THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Case No: 63/10

In the matter between:

SANDLUNDLU (PTY) LTD
Appellant

and

SHEPSTONE AND WYLIE INC
Respondent

Neutral citation:
Sandlundlu v Shepstone & Wylie (63/10) [2010] ZASCA 173
(2 December 2010)

Coram:
NUGENT, HEHER, SNYDERS JJA AND

R PILLAY AND K PILLAY AJJA

Heard:
8 November 2010

Delivered:
2 December 2010

Summary:
Damages for breach of contract – factual causation –
general damages

ORDER

On appeal from the Kwa-Zulu Natal High Court (Durban) (Nicholson J sitting
as court of first instance).

The appeal is dismissed with costs.
The cross appeal is dismissed with costs.

JUDGMENT

SNYDERS JA (Nugent, Heher JJA, R Pillay & K Pillay AJJA concurring)

[1] This is an appeal and a cross appeal from a decision of Nicholson J sitting
as court of first instance in the Kwa-Zulu Natal High Court (Durban). The
appellant successfully sued the respondent, its former attorney, for damages
flowing from the respondent’s conceded negligent failure to insert the orally
agreed monthly rental in a written lease agreement signed by the parties
thereto. The court below granted leave to appeal to this court to both parties.

[2] The appellant was the owner of prime real estate in Port Edward on which
a hotel business, the Estuary Hotel, was conducted. The appellant’s only
shareholders, Mr and Mrs Reardon, wanted to develop a vacant part of the
property adjacent to the hotel, but required funding to do so. At about the
same time they happened to meet Dr Kotter (Kotter), an Austrian
businessman and the majority shareholder in Biz Afrika 987 (Pty) Ltd (Biz
Afrika). Kotter showed interest in the hotel business and the planned
development and Mr Reardon (Reardon) saw an opportunity to acquire
finance through Kotter’s involvement. They started negotiating an involved
series of transactions. At all material times an attorney, Mr Breytenbach
(Breytenbach), from the respondent’s firm acted for the appellant and attorney

Mr Michaelides (Michaelides) acted for Kotter and the companies that he
controlled.

[3] Their negotiations envisaged, amongst other things, the sub-division of the
appellant’s land to accommodate the hotel business and the future
development on separate pieces of land, a sale of the property on which the
hotel was situated, a lease of the hotel business and the taking over of
existing liability in respect of several mortgage bonds. The details of the
negotiations are irrelevant. It is sufficient to state that, ultimately, as part of an
elaborate scheme of transactions it was envisaged that Biz-Afrika would lease
the hotel business from the appellant and that Slip Knot Investments 43 (Pty)
Ltd (Slip Knot) would buy the sub-divided land on which the hotel business
was being conducted.

[4] As a first step in the execution of the envisaged transactions the appellant
leased to Biz-Afrika the Estuary Hotel. A lease was drafted by Michaelides. It
was common cause that the oral agreement that preceded the written draft
was for a monthly rental of R50 000 which was to escalate at a rate of 12 per
cent per annum. In October 2000, when Breytenbach presented the draft
lease prepared by Michaelides to Reardon for signature, the monthly rental
was reflected as R4 500 with an escalation of 10 per cent per annum.
Reardon noticed this mistake, pointed it out to Breytenbach, who urged
Reardon to nonetheless sign the lease on the strength of an undertaking that
he, Breytenbach, would in due course and before signature of the lease on
behalf of Biz-Afrika, amend the amount to reflect the orally agreed rental.
Reardon obliged, signed the lease and initialled next to the rental amount and
escalation that Breytenbach had undertaken to amend.

[5] Biz-Afrika took possession of the hotel business during June 2000, prior to
signature of the lease. At the end of November 2000 it paid an amount of

R300 000 to the appellant. The appellant contended that the payment
constituted the orally agreed rental for the period June to November 2000.

[6] Breytenbach never amended the rental and escalation as per his
instruction or his undertaking. On 18 October 2001 he forwarded the written
lease, signed by Reardon, to Michaelides, for the latter’s signature. This
resulted in the written agreement of lease having been signed by both parties
for a monthly rental of R4 500 with a 10 per cent per annum escalation and
not for the orally agreed rental of R50 000 with a 12 per cent per annum
escalation.

[7] No rental, not even R4 500 per month, was ever paid after November
2000. On 29 January 2002 the appellant and Slip Knot signed an agreement
of sale in terms whereof the appellant sold the land on which the hotel
business was situated to Slip Knot. This agreement was cancelled by the
appellant during August 2002 as a result of Slip Knot’s failure to cooperate in
taking transfer of the property.

