Stellenbosch Farmers' Winery Group Ltd. and Another v Martell & Cie SA and Others (427/01) [2002] ZASCA 98 (6 September 2002)

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[2002] ZASCA 98
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Stellenbosch Farmers' Winery Group Ltd. and Another v Martell & Cie SA and Others (427/01) [2002] ZASCA 98; 2003 (1) SA 11 (SCA) (6 September 2002)

THE SUPREME COURT OF
APPEAL
OF SOUTH AFRICA
Case number
: 427/01
Reportable in part*
In
the matter between
:
STELLENBOSCH FARMERS’
WINERY
GROUP LIMITED FIRST
APPELLANT
STELLENBOSCH
FARMERS’ WINERY
LIMITED
SECOND APPELLANT
and
MARTELL & CIE S A
FIRST RESPONDENT
MARTELL ET CIE (SA) (PTY)
LTD SECOND RESPONDENT
SEAGRAM
AFRICA (PTY) LTD THIRD RESPONDENT
JOSEPH
E SEAGRAM & SONS INC FOURTH RESPONDENT
CORAM
: NIENABER, FARLAM, BRAND JJA, HEHER and
LEWIS AJJA
HEARD
: 16 AUGUST 2002
DELIVERED
: 6 SEPTEMBER 2002
Summary
: Oral agreement - dispute as to its terms
- approach to be adopted in resolving disputes of fact - analysis and
evaluation of probabilities
JUDGMENT
*
Para [5] is reportable within the context of a
broad summary of the facts.
NIENABER JA
/
NIENABER JA
:
[1] Recollection can be fallible. And in business the failure to
confirm an event promptly and on paper can be fatal. If ever
a case
proved these propositions, this was it. The core dispute between
the parties could not have been narrower. It was whether
the
respective representatives of the two parties, on 17 April 1997 and
in the appellants’ boardroom at Stellenbosch, orally
agreed on a
sales volume target for the ensuing fiscal year of 5317000 or
5366000 litres of Martell cognac-style brandy. The appellants
were
producing, promoting and selling Martell brandy in the southern
African market under franchise from the respondents. Because
of a
formula in their agreement huge sums of money would in future, as it
happened, turn on this marginal discrepancy between the
two figures.
One side confirmed its understanding of what was orally agreed
between them and the other side did not. And that,
in the end,
after much was said and done, makes the difference.
[2] There are four respondents, all belonging to the Seagrams group
of companies, who figured as plaintiffs in the Court below
and two
appellants, both belonging to the Stellenbosch Farmers’ Winery
group, who were the defendants, but nothing in the present
case
depends on their respective corporate identities and for the sake of
convenience I shall henceforth refer to the two groupings
simply as
‘Seagrams’ and ‘SFW’. During 1988 and at a time when
foreign companies found trading in South Africa uncomfortable,
Seagrams concluded a written agreement with SFW in terms of which
the latter would manufacture and market three qualities of Martell
brandy in southern Africa, namely Martell Five Star, Martell VO and
Martell XVO Classique. SFW would be furnished with certain
secret
information, technical assistance and flavouring ingredients and
would pay Seagrams royalties calculated on volumes of sales.
This
agreement was due to terminate in June 1992.
[3] During July 1990 and at New York a further agreement, described
in argument as an ‘evergreen and rolling agreement’, was
concluded, the express terms of which were incorporated into a
document termed ‘summation’. It introduced the concept of

‘annual sales objectives’ on which, year by year, the parties
would have to agree in advance. Clause 1 reads as follows:
‘1.
Duration
1.1. 5 Year rolling contract with automatic annual
extension if annual sales objectives are achieved.
1.1.1. 90% achievement of annual sales objective still implies the
above.
1.1.2. Anything less than 90% achievement of annual sales objective
implies that one year of the 5 year contract is lopped off.
1.1.3. Should annual sales objective be achieved in the subsequent
year it would mean immediate re-instatement of 5 year period
as per
1.1.
1.1.4. If two parties cannot agree on the annual plan, the prior
year’s
share of market
percentage will be used as the base.
1.1.5. Plan will be constructed by category (i.e. V.O.5 Star) but
contract will work on a total basis only.
1.1.6. Achievement of anything below 80% of annual sales objective
would give Seagram the right to renegotiate the agreement unless
it
was due to unforeseen prevailing circumstances.’
[4] A meeting duly took place on 17 April 1997 and it was common
cause that agreement was reached on the ‘annual sales objective’
for the next successive fiscal year commencing on 1 July 1997. The
critical question, as stated earlier, was: what was the actual
figure on which agreement was reached? Was it 5317000 litres (as
SFW contends) or 5366000 litres (as Seagrams contends)? What
was
also common cause between the parties was that the actual sales for
the fiscal year July 1997 to June 1998 were 4284748 litres.
