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[2015] ZAWCHC 106
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Lancewood Holdings (Pty) Ltd v Robertson and Others (A 536/2014) [2015] ZAWCHC 106 (4 August 2015)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Case
No. A 536/2014
DATE:
04 AUGUST 2015
In
the matter between:
LANCEWOOD
HOLDINGS (PTY)
LTD
...............................................................................
Appellant
And
BARRY
REGINALD
ROBERTSON
..........................................................................
First
Respondent
AND
TEN
OTHERS
...........................................................................
Second
to Eleventh Respondents
JUDGMENT
Before:
The Hon. Mr Justice Fourie
The
Hon. Mr Justice Binns-Ward
The
Hon. Mrs Justice Savage
Date
of appeal hearing: 29 July 2015
Date
of judgment: 4 August 2015
BINNS-WARD
J:
[1]
The appellant, Lancewood Holdings (Pty)
Ltd, carries on business in the dairy industry. It makes
various types of cheese.
For that purpose it needs to buy milk
in bulk. The respondents, who are dairy farmers in the Southern
Cape, instituted action
against the appellant in the Eastern Circuit
Division at George for payment of the outstanding balances allegedly
due for milk
that they had supplied during the period July to
December 2009 in terms of the contracts that they then had with the
appellant.
[2]
By
agreement, a separation of issues for the purposes of trial was
directed in terms of rule 33(4). The ruling was loosely
worded
and spoke only of a division of the questions of ‘liability’
and ‘quantum’. In the result
it did not make it
altogether explicit what precisely comprised the issues falling to be
tried in a first stage hearing under the
rubric of ‘liability’.
This was unfortunate because there were a number of pleaded issues
that bore on ‘liability’,
including the question of
whether the alleged contractual term centrally in issue - the
existence of which was in dispute - was,
if established, legally
enforceable. These considerations militated in favour of a more
detailed framing of the ruling in
terms of rule 33(4).
[1]
As matters transpired, however, the hearing proceeded, albeit
somewhat untidily, on the basis that the sole question for
determination in the first stage of the trial was whether the
appellant had bound itself to pay to its milk suppliers a premium
of
at least three cents per litre above the price paid by the ‘market
leader’, a company called Parmalat. The
trial court held
in favour of the respondents on this question. With the leave of the
court a quo, the appellant has come on appeal
to the full court
against that decision. The court a quo directed that the costs
of the application for leave to appeal were
to be costs in the
appeal.
[3]
The
sums claimed comprised the alleged differential between the amounts
paid by the appellant to the respondents during the relevant
six
month period and the prices that the respondents calculated should
have been paid had the aforementioned premium been applied.
The
particulars of claim (which were not a model of clarity) appeared to
allege that the relevant term had been included in the
pricing
provisions of the contracts that had been concluded individually
between the respective respondents and Lancewood Cheese
(Pty) Ltd
prior to an undisclosed date in 2008, when each of them allegedly
consented to a temporary suspension of the agreed price
regime until
1 January 2009. The pleaded claims were therefore, according to their
tenor, for the performance of agreements concluded
prior to October
2008.
[2]
[4]
The evidence, however, established that as
at January 2009 the suppliers were uncertain as to the applicable
pricing and payment
scheduling arrangements going forward. A
representative committee comprised of five of their number
consequently held talks
with the new management of the appellant in
order to obtain clarity on these issues. The new management had
been appointed
as part of the restructuring of the appellant that had
occurred in response to a financial crisis into which the company had
been
plunged in October 2008. Indeed, the aforementioned
departure from the previously subsisting pricing arrangement had been
part of the measures instituted in order to save the appellant from
compulsory liquidation in mid-October 2008. It was common
ground that the terms of the originally concluded milk supply
agreements between the respondents and the appellant were not in
effect during the height of the appellant’s financial emergency
in the period October to December 2008. This happened
in terms
of interim agreements made at that time. The character of the
interim agreements - more particularly, whether they
were of finitely
limited duration and only a temporary suspension of the previously
subsisting contracts, or a holding position
pending new arrangements
- was, however, very much in contention.
[5]
The
committee representing the suppliers – which included Messrs
Robertson and Reitz,
[3]
who
testified at the trial in support of the respondents’ claim -
sought confirmation by the appellant that it would reinstate
the
system of monthly payments to the suppliers by the 10
th
of each month that had been in place prior to the financial emergency
and also resume paying the three cents per litre premium
on the
Parmalat price for the milk supplied to it. The appellant had
wanted to have the 20
th
of each month as the monthly payment date because that would ease the
constraints on its cash flow. It was common cause at
the trial
that its representatives at the meeting, Messrs Anderson and
Zietsman, had conceded the suppliers’ demand for the
reinstatement of the 10
th
as
the payment date. The concession was confirmed in a letter
subsequently sent by the appellant to producers, dated 14 January
2009. Notably, however, the letter contained nothing about any
agreement on the pricing issue.
