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Ngodwana Mill Ltd v Eggers Transport Consultancy CC (173/95 ) [1998] ZASCA 61 (9 September 1998)

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THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case No 173/95 In the matter between :
NGODWANA MILL LTD        Appellant
and
EGGERS TRANSPORT CONSULTANCY CC  Respondent
Coram: Vivier, Harms, Schutz, Zulman JJA et Melunsky AJJA.
Heard:   31 August 1998
Delivered: 09 September 1998
JUDGMENT
VIVIER JA

2 VIVIER JA:
The respondent ("the plaintiff") is a close corporation carrying on
business as a transport economics consultant. The appellant ("the
defendant") operates a paper mill at Ngodwana in Mpumalanga. The
plaintiff instituted an action against the defendant in the Witwatersrand
Local Division for the payment of fees in terms of a consultancy contract
("the contract") concluded between the parties during June 1988 and
amended during July 1988. The plaintiffs case essentially was that it had
been instructed by the defendant to investigate and report on the latter's
road and rail transport system with a view to effecting cost savings and
improving operational efficiencies; that it had duly carried out its mandate
and made certain recommendations; that the defendant had accepted and
implemented certain of its recommendations and that this had resulted in
substantial savings which entitled it to the fees claimed. Neither the

3 conclusion of the contract nor its terms were disputed by the defendant. It
was denied, however, that the plaintiff had performed its mandate or that any
of its recommendations had been implemented.
During the course of the trial before Botha J it was ordered by
agreement between the parties that the issue of the defendant's liability
under the contract be determined first and separately from the issue of the
quantum of the claims, which was ordered to stand over for later
determination. After evidence had been led and argument heard on the
issue relating to the defendant's liability Botha J dismissed certain of the
claims but granted an order declaring that, save in one respect (which I will
refer to later), the plaintiff had performed its mandate to the extent that the
recommendation contained in para 11(1) of its report dated 25 August 1988
("the Eggers Report") had been accepted and implemented resulting in cost
savings. The defendant was ordered to pay the costs of the action. With

4 the leave of the Court a quo the defendant now appeals to this Court.
The defendant is one of several companies in the Sappi group of
companies and is a wholly owned subsidiary of Sappi Limited ("Sappi").
The latter company operates through a number of management companies
such as Sappi Kraft (Pty) Ltd ("Sappi Kraft"), Sappi Waste Paper (Pty) Ltd
(formerly Saveall Waste Paper (Pty) Ltd) ("Saveall"), Sappi Fine Papers
(Pty) Ltd ("Sappi Fine Papers") and Sappi International (Pty) Ltd ("Sappi
International"). The mills in the group are operated on a decentralised and
autonomous basis. Thus the Ngodwana mill is operated by the defendant
for its own account although it was at first managed by Sappi Fine Papers
and has been under the management of Sappi Kraft since it started
producing kraft liner board (the lining of cardboard boxes) in 1985. Other
mills managed by the latter company are the Tugela mill and the Cape Kraft
mill. The Enstra, Adamas and Stanger mills are managed by Sappi Fine

5 Papers. During 1988 Sappi also acquired the Saiccor mill at Umkomaas
and the Usutu mill in Swaziland. Each of the mills within the Sappi group
was responsible for its own arrangements for the transportation of its
products to its customers
At the time of the compilation of the Eggers Report, kraft liner board
and pulp were railed from the Ngodwana mill to the Reef by the South
African Transport Services (SATS) as it was then known, and paper for
newsprint ("newsprint") was conveyed to the Reef by road by Norman's
Transport Line (Pty) Ltd ("Norman's") in terms of a written agreement
which was due to expire on 31 May 1989. Pulp was railed to the Mondi
paper mill at Durban and pulp, kraft liner board and newsprint for domestic
use were transported to Durban and Isithebe by road. Products sent to
Durban for export were conveyed mainly by rail but also by road. Products
sent to the Eastern and Western Cape were conveyed both by road and rail.

