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IN THE HIGH COUTH OF SOUTH AFRICA

KWAZULU-NATAL LOCAL DIVISION, DURBAN

Case No: 3412/2011

In the matter between:

ASCENT MINING SERVICES CC...........................................................................................Plaintiff

and

RICHARDS BAY MINERALS...............................................................................................Defendant

JUDGMENT

Delivered on 2 May 2014

Vahed J:

[1] The plaintiff claims that the defendant is indebted to it in the sum of R12 463 144,21 which it asserts was unlawfully deducted by the defendant from moneys due to the plaintiff arising out of the performance by the plaintiff in terms of certain supplemental mining contracts concluded between the parties. That sum was deducted in monthly tranches of R519 297,67 over the period 1 April 2008 to 1 March 2010 in terms of an acknowledgement of debt admittedly signed by the plaintiff but which the plaintiff contends was a nullity because it was not based on a valid cause of action. In the alternative, the plaintiff contends that its members were “…coerced alternatively forced, alternatively unduly influenced…” to sign that acknowledgement of debt. Accordingly, the plaintiff sues for the repayment of that sum together with interest and costs.

[2] At the heart of the dispute was the question whether the plaintiff or the defendant was to pay for diesel fuel used in the mining operations described in two written agreements, annexures “A” and “B” to the plaintiff’s particulars of claim. The trial unfolded over seventeen court days and resulted in a transcript of evidence running to 1105 pages. In addition, certain documents contained another overfull 9 lever arch files of documents were referred to and relied upon by the witness who testified.

[3] The defendant conducts mining operations, inter alia, along certain sand dunes in the vicinity of Richards Bay the object of which is to extract certain valuable minerals from the sand. In processing that sand for the purposes of the mineral extraction the plaintiff was contracted to the defendant to supply certain services, which essentially entailed the provision of earth moving plant and machinery and the skill and the labour to operate such plant and equipment. The defendant supplied the bulk diesel fuel required for the operation of the plant and machinery and the plaintiff was remunerated by the defendant on a Rand-per-Ton basis for the sand processed by it. The dispute centred around whether that Rand-per-Ton rate was a wet rate or a dry rate. It was described as being either wet or dry depending upon whom the contracts, properly interpreted, said had to bear the cost of the diesel fuel consumed by the plaintiff.

[4] Although eventually nothing turned on it, the defendant accepted the duty to begin leading evidence. It led the evidence of the following witnesses:

a. Desiree Ursula De Andrade, a forensic investigator operating in the field of mergers and acquisitions. It ultimately turned out that her evidence was irrelevant to the resolution of the dispute.

b. Brian Thompson (“Thompson”). He joined the defendant as a management accountant in 1987 and when he retired in 2010 he had risen to the position of manager: legal and administrative services.

c. Heze Emmanuel Mbuyazi (“Mbuyazi”), a member of the plaintiff.

d. Andrew William Denton (“Denton”). At the time of testifying he was the defendant’s general mining manager. He was employed by the defendant in 1983 and occupied a number of positions over time. At the time of the issues in dispute he was the manager of the mining section that oversaw the area of operation where the plaintiff was employed.

e. Stefanus Esaias du Plessis (“du Plessis”), a service delivery manager responsible for procurement.

f. Benjamin Thomas Baxter (“Baxter”). He was employed by the defendant during 1986, initially as a geologist, and he progressed to becoming a mine planner. In 2004 he became a plant superintendent, and in 2006 became the manager of mine services.

[5] The plaintiff led the evidence of the following witnesses:

a. Tumelo Gopane (“Gopane”). He was previously employed by the defendant firstly as an assistant engineer in 2003 and, after being promoted and moved around in various positions, last held the position of contracts specialist in supply chain.

b. Michael Stuart McColl (“McColl”). He was the plaintiff’s chartered accountant and auditor.

[6] Mr Aboobaker SC appeared for the plaintiff, sometimes assisted by his attorney, Mr Chetty, while Mr Broster SC (with Ms Ngqanda) appeared for the defendant. Counsel have provided me with extensive and well-researched heads of argument for which I am grateful. I am mindful of the caveat that judges ought not to slavishly adopt counsels’ heads of argument but nevertheless consider it appropriate, from time to time, to borrow freely from that furnished to me. Where I do so I shall, in most cases, refrain from acknowledging any specific source, contenting myself that this paragraph constitutes sufficient, and appreciative acknowledgement.

[7] Every witness in the case referred to the involvement of John Swithenbank (“Swithenbank”). He was a founder member of the plaintiff, initially holding a one-third interest. He was involved in every aspect of the events dealt with in evidence and from the actions ascribed to him both by the witness and as can be ascertained from the documents referred to, it is fair to say that he played a pivotal role in the plaintiff’s operations. He was, to put it plainly and crudely, the brains and driving force behind the plaintiff. From my observations throughout the trial he was present in court for all of the proceedings and, from time to time, the plaintiff’s legal representatives deferred to him for instructions. He did not testify.

[8] As I observed earlier, there was a dispute as to whether the plaintiff was contractually obliged to pay for the diesel fuel supplied to it by the defendant and consumed during its operations. At face value the contract documents and other documents in the case sometimes lean in favour of one interpretation and sometimes lean the other way.

[9] In the view I take of the matter no point would be served in a detailed sequential summary of the oral evidence. In the discussion that follows I will make appropriate references to the relevant aspects of the evidence.

[10] It is the defendant’s case that there existed a bona fide dispute concerning the liability for diesel fuel consumed by the plaintiff. It contends that that dispute was compromised, that compromise culminating in the acknowledgement of debt referred to earlier.

