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Last Updated: 4 September 2004
IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
CASE NO 98/03
In the matter between
TRANSNET LIMITED
Appellant
and
SECHABA PHOTOSCAN (PTY)
LTD Respondent
CORAM: HOWIE P, ZULMAN, FARLAM, LEWIS JJA et
VAN HEERDEN AJA
Date Heard: 1 March 2004
Delivered: 1 April 2004
Summary: Delictual claim for damages – public tender process – tenderer for purchase contract fraudulently deprived of award when due to win tender – whether loss of profits that it would have earned claimable in delict.
J U D G M E N T
HOWIE P
HOWIE P
[1] The primary question in
this appeal is whether on the facts of this case the loss of prospective profits
is compensable in law
as delictual damages.
[2] Transnet Limited (the
appellant), a parastatal corporation, called for public tenders for the purchase
of one of its divisions,
Transnet Production House, which operated a printing
business. Among a number of bidders the respondent company, a well-established
printer, submitted a tender, as did Skotaville Press (Pty)
Limited.
[3] Despite very strong indications emanating from the appellant
during the tender evaluation process that the respondent’s
tender would
succeed, Skotaville was unexpectedly awarded the purchase contract and duly
bought the Production House business. Alleging
that the award to Skotaville
instead of the respondent was the culmination of a fraudulent tender process,
the respondent sued the
appellant for damages in the High Court at Johannesburg.
There were two claims.
[4] At the trial the following was
recorded:
‘1. For the purposes of settling the merits pertaining to the
present trial action (and for no other purposes), the First Defendant
concedes
the allegations contained in paragraphs 6 to 12 of the Plaintiff’s
particulars of claim as amended.
2. The First Defendant accordingly admits
that the Plaintiff has suffered damages and that the First Defendant is liable
in respect
thereof.
3. Accordingly, the only issue to be determined between
the parties is one of “quantum”, ie whether the Plaintiff is
entitled to the relief set out in its main claim, its alternative claim, or
alternative relief
plus interest and costs.’
[5] In the light of
those concessions and the consequent admission only one claim is relevant now.
In terms of that claim compensation
was sought in the sum of R60 689 000 being
the net profit which it was alleged the respondent would have been able to make
in the
three years following the purchase had it been awarded the contract. The
respondent maintained that the appellant’s fraudulent
conduct had
prevented it from earning that profit.
[6] The learned trial judge (Snyders
J) proceeded to hear evidence on the quantum of damages. The respondent
called three witnesses. They testified to facts, opinions and calculation data,
all of which related to
three years’ net profit which they said the
respondent would have earned had it conducted the business of Production House.
In the course of cross-examining these witnesses counsel for the appellant
foreshadowed certain factual evidence for the appellant
but it was not in the
end adduced. The tenor of the only evidence which the appellant did lead simply
offered some criticism of
the method by which the respondent computed its
alleged damages. That was a line of defence not pursued with the
respondent’s
witnesses. Having reviewed and considered the
respondent’s evidence, the learned trial judge held it to be essentially
unchallenged
and she accepted it. After making a 5 per cent contingency
deduction, she awarded the respondent R57 654 550 as damages. With
her leave the
appellant appeals.
[7] The main thrust of the argument for the appellant was
that the respondent had sought to be placed in the position it would have
been
in had this been a case for contractual damages, that is, to have its bargain
made good. The claim being one in delict, however,
the respondent was not
entitled to compensation according to that measure but only to such
out-of-pocket expenses as it had incurred
in preparing and making its bid. The
trial court, it was urged, had therefore erred in awarding damages that were not
recoverable
in law for the wrong that had been done. It must be said that this
was not a point taken at the trial or dealt with by the trial
court in its
judgment.
[8] It is unnecessary for present purposes to refer to the
particulars of claim relative to the issue of liability. Although the respondent
resisted the appellant’s doing so for the first time on appeal, it is
clear, in my view, that despite this not having been
raised at the trial, it was
open to the appellant to advance the contention that the loss of prospective
profits was not, as a matter
of law, a type of loss which could be taken into
account in quantifying a delictual damages claim of the present kind. That
question
was not excluded by the settlement agreement on the merits. It was an
integral part of the enquiry into quantum.
[9] The appellant’s
main submission rested on three bases: a well known dictum in the case of
Trotman v Edwick;[1] a passage
in the case of Olitzki Property Holdings v State Tender Board and
another;[2] and authority which,
according to the submission, holds that a claimant in delict is entitled to
negative interesse, not positive interesse.
