Astfin North (Pty) Ltd t/a Assetfin (previously known as IAB Financial Services) v Digital Direct CC and Another (87605/14) [2020] ZAGPPHC 340 (27 July 2020)

IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, PRETORIA

1) REPORTABLE YES/NO

2) OF INTEREST TO OTHER JUDGES YES/NO

3) REVISED

Case number: 87605/14

In the matter between:

ASTFIN NORTH (PTY) LTD t/a ASSETFIN

PLAINTIFF

(previously known as IAB Financial Services)

( Registration Number: 1980/0069006/07)

versus

DIGITAL DIRECT CC

FIRST DEFENDANT

(Registration Number: 2002/070735/23)

LAZLO ABRAHAM LE ROUX

SECOND DEFENDANT

JUDGMENT

MAKHOBA J

1. The plaintiff issued summons against the defendant for payment of a sum of R867466.13 together with interest thereon at a rate of 15.25% (6% above the prime interest rate) per annum from 28 November 2014 until date of final payment.

2. The plaintiff’s cause of action is based on three Master rental agreements concluded on the 2nd July 2010, 20th September 2011 and 21st June 2012 respectively. The minimum period of all three master Rental agreements were 60 months and the minimum periods would have expired on the following dates: Master Rental Agreement A1-A3 on the 31st May 2016, Master Rental agreement B1-B3 on 31st August 2016 and Master Rental Agreement C1-C3 on 31st May 2017.

Common cause

3. It is Common Cause that the 1st defendant made payment of rental in respect of the Master Rental Agreement up until July 2014 and fall in arrears since August 2014. The plaintiff instituted action during December 2014, claiming specific performance of all the rental agreements.

4. The first defendant requested that the equipment forming the subject matter of the agreement between the parties be collected and the equipment was collected during December 2014 and March 2015. It is further Common Cause that the first defendant failed to make payments claimed by the plaintiff.

5. The parties agreed that the conventional penalties Act 15 of 1962 (“the Act”) is applicable. It is not in dispute that clause 10.2 of the Master Rental Agreement is a penalty stipulation. The defendants bear the onus of proving that the penalty is disproportionate to the prejudice suffered and to what extent.

Issues Before Court

6. The only issue the court is required to decide is whether any penalty claimed by the plaintiff should be reduced in terms of section 3 of the Conventional Penalties Act and if so to which extent. In other words, the enquiry is whether the penalty claimed by the plaintiff is out of proportion to the prejudice suffered by it.

7. The 1st and 2nd defendants contend that the claim for both future rentals is disproportionate to the prejudice suffered by the plaintiff and therefore falls to be reduced by the court. Furthermore, no attempt was made by the plaintiff to either sell or re-rent the equipment.

8. In addition, the defendant contends that if the plaintiff succeeds in its full claim it would mean that it would receive a total amount of R1752535.48 which is the claim for future rental plus R98 049.60 which is the arrear rental plus interest of 6% above prime on the claim amount. It is argued by Counsel for the defendants that the plaintiff suffered no prejudice as the amount received exceeds the capital layout of the plaintiff.

Tender

9. Defendants made a tender to plaintiff for payment of the arrear amounts totaling R98 049.60, which amounts shall be paid in twelve monthly instalments commencing on the last day of the month during which the National lockdown is lowered to level 4. Payment of the plaintiff’s costs to date of tender on party and party scale, to be taxed. This tender was not accepted by the plaintiff.

The Evidence

The Plaintiff called Mr Martinus Petrus Bester as its only witness. Mr Bester testified that he is the Credit Control Manager for the plaintiff since 2007. His duty is the collection of rent for the plaintiff. The plaintiff finance the purchase of the equipment rented out to the defendant’s for a period of 60 Months. Defendant failed to pay and the equipment was fetched from the first defendant’s premises, it could not be rented because of its size and it is a specialized device and he was not entitled to re-rent the equipment.

The profit on this equipment is made after about 48-60 months. Cross Examined Mr Bester testified that the defendants asked him to collect the equipment which he did. The equipment is not re-rented because the client may request the equipment back. The future rentals are in fact all converted to arrear rentals.

Mr Lazio Abraham Le Roux is the only witness for the defendants. He testified that they encountered problems with the equipment and they were told to change the paper used in this machine and they decided they do not want the machine anymore. He decided not to pay for the machine anymore and the machine was ultimately collected from the premises by the plaintiff employees. The ccv camera equipment was not part of the deal.

Cross-examined he conceded that the equipment was purchased after he (the witness) approved the specifications. Asked whether he thought the CCTV equipment was a gift to him, he answered in the affirmative.

The Law

14. Section 1(A) of the Convention Penalties Act 15 of 1962 reads as follows: “ A Stipulation, hereinafter referred to as a penalty stipulation, whereby it is provided that any person shall, in respect of an act or omission in conflict with a contractual obligation, be liable to pay a sum of money or to deliver or perform anything for the benefit of any other person, hereinafter referred to as a creditor, either by way of a penalty or as liquidated damages, shall subject to the provisions of this Act, be capable of being enforced in any competent court”.

15. Section 3 of the Act reads as follows:

“if upon the hearing of a claim for a penalty, it appears to the court that such penalty is out of proportion to the prejudice suffered by the creditor by reason of the act or omission in respect of which the penalty was stipulated the court may reduce the penalty to such extent as it may consider equitable in the circumstances: provided that in determining the extent of such prejudice the court shall take into consideration not only the creditor’s proprietary interest, but every other rightful interest which may be affected by the act or omission in question”.