6 The original contract with the plaintiff was concluded on defendant's
behalf by Mr C Casalvolone of Sappi Kraft and its terms appear from a
letter dated 3 May 1985 addressed to Casalvolone. The plaintiffs mandate
was to investigate the defendant's road and rail transport arrangements (both
its own and hired transport) with a view "to effecting cost economies and
improving operational efficiencies". The plaintiff would be entitled to fees
only if any of its recommendations were "accepted and implemented" and
savings effected as a result. No fees were payable unless savings of at
least R10 000 (including tax savings and additional net revenue) were
achieved. The fees payable were the amount of R5 000 or 25 percent of
the first year's savings, whichever was the greater. On 11 July 1988 the
contract was amended when the plaintiff's mandate was extended to include
an investigation of the warehousing arrangements with Grindrod's
Warehousing for newsprint carried by Norman's to the Reef. The

7 extension of the mandate was embodied in a letter addressed to the plaintiff
by Mr S H Walker of Sappi Kraft.
The plaintiffs case on the pleadings was that three of the
recommendations in the Eggers Report were accepted and implemented by
the defendant. The first of these appears in para 11(1) of the section of the
report headed "Railage of pulp, kraft liner board, newsprint and soap
skimmings" and recommends that "together with Mr Van Schalkwyk of
the Tugela mill, Mr Rohrs of the Stanger mill and the responsible member
of the Saveall management team you investigate the possibilities and relative
savings of annulling the current Tugela contract and negotiating a new
contract with SATS for the combined tonnage, at a significantly higher
discount". (Earlier in the report reference is made to a contract between
SATS and the Tugela mill for the railage of the latter's products at an
effective discount of 26,9 percent and to the fact that Saveall was railing

8 waste paper to the Ngodwana mill for use in its production process.)

The second recommendation relied upon by the plaintiff in the pleadings relates to the transportation of newsprint and kraft liner board to Durban and Isithebe. At the trial the claim based on the acceptance of this recommendation was not proceeded with.
The third recommendation relied upon by the plaintiff appears in paras 23 to 30 of the section of the Eggers Report headed "Transportation by road of newsprint to the PWV area". The claim based on this recommendation was dismissed by the Court a quo on the ground that it dealt solely with the transportation of newsprint to the Reef by road and that railage of newsprint was not recommended. The Court a quo held that the recommendation in para 11(1) that all existing rail transport be combined in one contract did not assist the plaintiff since it was specifically not recommended that newsprint be railed to the Reef. There is no cross-appeal

9 against the dismissal of this claim.
During the trial a further claim based on the savings achieved by railing waste paper to Ngodwana was introduced. This claim was dismissed on the ground that any savings achieved were not for defendant's account but for the account of Saveall. There is no cross-appeal against this finding either.
The only issue before this Court is accordingly whether the trial Court correctly held that the recommendation in para 11(1) of the Eggers Report was accepted and implemented by the defendant. Counsel for the appellant correctly conceded that if this was established the plaintiff would be entitled to remuneration. The trial Court held that the defendant implemented this recommendation during 1989 when, together with a number of other companies in the Sappi group, it concluded a comprehensive contract with SATS for the railage of the total combined tonnage of their products at

10 reduced rates ("the 1989 SATS Contract"). The trial court rejected the
defendant's contention that in concluding the 1989 SATS it had no regard
to the plaintiff's recommendations and was not in any way influenced
thereby and that this contract was the result of negotiations with SATS
which had started long before the Eggers Report.
The terms of the 1989 SATS contract as well as those of an earlier
contract ("the 1987 SATS contract") were not in issue. Those of the
1987 SATS contract appear from a letter dated 26 June 1987 addressed by
SATS to Sappi Kraft in which SATS offered to rail paper from the mills at
Ngodwana and Stanger at reduced rates in specially modified rail trucks
called SPLJ's. On 31 August 1987 a further reduced rate for the
transportation of paper from Ngodwana was offered. These offers were
accepted on 2 September 1987. In the case of the defendant the 1987
SATS contract provided only for the railage of paper to Durban. In the