[10] The dictum in
Trotman v Edwick reads as follows:
‘A litigant who sues on
contact sues to have his bargain or its equivalent in money or in money and
kind. The litigant who sues
on delict sues to recover the loss which he has
sustained because of the wrongful conduct of another, in other words that the
amount
by which his patrimony has been diminished by such conduct should be
restored to him.’
It does not seem to me that that statement assists
the appellant. First, Trotman’s case was one of fraud inducing a
purchase where the land bought was, because of the fraud, not worth the price
paid. In our case
the fraud prevented the purchase of a business that had, on
the evidence, a highly desirable profit-earning potential. Accordingly,
there,
it was a case of diminution of the value of the plaintiff’s assets;
trading profits did not come into it. Here, by contrast,
it is all about the
trading profits that the respondent was due to be able to make but where the
opportunity to earn them was deviously
denied.
[11] Second, the court
approved the perennially true statement that the aim in awarding delictual
damages is to put the injured party
in the same position as he would have been
in but for the delict.
[3]
[12] Third, the court in
Trotman was careful to guard against laying down a formula applicable to
all cases of fraud of the nature involved there, that is, fraud
inducing a
contract. It did not seek to comment at all on fraud having the results involved
here.[4] Finally, even in the quoted
passage the formulation of the delictual measure of damages is wide enough to
include, in a suitable
case, loss of profits.
[13] The appellant’s
reliance on the Olitzki decision is also of no assistance to it. That
case did involve a loss of profits claim but it was not a case of a tenderer
being
dishonestly deprived of a contract which it would otherwise have been
awarded. There, the plaintiff tenderer was not defrauded. Alleging
an irregular,
unreasonable and arbitrary tender process, it sought, in the words of this
court, ‘to evoke a delictual remedy
from the interstices of the interim
Constitution’[5] on the ground
of unlawful administrative action, and to be placed in the same position as it
would have been in had it been awarded
the contract. Apart from the fact that
the plaintiff could not possibly have shown that it would have been awarded the
contract but
for the alleged wrongful conduct, the question in that case was not
whether loss of profits was claimable in delict but whether there
was a
delictual claim at all. It was in that context that Trotman’s case
was referred to [6] in order to
illustrate that it was inappropriate, by judicial interpretation, to deduce a
legislative intention to accord a claim
for the benefits of a lost bargain when
the clear intention of the constitutional provision under discussion
[7] was that the very matter of State
procurement of goods and services had to be regulated by subsequently passed
legislation. It was
accordingly unnecessary for the court to decide whether, if
a delictual claim lay, loss of profits was recoverable pursuant to it.
One
might add that, as a broad generalisation, contractual damages claims by and
large do concern recovery of loss of profits whereas
delictual claims, by and
large, do not. The Trotman statement was therefore an effective
illustration by means of which to show that the terms of the interim
Constitution did not warrant
the conclusion that they necessarily afforded the
plaintiff a delictual claim. Further than that the Olitzki case, in
presently relevant respects, did not go.
[14] Turning to the third base of
the appellant’s argument, the legal position is briefly this. The Roman
id quod interest (literally, that which is between; broadly, that which
makes up the difference) could afford a damages claimant not only out-of-pocket
losses but loss of profits as well.[8]
In medieval times the word interesse came into use but it simply denoted
all the damages that had to be paid.
Voet[9] defined interesse as
‘the deprivation of a benefit and the suffering of a loss through such
fraud or negligence on the part of an opponent as
he is liable to make good and
as is assessed in fairness by the duty of the judge’ (Gane’s
translation). It was nineteenth
century German scholarship that drew the
distinction between positive and negative
interesse.[10] Specifically
with regard to delict, this court has referred to the difference between the
patrimonial position of the plaintiff before
and after the delict, being the
unfavourable difference caused by the
delict.[11]
[15] It is now
beyond question that damages in delict (and contract) are assessed according to
the comparative method.[12]
Essentially, that method, in my view, determines the difference, or, literally,
the interesse. The award of delictual damages seeks to compensate for the
difference between the actual position that obtains as a result of the
delict
and the hypothetical position that would have obtained had there been no
delict.[13] That surely says enough
to define the measure. There appears to be no practical value in observing the
distinction between positive
and negative interesse in determining
delictual damages.[14] It is a
distinction that tends to obscure rather than clarify. If to award the
difference means necessarily awarding loss of profits
then it does not assist
first to ask what positive interesse and negative interesse
comprise.
[16] The idea that loss of profit is not recoverable in delict is
not historically founded.[15]
Indeed, the converse is the
case.[16] Moreover, it is commonly
the subject of an award of damages for loss of earning capacity in personal
injury cases. Why should it
matter that the injury is not physical but economic,
as long as the loss is one of earning capacity? Take the example of the owner
of
a taxi that is negligently damaged. He has a claim for the profit lost while the
vehicle is out of action.[17] Can it
make any difference if, subject to quantification, the delict is committed when
he has just bought the vehicle, before commencing
business? I think not. Nor can
it matter if the loss were caused by fraudulent conduct, not negligence.