16. In this matter before me it is common cause that the act is applicable and that clause 10.2 of the Master Rental agreement constitute a penalty stipulation. Clause 10.2 under the heading “Breach” of the Plaintiff’s Master Rental agreement provides as follows :

“without terminating this agreement, claim immediate payment of all amounts which are due and/or all rentals which would have fallen due in terms of this agreement until the earliest possible date on which this agreement could have terminated by notice, all of which shall be immediately due and payable. The Hirer shall, pending payment of those amounts, be entitled to be possessed of the goods and to retain possession thereof on condition that against such full payment the Hirer shall return the goods or similar goods to the User who shall not be entitled to any rebate or abatement of rentals of other amounts by reason of its loss of possession”.

17. Clause 10.3 provides as follows:

“User shall pay the Hirer interest on any amounts owing in terms of clause 10.1 and 10.2 at 6% above the publicly quoted prime interest rate of the Hire’s bankers at the nominal annual rate compounded monthly. Said interest shall accrue from due date for payment to date receipt by Hirer”.

In Smit v Bester 1977(4) SA 937 (A) the court held that where Section 3 of the Conventional Penalties Act, 15 of 1962 is applicable the onus is on the debtor to show prejudice which the creditor suffered and accordingly that it should be reduced and to what extent. The court further held that when the debtor prima facie proves that the penalty should be reduced then there is an onus to rebut on the creditor to refute the prima facie case of the debtor, if it is possible for him to do so. Moreover, the Supreme Court of Appeal stated that the court Mero Motu reduce the penalty when it prima facie appears from the pleadings that the penalty is out of proportion to the prejudice which the creditors suffered. In National Sorghum Breweries v International Liquor Distributors

[2000] ZASCA 159:2001 (2) SA 232 (SCA), The Supreme Court of Appeal upheld the earlier Appellate Division decision in Smit v Bester supra, the court held that the actual Prejudice suffered by the creditor must be proved by the debtor and this was reaffirmed in Steinburg v Lazant 2006 (5)SA 52 (SCA).

In Absa Technology Finance Solutions (Pty) Ltd v Hattingh t/a Corner savings supermarket (5580/06) [2009] ZAGPPHC 37 (29 April 2009) the Plaintiff’s cause of action similar to the matter before me, was based on a master rental agreement and the defendant fell into arrears. In paragraph 27 the court said “Once the court has determined what it considers to be the extent of the creditor’s prejudice, it must compare that prejudice with the penalty in order to ascertain whether or not it is out of proportion to it. A court will normally intervene if the penalty deviates markedly from the prejudice”

In Van Staden v SA central lands and Mines 1969(4) SA 349 (W) at 352 Snyman J said the following “everything that can reasonably be considered to harm or hurt a creditor and his property, his person, his reputation, his work, his activities, his convenience, his mind, or in any way whatever interferes with his rightful interest as a result of the act or omission of the debtor, must, if it is brought to the notice of the Court, be taken into account by the court in deciding whether the penalty is out of proportion to the prejudice suffered by the creditor as a result of the act or omission of the debtor”.

In explaining “out of proportion” the court in Western Credit bank Ltd v Kajee1967 (4) SA 396 (N) at 391, the court held “the words out of proportion do not postulate that the penalty must be outrageously excessive in relation to the prejudice for the court to intervene. If that had been intended, the legislature would have said so. What is contemplated is that the penalty is to be reduced if it has no relation to the prejudice, if it is markedly, not infinitesimally, beyond the prejudice. If the excess is such that it would be unfair to the debtor not to reduce the penalty, but otherwise, if the amount of the penalty approximates that of the prejudice, the penalty should be awarded”

From the foregoing decisions the court must determine whether the penalty in this matter before me should be reduced and if so to what extent. Again, I must decide whether the penalty claimed by the plaintiff is out of proportion to the prejudice suffered.

This court accepts the evidence of Mr Bester that the equipment was removed from the defendant’s premises and was never used again. The issue of CCTV equipment it is clear to me that it was not a gift to the first defendant but constituted part of the whole agreement. Mr Bester testified that the equipment was such that it could not be re-rented and was of a specialized nature.

Having heard the evidence of the second defendant it is clear that the 1st and 2nd Defendants did not do anything to mitigate the Plaintiff’s loss or re-negotiate the terms of the contract. 1st and 2nd Defendant’s mero motu cancelled the contract without any reasonable ground. The defendants caused inconvenience and loss to the Plaintiff by simply moving away from the contract. Therefore, I am of the view that the penalty is not out of proportion to the prejudice suffered by the plaintiff. There was nothing the plaintiff could do to mitigate its damages to an amount lower than the penalty.

Consequently, the Plaintiff should be entitled to succeed in the claim. The Plaintiff is entitled to its costs on an attorney and own client’s basis since there is no reason justifying any departure from that contractual term.

In the premises, the following order is made:

a) Plaintiff is entitled to Judgment against the 1st and 2nd defendants, the one paying the other to be absolved.

b) The master rental agreement A1-A3 is rectified by inserting the date of 30 June 2011 as the commencement date on the said master rental agreement.

c) Payment in the amount R867 466.13.

d) Interest on the amount of R867 466.13 at the rate of 15.25% (6% above the prime interest rate) per annum from 28th November 2014 until date of final payment.

e) Costs of the action on a scale of attorney and client, to be taxed.

D MAKHOBA

JUDGE OF THE HIGH COURT OF SOUTH AFRICA,

GAUTENG DIVISION

27/7/2020