[6]
Mr Anderson denied a proposition put
by the respondents’ counsel in cross-examination that the
aforementioned letter
of 14 January had preceded the meeting.
The denial was supported by the inherent probabilities. Had the
letter preceded
the talks, there would have been no cause for a
discussion about confirming the 10
th
as the monthly payment date and the respondents’ witnesses’
evidence that the appellant had made a concession on this
point at
the meeting would make no sense. The endeavour under
cross-examination by Mr Reitz to resist this conclusion was
singularly unconvincing. Furthermore, his evidence in chief
that the talks must have occurred after the 20
th
because that was the date on which the appellant had settled all
outstanding arrears is flatly contradicted by the statement in
the
letter of the 14
th
- confirmed in the oral evidence of the appellant’s witnesses -
that ‘
u sal merk dat u maandtjeks
[reeds]
inbetaal is
’.
There was no suggestion that the letter had been falsely dated.
[7]
It was in fact common cause that the
appellant’s representatives at the meeting had declined to
agree to a reinstatement of
the premium component in the calculation
of the milk price it would pay. The evidence of Robertson and Reitz,
which was consistent
in this respect with that of Anderson and
Zietsman, was that the matter had been debated for several hours.
The respondents’
witnesses were unable to give much by way of
detail as to the content of the lengthy discussion. It was
apparent from the
evidence of Anderson and Zietsman, however, that a
lot of time had been taken up with explanations of how the
appellant’s
pricing structure needed to be altered in order to
address the flaws in it that had materially contributed to the cash
flow problem
that had brought the company to the brink of
liquidation. This entailed devising a pricing structure that
would reward suppliers
who provided milk with the peculiar qualities
needed for the cheese products manufactured by the appellant.
Suppliers who
provided milk that complied more closely in character
with the qualities needed to make the cheeses manufactured by the
appellant
would be paid comparably higher prices than suppliers whose
milk fell short on such qualities. It was explained that the
range of products manufactured by the appellant differed from that
produced by Parmalat, and the price paid by the appellant for
raw
product (milk) had to sensibly relate to the prices the appellant was
able to realise on
its
manufactured cheese products if its business were to be viable. The
opinion of Anderson and Zietsman that the payment of a premium
fixed
with reference to the prices paid by Parmalat would involve the
appellant in contravening the Competition Act was also conveyed
to
the committee at the meeting.
[8]
The respondents’ case, as it emerged
in the evidence, was that after the meeting had ended without
agreement on the issue
of the premium the members of the committee
had foregathered on the pathway below Mr Anderson’s first
storey office to discuss
the impasse. According to Messrs
Robertson and Reitz, Anderson had leaned out of his office window and
told them not to worry,
they could have their wish on the payment of
the premium. Anderson admitted that he had spoken to the
committee members from
his window, but denied that he had conceded
the premium. He asserted that all he had done was to reiterate
that the suppliers
would be paid ‘a competitive price’ -
a point he had made repeatedly during the course of the meeting.
Anderson
said it was known to the suppliers at this stage that the
appellant was finalising a new pricing structure and that it intended
to inform its suppliers of the content thereof shortly. Indeed,
the aforementioned letter of 14 January 2009 invited the
suppliers to
an ‘information meeting’ (
Afr.
‘inligtingsvergadering’)
concerning the prospects for the year ahead to be held on 23 January
2009. Somewhat
improbably in the circumstances, Robertson was
unable to recall whether or not he had attended the meeting, but it
was not in contention
that it had in fact taken place. Reitz
seemed to suggest that pricing was not discussed at the 23 January
meeting, but that
is inconsistent with the content of subsequent
correspondence from the appellant to its suppliers to be described
presently.
[9]
It was common ground that historically
pricing was the issue uppermost amongst the suppliers’ concerns
at any such meetings.
Yet there was no indication in the
evidence that confirmation was sought by anyone at the 23 January
meeting of an undertaking
by Anderson that the appellant would resume
paying a premium on the Parmalat price. The trial court did not
deal with this
aspect of the facts in its assessment of the
probabilities.
[10]
The
trial court held, unexceptionably, that the conflict between the
evidence of Anderson and that of Robertson and Reitz fell to
be
approached on the basis expounded in
Stellenbosch
Farmers’ Winery Group Ltd and Another v Martell et Cie and
Others
2003 (1) SA 11
(SCA), at para 5.
