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IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
REPORTABLE
Case number : 2/99
In the matter between :
DATACOLOR INTERNATIONAL (PTY)
LIMITED Appellant
and
INTAMARKET (PTY)
LIMITED Respondent
CORAM : Vivier, Nienaber,
Scott, Zulman JJA, Mthiyane AJA
HEARD : 16 November 2000
DELIVERED : 30 November
2000
Summary :
Anticipatory breach of contract - objective test
for repudiation - whether certain letters amounted to an unlawful repudiation or
merely to an offer to negotiate a termination - election to cancel by conduct -
not communicated to the guilty party by the innocent
party but by a third
party
________________________________________________________________
JUDGMENT
________________________________________________________________
NIENABER JA/
NIENABER JA :
[1] Repudiation has sometimes been said to
consist of two parts: the act of repudiation by the guilty party, evincing a
deliberate
and unequivocal intention no longer to be bound by the agreement, and
the act of his adversary, “accepting” and thus
completing the
breach. So for example Winn LJ remarked in Denmark Productions Ltd v
Boscobel Productions Ltd [1969] 1 QB 699 at 731F-732A:
“Where A and B are parties to an executory contract, if A intimates by word or conduct that he no longer intends, or is unable, to perform it, or to perform it in a particular manner, he is, in effect, making an offer to B to treat the contract as dissolved or varied so far as it relates to the future. If B elects to treat the contract as thereby repudiated, he is deemed, according to the language of many decided cases, to ‘accept the repudiation’ and is thereupon entitled (a) to sue for damages in respect of any earlier breach committed by A and for damages in respect of the repudiation, (b) to refrain from himself performing the contract any further.”
Both the analogy and the language of offer
and acceptance, a legacy from England, have on occasion been deprecated by this
court.
The better view is that repudiation is a breach in itself (Tuckers
Land and Development Corporation (Pty) Ltd v Hovis 1980 (1) SA 645 (A) at
653B-G per Jansen JA); that the “intention” does not in truth have
to be either deliberate or
subjective (Van Rooyen v Minister van Openbare
Werke en Gemeenskapsbou 1978 (2) SA 835 (A) at 845A-846G per Rabie JA) but
is simply descriptive of conduct heralding non- or malperformance on the part
of
the repudiator; and that the so-called “acceptance”, although a
convenient catchword, does not “complete”
the breach but is simply
the exercise by the aggrieved party of his right to terminate the agreement
(Stewart Wrightson (Pty) Ltd v Thorpe 1977 (2) SA 943 (A) at 953E-H per
Jansen JA). This case, and the outcome of the appeal, is concerned with both
“parts”
of repudiation: whether the appellant improperly repudiated
the agreement between the parties (par 16 to 25 below) and if so whether
the
respondent, in response, properly cancelled it (par 26 to 34 below). It also
demonstrates how a wrong perception of the true
nature of repudiation might lead
to false conclusions (par 36 below).
[2] During 1987 the parties concluded a
distributorship agreement. The appellant, then known as Instrumental Colour
Systems Ltd or
ICS, was a company based in the United Kingdom. It appointed the
respondent, a South African company based in Sandton, as its exclusive
distributor for the sale of computerised equipment for the matching, measuring
and dispensing of colour. I shall refer to the appellant
as the plaintiff and
to the respondent as the defendant. In terms of the agreement the plaintiff
was entitled to resell the defendant’s
products in certain specified areas
in Southern Africa and Mauritius. The plaintiff also provided the defendant
with a certain Colour
Match Prediction System which was to be used as a
demonstration system.
[3] For a number of years the arrangement worked well
and both parties prospered from it. But in 1991 the plaintiff, then known as
ICS-Texicon Limited, was taken over by a Swiss conglomerate sometimes referred
to as the Eichoff Group. The Eichoff Group eventually
also took over another
concern operating in competition with the defendant in Southern Africa, known as
ACS-Datacolor, whose managing
director was one Bill Gosling. The Eichoff Group
was intent on restructuring and rationalising its interests in Southern Africa.
It had to decide upon a distributor. The person designated to make that
decision was a certain Willi Cornelius.
[4] During early June 1991 a
director of the defendant, one Steve Mayer, travelled to Frankfurt to meet him.
Mayer put the defendant's
case to Cornelius and was informed by him that a
decision would be taken within a week or so as to whether the defendant or
Gosling’s
company would be appointed as the local distributor of the
plaintiff's products. Mayer stated in evidence that he was not sanguine
about
the outcome of his meeting with Cornelius. His apprehension proved to be
well-founded. On 17 June 1991 Cornelius telephoned
Mayer to inform him that the
decision had gone against the defendant. He was told that the defendant would
in due course receive
an official notification to that effect.
[5] On 25 June
1991 the defendant received two telefaxes, both signed by one Hill. They
arrived at more or less the same time. Since
the outcome of the appeal in large
measure turns on the impression conveyed by these two documents they are quoted
in full. The
one dated 24 June 1991, RW8, was a telefax from
"Datacolor-ACS-ICS", the text of which reads:
“RE: Termination of Distributorship Agreement with ICS Texicon
Dear Steve,
Along with this fax is an official letter of
termination of our Distributorship Agreement with Intamarket. The original is
being
sent by registered post.
As it has been found necessary to take this
unfortunate decision I would have thought you would like to terminate the
Agreement as
soon as possible. With this in mind I feel sure we can agree a
mutually convenient date in the near future and come to some arrangement
regarding the stocks you hold (including the demo., unit).
