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IN THE HIGH COURT OF SOUTH AFRICA(WITWATERSRAND LOCAL DIVISION)
CASE NO: 9074/05
Reportable
In the matter between:
SOUTHERN AFRICA ENTERPRISE DEVELOPMENT FUND INC PLAINTIFF
and
INDUSTRIAL CREDIT CORPORATION AFRICA LIMITED DEFENDANT
J U D G M E N T(Revised)
__________________________________________________________________
VAN OOSTEN J
[1] This matter comes before me by way of an exception. The plaintiff has
instituted action against the defendant on two claims, styled “Claim A” and
“Claim B”. In response thereto, the defendant has filed a plea to both claims,
and it has also instituted a counterclaim. The plaintiff has excepted to the
defendant’s alternative plea to Claim B as well as to the defendant’s
counterclaim, on three grounds, to which I shall revert later in the judgment,
on the basis that the defendant’s plea fails to disclose a defence; that the
counterclaim fails to disclose a cause of action and in the alternative to both,
that they are vague and embarrassing.
[2] The plaintiff and defendant companies are both financial services
providers. The plaintiff is a company based in the United States of America. It
is a nonprofitable organization, who by providing financial assistance,
promotes the development of the private sector of Southern African countries,
with the emphasis on previously disadvantaged groups. The defendant, a
South African company, obtains and provides financial assistance, for
example in funding certain projects from which it generates a profit.
BACKGROUND
[3] The plaintiff’s claims in the instant matter arise from an agreement it
concluded with the defendant on 1 February 2003. In terms of the agreement,
styled “Overdraft Facility Agreement” (the “facility agreement”), the plaintiff
agreed firstly, “to procure” by way of concluding a cession of Credit Balance
Agreement as well as a suretyship agreement (“the suretyship”) in favour of
First National Bank (“the bank”) “that the bank shall provide an overdraft
facility” of R5 million to the defendant, and secondly, to use its “reasonable
endeavours” to assist the defendant to obtain within six months project
funding in the amount of R20 million, which was to be used by the defendant
for a socalled smart card health care risk and management system, which
was to be developed by the defendant in conjunction with a company known
as Lengana Technologies (Pty) Ltd. The defendant in turn, apart from its
obligation to repay the amount owing on the overdraft facility to the bank on
certain terms, became obliged to pay to the plaintiff firstly, an “overdraft facility
fee” in an amount equal to 2,5% pa of the overdraft facility amount, by way of
six equal monthly instalments and secondly, upon fulfilment of the suspensive
conditions contained in the agreement, a “commitment fee” of 2% of the
overdraft facility amount. The plaintiff duly signed the suretyship and the
defendant was granted an overdraft facility with the bank for the amount of R4
2
487 500.1The defendant failed to honour its repayment commitments towards
the bank and the bank accordingly demanded payment of the amount of R5
million from the plaintiff under the suretyship, which it duly paid.
[4] The plaintiff’s first claim (Claim A) is for payment of the overdraft facility
and commitment fees2 provided for in the facility agreement, and the second
claim (Claim B) for the repayment of the sum of R5 million, which was the
amount paid by the plaintiff to the bank in terms of its liability under the
suretyship.3 The defendant has pleaded to the claims and it is only necessary
for purposes of the exception to refer to the alternative defence4 pleaded to
Claim B, which is based on the exceptio non adimpleti contractus, and reads
as follows:
“21.2.1 Pursuant to the provisions of the agreement, the Plaintiff was not entitled to exercise any right of recourse against the Defendant on the alleged suretyship if the Plaintiff was in default of its obligations to the Defendant under the agreement.
21.2.2 The Plaintiff defaulted in its obligations to the Defendant under the agreement to procure a facility in an amount of R5 million and/or to use its reasonable endeavours to obtain project funding for the Defendant in an amount of R20 million.
21.2.3 In the premises, the Defendant is excused from paying the Plaintiff any amount that the Plaintiff paid to the Bank pursuant to the provisions of the alleged suretyship.”
[5] The defendant’s counterclaim is for special damages in the amount of R68
951 181, 00 arising from the plaintiff’s alleged breach of an oral agreement of
loan (“the funding loan agreement”). In terms of this agreement the plaintiff
would “as soon as practicable” make available to the defendant a medium
1 This amount is evidently less than the amount of R5m provided for in the facility agreement. The reason for the lesser amount having been granted does not appear from the papers before me. Counsel for the defendant faintly attempted to capitalize on the difference but it is swiftly and effectively laid to rest by the fact that the defendant formally accepted the overdraft facility for the lesser amount, by signing the bank’s letter of grant, to which reference is made later in the judgment. 2 In the sums of R100 000 and R125 000 respectively.3 The total amount of the defendant’s indebtedness to the bank was R5 072 476 – 58.4 The main defence, except for an admission as to the correctness of the bank’s letter granting the overdraft facility, which is annexed to the plaintiff’s particulars of claim, is a bare denial.
