DURBAN AND COAST LOCAL DIVISION CASE NO. 9874/03 In the matter between: DIGBY HALL MOURITZEN First Applicant AGNES THOMSON MOURITZEN Second Applicant and KENNETH HANSON MOURITZENFirst Defendant GREYSTONE ENTERPRISES (PTY) LTD Second Respondent KENNETH HANSEN MOURITZEN
HUGO J Like Cain and Abel before them the brothers Mouritzen hate each other. I shall refer to the two brothers as Digby and Ken respectively. The two brothers were involved in various businesses of quite a substantial nature. Most of these businesses were nominally conducted in the name of a company called Greystones Enterprises (Pty) Ltd to which I shall refer as Enterprises. They were equal shareholders in the company and held all the shares bar two which were owned by their late mother and now fall within her estate. For all intents and purposes these two shares may be ignored in what follows. The disunity between the brothers caused them in 1997 to effect an agreement which has been called a divisionalisation of the businesses. In terms of this agreement Digby ran certain of the businesses and Ken the others but the company remained the owner of them all and they attended regular board meetings. In an effort to bridge the gap that existed between the brothers, an independent chairman was appointed to the board, firstly in the form of a Mr Irving an attorney in Durban, and later Mr Graham. Regrettably these arrangements did not succeed in bringing the brothers any closer together. Indeed it was the evidence of the company’s auditor, Mr Fernandes, who attended most, if not all, of the board meetings at the time, that the brothers kept on bickering about the most trivial matters. All this led to further litigation between the parties and this was settled at court by means of a handwritten agreement of settlement to which both parties and their attorneys appended their signatures. Since this agreement is central to the present litigation, I shall quote it in full: “ 1.
It is recorded that Victor Fernandes (the auditor of Greystones) and Sebastian Carter (an independent auditor) have valued the assets of Greystones. For the purposes of this Deed of Settlement the parties accept such valuations without qualification. 2.
Digby is given the first choice to select such of the assets which he wishes to have for himself (or his nominee) at the valuations. Any assets which Digby does not choose will be held by Ken (for himself or his nominee) at the valuations. 3.
Digby must make his choice by no later than close of business on Monday, 31st March 2003 by giving written notice to Ken’s attorney, Mr G.C. Cox. If he does not deliver such notice he will be deemed to have conceded all the assets to Ken. 4.
There will be a cash adjustment between the parties to achieve a situation that each of the parties receives by way of cash or assets one half of the valuation achieved. Any cash adjustment must be paid with SEVEN (7) days of the adjustment being determined by the auditors. 5.
The effective date of the transaction shall, notwithstanding the date of signature of this Deed of Settlement, be 1st February 2003 (being the financial year end of Greystones). 6.
Each party warrants to the other that he has not, since the effective date, committed Greystones to any extraordinary or unusual contract of any delictual or criminal liability and that the divisions of Greystones controlled by him have been operated in the ordinary and usual course of business. 7.
It is recorded that certain of the leases of GREYSTONE are with Portnet / Transnet. It is agreed that the party who takes those leases will take the shares of the other in the company while the other will transfer the assets out of Greystones. 8.
It is recorded that the parties may have loan accounts against Greystones which will be repaid. Any capital gains tax or recoupment tax consequences will be shared by the parties equally. An equitable adjustment must be effected in respect of the potential STC liability in respect of reserves at the effective date. Any cash reserves in Greystones is likewise to be shared. 9.
All adjustments required by clause 8 will be effected by the two auditors referred to in clause 1 and if they cannot agree by an accountant of not less than fifteen years standing appointed by the President of the KwaZulu-Natal Society of Chartered Accounts. Any decision given pursuant to this clause will be final and finding on the parties. 10.
Any disbursements in the nature of share transfer duty, stamp duty, or VAT in respect of which an input credit cannot be obtained will be shared by the parties equally. 11.