[11] The dispute is placed in context in the brief recount of certain of the events that follows:

[12] On 23 November 2007 the defendant wrote to Swithenbank and the plaintiff in the following terms:

‘23 November 2007

Mr J Swithenbank

Ascent Mining Services cc

P O Box 101369

MEERENSEE

3901

Dear John

REIMBURSEMENT OF FUEL DRAWN FROM RBM

We refer to our meeting with you on 16 November 2007 in which various anomalies relating to the accounting of fuel issues for the supplementary mining operations were discussed.

According to our calculations an amount of R10 211 207.53 was under recovered as a result of incorrect invoicing by AMS in respect of fuel issued to AMS by RBM. Details of these calculations are attached.

In view of the substantial amount involved we would be agreeable, without prejudice, to accept a refund of this amount in twelve equal monthly payments commencing January 2008. We suggest that payment should be in the form of credit notes generated on the last day of each month.

In order to prevent a reoccurrence of the incorrect accounting for fuel issues, the practice of issuing debit notes must cease forthwith. Credit notes must however continue to be issued for fuel drawn from RBM’s fixed stations for as long as this arrangement endures.

It is our intention to conduct a review commencing 14 January 2008, of the current contract terms in respect of plants 1 and 2 in order to ensure that all components of the service provided by AMS are adequately addressed and to incorporate the third supplementary mining plant in a combined contract. The review will be undertaken by an RTP specialist in conjunction with all the relevant role players.

As discussed, we will be scheduling a meeting with you and the other role players to agree the principles for contact price adjustments in line with the recently concluded contract.

Kindly acknowledge your agreement to the above by signing and returning a copy of this letter.’

[13] Attached to that letter was a schedule setting out, by reference to various invoices, how the amount had been arrived at. The plaintiff responded thereto in the following terms:

‘FUEL DRAWN FROM RBM

Regarding your letter of 23 November 2007 with respect to the fuel drawn from RBM.

As we do not agree that there has been incorrect accounting for fuel issues we are unable to sign the letter indicating our agreement with the view taken in your letter.

We believe that we have accounted correctly for the fuel issued by RBM on the contract. We believe that the terms of the contract entered into with RBM make it clear that the cost of fuel is not included in the contract and that this is for RBM’s account, as accounted for by us. In this regard I would like to draw your attention to two points in the Memorandum of Agreements entered into between ourselves and [RBM].

                   1.      ANNEXURE "A" specifies a ”DRY RATE”.

 

                   2.      The ”Contract Price Adjustment” in clause 3.2 of the "CONDlTlONS OF CONTRACT"

specifically excludes any adjustment in the Fuel Index. As this appears to be a standard formula used in your contracts this indicates that [RBM], like us, understood the contract to be at a ”DRY RATE”.

Notwithstanding the above we are prepared to co-operate with RBM to review the terms of the current contract for plants 1 and 2, and the contract for the supplementary plant.

At this stage we would like to point out that the terms of the current contract were based upon rates recommended by the CPHA for a dry rate, we would therefore continue with the current contract.

Ascent management will make itself available for further discussion as requested by RBM on 14 January 2008 to discuss the way forward.’

[14] That evoked the following response from the defendant:

‘I refer to your undated letter received on 18 December 2007.

I disagree with your assertion that the contract was based on a “dry rate”. On 24 August 2005 you sent a letter to RTP specifying that “the existing agreements between Scribante and RBM will remain with respect to fuel supply for equipment”. AMS continued to issue credit notes for the fuel from November 2005 until May 2006. In June 2006 AMS include the cost of fuel in invoices and sent a credit note, effectively negating the refund of fuel used.

This matter was fully discussed at a meeting on 16 November 2007, and l am attaching a copy of the minutes of the meeting for your information. At this meeting you agreed that AMS would refund RBM for the fuel and that you would issue a credit note before 31 December 2007, after the quantum of the fuel issued was agreed. After discussions with the lnternal Audit Controller we sent you a letter on 23 November 2007 showing the amount owing of R10 211 207.53. At the meeting we agreed that the fuel overpayment could be recovered on a monthly basis until 31 December 2008.

I am now attaching an invoice for the total amount due by AMS, including interest, for fuel used for which RBM has not received reimbursement, together with a schedule indicating how the final amount owing of R12 463 144.21 was calculated. This amount excludes fuel consumed at the supplementary mining plants in December 2007, for which an additional invoice will be issued.

As you have reneged on the agreement made in the meeting on 16 November 2007 payment is due within 30 days, failing which we intend to deduct this amount from invoices for services rendered by AMS.

I am happy to discuss this matter at your convenience.’

[15] The parties then met on 17 March 2008. The minutes of that meeting are reproduced below:

‘MINUTES OF A MEETING HELD WITH ASCENT MINING SERVICES CC (AMS) AT 09:00 ON 17^TH MARCH 2008 IN THE RBM EXECUTIVE BOARDROOM

Present:               RBM                                               AMS

                            B H Beath (Chairman)                    J Swithenbank

                            K Ngoasheng                                  S McColl

                            B Thompson                                   E T Memela

                            J Marais                                          E Mbuyazi

                            S Curran                                         J Bailes

                            V Mahadeo                                     D Merryweather

 

ITEM MINUTE

Discussion

1. B H Beath welcomed all present and introductions were made. He advised that the purpose of the meeting was to resolve the overpayments of fuel to AMS of R12.4 million at 31 December 2007.

2. B H Beath requested the shareholding of AMS, which was given as:

J Swithenbank              30%

E Memela                     30%

E Mbuyazi                     30%

J Bailes                           5%

D Merryweather              5%

                                      100%

3. B H Beath advised that the fuel dispute had gone on too long and he wanted the matter resolved immediately. He suggested a forensic audit and SAICA investigation to resolve the matter. The alternative was for the AMS shareholders to sign an acknowledgement of debt (AOD) for the R12.4 million and agree to payment terms. A draft AOD was distributed for review. He stressed that RBM wished to continue to do business with AMS and proposed a new contract going forward.