11
event no products were ever transported in terms of this contract and it was not in issue that its sole purpose was to serve as justification for the building of the SPLJ trucks.
In a letter dated 20 June 1989 SATS referred to the 1987 SATS contract, announced that a fleet of 164 SPLJ trucks would be in operation in the near future and enquired whether the defendant wished to continue with the existing agreement or preferred a new agreement to be negotiated. On 3 August 1989 SATS prepared a new draft agreement which was sent to Sappi Management Services (Pty) Ltd, ("Sappi Management Services") which was at that stage the defendant's holding company. Save for the Tugela mill contract which existed prior to this date, it was the first time that a contract for the railage at reduced rates in trucks other than the SPLJ's was proposed. This draft was never signed on behalf of Sappi Management Services and on 16 October 1989 the SATS offer was extended to include

12 further routes at reduced tariffs. Further amendments were thereafter
effected in an ongoing exchange of telefaxes so that the final written contract
was signed only on 29 March 1991, two days before it was due to expire.
It is common cause, however, that from the time it was first implemented on
1 September 1989 the parties regarded themselves as bound thereby.
The 1989 SATS contract was indeed a comprehensive contract. The
parties were Spoornet, a division of Transnet Limited (the successor to
SATS) on the one hand, and Sappi and seven of its subsidiaries, including
Sappi Kraft, on the other. It provided for the railage of a certain
minimum tons of Sappi products consisting of paper, woodpulp, novoboard,
sawn timber and waste paper between points stipulated at reduced rates.
It converted the defendant's transportation of its products to the Reef from
road to rail. It provided for conveyance by rail in DZ-, B-, DJ-, DZA-, DZJ,
DLJ-, SPLJ-, STJ3, STL7 and DGLJ type trucks. Provision was made

13
for the off-loading and warehousing of goods railed to the Reef at the
Kaserne and Natalspruit sidings from where the goods would be conveyed by road to the defendant's clients. Kaserne was used from 1 September 1989, but the defendant was apparently not satisfied with the service at Kaserne and also wanted direct involvement in its warehousing facilities. The 1989 SATS contract was accordingly amended to provide for the offloading and warehousing to take place at Natalspruit private siding from June 1990 by a SATS subsidiary, Forest Products Distributors (Pty) Ltd, under defendant's control.
The trial court held that it was the announcement of the availability of the SPLJ trucks in the letter of 20 June 1989 which sparked off the further exchanges between the parties and which ultimately resulted in the conclusion of the 1989 SATS contract. The trial court said that the agreement relating to rates for railage in SPLJ trucks was a common feature

14 and the link between the 1987 and 1989 SATS contracts and that the one
flowed out of the other. Railage in trucks other than the SPLJ trucks,
however, had no place in the defendant's earlier scheme of things, and the
inclusion of these ordinary trucks in the comprehensive 1989 SATS contract
came as a result of the Eggers Report and was not something which the
defendant had previously considered. The trial Court accordingly excluded
the SPLJ- and all new or modified trucks from the declaratory order
granted by it.
On the question whether the concept of a comprehensive SATS
contract using trucks other than the SPLJ's resulted from the Eggers Report
the defendant's main witness was Mr A Christison. He joined the Sappi
group in May 1983 as export manager of Sappi Fine Papers, which at that
stage managed the Ngodwana mill. From the beginning of 1986 he was
attached to Sappi International as group export and shipping manager for

15 fine print and kraft liner board. In February 1989 he was appointed as
group transport manager.
Christison testified that the Ngodwana mill started producing
newsprint in September 1983 and was scheduled to produce upwards of
2000 tons of pulp and paper a day at full production. After 1985 it also
commenced the production of kraft liner board. From the outset he was
dissatisfied with the condition in which products destined for export were
delivered by SATS at the Durban harbour. Products were often damaged
or soiled beyond repair due to a variety of causes associated with railing the
products in the DZ type rail truck, which was the only type then used by
SATS. An excessive amount of money was spent on repairs caused by
transportation damage and some paper reels had to be repulped. Delays
caused by damaged products affected customer service. The same
problems were experienced with newsprint which was at that time railed

16 to the Reef. This led to an application during late 1983 to the then Road
Transportation Board for a road carrier permit to transport newsprint from
Ngodwana to the Reef and waste paper back to Ngodwana by road. The
application was resisted by SATS and the resultant dispute was only
resolved when review proceedings were decided in favour of Sappi
Management Services in a judgment delivered by Van Zyl J on 4 February
1987 in the Transvaal Provincial Division. At the stage when application
for a permit was made, road transportation was cheaper than rail
transportation. This position was reversed subsequently.
Christison said that the SATS service did not improve after 1983.
During the years 1983 to 1986 he visited a number of overseas countries to
investigate the transportation systems and rail trucks used to convey
products from mills in those countries. During late 1985 he started
negotiations with SATS for the development of a new specialised rail truck.

