IN THE HIGH COURT OF SOUTH AFRICA
(KWAZULU-NATAL DIVISION HELD AT DURBAN)
CASE NO: 8965/05
In the matter between:
SANDLUNDLU (PTY) LTD PLAINTIFF
SHEPSTONE & WYLIE INC
1. The plaintiff, Sandlundlu (Pty) Ltd, a property developer instituted action
against the defendant, its erstwhile attorneys, for breach of contract and
damages arising from the breach. The plaintiff owned immovable property
described as Erf 1094, Port Edward (hereinafter referred to as “the
2. Geoffrey Reardon and his wife were shareholders in the plaintiff company
and were also involved in developments in Florida Road on the Berea in
Durban, a property in Umhloti, and the Estuary Country Development on
the property in Port Edward. The Estuary Hotel was built on the property
and Reardon wanted to develop the area adjoining the hotel property into
Villas. In 2000 the plaintiff was experiencing cash flow problems.
Fedsure Participation Mortgage Bond Managers (Pty) Ltd and Fedsure
Nominees (Pty) Ltd (collectively referred to as FedBond), who had a bond
on the property of some R7.8 million, including repayments of some R130
000 per month had threatened to foreclose on him.
3. Dr Reinhardt Norbert Kotter (‘Kotter’), an Austrian businessman and a
major shareholder in Biz Afrika 987 (Pty) Ltd (Biz Afrika), and his wife had
showed an interest in acquiring the hotel business and participating in the
development. Kotter’s attorney and representative, George Michaelides
prepared heads of agreement on the 4 May 2000.
4. Briefly the terms of the heads of agreement were that firstly; the Ark Trust
(in which Kotter had substantial interests) would advance a loan of R2 000
000-00 to the plaintiff. Secondly, Secprops 143 Investments (Pty) Ltd
(‘Secprop’), a company would be incorporated to acquire the whole
property from the plaintiff and sub-divide the property into two portions.
Portion 1 being the portion on which the hotel was situated and the
Remainder being the portion on which the development of villas was to be
constructed. In the third place Secprop would thereafter transfer the hotel
to a private company in which Kotter would have a 60% share and the
Reardons a 40% share. Fourthly, Secprop was to also develop the
property adjoining the hotel into villas and the Reardons and Kotter would
each have a 50% share in the Development. Finally Slip Knot (Pty) Ltd
(‘Slip Knot’), a new company owned by both the Reardons and Kotters
would take transfer of the Remainder of the property with the development
and register a bond over the property in order to secure repayment of Ark
Trust’s loans to the plaintiff.
5. The Plaintiff referred the heads of agreement to Gerrit Diederick
Breytenbach (Breytenbach) a partner in defendant’s firm for perusal and
advice. In June 2000 the Kotters took control of the Hotel.
6. The first mention of the lease was in a letter from Michaelides to
Breytenbach on 12 June 2000 although Reardon was unaware of this
development. This letter recorded the Kotters would purchase the hotel
business for R2 million and place it into a private company of which the
shareholder would be the Ark Trust. The private company would enter into
an agreement with Secprop to lease the premises from Secprop at a
nominal rental and be entitled to purchase the land upon which the hotel
was constituted upon the exercise of which the agreement of lease would
7. Reardon told the court that on the 1 October 2000 he telephoned
Michaelides for a draw of R450 000-00. He was told that he would not get
paid until the documents that had been with his attorney for the last two
weeks had been signed. He was not aware of this.
8. On the 3 October 2000 Reardon attended the defendant’s offices and was
presented with four agreements, a lease agreement, a restraint of trade
agreement, an asset sale agreement and an option to purchase the hotel
agreement (which was valid until 30 June 2002).
9. On perusing the lease agreement Reardon noticed that the agreement
incorrectly reflected the rent payable, by Biz Afrika, as R4500-00 per
month instead of R50 000-00.The escalation clause was also incorrectly
reflected as 10% instead of 12%.
10. In the presence of Breytenbach, Reardon telephoned Michaelidas and
confirmed that the rent would be R50 000-00 per month with a 12%
escalation per annum. Reardon also phoned Kotter in Austria and
confirmed this with him. Breytenbach asked Reardon to initial where the
alteration would be made and assured him that he would attend to the
amendment. Reardon signed all four agreements confident that
Breytenbach would carry out his instructions. In terms of the agreement
Biz Afrika was to lease the property for nine years and eleven months.
11. In December 2000 he was still in deep financial problems and asked
Kotter to pay the rent. Kotter indicated that he was not interested in the
development but was interested in the hotel. Reardon indicated that this
was in order as long as the rent was paid.
12. In January 2001 the plaintiff received R300 000-00 from the Kotters in
respect of rental for the six months of June 2000- November 2000. When
Reardon approached the Kotters in Jan/Feb 2001 for subsequent rent the
Kotters refused to pay the rental of R50 000-00 per month, claiming that
the sum of R4500-00 per month was the rent the plaintiff was entitled to.
Reardon realized then that Breytenbach had not amended the documents.