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loan facility in the amount of US$2 million, which it is alleged would “…be
utilised by the defendant to repay the defendant’s overdraft to the bank and
thereafter to fund the defendant’s whollyowned subsidiary Explorer Financial
Services (Pty) Ltd (“EFS”)”. The plaintiff it is alleged failed to lend the amount
to the defendant, resulting in the defendant being unable to fund EFS, and
EFS in turn being unable to honour its obligations pursuant to a contract it had
with a company known as Protector Group Holdings (Pty) Ltd (“Protector”),5
thereby losing out on the potentially substantial profit it would have gained
from this contract. In consequence hereof it is pleaded, the defendant’s loan
account in EFS became irrecoverable; its share holding in EFS became
worthless and EFS was unable to pay any dividends to its shareholders. The
damages claimed are alleged to be “the amount that EFS would have been
able to pay to the defendant in reduction of its loan account obligations and/or
by way of dividends from the profit that would have been generated by the
Protector smart card project over a five year period alternatively the amount
by which the value of the defendant’s shareholding in EFS would have
appreciated as a result of profits generated from the Protector smart card
over a five year period”.6
THE EXCEPTIO NON ADIMPLETI CONTRACTUS
[6] It has become wellentrenched that the exceptio finds its application to
contracts to which the principle of reciprocity applies.7 The defence is
available to a defendant where the common intention of the parties,
expressed or unexpressed, is that there should be performance of one
obligation under a contract, subject to the performance by the other party of a
5 In terms of which EFS would supply Protector, and/or its medical aid members, with “smart cards, smart card healthcare risk patient management systems and all technical services related thereto”. 6 By the nature of exception proceedings the allegations contained in the pleadings as they stand, are accepted.7 Motor Racing Enterprises (Pty) Ltd (In Liquidation) v NPS (Electronics) Ltd 1996 (4) SA 950
(A) at 961E; RH Christie The Law of Contract in South Africa 5th Ed p 421.
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reciprocal interdependent obligation.8 The general principles governing the
determination whether obligations of parties to a contract are reciprocal, such
that the exceptio may be raised, have been set out recently by the Supreme
Court of Appeal in Grand Mines (Pty) Ltd v Giddey NO9 where Smalberger
JA, delivering the judgment of the majority of the Court (Schutz JA dissenting
on the facts), stated:10
“Where the common intention of parties to a contract is that there should be a reciprocal performance of all or certain of their respective obligations the exceptio operates as a defence for a defendant sued on a contract by a plaintiff who has not performed, or tendered to perform, such of his obligations as are reciprocal to the performance sought from the defendant. Interdependence of obligations does not necessarily make them reciprocal. The mere nonperformance of an obligation would not per se permit of the exceptio; it is only justified where the obligation is reciprocal to the performance required from the other party. The exceptio therefore presupposes the existence of mutual obligations which are intended to be performed reciprocally, the one being the intended exchange for the other. …”
In casu the question whether the obligations of the parties contained in the
facility agreement are reciprocal, lies at the heart of the plaintiff’s complaint
concerning the exceptio raised by the defendant. The determination of
reciprocity involves a consideration of, on the one hand, the obligations of the
plaintiff to procure the overdraft facility and to obtain project funding to which I
have already referred, and the defendant’s obligation to reimburse the plaintiff
in respect of the plaintiff’s payment under the suretyship,11 on the other. The
basis of the plaintiff’s complaint is that no reciprocity exists between these
obligations and that the defendant’s reliance on the exceptio therefore is
inappropriate. The defendant’s opposing contention is premised on the
reciprocity of the obligations on which the exceptio is based, in support of the
defence that the plaintiff is precluded from recovering (under the actio
mandati) any amount from the defendant.
8 BK Tooling (Edms) Bpk v Scope Engineering (Edms) Bpk 1979 (1) SA 391 (A) at 418B.9 1999 (1) SA 960 (SCA).10 At 965EI.11 Under the actio mandati – as to which see Turkstra v Massyn 1959 (1) SA 41 (T).