[4]
The
learned judge a quo considered that Robertson and Reitz had made a
more favourable impression as witnesses than Anderson, and
that the
probabilities also supported the evidence of the former rather than
the latter. He also made an adverse finding
against the
appellant based on the abandonment at the trial of certain points it
had placed in issue on the pleadings. The
judge held that
Anderson’s statement in the terms alleged by the respondents’
witnesses gave rise to a contractual
obligation on the part of the
appellant to pay the premium on the Parmalat price and that, even if
there had not been actual contractual
consensus on the point, the
appellant was nevertheless bound on the application of the doctrine
of quasi-mutual assent; cf
Smith
v Hughes
(1871) LR 6 QB 597
at 607 (per Blackburn J).
[5]
[11]
The court a quo did not explain why the
doctrine of quasi-mutual assent fell to be applied if - as it found -
Anderson had expressly
undertaken that the appellant would pay the
respondents a premium on the Parmalat price. If Anderson had
given the alleged
undertaking as explicitly as alleged, what possible
grounds could there have been for error or misapprehension on his
part as to
its effect? He certainly did not claim any; and nor
did the appellant. The reference to the doctrine in the court’s
judgment was therefore contextually quite incongruous.
[12]
In holding for the respondents, the trial
judge expressly found that a new contract was concluded pursuant to
the window ledge exchange
with Anderson. Thus, notwithstanding
his statement to the contrary, the judge in point of fact did not
uphold the claims
pleaded by the respondents, which, as mentioned,
had been founded on the contracts concluded on various occasions
prior to October
2008. Instead, he allowed the claims on ‘the
merits’ on the basis of a ‘
new
contract
’ that he found had been
concluded in January 2009.
[13]
It is evident upon a close consideration of
the trial court’s judgment that the finding in favour of the
respondents was predicated
essentially upon the learned judge’s
assessment of the probabilities. The assessment was based on
the inferences the
judge drew from the evidence.
[14]
In
matters like this, in which the result at trial was determined by the
outcome of an evaluative exercise of the nature described
in
Martell
et Cie
supra
loc cit, an appellate court ‘
must
steer its way between the Scylla of interfering too readily with the
judgment on facts of a judicial officer who has had the
opportunity
of seeing and hearing the witnesses, an opportunity which it itself
unfortunately has not had, and the Charybdis of
not interfering when,
making due allowance for those advantages, it is satisfied that the
evidence taken as a whole cannot support
his conclusions
’
(per Davis AJA in
R
v Dhlumayo and Another
1948 (2) SA 677
(A), at 699-700). The effect was described in a
more recent judgment as follows: ‘
Although
Courts of appeal are slow to disturb findings of credibility they
generally have greater liberty to do so where a finding
of fact does
not essentially depend on the personal impression
made
by
a witness’
(sic)
demeanour
but predominantly upon inferences from other facts and upon
probabilities. In such a case a Court of appeal with the benefit
of
an overall conspectus of the full record may often be in a better
position to draw inferences, particularly in regard to secondary
facts
’.
[6]
Moreover,
as noted by Nienaber JA in
Martell
et Cie
,
at para 6, if the trial court’s estimation of the probabilities
is shown to be suspect, that may call into question its
conclusions
on the witnesses’ credibility.
[15]
In the current matter, apart from on the
crucial question of the content of Mr Anderson’s utterance
from the first floor
window, there was no real dispute on the facts.
The determination of the incidence of the probabilities was
thus dependent
on the contextual interpretation of common cause or
essentially indisputable facts. Having regard to the onus -
which burdened
the respondents - the witnesses’ demeanour and
the impression they made in the witness box and the judge’s
adverse
view of the pleaded denials abandoned by the appellant at the
trial (none of which bore centrally on the crucial question in issue)
do not weigh decisively in the balance if, on an overall conspectus
of the facts, the probabilities do not support the allegation
that
Anderson expressly undertook that the appellant would pay the
respondents a defined premium on the Parmalat price. The
success of the appeal therefore depends on whether we are persuaded
that the learned judge was wrong in his interpretation of the
effect
of the facts.
[16]
Necessarily implicit in the trial judge’s
finding that a ‘
new contract
’
had been entered into in January 2009 was a determination that the
pre-October 2008 agreements on which the respondents
had relied in
their particulars of claim had been terminated. In my judgment,
for the reasons to be given presently, that
conclusion was
well-founded.