11.3 G.A.C. and the parties retain whatever rights and obligations which they have in respect thereof. 12.
It is acknowledged by Digby that Ken is a Director of the company, Greystones, and the Chief Executive Officer of the Freight Facilities Division of Greystones. 13.
Pending the implementation of this Deed of Settlement:- 13.1 neither party will assert to Third parties that the other is not a director; 13.2 neither will conclude any contract on behalf of Greystones without the authority of the Board of Directors; 13.3 neither will represent to third parties that he is entitled to act on behalf of Greystones without reference to the Board of Directors; 13.4 neither will represent to 3rd parties that the Board of Directors is not properly constituted; 13.5 they will by 27th March 2003 appoint a new Chairman to take the place of IRVING who has undertaken to resign when that new Chairman has been found and is appointed to office and the new Chairman will perform the same arbitrator functions as IRVING has done; 13.6 the new Chairman will be appointed by the parties jointly and if they cannot agree the appointment will be made by their attorneys (Cox and Watts jointly) and if they cannot agree, by the Chairman of the Society of Advocates of KwaZulu-Natal from a list of candidate which either or both of the parties may submit to him. 14.
In concluding this Deed of Settlement:- 14.1 Ken warrants that he represents the Mouritzen Family Trust which is bound by its terms; 14.2 Digby warrants that he represents his wife Agnes who will be bound by its terms; 14.3 the shares owned by Mrs Hope Mouritzen will be transferred to the party who gets Greystones. The parties will each pay to her one half of her pro rata share of the valuation of the accounts referred to in clause 1. 15.
This agreement is in full and final settlement of the parties’ rights in respect of Greystones and in the event of a breach then the other party may only sue in terms of this agreement for performance or damages. 16.
Any suretyships given by ether of the parties for the obligations of Greystones are to be cancelled. If any claim is made under a suretyship in respect of a cause of action arising after the effective date, the party conducting the business effected (sic) thereby indemnifies the other against claims under such suretyship.. 17.
The costs relating to the proceedings under case No 1970/03 and 2484/03 including the preparation of this agreement will be paid by Greystones. Dated at Durban this 20th day of March 2003.” Valuations prepared by Messrs Fernandes and Carter were attached to this deed and read as follows:
to CATO BULK SITE P/L 2,300,000
.. to GAC P/L 480,000
GE PROPERTIES P/L
GE LOAN 1,100,000
L+B 250,000 58,645,134 Note 1
assumes the contract
for another 9 yrs is
awarded.” (The note next to CTC was handwritten prior to the deed of settlement being entered into and therefore formed part of the valuation referred to in clause 1 of the settlement.) I pause to state two pertinent facts. At the time that the settlement was entered into Digby was running the so-called CTC contract while Ken ran a separate company called Greystone Cargo System (GCS) virtually on his own. (Enterprises held a 50 per cent shareholding in this company.) The so-called CTC contract was a long-standing contract between a company known as CTC and Enterprises. This contract had been running for some 20 or 25 years prior to 2003 and previously had written contracts for ten years at a time. However, at the relevant time CTC had refused to renew the contract for a lengthy period of time because of, inter alia, the disputes between the brothers. Indeed, the current contract in 2003 was for one year ending at the end of 2003 and which contained clauses to the effect that if Digby relinquished control of the business CTC would have an option to cancel the contract on 24 hours notice. It was quite clear that CTC wanted nothing to do with Ken. On the other hand, in the case of Greystones Cargo System (Pty) Ltd, Enterprises held a 50 per cent interest in this company while the other 50 per cent was held by an American company referred to as FRS. There is correspondence before the Court that FRS on their part insisted on dealing with Ken and Ken only and did not want to be involved with Digby in any circumstances. With that background in mind I return to the events following upon the signing of the settlement agreement. It will have been noticed that Digby had first choice to select the assets on the list of valuations for himself. He had to make this election prior to close of business on 31 March 2003. Digby made the choice of a helicopter which was an asset of the company and, seemingly perversely, the Cargo Systems shares which, it will be remembered, formed the basis of Ken’s operation within the company. He did not choose the CTC contact which was his part of