Katzenellenbogen Ltd v Mullin

• Jurisdiction: South Africa
• Judge: Wessels JA, Trollip JA, Muller JA, Kotzé JA and Diemont JA
• Judgment Date: 29 September 1977
• Citation: 1977 (4) SA 855 (A)
• Court: Appellate Division

Wessels, J.A.:

The appeal by appellant (hereinafter referred to as defendant) and the cross-appeal by respondent (hereinafter referred to as plaintiff) relate to a judgment given by LE H GRANGE, J., in the Transvaal Provincial Division on 25 August 1976 in terms of which it was ordered

(a)

that, on the claim in convention, defendant pay to plaintiff (i) the sum of R212 500, being the balance of the purchase price due by the former to the latter in terms of a written contract of purchase and sale whereby defendant purchased, inter alia, plaintiff's shareholding in Nicholson and Mullin (Pty.) Ltd. A (hereinafter referred to as N and M), (ii) interest a tempore morae on the aforesaid sum at the rate of 6 per cent per annum 1 January 1972 to

Wessels JA

the date of payment, and (iii) costs of suit;

(b)

that, on the claim in reconvention, plaintiff pay to defendant (i) damages in the sum of R22 751,34, arising out of plaintiff's admitted breach of a material term of the aforesaid contract and (ii) costs of suit, including those consequent upon the employment of two counsel.

The background history of the litigation between the parties may be summarised as follows. It is common cause that up to the time she sold her shareholding to defendant, plaintiff was the B major shareholder in N and M, which owned a profitable sawmilling business in the Witklip State Forest in the district of White River, Transvaal. A licence had been issued to N and M in terms of the Forest Act, 72 of 1968, to operate a sawmill for the processing of logs supplied by the State from its Witklip and Bultfontein plantations in terms of contracts C between it and N and M. The latter obtained the bulk of its log timber requirements from the above-mentioned two plantations. The Department of Forestry had, however, granted permission to N and M to saw timber obtained from privately owned plantations as well. The mill operated by N and M was situated at a convenient distance from plantations owned by G. K. Rankin & Co. (Pty.) Ltd. (hereinafter referred to as D Rankin), one Kay and one Van Santen, and the mill's intake of logs was augmented by supplies from those additional sources.

The defendant, through subsidiary and associated companies, had interests in the timber industry. With a view to extending those interests, it entered into negotiations with plaintiff E for the purchase of her shareholding in N and M. In the result, a written agreement between the parties was concluded on 21 December 1970, in terms of which plaintiff sold to defendant her 4 600 fully paid-up ordinary shares of R2 each in N and M. The purchaser was, in addition, entitled and required to take over the amount owing to plaintiff by N and M (if any) F as at 31 December 1970. Transfer of the shares and cession of the loan account were to be effected on 31 March 1971 (the "transfer date").

G In terms of clause 6 of the agreement, plaintiff gave a warranty relating, inter alia, to the existence on 31 December 1970 and on the transfer date of certain contracts which would secure a supply of softwood logs for milling by N and M. In so far as it is material hereto, clause 6 of the agreement provides as follows:

"6.

I warrant that, at 31 December 1970 and at the transfer date, 'N and M' shall stand possessed of the following assets, free of any encumbrance or hypothecation or any valid claim by any third party:

(a)

All the rights of the 'purchaser' in the following softwood sawlog contracts:

(i)

relating to Bultfontein plantation signed on H behalf of the Department of Forestry on 5 May 1970.

(ii)

relating to Witklip plantation signed on behalf of the Department of Forestry on 21 March 1968.

(iii)

to be concluded (and which I warrant shalt have been concluded) with a certain Rankin for the supply of a minimum 210 000 cubic feet annually of softwood sawlogs 12 foot and longer, for a minimum period of five years from 1 January 1971, stipulating 'forestry log prices' and terms which shall not be more onerous to 'N & M' than those imposed on it in contracts (i) and (ii) above."

The reference to "a certain Rankin" relates to the above-mentioned

Wessels JA

company, G. K. Rankin & Co. (Pty.) Ltd.

It is common cause between the parties that plaintiff did not make good her above-mentioned warranty as to the existence of a contract between N and M and Rankin either on 31 December 1970 A or on 31 March 1971. It is, furthermore, common cause between the parties that plaintiff had by the transfer date performed all her other obligations provided for in the agreement in question. It is also common cause that defendant, who maintained that plaintiff had committed a breach of the aforementioned warranty, had nevertheless elected not to cancel the agreement and had, on the transfer date, taken transfer of B the shares and cession of plaintiff's rights in respect of the loan account.