[17]
The respondents were confronted with a hard
choice by the financial crisis into which the appellant company was
plunged in October
2008, when its banker froze its banking accounts
and seized its movable assets preparatory to the institution of
liquidation proceedings.
The respondents could either buy into
the ‘turn-around strategy’ devised for the appellant’s
business by compromising
their thitherto contractual rights, or they
could wave goodbye to any realistic prospect of recovering payment in
terms of their
accrued contractual rights for the milk they had
supplied in September and early October. Unsurprisingly, they
took the former
course, even though it involved their having to
accept reduced prices for the milk they would continue to supply and
putting up
with a painful dislocation of their own cash flows and
credit arrangements. It was plain on the undisputed evidence
that
the respondents actually had no room for manoeuvre in deciding
to support the rescue package, notwithstanding its adverse financial
effect on them. None of the other bulk purchasers of milk, such
as Parmalat, Clover or Nestlé, was willing to take
up their
milk because there was an over-supply of the product in the market at
the time. The uncontroverted evidence was
that the over-supply
situation continued to obtain in January 2009.
[18]
The respondents’ witnesses testified
that the contracts they entered into for the purpose of the rescue
exercise were of only
temporary effect and did not supplant the
previously subsisting contractual arrangements. The documentary
evidence lends
some support to the notion that the arrangements made
after mid-October 2008 were designed to be provisional. Having
regard
to the contextual exigencies, which demanded a restructuring
of the appellant’s business model, that was only to be
expected.
Nothing in the documented record, however, supports
the contention that the interim arrangements had provided for a
resumption
of the previously subsisting terms of contract after the
end of December 2008. Indeed, the announcement, in a letter
from
the appellant to its producers, dated 15 December 2008, of a
further price cut effective from 1 January 2009 carries the
opposite
implication.
[19]
The fact that uncertainty prevailed about
matters such as the payment of the premium and the monthly payment
dates, and that discussions
about them were considered necessary also
goes against the notion pleaded in the particulars of claim and
propounded by the respondents’
witnesses in their evidence that
the pre-October 2008 agreements were still in place, and that the
suspension of the operation
of the terms of payment thereunder had
lapsed at the end of December 2008. On the contrary, it
supports the evidence by the
appellant’s witnesses that the
suppliers had been made aware in various meetings held during the
acute phase of the financial
crisis that the rescue of the appellant
company from liquidation would, of necessity, herald changes to the
way it would do business
in the future.
[20]
It was also significant in my view that
neither of the respondents’ witnesses suggested that the
committee had adopted an
approach during the talks that the
respondents were in a position to enforce the previously subsisting
agreements. They merely
stated that a refusal by the appellant
to concede their demands on the two points in issue would have meant
that the suppliers
might decide to deliver their milk elsewhere - to
Parmalat, for example. They emphasised that it was critical for
the respondents
and their fellow suppliers to obtain clarity at that
stage as to their position with the appellant as it would be
difficult to
transfer their business to alternative bulk purchasers
of milk later in the year.
[21]
Any understanding that there would be a
resumption of the previous regime would in any event be inherently
improbable. The
appellant had been brought to the brink of
financial ruin in material part by virtue of the effects of the
previously subsisting
commercial arrangements it had with its
suppliers. It is objectively unlikely in those circumstances
that anyone concerned
could realistically have believed that business
could continue under the same terms as before. How could that
fix what had
gone wrong? On the contrary, the inherent
probabilities support the evidence of the appellant’s witnesses
that the
period November 2008 to January 2009 was characterised by an
on-going process of engagement between the appellant’s new
management
and the suppliers concerning the construction of a new
business model that would restore a viable cash flow to the appellant
company.
Mr Zietsman’s detailed explanation of the
unviable nature of the appellant’s pricing structure as he
found it
when he joined the company in September 2008 was not
attacked by the respondents’ counsel in cross-examination.
It
is unlikely that Mr Anderson, who represented the outside investor
that came to the appellant’s rescue and was charged with
getting the business back onto an even keel, would not have been
keenly aware of the unviable nature of the appellant’s pricing
structure prior to October 2008 and its causative role in the
financial crisis that befell the company. In those
circumstances
any finding that the previously subsisting contracts
had remained in place after October 2008 would fly in the face of the
overwhelming
probabilities.
[22]
The learned judge a quo therefore correctly
considered that the question he had to decide was whether the new
contracts entered
into in January 2009 included a term that
guaranteed the respondents a premium of not less than three cents
above the Parmalat
price. What falls to be scrutinised for the
purpose of deciding the appeal are the judge’s reasons for
holding that
the existence of such a term had been established by the
respondents on the basis of what they alleged Mr Anderson to have
undertaken
when he spoke to the members of the committee from his
office window.