the business. I say perverse, because by so selecting the assets Digby placed the CTC contract in the hands of Ken with whom CTC wanted nothing to do while himself selecting the Cargo Systems joint venture knowing full well that the FTC company wanted nothing to do with him. There is nothing in the settlement agreement that prevented Digby from so choosing and an attempt by Ken to claim rectification of the agreement so as to limit Digby’s choice has been abandoned in this trial. The adjustments referred to in clauses 4, 8 and 9 of the settlement were concluded by the auditors in October 2003 and had the effect that Ken had to pay to Digby a sum of some R21 million. In terms of clause 4 of the settlement payment had to be effected within seven days of this adjustment being determined. The adjustment account itself is not dated, but it is common cause that it was furnished to the parties in October 2003. This meant that Ken had to pay the sum of R21-odd million to Digby within seven days of this adjustment account. It is common cause that he did not do so and indeed has never done so. During October 2003 (prematurely as it turned out) Digby applied to court for an order that Ken perform in terms of the contract, inter alia, to pay him the R21 million. Of interest is Ken’s reply to this application. In a lengthy exposition of why the selection by Digby was not contemplated and indeed stated to be a repudiation, which he purportedly accepted, Ken says the following in response to paragraph 26 of the founding affidavit. Paragraph 26 reads: “First respondent has said he does not regard the deed of settlement as worth the paper it is written on and that it is invalid because it is ‘unworkable’, whatever that may mean. I think he contends he cannot afford to pay what he agreed he would that has rendered the settlement unworkable and therefore it seems invalid and of no force and effect.” Ken’s response is as follows: “With regard to paragraph 26 of the first applicant’s affidavit I say that I told the first applicant that the choice made by him had rendered the deed of settlement unworkable and that it was no longer worth the paper it was written on. My reasons for making that statement are apparent from this affidavit. Save for admitting that subsequent attempts to negotiate a resolution of the matter have thus far failed, I dispute the further contents of paragraph 26.” This affidavit was signed in February 2004 and quite clearly, in my view, constitutes a repudiation by Ken of the whole agreement. It does not really matter why he regards the contract as unworkable, the fact of the matter is that he states that he does so regard it. (I use the word “repudiation” because that is the word used in the pleadings and in argument. I shall return to its use later.) What is interesting in this regard is that the parties at no time made any effort to implement the settlement in accordance with Digby’s choice. Digby continued to manage the affairs of the CTC contract, continued to negotiate with the members of CTC. Ken on the other hand continued to run the Cargo Systems contract in exactly the same way as before. It is true that Ken right at the beginning attempted to arrange meetings with the CTC board and did write to CFC informing them of the settlement. These efforts however had no practical effect and business continued as before. The present litigation commenced as an application in which, amongst other things, Digby applied to have the settlement agreement declared a valid and legally binding contract and to enforce performance of the agreement by Ken. This was instituted on 24 October 2003. When the matter was set down to be argued GYANDA J made an order that the matter be referred to trial and made orders as to the exchange of pleadings. That trial has proceeded before me. In his replying affidavit in this litigation Ken repeats word for word the allegation that the deed of settlement is unworkable and it is no longer worth the paper it is written on. This again, in my view, is a clear repudiation by Ken of the agreement. On the pleadings as they now stand, after the abandonment by Ken of the rectification plea, the only repudiation relied on by Ken is the allegation in paragraph 17(d) and (e) of the plea. They read as follows: “It is:
(i) denied that the choice expressed in Annexure C was one sanctioned by the agreement;
(ii) averred that the first plaintiff was aware of what was set out in paragraph (i) above and that his selection was not intended to be a legitimate selection under the agreement. (e) It is averred accordingly;
(i) that the agreement failed, alternatively that it was repudiated by the first and second plaintiffs such repudiation having been accepted by the first and third defendants;