4. J Swithenbank advised that he was the AMS contract negotiator and understood that the contract was a dry rate. He said that RBM was welcome to inspect the AMS books. He advised that AMS had invested the RBM proceeds in human capital and aligned businesses, including:

Ascent Mechanical                         R4 to R5 million

Ascent Marine                                R1 million

Ascent Management Services       R0.5 million

Nirods                                             R0.8 million

Alton Property                                 R4 million building on a CC 50% shared with a Computer company

S Curran requested that AMS provide a list of all companies /CC’s formed with details of the AMS investments in each company and AMS shareholding

5. After a caucus the AMS shareholders agreed that it was not necessary for arbitration or a forensic audit. They agreed to sign the AOD and requested a new contract going forward.

6. After discussion AMS agreed to a 2 year period for the payment of capital and interest. The AOD document was revised accordingly and presented to AMS for review and signature

7. AMS requested to purchase the RBM supplementary mining plant and this request was refused.

8. K Ngoasheng advised that RBM had received a letter from E Memela and E Mbuyazi that they were not informed of AMS’s financial status and AMS was a BEE front. He advised that “fronting” was not acceptable at RBM and the AMS shareholders should resolve this matter.

9. S Curran advised that he was concerned about the corporate governance implications of AMS purchasing a house from a RTP buyer (M McCall) involved in the contract negotiations. S McColl advised that he has purchased the house for R1.4 million in his own name, although the house is also used by AMS personnel.

It was agreed that Mr McColl make a statement to Mr J Marais relating to the purchase of his house.

10. A meeting will be held at RBM on 18 March 2008 to review and clarify the contract with AMS Services.

11. Mr M E Dludla will arrange a meeting with AMS to develop a protocol to recover the debt.’

[16] The acknowledgement of debt was signed on the same day. It was signed by each of the five members of the plaintiff.

[17] After further interactions between the parties the plaintiff sent the defendant the email referred to in paragraph 18 below.

[18] In the approach I take there is no need to resolve the issue as to who was contractually bound to pay for the diesel fuel. I say so because of what emerges from the nature of the dispute described Swithenbank in an email prepared by him dated 17 July 2008, which was sent first to McColl and then to the defendant. In that email he reported on a meeting held with the defendant on 15 July 2007 and proposed a way forward, which he hoped would lead to an amicable solution. That email reads as follows:

‘SUBJECT:- Meeting 15/07/2008 held at [defendant’s] head office 1400hrs.

Dirk Breed was asked to facilitate the meeting in order to try and break the deadlock evident in negotiations

Preamble

Discussions between [the plaintiff] and [the defendant] up to this time had floundered with respect to the afore mentioned parties individual stance pertaining to the interpretation of contracts prepared by [the defendant] re Dry mining activities undertaken by [the plaintiff] for [the defendant]. [The plaintiff] insists that the contract is based clearly on a dry rate with respect to work done and on the other hand [the defendant] maintain[s] that the contract was meant to be a wet rate contract. The contracts had run for several months with [the plaintiff] treating them as a dry rate contract i.e. not having to pay for fuel required for mining purposes. The fuel cost with respect to [the defendant’s] interpretation being that fuel for mining purposes for the contracts were for [the plaintiff’s] account.

Neither party has at this stage moved from their respective positions. [The defendant] however has determined a financial position with respect to there (sic) insistence that their contracts relate to a wet rate, even though they accept that their contracts are flawed. [The plaintiff] to date has endeavoured to make payment against an acknowledgement of debt in favour of [the defendant] even though at the time the actual amount stated was some what spurious due to the fact that the sum did not take into account various contractual adjustments (CPA) and the partners of [the plaintiff] were not happy at all with [the defendant’s] interpretation of its contract at that time that prompted [the defendant’s] insistence that it be signed by [the plaintiff’s] members.

Overview of meeting 15/07/08.

Discussions again centred about the later (sic) however it was suggested to [the defendant] by [the plaintiff] that a Damp Rate approach should be adopted, and reconciliation of the situation should be more balanced and not driven by one parties view only.

Not withstanding the latest Email from [the defendant] outlining their financial solution and after giving this due consideration, [the plaintiff] would like to propose the following alternative:-

1. That [the plaintiff] would be prepared to Accept 50% of the flawed contracts interpretation with respect to fuel indebtedness.

2. That [the plaintiff] going forward would accept 50% of the fuel cost regarding existing contracts until renegotiations are concluded with respect to new contracts.

Hoping the above will lead to an amicable solution.’

[19] The defendant submits that that email records the state of mind of Swithenbank at that date which, when analysed, reveals that he:-

(a) recognizes that there is a bona fide dispute about the obligation to pay for fuel and the interpretation of the two written agreements, annexures “A” and “B” to the Plaintiff’s particulars of claim;

(b) prefers his own interpretation but recognizes the contention of RBM that the contracts are flawed;

(c) understands that RBM insists that the contracts relate to a wet rate;

(d) understands that the acknowledgement of debt signed on 17 March 2008 does not take into account the contract price adjustments due to AMS and records that AMS has nevertheless endeavoured to make payment in terms of the acknowledgement of debt;

(e) proposes what he described as a “damp rate” which would achieve a reconciliation, more balanced and not as he put it driven by one party’s view only;

(f) concludes by expressing the hope that what he proposes would lead to an “amicable solution”.

[20] I deal firstly with the defence of compromise.

