KUDYA
J: The plaintiff issued summons
against the defendant out of this court on 17 March 2010 seeking an order
confirming the cancellation of the agreement of lease between the parties. It
also sought payment of arrear rentals from December 2008 to February 2010 of
US$58 021-94 together with interest thereon at the prescribed rate calculated
from 1 March 2010 to the date of payment in full, payment of holding over
damages of US$7 100-00 per month calculated from 1 March 2010 to the date of
the defendant's ejectment together with interest from the due date to the date
of payment, the eviction of the defendant and any party claiming occupation
through it and costs of suit.
The claim for arrear rentals was
reduced by the sum of US$14 200-00 after Mr Kadzere,
for the plaintiff, conceded in his submissions that the plaintiff did not have
the legal basis for claiming rentals in foreign currency for the months of
December 2008 and January 2009 when the local currency was the only legal
tender for the payment of rentals. Mr Kadzere
also conceded that arrear rentals were claimed for the period of four months
that the defendant remained in occupation after the lease had been cancelled.
The effect of these concessions was that the plaintiff sought judgment in the
sum of (US$43 821-94 + US$28 400-00) US$72 221-94 together with interest at the
prescribed rate from 1 March 2010. The
last claim of eviction fell away.
On 19 May 2010, the defendant filed
its plea and counterclaim against the plaintiff. In its plea it admitted
liability in the amount claimed but averred that it was excused from payment
due to the fact that the plaintiff was indebted to it in the sum of US$196
250-00. In its counterclaim it averred that the plaintiff failed to maintain
the external structure, including the roof of the leased premises, resulting in
leaks developing on the roof in or about November 2008, which the plaintiff
failed to repair as required by the lease agreement. The result of the failure
was that the defendant was forced to shut down its trading divisions, Gulf Drug
Company in December 2008 and Ryl Farm in October 2009. It averred that it
suffered a loss of profits in the sum of US$196 250-00 being US$170 000-00 for 17 months of the
period December 2008 to April 2010 with respect to Gulf Drug Company and US$ 26
250-00 from October 2009 to April 2010 by Ryl Farm. The latter loss was
abandoned during trial leaving the total claim at US$170 000-00.
The plaintiff denied liability and
averred that the leaks were from the gutters and not the roof. It averred that
the defendant was negligent in failing to keep these gutters free from
blockages as stipulated in the lease agreement. It further averred that as the
area affected by the leaks was not used by the defendant it could not have suffered
any damages.
The defendant, who had the duty to
begin, called the evidence of three witnesses. These were its managing director
Dr Neil Robin Deacon, a chartered structural engineer of over 40 years
experience Duncan Hugh Cocksedge and its maintenance manager Alfred Chitambo.
It produced a bundle of documents as exh 1. In addition the 25 originals of the
photographs taken by Goodlaw Tafara Taruona on 28 January 2010 captured on pp
132 to 138 of exh 1 were produced by consent as exh 3 as was the original
pharmaceutical batch book, exh 4, whose copies make up pp 14 to 65 of exh 1.
The plaintiff called the evidence of the general manager of its estate agent Southgate and Bancroft,
Meeting Gomba and produced a bundle of documents, exh 2. The main document in
exh 2 was the lease agreement.
At the pre-trial conference that was
held on 30 August 2010, the defendant admitted that it had an obligation in
terms of clause 12 of the lease agreement to keep the gutters to the premises
free from any blockages and accepted that it had the duty to begin. The issues
that were referred to trial were:
1.1
Whether or not the plaintiff breached the terms and
conditions of the lease agreement
1.2
If it breached them whether or not the defendant
suffered damages as a result of such breach
1.3
The quantum of such damages
I proceed to
deal with each issue in turn.