Clearly, the loss would impair
his earning capacity and that is part of his
patrimony. The claimant in the present case is a company. Once again, that can
make
no difference. Its patrimony has been impaired by having the bargain that
it was on the point of acquiring dishonestly snatched away.
[17] Accordingly,
in my view there is nothing in principle or the facts which bars recovery of
damages by way of loss of profits in
this case. It follows that the
appellant’s main submission must fail. The respondent is entitled to be
placed in the position
it would have been in but for its having been
fraudulently deprived of the purchase that it was destined to be
awarded.
[18] The appellant’s next submission was that the trial court
had wrongly relied on oral evidence of the contents of certain
written service
level agreements in determining the profits that the respondent would have made.
These were agreements between Production
House and various other divisions of
Transnet which regulated the quality of work to be done by Production House in
terms of supply
contracts which Production House had with those divisions and
pursuant to which it did their printing work. On the evidence it was
these
supply and service level agreements which provided the essential attraction for
tenderers who sought to buy Production House.
They constituted ready-made
business with ‘captive’ clients. According to the appellant’s
argument it was not possible,
on the evidence led, adequately to quantify loss
of profits without knowing the contents and the duration of the service level
agreements.
Consequently admission of oral evidence on those matters infringed
the best evidence rule, the hearsay rule and the principle that
a plaintiff had
to lead all such evidence as would permit the court properly to assess its
damages.
[19] These grounds of attack were not raised in the notice of
application for leave to appeal. They emerged for the first time in
the notice
of appeal subsequent to leave having been given. What happened at the trial was
this. When the first of the respondent’s
witnesses, Mr M Visser, who was
personally involved in the conclusion of the service level agreements, was asked
about their contents
in evidence-in-chief there was no objection by counsel for
the appellant. (The appellant was represented at the trial by senior and
junior
counsel. It was represented by different senior and junior counsel on appeal.)
Under cross-examination Mr Visser was in fact
invited to state what the contents
of the agreements were. He did so unrestrictedly and at length. There was never
a suggestion during
cross-examination, much less an accusation, that he was
uniformed on the subject or that his evidence thus elicited was for any reason
to be ignored. In re-examination he said the real value of Production House to
the respondent was its relationship with Transnet
and its other divisions which
relationship was founded on the service level agreements that he had put in
place. Once again, there
was no objection or challenge from the
appellant’s counsel.
[20] The second witness, Mr W Petersen, referred
only briefly to the agreements in evidence- in-chief. He did not mention their
contents.
[21] The last witness for the respondent, Mr A de Aguiar, gave
detailed evidence-in-chief about the agreements. He did so without
objection by
the appellant’s counsel. In cross-examination no attack was made upon
either the admissibility or the content
of that evidence.
[22] In the
circumstances just outlined the service level agreements were never in
contention either as to the admissibility of oral
evidence concerning their
contents or as to the contents themselves. The trial court was therefore fully
justified in having regard
to that evidence and relying on it. It is nothing
less than ironic that Transnet raises this complaint when the parties to the
agreements
concerned were all part of Transnet. The second submission cannot
succeed.
[23] The third and final submission for the appellant was, in
effect, that had the admitted fraud not been perpetrated and the purchase
contract been awarded to the appellant, it would in any case have had to pay the
purchase price (R10 million) and this sum fell to
be deducted from the proved
damages.
[24] This contention does not appear to have been raised in argument
before the court below for it is not mentioned in its judgment.
What appears in
the evidence is that Mr Petersen was asked in cross-examination whether the
deduction should be made and said he
did not know how to answer the question.
There are also portions of Mr de Aguiar’s evidence in which he discussed
what he called
‘exit value’ after expiry of the service level and
supply agreements. I shall revert to his evidence presently.
[25] If the
Production House business was, on the facts in the respondent’s
contemplation, not due to have any real value after
expiry of those agreements,
in other words, if it was bought solely to exploit those agreements until they
had become a spent force,
it might be a tenable argument that the R10 million
purchase price, being the cost of the profit-generating enterprise, should be
deducted as itself part of the cost of making the contemplated profits. It would
be otherwise, however, if, in line with a purchase
price normally being capital
expenditure, the purchased capital asset was expected still to be there after
the three years, having
retained, or perhaps increased its value. In the latter
event the respondent’s calculations, as accepted by the trial court,
would
in my view rightly have excluded any deduction of the purchase price.
