Judgment : Transnet Limited v Sechaba Photoscan (Pty) Ltd
Supreme Court of Appeal of South Africa
Transnet Limited v Sechaba Photoscan (Pty) Ltd
From : The Registrar, Supreme Court of Appeal
Date : 1 April 2004
On 1 April 2004 the Supreme Court of Appeal dismissed an appeal brought by Transnet Ltd against a Johannesburg High Court judgment ordering it to pay damages of R57 654 550.00 to an unsuccessful tenderer in a tender process that Transnet admitted was irregular, fraudulent and dishonest. The main question in the appeal was whether loss of prospective profits could be claimed as damages for Transnet’s fraudulent conduct.
Sechaba Photoscan (the plaintiff) brought a claim against Transnet after Transnet privatised one of its business divisions, Transnet Production House. Sechaba and Skotaville Press (Pty) Ltd made bids to buy the division. Despite very strong indications during the tender evaluation process that Sechaba’s bid would succeed, it did not and the tender was awarded to Skotaville, which then bought the Production House business. At the start of the trial in Johannesburg, Transnet made concessions ‘for the purpose of settling the merits’. It conceded that the tender process was tainted with irregularities; that, in selling Production House to Skotaville, Transnet was a party to fraudulent and dishonest conduct; that, but for the irregularities and fraud, the contract to buy Production House would have been awarded to Sechaba; that Sechaba had accordingly suffered loss and that Transnet was liable in respect of the loss.
Sechaba calculated its claim for damages on the marginal effect that acquiring Production House’s additional business would have had on its net profit over a three- year period. These calculations it based on figures contained in an information memorandum Transnet had issued to prospective bidders.
The trial judge, Ms Justice Snyders, held that she had ‘no alternative but to accept the only evidence before’ her because Transnet had hardly criticised or attacked Sechaba’s case on the amount of damages it had suffered. So she awarded Sechaba the full amount of damages it claimed, save for a contingency deduction of 5%.
On appeal, Transnet argued that because Sechaba’s claim against it was delictual (one for a wrongful act), the most Sechaba could claim was its out-of-pocket expenses in the failed bid. Since Sechaba did not try to prove its out-of-pocket losses, its claim should have failed in total. Transnet also argued that the trial court had wrongly relied on oral evidence of the contents of certain written service level agreements in determining the profits Sechaba would have made.
Sechaba, on the other hand, submitted that the basis on which its damages were calculated was correct in law and that satisfactory evidence was adduced to justify the award made.
The Supreme Court of Appeal restated the principles for the calculation of damages in contract and delict, rejecting the idea that loss of profit is not recoverable in delict as historically unfounded and wrong in principle. As regards the service level agreements, the Court held that these agreements were never in contention during the trial either as to the admissibility of oral evidence regarding their contents or as to the contents themselves. The trial court was therefore fully justified in relying on oral evidence of such agreements. The Supreme Court of Appeal also rejected Transnet’s argument that the R10 million purchase price which Sechaba had bid for Production House had to be deducted from the proved damages. The court held that the evidence demonstrated that, at the end of the three year period used for calculating Sechaba’s damages, the Production House business would still have had appreciable ‘exit value’ and that such value, as well as the 'input value' represented by the purchase price, were properly ignored in the calculation of Sechaba’s damages. Transnet’s appeal was dismissed with costs.
With acknowledgement to the Supreme Court of Appeal of South Africa.