Whether or not the
plaintiff breached the terms and conditions of the lease agreement
The parties executed the 35 page
lease agreement of Stand 3358A of Harare
Township commonly known
as Blumberg House in Graniteside Harare (“the leased premises”) on 29 June
1999. It was common cause that the defendant had been leasing the premises
since 1965 until it moved out at the beginning of July 2010. The defendant
carried on the business of manufacturing pharmaceuticals, confectionaries and
cosmetics at the leased premises. At its inception under Brian James Deacon,
the managing director's father, the plaintiff purchased Gulf Drug Company (Pvt)
Ltd, Alex Lipworth (Zimbabwe)
Ltd and Ryl Farm (Pvt) Ltd and consolidated their operations into its business
model. These companies ceased to trade but were not liquidated because the
defendant decided to use their respective brand equity. The result was that
though the companies exist, they do not carry out any trade and do not hold any
assets or incur any liabilities. The financial statements for the defendant
prepared by Enerst and Young for the year ended 31 July 2004 demonstrated that
group financial accounts were not prepared because the company's subsidiaries
had no assets and liabilities and did not trade. They were merely treated as
subsidiaries in line with international accounting best practices.
It was common cause that the
manufacture of pharmaceuticals requires pristine conditions that prevent
contamination. The defendant's operations were governed by stringent
regulations issued by the Medicines Control Authority of Zimbabwe (MCAZ) and
the World Health Organization. Food products and cosmetics and toiletries were
governed by separate regulations which while requiring high quality control
measures also emphasized the eradication of contaminants. It was agreed that
the relationship between the parties was a happy and cordial one for thirty-six
years. Most problems were resolved through discussion and correspondence. The
relationship began to deteriorate from December 2001 until the defendant left
the premises at the beginning of July 2010. The deterioration was graphically
captured in Dr Deacon's letter to Southgate
and Bancroft of 15 January 2010 in which he wrote:
“While the
landlord has finally undertaken to repair the leaking roof and gutters after
nearly a decade of complaint, this maintenance only began on the 4th
January 2010. Consequently the building is in very poor state of repair and
certain areas are totally unusable due to the potential damage from rainwater.
You are reminded that contamination from external environment was a
consideration in our cessation of manufacture of pharmaceuticals on the
premises.”
Apparently, in December 2001 the
plaintiff's agent had replaced some gutters at the premises and left the
roofing sheets damaged a subject of complaint by Dr Deacon's predecessor in a
letter of 21 December 2001. On 8 February 2007, 29 October 2007, 1 February
2008 and 16 April 2009, Dr Deacon further wrote to Southgate and Bancroft lamenting the failure
by the plaintiff to fix the leaking roofs and gutters. In the letter of 16
April 2009 the defendant expressed the fear that its pharmaceutical
manufacturing licence was liable to cancellation due to the contamination
caused by the leaks. It was common cause that this was the only letter that was
ever responded to by the property managers on 19 May 2009. In that letter
Southgate and Bancroft indicated inter
alia that the parties had “talked about maintenance and repairs sometime
last year but as you should remember the environment obtaining last year was
not good for anything. Last year was a write-off. It is against this background
that we are saying pay for rentals now so that we can plough back income into
the betterment of the property.”
While the plaintiff placed the
extent of the leakages in issue, it was clear from the evidence of Dr Deacon
that at first the leaks were confined to specific points but with time they
just mushroomed up indiscriminately. The defendant took avoiding action to
prevent contamination by moving around its operations to those areas where
there were no leaks. It could not move out
without the approval of the regulating authority whose bureaucratic delays
would take between 3 to 12 months. The plaintiff eventually voluntarily ceased
pharmaceutical manufacturing. The mandatory pharmaceutical batch book that it
was obliged to keep covering the period January 2000 to August 2010
demonstrated that the defendant ceased the manufacturing of pharmaceuticals and
confectionaries from the premises in July 2008 and July 2009, respectively.
It was common cause that the basis
for attributing liability to the plaintiff was found in clause 12 of the lease
agreement, which simply states that “the landlord shall keep all main walls and
roofs in good repair.” The factual dispute raised by the plaintiff against
liability was that the leaks took place in the gutters and not on the roof.