If the
target figure agreed upon more than a year earlier was 5317000 it
represented 80,58% of the agreed annual sales objective
and the
agreement would carry on uninterruptedly; but if it was 5366000 it
represented an under-achievement by SFW equivalent
to 79,859% and
would provide Seagrams with the escape from the agreement it had
long sought. Seagrams found the agreement to be
constricting
because it inhibited it from exploiting its three brand names itself
in southern Africa. If SFW under-achieved it
would enable Seagrams
to insist on a renegotiation of the entire agreement. In that event
it was in the end not disputed by SFW
that a further tacit term of
the agreement would permit Seagrams, if SFW should refuse to
renegotiate the terms of the agreement,
to terminate it by giving
SFW reasonable notice to that effect. And that is precisely what
happened: Seagrams demanded a renegotiation;
SFW disputed its
entitlement to do so; Seagrams gave notice of the termination of
the agreement with effect from 30 June 1999
and thereafter sued SFW
for a declaratory order in the Cape High Court that the agreement
had come to an end on that date. The
matter eventually came before
Traverso DJP who found in favour of Seagrams. This is an appeal,
leave to pursue it having been
refused by the Court
a quo
but
granted by this Court, against that finding.
[5] On the central issue, as to what the parties actually decided,
there are two irreconcilable versions. So too on a number
of
peripheral areas of dispute which may have a bearing on the
probabilities. The technique generally employed by courts in

resolving factual disputes of this nature may conveniently be
summarised as follows. To come to a conclusion on the disputed
issues
a court must make findings on (a) the credibility of the
various factual witnesses; (b) their reliability; and (c) the
probabilities.
As to (a), the court’s finding on the credibility
of a particular witness will depend on its impression about the
veracity of
the witness. That in turn will depend on a variety of
subsidiary factors, not necessarily in order of importance, such as
(i)
the witness’s candour and demeanour in the witness-box, (ii)
his bias, latent and blatant, (iii) internal contradictions in his
evidence, (iv) external contradictions with what was pleaded or put
on his behalf, or with established fact or with his own extracurial
statements or actions, (v) the probability or improbability of
particular aspects of his version, (vi) the calibre and cogency
of
his performance compared to that of other witnesses testifying about
the same incident or events. As to (b), a witness’s
reliability
will depend, apart from the factors mentioned under (a)(ii), (iv)
and (v) above, on (i) the opportunities he had to
experience or
observe the event in question and (ii) the quality, integrity and
independence of his recall thereof. As to (c),
this necessitates an
analysis and evaluation of the probability or improbability of each
party’s version on each of the disputed
issues. In the light of
its assessment of (a), (b) and (c) the court will then, as a final
step, determine whether the party
burdened with the onus of proof
has succeeded in discharging it. The hard case, which will
doubtless be the rare one, occurs when
a court’s credibility
findings compel it in one direction and its evaluation of the
general probabilities in another. The more
convincing the former,
the less convincing will be the latter. But when all factors are
equipoised probabilities prevail.
[6] In
the instant case the Court
a quo
commended
Fleck and
Kikillus on Seagrams’s side, and criticised Msiza, in particular,
on SFW’s side, dismissing parts of his evidence
as ‘absurd’.
But this appraisal does not seem to have depended on an analysis of
the various factors enumerated in the previous
paragraph but largely
on the Court
a quo
’s estimation of the overall
probabilities. If that estimation is shown to be suspect, so too
must be the Court
a quo
’s conclusions on credibility. It
is therefore on that exercise, an evaluation of the general
probabilities, that the outcome
of this case ultimately hinges.
[7] I propose to discuss the probabilities with reference to various
successive phases as events unfolded between the parties during
the
period under discussion.
The
meeting of 17 April 1997
[8] Before
dealing with the meeting itself it is opportune to say something
about the events immediately preceding it. The previous
meeting, at
which the target volume for the period 1996/1997 was agreed, was
held in October 1996, during the then current fiscal
year, when the
annual sales objective was settled at 5604000 litres for the three
brands. (SFW’s official budget figure for
the year was 5574000
litres.) Both sides acknowledged the agreement in writing. Bullen,
one of SFW’s marketing people, confirmed
the figure in a letter to
Seagrams and Kikillus, Seagrams’s marketing director, prepared a
minute, also confirming the agreed
figure, which he forwarded to
SFW. During January 1997 Kikillus wrote a letter to Bullen asking
for an estimate of sales for the
coming year and suggesting that a
meeting be convened to agree on a target figure for the 1997/98
year. Bullen responded by giving
him an estimate, based on SFW
data up to December 1996, of 5884000 litres. The meeting was then
convened for 17 April 1997.