[23]
It
was uncontentious that after the meeting the committee had with
Anderson and Zietsman in early January 2009 the producers continued
supplying milk to the appellant. The learned judge a quo
remarked that it was common cause that during the first six months
of
the year the price paid by the appellant ‘
was
more or less in line with the benchmark of
[Parmalat]
[7]
plus
3c per litre
’.
He returned to this point later, saying ‘…
on
the evidence of the plaintiffs, which was not seriously challenged on
this aspect, they were in fact paid on the agreed basis,
namely
calculated on a premium of 3c/litre above Parmalat’s price,
during the first six months of 2009
’.
He noted ‘
It
was suggested on behalf of
[the appellant]
that
this was fortuitous and not by design. In my view, however, the
more probable inference from these facts is that this
occurred
pursuant to the agreement that had been concluded between the parties
during January 2009. The subsequent conduct
of the parties
strengthens the plaintiffs’ version of the terms of this
agreement
’.
[24]
The judge criticised Mr Anderson as having
been evasive and argumentative in the witness box and unwilling to
make concessions where
these were called for. He found that
Anderson had been unable to give any coherent explanation as to why
it had been necessary
to speak to the committee members from his
office window merely to reiterate a point he had already made in the
meeting. He
appeared to regard it as improbable that Anderson
would have said anything if he had nothing to add to what he had told
the committee
previously. He also found that Anderson’s
professed concern that implementing a pricing structure directly
related
to the prices paid by Parmalat courted infringing the
Competition Act was ‘
so highly
improbable as not to be accepted as a valid reason for refusing to
agree to the 3c premium
’.
(Curiously, no criticism was addressed in respect of Mr Zietsman’s
evidence to precisely the same effect.)
[25]
The learned judge noted that the committee
represented the suppliers of 90% of the milk purchased by the
appellant and that a loss
of a substantial portion of these suppliers
would have been ‘
devastating
’
for the company. He reasoned that ‘
in
[those]
circumstances it is logical that
Mr Anderson would have been keen to retain the producers, to the
extent that he would have been
prepared to walk the proverbial extra
mile with them
’. He also
attached significance to the fact that ‘
prior
to the financial crisis of October 2008, there was an agreement in
place between the producers and
[the
appellant]
, the terms of which were well
known to the parties concerned. There was no evidence that this
agreement had ever been cancelled
or that it had ever been replaced
by an agreement on different terms
’.
[26]
Those, in summary, were the reasons given
by the court a quo for holding that the respondents’ version
was the more probable
one and deciding that they had discharged the
onus of proving the incidence of ‘the 3c premium’ in
their contracts
with the appellant. In my respectful view, they
do not withstand critical scrutiny.
[27]
When it considered the subsequent conduct
of the parties, the trial court gave no attention to the general
meeting on 23 January
2009 between the appellant and the whole body
of its suppliers that had followed on the meeting with the
committee. In my
view this was a material oversight. If
matters had transpired as the respondents’ case would have it,
I consider that
the suppliers would have regarded the omission of any
mention of Anderson’s alleged belated concession on the premium
question
in his letter of the 14
th
with acute concern and would have sought confirmation of it at the
meeting. Furthermore, no consideration was given in the
judge’s
reasons to the fact that after that general meeting the appellant had
sent letters to each supplier, individually,
indicating the price per
litre the supplier in question might expect to realise for its milk
for the month of January. The
letters explained the indicated
prices ‘
with reference to the new
Lancewood pricing structure, as announced at the meeting 23 January
2009
(sic)’. In the result,
the judge also gave no consideration to the absence of any evidence
of any mention of the premium
at the meeting. If Anderson had
given the undertaking alleged by Robertson and Reitz, it is most
improbable that Zietsman
would not have heard about it; if not from
Anderson himself, then certainly from the suppliers at the 23 January
meeting.
The trial court did not reject Zietsman’s
evidence that he had not been informed of the undertaking allegedly
given by Anderson.
Indeed, Zietsman was found to have been a
satisfactory witness.