[8] Arbitration proceedings were launched by the appellant to effect a
rectification of the lease agreement to reflect the rental orally agreed. Despite
Biz-Afrika’s opposition to the rectification sought it was granted on 4 February
2005. On 7 June 2005 the appellant cancelled the lease agreement due to
Biz-Afrika’s failure to pay rental. It then proceeded to seek Biz-Afrika’s eviction
by way of application proceedings, which was also opposed. After an
unsuccessful attempt to appeal an eviction order granted during December
2005, the appellant successfully evicted Biz-Afrika during April 2006. On 9
May 2007 Biz-Afrika was liquidated. The appellant recovered no rental.

[9] The appellant relied on Breytenbach’s failure to correct the rental amount
in the lease agreement as a breach of his mandate for a damages claim. The

breach of mandate was conceded in the following words in the respondent’s
plea:
‘The Defendant admits that Breytenbach:-
(a) failed to amend Clauses 4.1.1 and 4.1.2 so as to reflect a monthly rental of R50
000.00 and an escalation of 12% per annum on the rent payable;
(b) forwarded the agreement of lease, a copy of which is annexure “D1” hereto, to
Michaelides, which agreement reflected an amount of R4 500.00 per month as rental
for the first year with an escalation of 10% per annum as a rental payable;’’

[10] The appellant alleged that its damages included:
(a) R6 159 267.74 representing the total of rental of R50 000 per month
escalated at 12 per cent per annum over the period 1 December 2000 until
April 2006 with interest at the rate of 15.5 per cent per annum accruing
monthly as and when the monthly rental became due and payable;
(b) Legal fees, including attorney and client costs, for the arbitration
proceedings in the amount of R450 000 together with interest on that
amount at 15.5 per cent per annum from the date of service of summons
until the date of final payment. During the course of the proceedings this
issue was limited by agreement to the question whether the respondent
was liable to pay the attorney and client costs or only party and party
costs.

[11] The court below granted the appellant damages for the loss of rental
income restricted to March 2002, the likely date upon which registration of
transfer of the property in terms of the sale of January 2002 would have been
effected. It awarded the appellant interest at 15.5 per cent per annum as
damages calculated, not monthly, but from the date of service of summons.
The court issued a declarator that the appellant was entitled to be paid its
attorney and client costs in respect of the arbitration proceedings. The
appellant was awarded its costs of suit.

[12] The appellant seeks to increase the damages awarded to include rental
for the full period until the eviction of Biz-Afrika in March 2006 and interest
calculated from each month as the rental became due, owing and payable.
The respondent’s main contention in the cross appeal is that the factual cause
of the loss was the dishonest conduct of Michaelides and not the negligence
of Breytenbach. It seeks the replacement of the order of the court below with
an order that the appellant’s claim be dismissed with costs. Insofar as this
court finds that Breytenbach’s negligence was the sole cause of the loss
suffered by the appellant and that the damages are recoverable in law, the
respondent does not take issue with the award of damages made by the trial
court and only seeks an amendment of the declarator by the court below to
restrict the award in relation to the costs of the arbitration proceedings to party
and party costs.

[13] A plaintiff who enforces a contractual claim arising from the breach of a
contract needs to prove, on a balance of probability, that the breach was a
cause of the loss.1

[14] In International Shipping Co (Pty) Ltd v Bentley 1990 (1) SA 680 (A) at
700F-G Corbett CJ explained the practical enquiry in the following terms:
‘The enquiry as to factual causation is generally conducted by applying the so-called
“but-for” test, which is designed to determine whether a postulated cause can be
identified as a causa sine qua non of the loss in question. In order to apply this test
one must make a hypothetical enquiry as to what probably would have happened but
for the wrongful conduct of the defendant. This enquiry may involve the mental
elimination of the wrongful conduct and the substitution of a hypothetical course of
lawful conduct and the posing of the question as to whether upon such an hypothesis
plaintiff’s loss would have ensued or not. If it would in any event have ensued, then
the wrongful conduct was not a cause of the plaintiff’s loss; aliter, if it would not so
have ensued.’

1 The test for factual causation is the same in delictual and contractual cases, see Vision
Projects (Pty) Ltd v Cooper Conroy Bell & Richards Inc 1998 (4) SA 1182 (SCA) at 1191I-J.