[26] Mr
de Aguiar, to whom I have already referred, is a chartered accountant with tax
and business experience. At the time of trial
he was chief executive of a
company, Corporate and Merchant Advisers Limited, which he himself had started.
He conducted a due diligence
test before the respondent’s bid was
submitted and helped to formulate the bid. He was also involved in the
computation of
the damages assessment on which the respondent relied in the
court below, having taken into account the facts and opinions of the
other two
witnesses and his own knowledge and expertise. He was pre-eminently the witness
to whom the point under discussion should
have been put. It was not.
[27] A
brief summary of Mr de Aguiar’s evidence relative to the role and function
of the purchase price and the prospects of
an exit value is as follows. The
purchase price mainly represented the acquisition of goodwill in the form of the
existing agreements
with Transnet’s other divisions. Only a small part of
the price represented the acquisition of physical assets and it was contemplated
that most of them, comprising equipment possessed by Production House, would
have been scrapped or just not used by the respondent.
Both the purchase price
(being input value), and the exit value after three years were capital items,
whereas the damages claim focused
solely on income and expenditure. The witness
said that if the respondent had conducted the business for three years, then,
working
on a contemplated after-tax profit in the third year of R16 million, and
applying the standard valuation used for companies quoted
on the Johannesburg
Stock Exchange of a price/earnings multiple of 4, the exit value would have been
about R64 million. He went
on to say that it was not contemplated that new
plant would have been bought in the three years. Any surplus work beyond the
capacity
of the respondent’s own equipment and the purchased equipment
would have been outsourced. He then said:
‘Thereafter, having built up
profits and having the capacity to fund and acquire new machinery the business
would look to acquire
new machinery because the plan was not only to service
Transnet but it was going to be one of the customers, the plan was to make
this
a much larger business and serve its other customers as well. But there was a
feeling that in the three year period, because
a lot of the service level
agreements were only for three years, they would have to focus on Transnet being
their major client and
service them to ensure that after the three years they
would still be able to retain their clients based on the service and quality
that they have given them at the time.’
[28] None of that evidence
was challenged or queried. It was certainly never put to Mr de Aguiar that there
was a basis for deducting
the purchase price from the assessed damages or that
there would have been minimal exit value. These are points which should have
been investigated by the appellant at the trial. It is too late, when on appeal,
to raise uncanvassed factual issues. The evidence
demonstrates that there would
have been appreciable exit value and that such value, as well as the input value
represented by the
purchase price, were properly ignored in the computation and
award of damages. My conclusion is, therefore, that the third submission
must
also fail.
[29] No other arguments having been advanced to attack the trial
Judge’s assessment of damages, the appeal is dismissed, with
costs, such
costs to include the costs of two counsel in so far as two counsel were
employed.
____________________
CT
HOWIE
PRESIDENT
SUPREME COURT OF APPEAL
CONCURRED:
Zulman JA
Farlam JA
Lewis JA
Van
Heerden AJA
[1] 1951 (1) SA 443 (A) at
449B-C.
[2] 2001 (3) SA 1247 (SCA)
at 1261.
[3] At
450A-C.
[4] At
450B-C.
[5] At 1262 para
29.
[6] At 1262 para
28.
[7] Section 187(1) of the
Interim Constitution (Constitution of the Republic of South Africa Act 200 of
1993) which read:
‘The procurement of goods and services for any level
of government shall be regulated by an act of Parliament and provincial
laws,
which shall make provision for the appointment of independent and impartial
tender boards to deal with such
procurements.’
[8] Visser and
Potgieter Law of Damages 2 ed
9-10.
[9] Commentary
45.1.9.
[10] Professor Dale
Hutchison, Professor of Private Law, University of Cape Town, in an unpublished
paper entitled ‘Back to Basics: Reliance Damages for Breach of Contract
Revisited’ (delivered in October 2001)
4.
[11] Santam
Versekeringsmaatskappy v Byleveldt 1973 (2) SA 146 (A) at
150A-C.
[12] Visser and
Potgieter op cit 2 ed
64.
[13] Visser and Potgieter
op cit 66
[14] For
articles providing valuable contributions to the debate concerning positive and
negative interesse in breach of contract cases see Professor DJ Joubert
‘Negatiewe Interesse en Kontrakbreuk’ (1076) THRHR 1; and
Professor G Lubbe ‘The Assessment of Loss Upon Cancellation for Breach of
Contract’ (1984) 101 SALJ
616.
[15] Reinhard Zimmerman,
The Law of Obligations: Roman Foundations of the Civilian Tradition
(1990) 972.
[16] Visser and
Potgieter op cit 75.
[17]
Hutchison op cit 6-7.
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