[21] For it to succeed with regard to the compromise for which it contends, the defendant must prove the existence of an underlying dispute. In para 2457, Wessels: Law of Contract in South Africa, Vol. 1 at page 733 this requirement is described thus:

‘In order that an agreement may acquire the special name of transactio or compromise it must be based on something doubtful or uncertain which is either actually contested or which may be contested in a court of law.’

[22] There is no need for a “valid cause of action” to exist as suggested by the plaintiff nor does the fact that the plaintiff believed that it was never indebted to the Defendant make any difference to a compromise.  The reason for this is described in para 2458, Wessels: Law of Contract in South Africa, Vol. 1 at page 733 in this way:-

‘If, however, a claim is made upon a contract, about the validity of which the defendant has a doubt, and a transactio follows, the defendant cannot upset the compromise on the ground that the agreement which was compromised was in fact invalid. (C.1.18.6; Voet 10.2.34 in fin.)’

[23] The defendant argues that Wessels’ view has been consistently accepted in our courts. In support thereof Mr Broster has referred me to:

a. Dennis Peters Investments (Pty) Ltd v Ollerenshaw and Others  1977 (1) SA 197 (WLD) at 202H-203A where Melamet J said:-

‘It was contended on behalf of the defendant that the above is a general rule but, in the present case, the original causa was invalid and, therefore, defendant is entitled despite the subsequent compromise, to go behind the settlement.  I am of the opinion that there is no merit in this contention – such loan is not invalid, it is merely that the finance charges above the permitted rates may not be recovered.  But even if it were invalid, such invalidity would not affect the subsequent transaction or compromise.   In this connection I refer to Wessels.   Law of Contract in South Africa 2^nd ed., vol. 2, para. 2 458; Wille Principles of South African Law, at p. 367.’

b. Hamilton v Van Zyl 1983 (4) SA 379 (ECD) 383G-H where Mullins J said:-

‘Not only can the original cause of action no longer be relied upon, but a defendant is not entitled to go behind the compromise and raise defences to the original cause of action when sued on the compromise.   Even invalidity or illegality attaching to the original cause of action will not affect a subsequent compromise. Dennis Peters Investments (Pty) Ltd v Ollerenshaw and Others 1977 (1) SA 197 (W) at 202H-203A; Wessels (supra para. 2458).’

c. Wilson Bayly Holmes (Pty) Ltd v Maeyane and Others   1995 (4) SA 340 (TPD) at 345H-J where Nugent J put it slightly differently in this way:-

‘The appellant’s counsel has submitted that parties would not have settled the dispute had the true position been known to both of them.   This is probably so.   There would be few agreements of compromise at all if both parties were fully informed of the facts and the law relating to the dispute.  However, the question is not whether the appellant would have compromised had it been aware of one or other circumstance which excused it from liability.  If the parties would have contracted even if they had known that the particular state of affairs did not exist, then clearly it cannot be said that they intended their contract to be dependent thereon, but the converse is not equally true, the real enquiry in each case is whether this was a risk which they took.’

d. Syfrets Mortgage Nominees Ltd v Cape St Francis Hotels (Pty) Ltd 1991 (3) SA 276 (SECLD) at 288E-F where Eksteen J dealt with the matter in this way:-

‘Such an agreement of compromise has the effect of res judicata and excludes any reliance on the original cause of action (Van Zyl v Niemann 1964 (4) SA 661 (A) at 669) even where the original causa was invalid – Dennis Peters Investments (Pty) Ltd v Ollerenshaw and Others 1977 (1) SA 197 (W) at 202; Hamilton v Van Zyl 1983 (4) SA 369 (E)).’

e. Acacia Mines Ltd v Boshoff 1958 (4) SA 330 (AD) at 337C-E where the distinction drawn between novation where the parties are said to intend to replace one valid contract by another valid contract and a compromise which does not require the existence of a valid contract is illustrated by Beyers JA thus:-

‘Novation is essentially a question of intention: when parties novate they intend to replace a valid contract by another valid contract (Wessels, ibid. paras. 2379, 2458).  On the facts of the present case the conclusion is irresistible that the company gave no thought to the question of novation.  As far as the company was concerned the first prospecting contract was a dead letter.  It did not regard it as a valid contract and could therefore not have intended ‘to replace one valid contract by another valid contract.’ ‘

[24] The defendant, in its claim in reconvention, sought, inter alia, an order “…declaring that the dispute concerning the Plaintiff’s obligation to pay for fuel consumed during the period 1 May 2008 to 30 November 2007 was finally compromised on 5 August 2008 and discharged by set off”. In its plea thereto the plaintiff says:

‘4. The Plaintiff denies that there was any bona fide dispute between the parties as to the liability of the Plaintiff’s (sic) to pay for fuel consumed during the period June 2006 to November 2007 in the execution of the contracts.

5. The Defendant had full knowledge that the agreements between [the parties] had been entered into on the basis that the contract price would be based on “dry rates” and that therefore the Plaintiff would not be liable for the costs of fuel.

6. There is accordingly no causa upon which the acknowledgement of debt could be based and no dispute which could result in the compromise alleged by the Defendant.’

[25] I am in agreement with the state of the law as contended for by the defendant and set out above. Swithenbank’s email of 17 July 2008 stands in stark contradiction to what is set out in the plaintiff’s plea to the claim in reconvention. The plaintiff’s assertion that the absence of an underlying causa nullifies the acknowledgement of debt must be rejected, and more especially so because Swithenbank did not testify.