By that time, however, the estimate of
5884000 litres was no longer realistic. The sales figures for
January, February and March
reflected a marked decline in sales for
all three brands over that period as was apparent from the monthly
reports which SFW had
routinely forwarded to Seagrams. It has
always been the practice for SFW to furnish Seagrams with monthly
reports of actual sales,
broken down into period, brand and region.
This was of direct interest to Seagrams since royalties were
calculated on sales.
These reports, so it was contended on behalf
of SFW, should have forewarned Seagrams’s representatives that the
figure of 5884000
supplied by Bullen was outdated and hence no
longer reliable.
[9] As to the meeting itself there was a good deal of common ground.
Henning, the senior man, Visser, Msiza and Holzkampf represented
SFW and Seagrams was represented by Fleck, its managing director,
and Kikillus. Henning opened the proceedings by introducing
Msiza. Msiza put before the meeting a compilation of statistical
data referred to as ‘the Blue Book’ about the past performance
of the Martell brands. For ease of reference the first page thereof
is annexed to this judgment as annexure A. The supporting
statistics furnished showed a significant decline in sales since
December 1996. That was also the point of certain graphs prepared
by Holzkampf and projected on to a screen. The Blue Book contained
no proposal on the next annual sales objective but it did suggest
an
increase in advertising spending of some 16%. (The cost of
advertising was by agreement shared between SFW and Seagrams.)
[10] Msiza testified that in view of the poor performance of the
brand during recent months he proposed what he called a ‘flat
figure’ of 5217000 litres as the new annual sales objective. This
is the figure appearing in annexure A as the estimate for
1996/97,
representing an expected increase of 1,3% for the year ending June
1997, compared to the figure for the fiscal year ending
June 1996
which was 5148000. Msiza’s proposal implied that there would be
no growth during the coming year. This proposal,
all the witnesses
agreed, was instantly rejected by Seagrams’s representatives who
pointed out that they would be unable to justify,
to their
principals overseas, a target reflecting zero growth in sales if
there was to be a simultaneous increase of 16% in spending
on
advertising. So much, then, for what was common ground. I turn to
what was in dispute.
[11] Seagrams sought support for its version (that there was
agreement on 5366000), in a document headed ‘Latest Forecast’.

Fleck and Kikillus testified that each of them was given a copy
thereof. I annex, as annexure B, a copy of the one given to Fleck.

On it there are two sketches, one of Henning and one of Visser,
which, so Fleck testified, he drew while the meeting was in
progress.
On Kikillus’s copy there are annotations representing
his contemporaneous conversion of thousands of litres into cases.
[12] SFW, on the other hand, sought support for its version (that
5317000 was the agreed figure), on a document, a copy of which
I
annex as annexure C, which is a copy of the first page of the Blue
Book, with some calculations on it in Msiza’s handwriting.
Each
side claimed that the document on which it relied corroborated its
version and that the document on which the other side
relied did not
figure at all in the discussions during the meeting.
[13] According to Fleck and Kikillus they went into the meeting with
Bullen’s forecast of 5884000 litres in mind. But after
considering the later statistics and Holzkampf’s presentation on a
screen of his graphs showing the dramatic tailing off on sales
after
December, they realised that the figure Bullen mentioned to them was
no longer achievable. They were accordingly prepared
to compromise
on a lower figure. That lower figure was SFW’s own budget
forecast for the 1997/98 fiscal year. It was 5366 [thousand].
It
is a figure that can be derived from annexure B as the sum of 1450 +
3900 + 16, the ciphers appearing on annexure B under the
column
‘budget forecast’ for the period 1997/98. (At that point the
budget had not yet been formally approved for the 1997/98
year by
SFW’s board of directors. Such approval would only follow in June
1997.) If that, so Fleck and Kikillus explained,
is what SFW itself
regarded as the forecast of sales for the period concerned why
should Seagrams be prepared to settle on a lower
figure? Because of
the concession on their part, to reduce the target figure from
5884000 to 5366000, it was further agreed between
all those present,
so they said, that part of the advertising expense be reserved for
reconsideration later in the fiscal year
should the progress on
sales not measure up to expectations. (For that evidence there
was confirmation in a note to that effect
by Msiza in the Blue
Book.)
[14] Neither Fleck nor Kikillus made a note of the figure 5366 or,
for that matter, of the agreement regarding the increase in
the
‘ad-spend’ on their respective copies of the Latest Forecast
document.