Although he was concerned he expected the transfer to be registered
13. In early February 2001 Reardon phoned Breytenbach who assured him
that he had made the necessary amendments to the lease. On 10 April
Breytenbach wrote to FedBond indicating that plaintiff was in a position to
carry out the transfers being portion 1 to Slip Knot. Michaelides persisted
in his denial in a letter dated 27 April 2001 that the R50 000 was payable
and threatened that if Reardon persisted with any mention of the higher
amounts the loans would be called up and FedBond would be advised that
the Kotters were no longer participating.
14. Prior to the 30th April 2001 Reardon had asked Breytenbach on numerous
occasions for copies of the agreements and on that date he was handed
them, but none had been signed by Michaelides. On the same day
Breytenbach has a file note to the effect that Reardon told him that Biz
Afrika was to pay him R50 000 per month rental for the lease of the hotel.
In mid-May Reardon was informed by Breytenbach that Michaelides had
lost the lease agreement.
15. On 14 July 2001 Breytenbach wrote to Michaelides stating that there was
a need to finalise the agreements between plaintiff and Slip Knot. On 24
July 2001 a letter was directed by Breytenbach to Michaelides informing
him that FedBond had instructed their attorneys to register the bonds to
enable the transfers of the properties to take place. The transfers could
only take place in terms of the sale agreements which were to be drafted
16. Breytenbach attempted to obtain the said sale agreements from
Michaelides by various letters, including one dated 30 August 2001. In this
letter reference was made to the lease agreement still to be concluded.
Breytenbach was cross-examined on this aspect and he could not explain
it. He had clearly forgotten that he had the lease agreement and had
undertaken to effect the necessary changes. He could also not explain
why he had kept the lease so long in his file without effecting the changes
his client had asked asked him to effect.
17. On 8 August 2001 Breytenbach wrote to Michaelides recording that in a
telephone conversation of 24 July it was agreed that Michaelides would
prepare the draft sale agreements and email them to Breytenbach. On 31
August 2001 Reardon sent a statement of account reflecting the amounts
owing to the plaintiff as occupational interest. This is what is charged
when a purchaser takes occupation before transfer has been registered. It
was clearly contemplated that transfer was imminent.
18. Breytenbach sent the original of the lease to Michaelides on 18 October 2001.
19. On 20 January 2002 Reardon, acting on behalf of the plaintiff, signed the
sale agreement with Slip Knot for the sum of R4 million. The sale
agreement provided for occupation on 1 June 2000. It was signed on
behalf of Slip Knot on 29 January 2002.
20. According to Breytenbach eight weeks was sufficient for transfer to take
place. By 1 April 2002 Slip Knot would have acquired ownership and the
obligation to pay rent would have ceased.
21. On the 29 January 2002 Reardon attended a meeting at Breytenbach’s
offices. Mr Donnelly, one of the other partners at Shepstone and Wylie
was also present. At that meeting he was told by Breytenbach that he
had to consult his notes to see why the amendment to the rental amount
had not been made. Donnelly assured him that defendant would attend to
the rectification of the agreement and would draft the necessary papers.
22. A letter was written by Breytenbach putting the Kotters on terms to comply
with the sale agreement as they were declining to sign the transfer papers.
When the breach was not cured Breytenbach cancelled the sale
agreement on 2 August 2002.
23. The matter was referred for arbitration to seek rectification of the lease
agreement and certain other relief. On the 4 February 2005 the arbitrator held as
a) The agreement be rectified so as to substitute the amount of R50
000-00 for the amount of R4500-00,
b) Clause 4.1.2 be rectified and the figure of 10% be substituted
with the figure 12% per annum,
c) That the respondent (Biz Afrika) was obliged to pay the claimant
the arrear rental in the amount of R50 000-00 per month from 1
November 2001 and escalated at the rate of 12% per annum.
d) Biz Afrika was also ordered to pay plaintiff’s costs incurred in the
24. The arbitrator also made a finding that the lease agreement was signed by
Michaelides on the 18 October 2001 and the latter could not explain why
he back dated the signature date to 20 September 2000.
25. Plaintiff was only able to evict Biz Afrika from the premises on the 30 April
THE PLAINTIFF’S CLAIM
26. The Plaintiff, who was represented by Mr Wasserman SC, instituted
proceedings against the defendant, who was represented by Mr Ploos van
Amstel SC and Mr Thatcher, for breach of the contractual relationship with
27. The plaintiff alleged that the defendant had failed to carry out his duties
and through negligence had incorrectly reflected the sum of R4500-00 as
being the amount of rental per month for the first year of the lease,
payable by Biz Afrika instead of the sum of R50 000-00. In addition the
defendant had incorrectly reflected an escalation of 10 % instead of 12%
per annum of the rental. It was further pleaded that the defendant failed to
take all reasonably necessary steps to protect the plaintiff from suffering
financial harm in consequence of the transaction.
28. It was further pleaded that as a result of defendant’s breach the plaintiff
had to incur the sum of R450 000.00 in respect of legal fees in pursuing
the arbitration proceedings against Biz Africa, mentioned above, and the
plaintiff had suffered damages in the sum of R6 159 267.74, consisting of
loss of rentals, interest on arrear rentals and legal fees.
29. It was common cause that Biz Africa was wound up and no dividend was
paid to the plaintiff. Proceedings were brought for the ejectment of Biz
Afrika and an order was granted in the High Court on 9 December 2005
and execution took place on 20 April 2006.