[28]
It was obvious from the description of the
new pricing structure, with its peculiar weighting of specific
ingredients in the milk
supplied by each individual supplier, that
different prices per litre would be paid to each supplier, dependent
on the peculiar
character of the milk supplied by it. That was
borne out by the 37c per litre differential in prices between the
highest
and lowest individual prices illustrated by the examples put
in evidence of the letters sent by the appellant to its suppliers in
late January 2009. The judge did not give any attention to how
the three cents minimum premium could practically have operated
in
the context of the discrete pricing structures of the appellant and
Parmalat. There was no evidence as to Parmalat’s
pricing
structure. The appellant’s new pricing structure was
informed by the exigencies of the type of milk
it
needed for
its
product range and the open market prices
it
was able to realise for those products. Parmalat produced a
wider range of products, some of which required milk of a different
character to that needed by the appellant. The essence of the
evidence of Anderson and Zietsman was that, quite apart from
their
Competition Act concerns, it would make no commercial sense to link
the price that appellant could pay to its suppliers to
that paid by a
company whose milk requirements and retail product mix were
materially different. Their evidence was cogently
reasoned and
uncontradicted, but the judge had no regard to its effect. It
weighed heavily against the probability of Anderson
having agreed to
reinstate the previously subsisting premium payment arrangement.
For the alleged premium arrangement to
work, the appellant’s
new pricing structure introduced in January 2009 would have to
replicate that of Parmalat. The
weight of the evidence suggests
that it probably did not.
[29]
Moreover, it was in point of fact not
common cause that the prices paid by the appellant in the first six
months of the year gave
effect to a premium on Parmalat’s
prices. The uncontroverted evidence of the appellant’s
witnesses was that they
did not know what Parmalat’s prices
were. If the respondents had sought to establish that the
appellant’s conduct
during the period January to June 2009
supported their allegation that the premium component had been
incorporated in their supply
agreements, it was for them to show what
the Parmalat prices actually were and how they could be related for
premium calculation
purposes to those paid by the appellant.
They did not adduce any such evidence. The mere say so of
Robertson and Reitz
that the prices paid to them exceeded what they
would have obtained per litre for their milk from Parmalat did not
detract from
the evidence of Anderson and Zietsman that, if correct,
that would have been entirely fortuitous. Having regard to the
materially
different market environments in which the two companies
would have determined their respective price structures, the evidence
of the appellant’s witnesses in this respect was not only
uncontroverted, but also inherently plausible, whereas that of
Robertson and Reitz, by contrast, was entirely unsubstantiated.
If the respondents had sought to make the point the trial
judge took
in their favour, they should have adduced evidence to illustrate
precisely how the appellant’s prices followed
those of Parmalat
and of how all, not just some, of the appellant’s relevant
suppliers were paid a premium on Parmalat’s
prices. There
was no such evidence.
[30]
In reasoning that it was probable that
Anderson would have been prepared to go the ‘
proverbial
extra mile
’ and concede the
suppliers’ demand for the reinstatement of the premium
arrangement, the learned judge a quo took no
account of the evidence
that it was the previously subsisting pricing structure that had
resulted in the appellant company’s
milk acquisition costs
exceeding the income that it was able to realise on its cheeses and
caused the negative cash flow that had
precipitated the financial
crisis into which it had been plunged. With respect, he appears
to have overlooked the effect
of the evidence that there would have
been no commercial point in the appellant retaining its suppliers on
the same terms of business
that had led it into bankruptcy.
Retaining its suppliers was indeed critical - as candidly
acknowledged by Anderson - but
it would not serve any purpose if they
were to be retained on a basis that would not allow the appellant to
operate profitably.
The evidence that the appellant could not
achieve a positive cash flow if the previous pricing structure was
reinstated was unequivocal.
The judgment of the court a quo did
not give any weight to that fundamental fact. It also took no
account of the evidence
that the over-supply of milk in the market
that had prevailed in October 2008, when none of the other bulk
buyers of milk could
take up the business of the appellant’s
suppliers, still persisted in January 2009. That would
undoubtedly have inhibited
the ability of suppliers to transfer their
business freely to other dairy product manufacturers. Anderson
would have known
that he was dealing with suppliers whose business he
would be able to retain if he paid market-related prices. He
would also
have known that the suppliers could not easily transfer
their business elsewhere at that stage even if they wanted to.
Why
in all those circumstances should he have felt constrained to
offer a premium?
[31]
The finding that Anderson was unable to
give a coherent explanation as to why he spoke to the members of the
committee from his
window if he had nothing to add to what he had
already said during the meeting was unjustified in my respectful
view. When
the judge asked him ‘
Hoekom
was dit nodig om dit te herhaal?
’,
Anderson responded ‘
Ek dink nie
dit was nodig nie, ek dink dit was net op die ingewing van die
oomblik het ek gedink ek bevestig dit net weer, u Edele.
’
Anderson could obviously overhear the discussion below his window.
