Southern Africa Enterprise Development Fund Inc v Industrial Credit Corporation Africa Limited (9074/05) [2007] ZAGPHC 293; 2008 (6) SA 468 (W) (16 November 2007)

IN THE HIGH COURT OF SOUTH AFRICA

(WITWATERSRAND LOCAL DIVISION)

CASE NO: 9074/05

Reportable

In the matter between:

SOUTHERN AFRICA ENTERPRISE DEVELOPMENT FUND INC PLAINTIFF

and

INDUSTRIAL CREDIT CORPORATION AFRICA LIMITED DEFENDANT

J U D G M E N T

(Revised)

__________________________________________________________________

VAN OOSTEN J

[1] This matter comes before me by way of an exception. The plaintiff has instituted action against the defendant on two claims, styled “Claim A” and “Claim B”. In response thereto, the defendant has filed a plea to both claims, and it has also instituted a counterclaim. The plaintiff has excepted to the defendant’s alternative plea to Claim B as well as to the defendant’s counterclaim, on three grounds, to which I shall revert later in the judgment, on the basis that the defendant’s plea fails to disclose a defence; that the counterclaim fails to disclose a cause of action and in the alternative to both, that they are vague and embarrassing.

[2] The plaintiff and defendant companies are both financial services providers. The plaintiff is a company based in the United States of America. It is a non-profitable organization, who by providing financial assistance, promotes the development of the private sector of Southern African countries, with the emphasis on previously disadvantaged groups. The defendant, a South African company, obtains and provides financial assistance, for example in funding certain projects from which it generates a profit.

BACKGROUND

[3] The plaintiff’s claims in the instant matter arise from an agreement it concluded with the defendant on 1 February 2003. In terms of the agreement, styled “Overdraft Facility Agreement” (the “facility agreement”), the plaintiff agreed firstly, “to procure” by way of concluding a cession of Credit Balance Agreement as well as a suretyship agreement (“the suretyship”) in favour of First National Bank (“the bank”) “that the bank shall provide an overdraft facility” of R5 million to the defendant, and secondly, to use its “reasonable endeavours” to assist the defendant to obtain within six months project funding in the amount of R20 million, which was to be used by the defendant for a so-called smart card health care risk and management system, which was to be developed by the defendant in conjunction with a company known as Lengana Technologies (Pty) Ltd. The defendant in turn, apart from its obligation to repay the amount owing on the overdraft facility to the bank on certain terms, became obliged to pay to the plaintiff firstly, an “overdraft facility fee” in an amount equal to 2,5% pa of the overdraft facility amount, by way of six equal monthly instalments and secondly, upon fulfilment of the suspensive conditions contained in the agreement, a “commitment fee” of 2% of the overdraft facility amount. The plaintiff duly signed the suretyship and the defendant was granted an overdraft facility with the bank for the amount of R4 487 500.1The defendant failed to honour its repayment commitments towards the bank and the bank accordingly demanded payment of the amount of R5 million from the plaintiff under the suretyship, which it duly paid.

[4] The plaintiff’s first claim (Claim A) is for payment of the overdraft facility- and commitment fees2 provided for in the facility agreement, and the second claim (Claim B) for the repayment of the sum of R5 million, which was the amount paid by the plaintiff to the bank in terms of its liability under the suretyship.3 The defendant has pleaded to the claims and it is only necessary for purposes of the exception to refer to the alternative defence4 pleaded to Claim B, which is based on the exceptio non adimpleti contractus, and reads as follows:

“21.2.1 Pursuant to the provisions of the agreement, the Plaintiff was not entitled to exercise any right of recourse against the Defendant on the alleged suretyship if the Plaintiff was in default of its obligations to the Defendant under the agreement.

21.2.2 The Plaintiff defaulted in its obligations to the Defendant under the agreement to procure a facility in an amount of R5 million and/or to use its reasonable endeavours to obtain project funding for the Defendant in an amount of R20 million.

21.2.3 In the premises, the Defendant is excused from paying the Plaintiff any amount that the Plaintiff paid to the Bank pursuant to the provisions of the alleged suretyship.”