THE DEFENDANT’S DEFENCE
30. Initially the defendant denied that it was in breach of its duties to exercise
skill and care reasonably expected of an attorney though it was admitted
that Breytenbach failed to attend to the necessary amendments. In an
answer to a request for particulars for trial the defendant admitted that
Breytenbach should have seen to the necessary amendments had he
been acting reasonably.
31. At the commencement of the trial it was common cause that the defendant
was in breach of its contract with plaintiff and negligent in failing to amend
the lease agreement insofar as the rental and the escalation were
concerned. In the Defendant’s heads of argument after evidence had been
led this concession was repeated.
32. The defendant alleged, however, that the arbitration proceedings were the
result of Biz Afrika’s representative George Michaelides wrongfully and
dishonestly maintaining that the lease agreement correctly reflected the
intention of the parties that the rental was R4500-00 per month for the first
year of the lease. In addition it was alleged that the damages claimed
were neither a direct and natural result of Breytenbach’s alleged breach of
the contract nor were they reasonably foreseeable as a probable
consequence of the alleged breach. Defendant submitted, alternatively, in
argument that plaintiff’s damages should be apportioned to the extent that
Michaelides’s dishonesty was largely responsible for the damages
suffered by the plaintiff.
33. It is common cause, therefore, that the defendant, in particular
Breytenbach, had rendered professional services to the plaintiff. These
included putting in place a legal framework for the development of the
property, negotiations with the plaintiff and Biz Afrika, represented by
Michaelides and in particular in respect of the lease and sale of the
property. He also negotiated with representatives of FedBond.
34. The plaintiff called three witnesses that is Reardon, Gavin Sean Sole and
William Douglas Howie and the defendant called Breytenbach. The first
issue is therefore whether Breytenbach’s negligence was the cause of the
loss suffered by the plaintiff. Did the damages flow from the breach of the
contract committed by the defendant and were they within the
contemplation of the parties when the contract was concluded as required
35. In dealing with the foreseeability within the realm of contract, our courts
have drawn a distinction between general and special losses or damages.
The court has held that
“The relationship of attorney and client is a contractual one and it is by
virtue of that relationship that the duty arises…Accordingly the damages
to be awarded must be those which normally flow from the breach or may
reasonably be supposed to have been in contemplation of the parties as
likely to result therefrom... There are two parts to this proposition. The
first is concerned with the loss which may fairly and reasonably be
considered as arising naturally from the breach… The second arises only
if there are some special circumstances i.e. circumstances that normally
would not be contemplated but which are nevertheless deemed to be in
Bruce NO v Berman 1963 (3) SA 21 TPD
36. The question of causation and foreseeability where damages are claimed
in contract was decided in the Supreme Court of Appeal decision of
THOROUGHBRED BREEDERS ASSOCIATION V PRICE
WATERHOUSE. 3The majority judgment of Nienaber JA reiterated that
the first enquiry is whether the loss would have been suffered if the act
complained of did not happen and secondly whether the loss was not too
remote.4 In applying the above approach he quoted from the English
case of HADLEY v BAXENDALE5
“Where two parties have made a contract which one of them has broken,
the damages which the other party ought to receive in respect of such
breach of contract should be such as may fairly and reasonably be
considered either arising naturally i.e. according to the usual course of
things, from such breach of contract itself, or such as may reasonably be
supposed to have been in the contemplation of both parties, at the time
they made the contract, as the probable result of the breach of it.”6
37. Reardon’s evidence was that if the amount of the rental had been
amended and the Kotters had not paid the rent he would have been able
to find another tenant. The hotel had been renovated with a wellness
centre and conference facility. He would have even run the hotel himself.
Supra at 23-24 G-A
2001 (4) SA 551 SCA
Supra at 579 D-G.
156 ER 145 at 151
Thoroughbred Breeders’’ Association v Price Waterhouse at 579G-I
He was asked if Biz Afrika had stayed on as a tenant at R50 000-00 per
month would it have made a profit but candidly admitted that Dr Kotter
knew nothing about the hotel business.
38. It was not disputed on behalf of defendant that Breytenbach was first
alerted to the errors in the agreement by Reardon. In his presence
Reardon had telephoned Michaelides and confirmed that the amounts
were incorrectly reflected in the agreement. Reardon told the court that he
signed the agreement and initialed the same where the alterations would
be after Breytenbach had assured him that he would effect the
amendments. Breytenbach and he had a long standing attorney and client
relationship and he had complete faith in him.
39. Breytenbach told the court that had both parties completed all the
agreements and the finances were in place the transfer would have taken
place within eight weeks. However Michaelides was uncooperative.
Breytenbach was aware of plaintiff’s financial difficulties and when it was
put to him that it did not make financial sense for plaintiff to sign a lease
agreement for R4500-00 when he was making bond repayments of R130
000-00 per month, he agreed. He confirmed that it was always the
intention of the parties that the rentals would be R50 000-00 per month.
40. Plaintiff’s counsel Mr. Wasserman put to Breytenbach that from the
correspondence it was apparent that neither Michaelides nor the Kotters
were interested in finalizing the matter and were playing for time.