Let me have your
thoughts on this matter at your earliest convenience.
Kind regards,
(sgd) Barry Hill”
The other, RW9, seemingly the “official letter”, was from ICS-Texicon Limited and dated 25 June 1991. It read:
“Dear Sirs
Distributorship Agreement with ICS-Texicon
Limited
Further to your discussion with my colleague, Mr Cornelius, I
regretfully have to confirm the termination of the Distributorship Agreement
between Intamarket (Pty) Limited and ICS-Texicon Limited.
We would like to
thank you for your support in the past and wish your organisation success in the
future.
Yours faithfully
(sgd)
Barry R T Hill
Operational
Controller.”
[6] Significantly neither of these two communications
contained any reference to clause 16 of the agreement of 1987 which read:
“16. TERM AND TERMINATION
(a) This Agreement shall commence on the date of its execution and shall (subject as herein provided) remain in force for a period of three years from that date and shall continue thereafter unless or until terminated by either party giving not less than twelve months written notice to terminate to the other party expiring on or at any time after the expiry of the said three year term.
PROVIDED THAT the Company shall have the right to terminate this Agreement by notice in writing upon the happening of any of the following events:-
(i) If the Distributor fails to make any payment due hereunder or is guilty of any breach, non-observance or non-performance of its obligations hereunder or any of them and does not remedy the same (if it is capable of remedy) within thirty days of notice of such failure or breach being given by the Company.
(ii) If the Distributor ceases
to carry on business or is unable to pay its debts in the ordinary course of
business or enters into
liquidation (other than for the purpose of
reconstruction or amalgamation) or has a receiver or manager appointed over the
whole
or any part of its assets.
(iii) If the Distributor comes directly or
indirectly under the control of a company competing with the Company.
(iv) If
the Distributor is in breach of any clause within this Agreement.
(b) Upon termination of this Agreement by the Company the Distributor subject to its contractual obligations for maintenance shall have the option to sell to the Company and the Company shall be willing to purchase from the Distributor all the Distributor’s stock of the products including stock for demonstration trial and exhibition purposes and peripherals and spare parts for repairing and maintaining the Products (“The Inventory”). The price to be paid by the Company to the Distributor for the Inventory:
(i) ...
(ii) ...
(c) The termination of this Agreement for any reason shall be without prejudice to the rights and obligations of the parties accruing up to and including the date of such termination.”
[7] The defendant did not immediately respond to these letters. What it did was to put out, within a few days, a circular which it distributed to its own clientele entitled “Important agency announcement” (hereinafter referred to as “the agency announcement”). It read as follows:
“Following the acquisition of ICS-Texicon by the Eichoff Group last year, (this group now controls ACS-Datacolor and ICS-Texicon) a programme of rationalization is taking place within the Group. One result of this is that Intamarket has decided to no longer represent ICS-Texicon and feels that the long term monopolistic situation which has developed as a result of this takeover, is not in the long term interest of our company or the South African market.
We are instead pleased to announce that we now have been
appointed official distributors for Spectrum International Limited of Calne,
Great Britain.
Spectrum was founded some 7 years ago by its present Managing
Director, John van Zwietering, who was formerly MD of ICS. It is therefore
hardly surprising that many of the principles upon which ICS was based, survive
and flourish at Spectrum.
Intamarket will now be in a position to respond
rapidly to any of your colour requirements at prices substantially below those
of
ICS with the added advantage of more user-friendly software. At the same
time there will be no compromise on quality and service.
...
We wish to
confirm that Intamarket will continue to support all of our valued maintenance
customers and that absolutely no problems
are expected in this
regard.
Furthermore it will be no problem to support existing customers on
their present level of CS based software.
Demonstration systems will be
available for your evaluation in the near future and in this regard we wish to
advise that Keith Parrott,
formerly of ICS-Texicon, will be spearheading the
launch of the Spectrum International products on the South African market during
his visit to this territory in July.
We would like to take this opportunity
of expressing our sincerest thanks to you, one of our valued customers, for your
past support
and wish to re-confirm our continued commitment in the area of
total colour management in the future.”
[8] The reference to
Spectrum was a reference to a rival company of the plaintiff’s which
operated in the United Kingdom. Spectrum
was anxious to enter into a
relationship with the defendant for the distribution of its products in South
Africa. Approaches to
the defendant had been made by Spectrum from about May
1991 but it was told by Mayer that the defendant had a commitment to the
plaintiff
and that the defendant was accordingly not free to enter into a
relationship with Spectrum until its agreement with the plaintiff
had come to an
end. When the plaintiff's letters of termination were received the defendant
immediately turned to Spectrum. Wachsberger
and Mayer, the defendant’s
directors, testified that they were confident of cementing a new relationship
with Spectrum. They
were obliged to approach Spectrum, so they explained, as
they needed a lifeline for the continued existence of the defendant. According
to both of them an agreement with Spectrum was only finalised after the agency
announcement had been circularised. This led to the
first order being placed
with Spectrum in early July 1991.
[9] The agency announcement contained a
number of factual misstatements and can rightly be described as disingenuous.
Both the defendant's
witnesses were constrained in evidence to admit as much.
Their attempted justification was that it would seriously have harmed their
business to have admitted that they had been “fired” and that it
was necessary for them to reassure their customers
that the defendant would
continue to serve them.