The defendant called the evidence of
the 76 year old chartered structural engineer Duncan Hugh Cocksedge. He
qualified as a structural engineer in 1969 at a college in the United Kingdom
whose name he could not recall. He became a chartered structural engineer in
1972. In 1980 he became a partner in Markensson and Smallwood which later
became Markensson and Cocksedge. He was involved in designing factories,
structural steelworks and reinforced concrete buildings that cover the Harare skyline. He viewed
the leased premises a few days before he testified. The substructure has a
concrete framework in laid with bricks while the superstructure has a saw-tooth
roof with south facing vertical glazing. The roofing sheets are of corrugated
iron with a shallow slope of 17 degrees. The sections of the roof are supported
by structural steel spanning across the building for 15 to 20 metres. On the
lower part of the roof and adjacent to the vertical glazing runs the main 3mm
mild steel plate box gutter which transports water from the roofing sheets. It
has a girth of 800mm to 1 200mm. Three gutters are found on each bay. These are
called internal gutters and are different from external gutters which most
buildings have at the end of the eaves projecting over external walls. These
internal gutters prevent water from penetrating the building and are held by
structural steel pillars from within the building. If they were not there,
water would flow from the roofing sheets into the factory space inside the
building. He indicated that the internal box gutters were part of the roof even
though they were made of different materials from the roofing sheets. In his
experience the life span of a gutter depended on its maintenance. Such
maintenance involved the use of emery paper to remove rust and thereafter coat
the gutter with bitumen paint. He suggested that the life span would be
extended by coating the gutter with bitumen every five years. He was familiar
with the Graniteside industrial area and opined that factories close to the
leased premises emitted chemicals that discharged acids into the atmosphere
that in turn contributed to the corrosion of the gutters.
Other than taking issue with his
failure to remember the college he attended in Chelsea England in 1969, his
evidence remained unscathed during cross examination. When Meeting Gomba
testified for the plaintiff he agreed that the internal gutters were supported
by steel reinforcement pillars built inside the building. He stated that estate
agents did not regard internal gutters as part of the roof. His knowledge and experience did not extend
to the technical field of structural engineering. He was not an expert in roofs
as was Cocksedge. I am satisfied from the expert evidence of Cocksedge that
internal the gutters from their location and function are part of the roof.
In any event, the evidence of Alfred
Chitambo, the workshop and maintenance manager of the defendant who boasted 38
years of experience on the job established that the defendant religiously
cleaned the gutters of any sand and other debris to prevent any blockages.
Gomba attempted to dispute this by averring that he had received reports from
the experts who repaired the gutters after the defendant left the premises that
the internal gutters were clogged by sand. His evidence of what he alleged were
the contents of the document, in the absence of the production of the document,
was inadmissible in terms of s 27 (3) (b) of the Civil Evidence Act [Cap 8:01].
Lastly, the probabilities support
the defendant's case that the leakages that occurred in the internal gutters
were caused by wear and tear for which the plaintiff bore the responsibility of
keeping at bay. The letter of 21 December 2001 from Dr Deacon's predecessor
demonstrated that the plaintiff did replace some gutters in December 2001. The
letters of Dr Deacon in 2008 and 2009 demonstrated that the defendant looked up
to the plaintif to keep the gutters in good repair. The response to his letter
of 16 April 2009 of 19 May 2009 demonstrated that the plaintiff accepted that
it had the responsibility to keep the gutters in good repair but pleaded
economic hardship for its failure. That the duty fell on the defendant to keep the
gutters in good repair was also established by Chitambo who stated that the
plaintiff had actually repaired the gutters in 1990 and 2000 by in-laying them
with bitumen membrane to prevent corrosion. He further stated that from 2005
the plaintiff religiously dispatched contractors and artisans to inspect and
quote the cost of repairing the gutters but failed to carry out the necessary
repairs.
The cumulative effect of the
evidence of Dr Deacon, Chitambo and Cocksedge showed on a balance of probabilities
that the internal gutters are part of the roof and were kept in a state of
disrepair by the plaintiff.
I find that the plaintiff had the
duty to keep the internal gutters in a state of good repair. Through its
failure to do so, it breached the lease agreement it had with the defendant.