Breytenbach conceded that if the lease was not corrected plaintiff would
suffer loss. He had no reason to mistrust Michaelides even though the
latter had in April 2001 written to him with a version that was inconsistent
with his instructions. He could not recall if Reardon asked him for a copy
of the lease.
41. When it was put to him that the plaintiff had complained about non
payment of the rental his answer was that Reardon was always
complaining about money. In retrospect he conceded that he should have
foreseen that the plaintiff would suffer loss if he received R4500-00 rental
instead of R50 000-00. This concession was made on a number of
occasions during his evidence and I have in mind inter alia passages
appearing at pages 117 and 120 of the typed transcript of the record.
42. It was also clear that the Kotters would not want to take transfer when they
could have use and enjoyment of the place at R4500-00 per month. He
maintained, however all his efforts were concentrated on ensuring that the
transfer was finalized.
43. Breytenbach eventually handed the unamended lease to Michaelides in
October 2001, which was more than a year after Reardon had brought to
his attention the errors in the amounts. The negligence of Breytenbach
was clearly the cause of any loss during that period. At this stage,
Michaelides had been delaying payments of the rental and the finalization
of the various contracts. Breytenbach then participated with Michealides in
implementing the incorrect lease by referring it for payment of stamp duty.
44. Where the plaintiff’s loss depends also upon the actions of an independent
third party, it is necessary to consider as a matter of law what it is
necessary to establish as a matter of causation and where causation ends
and quantification begins. What has to be proved to establish a causal link
between the negligence of the defendant and the loss sustained by the
plaintiff depends in the first instance on whether the negligence consists of
some positive act or an omission. The court has to determine on a
balance of probability whether the defendant’s act caused the plaintiff’s
45. I am satisfied from the evidence that had Breytenbach made the
necessary amendments to the lease it would not have to have been
referred to arbitration for rectification and therefore the cost suffered by
the plaintiff as a result of the arbitration flows directly from the breach of
46. Breytenbach further conceded under cross examination that he should
have foreseen that the plaintiff would suffer loss if he received R4500-00
rental instead of R50 000-00. It is obviously a term of the mandate when a
client engages the services of an attorney that the attorney will exercise
due skill and care.
47. I am of the judgment that the lease agreement was merely an agreement
to protect the plaintiff until the transfers had been registered and had the
parties performed in time the lease agreement would have fallen away.
48. Breytenbach was negligent in failing to amend the agreement and that the
particular loss that occurred was within the contemplation of the parties.
What matters is not infinite but reasonable foreseeability. What is required
to be reasonably foreseeable is not the type of event or circumstances
causing the loss but that its occurrence is not improbable and would tend
to follow upon the breach as a matter of course.8 In this sense I am of
the judgment that the loss suffered by the plaintiff flows naturally
and generally from Breytenbach’s breach.
49. A diligent attorney would know that the failure to amend the agreement in
accordance with his client’s instructions may well lead to the prospective
loss of the nature suffered by the plaintiff. The Kotters had willingly paid
R50 000-00 per month in respect of rent from June 2000 to November
De Klerk v Absa Bank Ltd and Others 2003 (4) SA 315 at 329 E-G
Thoroughbred Breeders’ Association v Price Waterhouse supra at 581 H-J
2000, but when they realized that the rent payable in the agreement
reflected R4500-00 they decided to discontinue payments.
50. The cumulative effect of the relevant factors mentioned above is that
Breytenbach’s behavior fell short of the standard and degree of care and
attention which an attorney of his standing ought to have exercised over
the management of his clients affairs.
51. I have accordingly come to the conclusion that a person in the position of
the defendant must have realized that by sending the unamended
agreement to Michaelides, loss would occur to the plaintiff.
THE SOLE CAUSE OF THE LOSS
52. I now turn to deal with the third leg of defendant’s defence as to whether
Breytenbach’s negligence was the sole or dominant cause of the loss and
whether the damages are to be apportioned.
53. In the Thoroughbred matter NienaberJA in delivering the majority
judgment made the following comment
“The defence of a preponderance of fault on the part of the plaintiff, on
which the court a quo appears to rely, is incongruent within the field of
contract. Where the plaintiff can prove that the breach of the defendant
was a cause of the loss (as opposed to the cause thereof) he should
succeed even if there was another contributing cause to the loss,
be it an innocent one, the actions of a third party or, logically, the
carelessness of the plaintiff himself in failing to take reasonable
precautions to avoid it. A defendant who commits a breach of
contract does so independently of any of the extraneous factors
mentioned above. All the requirements for his liability would have
been fulfilled. In the absence of a contrary term in the agreement
itself or of legislative intervention excluding or reducing his claim,
he should therefore be held fully liable, regardless of whether the
plaintiff’s culpa was the dominant or pre–eminent cause of the
54. He went further by quoting from two cases Fitzgerald v Penn,10 and
Alexander v Cambridge Credit Corporation Ltd and Another11
“It is irrelevant to inquire whether the defendant’s default was the
dominant, effective or real cause of plaintiff’s loss. If the evidence is
suggestive of multiple causation, the inquiry to be made is whether the
defendants’ default was a cause of the plaintiff’s loss.”12
55. The possible application of the Apportionment of Damages in relation to
breach of contract matters was considered in the Thoroughbred Breeders’
Association matter. The whole Court came to the conclusion that the Act
was designed to address mischief within the law of delict and that the
express wording in the Act does not fit a contractual claim.13
56. It seems clear from the THOROUGHBRED BREEDERS’ ASSOCIATION
case that a plaintiff can only be non-suited if ‘the defendant’s negligence
Supra at 588 Para 66 D-G
1954 (91) CLR 268 at 273
(1987) 9 NSWLR 310 at 315B
Thoroughbred Breeders’ Association v Price Waterhouse at 588 G-H
was, comparatively speaking, so negligible or minimal as to be
discountable as a significant cause of the loss…’ See page 589 C.