[26] There is one additional requirement for the defence of compromise to succeed. In this regard the Defendant submits that it must demonstrate, in addition to the existence of a prior claim or dispute, that something must be given up, retained or promised on either side.  In Wessels: Law of Contract in South Africa, Vol. 1, at page 733, para  2459, it is described thus:

‘In judging whether the contract is a transactio or not, the Court will consider whether there existed a prior claim and whether something was given up, retained or promised on either side (Voet 2.15.1).  This was made the test in the case of Cachalia v Harberer & Co. (1905 TS 457).  “Was that agreement a settlement of the matter in dispute? … If we examine the terms of the agreement which was come to, it appears to me to contain all the essentials of a compromise of a lawsuit.  Each party in this arrangement abated some of his previous demands. Each party receded to some extent from the position formerly taken up.” ‘

[27] It will be recalled that at the meeting on 17 March 2008 when agreeing to the compromise the Defendant simultaneously agreed to enter into negotiations with AMS regarding an agreement for the administration and management of three supplementary mining plants for a period of twelve months commencing 1 September 2008. In fact that much was recorded additionally in a letter dated 1 August 2008 sent by the defendant to the plaintiff. Four days later the defendant sent the plaintiff a letter (dated 01 August 2008 but signed on 05 August 2008) in the following terms:

‘The Managing Members

Ascent Mining Services CC

Fax: 035-788 0355

Dear Sirs

LETTER OF AGREEMENT: ACKNOWLEDGEMENT OF DEBT

We hereby confirm the following agreement between Ascent Mining Services cc (AMS) and Richards Bay Minerals (RBM) with regards to the reconciliation of the acknowledgement of debt on fuel cost ("principal debt”). The debt reconciliation proposal as was presented by RBM on 15 July 2008 is hereby accepted by AMS, namely:

RECONCILIATION OF AMOUNT OWING AS AT 4 August 2008 ,

                                                                                                R

Acknowledgement of Debt                                         12,463,144.21

Add: Additional fuel and interest                                   3,101,873.93

                                                                                    15,565,018.14

Deduct:

 

Payments withheld by Financial Services                   -2,463,022.33

 

CPA - June 2006 to January 2008                             -3,206,603.25

CPA - February 2008 to May 2008                            -1,255,816.33

 

Fuel usage: '

       February to May 2008                                         -4,964,848.97

       June 2008                                                            -1,565,302.05

Estimated - July 2008 and August 2008                     -3,200,000.00

 

Amount owed to/ (by) RBM                                    R -1,090,574.79

 

Notes:

The June invoices which include the CPA calculations have not

been taken into account in the above calculation.

CPA calculation is up to May 2008

1. The estimated AMS fuel consumption cost for June 2008 through to August 2008 will be revised and updated to the actual cost for purposes of reconciliation with the principal debt. The above reconciliation only relates to the invoices for fuel for June 2008, as invoices for fuel have not been received for July and August 2008. The estimated consumption for these periods was agreed at R1.6 million and will be included in the reconciliation. This will need to be amended via either debit or credit notes when the invoices are received.

2. The payment terms for the supplementary mining services agreement will be immediate payment for July 2008 and 15 days from August 2008 through to December 2008. The payment terms for 2009 will be revised in December 2008.

3. The current agreement will be renegotiated during August 2008 with a view to implementing a new agreement effective from 1 September 2008.

Please acknowledge your agreement by signing and returning the duplicate of this letter.

Signed at Richards Bay this 5”‘ day of August 2003.’

[28] The defendant submits that the effect of the reconciliation is that approximately R6.8 million of monies due to the plaintiff in terms of the contract price adjustment are set off against the capital sum and approximately R9.7 million worth of fuel from February 2008 to August 2008 which would have been due to the defendant on the basis of its contentions is credited to the plaintiff in order to achieve a situation where no amount is owing by AMS at 5 August 2008.

[29] It submits further that in effect, what started when Swithenbank proposed splitting the fuel bill on a 50/50 basis which would have resulted in the plaintiff paying approximately R6 million towards the fuel bill and the defendant foregoing the recovery of an equal amount, resulted in the agreement reached on 5 August 2008 where the total bill of R15.5 million was discharged by the plaintiff paying R6 million and the defendant foregoing approximately R9.7 million in regard to future fuel. The 1 August 2008 (5 August 2008) captured in paragraph 27 above was signed by each of the plaintiff’s members on 5 August 2008 and the submission continues that the final compromise of the “fuel issues” first raised in a letter addressed by the defendant to the plaintiff on 23 November 2007 is achieved on 5 August 2008 when that letter is signed by the parties and the compromise was given effect to when a new agreement, effective from 1 September 2008 was concluded on 25 August 2009.

[30] Those submissions are undoubtedly correct and I am constrained to find accordingly because once a valid compromise of a debt has been concluded and given effect to, the position in regard to the original claim is described as follows in Wessels: Law of Contract in South Africa, Vol. 1, at page 737, para 2480:

‘The fact therefore that the original claim was not well-founded is immaterial (Smith v Key 1906 EDC 46; Cohen v Isaacs 1918 CPD 581:  JDR 467) nor can a compromise be set aside merely because new proof has been discovered (Voet 2.1.15.23).’

[31] I have been referred to Natal Bank v Kuranda 1907 TS 155 at 167 where that statement is supported by Bristowe J:-

‘It is clear law that where a valid compromise has taken place the parties cannot fall back on their original position but can  only sue upon the terms of the compromise; see Cachalia v Harberer & Co. ([1905] TS 457 at p465).  If anything has been paid on the footing of the compromise it cannot be recovered back – licet res nulla media fuerit (Dig.12, 6, 65) ; for ‘it is no ground for recalling the payment made under the compromise that there was no cause for the compromise and nothing owing.  The very essence and motive of the compromise is the uncertainty and doubt of the parties as to their respective rights’ (Burge, vol. 3, p742).’