If it breached them
whether or not the defendant suffered damages as a result of such breach and
the quantum of such damages
Page 66 of exht 1 represents an
extrapolation from the pharmaceutical batch book of seven products manufactured
by the defendant at the leased premises and at the new premises from 2000 to
2010. The seven products listed were gulf gripe mixture, menthies cough syrup,
glucopect suspension, super zestamin multi-vitamins, menthies lozenges, and
energen glucose and darrolyte tablets. In 2008 the defendant did not produce
any glucopect or super zestamin but produced fewer batches for the other five
products. In 2009 it produced a reduced number of menthies lozenges and energen
glucose and did not manufacture any batches of the other five products. It did
not manufacture any products from the leased premises in 2010. Dr Deacon
calculated the total batches for each product produced over the ten year period
from 2000 to 2009 and divided it by ten to calculate a yearly average. He
estimated the cost of production of each batch in United States dollars by
interpolating the existing cost structure at its new premises of each product
range and multiplied the estimated cost by the yearly average to calculate the
gross value of the lost production. He opined that the cost structure of
existing sales was the same in United
States dollars as in the preceding ten
years. He then deducted the salvage value of work in progress to arrive at the
loss suffered by the defendant. He calculated the loss from the seven products
at US$197 925-00. He deducted the profit mark-up of 15% and arrived at an
estimate of US$168 236-25 which he rounded off to US$170 000-00. While Dr
Deacon equated this amount to the defendant's turnover, it seems to me that it
would actually represent the defendant's total expenditure. Dr Deacon stated
that the defendant ceased the manufacture of pharmaceuticals in July 2008. It
continued to manufacture confectionaries until July 2009. It suffered loss from
the failure to produce the pharmaceuticals. Even though there was no production
of pharmaceuticals for the period from July 2008 to April 2010, a period of 21
months; the defendant claimed damages for breach equivalent to 12 months of
lost production. This was firstly because the defendant did not claim lost
production for the period from July 2008 to the end of November 2008, secondly
it abandoned the claim for December 2008 and January 2009 because the
multicurrency regime had not yet come into being, thirdly it abandoned lost
production for three of the months of the multicurrency regime in order that
its estimated figure would accord with its yearly average computation. The use
of turnover as a basis for calculating the loss of profit suffered after the
repudiation of an agency of sale was approved by INNES CJ in McCullough & Whitehead v Whiteaway & Co 1914 AD 599 at
p.630, a local case which went on appeal to the Appellate Division in South
Africa.
I
agree with Mr Kadzere, for the
plaintiff, that Dr Deacon failed to show the nature of the loss suffered by the
defendant. While the plea referred to the US$170 000-00 as the loss of profits,
I understood Dr Deacon to equate it with the total expenditure that the defendant
would have incurred in the manufacture of pharmaceuticals had it not mothballed
its operations. He did not lead any evidence on how he arrived at the estimated
cost structure of the defendant's existing operations at the new premises. He
simply plucked some figures from the air. The assessment of compensation for
breach of contract is question of fact. The defendant failed to lay out the
facts that would have established its loss. In the McCullough & Whitehead case, supra, INNES CJ relied on the evidence led by accountants to
calculate the measure of damages due to the respondent. The defendant's case
cried out for the evidence of similar financial experts. It is clear to me that
the defendant does have such evidence at its disposal but simply failed to utilize
it.
It seems to me that the defendant's
plea was not framed with an eye to the relevant and applicable remedies for
breach of contract. The purpose for damages for breach of contract is
succinctly set out by Christie in The Law
of Contract in South Africa 3rd ed p 601 thus:
“Unlike damages
for delict, damages for breach of contract are normally not intended to
recompense the innocent party for his loss, but to put him in the position he
would have been in if the contract had been properly performed.”
The evidence on
the amount of damages that was led by Dr Deacon set out the number of batches
the defendant would have manufactured over a period of twelve months of the
twenty-one months that it was not in production. He purported to assign the
present value of each batch produced at the new premises to batches that would
have been manufactured for similar products had production not ceased. He did
not provide proof of the present values he assigned to each batch. But even if
he had proved the present values, his computations would not have represented a
fair and reasonable loss incurred by the defendant for the reason that there
were expenses included in the present value that would not have been suffered
by a non-producing factory. I have in mind such overheads as water, energy,
labour, transport and advertising. The costs that the defendant would have
continued to suffer, which would not have been absorbed by the sale of its
products, would have been those for the labour that it retained, necessary
maintenance and storage of raw materials at hand and unfinished products. It
may have suffered other expenses outside the production process itself such as
relocation and re-establishment costs. In addition it would have suffered loss
of profits. These expenses and losses would have constituted the natural and
probable consequences of the breach.
The defendant failed to establish
the amount of the contractual damages that it suffered. Accordingly, the
plaintiff is granted absolution from the instance.