17 He finally found the truck he was looking for in France and he persuaded
SATS to convert an existing truck to his specifications. The result was the
SPLJ-type truck and the 1987 SATS contract. This contract was, as I have
said, intended to be no more than a commitment from Sappi required by
SATS before commencing the construction of the new trucks. The first
of these came off the production line only in April 1988 and the last in
December 1988. An improved version, the SPLJ2, was first produced in
June 1991.
Christison testified that, despite having concluded the 1987 SATS
contract, the Sappi management was, for a number of reasons, not prepared
at that stage to conclude a comprehensive contract with SATS. He said
that they were not prepared to sign any contract "that even remotely
suggested perpetuating the DZ situation". He described the consequences
of using the DZ trucks as "an ongoing tale of woe and disaster" and said

18 that all the D- and B type trucks were not of an acceptable standard. He
said that the SATS rail service had other serious shortcomings as well. The
transit times were unreliable and a particular consignment could take
anything between two and eleven days to arrive at its destination. SATS
used to hold back trucks and then bunch and dispatch them together either
as a whole train or part of a train. This resulted in large volumes of
products being delivered to customers at the same time which they could
not handle. Sappi therefore considered it essential to have trains running
according to a fixed timetable and for provision to be made for warehousing
at the end of each route before concluding any long term contract with
SATS.
Christison spent the time between February 1988 and July 1988 at the
Houston office of Sappi International in the United States and was unaware
of the Eggers Report until his superior, Mr J Forbes, handed him a copy on

19 13 November 1988 and asked him for his comment. He did so in a letter to
Forbes the next day in which he recommended that "one person be
appointed to negotiate this arrangement to a satisfactory result and thereafter
we get on with taking the sensible parts of this report and include them into
the Groupwide exercise we have advocated". Christison testified that he
realised at the time that the one sensible part in the Eggers Report was the
recommendation in para 11 that a combined contract with SATS be
negotiated. He explained that by the words "satisfactory result" he referred
to "an agreement between Eggers and Sappi as to what was right about it
and what was wrong". He expected the report to cause trouble for Sappi,
and in cross-examination specified the trouble as follows :

"The point is, Mr Christison, as you have told us, the principal reason why you were expecting trouble here, is because there was a sensible portion of the report and on your contention, that was being implemented, but not as a result of the report?

20
You were doing so in any event? — No, I told you what the problem was, it related to the financial arrangements."
There are other passages in Christison's evidence which are to the same effect. They show, in my view, that he was prepared to accept the para 11(1) recommendation in the Eggers Report provided a more reasonable remuneration was negotiated. These passages are consistent with what Eggers testified Christison told him after he had presented his report, as I will show later.
Christison testified that even before he saw the Eggers Report he had on more than one occasion suggested to Forbes that Sappi should undertake a full review of its domestic transport arrangements. The abovementioned recommendation in his letter meant no more than that the Eggers Report be taken into account in the bigger survey he had previously suggested to Forbes. He conceded, however, that he knew very little about what he

21 termed domestic transport prior to his appointment as group transport
manager. In fact, one of the reasons he gave for not taking steps to finalise
the recommendations in the Eggers Report was his lack of knowledge of the
domestic transport market. There is nothing to suggest that Christison
ever discussed matters such as those which form the subject-matter of the
para 11(1) recommendation or the use of trucks other than the specialised
trucks with Forbes. Christison's evidence as to whether he ever
considered negotiating contracts for trucks other than the SPLJ's was
described by the Court a quo as contradictory.
In re-examination Christison changed his stance and declared bluntly that there were no points in the Eggers Report which Sappi could use.
One of the copies of the Eggers Report before the trial Court contained handwritten notes made by Christison when he first read the report. A handwritten note stating "Invalid - already negotiated for Durban