In February 1972 plaintiff issued a combined summons against defendant in which she claimed, inter alia, payment of the balance of the purchase price (i.e., the aforesaid sum of R212 C 500) together with interest thereon at 6 per cent per annum a tempore morae.

After having entered an appearance to defend the action and having been furnished with further particulars by plaintiff, defendant caused a plea and a claim in reconvention to be filed. The matter has a somewhat lengthy pleading history. However, on 13 June 1975 defendant caused a plea and a claim in D reconvention to be filed, in each case under the heading "as finally amended". In the plea, defendant admitted that payment of the balance of the purchase price was due on 31 December 1971 in terms of the provisions of the above-mentioned agreement, but pleaded that, by reason of plaintiff's admitted breach of the warranty relating to the Rankin contract, the shares delivered by the plaintiff to the defendant were E worth R293 665,12 less than would have been the case had the said warranty not been breached. The aforesaid sum, therefore, represented the quantum of damages suffered by defendant. The F sum was calculated as follows:

(i)

the loss of profits suffered by N and M and which will be suffered over a period of five years as from 1 January 1971, which was itemised as follows:

A. For the year 1971	R37 513,01
B. For the year 1972	R27 605,83
C. For the year 1973	R 9 349,68
D. For the year 1974	R20 866,70
E. For the year 1975 G	R98 329,90
	R193 665,12

(ii)

the sum of R100 000, representing damage caused by the loss of certain additional benefits which would have H inured to the defendant had it not been for the plaintiff's breach of contract.

The hearing before the Court a quo commenced on 22 August 1975. In his opening address defendant's counsel intimated that the amount of loss of profits for the years 1974 and 1975 had been recalculated, resulting in the amount of R20 866,70 (for the year 1974) being increased to the sum of R22 257,18 and the amount of R98 329,90 (for the final year) being reduced to the sum of R71 403,62. The overall result was that the total amount claimed in respect of loss of profits was reduced from

Wessels JA

R193 665,12 to the sum of R168 129,32. The revised figures were incorporated in the pleadings.

It is necessary to set out herein paras. 3,4,5 and 6 of A defendant's claim in reconvention (as finally amended at the trial). They read as follows:

"3. (a)

In so far as the defendant's claim against the plaintiff for the sum of R268 129,32 is concerned, the defendant says that the said sum is made up of-

(i)

the loss of profits which has been suffered by Nicholson & Mullin (Pty.) Ltd.. and which will be B suffered over a period of five years as from 1 January 1971; and

(ii)

the additional benefits which would have enured to the defendant had it not been for the plaintiff's breach of contract, and which have now been lost,

by virtue of the plaintiff's admitted breach C of contract in failing to implement the warranty in terms of clause 6 (a) (iii) of contract 'A', in consequence whereof the shares delivered by the plaintiff to the defendant were worth R268 129,32 less than would have been the case had the said warranty not been breached.

(b)

The manner in which the defendant's loss D arising from the loss of profits by Nicholson & Mullin (Pty.) Ltd. is calculated is fully set out for the calendar year 1971 in annexure 'C' hereto, for the calendar year 1972 in annexure 'D' hereto and for the calendar year 1973 in annexure 'E' hereto, for the calendar year 1974 in annexure 'F' E hereto and for the calendar year 1975 in annexure 'G' hereto, which annexures defendant prays may be regarded as incorporated herein.

(c)

The additional benefits referred to in sub-para. (a) above (and which would reasonably have been taken into account by a potential purchaser of the shares, in the position of the defendant, in order to determine the true value and hence the F purchase price of the shares) are the commercial benefits which would have flowed to the defendant by reason of its control of the quantities of timber which would have been at its disposal had the plaintiff implemented the said warranty.

(d) (i)

The aforesaid damages were the natural and G probable consequence of the plaintiff's breach of the aforesaid warranty.

(ii)

Alternatively

At the time of the conclusion of the written contract 'A' referred to in para. (3) of the particulars of plaintiff's claim, the plaintiff was aware of the following facts H and circumstances and the said contract was entered into on the basis and in contemplation thereof, viz.:

(aa)

that the defendant was the holding company of a number of subisidary...