[5] The defendant’s counterclaim is for special damages in the amount of R68 951 181, 00 arising from the plaintiff’s alleged breach of an oral agreement of loan (“the funding loan agreement”). In terms of this agreement the plaintiff would “as soon as practicable” make available to the defendant a medium loan facility in the amount of US$2 million, which it is alleged would “…be utilised by the defendant to repay the defendant’s overdraft to the bank and thereafter to fund the defendant’s wholly-owned subsidiary Explorer Financial Services (Pty) Ltd (“EFS”)”. The plaintiff it is alleged failed to lend the amount to the defendant, resulting in the defendant being unable to fund EFS, and EFS in turn being unable to honour its obligations pursuant to a contract it had with a company known as Protector Group Holdings (Pty) Ltd (“Protector”),5 thereby losing out on the potentially substantial profit it would have gained from this contract. In consequence hereof it is pleaded, the defendant’s loan account in EFS became irrecoverable; its share holding in EFS became worthless and EFS was unable to pay any dividends to its shareholders. The damages claimed are alleged to be “the amount that EFS would have been able to pay to the defendant in reduction of its loan account obligations and/or by way of dividends from the profit that would have been generated by the Protector smart card project over a five year period alternatively the amount by which the value of the defendant’s shareholding in EFS would have appreciated as a result of profits generated from the Protector smart card over a five year period”.6

THE EXCEPTIO NON ADIMPLETI CONTRACTUS

[6] It has become well-entrenched that the exceptio finds its application to contracts to which the principle of reciprocity applies.7 The defence is available to a defendant where the common intention of the parties, expressed or unexpressed, is that there should be performance of one obligation under a contract, subject to the performance by the other party of a reciprocal inter-dependent obligation.8 The general principles governing the determination whether obligations of parties to a contract are reciprocal, such that the exceptio may be raised, have been set out recently by the Supreme Court of Appeal in Grand Mines (Pty) Ltd v Giddey NO9 where Smalberger JA, delivering the judgment of the majority of the Court (Schutz JA dissenting on the facts), stated:10

“Where the common intention of parties to a contract is that there should be a reciprocal performance of all or certain of their respective obligations the exceptio operates as a defence for a defendant sued on a contract by a plaintiff who has not performed, or tendered to perform, such of his obligations as are reciprocal to the performance sought from the defendant. Interdependence of obligations does not necessarily make them reciprocal. The mere non-performance of an obligation would not per se permit of the exceptio; it is only justified where the obligation is reciprocal to the performance required from the other party. The exceptio therefore presupposes the existence of mutual obligations which are intended to be performed reciprocally, the one being the intended exchange for the other. …”

In casu the question whether the obligations of the parties contained in the facility agreement are reciprocal, lies at the heart of the plaintiff’s complaint concerning the exceptio raised by the defendant. The determination of reciprocity involves a consideration of, on the one hand, the obligations of the plaintiff to procure the overdraft facility and to obtain project funding to which I have already referred, and the defendant’s obligation to reimburse the plaintiff in respect of the plaintiff’s payment under the suretyship,11 on the other. The basis of the plaintiff’s complaint is that no reciprocity exists between these obligations and that the defendant’s reliance on the exceptio therefore is inappropriate. The defendant’s opposing contention is premised on the reciprocity of the obligations on which the exceptio is based, in support of the defence that the plaintiff is precluded from recovering (under the actio mandati) any amount from the defendant.

[7] As a starting point an interpretation of the facility agreement is necessary to decide whether reciprocity applies. In Man Truck & Bus (SA) (Pty) Ltd v Dorbyl Ltd t/a Dorbyl Transport Products and BUSAF12 Cloete JA held:

“In contracts which create rights and obligations on each side, it is basically a question of interpretation whether the obligations are so closely connected that the principle of reciprocity applies: BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA 391 (A) at 418B and the authorities there quoted. Where a contract is bilateral the obligations on the two sides are prima facie reciprocal unless the contrary indication clearly appears from a consideration of the terms of the contract: Rich and Others v Lagerwey 1974 (4) SA 748 (A) at 761 in fine-762A; Grand Mines (Pty) Ltd v Giddey NO [1998] ZASCA 99; 1999 (1) SA 960 (SCA) at 971C-D”.

“For reciprocity to exist” Corbett J (as he then was) explained in ESE Financial Services (Pty) Ltd v Cramer13 “there must be such a relationship between the obligation to be performed by the one party and that due by the other party as to indicate that one was undertaken in exchange for the performance of the other and, in cases where the obligations are not consecutive, vice versa”.

[8] The obligations under discussion are contained in the same agreement. That in itself is not sufficient to show reciprocity. Nor would the fact of the facility agreement imposing a number of inter-dependent obligations on both parties, be sufficient to create reciprocity. Both these aspects were dealt with by Marais JA in Minister of Public Works and Land Affairs and Another v Group Five Building Ltd14 where the learned Judge said:15

“Reciprocity of debt in law does not exist merely because the obligations which are claimed to be reciprocal arise from the same contract and each party is indebted to the other in some way to the other. A far closer, and more immediate correlation than that is required. See BK Tooling (Edms) Bpk v Scope Engineering (Edms) Bpk 1979 (1) SA 391 (A) at 415H-418C.”

