantage in the period February to May 1987, contrary
to the probability expressed earlier in this regard.
The extent of the contingency deduction is a factor incapable of
calculation. It is simply a question of what seems to the Court to
be reasonable
in the circumstances. To my mind a deduction sufficient to reduce the total
claim to R136 000,00 (a deduction of very
nearly 15%) would meet the justice of
the case and appropriately finalise the quantification of appellant's
damages.
The defence of mitigation has no bearing upon the pre-cancellation period
and can be ignored.
60 For these reasons appellant, in our view,
established its entitlement to damages in the sum of R136 000,00. It follows
that the
claim ought to have succeeded, that respondent's counterclaim A ought
to have failed and that the appeal must succeed. The following
order is
made:
1.
The appeal is
upheld, with costs.
2.
The
order of the Court a quo is set aside and substituted therefore is the
following:
(a)
Plaintiff's
claim is upheld, with costs, and defendant is ordered to pay plaintiff R136
000,00 as and for
damages.
(b)
The costs
referred to in (a) above will include the costs of two counsel and the costs
reserved on 23 April
1990.
(c)
Defendant's
counterclaims A, B and C are dismissed with costs, including the costs of two
counsel.
61
C T HOWIE JA
I MAHOMED AJA J W SMALBERGER Concurs
SEE ORIGINAL JUDGMENT
TABLE