57. It is clear that Michaelides was dishonest and played a significant role in
the plaintiff’s loss. In fact if one examines Michaelides’ behavior he
unscrupulously seized a more profitable opportunity for his clients. What is
clear, however, is that the defendant’s default was not so negligible or
minimal as to be discountable as a significant cause of the loss. To have
kept the lease unamended in his file for a period of over a year was a
significant cause of plaintiff’s loss of the rental at the proper rate.
58. It now remains to consider whether the plaintiff placed sufficient evidence
before the court to estimate the loss suffered by him.
59. The usual purpose of an award of damages for breach of contract is that
the party complaining should, as far as can be done by money and without
causing undue hardship to the debtor, be placed in the same position as
he or she would have been in, had the contract been performed.14
“As the plaintiff’s claim was a contractual one, he is entitled to be placed
Supra @ 591 B-D
Holmdene Brickworks (Pty) Ltd v Roberts Construction Co Ltd 1977 3 SA 670 A at 687B-G
in the position that he would have been in had the defendant not breached
60. Once it is established on a balance of probabilities that the plaintiff’s loss
has been caused by the defendant the plaintiff recovers his damage in
full.16 The courts have held that once monetary damage has been
proved to have been suffered it is necessary for the court to assess
the amount and make the best use it can of the evidence before it.17
61. Once the damage or loss is established a court will do its best to quantify
that loss even if this involves a degree of guesswork 18 bearing in mind
that the usual purpose of an award of damages for breach of
contract is that the party complaining should, as far as can be done
by money and without causing undue hardship to the debtor, be
placed in the same position as he or she would have been in had the
contract been performed.
62. Mr. William Howie, an expert valuator, called by the plaintiff, told the court
that he had prepared a valuation based on market related values for the
purposes of the arbitration. He had worked this out on the basis of what
rental would have been received by the owner in 2000. He confirmed that
an escalation of 12% per annum was realistic and so was the rent at R50
Bouwer v Harding 1997 (4) SA 1023 at 1031 B-E
Klerk v Absa Bank Ltd and Others supra at 329 G
Stratford J in Herman v Shapiro & Co 1926 TPD 367
Jowell v Bramwell-Jones and Another 2000 (3) SA 274 at 286 H-J
000-00 per month.
63. He had specifically asked the attorney if there was any dispute relating to
the actual figures before he prepared his valuation. Although he was not a
Chartered accountant he had had business experience. He testified that
even if a rental of R50 000-00 was paid the hotel would have realized a
profit. It was put to him that even though rental may be affordable and
reasonable there is a difference as to what a tenant may be willing to pay.
64. In this regard it is as well to bear in mind what Schultz JA said in the De
Klerk matter at page 330 quoting from Allied Maples Group Ltd v Simmons
and Simmons (A Firm)  1 WLR 1602 at 1614 C-E
“[I]n my judgment, the plaintiff must prove as a matter of causation that
he has a real or substantial chance as opposed to a speculative one. If he
succeeds in doing so, the evaluation of the chance is part of the assessment
of the quantum of damage, the range lying somewhere between something
that just qualifies as real and substantial on the one hand and near certainty
on the other. I do not think that it is helpful to seek to lay down in
percentage terms what the lower and upper ends of the bracket should
65. To ensure that undue hardship is not imposed on the defendant the
defaulting party the sufferer is obliged to take reasonable steps to mitigate
his loss or damage. The courts have suggested what the right approach
“What the court will not do in such a case is to select, from the range of
possibilities presented by the evidence, the possibility which is least
favorable to the plaintiff because he bears the onus, and has not proved
that a more favorable possibility ought to be preferred.”20
66. Plaintiff told the court that if he had not been able to obtain a tenant he
would have ran the hotel himself. Clearly plaintiff was deprived of the profit
from the property be it in the form of rental or otherwise from the hotel.
This was reinforced by the evidence of Gavin Sole when he told the court
that he would have, after considering the figures, been willing to take over
the Hotel at the rental of R50 000-00 per month had it been available.
When he took over in 2007 he agreed to pay rent of R57000-00 per month
for the first six months because the Kotters had run it down to a
considerable extent. Thereafter he paid R105 000-00 with an annual
escalation of 12%. He is currently comfortably meeting his monthly rental
67. I accept Howie’s evidence that R50 000-00 was a reasonable rental at the
inception of the agreement in respect of the property as was the annual
escalation. It was not disputed by the defendant that Michaelides had
orally indicated that Biz Afrika was willing to pay R50 000-00 per month
with a 12 % per annum escalation. This is further borne out by the
evidence of Sole.