The
plaintiff's claim
The plaintiff claimed for confirmation of the cancellation of the
lease agreement, arrear rentals, holding over damages and interest on these
amounts at the prescribed rate. The defendant averred that it was excused from
paying the rentals by reason of the indebtedness incurred by plaintiff in
breach of the contract of lease. The evidence led by Dr Deacon and Chitambo
established that the defendant stopped the manufacture of pharmaceuticals in July
and not in December 2008 as pleaded. It continued to use part of the premises
to manufacture confectionaries until October 2009 as pleaded or July 2009 as
shown in the pharmaceutical batch book. Mr Wochieng,
for the defendant, contended that the defendant was entitled to an abatement of
rent during the period in which the premises were not fit for the beneficial
occupation or use for the purpose of its business. He relied on clause 24(b) of
the lease agreement. Clause 24 (a) and (b) state that:
24. Destruction or partial destruction of premises
“a) In the event of the
premises or any part thereof being destroyed or so damaged by fire, explosion, wind, flood, riot or
insurrection, Act of God, or any other cause whatsoever other than the act,
default or negligence of the tenant or its employees, contractors, agents,
licensees or invitees to such an extent as to deprive the tenant entirely of
the beneficial occupation or use of the premises for the purpose of its
business, the landlord shall not on that account terminate this lease but the
landlord shall be entitled within one month of the damage or destruction to
notify the tenant that it intends to rebuild the premises and thereafter the
landlord shall forthwith commence and carry out as expeditiously as is
reasonably possible the reconstruction and repair of the premises so as to make
them available for occupation by the tenant. During such period as the tenant
is deprived of beneficial occupation, no rental shall be due to the landlord.
Should the landlord not notify the tenant of its intention to rebuild as set
out herein then the lease shall be deemed to have been terminated without any
liability whatsoever arising against the landlord by the tenant or any
employee, contractor, agent, licensee or invitee of the tenant.
b)
Partial damage
In the event, however,
of the premises being only partially damaged by any occurrences aforesaid, this
lease shall continue in full force and effect save that the tenant shall be
entitled to abatement in rent during the period in which the premises may not
be wholly fit for occupation. In the event of the parties being unable to
agree, the amount of the abatement shall be determined by an arbitrator or
arbitrators nominated by the president of the Real Estate Institute of Zimbabwe,
the decision of the arbitrator or arbitrators to be final and binding on the
parties hereto. The provisions of this clause shall not prejudice any claim
that the landlord may have against the tenant where the destruction of or
damage to the premises is occasioned by the act, default or neglect of the
tenant or any employee, contractor, agent, invitee or licensee of the tenant.”
It
is clear from clause 24 that it was within the contemplation of the parties
that the defendant was excluded from paying rentals in whole or in part in the
event that the premises became unsuitable for the purposes of its business.
Until July 2009 when the lease was cancelled, the defendant had partial
beneficial use of the leased premises for its business operations. From July or
December 2008 to July or October 2009 it was entitled to pay a reduced rental
and not the whole amount of US$7 100-00 per month. It was not entitled to pay
any rental from the date that it completely ceased using the premises for the
production of its confectionary or cosmetic operations. The plaintiff was
notified of the need to effect repairs to the internal gutters but it did not
do so. In terms of clause 24, the plaintiff could not sue the defendant for
non-payment of rentals when it had not repaired the gutters.
The difficulty that confronts the
plaintiff is that it is entitled to an unknown amount of rentals for the period
from February 2009 to July/October 2009 when the defendant stopped all
production. The plaintiff has failed to establish the amount of rentals that it
is entitled to. Until the amount is established either by consent or by
arbitration, the plaintiff cannot succeed in its claim. The claim for the
confirmation of the cancellation, based as it is on the non-payment of an
unknown amount of rentals, cannot be sustained.
Accordingly, the defendant is
absolved from the instance.
In regards to costs, since neither
of the parties has succeeded in its claim, it is only fair and just that each
be ordered to meet its own costs.
It is accordingly ordered that:
1.
In the claim-in-convention, the defendant is granted
absolution from the instance.
2.
In the counter-claim, the plaintiff is granted
absolution from the instance.
3.
Each party shall pay its own costs.
Gill, Godlonton & Gerrans, plaintiff's legal practitioners
Coghlan, Welsh &
Guest, defendant's legal practitioners