[10] A copy of the agency announcement was forwarded
to the plaintiff by Gosling (and not by the defendant) and received by it on
28
June 1991. The plaintiff thereupon suspended execution of all further orders to
the defendant. On 19 July 1991 the plaintiff
reacted to the agency
announcement. Its letter of that date reads:
“Dear Sirs
Re: Distributorship Agreement dated 18th September 1987 and made between (1) Instrumental Colour Systems Limited and (2) Intamarket (Pty) Limited (“the Agreement”)
We wrote on 25th June, 1991 giving you the requisite twelve months notice of termination pursuant to clause 16(a) of the Agreement.
We are now in receipt of a letter dated 25th June, 1991 from you to a customer of ICS-Texicon and entitled “IMPORTANT AGENCY ANNOUNCEMENT”. It is stated therein that (a) you have decided no longer to represent ICS-Texicon and (b) that you have been appointed distributors in South Africa for Spectrum International Limited. We are advised that by reason of this letter and by your conduct you have:
1. wrongfully and in breach of the Agreement evinced an intention to be no longer bound by the Agreement. This constitutes a clear repudiation by you of the Agreement which we are entitled to, and hereby do, accept; and
2. that you are clearly in breach of express conditions of the Agreement. We refer you in particular to clause 9 (a) and (b) of the Agreement.
We accordingly, notwithstanding that the Agreement has determined by reason of your repudiation, hereby give you notice pursuant to clause 16(a)(iv) of the Agreement terminating the Agreement, with immediate effect. We also give you notice that we reserve all our rights to recover from you damages for your breach of contract.
We must remind you that on termination of the
Agreement certain restrictions remain on your selling and distributing products
in the
territory for the period of one year after the date of termination of the
Agreement. We refer you to clause 19 of the Agreement.
If we do not receive
your immediate confirmation that you will (a) stop soliciting customers of
ICS-Texicon and (b) you will cease
acting as a distributor for Spectrum
International Limited, we will take vigorous steps to protect our rights and to
enforce the
terms of clause 19 of the Agreement. We, in the meantime, reserve
all our rights against you in this regard.
Please acknowledge receipt of this
letter.
Yours faithfully
(sgd)
B R T Hill
Operational
Controller
for and on behalf of ICS-Texicon Limited.”
The first
paragraph of the letter is controversial. There is no mention in the earlier
telefaxes of clause 16 of the agreement.
It is an issue in this case whether
the clause was simply taken for granted by the plaintiff or whether the
telefaxes, RW8 and RW9,
were sent either in ignorance or in deliberate disregard
of the clause. (Clause 9(a) of the agreement, referred to in the letter,
prohibits the importation, selling or promotion of products similar to those of
the plaintiff; clause 9(b) is not apposite; and
clause 19 contains a restraint
clause.)
[11] The plaintiff's letter was immediately followed up by a letter
from its attorneys, Clifford Chance, dated 22 July 1991, which
was sent by
pre-paid airmail post as required by clause 23 of the agreement.
[12] The
defendant's attorneys eventually responded on 12 September 1999 inter
alia as follows:
“2.1 our client denies that your client’s letter of 25 June 1991 (“the termination letter”) gave our client the requisite 12 months’ notice of termination as required by clause 16(a) of the agreement;
2.2 clause 16(a) of the agreement
expressly provides that the agreement can be terminated by either party giving
not less than 12
months’ written notice to terminate to the other
party;
2.3 the termination letter of 25 June 1991 merely confirms your
client’s termination of the agreement and makes no reference
whatsoever to
the requisite 12 months’ notice of termination;
2.4 the original of the
termination letter was preceded by a telefax dated 24 June 1991 from our client
to which was attached a copy
of the termination letter. In the telefax your
client described the termination letter as ‘an official letter of
termination
of our distributorship agreement with Intamarket’ and went on
to state the following -
“As it has been found necessary to take this unfortunate decision I would have thought you would like to terminate the agreement as soon as possible. With this in mind I feel sure we can agree a mutually convenient date in the near future and come to some arrangement regarding the stocks you hold (including the demo. unit)”;
2.5 your client’s aforementioned correspondence to our client constituted a wrongful and unlawful repudiation by your client of the agreement, which repudiation our client accepted and as a result our client cancelled the agreement and reserved its right to recover damages from your client, alternatively our client hereby accepts your client’s wrongful and unlawful repudiation of the agreement and hereby cancels the agreement and reserves its right to recover damages from your client as a result thereof;
2.6 it was only after receipt of your
client’s letters dated 24 and 25 June 1991 wherein they repudiated the
agreement that
our client prepared and distributed the letter of 25 June 1991
which was entitled “IMPORTANT AGENCY ANNOUNCEMENT” to
which you make
reference;
2.7 your client’s letter of 19 July 1991 is clearly a
contrived effort on the part of your client to endeavour to remedy and
overcome
its wrongful and unlawful repudiation of the agreement constituted by its
letters of 24 and 25 June 1991.”
[13] The plaintiff, known at the
outset of the proceedings as ICS-Texicon Limited but finally transformed as
Datacolor International
(Pty) Limited, instituted action against the defendant
in the Witwatersrand Local Division of the High Court for the payment of
the
purchase price of goods sold and delivered up to June 1991. The claim was
conceded in substance but was met on the pleadings
by a counterclaim for
damages in an amount exceeding the plaintiff's claim. The focus of the case
accordingly shifted to the defendant's
counterclaim for damages for breach of
contract. With the consent of all concerned the question of the quantum of the
counterclaim
stood over until after the determination of liability.