[32] Miller JA, in Gollach & Gomperts v Universal Mills & Produce Co. (Pty) Ltd and Others 1978 (1) SA 914 (AD) at 921C-D explained:

‘The purpose of a transactio is not only to put an end to existing litigation but also to prevent or avoid litigation.’

and in Van Zyl v Niemann 1964 (4) SA 661 (AD) at 669H-670A it was expressed thus:

‘Dit is duidelik dat ΄n skikkingsooreenkoms dieselfde uitwerking het as res judicata, en gevolglik ΄n aksie op die oorspronklike skuldoorsaak uitsluit (Cachalia v Harberer & Co., 1905 T.S. 457 op bl.464), behalwe waar die skikkingsooreenkoms uitdruklik of by duidelike implikasie bepaal dat, by nie-nakoming van die bepalings daarvan, ΄n party op sy oorspronklike vorderingsreg kan terugval (Strydom’s Exexcutor v Celliers, 1908 T.S. 485 en Mothle v Mathole, 1951 (1) S.A. 785 (T) op bl. 789-790).’

[33] I accept the defendant’s submission to the effect that nothing in the correspondence recording the compromise points to the suggestion that the original cause of action open to either the defendant or the plaintiff at the time when the first dispute arose was to be preserved in the event of the compromise not being implemented.   The question is academic because it is common cause that the agreement contemplated in paragraph 3 of the letter dated 1 August 2008 was implemented and the plaintiff continued to perform supplementary mining services from August 2008 until January 2011. If the effect of a valid compromise is that neither party can fall back to their original position but can only sue on the compromise then the Plaintiff does not have a cause of action based on the fact that it was never indebted to the Defendant in the amount claimed by the Defendant.

[34] I turn now to consider the question whether the plaintiff’s members were coerced or forced or unduly influenced to sign the acknowledgement of debt.

[35] In his heads of argument Mr Aboobaker submitted that:

‘[t]he court is in a difficult position. If it finds against the Plaintiff the judgment will be one which will be reduced to the level of obscurity and banished at the level that its reflects pre-constitutional colonial thinking. If the court finds for the Plaintiff and defines the parameters of permissible immoral conduct it will be a watershed judgment which will achieve recognition at a national and international level and will enhance the development of our legal jurisprudence. The facts are clearly there for the court to pass the only judgment that is appropriate.’

[36] That submission was made against the backdrop of references to Gerolomou Constructions (Pty) Ltd v Van Wyk 2011 (4) SA 500 (GNP) and the minority judgment in Everfresh Market Virginia (Pty) Ltd v Shoprite Checkers 2012 (3) BCLR 219 CC.

[37] In Gerolomou the court said:

‘[24] I have no doubt that it is entirely permissible for one party to exploit the economic weakness of the other when a genuine settlement of a disputed indebtedness is involved, but it is quite another thing when an economically powerful party withholds what is admittedly owing to an economically weaker party, in order to seek commercial advantage. Pacta sunt servanda is a prescription that is ultimately connected with the constitutionally protected values of freedom and human dignity. It follows that to use the threat of breaching a contract to induce an economically less powerful contractual counterpart to act to his disadvantage in relation to an accrued contractual right, the enforcement of which is not contrary to public policy, is subversive of freedom and human dignity. In the present case, the defendant's conduct further trenched upon the plaintiff's constitutional right to have his dispute with the defendant adjudicated by fair legal or other process. In my view the plaintiff has established the element of unconscionability required. If there were a contract of compromise, the plaintiff was entitled to avoid it. Accordingly, the rejoinder of undue influence must be sustained.’

[38] In Everfresh the following extracts were relied upon by Mr Aboobaker:

‘[23] The values embraced by an appropriate appreciation of ubuntu are also relevant in the process of determining the spirit, purport and objects of the Constitution. The development of our economy and contract law has thus far been shaped by colonial legal tradition represented by English law, Roman law and Roman Dutch law. The common law of contract regulates the environment within which trade and commerce take place. Its development should take cognisance of the values of the vast majority of people who are now able to take part without hindrance in trade and commerce. And it may well be that the approach of the majority of people in our country place a higher value on negotiating in good faith than would otherwise have been the case. Contract law cannot confine itself to colonial legal tradition alone.

[24] It may be said that a contract of lease between two business entities with limited liability does not implicate questions of ubuntu. This is, in my view, too narrow an approach. It is evident that contractual terms to negotiate are not entered into only between companies with limited liability. They are often entered into between individuals and often between poor, vulnerable people on one hand and powerful, well-resourced companies on the other. The idea that people or entities can undertake to negotiate and then not do so because this attitude becomes convenient for some or other commercial reason, certainly implicates ubuntu.

…

[30] Another consideration is this. The fact that section 39(2) of the Constitution has been ignored by the High Court and possibly by the Supreme Court of Appeal when its relevance was by necessary implication brought into sharp relief does add considerable complexity to the equation. This Court said in Carmichele

“It needs to be stressed that the obligation of courts to develop the common law, in the context of the section 39(2) objectives, is not purely discretionary. On the contrary, it is implicit in section 39(2) read with section 173 that where the common law as it stands is deficient in promoting the section 39(2) objectives, the courts are under a general obligation to develop it appropriately. We say a ‘general obligation‟ because we do not mean to suggest that a court must, in each and every case where the common law is involved, embark on an independent exercise as to whether the common law is in need of development and, if so, how it is to be developed under section 39(2). At the same time there might be circumstances where a court is obliged to raise the matter on its own and require full argument from the parties.