(iii) that this action for damages for such alleged repudiation by the first defendant accordingly falls to be dismissed with costs.” Now it will be seen that there was a change in the attitude of Digby between the time that he launched the application in which he sought specific performance and the time when the declaration was filed when he now sought damages. It is now alleged that he accepted the repudiation by Ken in November 2004. I have stated that I would return to the use of the word “repudiation”. I do not believe that what one has in this case is a repudiation in the sense that it is normally used, namely for an anticipatory breach of contract. Of course whatever may have happened prior to October 2003 and whether Ken repudiated the contract prior to that date became immaterial when Digby did not accept such repudiation by October/November 2003. In October or early November 2003 the date arrived for Ken to perform. When he did not pay on that date he fell into mora ex re. From that day on he was therefore in breach of contract. In the present contract there is no provision for notice or any other formal steps to be taken by the innocent party. There is also no lex commissoria. (I am not certain what clause 15 of the settlement means in this context. But no matter.) In the absence of such a clause the creditor is nevertheless entitled to cancel the contract if the breach of contract is so serious as to amount to what Christie calls a repudiation. See Christie, Law of Contract 5th edition, page 506. I have no doubt that Ken’s statement or statements to the effect that the agreement is not worth the paper it is written on is so serious a breach that it amounts to a repudiation in this sense. If that is so, then Digby immediately was in a position to choose either to maintain the contract and sue for specific performance or to cancel and claim damages. He could not do both because that would amount to what is usually called an approbation and reprobation. It was put as follows in Segal v Mazzur 1920 CDP 634 at page 644: “Now, when an event occurs which entitles one party to a contract to refuse to carry out his part of the contract, that party has a choice of two courses. He can either elect to take advantage of the event or he can elect not to do so. He is entitled to reasonable time in which to make up his mind, but when once he has made his election he is bound by that election and cannot afterwards change his mind. Whether he has made an election one way or the other is a question of fact to be decided on the evidence. If, with knowledge of the breach he does an unequivocal act which necessarily implies that he has made his election one way, he will be held to have made his election that way; this is however not a rule of law but a necessary inference of fact from his conduct.”
It is quite clear that after the due date for performance had passed and Ken had not performed Digby elected to pursue the course of claiming specific performance. He twice instituted proceedings claiming such relief and it is only about a year later that he purported to change his mind. It is probable that for this reason alone Digby should be non-suited in his claim for damages in the present litigation. This matter was however not argued and I would be hesitant to make a definite finding in that respect. Digby gave evidence before the Court and insisted that his choice was not only permitted by the agreement but was the logical choice for him to make under the circumstances. He says that he regarded the valuation of the CTC contract as hopelessly too high. He says that he tried to convey this to the other side but that he was told to accept the valuations as they appeared. It is his evidence that it would simply not make business sense for him to choose the CTC contract at the valuation of some R30 million. Such a choice would mean that he would have to pay his brother several million rand for a business that was not worth it. On the other hand he regarded the valuation of the Enterprises share in Greystones Cargo Systems (Pty) Ltd as too low. On that basis he thought that it made business sense for him to choose that company at the valuation. His choice of the helicopter is neither here nor there. Although there might be some element of perversity in the choice that Digby made, his explanation for that choice makes perfect business sense. It does not seem to be in issue at the moment that the valuation of the CTS contract was indeed too high. I believe that it is probable that none of the parties or their advisers could foresee that Digby would make these choices on the settlement agreement. However unfair the effect of Digby’s choice might be to Ken, our law as it stands does not provide a remedy to Ken merely because of the unfairness of Digby’s enforcement thereof. See Christie The Law of Contract in South Africa, 5th edition, page 15 et seq. It is to be noted that Ken did not testify and Digby’s evidence must stand largely