[14] The
matter came before Heher J. He concluded that the two letters, properly
construed, did not
“exhibit a deliberate or unequivocal intention to bring the agency agreement to an immediate end. Put another way, the plaintiff did not act in such a way as to lead the reasonable person to the conclusion that it did not intend to fulfill its part of the contract ...”;
moreover, and in any event, that the defendant
had not properly “accepted” the repudiation; and finally, that the
defendant,
by its own wrongful conduct in entering into an agreement with, and
in importing goods from Spectrum while its agreement with the
plaintiff remained
extant, had committed breaches of contract entitling the plaintiff to cancel it,
thereby disqualifying itself
from “accepting” the plaintiff's
repudiation (if such it was) on 12 September 1991. In the result the
defendant’s
counterclaim was dismissed with costs.
[15] The defendant
took Heher J's judgment on appeal to the full bench of the Witwatersrand Local
Division of the High Court. Three
judgments were delivered. Flemming DJP and
Lewis AJ upheld the appeal and issued a declarator in the following terms:
“It is found that the plaintiff repudiated the contract as alleged in paragraph 7 of the counterclaim and that the defendant was accordingly entitled to cancel the contract, which it did in fact do. The plaintiff is ordered to pay the costs of the proceedings before Heher J.”
Willis AJ dissented. He would have upheld the appeal with
costs. With special leave granted by this court the matter now comes before
it.
Whether the plaintiff by its letters of termination repudiated the
agreement.
[16] “Where one party to a contract, without lawful grounds, indicates to the other party in words or by conduct a deliberate and unequivocal intention no longer to be bound by the contract, he is said to “repudiate” the contract ... Where that happens, the other party to the contract may elect to accept the repudiation and rescind the contract. If he does so, the contract comes to an end upon communication of his acceptance of repudiation and rescission to the party who has repudiated ...”
(per
Corbett JA in Nash v Golden Dumps (Pty) Ltd 1985 (3) SA 1 (A) at
22D-F).
This is the conventional exposition of the operation of the doctrine
of repudiation leading to rescission with its emphasis on the
guilty
party’s intention and the innocent party’s acceptance. At the same
time this court has repeatedly stated that
the test for repudiation is not
subjective but objective (Ponisammy and Another v Versailles Estates (Pty)
Ltd 1973 (1) SA 372 (A) at 387A-C; Stewart Wrightson (Pty) Ltd v
Thorpe, supra, at 953E-H; Van Rooyen v Minister van Openbare Werke en
Gemeenskapsbou, supra, at 845A-846G; Tuckers Land and Development
Corporation (Pty) Ltd v Hovis, supra, at 653B-G; OK Bazaars (1929) Ltd v
Grosvenor Buildings (Pty) Ltd and Another 1993 (3) SA 471 (A) at 480I-481H;
Highveld 7 Properties (Pty) Ltd and Others v Bailes 1999 (4) SA 1307
(SCA) at 1315F-G; 1318A-E; 1318H-J). Thus it has recently been said in
Metalmil (Pty) Ltd v AECI Explosives and Chemicals Ltd 1994 (3) SA 673
(A) at 684I-685B:
“It is probably correct to say that respondent was bona fide in its interpretation of the agreement and that subjectively it intended to be bound by the agreement and not to repudiate it. This fact does not, however, preclude the conclusion that its conduct constituted repudiation in law. Respondent was not manifesting any intention to conduct its relations with appellant and to discharge its duties to appellant in accordance with what it was obliged to do on an objective interpretation of the agreement. In effect, it was insisting on a different contract, however bona fide it might have been in its belief that it was not.”
Conceivably it
could therefore happen that one party, in truth intending to repudiate (as he
later confesses), expressed himself so
inconclusively that he is afterwards held
not to have done so; conversely, that his conduct may justify the inference
that he did
not propose to perform even though he can afterwards demonstrate his
good faith and his best intentions at the time. The emphasis
is not on the
repudiating party’s state of mind, on what he subjectively intended, but
on what someone in the position of the
innocent party would think he intended to
do; repudiation is accordingly not a matter of intention, it is a matter of
perception.
The perception is that of a reasonable person placed in the
position of the aggrieved party. The test is whether such a notional
reasonable
person would conclude that proper performance (in accordance with a true
interpretation of the agreement) will not be
forthcoming. The inferred
intention accordingly serves as the criterion for determining the nature of the
threatened actual breach.
[17] As such a repudiatory breach may be typified
as an intimation by or on behalf of the repudiating party, by word or conduct
and
without lawful excuse, that all or some of the obligations arising from the
agreement will not be performed according to their true
tenor. Whether the
innocent party will be entitled to resile from the agreement will ultimately
depend on the nature and the degree
of the impending non- or
malperformance.
[18] The conduct from which the inference of impending non-
or malperformance is to be drawn must be clearcut and unequivocal, i
e not
equally consistent with any other feasible hypothesis. Repudiation, it has
often been stated, is “a serious matter”
(cf Ross T Smyth &
Co Ltd v T D Bailey, Son & Co [1940] 3 All ER 60 (HL) at 72B;
Metalmill (Pty) Ltd v AECI Explosives and Chemicals Ltd, supra, at
685B-C), requiring anxious consideration and - because parties must be assumed
to be predisposed to respect rather than to disregard
their contractual
commitments - not lightly to be presumed.