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[7] As a starting point an interpretation of the facility agreement is necessary
to decide whether reciprocity applies. In Man Truck & Bus (SA) (Pty) Ltd v
Dorbyl Ltd t/a Dorbyl Transport Products and BUSAF12 Cloete JA held:
“In contracts which create rights and obligations on each side, it is basically a question of interpretation whether the obligations are so closely connected that the principle of reciprocity applies: BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA 391 (A) at 418B and the authorities there quoted. Where a contract is bilateral the obligations on the two sides are prima facie reciprocal unless the contrary indication clearly appears from a consideration of the terms of the contract: Rich and Others v Lagerwey 1974 (4) SA 748 (A) at 761 in fine762A; Grand Mines (Pty) Ltd v Giddey NO 1999 (1) SA 960 (SCA) at 971CD”.
“For reciprocity to exist” Corbett J (as he then was) explained in ESE Financial
Services (Pty) Ltd v Cramer13 “there must be such a relationship between
the obligation to be performed by the one party and that due by the other
party as to indicate that one was undertaken in exchange for the performance
of the other and, in cases where the obligations are not consecutive, vice
versa”.
[8] The obligations under discussion are contained in the same agreement.
That in itself is not sufficient to show reciprocity. Nor would the fact of the
facility agreement imposing a number of interdependent obligations on both
parties, be sufficient to create reciprocity. Both these aspects were dealt with
by Marais JA in Minister of Public Works and Land Affairs and Another v
Group Five Building Ltd14 where the learned Judge said:15
“Reciprocity of debt in law does not exist merely because the obligations which are claimed to be reciprocal arise from the same contract and each party is indebted to the other in some way to the other. A far closer, and more immediate correlation than that is required. See BK Tooling (Edms) Bpk v Scope Engineering (Edms) Bpk 1979 (1) SA 391 (A) at 415H418C.” [9] No express provisions relating to reciprocity are recorded in the facility
12 2004 (5) SA 226 (SCA) at par [12].13 1973 (2) SA 805 (C) at 808/9.14 1996 (4) SA 280 (A).15 At p 288F.
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agreement. I should add in passing that in an agreement of this nature and
magnitude one most certainly would have expected the parties to deal
therewith.16 Be that as it may, the defendant has pleaded the reciprocity of
the agreement as “an implied alternatively tacit term” of the agreement.17 The
term contended for, counsel for the defendant submitted, is necessary to give
business efficacy18 to the agreement. To arrive at the business efficacy
counsel in effect advanced the same arguments as were relied upon in
support of the defendant’s reciprocity argument. I am not persuaded by this
argument. The implied or tacit term contended for does not in any way change
the real nature of the transaction between the parties, nor does it have any
effect on the “business efficacy” thereof. I lastly have no doubt that the
importation of such a term would not meet the requirements of the “officious
bystander test”.19 On the contrary, the implication thereof, in my view, would
lead to the absurd20 consequences of firstly, unjustifiably restricting the
plaintiff’s right to claim reimbursement and secondly, merely providing the
defendant with a hypothetical and unsustainable defence.
[10] What is required is to ascertain the common intention of the parties21
from the provisions of the facility agreement as a whole.22 Of crucial
16 See ESE Financial Services (Pty) Ltd v Cramer, supra at 810GH.17 It is pleaded as follows:“4.2.3.1 the Plaintiff’s right to enforce its right to claim an overdraft facility fee, a commitment fee, or any other amount under the agreements, and/or to call an event of default under the agreement, was conditional and/or dependent upon the Plaintiff complying with its obligations under the agreement (including, without limitation, the Plaintiff’s obligation to procure and overdraft facility in an amount of R5 million and to use its reasonable endeavours to assist the Defendant to obtain the Project Funding prior to the overdraft facility termination date);4.2.3.2 any right of recourse that the Plaintiff might have against the Defendant, consequent upon the Plaintiff carrying out the obligations of the Defendant to First Rand Bank Limited “the Bank”) pursuant to the suretyship agreement (“the suretyship agreement”) (defined in clause 2.39 of the agreement) was conditional and/or dependent upon the Plaintiff complying with the Plaintiff’s obligations under the agreement (including, without limitation, the Plaintiff’s obligation to procure an overdraft facility in an amount of R5 million and to use its reasonable endeavours to assist the Defendant to obtain the Project Funding prior to the Overdraft Facility Termination Date).”18 See Reigate v Union Manufacturing Co (Ramsbottom) [1918] 1 KB 592, 605; TechniPak Sales (Pty) Ltd v Hall 1968 (3) SA 231 (W) at 236F237A; RH Christie op cit 167.19 AJ Kerr The Principles of the Law of Contract 6th Ed p354. 20 Cf Cape Provincial Administration v Clifford Harris (Pty) Ltd 1997 (1) SA 439 (A) at 446HI.21 Cape Provincial Administration v Clifford Harris (Pty) Ltd, supra at 445G.22 Swart en ‘n Ander v Cape Fabrix (Pty) Ltd 1979 (1) SA 195 (A) at 202C.