uncontested. On the other hand, I can find nothing in the evidence that was put before me to indicate that Digby in any way himself repudiated the agreement. I have therefore come to the conclusion that Ken did repudiate the agreement in the sense mentioned above and that Digby was put to the choice of accepting the repudiation and claiming damages, which he belatedly sought to do, or to claim specific performance, which initially he attempted to do. I shall assume for the purpose of this judgment that Digby’s claim for damages is not precluded by the doctrine of election The method of assessing damages for breach of contract is to place the innocent party in the position he would have occupied had the contract been properly and timeously performed so far as that can be done by the payment of money. The first issue that occasioned some debate was the date upon which the damages should be claimed. A great deal of reference was made to the case of Culverwell & Another v Brown 1990 (1) SA 7 (AD) and in particular of course to the majority judgment delivered by HEFER JA. Mr Pillemer, for Digby argued with reference to this case that the date should be November 2004 when Digby purported to accept the repudiation. What I think counsel overlooked is that this judgment relates to cases where the time for performance was not fixed in the agreement. In that case it was not. HEFER JA says at page 25: “The problem arises, as my Brother has indicated, from the fact that the time of performance (that is the passing of transfer) has not been fixed in the agreement. Although the decision in Novick v Benjamin 1972 (2) SA 842 (A) is accordingly not in point, I wish to draw attention to certain matters raised in the judgment of that case which do have a bearing on the present question.” In Novick v Benjaminsupra the time of performance was ascertainable and it was held that that is the time at which damages should be calculated. In the present case performance was due by Ken seven days after the adjustment account was available. That would mean some time in October or early November 2003. I think that the confusion has arisen because in certain cases the repudiation is anticipatory repudiation before the due time for performance has arisen. In such a case it is necessary to determine when the damages should be assessed. In a case such as the present where the time for performance is fixed and the acceptance of the breach of contract or repudiation is subsequent thereto no real problem arises. It is clear that in such a case the innocent party must be placed in a position that he would have been in had the contract been duly performed on the date fixed for performance. In terms of the agreement Ken had to perform by making payment seven days after the adjustment account was made known. That was during October 2003 and he had to pay therefore in October or perhaps early November 2003. That is the date upon which the damages must be assessed. No evidence was placed before me as to the relative value of the properties or assets as at November 2003. Mr Fernandes determined the values as at 1 December 2004, that is some 13 months later and Mr Young valued the Greystones Cargo Systems component of the assets as at 31 January 2005, that is, some 15 months later. Mr Young in his expert summary notes that the 2004 financial year was not a good one as there was –
“negative growth rate in turnover as a result of a general slump in the market which resulted in the handling and stevedoring volumes decreasing. This is highlighted by a large drop in volumes from Haul and Merton Metals.
The decrease in profit from operations to turnover is directly related to the inflated profits recorded in 2003 as a result of the disposal of assets as well as a decrease in turnover with fixed overheads that cannot be avoided.” I do not believe that Mr Young’s evidence is of any value whatsoever in regard to the value of the Greystones Cargo Systems component for the period between March 2003 and November 2003. Very much the same applies to the valuation of Mr Fernandes as at 1 December 2004. I am entirely unable to determine whether as at 1 November 2003 Digby suffered any damages at all. If one assumes that the same considerations and facts that informed the valuations in March 2003 still applied in October/ November 2003, then no damages at all were suffered. It is only if at that date there was a fluctuation in the values to the detriment of Digby that he could be said to have suffered damages. In the result the defendants must be absolved from the instance with costs.
DATES OF HEARING : 28 to 31 January and 1, 4 & 5 February 2008
DATE OF JUDGMENT : 27 February 2008 COUNSEL FOR APPLICANTS : Mr M Pillemer SC
with Mr V Voormolen
INSTRUCTED BY : Sanan & Watts
Suite 1601, Durban Bay House
333 Smith Street
DURBAN COUNSEL FOR 1st & 3rd RESPONDENTS : Mr L B Broster SC