Sun Packaging (Pty) Ltd v Vreulink

• Jurisdiction: South Africa
• Judge: Nestadt JA, F H Grosskopf JA, Harms JA, Olivier JA and Zulman AJA
• Judgment Date: 31 May 1996
• Citation: 1996 (4) SA 176 (A)
• Docket Number: 665/94
• Hearing Date: 24 May 1996
• Counsel: J Gauntlett SC (with him R Petersen) for the appellant. A J Smit SC (with him H ten Brink) for the respondent.
• Court: Appellate Division

Nestadt JA:

In a judgment reported in 1995 (2) SA 326 (C), the Court a quo (Mitchell AJ, sitting in the Cape Provincial Division) refused an application to amend a B plea. The appellant was the applicant. It is the defendant in an action brought against it by the respondent. The application to amend was moved at the commencement of the trial. As will be seen, its object was to introduce an alternative defence to the respondent's main claim. The trial Judge found, however, that the proposed plea did C not disclose a defence and, if granted, would, on this ground, be excipiable. He therefore upheld the respondent's opposition to the amendment. In issue before us is the correctness of this decision. The trial is still pending.

It is necessary to analyse the pleadings in a little detail. The respondent's cause of action against the appellant is based on a contract of employment. The summons D alleges that he first started working for the appellant in 1986. On 22 March 1991, the terms of their relationship were reduced to writing. They were contained in a letter of that date written by the appellant to the respondent. The letter (which is annexed to the summons) commences by referring to the 'concern' which the respondent had E expressed at 'a recent meeting' between the parties 'regarding the future of our company and also your own future within the company, especially in the light of the recent announcement that Holdains have acquired a controlling interest in our holding company. . . .' It is also stated that 'the offer of this contract has come about due to your request for job security in the light of the changes mentioned above'. Against this F background, it is recorded (in clause 1) that with effect from 1 January 1991 the respondent would be employed as a 'Director/General Manager, Speciality Products' at the appellant's factory in the Cape for a period of five years. His 'annual remuneration package' was to be R140 400 (subject to annual revision). In terms of G clause 2 the contract 'will be automatically renewed for a further period of five years unless notice of termination is given by the one party to the other at least six months prior to termination'. Then follows the clause on which this appeal turns. It is clause 3. It reads:

'I confirm that it is an integral part of the Company's policy to remain operative for an extensive period of time - in fact our latest Annual Report H stresses that part of our Mission is "to build Sunpak into a 100-year Company". However, should the Company decide for some unforeseen reason to restrict, limit or in any other way change its operation to the extent that your employment is directly affected, you will be compensated for the premature termination of this contract as follows; Compensation = Unexpired portion of 5 year contract based on annual salary at time of termination with I an escalation of 18% per annum thereafter.'

The final provision is that all other general terms of employment are to be governed by the company's 'Personnel Policy'. The terms of the letter were accepted by the respondent.

I return to the further allegations contained in the summons. They make out the case J that the respondent's concern, to which reference has

Nestadt JA

A been made, was not misplaced. He did not remain in the appellant's employment for the five-year period provided for. Instead, his employment was prematurely terminated by the appellant with effect from 1 September 1992. The reason given by the appellant appears from a letter to the respondent dated 20 August 1992. It is that due to 'the B reorganisation' of the appellant, his position was being 'made redundant'. This, so it must be accepted (for the purposes of this appeal), constituted an 'unforeseen reason to . . . change its operation to the extent that (the respondent's) employment (was) directly affected' within the meaning of clause 3. Relying on it, the respondent's main claim is for payment of an amount of R739 174,37. This, so it is alleged, represents the C compensation due to the respondent for the unexpired portion of his five-year contract, calculated according to clause 3. An alternative claim, based on the appellant's personnel policy, is for payment of R78 553,19.

The appellant's plea admits the alternative claim and tenders payment thereof. The plea D to the main claim, however, raises various defences. One is that the writer of the letter was not authorised to act on behalf of the appellant. Another is that the agreement was a fraud on it. The (alternative) plea which the appellant now wishes to advance seeks to invoke a further defence, viz the protection of the Conventional Penalties Act 15 of 1962. This Act provides, of course, for the enforceability of penalty stipulations in E contracts. The material part of s 1(1) reads:

'A stipulation, hereinafter referred to as a penalty stipulation, whereby it is provided that any person shall, in respect of an act or omission in conflict with a contractual obligation, be liable to pay a sum of money . . . for the benefit of any other person, hereinafter referred to as a creditor, either by way of a penalty or as liquidated damages, shall, subject to the provisions of this Act, F be capable of being enforced in any competent court.'

However, by virtue of s 3, the penalty may be reduced if it is excessive, ie if the Court considers it out of proportion to the prejudice suffered by the creditor. It is on this section...