[15] It is necessary to say something about this document. It was
formally discovered by Seagrams and not by SFW. Its very existence
was initially denied by SFW’s witnesses. In particular it was
denied that annexure B was ever produced at the meeting or discussed
as such. All SFW’s witnesses who testified were sceptical about
its provenance, first, because these were at that stage still
confidential figures and, secondly, because of the heading ‘budget
forecast’ which was a term that, according to them, was
inherently
contradictory and was never used within SFW circles. Of course, if
that evidence stood, it could well have been destructive
of
Seagrams’s case since the figure 5366, being a confidential SFW
figure, appeared nowhere else in the documentation presented
at the
meeting. But during the course of the trial Seagrams produced
expert evidence that the Latest Forecast document with the
detailed
information it contained could only have emanated from SFW. And
this was eventually conceded by SFW. That the two documents
were
received by Fleck and Kikillus on that day is moreover proved by
Fleck’s drawings and by Kikillus’s handwriting on them.
SFW’s
witnesses, after having at first denied that the document was ever
produced at the meeting, could ultimately do no
better than to say
that they were not responsible for its production and that none of
them had ever seen or heard it being discussed
during the one and a
half hours or so the meeting lasted. It was not a routine SFW
document and it must have been produced especially
for the meeting
that afternoon. The evidence was that the SFW’s representatives
had not met before the meeting in order to discuss
strategy. Nor
was the meeting conducted according to a formal agenda. Discussions
must have taken place amongst those present
without the knowledge of
others. The only rational explanation is that Henning had the
document prepared in advance without the
knowledge of the others and
that he distributed the only two copies to Fleck and Kikillus, at a
time when none of the other SFW
witnesses was paying close attention
to what was passing between them. Henning presumably did so in
order to demonstrate the downward
trend of sales during the few
months immediately preceding the meeting. He did not testify. He
had died before the trial commenced.
[16] Much was made of this retreat on the part of SFW by both the
Court
a quo
and counsel for Seagrams. And indeed, the very
fact that its authenticity was initially disavowed does create the
impression that
the document was deliberately suppressed by SFW;
and consequently, that it contained information that was
embarrassing to its
cause. In truth the document contained nothing
that was
per se
awkward for SFW. Its immediate significance
went the other way: its absence would have been an embarrassment
for Seagrams’s
case since it was the only document reflecting,
even if only arithmetically, the figure of 5366.
[17] The Court
a quo
found, correctly so, that annexure B was
indeed produced at the meeting. And if that is so it does create a
probability in favour
of Seagrams. For if SFW had itself budgeted
for that figure, albeit provisionally at that stage, it would
conceivably have been
more difficult for it to persuade Seagrams’s
representatives to agree to an even lower figure. That is a point
in its favour.
The agreed figure, after all, would almost certainly
be a compromise based on SFW’s anticipated sales during the coming
year.
Nor was it an upper limit. It still left SFW with a margin
of slack of 20% in terms of clause 1.1.6 of the 1990 agreement in

order to protect its contractual stranglehold on the brand. On the
other hand, it is also true that neither party was compelled
to
capitulate and agree to an unrealistic target since clause 1.1.4 of
the 1990 agreement allowed for a default figure if no compromise
could be reached. (That default figure, calculated in later
correspondence by SFW’s representatives to be 4790465 litres, was
lower than both the two figures now in contention.)
[18] What
about the document on which SFW relies, annexure C? Msiza’s
version is as follows. Annexure C was part of the Blue
Book upon
which he made certain annotations, so he said, as the discussions
progressed. When his suggestion of a ‘flat figure’
of 5217 was
rejected, Fleck made it plain that Seagrams would at the very least
insist that the improvement of 1,3% (which was
the improvement of
the 1996/97 estimate over the 1995/96 year) be maintained for
1997/98. The 1.3% appears on annexures A and
C. Msiza then
calculated the figure that would be yielded if a 2% growth is
factored into the equation on a base of 5217 [thousand].
That
calculation produced 5321 [thousand], which is noted on annexure C.
Holzkampf was then asked to project onto the screen
how his previous
three graphs for the three individual types would have to be
adjusted if the target figure was shifted to a total
sales figure of
5321. This required a breaking down into the three types of the
total of 5321. Msiza attempted his own breakdown.
On annexure C
appears the annotation:
1350
3850
15
5215
This breakdown came short of the total of 5321. A discussion
followed amongst all those present and out of this discussion a new
breakdown was suggested which Msiza noted down on annexure C. It
reads:
1430
3875
5305
12
5317
This breakdown was then reflected on Holzkampf’s graphs per type.
And that was the figure eventually agreed upon as the annual
sales
objective for the fiscal year 1997/98. Msiza testified that he then
blocked in the figure of 5317, as indeed appears on
annexure C.
Elsewhere in the Blue Book he also made a note ‘5% reserve into
2
nd
six months’ which refers to the agreement, not
disputed, about the ‘ad-spend’ figure. Visser and Holzkampf,
although neither
could remember the actual figures as such,
confirmed the course of events as related by Msiza. Visser also
testified that he too
may have made notes but that all his
documentation was destroyed when he was later transferred to a post
abroad.