[9] No express provisions relating to reciprocity are recorded in the facility agreement. I should add in passing that in an agreement of this nature and magnitude one most certainly would have expected the parties to deal therewith.16 Be that as it may, the defendant has pleaded the reciprocity of the agreement as “an implied alternatively tacit term” of the agreement.17 The term contended for, counsel for the defendant submitted, is necessary to give business efficacy18 to the agreement. To arrive at the business efficacy counsel in effect advanced the same arguments as were relied upon in support of the defendant’s reciprocity argument. I am not persuaded by this argument. The implied or tacit term contended for does not in any way change the real nature of the transaction between the parties, nor does it have any effect on the “business efficacy” thereof. I lastly have no doubt that the importation of such a term would not meet the requirements of the “officious bystander test”.19 On the contrary, the implication thereof, in my view, would lead to the absurd20 consequences of firstly, unjustifiably restricting the plaintiff’s right to claim reimbursement and secondly, merely providing the defendant with a hypothetical and unsustainable defence.

[10] What is required is to ascertain the common intention of the parties21 from the provisions of the facility agreement as a whole.22 Of crucial importance is to consider the nature of the transaction between the parties.23 In its broadest terms the transaction entailed the plaintiff procuring financial assistance for the defendant. The assistance the plaintiff would provide consisted of two related but clearly independent and distinct undertakings: firstly, to procure the overdraft facility and, secondly, to procure the project funding. Each of these is dealt with in a separate clause under its own heading24 in the facility agreement. The two obligations are clearly severable.25 They are independent both in regard to time and contents, each serving its own specific purpose. The procurement of the overdraft facility provided immediate finance to the defendant and was earmarked by the bank in the letter informing the defendant of the granting thereof (“the facility letter”) as “working capital“, which the bank provided to the defendant by way of what it referred to as a “short term direct facility”. As opposed hereto the plaintiff’s assistance to the defendant in obtaining the project funding was to take place within six months, which was also the time period the defendant was afforded in the facility agreement for repayment of the overdraft facility. Counsel for the defendant sought to find some support for the reciprocity contended for in the provision contained in the facility agreement, to the effect that upon the project funding having been obtained, the defendant became obliged within five days thereof, to repay the overdraft facility in full.26 This obligation being a term of the facility agreement, he argued, for that reason, is subject to any defence available to the defendant, including the exceptio. There is no merit in the argument. The obligation arising from the repayment clause is contained in the facility agreement, which was concluded between the plaintiff and the defendant, and to which the bank was not a party. The obligation in the repayment clause was therefore merely supplementary to and not in substitution of the conditions of repayment expressly agreed upon between the defendant and the bank in the facility letter. In terms thereof the amount of the facility would be repayable upon demand, which in fact occurred when upon the defendant’s default, the overdraft facility was called up by the bank.

[11] In my view there is nothing recorded in the facility agreement linking the provisions so closely as to show reciprocity. On the contrary, and apart from the considerations I have already alluded to, the fact of the suretyship requirement in the facility agreement and the subsequent conclusion thereof, militate against the notion of reciprocity. The suretyship, although contemplated in the facility agreement, constitutes a separate agreement between the bank and the plaintiff, in terms of which the plaintiff bound itself to the bank as surety for the defendant.

[12] The fact of the suretyship being a separate agreement, counsel for the defendant submitted, is of no moment as it formed part of one single composite transaction and therefore should not be considered separately from the provisions of the facility agreement. The plaintiff’s Claim B is based on the actio mandati and, so the argument went, cannot succeed unless the plaintiff has performed its mandate, including the performance by the plaintiff of the obligations to procure the project funding. The plaintiff, counsel continued to argue, undertook its suretyship obligations in order to perform its contractual obligation to procure the overdraft facility, resulting in its right of recourse under the actio mandati becoming part of the facility agreement by way of implication. The natural corollary of this, counsel concluded, is that the plaintiff’s right to recover under the actio mandati is governed and limited by the terms of the facility agreement, one of which is the defendant’s obligation to repay the amount of the overdraft, resulting in it being subject to any available defence, including the exceptio. The underlying reasoning to this argument, in my view, is fundamentally flawed. The plaintiff’s obligation to pay the bank upon the defendant’s default to honour its obligations under the overdraft facility, did not arise from the facility agreement, but exclusively from the suretyship agreement. Nor does the plaintiff’s right of recourse against the defendant arise from the facility agreement. It arises from the fact that the plaintiff in terms of a tacit mandate from the defendant, paid a debt due by the defendant to the bank. This is an obligation at common law and for that reason cannot be reciprocal to the plaintiff’s project funding obligations in terms of the facility agreement. One further observation: the defendant’s version reveals the anomaly rightly referred to by counsel for the plaintiff, of the plaintiff being precluded from recovering money paid by it to the bank to discharge a debt actually incurred by the defendant, which would lead to the startling result of the exceptio, if allowed, permitting the defendant to enrich itself at the expense of the plaintiff. That in my view, cannot be correct.