De Klerk v Absa Bank Ltd and Others at 330 A-C
68. There is also a further mention of an amount of R600 000 in a file note
prepared by Breytenbach on 18 October 2001which was to be paid by the
Kotters as rental and appears to be multiples of the sum of R50 000.
69. Plaintiff’s witness Gavin Sole gave evidence that he was employed as a
general manager at the Estuary Hotel from 1997. He resigned in May
2001. In 2005 when Biz Afrika had been evicted he took over the hotel at
a monthly rental of R57 000-00 for the first six months as the Hotel had at
this stage been run down. He is currently comfortably maintaining his
monthly rental. He was asked if he been given the opportunity in 2001 he
would have rented the hotel at R50 000-00 per month if Biz Africa had
been evicted earlier. Sole confirmed that a suitable tenant including
himself would have been secured and would have rented the Hotel at R50
000-00 a month at that time.
70. Mr. Van Amstel SC for the defendant argued that that during 1999 the
hotel showed a net profit of R577 509-00. Clearly on these figures plaintiff
did not prove that Biz Afrika would have been able to sustain the rent of
R50 000-00 per month and therefore the plaintiff would have suffered
damages in any event even if the agreement had been amended.
Plaintiff’s witness Mr. Sole testified that what had to be taken into account
was income from golf tours that had not been included in the income of
the hotel. Had this income been included the rental would have been
Burger v Union National South British Insurance Co. 1975 (4) SA 72 WLD at 75 D
manageable. As I have mentioned Reardon indicated in his evidence that
if he had not been able to find a suitable tenant he would have taken back
THE PERIOD OF DAMAGES
71. Plaintiff contends that it is entitled to payments of the arrear rentals from
the 1 December 2000 up until March 2006, that is the date of the eviction
of Biz Afrika. Defendant has argued that plaintiff is entitled only to
damages from 1 December 2000 to March 2002, alternatively August
2002, being the date of the anticipated transfer. A further cut off date
would be the date on which the arbitrator rectified the agreement.
72. The courts have held that the decisive moment for ascertaining the parties
contemplation (foresight) is when they contract and not when the contract
is breached: the defaulting party is thus held liable for damage foreseen or
foreseeable at the time of making the contract.21 It has also been held
“Admittedly there is an important factor present in contract and absent in
the other categories mentioned and that is the competence of the parties to
regulate, limit or expand by arrangement amongst themselves the
consequences of any prospective breach. There may be instances where
the time of breach will be more appropriate than the time of contract. The
circumstances of each case will determine where the emphasis belongs.
Reasonable foreseeablility, one imagines will govern most but not all
North & Son (Pty ) Ltd v Albertyn 1962 (2) SA 212 (A)
73. The position is that plaintiff signed the agreement on the 3 October 2000.
Plaintiff’s version that the agreement lay in defendant’s offices for a long
period before been sent to Michaelides for signature was not disputed.
74. When the plaintiff contracted with defendant to carry out legal services it
must have been contemplated that if the defendant failed to carry out his
instructions to amend the lease plaintiff would suffer a loss. The loss
would occur in the defined amount of R50 000 and the question which
arises is for what period.
75. At the time the parties contracted they contemplated that the transfers
would occur within a reasonable time and the need for the lease would fall
away. This was the evidence of Reardon and is apparent from the
following two passages from the evidence, appearing at pages 68 line 18
et seq and 74 lines 2 – 20.
‘And in general terms your plan, if I understand it correctly, that the
Kotters or a company controlled by them would end up owning that
portion of the property on which the hotel was situated and
another Kotter company would operate the hotel and the Reardon
company, Secprop would own the property on which you were
developing the sectional title development. - That is correct.
Now in order to achieve that you had to subdivide Erf 1094. - Correct.
Thoroughbred Breeders Association v Price Waterhouse supra at 583 C-D
Now that subdivision eventually took place, not so? - It did of 7 February 2002.
If one looks at the papers, Mr Reardon, it is clear that the plan wasn't always the
same. It ended up, I mean there was initially an idea that Secprop would take
over the whole property and sell portion 1 to Slip Knot and sell the remainder or
keep the remainder …[intervention]. - Yes, but that never become a reality, we
never signed that.
But the final plan, let's call it that, was that Erf 1094 was subdivided into portion 1
which was going to be the hotel site. - Correct.
And the other subdivision was known as the remainder and that was going to be
the sectional development. - Sectional title, yes.
Section title development. - Correct, and that is what in fact happened.
Yes. In terms of the final plan, Sandlundlu would sell portion 1 to Slip Knot,
correct? - Sandlundlu would sell portion 1 to Slip Knot, correct..
Slip Knot (Pty) Limited being one of the Kotter companies. - Correct.
And Sandlundlu would sell the hotel business to Biz Afrika (Pty) Limited. -
Which was also a Kotter company. - That's correct.
And Sandlundlu sold the remainder to Secprop which was the Reardon property.
And that company did the sectional title development. - Correct.