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importance is to consider the nature of the transaction between the parties.23
In its broadest terms the transaction entailed the plaintiff procuring financial
assistance for the defendant. The assistance the plaintiff would provide
consisted of two related but clearly independent and distinct undertakings:
firstly, to procure the overdraft facility and, secondly, to procure the project
funding. Each of these is dealt with in a separate clause under its own
heading24 in the facility agreement. The two obligations are clearly
severable.25 They are independent both in regard to time and contents, each
serving its own specific purpose. The procurement of the overdraft facility
provided immediate finance to the defendant and was earmarked by the bank
in the letter informing the defendant of the granting thereof (“the facility letter”)
as “working capital“, which the bank provided to the defendant by way of what
it referred to as a “short term direct facility”. As opposed hereto the plaintiff’s
assistance to the defendant in obtaining the project funding was to take place
within six months, which was also the time period the defendant was afforded
in the facility agreement for repayment of the overdraft facility. Counsel for the
defendant sought to find some support for the reciprocity contended for in the
provision contained in the facility agreement, to the effect that upon the
project funding having been obtained, the defendant became obliged within
five days thereof, to repay the overdraft facility in full.26 This obligation being
a term of the facility agreement, he argued, for that reason, is subject to any
defence available to the defendant, including the exceptio. There is no merit in
the argument. The obligation arising from the repayment clause is contained
in the facility agreement, which was concluded between the plaintiff and the
defendant, and to which the bank was not a party. The obligation in the
repayment clause was therefore merely supplementary to and not in
substitution of the conditions of repayment expressly agreed upon between
23 See Sassoon Confirming and Acceptance Co v Barclays Bank 1974 (1) SA 641 (A) at 646B; Cf The Trustees, Bus Industry Restructuring Fund v Break Through Investments (as yet unreported) [2007] SCA 101(RSA) par[15].24 Clause 3(3.1 – 3.8) styled “Overdraft Facility” and clause 3.9 styled “Project Funding”. 25 See Cash Convertors Southern Africa v Rosebud WP Franchise 2002 (5) SA 494 (SCA) at par [21]; RH Christie op cit p366; AJ Kerr op cit 162.26 Clause 3.9.3 of the facility agreement.
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the defendant and the bank in the facility letter. In terms thereof the amount of
the facility would be repayable upon demand, which in fact occurred when
upon the defendant’s default, the overdraft facility was called up by the bank.
[11] In my view there is nothing recorded in the facility agreement linking the
provisions so closely as to show reciprocity. On the contrary, and apart from
the considerations I have already alluded to, the fact of the suretyship
requirement in the facility agreement and the subsequent conclusion thereof,
militate against the notion of reciprocity. The suretyship, although
contemplated in the facility agreement, constitutes a separate agreement
between the bank and the plaintiff, in terms of which the plaintiff bound itself
to the bank as surety for the defendant.
[12] The fact of the suretyship being a separate agreement, counsel for the
defendant submitted, is of no moment as it formed part of one single
composite transaction and therefore should not be considered separately from
the provisions of the facility agreement. The plaintiff’s Claim B is based on the
actio mandati and, so the argument went, cannot succeed unless the plaintiff
has performed its mandate, including the performance by the plaintiff of the
obligations to procure the project funding. The plaintiff, counsel continued to
argue, undertook its suretyship obligations in order to perform its contractual
obligation to procure the overdraft facility, resulting in its right of recourse
under the actio mandati becoming part of the facility agreement by way of
implication. The natural corollary of this, counsel concluded, is that the
plaintiff’s right to recover under the actio mandati is governed and limited by
the terms of the facility agreement, one of which is the defendant’s obligation
to repay the amount of the overdraft, resulting in it being subject to any
available defence, including the exceptio. The underlying reasoning to this
argument, in my view, is fundamentally flawed. The plaintiff’s obligation to pay
the bank upon the defendant’s default to honour its obligations under the
overdraft facility, did not arise from the facility agreement, but exclusively from
the suretyship agreement. Nor does the plaintiff’s right of recourse against the
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defendant arise from the facility agreement. It arises from the fact that the
plaintiff in terms of a tacit mandate from the defendant, paid a debt due by the
defendant to the bank. This is an obligation at common law and for that
reason cannot be reciprocal to the plaintiff’s project funding obligations in
terms of the facility agreement. One further observation: the defendant’s
version reveals the anomaly rightly referred to by counsel for the plaintiff, of
the plaintiff being precluded from recovering money paid by it to the bank to
discharge a debt actually incurred by the defendant, which would lead to the
startling result of the exceptio, if allowed, permitting the defendant to enrich
itself at the expense of the plaintiff. That in my view, cannot be correct.