22 exports" was made against para 15 of the report which dealt with the
estimated savings in respect of the para 11(1) recommendation. This note
gives a figure for the Durban exports to the effect that the plaintiffs claim
for remuneration should be reduced by 53 percent due to the plaintiffs
failure to take into account the transport to Durban in the SPLJ trucks. The
trial Court held that his note shows that Christison accepted the merit of the
plaintiffs recommendation and the resultant claim for remuneration at least
in part.
In a memorandum on the Eggers Report to the Sappi Kraft general
manager dated 6 September 1988 Casalvolone referred, inter alia, to the
Tugela mill's contract with SATS and stated that there would be little point
in the defendant concluding a similar independent contract. He continued
as follows:

23
"It is believed though that improved rates are a possibility providing the approach to SATS is encompassing the whole of the Sappi Group requirements, and thus would strongly recommend this route ..."
Casalvolone nevertheless proposed that the plaintiffs recommendation be
rejected and that the plaintiff be "re-engaged on terms to be agreed upon for
the whole group exercise". It would thus seem that Casalvolone, like
Christison, was prepared to accept the plaintiffs recommendation provided
an acceptable remuneration was paid. Casalvolone did not testify at the
trial to explain the passage from his memorandum quoted above which, on
the face of it, indicates an acceptance of the para 11(1) recommendation.
During June to August 1989 Christison, with the assistance of a newly
appointed transport consultant, Ms Agnesia Agrella, undertook a
comprehensive and detailed analysis of the entire transportation and
distribution system of the Sappi group, including that of the Ngodwana mill,

24 whose production by then exceeded that of any other mill in the group.
Christison's analysis was presented to the Sappi board and according to
Forbes it was on the strength of his report that the 1989 SATS contract was
concluded.
The plaintiff called only one witness, Mr Rudiger Eggers ("Eggers")
He was the sole author of the Eggers Report. He testified that he visited
the mill at Ngodwana on 14 June 1988 to commence his investigations. He
spoke to Casalvolone and it was immediately clear to him that
Casalvolone's reasons for not having concluded a comprehensive contract
with SATS were not valid and that his first recommendation would be for
defendant to negotiate such a contract with SATS. The reasons given
by Casalvolone, according to Eggers's notes of the meeting, were that SATS
insisted on tonnage and time commitments and that Casalvolone was afraid
that if market conditions changed or there was a factory break-down

25 defendant would not be able to deliver in terms of the contract. Eggers
knew that these objections could easily be overcome. Together with his
father, Dr Eggers, who was a co-member of the plaintiff, he attended a
number of meetings with the defendant's representatives after completing
the report. When he presented the report on 25 August 1988 he read the
report to the defendant's representatives and left the report with them to
consider. He said that he never heard from them again. He eventually
managed to arrange a meeting on 3 November 1988 with Forbes and Mr K
Jokippi who was the newly appointed chief executive of Sappi Fine Papers.
At this meeting further copies of the Eggers Report as well as a schedule
itemising the recommendations and estimated savings were handed to the
Sappi officials. Dr Eggers recommended that one person be appointed to
negotiate a combined contract with SATS. Forbes and Jokippi undertook
to discuss the appointment of such a negotiator but nothing further was

26
heard from them. Eggers arranged a further meeting with Jokippi which
took place in early January 1989. At this meeting Jokippi said that a negotiator would be appointed shortly. He confirmed this at a further meeting with Eggers on 31 January 1989. At Eggers's insistence another meeting with Forbes took place on 15 March 1989. Forbes then told him that a decision had already been made for the appointment of a negotiator but that his name could not yet be announced. He undertook to notify Eggers as soon as possible so that he could meet the person who had been appointed. Within the next day or two Forbes advised Eggers that Christison had been appointed to the position and a meeting was held with him on 20 March 1989. According to Eggers, Christison criticized the financial implications of the contract and said that he wanted to renegotiate the fee basis. He also offered Eggers other work. Christison gave no indication whether the plaintiffs recommendations were being