It does not strike me as at all farfetched
that he should have
thought it appropriate in the circumstances to reiterate a
reassurance to the committee members that the loss
of the premium
arrangement would not mean that the suppliers would not be paid a
competitive price for their milk. That he
was in earnest was
borne out by the fact that the appellant cancelled the previously
announced price reduction for January and
in fact paid increased
prices. The appellant also managed to increase the volume of
milk it purchased during 2009 by 55 per
cent over 2008 levels.
It is inherently improbable that it could have achieved that if it
had not been paying competitive
prices to its suppliers. It
also has to be borne in mind that at the date of the meeting with the
committee the state of
play was that the new pricing model had not
been settled. To the knowledge of the committee members it was
still being worked
on.
[32]
In the context of the judge’s finding
that the appellant’s liability to the respondents arose from a
‘new contract’
concluded in January 2009, one cannot
logically attach any significance to the absence of any evidence that
the pre-October 2008
agreements had been cancelled. With
respect, the judge’s reliance on the point manifested an
internal inconsistency
in his reasoning. There was in any event
an abundance of evidence that supported the conclusion that the
previously subsisting
contracts had been abandoned or superseded.
The process commenced with the unilateral reduction in the price paid
by the
appellant to its suppliers by 14c a litre in September 2008
and was confirmed in the ad hoc arrangements put in place from
October
2008, which were continued into January 2009 pursuant to the
letters sent by the appellant to its suppliers on 15 December 2008
and 7 January 2009. The letters sent to suppliers after the 23
January 2009 meeting testified to the introduction of a new
price
structure that was expressly stated to be ‘dynamic’ and
subject to active review and management when needed.
All of
this was inconsistent with the continuance of the pre-October 2008
contractual regime.
[33]
The trial judge was clearly unimpressed by
Anderson’s professed concern about any fixing of the
appellant’s prices with
reference to that of a competitor
giving rise to an infringement of the Competition Act. Indeed,
during Anderson’s
evidence the judge exclaimed that Anderson’s
concern was beyond his understanding. The learned judge appeared to
conceive
that an infringement might occur only in the context of a
price fixing agreement or collusion (
Afr
.
‘sameswering’) between Parmalat and the appellant.
The ambit of the prohibition in terms of
s 4(1)
of the
Competition Act 89 of 1998
actually goes wider than that. But
that is beside the point. The trial court was in no position on
the limited evidence
before it to determine (and thus, nor can we)
whether or not the premium payments had in fact manifested a
prohibited practice
in terms of the competition legislation.
What the evidence did establish, however, was that Anderson had
obtained legal advice
which led him to believe that the practice was
prohibited. It also established that in December 2008 the
appellant had submitted
to an administrative penalty for contravening
the
Competition Act. The
admitted contravention involved an
exchange of pricing information with, amongst others, Parmalat.
Robertson and Reitz confirmed
that Anderson had expressed concerns
about the
Competition Act
at the time. It follows that it is
probable that Anderson was indeed of the opinion, rightly or wrongly,
that the premium
payment arrangement was unlawful. It is a
factor that the court a quo did not weigh appropriately in the
balance when assessing
the probabilities. It is a factor that
should have counted against accepting the respondents’ version.
[34]
The
court a quo did not give any specific instances to support its
criticism of the general character of Anderson’s evidence.
I have been unable to identify anything that would support the
finding that he was evasive or argumentative, or that he refused
to
make concessions that should have been made. It may be that
something about Anderson’s demeanour in the witness
box gave
the trial judge a poor impression of him. Certainly, a reading
of parts of his evidence in chief suggests that he
may well have come
across as nervous, hyper-active and voluble. That could,
understandably, have been off-putting.
The probative quality of
Anderson’s evidence falls to be assessed, however, in the
context of the judge’s misdirections
on the incidence of the
probabilities. It was more important to the determination of
the case for the judge to have had regard
to what the witness said,
rather than how he said it. The situation brings to mind the
observation of Nienaber JA at para
6 of
Martell
et Cie
mentioned earlier,
[8]
and also
these remarks by Nugent JA in a later case: ‘
It
has been said by this Court before, but it bears repeating, that an
assessment of evidence on the basis of demeanour - the application
of
what has been referred to disparagingly as the “Pinocchio
theory”
[
[9]
]
-
without regard for the wider probabilities, constitutes a
misdirection. Without a careful evaluation of the evidence that was
given (as opposed to the manner in which it was delivered) against
the underlying probabilities, which was absent in this case,
little
weight can be attached to the credibility findings of the Court a
quo. Indeed, on many issues, the broad credibility findings,
undifferentiated as they were in relation to the various issues, were
clearly incorrect when viewed against the probabilities
’
(footnotes partly omitted).