[13] For these reasons I conclude that the objection raised by the plaintiff is well- founded and it follows that the plaintiff’s exception to the defendant’s alternative plea to Claim B must succeed.

THE EXCEPTION TO THE DEFENDANT’S COUNTERCLAIM

[14] The plaintiff has raised two causes of complaint against the counterclaim: firstly, that the defendant purports to pursue a cause of action which in fact vests in its subsidiary, EFS and, secondly, that the counterclaim lacks certain essential particulars, resulting in it being vague and embarrassing.

[15] In support of the first complaint counsel for the plaintiff sought to invoke what has become known as the rule in Foss v Harbottle.27 The rule embraces the fundamental principle that if a company has been wronged, the proper plaintiff in an action in respect of the wrong is prima facie the company itself and not the individual members of the company. The rule extends to the situation where damages in the nature of diminution of shares in the company are suffered by members of that company as a result of the wrong. The right of action in such a case vests and remains with the company. The rule, counsel submitted, finds its application in the present instance and by its operation disentitles the defendant the right of action to claim profits allegedly lost by EFS, which is a right of action vesting in EFS and not in the plaintiff. In his opposing contention counsel for the defendant submitted, firstly, that the exception is based on the misconception that the injury was done to EFS and not the defendant, whereas it was the defendant, and not EFS, who had concluded a contract with the plaintiff, and, secondly, that the harm of a double recovery,28 (ie from the defendant and EFS) which the rule is aimed at, on the facts of the present matter, is non-existent. Interesting and compelling as these considerations against applying the rule may be, I do not propose to deal with them any further as I am of the view that the issue can be dealt with on a more fundamental and decisive aspect.

[16] This brings me to the basis upon which the defendant claims damages from the plaintiff. The claim is for special damages based on breach of contract. Support for the basis upon which the defendant is claiming damages, is to be found in the judgment of the English Court of Appeal in George Fisher (Great Britain) Ltd v Multi Construction Ltd, Dexion Ltd (third party)29 on which counsel for the defendant relied. In that matter the Court of Appeal answered in the affirmative the question whether as a matter of law, a shareholder of a company is entitled to recover damages for a diminution in the value of its shareholding in the company or in the distribution by way of dividends or otherwise of profits of the company, where such diminution results from loss inflicted on the company by the defendant’s breach of its contract with the plaintiff. The Court further held that the shareholder, in order to succeed must inter alia prove that the loss was not too remote “…ie because on the facts known to the defendant at the time of the contract it was reasonably foreseeable that if the defendant was in breach of contract, the plaintiff would suffer such a loss”. In our law special damages, as opposed to general contractual damages, are, as aptly put by Christie,30 “another story”. The requirements for a claim for special contractual damages to succeed are well-known: it must be shown that those damages must have been in the contemplation of the parties and that the contract must have been entered into on the basis of the parties’ knowledge of the special circumstances giving rise to the damages.31 In casu those requisites have properly been pleaded.32 Within this framework, there is logically no room for the application of the rule in Foss v Harbottle, which if applied, would effectively undo what the parties had contemplated. It follows that the defendant’s pleaded counterclaim discloses a cause of action and the exception on this ground therefore cannot succeed.

[17] Next, I turn to consider the plaintiff’s cause of complaint that the defendant’s counterclaim is vague and embarrassing for want of certain particulars. The complaint is this: The defendant has alleged in the counterclaim that the loan of US$2 million under the funding loan agreement would have been utilized to repay the defendant’s overdraft to the bank as well as to fund the defendant’s wholly-owned subsidiary, Explorer Financial Services (Pty) Ltd. The counterclaim is however silent on the exact apportionment of the loan amount towards payment of the overdraft facility on the one hand and the funding of EFS on the other. The plaintiff submits that the defendant’s failure to mention the amount that would have been utilised to fund EFS has this significance: it concerns the allegations made by the defendant relating to the knowledge the parties had when the funding loan agreement was concluded, in order to found the basis for its entitlement to special damages. Those allegations in the absence of certainty as to the amount that would have been utilised to fund EFS, are therefore, so the argument went, vague and embarrassing. The vagueness and embarrassment complained of arises, it was submitted, because such amount constitutes an essential fact the defendant, in claiming special damages, is required to plead in order to determine what was in the contemplation of the parties at the time of concluding the loan funding agreement. The perceived difficulty is short-lived and easily solved upon a plain reading of the allegations in the counterclaim33 setting out the terms of the funding loan agreement, as follows:

“The loan amount would be utilized to repay the defendant’s overdraft to the bank and thereafter to fund the defendant’s wholly owned subsidiary…[EFS].” (my emphasis).