[19] One is thus left with two versions, each tailored to a
particular document which the other side does not recognise as
having
been discussed at the meeting. In my view one must accept
that both documents featured at the meeting and that each side’s
denial
of the other side’s document shows that the respective
witnesses’ evidence was largely reconstructed rather than
recollected.
Since neither reconstructed version is inherently
contradictory one is driven, once again, to revert to the
probabilities. In
my view the probabilities relating to the meeting
itself favour SFW’s version. I say so for the reasons that
follow.
[20] As far as Seagrams’s version is concerned it is unlikely, if
the figure of 5366 had been agreed to with specific reference
to the
Latest Forecast document, that Fleck or Kikillus would not have made
a note of it on the document of which each had a copy,
given that
each of them scribbled something on his own copy. Admittedly they
also did not note down the figure 5317. That presumably
shows that
they left it to SFW to do the necessary follow-up paperwork.
Moreover, as counsel for SFW was at pains to stress, when
Seagrams
in August 1998 did commit themselves for the first time to the
figure they alleged was agreed, it was not to 5366 but
to the full
SFW budget figure of 5365715 that reference was made. This latter
figure could only have been taken from a telefax
sent to Kikillus a
year earlier on 11 August 1997 when Msiza, at his request, furnished
Kikillus with the 1997/98 ‘budget figures’.
Even on their own
showing the more exact figure was not available to them at the
meeting on 17 April 1997.
[21] Whereas the Seagrams’s figure of 5366 does not as such appear
on annexure A, SFW’s figure of 5317 does appear on annexure
C. I
have some difficulty with the submission addressed to us on behalf
of Seagrams that these were mere scribblings jotted down
by Msiza
but which had nothing to do with what was discussed. In my view
these scribblings do serve as an indication of what counsel
for SFW
referred to as ‘the route’ the discussions took in boosting the
figure from 5217, initially proposed by SFW, to 5317.
As such it
does lend support to SFW’s version. That version is further
supported by the reason SFW’s witnesses gave for their
willingness
to agree to an upward adjustment of the figure. It was a concession
made to Seagrams for the latter’s willingness
to agree to the
proposed increase in the spending for advertising, for a portion of
which Seagrams would be liable. Fleck and
Kikillus agreed to a 16%
increase in the advertising spending, but only if the volume target
were lifted above the 101,3% level
and on condition that a
percentage of the spending on advertising be reviewable after six
months. This was the gist of the notes
Msiza made on his Blue Book.
In sum, therefore, I believe that the balance of probabilities as
to what occurred at the meeting
of 17 April 1997 favours SFW’s
cause rather than Seagrams’s.
The letter of confirmation of 29 April 1997
.
[22] Contrary to what happened the previous year no minute of the
meeting was prepared but a letter of confirmation was written
by
Msiza and faxed to Seagrams on 29 April 1997, some twelve days after
the meeting. That letter is annexed hereto as annexure
D. It
confirms both the agreement as to advertising spending and SFW’s
figure, in thousand of litres, of 5317. In itself this
letter
constitutes a powerful probability in SFW’s favour. It was
written shortly after the meeting when the figure would have
been
fresh in Msiza’s mind. It confirms a figure which Seagrams’s
witnesses say was never even mentioned at the meeting.
This was at
a time when the differential between 5317 and 5366 was marginal and
not remotely controversial. Why would Msiza conjure
up an imaginary
figure? And if it was simply a mistake, how could he have made it?
Unlike other documents sent by SFW to Seagrams
by Msiza, this
particular letter was not copied to Henning and Visser. Much was
made of this fact in argument on behalf of Seagrams.
The omission
was explained by Msiza and Visser and the point of the criticism
loses much of its force since it was common cause
that the letter
was indeed received by Seagrams. More importantly, the content of
the letter of confirmation gains greatly in
plausibility when
Seagrams’s response, or rather lack of a proper response, is taken
into account.
Seagrams’s
response to the letter of confirmation
[23] According to Kikillus he immediately realised, on receiving the
fax, that the agreed figure was incorrectly stated therein.
He
mentioned it to Fleck in passing. Fleck instructed him to have it
corrected. But instead of telephoning or faxing Msiza,
as one would
have expected him to do, he decided to wait until he would see Msiza
on 5 May 1997 at a marketing meeting in Stellenbosch.
Kikillus went
to the meeting without taking along either the letter of
confirmation, annexure D, or the Latest Forecast document,
annexure
B. Late in the day he mentioned to Msiza that the figure in the
latter’s letter of confirmation was wrong, without,
however,
stating in what respect it was wrong or what the correct figure
should be. Msiza, according to him, then promised to
rectify it ‘in
the next fiscal’ by which he presumably meant during July 1997.