It was implicit in the applicant’s case that the common law had to be developed beyond existing precedent. In such a situation there are two stages to the inquiry a court is obliged to undertake. They cannot be hermetically separated from one another. The first stage is to consider whether the existing common law, having regard to the section 39(2) objectives, requires development in accordance with these objectives. This inquiry requires a reconsideration of the common law in the light of section 39(2). If this inquiry leads to a positive answer, the second stage concerns itself with how such development is to take place in order to meet the section 39(2) objectives. Possibly because of the way the case was argued before them, neither the High Court nor the SCA embarked on either stage of the above inquiry.”

…

(33) The importance of the duty of a court in relation to section 39(2) was emphasised in K.

“The normative influence of the Constitution must be felt throughout the common law. Courts making decisions which involve the incremental development of the rules of the common law in cases where the values of the Constitution are relevant are therefore also bound by the terms of section 39(2). The obligation imposed upon courts by section 39(2) of the Constitution is thus extensive, requiring courts to be alert to the normative framework of the Constitution not only when some startling new development of the common law is in issue, but in all cases where the incremental development of the rule is in issue.”

(34) A court should always be alive to the possibility of the development of the common law in the light of the spirit, purport and objects of the Bill of Rights. The development of the common law would otherwise be no more than a distant dream. A court should always be at pains to discover whether the development of the common law is implicit in a case. If, in the particular circumstances, it appears to a court that section 39(2) is implicitly raised and that the common law might have to be developed, that court has no choice but to embark upon that inquiry.

…

(36) The High Court’s construction of the clause, without reference to public policy or to section 39(2), is not free from difficulty. It was necessary to consider whether to develop the common law and whether the detailed provisions of the clause carry the necessary implication that the renewal was not to be regarded as null and void in every respect. The proposition that a common law contract principle that provides meaningful parameters to render an agreement to negotiate in good faith enforceable is decidedly more consistent with section 39(2) than a regime that does not. A common law principle that renders an obligation to negotiate enforceable cannot be said to be inconsistent with the sanctity of contract and the important moral denominator of good faith. Indeed, the enforceability of a principle of this kind accords with and is an important component of the process of the development of a new constitutional contractual order. It cannot be doubted that a requirement that allows a party to a contract to ignore detailed provisions of a contract as though they had never been written is less consistent with these contractual precepts: precepts that are in harmony with the spirit, purport and objects of the Constitution.’

[39] Based on those dicta Mr Aboobaker contended that duress operated such that it entitled the plaintiff to avoid the consequences of the compromise and the acknowledgement of debt.

[40] In its plea to the claim in reconvention the plaintiff maintained as follows:

‘11. The negotiations between the various representatives of the Plaintiff reflected on the correspondence to which the Defendant makes reference in the claim-in-reconvention were entered into on the basis of the continuing and imminent threat that the Plaintiff’s supply of work would be terminated or that future work may be negatively affected.

12. The acquiescence of members of the Plaintiff in assuming obligations for which the Plaintiff was not liable was influenced by this consideration.   The pressure applied by the Defendant was accordingly unlawful and vitiates any consent to or acquiescence by the Plaintiff in entering into the alleged compromise.’

[41] The counter to Mr Aboobaker’s submissions and his reliance on Gerolomou and Everfresh was put thus by Mr Broster in his heads of argument:

Swithenbank’s email of 17 July 2008 does not support the allegations set out above.   The email coming as it does in the middle of the period of negotiations concerning the compromise which stretched from 23 November 2007 to 5 August 2008 does not in any way support the allegation that he was subjected to continuing pressure vitiating consent.  In fact, the email shows Swithenbank contending for a settlement on the basis that each party bears 50% of the cost of fuel and the letter of agreement concluded on 5 August 2008.

The letter signed on 5 August 2008 shows [the defendant] accepting responsibility for future fuel of R9.7 million of the debt and [the plaintiff] having R6.8 million of the monies owing to it set off against the debt.   McColl converted what Swithenbank proposed as a 50/50 split into a schedule reflecting [the plaintiff] to be responsible for R6 508 717 and when sending the schedule to Swithenbank on 29 July 2008 recorded his understanding of the dispute:-

“In order to settle this matter a compromise may be to suggest to [the defendant] that the current situation continues but that you share the cost of fuel for the period June 2006 to January 2008.  This is a significant concession on your part as it means that your earnings over the period will be reduced by R6 508 717 compared to what they would have been had trading been done in the way it is now being conducted.

Should this proposal be accepted the current position will be as per the attached schedule.” ‘

[42] That submission is supported by McColl’s evidence. He thought that there was some feeling of intimidation on the part of the plaintiff’s members by he, to use his own words, “…remained inactive…”.

[43] Mbuyazi was also unconvincing as to the intimidation.

[44] That issue could have been dealt with by Swithenbank, but he chose not to testify.

[45] I accordingly find, on the facts of this case, that the pressure contended for was not established. There is accordingly no need for me to consider the law on this aspect.

[46] Before concluding this judgment there are two outstanding matters that I need to deal with.

[47] The first relates to the issue by the plaintiff’s attorneys of a subpoena duces tecum (“the subpoena”) requiring Mr Jackson, the defendant’s attorney of record, to produce a copy of a due diligence report (“the report”) compiled by him about the defendant’s involvement in and actions taken by it with regard to its interaction with the plaintiff concerning the issues at hand. At the resumption of the trial on 14 May 2012 Mr Broster applied to have that subpoena set aside and, after hearing argument, I issued an order setting the subpoena aside and indicated that my reasons for so doing would be included in this judgment.