[19] Since the test is objective
and the matter is to be approached from the vantage point of the innocent party
(in this case the
defendant) it follows that evidence of Hill, the author of the
letters RW8 and RW9, as to what the plaintiff had in mind when he
drafted them,
would have been irrelevant. By the same token the evidence of the
defendant’s witnesses, Wachsberger and Mayer,
as to what they understood
by, and how they reacted to, the letters was not irrelevant. But such
evidence, although relevant, would
not be conclusive since the approach is that
a court, faced with the enquiry of whether a party’s conduct amounted to a
repudiation,
must superimpose its own assessment of what the innocent
party’s reaction to the guilty party’s action should reasonably
have
been.
[20] Consistent with that approach it further follows that a court in
making its assessment must take into account all the background
material and
circumstances that should have weighed with the innocent party. Such
circumstances would in the present case include:
i) the rumours that were
current at the time that ICS had been taken over by the Eichoff Group; that a
restructuring and rationalisation
of its commercial interests in Southern Africa
was imminent; and that there was a realistic possibility that the
defendant’s
distributorship might be terminated;
ii) the meeting which
Mayer had with Cornelius in Frankfurt early in June 1991 which left Mayer with
the uneasy feeling that the defendant
might have missed the boat;
iii) the
telephonic conversation which Cornelius had with Mayer on 17 June 1991 when the
latter was informed that the decision had
been taken “to go” with
Gosling’s company and that the defendant would in due course be formally
notified of that
decision. No mention was made in the course of that
conversation of a period of notice;
iv) and finally the two crucial letters,
RW8 and RW9, quoted earlier, which were telefaxed to the defendant, the one
dated 24 June
1991 and the other 25 June 1991, both signed by Hill, both
reaching the defendant at more or less the same time, probably on 25 June
1991,
and then forwarded by the plaintiff by registered post in compliance with clause
23 of the agreement.
[21] Much debate was devoted in both courts below and in
this one as to the sense of, and the correlation between, these two letters.
RW9 was “an official letter of termination”. It was so described in
the other letter, RW8 (addressed to “Dear
Steve”). As such RW9
would have been accorded, in the eyes of a reasonable person standing in the
defendant’s shoes,
at least some precedence, in keeping with the
plaintiff’s own ranking thereof. Reading it on its own both its formal
tone
and its contents would have conveyed the message that the agreement between
the parties, far from continuing into the future for
at least another twelve
months, has been brought to an abrupt end. But of course the reasonable reader
would not have read the letter
in isolation. He would have taken account of
RW8 as well. RW8 is written in an entirely different style and tone. While I
agree
that the two letters must be read together, each conveying its own
separate impression, I do not agree with the submissions of plaintiff’s
counsel that they must be conflated into a single letter with a reconstructed
sequence of sentences. Ultimately it remains a question
of what the reasonable
reader in the defendant’s position would have made of it; of the
collective and cumulative impression
created when the two letters are read in
tandem.
[22] Various constructions have been placed on the two letters when
read in conjunction with one another. These may be grouped together
as
follows:
i) In terms of the letters “the plaintiff gave notice to the
defendant terminating the agreement with immediate effect”.
That was the
construction placed on them by the defendant in its counterclaim which was
initially admitted by the plaintiff in its
plea thereto. During the
cross-examination of the defendant’s witnesses the plaintiff, however,
sought an amendment which
despite opposition was eventually granted. It is
quoted in the next sub-section.
ii) “The plaintiff avers that the
letters ‘RW8’ and ‘RW9’ were intended to terminate the
agreement
as provided for in clause 16(a) with the requisite twelve months
notice”. This amendment was in line with the construction
earlier placed
on RW8 and RW9 by the plaintiff in its letter of cancellation of 19 July 1991,
quoted in para 10 above.
iii) The letters served as due notice of twelve
months but with an open invitation to the defendant to negotiate a
reduced
period if that would suit its convenience. That would seem to
have been the interpretation favoured by Heher J.
iv) The letters
“confirmed” the plaintiff’s decision not to continue with the
defendant as its chosen distributor; otherwise they represented nothing
more than an invitation to the defendant to negotiate a premature
termination of
the agreement. As such the plaintiff did not repudiate the agreement. That was
the interpretation advanced on behalf
of the plaintiff in argument before this
court.
v) The letters purported to terminate the agreement forthwith, with
the consequence that no further orders would be executed by the
plaintiff; the
plaintiff was nevertheless prepared to allow the defendant time to close down
their common business and to tie up
loose ends such as the return of stock and
the demonstration model still in the defendant’s possession. That was
essentially
the effect of the evidence of Mayer and was the interpretation
advanced on behalf of the defendant in argument.
[23] Counsel for the
plaintiff advisedly did not seek to support the assertion in the
plaintiff’s own amended pleadings that
the letters constituted due notice
in terms of clause 16(a). In none of the prior conversations between Cornelius
and Mayer, nor
in the letters themselves, was there any mention of the clause.
The clause, moreover, did not provide for a notice period of twelve
months but
for a notice period of not less than twelve months. RW8 and RW9 are entirely
silent as to what the notice period was
supposed to be and when it was supposed
to expire. The view advanced in the plaintiff’s own pleadings and
correspondence that
due notice was given can accordingly be dismissed as
fanciful.
[24] The alternative submission advanced on behalf of the
plaintiff in argument can, in my view, also not be upheld. The argument
went as
follows: the official letter RW9 refers back to the discussion with Cornelius.