27 accepted. Eggers said that he held a further meeting with Christison on a
later date he could not recall. At this meeting Christison said that he
intended "finalising the fine papers arrangement", referring to a report the
plaintiff had compiled for Sappi Fine Papers, before he would entertain any
discussion on the Eggers Report. He again offered Eggers additional work.
At a further meeting with Eggers during August 1989 Christison again said
that he would not discuss the Eggers Report until he had finalised the fine
papers arrangement. He did not hear from Christison again.
The Court a quo held that Christison's initial reaction and comments on the Eggers Report, as well as the treatment which Eggers and his father received at the hands of the Sappi officials during the meetings referred to above, provided strong substantiation for the proposition that the plaintiffs recommendations had been accepted.
The recommendation in para 11(1) of the Eggers Report that a

28
comprehensive contract for the railage of the combined products of the
Sappi mills be concluded seems a very simple one, as Botha J has said in his judgment. The fact remains that, apart from the 1987 SATS contract which provided for the railage of products from the Ngodwana and Stanger mills in SPLJ trucks, defendant did not attempt to do so prior to the Eggers Report. Christison suggested that the main reasons actively considered by him for not concluding a comprehensive contract earlier were the absence of proper warehousing at the end of each route and the irregular train service which made the use of the older type of trucks totally unacceptable. He said that it was the provision of sufficient warehousing and scheduled trains in the 1989 SATS contract which persuaded Sappi to conclude a comprehensive contract using trucks other than the SPLJ's. I have already pointed out that prior to his appointment as group transport manager Christison had limited knowledge of domestic transport in the Sappi group.

29
He clearly had no authority to conclude domestic transport agreements on
behalf of the defendant or any other mill. Both Christison and Forbes conceded in their evidence that the conclusion of a collective contract using trucks other than the SPLJs was never discussed by them.
Christison's reasons for not concluding a comprehensive contract earlier are not convincing. As regards warehousing he conceded that 72 percent of the defendant's total production at the time of the Eggers Report was railed to four destinations where no additional warehousing was required, ie Sappi International in Durban, the Sappi mills at Stanger and Enstra and the Mondi mill in Durban. Under the 1989 SATS contract products were railed to these destinations as before save for the introduction of SPLJ trucks. With regard to the lack of scheduled trains, there was no suggestion that these could not have been introduced as part of the comprehensive contract recommended in the Eggers Report.

30 There are other reasons which come to mind why a comprehensive
contract was not earlier concluded. One is that road transportation of
products from the mills was traditionally cheaper than railage, hence Sappi's
application in late 1983 for a road transportation permit. According to
Christison this position was later reversed so that railage became the cheaper
medium. The Eggers Report reminded Sappi of this fact when it was
stated in para 7 of the report that "SATS will always take the road
transportation rates into account and endeavour to beat them". Another
reason is the autonomy of the Sappi mills. In this regard it should be
emphasised that Christison only became group transport manager, a newly
created post, and commenced his own investigation of the Sappi transport
system, long after the Eggers Report had been submitted to Sappi.
In all the circumstances one is driven to the same conclusion as the
one reached by the trial Court namely that railage in trucks other than the

31
SPLJ trucks had no place in the defendant's scheme of things and that it was
the Eggers Report which caused the use of these trucks to be included in the 1989 SATS contract. I should add that had Christison or the defendant's officials previously considered a comprehensive contract using ordinary trucks, their reaction to the Eggers Report would have been totally different from the one evinced by Christisons's notes and letter, his treatment of Eggers and Casalvoloni's memo to which I have already referred. Their reaction would then simply have been that the Eggers recommendation had already been considered. Instead their reaction shows, in my view, an acceptance and implementation of the recommendation in para 11(1) of the Eggers Report. The fact that this recommendation was included in a contract which also dealt with other aspects is irrelevant. For these reasons the appeal is dismissed with costs.
W VIVIER JA. Harms JA) Schutz JA) Zulman JA) Melunsky AJA) Concurred.

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