The term as pleaded makes it clear that the loan amount was to be utilized firstly, to repay the outstanding overdraft (which was a known or determinable amount) and thereafter, whatever was left, to fund EFS. The parties, having agreed upon the term, obviously had knowledge of the factual contents thereof, which constitutes the basis for the defendant’s allegation that those facts were within their contemplation when the agreement was concluded. It has consequently not been shown that the lack of particularity as to the exact apportionment of the loan amount by the defendant, will cause the plaintiff substantial embarrassment.34 The exception on this ground must accordingly fail.

[18] This is not, however, the end of the matter since it is necessary to refer to the difficulties I encountered in my consideration of the matter to discern the nature and amount of the damages claimed by the defendant in the counterclaim. For the sake of convenience and clarity I will further refer to these difficulties as “the new issue”. The new issue, although related to, does not form part of the plaintiff’s causes of complaint in this exception. It also was not referred to in argument before me. I accordingly requested counsel to furnish supplementary heads of argument on the merits of the new issue, as well as on the question whether it would be competent for this Court mero motu to adjudicate the new issue as one of the issues in this exception. Supplementary heads of argument were filed for which I express my indebtedness to counsel.

[19] Counsel for the defendant, unlike his opponent, has declined to agree to a determination of the new issue in this judgment. The reasons advanced for the defendant’s stance are fully dealt with in the supplementary heads of argument but counsel for the defendant has specifically refrained from making any submissions on the merits of the new issue. I once again invited counsel to present argument on the merits of the new issue, but this time on the assumption that the new issue will now be determined. Further supplementary heads of argument followed but counsel for the defendant regrettably, merely persisted in the stance the defendant has taken. In view hereof it has become necessary to consider upfront the question concerning the Court’s competency to now determine the new issue.

[20] The grounds for the defendant’s objection to the new issue now being determined are firstly, that it does not form part of the plaintiff’s exception and, secondly, that the defendant would be prejudiced if it had to deal with the new issue without it having had the advantage of notice thereof and the opportunity of rectifying, as provided for in the Rules. In support of the defendant’s stance counsel for the defendant sought to rely on the judgment of Heher J (as he then was) in Jowell v Bramwell-Jones and Others35 where the learned Judge, quoting with approval a passage from Goldrein on Pleadings: Principles and Practice at 8-9, dealt with and reinforced the well-established principle that an excipient is bound to the grounds of exception set out in his notice of exception and will not be permitted at the hearing of the exception or on appeal, to rely on different grounds or to raise a different exception.36 The corollary to this is, as stated in the passage quoted by the learned Judge, and in the context of exceptions, that the Court is as much bound by the terms of the exception as are the parties themselves, and that the Court “would be acting contrary to its own character and nature” if it were to enter upon an enquiry of its own and pronounce upon aspects not raised by the parties.

[21] The procedure that has now been initiated in regard to the new issue, is clearly distinguishable from the circumstances in which the considerations referred to above, would find their application. In the present matter the exception taken by the plaintiff already involves the issue concerning the alleged vagueness and embarrassment of the defendant’s counterclaim. The new issue similarly strikes at the vagueness and embarrassment of the counterclaim, albeit more specifically in regard to the damages claimed by the defendant. The new issue requires argument only and there is no good reason why another Court, when the matter comes to trial, should be burdened with an issue that can effectively now be dealt with. And there is this further advantage: in the event of a finding against the defendant, it will be afforded the opportunity of returning to the drawing board, thereby ensuring that the real and properly formulated issues are carried forward to trial. As to prejudice, counsel for the defendant submitted that the defendant’s prejudice lies in it being deprived of the opportunity to rectify which it otherwise would have had if the procedure provided for in the Rules had been followed. This can of course be cured by an appropriate order affording the defendant the opportunity to amend, which is the course I propose to adopt. Lastly, the defendant has raised fears as to the possible costs implication to it of the proposed procedure, which will effectively be laid to rest when the costs aspect is dealt with later in the judgment. I am therefore satisfied that the determination of the new issue in this judgment will not cause the defendant any prejudice.

[22] Against this background I consider it appropriate and necessary to briefly comment on the Court’s power to deal with issues mero motu raised by it. I cannot accept the notion of the Judge merely acting as an umpire in the adjudication of disputes between parties. It is also the Judge’s duty to ensure that justice is done.37 If during the consideration of a matter a fundamental issue arises, which the parties have overlooked or have failed to recognise, and it is in the opinion of the Judge in the interests of justice, necessary and convenient to determine that issue, I can see no reason why this cannot be achieved through a process of fairness to all the parties concerned. Fairness, I need hardly reiterate, would embrace inter alia that proper notice of the issue and its proposed determination be given to all parties and further that the principles of audi alteram partem be observed. The possibility of prejudice always remains an important consideration. In the absence of prejudice the Court in my view, should not hesitate to adopt such a course in order to arrive at a just decision of the case. I am fortified in the views I have expressed if regard is to be had to the judgment of the then Appellate Division in Paddock Motors (Pty) Ltd v Igesund38 where the Court considered it necessary for the proper adjudication of a stated case, to allow the appellant to revive an earlier abandoned contention based on a question of law. In dealing with this aspect, Jansen JA held:

“If e.g. the parties were to overlook a question of law arising from the facts agreed upon, a question fundamental to the issues they have discerned and stated, the Court could hardly be bound to ignore the fundamental problem and only decide the secondary and dependent issues actually mentioned in the special case. This would be a fruitless exercise, divorced from reality and may lead to a wrong decision. It follows that the Court cannot be confined to in all circumstances to the issues explicitly raised in the special case. This does not mean that the Court will always be free to enlarge the issues, whether mero motu or at the request of a party. The question of prejudice may arise, e.g., where a party would not have agreed on material facts, or on only those stated in the special case, had he realized that other legal issues, not stated in the special case, were involved.”

Finally, in this context, it is apposite to quote the words of caution expressed by Marais JA in S v Gerbers:39

“…it remains incumbent upon all judicial officers to constantly bear in mind that their bona fide efforts to do justice may be misconstrued by one or other of the parties as undue partisanship and that difficult as it may sometimes be to find the right balance between undue judicial passivism and undue judicial intervention, they must ever strive to do so.”

Having considered the principles and considerations I have outlined above, I have come to the conclusion that it would indeed be appropriate to now determine the new issue, and I accordingly proceed to do so.

[23] The new issue, as I have mentioned, concerns the nature and amount of damages claimed, in the form pleaded by the defendant in the counterclaim, which I have already alluded to.40 Firstly I shall deal with the nature of the pleaded damages. Pared to its essentials the amount claimed is pleaded to be the amount that the defendant would have received from EFS, in reduction of its loan account obligations, or in the alternative, the amount of the diminution in value of the defendant’s shareholding in EFS. Premised on these allegations, the computation of the damages, is set out in annexure “A” to the counterclaim, as follows:

“Net Card Profits 32 087 789, 86

Net Processing Profits 6 618 750, 00

Net Transaction Profits 9 455 357, 14

Net Card Based Profits 48 162 005, 00

Loan Account Defendant/EFS 20 789 176, 00

Total Damages Claim 68 951 181, 00”

The mosaic heads of damages described in the counterclaim defies easy understanding. The heads of damages as set out in the annexure, are, except for the reference to the “loan account defendant/ EFS”, the profits of EFS. This is at odds with the nature of the damages pleaded by the defendant in the counterclaim, which, as I have alluded to, are the amounts the defendant would have received from EFS. The annexure reflects the profits of EFS, but no basis has been pleaded to show what amount would have been paid to the defendant in reduction of its loan account obligations. No information is furnished regarding the alleged loan account obligations. It is seemingly impossible to reconcile the description “loan account defendant/EFS” contained in annexure “A” with the allegation, as pleaded, referring to the amount the defendant would have received from EFS in reduction of its alleged loan account obligations. Compounding the difficulty is the absence of information pleaded as the amount of the loan obligations. The alternative pleaded, if anything, merely further muddles understanding. The reference in the alternative plea to the value of the defendant’s shareholding, simply cannot be reconciled with the computation of the amounts under the heads of damages set out in Annexure “A”. The difficulties I have referred to make it impossible to gather from the pleaded allegations, what the nature is of the damages, and they therefore strike at the root of the defendant’s counterclaim. In the light of the foregoing the allegations concerning the nature of the damages claimed in the defendant’s counterclaim, in my view, are vague and embarrassing.41

[24] But it does not end there: a further difficulty arises when one attempts to assess the damages claimed by the defendant. The descriptions of the various losses set out in annexure “A” are so vague and undifferentiated that it is plainly impossible to assess the quantum thereof. Uniform Rule 18(10) provides that “ …a plaintiff suing for damages shall set them out in such manner as will enable the defendant reasonably to assess the quantum thereof…”. The defendant has accordingly clearly failed to comply with the provisions of the Rule.

COSTS

[25] As to costs, the plaintiff has been substantially successful on the exception it has taken, and is therefore entitled to its costs. The matter, in my view, clearly warranted plaintiff’s employment of two counsel, which has not been disputed. All that remains is to add that in awarding costs, I have not given any consideration to the outcome of the determination of the new issue.

[26] In the result the following order is made:

The plaintiff’s exception to the defendant’s alternative plea to Claim B is upheld.

Paragraph 2.1.2 of the defendant’s plea is struck out.

The plaintiff’s exception to the defendant’s counterclaim on the ground that it fails to disclose a cause of action, is dismissed.

The plaintiff’s exception to the defendant’s counterclaim on the ground that it is vague and embarrassing, based on the plaintiff’s third cause of complaint, is dismissed.