[13] For these reasons I conclude that the objection raised by the plaintiff is
well founded and it follows that the plaintiff’s exception to the defendant’s
alternative plea to Claim B must succeed.
THE EXCEPTION TO THE DEFENDANT’S COUNTERCLAIM
[14] The plaintiff has raised two causes of complaint against the counterclaim:
firstly, that the defendant purports to pursue a cause of action which in fact
vests in its subsidiary, EFS and, secondly, that the counterclaim lacks certain
essential particulars, resulting in it being vague and embarrassing.
[15] In support of the first complaint counsel for the plaintiff sought to invoke
what has become known as the rule in Foss v Harbottle.27 The rule
embraces the fundamental principle that if a company has been wronged, the
proper plaintiff in an action in respect of the wrong is prima facie the company
itself and not the individual members of the company. The rule extends to the
situation where damages in the nature of diminution of shares in the company
are suffered by members of that company as a result of the wrong. The right
of action in such a case vests and remains with the company. The rule,
counsel submitted, finds its application in the present instance and by its
27 (1843) 2 Hare 461 (67 ER 189). See also Gibson South African Mercantile & Company Law 8th Ed p369.
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operation disentitles the defendant the right of action to claim profits allegedly
lost by EFS, which is a right of action vesting in EFS and not in the plaintiff. In
his opposing contention counsel for the defendant submitted, firstly, that the
exception is based on the misconception that the injury was done to EFS and
not the defendant, whereas it was the defendant, and not EFS, who had
concluded a contract with the plaintiff, and, secondly, that the harm of a
double recovery,28 (ie from the defendant and EFS) which the rule is aimed
at, on the facts of the present matter, is nonexistent. Interesting and
compelling as these considerations against applying the rule may be, I do not
propose to deal with them any further as I am of the view that the issue can
be dealt with on a more fundamental and decisive aspect.
[16] This brings me to the basis upon which the defendant claims damages from the plaintiff.
The claim is for special damages based on breach of contract. Support for the basis upon
which the defendant is claiming damages, is to be found in the judgment of the English Court
of Appeal in George Fisher (Great Britain) Ltd v Multi Construction Ltd, Dexion Ltd (third
party)29 on which counsel for the defendant relied. In that matter the Court of Appeal
answered in the affirmative the question whether as a matter of law, a shareholder of a
company is entitled to recover damages for a diminution in the value of its shareholding in the
company or in the distribution by way of dividends or otherwise of profits of the company,
where such diminution results from loss inflicted on the company by the defendant’s breach of
its contract with the plaintiff. The Court further held that the shareholder, in order to succeed
must inter alia prove that the loss was not too remote “…ie because on the facts known to the
defendant at the time of the contract it was reasonably foreseeable that if the defendant was
in breach of contract, the plaintiff would suffer such a loss”. In our law special damages, as
opposed to general contractual damages, are, as aptly put by Christie,30 “another story”. The
requirements for a claim for special contractual damages to succeed are wellknown: it must
be shown that those damages must have been in the contemplation of the parties and that
the contract must have been entered into on the basis of the parties’ knowledge of the special
circumstances giving rise to the damages.31 In casu those requisites have properly been
28 See Kalinko v Nisbet and Others 2002 (5) SA 766(W) at 779B; McLelland v Hulett and Others 1992 (1) SA 456 (D&CLD) at 467G; Golf Estates (Pty) Ltd v Malherbe and Others 1997 (1) SA 873 (C) at 879I.29 [1995] 1 BCLC 260 (CA) at 264e 267h. 30 Op cit p 551553.31 Lavery & Co Ltd v Jungheinrich 1931 AD 156 at 169/175. Wilkins NO v Voges 1994 (3) SA 130 (A); AJ Kerr op cit 801.
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pleaded.32 Within this framework, there is logically no room for the application of the rule in
Foss v Harbottle, which if applied, would effectively undo what the parties had contemplated.
It follows that the defendant’s pleaded counterclaim discloses a cause of action and the
exception on this ground therefore cannot succeed.