[15] Nugent JA in Minister of Safety and Security v Van Duivenboden 2002 (6)
SA 431 (SCA) para 25 pointed to the conceptual difficulties that arise when
the enquiry is made:
‘There are conceptual hurdles to be crossed when reasoning along those lines for,
once the conduct that actually occurred is mentally eliminated and replaced by
hypothetical conduct, questions will immediately arise as to the extent to which
consequential events would have been influenced by the changed circumstances.
Inherent in that form of reasoning is thus considerable scope for speculation which
can only broaden as the distance between the [breach] and its alleged effect
increases. No doubt a stage will be reached at which the distance between cause
and effect is so great that the connection will become altogether too tenuous, but, in
my view, that should not be permitted to be exaggerated unduly. A plaintiff is not
required to establish the causal link with certainty, but only to establish that the
wrongful conduct was probably a cause of the loss, which calls for a sensible
retrospective analysis of what would probably have occurred, based upon the
evidence and what can be expected to occur in the ordinary course of human affairs
rather than an exercise in metaphysics.’

[16] During the hearing counsel for the respondent developed his argument
on factual causation. He no longer relied only on Michaelides’ dishonesty, but
also that of Kotter and undisputed facts which he submitted indicated that the
appellant would not have recovered any rental from Biz-Afrika. These facts
are:
(a) Kotter, the mind behind Biz-Afrika, was dishonest. He paid no rental,
not even the rental he contended was payable, from December 2000.
Michaelides, on the instructions of Kotter resisted the rectification of the
agreement whilst being fully aware that their basis for doing so was
dishonest. On the same basis they resisted eviction, appealed the eviction
order when it was ultimately granted and Michaelides surreptitiously tried
to obtain an order suspending the order of eviction;
(b) The appellant has failed to recover any portion of the rental liability for
the relevant period;

(c) Biz-Afrika was, from the inception of the lease, not conducting the hotel
business efficiently or profitably and there probably would not have been
funds to meet any claim for arrear rental;
(d) Ultimately Biz-Afrika was hopelessly insolvent to the extent that no
dividend resulted from its liquidation on 9 May 2007, illustrating that
recovery of rental from it would not have been possible.

[17] On these facts counsel for the respondent asked this court to infer that
the appellant probably would have been unable to recover any rental from
Biz-Afrika irrespective of whether the agreement of lease contained the
correct rental. He submitted that if Breytenbach had presented Michaelides
and Kotter with an agreement that reflected the agreed rental of R50 000 they
probably would not have signed that agreement. The respondent’s
contentions favour speculation that does not take account of other relevant
facts and considerations.

[18] When Reardon was faced with the draft written lease agreement for the
incorrect rental he telephoned Michaelides who then confirmed that the
agreement should have reflected the rental as R50 000 per month. Despite
this verbal concession, Biz-Afrika’s opportunity to be dishonest was hugely
increased, if not created, when it was asked to complete the signing of a lease
for rental of R4 500 per month. One of the very reasons for instructing an
attorney to see to the conclusion of a written agreement that reflects the true
bargain between parties is to avoid dishonesty, be that of an attorney or his or
her client. The appellant’s position was hugely eroded in that it did not have a
written agreement in support of its claim for arrear rental against a non-paying
or dishonest lessee. It had to seek rectification of the written agreement
before it could enforce its claim. Further transactions were envisaged which
were Reardon’s means to alleviate his financial burden and realise his future
plans which he chose not to put at risk by pursuing the rectification straight
away. During the early stages of the lease, as is evident from the payment of
R300 000 to the appellant during November 2000, Biz-Afrika had access to

money. That it was hopelessly insolvent five years later does not mean there
were no resources available to cover a rental liability for at least some period
after November 2000.

[19] Considering all the facts, it is probable that if Breytenbach had not failed
to execute his mandate there would not have been the opportunity for Biz-
Afrika to rely on the written lease agreement in support of its dishonest
contention, there would have been no need to pursue a rectification of the
agreement before it could have been enforced and the appellant would
probably have taken steps to enforce payment of the significant monthly rental
at a much earlier stage. If it did it is probable that it would have made some
recovery. The facts singled out by the respondent do not show that there are
no such probabilities. Consequently it is probable that Breytenbach’s failure
did cause loss to the appellant.