Paragraphs 6 and 7 of the defendant’s counterclaim are declared to be vague and embarrassing, and are struck out.

The defendant is given leave, if so advised, to amend its plea and counterclaim within 20 days of the date of this judgment.

The defendant is ordered to pay the costs of the exception, such to include the costs consequent upon the employment of two counsel.

___________________________

FHD VAN OOSTEN

JUDGE OF THE HIGH COURT

COUNSEL FOR THE PLAINTIFF ADV CDA LOXTON SC

ADV AWT ROWAN

PLAINTIFF’S ATTORNEYS BRINK COHEN LE ROUX INC

COUNSEL FOR THE DEFENDANT ADV PN LEVENBERG SC

ATTORNEYS FOR DEFENDANT WERKSMANS INC

DATE OF HEARING 17 OCTOBER 2007

DATE OF JUDGMENT 16 NOVEMBER 2007

1 This amount is evidently less than the amount of R5m provided for in the facility agreement. The reason for the lesser amount having been granted does not appear from the papers before me. Counsel for the defendant faintly attempted to capitalize on the difference but it is swiftly and effectively laid to rest by the fact that the defendant formally accepted the overdraft facility for the lesser amount, by signing the bank’s letter of grant, to which reference is made later in the judgment.

2 In the sums of R100 000 and R125 000 respectively.

3 The total amount of the defendant’s indebtedness to the bank was R5 072 476 – 58.

4 The main defence, except for an admission as to the correctness of the bank’s letter granting the overdraft facility, which is annexed to the plaintiff’s particulars of claim, is a bare denial.

5 In terms of which EFS would supply Protector, and/or its medical aid members, with “smart cards, smart card healthcare risk patient management systems and all technical services related thereto”.

6 By the nature of exception proceedings the allegations contained in the pleadings as they stand, are accepted.

7 Motor Racing Enterprises (Pty) Ltd (In Liquidation) v NPS (Electronics) Ltd 1996 (4) SA 950 (A) at 961E; RH Christie The Law of Contract in South Africa 5th Ed p 421.

8 BK Tooling (Edms) Bpk v Scope Engineering (Edms) Bpk 1979 (1) SA 391 (A) at 418B.

9 [1998] ZASCA 99; 1999 (1) SA 960 (SCA).

10 At 965E-I.

11 Under the actio mandati – as to which see Turkstra v Massyn 1959 (1) SA 41 (T).

12 2004 (5) SA 226 (SCA) at par [12].

13 1973 (2) SA 805 (C) at 808/9.

14 1996 (4) SA 280 (A).

15 At p 288F.

16 See ESE Financial Services (Pty) Ltd v Cramer, supra at 810G-H.

17 It is pleaded as follows: “4.2.3.1 the Plaintiff’s right to enforce its right to claim an overdraft facility fee, a commitment fee, or any other amount under the agreements, and/or to call an event of default under the agreement, was conditional and/or dependent upon the Plaintiff complying with its obligations under the agreement (including, without limitation, the Plaintiff’s obligation to procure and overdraft facility in an amount of R5 million and to use its reasonable endeavours to assist the Defendant to obtain the Project Funding prior to the overdraft facility termination date); 4.2.3.2 any right of recourse that the Plaintiff might have against the Defendant, consequent upon the Plaintiff carrying out the obligations of the Defendant to First Rand Bank Limited “the Bank”) pursuant to the suretyship agreement (“the suretyship agreement”) (defined in clause 2.39 of the agreement) was conditional and/or dependent upon the Plaintiff complying with the Plaintiff’s obligations under the agreement (including, without limitation, the Plaintiff’s obligation to procure an overdraft facility in an amount of R5 million and to use its reasonable endeavours to assist the Defendant to obtain the Project Funding prior to the Overdraft Facility Termination Date).”

17 It is pleaded as follows:

“4.2.3.1 the Plaintiff’s right to enforce its right to claim an overdraft facility fee, a commitment fee, or any other amount under the agreements, and/or to call an event of default under the agreement, was conditional and/or dependent upon the Plaintiff complying with its obligations under the agreement (including, without limitation, the Plaintiff’s obligation to procure and overdraft facility in an amount of R5 million and to use its reasonable endeavours to assist the Defendant to obtain the Project Funding prior to the overdraft facility termination date);

4.2.3.2 any right of recourse that the Plaintiff might have against the Defendant, consequent upon the Plaintiff carrying out the obligations of the Defendant to First Rand Bank Limited “the Bank”) pursuant to the suretyship agreement (“the suretyship agreement”) (defined in clause 2.39 of the agreement) was conditional and/or dependent upon the Plaintiff complying with the Plaintiff’s obligations under the agreement (including, without limitation, the Plaintiff’s obligation to procure an overdraft facility in an amount of R5 million and to use its reasonable endeavours to assist the Defendant to obtain the Project Funding prior to the Overdraft Facility Termination Date).”