[17] Next, I turn to consider the plaintiff’s cause of complaint that the
defendant’s counterclaim is vague and embarrassing for want of certain
particulars. The complaint is this: The defendant has alleged in the
counterclaim that the loan of US$2 million under the funding loan agreement
would have been utilized to repay the defendant’s overdraft to the bank as
well as to fund the defendant’s whollyowned subsidiary, Explorer Financial
Services (Pty) Ltd. The counterclaim is however silent on the exact
apportionment of the loan amount towards payment of the overdraft facility on
the one hand and the funding of EFS on the other. The plaintiff submits that
the defendant’s failure to mention the amount that would have been utilised to
fund EFS has this significance: it concerns the allegations made by the
defendant relating to the knowledge the parties had when the funding loan
agreement was concluded, in order to found the basis for its entitlement to
special damages. Those allegations in the absence of certainty as to the
amount that would have been utilised to fund EFS, are therefore, so the
argument went, vague and embarrassing. The vagueness and
embarrassment complained of arises, it was submitted, because such amount
constitutes an essential fact the defendant, in claiming special damages, is
required to plead in order to determine what was in the contemplation of the
parties at the time of concluding the loan funding agreement. The perceived
difficulty is shortlived and easily solved upon a plain reading of the
allegations in the counterclaim33 setting out the terms of the funding loan
agreement, as follows:
32 Par 8 of the defendant’s counterclaim reads as follows:“The aforegoing damages flow directly from the plaintiff’s breach of the loan commitment; alternatively it was at all material times within the contemplation of the parties and the funding loan agreement was entered into on the basis thereof, that if the plaintiff breached its obligations under the funding loan agreement as aforesaid, the defendant would suffer damages as aforesaid.” 33 Par 2.6 of the Defendant’s Counterclaim, as amended.
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“The loan amount would be utilized to repay the defendant’s overdraft to the bank and thereafter to fund the defendant’s wholly owned subsidiary…[EFS].” (my emphasis).
The term as pleaded makes it clear that the loan amount was to be utilized
firstly, to repay the outstanding overdraft (which was a known or determinable
amount) and thereafter, whatever was left, to fund EFS. The parties, having
agreed upon the term, obviously had knowledge of the factual contents
thereof, which constitutes the basis for the defendant’s allegation that those
facts were within their contemplation when the agreement was concluded. It
has consequently not been shown that the lack of particularity as to the exact
apportionment of the loan amount by the defendant, will cause the plaintiff
substantial embarrassment.34 The exception on this ground must accordingly
fail.
[18] This is not, however, the end of the matter since it is necessary to refer to
the difficulties I encountered in my consideration of the matter to discern the
nature and amount of the damages claimed by the defendant in the
counterclaim. For the sake of convenience and clarity I will further refer to
these difficulties as “the new issue”. The new issue, although related to, does
not form part of the plaintiff’s causes of complaint in this exception. It also was
not referred to in argument before me. I accordingly requested counsel to
furnish supplementary heads of argument on the merits of the new issue, as
well as on the question whether it would be competent for this Court mero
motu to adjudicate the new issue as one of the issues in this exception.
Supplementary heads of argument were filed for which I express my
indebtedness to counsel.
[19] Counsel for the defendant, unlike his opponent, has declined to agree to
a determination of the new issue in this judgment. The reasons advanced for
the defendant’s stance are fully dealt with in the supplementary heads of
argument but counsel for the defendant has specifically refrained from making
34 Lockhat and Others v Minister of the Interior 1960 (3) SA 765 (D&CLD) at p 777A; Jowell v BramwellJones and Others 1998 (1) SA 836 (W) at p 901902.
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any submissions on the merits of the new issue. I once again invited counsel
to present argument on the merits of the new issue, but this time on the
assumption that the new issue will now be determined. Further supplementary
heads of argument followed but counsel for the defendant regrettably, merely
persisted in the stance the defendant has taken. In view hereof it has become
necessary to consider upfront the question concerning the Court’s
competency to now determine the new issue.
[20] The grounds for the defendant’s objection to the new issue now being
determined are firstly, that it does not form part of the plaintiff’s exception and,
secondly, that the defendant would be prejudiced if it had to deal with the new
issue without it having had the advantage of notice thereof and the
opportunity of rectifying, as provided for in the Rules. In support of the
defendant’s stance counsel for the defendant sought to rely on the judgment
of Heher J (as he then was) in Jowell v BramwellJones and Others35
where the learned Judge, quoting with approval a passage from Goldrein on
Pleadings: Principles and Practice at 89, dealt with and reinforced the well
established principle that an excipient is bound to the grounds of exception
set out in his notice of exception and will not be permitted at the hearing of the
exception or on appeal, to rely on different grounds or to raise a different
exception.36 The corollary to this is, as stated in the passage quoted by the
learned Judge, and in the context of exceptions, that the Court is as much
bound by the terms of the exception as are the parties themselves, and that
the Court “would be acting contrary to its own character and nature” if it were
to enter upon an enquiry of its own and pronounce upon aspects not raised by
the parties.