Kikillus did not mention the problem of the
correction of the figure
to Visser, who was also in attendance on that occasion, since he did
not want to cause embarrassment to
Msiza who was still, so he
explained, relatively new to the job. And that, according to him,
is where he left matters, in the
hands of Msiza to correct it during
the forthcoming fiscal year.
[24] Msiza, while admitting that he attended the meeting and that
Kikillus was present, denied that such a conversation had ever
taken
place. Kikillus’s evidence on this whole episode, I am sorry to
say, is far from convincing. It is, in my view, incomprehensible
that he did not mention what he regarded as the correct figure to
Msiza when he wanted the latter to rectify it and that Msiza
promised to correct something without having been told what was
wrong with it and how it should be rectified; so too, that Kikillus
did not insist that Msiza should forthwith substitute a corrected
letter of confirmation for the supposedly incorrect one of 29
April.
Nor is it plausible that he should be willing simply to leave
matters in Msiza’s hands to attend to it only when he would
be
furnishing statistical data in the coming fiscal year - which would
in any event have created for Msiza the problem that the
later
so-called corrected figure would be in conflict with the uncorrected
figure earlier stated in his letter of 29 April. One
would have
expected Kikillus, having been instructed by Fleck to sort the
problem out without delay, to have asked Msiza to confirm
in writing
that his earlier letter was wrong, and, when the latter failed to do
so, that Kikillus would himself have confirmed
Msiza’s undertaking
to rectify the matter. None of this happened. He waited and yet,
when Msiza eventually did send the new
sales figures for July 1997
on 5 August 1997, there was no mention of either the promise to
correct his letter of confirmation
nor of the alleged agreed target
figure. It was only then, on 6 August 1997, that Kikillus, thanking
Msiza for the information
he forwarded, faxed him a letter in
return, without, however, referring to Msiza’s earlier promise to
correct matters, stating:
‘Unfortunately, plan is not reflected
in your volume breakdown. Please could we include this with
immediate effect.’ By
‘plan’, it is common cause, Kikillus
meant the annual sales objective.
[25] Msiza’s evidence was that he telephoned Kikillus on receipt
of the letter because he was puzzled by it, since this was the
first
time in the history of the relationship between the parties that
such a request had ever been made. Kikillus explained to
him that
he wanted a breakdown into brands and regions of the ‘Plan’
figure. Msiza thereupon explained to Kikillus, so he
said, that the
only statistics broken down in these categories he had at his
disposal were the SFW’s budget figures (which by
then had been
approved by the board). He promised to furnish this information to
Kikillus and he did so on 11 August. It reflected
a breakdown into
brands and regions of the budget figure of 5365715. (It was on this
information, as stated earlier, that Seagrams
in later
correspondence relied as being proof of the figure agreed to at the
meeting of 17 April 1997.) Kikillus denied that such
a telephone
conversation had ever taken place. There is no note or any other
documentary substantiation of Msiza’s evidence
in this regard.
Yet it is not, in my opinion, inherently unlikely that such a
conversation could have taken place, considering
the novel nature of
the request made to him. Nor is it immediately apparent why
Seagrams should insist on a breakdown of the agreed
target volume
since it is the globular figure at the end of the fiscal year that
has contractual significance and not the monthly
breakdown. And if
Seagrams wanted figures merely to track the performance of the
individual brands against expectations and projections
SFW’s
budget figures would have served that purpose equally well.
Seagrams could have done the conversion itself, knowing what
it
believed the agreed figure to be.
[26] I am accordingly less impressed than was the Court
a quo
with the submission, so strongly advanced on behalf of Seagrams,
that the budget figures furnished by Msiza from month to month,
as
opposed to ‘plan’ figures, were ‘meaningless’ to Seagrams;
and that the furnishing thereof therefore served as corroboration
of
what it said was agreed to on 17 April 1997.
[27] The centre of gravity of the probabilities clearly lies in
Msiza’s letter of confirmation of 29 April 1997, read with
Seagrams’s
lack of an appropriate response thereto, if it truly
contradicted the figure stated in that letter. These considerations
are not
counterbalanced by the mere fact that Msiza thereafter
furnished Seagrams, month by month, with the breakdown of actual
sales of
the three brands juxtaposed with a breakdown of SFW’s
budget figures.
[28] Having regard to the probabilities analysed thus far Msiza’s
version must accordingly be accepted as being more probable
than
that of Fleck and Kikillus. The events thereafter, in my view, fall
into the same pattern.