18 See Reigate v Union Manufacturing Co (Ramsbottom) [1918] 1 KB 592, 605; Techni-Pak Sales (Pty) Ltd v Hall 1968 (3) SA 231 (W) at 236F-237A; RH Christie op cit 167.

19 AJ Kerr The Principles of the Law of Contract 6th Ed p354.

20 Cf Cape Provincial Administration v Clifford Harris (Pty) Ltd [1996] ZASCA 115; 1997 (1) SA 439 (A) at 446H-I.

21 Cape Provincial Administration v Clifford Harris (Pty) Ltd, supra at 445G.

22 Swart en ‘n Ander v Cape Fabrix (Pty) Ltd 1979 (1) SA 195 (A) at 202C.

23 See Sassoon Confirming and Acceptance Co v Barclays Bank 1974 (1) SA 641 (A) at 646B; Cf The Trustees, Bus Industry Restructuring Fund v Break Through Investments (as yet unreported) [2007] SCA 101(RSA) par[15].

24 Clause 3(3.1 – 3.8) styled “Overdraft Facility” and clause 3.9 styled “Project Funding”.

25 See Cash Convertors Southern Africa v Rosebud WP Franchise 2002 (5) SA 494 (SCA) at par [21]; RH Christie op cit p366; AJ Kerr op cit 162.

26 Clause 3.9.3 of the facility agreement.

27 [1843] EngR 478; (1843) 2 Hare 461 (67 ER 189). See also Gibson South African Mercantile & Company Law 8th Ed p369.

28 See Kalinko v Nisbet and Others 2002 (5) SA 766(W) at 779B; McLelland v Hulett and Others 1992 (1) SA 456 (D&CLD) at 467G; Golf Estates (Pty) Ltd v Malherbe and Others 1997 (1) SA 873 (C) at 879I.

29 [1995] 1 BCLC 260 (CA) at 264e -267h.

30 Op cit p 551-553.

31 Lavery & Co Ltd v Jungheinrich 1931 AD 156 at 169/175. Wilkins NO v Voges [1994] ZASCA 53; 1994 (3) SA 130 (A); AJ Kerr op cit 801.

32 Par 8 of the defendant’s counterclaim reads as follows: “The aforegoing damages flow directly from the plaintiff’s breach of the loan commitment; alternatively it was at all material times within the contemplation of the parties and the funding loan agreement was entered into on the basis thereof, that if the plaintiff breached its obligations under the funding loan agreement as aforesaid, the defendant would suffer damages as aforesaid.”

32 Par 8 of the defendant’s counterclaim reads as follows:

“The aforegoing damages flow directly from the plaintiff’s breach of the loan commitment; alternatively it was at all material times within the contemplation of the parties and the funding loan agreement was entered into on the basis thereof, that if the plaintiff breached its obligations under the funding loan agreement as aforesaid, the defendant would suffer damages as aforesaid.”

33 Par 2.6 of the Defendant’s Counterclaim, as amended.

34 Lockhat and Others v Minister of the Interior 1960 (3) SA 765 (D&CLD) at p 777A; Jowell v Bramwell-Jones and Others 1998 (1) SA 836 (W) at p 901-902.

35 Supra at 898F-899B.

36 Erasmus Superior Court Practice B1 – 163.

37 Compare the role ascribed to the Judge in a criminal trial by Innes CJ in R v Hepworth 1928 AD 265 at 277.

38 1976 (3) SA 16 (A) at 24A-G. See also Dharumpal Transport (Pty) Ltd v Dharumpal 1956 (1) SA 700 (A) at 707F.

39 1997 (2) SACR 601 (SCA) at p 607a-c.

40 Par [5] supra.

41 See Lockhat and Others v Minister of Interior supra, at 777C-D, where Henochsberg J held: “The object of all pleadings is that a succinct statement of the grounds upon which a claim is made or resisted shall be set forth shortly and concisely; and where such statement is vague, it is either meaningless or capable of more than one meaning. It is embarrassing in that it cannot be gathered from it what ground is relied on by the pleader. Leathern v Tredoux, 1911 N.P.D. 346, per Dove-Wilson J.P., at p. 348.”

41 See Lockhat and Others v Minister of Interior supra, at 777C-D, where Henochsberg J held:

“The object of all pleadings is that a succinct statement of the grounds upon which a claim is made or resisted shall be set forth shortly and concisely; and where such statement is vague, it is either meaningless or capable of more than one meaning. It is embarrassing in that it cannot be gathered from it what ground is relied on by the pleader. Leathern v Tredoux, 1911 N.P.D. 346, per Dove-Wilson J.P., at p. 348.”