Am I correct is saying, Mr Reardon, that it seems plain that if one has regard to
the final plan that the only relevance really of the lease was that Sandlundlu
would receive rental until portion 1, the hotel property, was transferred to Slip
Knot? - You know to say yes and then present a person with a nine year eleven
months lease, that R4 500, you know I thought, hello, you know there is
something not tying in here.
I am not here to defend Mr Michaelides, I am talking about you, Mr Reardon, how
you saw the arrangement. - Yes.
You were going to transfer portion 1 to Slip Knot. - Yes.
And once that transfer goes through, obviously you can't receive rental because
you have now sold the property. - Ja, to answer that, if they wanted a lease and
they had said a lease for six months at R4 500, or four months at R4 500, I think I
would have signed but not nine years and eleven months.
But the point, Mr Reardon, is that from your perspective the only relevance of the
lease was to ensure that you would receive rental because they were already in
occupation. - Correct.
Until the date of transfer. - If they intended ever to take transfer, you are correct.
Yes, You signed that agreement in terms of which Sandlundlu sold portion 1 to
Slip Knot on the 29 January 2002. - Correct.
You do know as a property developer that occupational interest is
paid where the purchaser has taken occupation before the date of
transfer, that is how it works, isn't it? - That is correct, yes, if he
has taken occupation he pays up until the date of transfer
And then he stops paying. - He stops paying, but he never took transfer.
Yes, but this is what I want to suggest to you, Mr Reardon, at this time in the
latter part of 2001, what was contemplated was that Slip Knot would take transfer
and on transfer it would no longer paying rental or occupational interest …
[indistinct] you received your purchase price. - Well, if that was really the point
that Mr Breytenbach and I understood, why at that point in time did he hand over
the lease to Mr Michaelides at R4 500?
We accept that he shouldn't have done that, Mr Reardon. I want to discuss with
you what was contemplated by the parties at the time … [intervention] …. -
That was [intervention].
Just a moment, how the agreement was meant to work. - That is how it was
meant to work.
The way I have put it to you. - Yes.
Then we get to 20 January 2002 where you know finally signed the sale
agreement of the hotel site to Slip Knot. - Yes.’
76. Later plaintiff realized that Biz Afrika and the Kotters had lost interest in
the transfers and were opportunistically taking advantage of the
mistakenly low rental.
77. It was not in the contemplation of the parties i.e. the plaintiff and defendant
that the Kotters would seize on the error and manipulate it to their
advantage. What would have been foreseen was a transfer at the end of
78. I am of the view that any liability of defendant is for the period of sixteen
months from December 2000 to the end of March 2002.
79. Annexed to the particulars of claim is a table with the arrear rentals,
interest on arrear rentals and legal fees which are alleged to be the
damages sustained by the plaintiff. The parties have agreed that the
calculations on Annexure C are correct. For the reasons stated above I
find that the plaintiff has suffered damages as a result of defendants
breach in the sum of R50 000-00 per month from the 1 December 2000 to
31 March 2002, at an annual escalation of 12 % per annum.
80. The plaintiff has incorporated a claim for interest at the rate of 15.5% p.a.
in terms of annexure C to the particulars of claim. Such a rate is
predicated on the Prescribed Rate of Interest Act 55 of 1975 and in order
to be successfully claimed has to fall within the purview of the Act. The
relevant provisions of the latter Act are:
'1. Interest on a debt to be calculated at a prescribed rate in certain
(1) If a debt bears interest and the rate at which the interest is to be calculated is
not governed by any other law or by an agreement or a trade custom or in any
other manner, such interest shall be calculated at the rate prescribed under ss
(2) as at the time when such interest begins to run, unless a court of law, on the
ground of special circumstances relating to that debt, orders otherwise.
(2) The Minister of Justice may from time to time prescribe a rate of interest for
the purposes of ss (1) by notice in the Gazette.
(3) . . .
2A. Interest on unliquidated debts
(1) Subject to the provisions of this section the amount of every unliquidated debt
as determined by a court of law, or an arbitrator or an arbitration tribunal or by
agreement between the creditor and the debtor, shall bear interest as
contemplated in s 1.
(2)(a) Subject to any other agreement between the parties the interest
contemplated in ss (1) shall run from the date on which payment of the debt is
claimed by the service on the debtor of a demand or summons, whichever date is
(b) . . . .'
81. The courts have held that mora interest commences when the creditor
demands payment of the agreed sum or failing demand serves summons
on the debtor.23
82. Plaintiff has argued that it is entitled to interest from the 1 December 2000.
Defendant has argued that the plaintiff could have only suffered a loss if it
had proved that Biz Afrika would have paid its rental punctually. Plaintiff’s
evidence was that he received June to November’s rental in January 2001
i.e. three months in arrears. Reardon was not too concerned as he
expected the sale and subsequent transfers to be finalized shortly.
83. The approach that the courts should adopt to a claim for interest was
formulated in the Bellairs v Hodnett and Another as follows:
“The general principle in the assessment of such damages is that the
sufferer by the breach should be placed in the position he would have
occupied had the contract been performed, so far as this can be done by
the payment of money and without undue hardship to the defaulting party.