The
correspondence during the period July 1997 to November 1997
[29] Seagrams’s main contention was that it repeatedly asked for a
monthly breakdown of ‘Plan’; that Msiza properly understood
this to be a request for a breakdown of the agreed target volume;
and that, by furnishing, without qualification, statistical
information based on 5365715 litres, he in effect reaffirmed
Seagrams’s version of what was agreed to at the meeting of 17
April
1997. Msiza’s answer was that he had explained to Kikillus
telephonically that he lacked the expertise and equipment to convert
the breakdown of the budget figures supplied to him by SFW’s
statistical section (which of course was based on 5365715) to a
breakdown of the agreed target volume of 5317000. The
differentiation between the two base figures, a matter of a mere one
percent,
was so minimal that the breakdown of the budget figures (as
opposed to the ‘plan’ figures) would in any event have served
the
same purpose. The Court
a quo
’s finding that the
monthly budget figure was ‘totally useless and irrelevant’ to
Seagrams and that Msiza’s evidence in
this regard was ‘absurd’
completely misses this point. The subsequent breakdowns Msiza
supplied for August 1997, September
1997 and October 1997 remained
throughout the breakdown of the SFW budget figures for those periods
and were consistently so described
by him.
The
correspondence in November 1997
[30] On 11
November 1997 Kikillus requested a summary of the Martell figures
for its use during the visit of the president of Seagrams,
and
enclosed a ‘blank format’ which included a heading ‘plan’.
Msiza responded by using Kikillus’s format, but he continued
to
furnish the budget figure breakdown. Viewed in context this does
not amount to an acknowledgement by Msiza that this was the
figure
agreed to on 17 April 1997. Thereafter Msiza continued to adopt the
format requested by Kikillus. At first blush it may
seem to favour
Seagrams’s cause but on analysis it adds very little, if anything,
to it.
Msiza’s
meeting with Brandon Morris in March 1998
[31] During February 1998 Kikillus telefaxed Msiza and suggested
that a meeting should be held, during his temporary absence
overseas,
with Brandon Morris, Seagrams’s strategic planning
manager, to discuss certain matters relating to,
inter alia
,
‘expenditure’ and ‘plan’. Msiza agreed and a meeting was
arranged. Msiza testified:
‘The first thing that came to my mind, was I would be having a
meeting with someone who had never worked on Martell before.
So I
had to provide a lot of background information on the brand. Not
only was this person new to working with Martell, but that
person
had not been to our 17
th
April meeting. So that person
did not know - probably did not know that here were two different
figures on Martell, an internal
SFW budget and a contractual target
that we have with Seagrams. So I then decided well, for this
meeting I have to make this person
aware that we have our internal
budget, and there is the Seagrams contractual target, and also
bringing him up to speed with all
the things listed in Mr Kikillus
letter, which requested this meeting.’
Msiza accordingly prepared a document for Morris’s attention. In
this document under the heading ‘budget 1977/8’ he inserted
the
figure 5321000. This is a figure he took off annexure C, being a
calculation of 102% of 5217000. It was, he said, a mistake
on his
part and a careless one at that, since the agreed sales target,
which is what he had in mind, was 5317 and the SFW budget
figure was
5366. At the subsequent meeting he had with Morris, when he
presented the document to him, he explained this error.
His
testimony was:
‘… in trying to use the official contractual volume we have with
Seagrams, I just quickly glanced at the blue book and saw
the figure
of 5321 and I mistakenly used that one instead of the 5317 here,
which you see here. So I used the 5321, but what I
did do, was at
that meeting, I highlighted to Brandon Morris that there are two
different figures. There is SFW’s internal budget
volume and
there is the contractual target we have with Seagrams and he wrote
here, that is his handwriting, he wrote it, while
I was presenting
to him, under the column budget, he wrote there, internal SFW plan,
is 44 000 litres more.
Which would bring it to 5365 -- Yes.’
And again:
‘I
explained to him that there are two different figures and he wrote
that the SFW internal plan is actually 44 000 litres
higher
than the contractual one.’
That Morris fully understood the distinction Msiza sought to draw
between the SFW budget figure and the agreed volume figure also
appears from a document, dated 17 March 1998, in which, under the
heading ‘volume versus plan’, Morris recorded:
‘According to your latest estimates, total Martell sales will
equal 4,6 litres (518K cases). This will represent 90% of the
plan
target agreed with Marais Kikillus and Peter Fleck at last year’s
planning meeting’.
(On that
arithmetic the agreed volume would have been 5,1).
[32] What
is significant about this meeting between Msiza and Morris is not so
much the exact figures that were bandied about, but
(a) the clear
distinction drawn by Msiza and understood by Morris between the
agreed target volume and the SFW budget figure;
(b) that he
referred back to exhibit B, albeit incorrectly, as his
aide
memoire
as to what was in fact agreed at the meeting of 17 March
1997; (c) that he did not purport to furnish SFW’s budget
figures
but the agreed volume figure. That means that in his mind
there was no identity or coincidence between the two figures, which

controverts the suggestion that in the earlier documentation he had
by implication accepted Seagrams’s version that the agreed
volume
figure was exactly the same as SFW’s budget figure; and, lastly,
(d) that all of this happened in March 1998 long before
the dispute
flared up between the parties in August 1998 after the final actual
sales figure had been determined.