[21] The procedure that has now been initiated in regard to the new issue, is
clearly distinguishable from the circumstances in which the considerations
referred to above, would find their application. In the present matter the
exception taken by the plaintiff already involves the issue concerning the
35 Supra at 898F899B. 36 Erasmus Superior Court Practice B1 – 163.
14
alleged vagueness and embarrassment of the defendant’s counterclaim. The
new issue similarly strikes at the vagueness and embarrassment of the
counterclaim, albeit more specifically in regard to the damages claimed by the
defendant. The new issue requires argument only and there is no good
reason why another Court, when the matter comes to trial, should be
burdened with an issue that can effectively now be dealt with. And there is this
further advantage: in the event of a finding against the defendant, it will be
afforded the opportunity of returning to the drawing board, thereby ensuring
that the real and properly formulated issues are carried forward to trial. As to
prejudice, counsel for the defendant submitted that the defendant’s prejudice
lies in it being deprived of the opportunity to rectify which it otherwise would
have had if the procedure provided for in the Rules had been followed. This
can of course be cured by an appropriate order affording the defendant the
opportunity to amend, which is the course I propose to adopt. Lastly, the
defendant has raised fears as to the possible costs implication to it of the
proposed procedure, which will effectively be laid to rest when the costs
aspect is dealt with later in the judgment. I am therefore satisfied that the
determination of the new issue in this judgment will not cause the defendant
any prejudice.
[22] Against this background I consider it appropriate and necessary to briefly
comment on the Court’s power to deal with issues mero motu raised by it. I
cannot accept the notion of the Judge merely acting as an umpire in the
adjudication of disputes between parties. It is also the Judge’s duty to ensure
that justice is done.37 If during the consideration of a matter a fundamental
issue arises, which the parties have overlooked or have failed to recognise,
and it is in the opinion of the Judge in the interests of justice, necessary and
convenient to determine that issue, I can see no reason why this cannot be
achieved through a process of fairness to all the parties concerned. Fairness,
I need hardly reiterate, would embrace inter alia that proper notice of the issue
and its proposed determination be given to all parties and further that the
37 Compare the role ascribed to the Judge in a criminal trial by Innes CJ in R v Hepworth 1928 AD 265 at 277.
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principles of audi alteram partem be observed. The possibility of prejudice
always remains an important consideration. In the absence of prejudice the
Court in my view, should not hesitate to adopt such a course in order to arrive
at a just decision of the case. I am fortified in the views I have expressed if
regard is to be had to the judgment of the then Appellate Division in Paddock
Motors (Pty) Ltd v Igesund38 where the Court considered it necessary for
the proper adjudication of a stated case, to allow the appellant to revive an
earlier abandoned contention based on a question of law. In dealing with this
aspect, Jansen JA held:
“If e.g. the parties were to overlook a question of law arising from the facts agreed upon, a question fundamental to the issues they have discerned and stated, the Court could hardly be bound to ignore the fundamental problem and only decide the secondary and dependent issues actually mentioned in the special case. This would be a fruitless exercise, divorced from reality and may lead to a wrong decision. It follows that the Court cannot be confined to in all circumstances to the issues explicitly raised in the special case. This does not mean that the Court will always be free to enlarge the issues, whether mero motu or at the request of a party. The question of prejudice may arise, e.g., where a party would not have agreed on material facts, or on only those stated in the special case, had he realized that other legal issues, not stated in the special case, were involved.”
Finally, in this context, it is apposite to quote the words of caution expressed
by Marais JA in S v Gerbers:39
“…it remains incumbent upon all judicial officers to constantly bear in mind that their bona fide efforts to do justice may be misconstrued by one or other of the parties as undue partisanship and that difficult as it may sometimes be to find the right balance between undue judicial passivism and undue judicial intervention, they must ever strive to do so.”
Having considered the principles and considerations I have outlined above, I
have come to the conclusion that it would indeed be appropriate to now
determine the new issue, and I accordingly proceed to do so.
[23] The new issue, as I have mentioned, concerns the nature and amount of
38 1976 (3) SA 16 (A) at 24AG. See also Dharumpal Transport (Pty) Ltd v Dharumpal 1956 (1) SA 700 (A) at 707F.39 1997 (2) SACR 601 (SCA) at p 607ac.