[10]
[35]
For all of these reasons I am constrained
to hold that the trial court’s determination that the
respondents had established
the contractual term on which their
claims depended went against the probabilities in the case. The
order that should have
been made was one of absolution from the
instance, with the respondents to pay the costs. The appeal
will therefore be upheld.
The appellants used only one counsel
at trial. The matter does not warrant allowing the costs of two
counsel on appeal.
[36]
Regrettably, it is necessary to criticise
the preparation of the record. It contained a significant
amount of unnecessary
material, namely a transcription of the
argument addressed to the trial court at the conclusion of the trial
(40 pages) and the
written submissions by both sides in respect of
the application for leave to appeal (28 pages). It is
ordinarily inappropriate
to burden an appeal record with matter of
that sort. It unnecessarily increases the costs of the
litigation. Moreover,
matter that should have been included in
the record was omitted, namely the minute of the pre-trial
conference, without which it
was not possible in all respects to
follow the transcript of the opening address by the respondents’
counsel. In the
circumstances it is fitting that the appellant
should be entitled to recover on taxation only 80 per cent of the
costs it would
otherwise have been entitled to in respect of the
preparation and perusal of the record.
[37]
The following order is made:
1.
The appeal is upheld.
2.
The order of the court a quo is set aside
and replaced with the following order:
‘
The
defendant is absolved from the instance with costs, such costs to be
paid by the plaintiffs jointly and severally.’
3.
The respondents shall be liable jointly and
severally for the appellant’s costs in the appeal, save that
the appellant shall
be entitled to recover on taxation only 80% of
the costs incurred in respect of the preparation and perusal of the
record.
A.G.
BINNS-WARD
Judge
of the High Court
We
concur:
P.B.
FOURIE
Judge
of the High Court
K.M
SAVAGE
Judge
of the High Court
[1]
Compare
First
National Bank - A Division of Firstrand Bank Limited v Clear Creek
Trading 12 (Pty) Ltd and Another
[2015] ZASCA 6
(9 March 2015) at paras 8-14 and the other authority
referred to there, notably
Absa
Bank Ltd v Bernert
2011 (3) SA 74
(SCA).
[2]
The
appellant was sued on the basis that during 2009 it had been
substituted as the contracting party in the place of Lancewood
Cheese (Pty) Ltd. The appellant did not dispute that it had
been properly joined as the defendant. To assist the
narrative
I shall refer to both the Lancewood companies indistinguishably as
‘the appellant’.
[3]
Mr
Robertson was the first plaintiff and Mr Reitz was the natural
person behind the corporate personalities which were the sixth
and
eleventh plaintiffs, respectively.
[4]
‘
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.
’
(Per Nienaber JA.)
[5]
Cited in para 26 of the trial court’s judgment. The
learned judge in the same passage also - evidently due to a
transcription error in the preparation of the judgment - appeared to
attribute to Blackburn J the remarks of Harms AJA in
Sonap
Petroleum (SA) (Pty) Ltd (formerly known as Sonarep (SA) (Pty) Ltd)
v Pappadogianis
[1992] ZASCA 56
;
1992 (3) SA 234
(A) at 239I – 240B.
[6]
Union
Spinning Mills (Pty) Ltd v Paltex Dye House (Pty) Ltd and Another
2002 (4) SA 408
(SCA), at para 24. In the current case we
are not concerned with determining ‘secondary facts’.
The question before us is whether the existence of an alleged
primary fact had been proved on the probabilities. In the
context of the parties’ mutually contradictory versions on
that issue, the exercise entailed in making the required
determination
is, however, essentially indistinguishable from that
involved in making findings as to the existence of secondary facts
because
it involves a contextual assessment of the incidence of the
probabilities with regard to facts that are common cause, or
objectively
indisputable.
[7]
The judge actually said ‘Lancewood’, but that was
clearly a slip of the pen.
[8]
See para [12] above.
[9]
Explained by Nugent JA in fn. 2 as follows: ‘…
according
to which dishonesty on the part of a witness manifests itself in a
fashion that does not appear on the record but is
readily
discernible by anyone physically present . . .
’
see A M Gleeson QC ‘Judging the Judges’ 53
Australian
LJ
338 at 344 quoted in Tom Bingham
The
Business of Judging: Selected Essays and Speeches
(2000) Oxford University Press at 10,
[10]
Medscheme
Holdings (Pty) Ltd v Bhamjee
2005 (5) SA 339
(SCA),
[2005] 4 All SA 16
, at para 14