In that conversation Cornelius informed
Mayer that the defendant was not the
chosen distributor. That simply meant that the defendant’s
distributorship would have
to come to an end. The official letter, RW9,
confirms that fact. But it is silent, as was the prior notification of
Cornelius,
as to how and when the distributorship would be formally terminated.
This aspect is dealt with in the accompanying letter, RW8.
It expresses, first,
the sentiment that the defendant, now that the decision had been taken to end
the distributorship, would doubtless
prefer it to happen sooner rather than
later; and then it proceeds to invite the defendant’s suggestions, in
order to achieve
an amicable and mutually satisfactory resolution to their
relationship, as to the date when the termination should take effect.
The two
letters, far from constituting a repudiation, were accordingly simply an
invitation to negotiate some date in the future
upon which the distributorship
was to come to an end. As such, so it was contended, it was comparable to the
terms of the letter
discussed in Inter Maritime Management SA v Companhia
Portuguesa de Transportes Maritimos EP 1990 (4) SA 850 (A) at 858G-I:
“ ... in this respect we would welcome your proposal as regards the best course of action in this respect, namely the timing, payment of disbursements connected with PISC commitments as well as repayment of stock capital to IMM and CTM, in order to safeguard the interests of all parties involved.”
I have to disagree. The two situations are by
no means comparable. The supposed parallel ignores the official letter, RW9.
If the
plaintiff was merely intent on an open-ended invitation to negotiate the
end of their relationship, why send two letters? Why mark
the one the
“official letter”? Why thank the defendant for its support in the
past and wish it well for the future?
Mayer expected, after the telephone
conversation with Cornelius on 17 June 1991, a notice in terms of clause 16(a).
Instead he
received the official letter (initially sent by telefax and
thereafter by registered post) and its companion piece, neither of which
referred to the clause. Both Mayer and Wachsberger testified that they
understood the letters to be a termination, to take effect
forthwith, without
further notice. That is why, as a matter of urgent priority, they immediately
turned to Spectrum to preserve
their client base. According to Mayer the first
sentence of the second paragraph of RW8 made little sense to him; the second
sentence
referred to a time for the disposal of stocks (including the
demonstration model) and such like matters. Whatever doubts he may
have had on
reading RW8, so he said, were dispelled by the terms of the official letter,
RW9, which made it perfectly plain that
their relationship had come to an end.
In my view that is precisely how a reasonable reader of the correspondence would
have interpreted
the letters. The dominant notion which the letters convey was
that the distributorship had been irrevocably terminated and that
no further
orders for the plaintiff’s products would be executed; only the actual
winding-up of their affairs remained open
for discussion. Much was made of the
sentence in RW8 “... I would have thought you would like to terminate the
agreement as
soon as possible ...”. Of course, the termination of the
agreement was not a matter for determination by the defendant. The
reasonable
reader would in my opinion regard that sentence as an expression of the
author’s belief that the defendant would
be pleased, rather than
displeased, now that the “unfortunate decision” had been taken to
terminate the defendant’s
distributorship, that their relationship be
brought to a prompt end. The following sentence makes it plain that the
plaintiff is
nevertheless prepared to be accommodating towards the defendant if
the latter should need more time to attend to matters that are
still
outstanding, such as the disposal of unsold stock. There is not the slightest
hint that the plaintiff was considering giving
the defendant due notice in terms
of clause 16(a) should the defendant fail to come up with acceptable
counter-suggestions.
[25] In my opinion the two letters, read together
against the background of the prior exchanges between the parties, would convey
to the reasonable person looking at the matter from the perspective of the
defendant that the termination of distributorship was
a fait accompli
and that no notice in terms of clause 16(a) would be forthcoming, regardless of
how the defendant responded to the invitation contained
in RW8. The clear
impression is that the plaintiff was indifferent to, and did not propose to
comply with, clause 16(a). The dominant
message which the two letters conveyed
was that the defendant would not enjoy at least a further twelve months before
the agency
agreement with the plaintiff was brought to a conclusion. In my view
that was tantamount to an unequivocal intimation on the part
of the plaintiff
that it did not propose to perform its part of the agreement for the remainder
of the stipulated notice period.
As such it was a wrongful repudiation of
sufficient seriousness as to justify cancellation of the agreement by the
defendant.
Whether the defendant properly and timeously exercised its
election to cancel the agreement
[26] The defendant did not for the time
being reply to the letters of repudiation of 25 June 1991. Instead it directed
all its energies
in an effort to contain the damage done to its business (by
the plaintiff’s decision) by commandeering Spectrum to its cause
and by
circulating the agency announcement to its customers. This announcement was
brought to the plaintiff’s attention almost
immediately by Gosling on 28
June 1991. Hill agreed in evidence that upon receipt of it he considered the
distribution agreement
to be at an end. He instructed his staff to hold back
all prior orders placed by defendant. The plaintiff thereupon seized upon
the
agency announcement as a repudiation in itself entitling it to cancel the
agreement. This it purported to do by its letter of
19 July 1991 which was
followed up by a formal letter from its attorneys dated 22 July 1991. The
defendant’s response was
a lengthy letter, dated 12 September 1991, from
its attorney, reiterating that the letters RW8 and RW9 constituted a repudiation
“which repudiation our client accepted and as a result our client cancelled the agreement and reserved its right to recover damages from your client, alternatively our client hereby accepts your client’s wrongful and unlawful repudiation of the agreement and hereby cancels the agreement and reserves its right to recover damages from your client as a result thereof”.