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damages claimed, in the form pleaded by the defendant in the counterclaim,
which I have already alluded to.40 Firstly I shall deal with the nature of the
pleaded damages. Pared to its essentials the amount claimed is pleaded to
be the amount that the defendant would have received from EFS, in reduction
of its loan account obligations, or in the alternative, the amount of the
diminution in value of the defendant’s shareholding in EFS. Premised on
these allegations, the computation of the damages, is set out in annexure “A”
to the counterclaim, as follows:
“Net Card Profits 32 087 789, 86Net Processing Profits 6 618 750, 00Net Transaction Profits 9 455 357, 14Net Card Based Profits 48 162 005, 00Loan Account Defendant/EFS 20 789 176, 00Total Damages Claim 68 951 181, 00”
The mosaic heads of damages described in the counterclaim defies easy
understanding. The heads of damages as set out in the annexure, are, except
for the reference to the “loan account defendant/ EFS”, the profits of EFS.
This is at odds with the nature of the damages pleaded by the defendant in
the counterclaim, which, as I have alluded to, are the amounts the defendant
would have received from EFS. The annexure reflects the profits of EFS, but
no basis has been pleaded to show what amount would have been paid to the
defendant in reduction of its loan account obligations. No information is
furnished regarding the alleged loan account obligations. It is seemingly
impossible to reconcile the description “loan account defendant/EFS”
contained in annexure “A” with the allegation, as pleaded, referring to the
amount the defendant would have received from EFS in reduction of its
alleged loan account obligations. Compounding the difficulty is the absence of
information pleaded as the amount of the loan obligations. The alternative
pleaded, if anything, merely further muddles understanding. The reference in
the alternative plea to the value of the defendant’s shareholding, simply
cannot be reconciled with the computation of the amounts under the heads of
damages set out in Annexure “A”. The difficulties I have referred to make it
40 Par [5] supra.
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impossible to gather from the pleaded allegations, what the nature is of the
damages, and they therefore strike at the root of the defendant’s
counterclaim. In the light of the foregoing the allegations concerning the
nature of the damages claimed in the defendant’s counterclaim, in my view,
are vague and embarrassing.41
[24] But it does not end there: a further difficulty arises when one attempts to
assess the damages claimed by the defendant. The descriptions of the
various losses set out in annexure “A” are so vague and undifferentiated that
it is plainly impossible to assess the quantum thereof. Uniform Rule 18(10)
provides that “ …a plaintiff suing for damages shall set them out in such
manner as will enable the defendant reasonably to assess the quantum
thereof…”. The defendant has accordingly clearly failed to comply with the
provisions of the Rule.
COSTS
[25] As to costs, the plaintiff has been substantially successful on the
exception it has taken, and is therefore entitled to its costs. The matter, in my
view, clearly warranted plaintiff’s employment of two counsel, which has not
been disputed. All that remains is to add that in awarding costs, I have not
given any consideration to the outcome of the determination of the new issue.
[26] In the result the following order is made:
1. The plaintiff’s exception to the defendant’s alternative plea to Claim B
is upheld.
2. Paragraph 2.1.2 of the defendant’s plea is struck out.
3. The plaintiff’s exception to the defendant’s counterclaim on the ground
41 See Lockhat and Others v Minister of Interior supra, at 777CD, where Henochsberg J held:“The object of all pleadings is that a succinct statement of the grounds upon which a claim is made or resisted shall be set forth shortly and concisely; and where such statement is vague, it is either meaningless or capable of more than one meaning. It is embarrassing in that it cannot be gathered from it what ground is relied on by the pleader. Leathern v Tredoux, 1911 N.P.D. 346, per DoveWilson J.P., at p. 348.”
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that it fails to disclose a cause of action, is dismissed.
4. The plaintiff’s exception to the defendant’s counterclaim on the ground
that it is vague and embarrassing, based on the plaintiff’s third cause of
complaint, is dismissed.
5. Paragraphs 6 and 7 of the defendant’s counterclaim are declared to be
vague and embarrassing, and are struck out.
6. The defendant is given leave, if so advised, to amend its plea and
counterclaim within 20 days of the date of this judgment.
7. The defendant is ordered to pay the costs of the exception, such to
include the costs consequent upon the employment of two counsel.
___________________________FHD VAN OOSTENJUDGE OF THE HIGH COURT
COUNSEL FOR THE PLAINTIFF ADV CDA LOXTON SC
ADV AWT ROWAN
PLAINTIFF’S ATTORNEYS BRINK COHEN LE ROUX
INC
COUNSEL FOR THE DEFENDANT ADV PN LEVENBERG SC
ATTORNEYS FOR DEFENDANT WERKSMANS INC
DATE OF HEARING 17 OCTOBER 2007
DATE OF JUDGMENT 16 NOVEMBER 2007
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