The correspondence after July 1998
[33] On 1
July 1998 Msiza furnished his monthly report for June 1998. That
completed the statistics for the fiscal year which is
now under
scrutiny. It showed a cumulative sales figure for the entire year
of 4284748 litres. On 2 July 1998 Kikillus sent Morris
an internal
note reading:
‘Herewith latest Martell numbers - what % of plan did one
achieve?’
Morris was
not called to explain how he responded and what base figure he used
to work out the percentage. Up to that point Seagrams
had not yet
committed itself on paper as to the figure it claimed to be the
agreed figure, but after consultation with its legal
advisers and on
11 August 1998, Fleck wrote to SFW stating,
inter alia:
‘The annual sales objective for the 1997/8 year, as agreed upon
between ourselves and yourselves, was 5 365 715 litres.

As appears from the figures recently provided to ourselves, the
actual sales achieved for this period were 4 284 748
litres. In the circumstances, you have achieved sales of less than
80% of the sales objective for this year.
We are, in the circumstances, entitled to renegotiate the agreement
between ourselves and yourselves, and will be contacting you
shortly
in order to commence such negotiations.’
This
letter caused concern in SFW’s ranks. Stroebel, its managing
director, asked Bullen to report to him. Bullen telephoned
Msiza
who was at that point busy with promotional activities in Cape Town.
Msiza gave Bullen certain information, whereupon Bullen
searched
Msiza’s office for the relevant file. It is not necessary to
unravel, in this judgment, the events and misunderstandings
that led
to several mistakes in Stroebel’s letter of reply to Seagrams of
18 August 1998. It is a letter which occasioned SFW
some
embarrassment and which called for an explanation on the part of
Bullen and Msiza. It was strongly argued on behalf of Seagrams
that
it also called for an explanation from Stroebel himself but Stroebel
was never called by SFW. His letter read,
inter alia
:
‘The figure you have used (5365715 liters) was an SFW budget
incentive figure and was provided to you on 11 August 1997 for your
use in a Seagram’s presentation during a presidential visit
(Letter enclosed).
SFW originally proposed a volume figure of 5217000 in April 1998
(sic). (See enclosed) You were not satisfied and requested 100 000
liters more. This was eventually agreed upon, hence the 29 April
letter.
When the in-house budget for SFW is prepared I personally push up
volumes on which an incentive will be paid to the sales force.
This
was the figure Pawn Msiza provided you with on 11 August i.e. 5
months after the volumes were agreed and do not represent
the base
for the agreement.’
The letter
contains a number of mistakes. The most important one was of course
that the figure of 5317000 litres was obtained by
boosting the
figure of 5217000 at Seagrams’s insistence, by an additional
100000 litres. That was not SFW’s evidence. This
mistake was
due to an assumption Bullen made which he conveyed to Stroebel. The
statement, linking the letter of 11 August 1997
to the presidential
visit which took place in November 1997, was due to a
misinterpretation by Stroebel of Bullen’s internal
memo to him.
Stroebel’s own statement that he personally pushed up the volumes
when the in-house budget was prepared, was an
exaggeration and
inaccurate as far as it went. These are all matters that had to be
explained by SFW witnesses and on which they
were, not without
justification, severely criticised. The criticism did not, however,
in the end unnerve the explanations that
were given by Msiza and
Bullen. Stroebel’s evidence, if he had been called, could not
have added much to it. Nor did the criticism
have any real bearing
on the essential probabilities. I think counsel for SFW was right
in describing it all as something of a
red herring.
[34] In
assessing the probabilities, phase by phase as events unfolded, as
well as comprehensively and in retrospect, the conclusion
seems to
me to be inescapable that of the two versions before court as to
what the parties agreed to, SFW’s is the more probable.
That
being so, Seagrams has not succeeded in discharging the onus which
it assumed for itself in suing for a declaratory order.
It further
follows that SFW’s appeal must succeed.
[35] The
following order is made:
(1) The appeal succeeds with costs, including the costs of two
counsel relating to the application for leave to appeal before the
Court
a quo
as well as before this Court.
(2) The following order is substituted for the order granted by the
Court
a quo
:
‘The Plaintiffs’ claim is dismissed with costs, including the
costs of two counsel’.
………………….
P M NIENABER
JUDGE OF APPEAL
Concur
:
FARLAM JA
BRAND JA
HEHER AJA
LEWIS AJ A