In addition a number of other issues relating
to the dispute between the parties and its sequelae were aired.
[27] The plaintiff’s reading of the situation may be summarised as
follows: on the hypothesis that the letters RW8 and RW9 constituted
a
repudiation, it denied that the agency announcement qualified as an
“acceptance” thereof; instead it was itself a repudiation
which the
plaintiff in turn “accepted”, thereby pre-empting the defendant from
“accepting”, by means of its
attorney’s letter of 12 September
1991, the plaintiff’s own earlier repudiation. This argument was
accepted in substance
by Heher J but rejected by the majority in the court a
quo. I agree with the majority for the reasons that follow.
[28] The
innocent party to a breach of contract justifying cancellation exercises his
right to cancel it a) by words or conduct manifesting
a clear election to do so
b) which is communicated to the guilty party. Except where the contract itself
otherwise provides, no
formalities are prescribed for either requirement. Any
conduct complying with those conditions would therefore qualify as a valid
exercise of the election to rescind. In particular the innocent party need not
identify the breach or the grounds on which he relies
for cancellation. It is
settled law that the innocent party, having purported to cancel on inadequate
grounds, may afterwards rely
on any adequate ground which existed at, but was
only discovered after the time (cf Putco Ltd v TV & Radio Guarantee Co
(Pty) Ltd and other related cases 1985 (4) SA 809 (A) at
832C-D).
[29] In Jaffer v Falante 1959 (4) SA 360 (C) at 362F-G it was
stated:
“Communication to the buyer of the seller’s election would appear to be desirable so as to crystallise the rights and position of the parties to the contract. For it to suffice for the seller merely to decide to cancel the contract without notifying his decision would leave the buyer in an invidious position. It seems to me both on principle and on authority that this is not the law.”
This statement has been approved by this
court in Swart v Vosloo 1965 (1) SA 100 (A) at 105F-H and reiterated in
Miller and Miller v Dickinson 1971 (3) SA 581 (A) at 587H-588A in the
following terms:
“In this Court it was not disputed on behalf of the appellants that in law, in the absence of an agreement to the contrary, a party to a contract who exercises his right to cancel must convey his decision to the mind of the other party and that cancellation does not take place until that happens.”
These dicta may create the impression
that the decision to cancel must of necessity be addressed by the innocent party
to the guilty party.
That would doubtless be the usual situation. The point
in the cases cited was not whether the communication was conveyed by the
innocent party himself but whether it reached the guilty party. None of these
cases was therefore concerned with the somewhat less
typical situation where an
unmistakable election to treat the agreement as at an end is made by the
innocent party but is conveyed
to the guilty party, perhaps coincidentally, by
someone else who is not the innocent party’s agent. Until the innocent
party’s
election is brought to the attention of the guilty party there
will be no finality and hence uncertainty. Such uncertainty is in
any event
inherent in the reasonable spatium deliberandi given to the innocent
party. Once he has declared his decision to cancel it is, of course, in his own
interest to ensure that it
is brought to the attention of the guilty party lest
the latter may retract his repudiation, if that is his breach, thereby
pre-empting
any purported cancellation on his part (cf De Wet & Van Wyk,
Die Suid-Afrikaanse Kontraktereg en Handelsreg, 5th ed, Vol 1,
216). But he is not obliged to do so. Since the election to cancel, provided
that it is unambiguous, need not be explicit
but may be implicit, and since the
cause for cancellation need not be correctly identified and stated, it follows
that the actual
communication of the decision to cancel, once made and
manifested, may be conveyed to the guilty party by a third party. In the
instant case the defendant, by circulating the agency announcement, made its
attitude plain for all the world to see. It regarded
its agreement with the
plaintiff as having come to an end. That decision and the defendant’s
conduct pursuant thereto were
bound to come to the plaintiff’s attention.
On the facts of this case it is accordingly of no significance that the agency
announcement was not sent to the plaintiff by the defendant but by Gosling.
[30] A similar approach is apparent in England. Thus it was said by Lord Steyn
in Vitol SA v Norelf Ltd [1996] AC 800 (HL) at 810G-811B:
“My Lords, the question of law before the House does not call for yet another general re-examination of the principles governing an anticipatory breach of a contract and the acceptance of the breach by an aggrieved party. For present purposes I would accept as established law the following propositions. (1) Where a party has repudiated a contract the aggrieved party has an election to accept or to affirm the contract: Fercometal S.A.R.L. v. Mediterranean Shipping Co. S.A. [1989] A.C. 788. (2) An act of acceptance of a repudiation requires no particular form: a communication does not have to be couched in the language of acceptance. It is sufficient that the communication or conduct clearly and unequivocally conveys to the repudiating party that that aggrieved party is treating the contract as at an end. (3) It is rightly conceded by counsel for the buyers that the aggrieved party need not personally, or by an agent, notify the repudiating party of his election to treat the contract as at an end. It is sufficient that the fact of the election comes to the repudiating party’s attention, e.g. notification by an unauthorised broker or other intermediary may be sufficient.”
And again at 812D-E:
“Similarly, in the different field of repudiation, a failure to perform may sometimes be given a colour by special circumstances and may only be explicable to a reasonable person in the position of the repudiating party as an election to accept the repudiation.”