[48] The issue relating to the production of the report had been simmering for a considerable time and had been subjected to debate and exchanges of correspondence between the attorneys. During that debate and exchange of correspondence the plaintiff’s attorney persistently insisted upon the production of the report while the defendant’s attorneys consistently maintained that it was privileged.  I was referred to this during argument on the point. On a conspectus of all the material it is abundantly clear that at the time he was requested to conduct his investigations and compile the report Mr Jackson was acting not only for the defendant’s two principal shareholders, but for the defendant as well. In addition it was also manifestly clear that the present litigation had been threatened in no uncertain terms by the plaintiff’s attorney and that it was that threat that in no small part prompted the request to Mr Jackson. The authorities are clear and I need only to refer to A Sweidan and King (Pty) Ltd & Ors v Zim Israel Navigation Co Ltd 1986 (1) SA 515 (D) where it was held that a document prepared in course of litigation or in the face of threatened litigation for the purposes of advice, and that need not be its sole or dominant purpose, was privileged.

[49] The second outstanding matter relates to Mr Broster’s application to amend the defendant’s plea. The application was made at the close of the defendant’s case on 13 May 2013. On that day Mr Broster made submissions in support of the amendment but Mr Aboobaker reserved his position until the end of the case. Decision on the amendment was accordingly held over and on 5 June 2013 I received additional heads of argument from the plaintiff dealing with its opposition to the amendment sought.

[50] In paragraphs 7 and 8 of its particulars of claim the plaintiff pleaded:

‘7. The remuneration rate agreed upon was a dry rate which means that the defendant would pay for the fuel used and not the plaintiff.

8. The plaintiff invoiced the defendant monthly from September 2007 to February 2008 and was paid by the defendant monthly upon the agreed dry rate as per the written agreements and the defendant bore the fuel expenses.’

[51] In its plea the defendant responded to those paragraphs as follows:

‘5. AD PARAGRAPH 7

The Defendant:

(a) admits the allegations contained in this paragraph;

(b) pleads that the agreement falls to be rectified by the deletion of the words "dry rate” and the substitution therefor of the words "wet rate” wherever those words appear in the agreement which would mean that the Plaintiff would pay for the fuel used in executing the agreement and not the Defendant.

(c) refers to its claim-in-reconvention in which rectification of the agreement is sought which is filed evenly herewith.

6. AD PARAGRAPH 8

(a) The Defendant admits that it was invoiced by the Plaintiff and paid the Plaintiff in accordance with the invoices.

(b) The Defendant denies that the Plaintiff was entitled to be paid on the basis of the “dry rate" or that the Defendant was obliged to bear the fuel expenses.’

[52] The admission in paragraph 5(a) of was manifestly at odds with the remainder of the plea and the claim in reconvention. It was clearly a typographical error. It stood in stark contrast with the whole tenor of the defendant’s case and the evidence.

[53] The amendment was sought to remove that anomaly and to correct the typographical error. It was expressed thus:

‘5. AD PARAGRAPH 7

The Defendant:

(a) denies that the remuneration rate agreed upon was a “dry rate” which meant the Defendant would pay for the fuel used in the agreements, annexures “A” and “B” to the Plaintiff’ s Particulars of claim;

(b) pleads that in the event of this Court finding that the agreements, annexures “A” and “B” to the Plaintiffs Particulars of Claim, properly construed, provide for a dry rate, then the agreement falls to be rectified by the deletion of the words “dry rate” and for the substitution therefor of the words “wet rate” wherever those words appear in the agreement which would mean that the Plaintiff would pay for the fuel used in executing the agreement and not the Defendant.

(c) refers to its claim-in-reconvention in which rectification of the agreement is sought which is filed evenly herewith.’

[54] The plaintiff’s approach was to contend that the defendant was in effect withdrawing an admission and that its conduct was mala fide in that regard. It contended that the defendant was obliged to mount a substantive application for the amendment sought. That argument is without overly simplistic and substance. The amendment was simply to correct a typographical error and to bring the plea in line with the whole tenor of the defendant’s case. The whole tenor of the defendant’s case was abundantly clear to everyone and was so even during Mr Aboobaker’s opening address. I accordingly grant the amendment sought.

[55] In the event that I was with the defendant, Mr Broster, notwithstanding that he appeared with Ms Ngqanda, sought the costs of one counsel only.

[56] I make the following order:

a. The plaintiff’s claim is dismissed.

b. The defendant’s application to amend its plea is granted.

c. It is declared that the dispute concerning the plaintiff’s obligation to pay for fuel consumed during the period 1 May 2006 to 30 November 2007 was finally compromised on 5 August 2008 and discharged by set-off.

d. The plaintiff shall pay the defendant’s costs of the action in convention and reconvention, such costs to include all costs reserved on previous occasions and are also to include the costs of senior counsel, but are to exclude the costs of two counsel.

________________

Vahed J

CASE INFORMATION

Dates of Hearing: 12, 13, 14, 15 & 16 March 2012, 14, 15 & 16 May 2012,

                                               29 & 30 April 2013, 2 & 3 May 2013,

                                               13, 14, 15 & 16 May 2013, 29 May 2013

                                               (with additional heads of argument submitted

                                               by the plaintiff on 5 June 2013)

Date of Judgment: 02 May 2014

Plaintiff’s Counsel: T N Aboobaker SC

Plaintiff’s Attorneys: Theyagaraj Chetty Attorneys

                                               296 Randles Road

                                               Sydenham

                                               Durban

                                               (Ref: Mr T Chetty)

Defendant’s Counsel: L B Broster SC (with Ms M Ngqanda)

Defendant’s Attorneys: Cox Yeats Attorneys

                                               21 Richefond Circle, Ridgeside Office Park

                                               Umhlanga Ridge

                                               Durban

                                               (Ref: Mr M Jackson/17R055199/sl)

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