Accordingly, such damages only are awarded as flow naturally from the
breach or as may reasonably be supposed to have been in the
contemplation of the contracting parties as likely to result therefrom... In
awarding mora interest to a creditor who has not received due payment of
a monetary debt owed under the contract, the court seeks to place him in
the position he would have occupied had due payment been made. The
court acts on the assumption that, had due payment been made, the capital
sum would have been productively employed by the creditor during the
period of mora and the interest consequently represents the damages
flowing naturally from the breach of contract.”
84. The agreement did not provide for interest if rentals had been paid in
arrears. Plaintiff’s evidence was that he was not too concerned when there
was a delay in the payment of rent as he was expecting the transfers to be
registered “shortly”. Under the circumstance, this court is unable to make
Standard Chartered Bank of Canada v Nedperm Bank Ltd 1994 (4) SA 747 AD per Corbett CJ
1978 (1) SA 1109 (A) at 1146 H-1147C
a determination as to the date on which Biz Afrika would have paid its
85. There is a an account from the Reardons sent Michaelides on 31 August
2001 for interest on arrears which appears at page 1557-8 of vol 6 of the
Arbitration transcript. Although this is described as occupational interest
Reardon testified that it was in fact rent. Breytenbach conceded being
aware of Reardon’s commitments with regard to repayments and interest
86. Reardon testified that the interest on the plaintiff’s bonds never dropped
below 15.5% and Breytenbach conceded that he knew that fact. The
problem is that the demand, if it can be termed as such, asks for an
assurance that the sums will be paid before the transfers are registered.
The transfers were never registered.
87. There is no other evidence of demand being made for payments of the
damages from the defendant by the plaintiff.
88. In this regard the court in the Thoroughbred case dealt extensively with
the question of interest at pages 591 to 595. The court in that matter also
considered the provisions of the Prescribed Rate of Interest Act, no 55 of
1975 and more especially section 2A (2)(a) which provides for interest to
run from demand or service of summons whichever is the earlier. In the
Thoroughbred case the interest represented the amounts stolen by
Mitchell during the relevant period. The court rejected the claim based on
the interest paid by the plaintiff to its bank on the stolen moneys.
89. Once the plaintiff sought interest in terms of the Act it was restricted to its
provisions. The court must therefore accept the date of service of the
summons on the defendant as the date of demand. To hold that the
defendant is liable for interest from 1 December 2000 will be placing
undue hardship on the defendant. I am therefore of the opinion that
plaintiff is entitled to interest on the rentals from the date of service of the
THE COSTS OF THE ARBITRATION
90. The next issue is whether the plaintiff is entitled to party and party costs or
attorney and client costs in respect of the arbitration proceedings, the
parties having agreed that defendant should pay plaintiff’s cost of the
arbitration. Although the plaintiff in its prayer to its particulars of claim had
claimed R450 000-00 in respect of these costs, no evidence in this regard
was led or proof submitted to the court. The parties have however agreed
that the only decision is for this court to decide on whether plaintiff is
entitled to party and party cost or attorney and client costs in respect of
91. In Nel v Waterberg Landbouwers Ko-operatieve Vereeniging Tindall
JA explained the true explanation of awards of attorney and client
costs. This was that
“by reason of special considerations arising either from the circumstances
which give rise to the action or from the conduct of the losing party, the
court in a particular case considers it just, by means of such an order, to
ensure more effectually than it can do by means of a judgment for party
and party costs that the successful party will not be out of pocket in
respect of the expense caused to him by the litigation.”
92. In the case of Behm vs. Ord26 the court dealt with the recovery of
costs, including attorney and client costs, paid to third parties,
consequent upon a breach of contract. The court referred to the
English case of Kasler v Slavourski27, which concerned a series of
sales of defective rabbit skins. In that matter the plaintiff was able to
recover costs, as between solicitor and client costs, incurred in
actions against the intermediaries. This, the judge argued in the
Behm case, rested on the principle that the damages and costs in the
earlier proceedings were such as would fairly and reasonably have
been in the contemplation of the parties at the time the contract was
1946 AD 597 at 607
1953 (4) SA CPD at 106
93. When the plaintiff secured the services of Breytenbach it was reasonably
in the contemplation of the parties that should the rental and escalation
clause not be amended, rectification would have been sought by
arbitration and that the plaintiff would incur damages in the form of
attorney and client costs. Mr Donnelly of the defendant firm agreed to
secure such a rectification and drafted the papers accordingly.
94. Whilst no malice or mala fides was shown, or proved against Breytenbach,
I am of the opinion that the cost of the arbitration, including attorney and
client costs, flow directly from Breytenbach’s breach.
95. I therefore make the following order.
96. The Defendant is ordered to pay to Plaintiff :
1. Damages in the sum of R 824 000.00.
2. Interest on the amount set out in paragraph 1. hereto, at the rate of
15.5% from the date of service of the summons to date of payment.
3. Plaintiff’s taxed attorney and client costs in respect of the
Arbitration, conducted before Adv N Cassim SC.
4. Plaintiff’s party and party costs in respect of this action.
1928 (1) K.B. 78
Date of hearing : 3rd March 2009
Date of judgment : 15th October 2009
Counsel for the Plaintiff : J G Wasserman SC (instructed by de Villiers Evans
Counsel for the Defendant : J A Ploos van Amstel SC with G R Thatcher
(instructed by Deneys Reitz Attorneys)