[31] According to
the trial court the agency announcement did not qualify as “an
acceptance” of the plaintiff’s
presumed repudiation. Several
reasons were advanced. The first was that the announcement did not purport to
be a reaction to the
plaintiff’s own repudiation. Secondly, the defendant
did not intend
“that the circular should serve as a means of communication of any standpoint which it may have adopted in relation to the plaintiff’s conduct in unlawfully terminating the agreement. In the circumstances it is mere sophistry to contend that the defendant informed the plaintiff through the medium of circular that it accepted the repudiation.”
In the third place the agency
announcement only came to the plaintiff’s attention by chance. And
finally it was said:
“I do not agree that communication of ‘an acceptance’ by an unauthorised third party can be effective where the acceptor has not intended that result actually or constructively.”
The authority
relied on is Read Bros (South Africa) Ltd., v Fischer Bearings Co. Ltd.,
1943 AD 232 at 241 which was a case dealing not with the
“acceptance” of a repudiation but with the acceptance of an
offer.
[32] Counsel for the plaintiff on being pressed advanced a not
dissimilar argument. To qualify as “an acceptance of repudiation”
the conduct (if I may paraphrase the submission) must have been an act of
communication calculated to come to the attention of the
guilty party and must
have been recognisable as a response to the repudiation.
[33] In my view both
the approach of the trial court and the comparable argument of counsel for the
plaintiff sought to graft the
requirements of an acceptance of an offer onto the
“acceptance” of a repudiation. The analogy has been stated in
Stewart Wrightson (Pty) Ltd v Thorpe 1977 (2) SA 943 (A) at 952E-954B to
be false. The approach, moreover, cannot be reconciled with the established law
that the manifestation
of the election to cancel may consist of conduct and need
not correctly identify its cause.
[34] Counsel for the plaintiff readily
acknowledged that if the additional requirements for cancellation formulated on
by him and
described in paragraph 32 above were not part of the law, the agency
announcement would qualify as a competent act of cancellation.
That concession,
in my view, was properly made. The agency announcement was at odds with a
continuation of the agreement by the
defendant. As such it constituted, to the
knowledge of the plaintiff, a clear and unequivocal manifestation by the
defendant of
its attitude that, in response to the plaintiff’s letters of
termination, the contract was finally at an end.
[35] In my opinion it must
be accepted that the plaintiff repudiated the agreement by its two letters, RW8
and RW9, and that the defendant
in retaliation elected to treat the agreement as
having come to an end. Those two conclusions effectively dispose of the
appeal.
Whether the defendant was precluded from cancelling the agreement
in terms of its letter of 12 September 1991
[36] I propose nevertheless
to add a few words about the conclusion reached by the trial court, supported by
counsel for the plaintiff,
that the defendant (on the assumption that RW8 and
RW9 did constitute a repudiation and that a reasonable time for its
“acceptance”
had not yet elapsed by 12 September 1991) was precluded
from exercising its assumed right of cancellation. The reasoning, in a
nutshell,
was this: on that postulate the defendant failed to
“accept” the plaintiff’s repudiation by 19 July 1991 when
the
plaintiff lawfully cancelled the agreement; consequently the defendant’s
purported cancellation in September 1991 was
out of time and out of order. The
plaintiff’s letter of 19 July 1991 was a lawful cancellation (so it was
contended) because
the defendant, having failed to “accept” the
plaintiff’s prior repudiation, itself committed breaches of that
agreement
entitling the plaintiff to cancel it. Those breaches were, first, the agency
announcement, secondly, the deal which the
defendant struck with Spectrum and
thirdly, the importation of goods early in July in contravention of clause 9(a)
of the agreement.
The short answer to the entire line of reasoning is of course
that the defendant did not fail to “accept” the repudiation:
the
agency announcement qualified as such, for all the reasons mentioned in
paragraphs 26 to 34. But even assuming in favour of
the plaintiff that the
defendant, subsequent to the plaintiff’s repudiation, itself breached the
contract in a manner which
would have entitled the plaintiff to cancel it, it is
not the complete answer which the plaintiff is seeking. One party, having
repudiated a contract, cannot retroactively nullify it as a potential cause of
action by taking advantage of the opposite party’s
later breach and
cancelling the contract before the opposite party thought of doing so. Assuming
for the moment that the defendant’s
agency announcement constituted not an
act of cancellation but a wrongful breach in itself, the plaintiff’s
cancellation on
19 July 1991, bringing the contract to an end, would undoubtedly
have foiled any attempt by the defendant to cancel it on 12 September
1991.
There was no longer a contract in existence capable of cancellation. The
defendant would have lost the right to cancel but
would it have affected either
party’s cause of action for damages arising from the other’s breach?
I would have thought
not. As it was said in State Trading Corporation of
India Ltd v M Golodetz Ltd (Now Transcontinnental Affiliates Ltd) [1989] 2
Lloyd’s Rep 277 (CA) at 287:
“On the assumption that both parties were in breach of condition, so that each of them could have treated the other as having wrongfully repudiated, neither lost its right to claim damages for breaches by the other irrespective of which of them brought the contract to an end.”
Elusive
issues of causation may of course arise but those can best be left for another
case, another court and another day. Even
on that basis, one that is perhaps
the most generous to the plaintiff, the defendant would not have been
non-suited. The defendant
would only have been non-suited if the act of
repudiation were wrongly assumed to be an offer of breach requiring an
acceptance to
complete it as a cause of action. But that, as has been stated
earlier, cannot be regarded as a sound proposition of law.
The appeal is
dismissed with costs.
...........................
P M NIENABER
JUDGE OF APPEAL
Concur :
Vivier JA
Zulman
JA
Mthiyane AJ
SAFLII:
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