[20] This conclusion does not entitle the appellant to all the damages it
suffered. The general rule in relation to contractual damages is that the
appellant is entitled to be put in the position it would have been in if the
respondent executed its mandate properly. The general rule suggests that
some line needs to be drawn to ensure that the respondent should not be
caused undue hardship. The line is drawn with regard to broad principles of
causation and remoteness. In Holmdene Brickworks (Pty) Ltd v Roberts
Construction Co Ltd 1977 (3) SA 670 (A) at 687 C-F the rationale for the rule
in regard to an award of damages for breach of contract was eloquently stated
as follows:
‘The fundamental rule in regard to the award of damages for breach of contract is
that the sufferer should be placed in the position he would have occupied had the
contract been properly performed, so far as this can be done by the payment of
money and without undue hardship to the defaulting party . . . . To ensure that undue
hardship is not imposed on the defaulting party the sufferer is obliged to take
reasonable steps to mitigate his loss or damage. . . . and, in addition, the defaulting
party’s liability is limited in terms of broad principles of causation and remoteness, to

(a) those damages that flow naturally and generally from the kind of breach of
contract in question and which the law presumes the parties contemplated as a
probable result of the breach, and (b) those damages that, although caused by the
breach of contract, are ordinarily regarded in law as being too remote to be
recoverable unless, in the special circumstances attending the conclusion of the
contract, the parties actually or presumptively contemplated that they would probably
result from its breach. . . .‘

[21] The actual test to be applied was stated as follows in Thoroughbred
Breeders’ Association v Price Waterhouse 2001 (4) SA 551 (SCA) at 581G-I:
‘That approach, postulating as it does not a likelihood (at the upper end of the scale)
of the harm complained of occurring but (at the lower end) a realistic possibility
thereof, appears to me to be sensible and sound. Parties cannot contemplate what
they cannot foresee. In the end it will usually turn on the degree of foreseeability of
the kind of harm incurred . . . . What matters to the law is, of course, not infinite but
reasonable foreseeability. Leaving aside a typical situation (such as, for instance, a
circumstance which was foreseeable by only one of the parties or only at the time of
breach and not also at the time of contract), what is required to be reasonably
foreseeable is not that the type of event or circumstance causing the loss will in all
probability occur but minimally that its occurrence is not improbable and would tend
to follow upon the breach as a matter of course.’

[22] The appellant’s claim is for damages that flowed naturally and generally
from the breach, the so-called (a)-leg of Holmdene. The appellant seeks to
increase the damages in respect of lost rental over a longer period than was
awarded by the trial court, to include the full period until Biz-Afrika was
ultimately evicted. The respondent’s principal attack was not that the appellant
did not suffer damages, only that its negligence was not the cause of any
damages suffered. In the event of failure on that point it confined its cross
appeal to the scale of costs to be awarded in relation to the arbitration
proceedings. It is therefore only necessary to consider whether the trial court
should have awarded damages for loss of rental beyond March 2002.

[23] At the time of the conclusion of the sale in January 2002 it was evident
that the relationship between Reardon and Kotter, and therefore the
companies they controlled, was soured, cash flow was problematic for all the
parties and the contemplated future transactions were at risk. It is improbable
that in those circumstances the appellant would have been successful in
recovering rental of R50 000 per month until 2006. The evidence does not
establish as a probability that damages were sustained after the period fixed
by the trial court.

[24] Insofar as the attorney and client costs of the arbitration proceedings to
effect a rectification are concerned, the test to be applied, as set out above,
leads to the conclusion that those costs were within the contemplation of the
parties as a reasonably foreseeable result of including the wrong rental in a
written lease agreement. On behalf of the respondent it was submitted that
attorney and client costs are not ‘incurred necessarily and are therefore not
recoverable as damages’. The submission is inappropriate for two reasons.
First, it does not apply the correct test for the assessment of damages set out
above. Second, the authorities on which it is based deal with a very different
scenario of a party seeking costs as damages in subsequent proceedings
when those costs were not awarded in initial proceedings between the same
parties.2 The respondent has not explained why party and party costs would
have been in the contemplation of the parties at the time and not attorney and
client costs.

[25] Insofar as the interest on the monthly rental is concerned, the trial judge
correctly dealt with the matter and there is no need to repeat the findings. The
essence of it is that the payment of interest on arrear rental was not part of
the lease agreement and there was no proof that a demand was ever made
that could have activated the payment of mora interest. The court below

2 Some of the authorities relied upon are Union Discount Co Ltd v Zoller [2002] 1 All ER 693
(CA) and Rothschild v Van Wyk 1916 TPD 270.

accepted the date of service of summons as the date of demand and allowed
interest, as damages, from that date.

[26] The appeal is dismissed with costs.
The cross appeal is dismissed with costs.

APPEARANCES:

For appellant:
J G Wasserman SC (with him C L H Harms)

Instructed by De Villiers, Evans and Petit, Durban,

Matsepes Inc., Bloemfontein.

For respondent:
P J Olsen SC (with him G R Thatcher)

Instructed by Deneys Reitz Attorneys, Durban,

Webbers, Bloemfontein.