IN THE HIGH COURT OF MALAWI
CIVIL CAUSE NO. 1040 OF 1994
- AND -
CORAM: JUSTICE CHIMASULA PHIRI
A. Salimu of Counsel for the Plaintiff
M. R. Mbendera of Counsel for the Defendant
Mr Kaundama - 0fficial Interpreter.
Briefly, the story herein started with the defendant placing an order with the plaintiff in or about 1993 for the supply of quantities of PVC material manufactured by the plaintiff. As it turned out later, the quantities of PVC material supplied by the plaintiff failed to meet the requisite Malawi Bureau of Standard tests. The defendant then declined to pay for the PVC material, although they had been delivered by the plaintiff. The defendant ultimately rejected them. The plaintiff then sued for the value of the goods. The defendant filed a defence contending that it could not be held liable to pay for the goods as they were of unmerchantable quality.
The defendant counter-claimed alleging breach of contract against the plaintiff and claiming financial losses flowing from the alleged breach.
The trial of the issues was abortive after the plaintiff had called some witnesses. This followed out of court negotiations that culminated into the signing by the parties of a consent judgement on the 16th day of February, 2000. By the said consent judgment the plaintiff withdrew its claim against the defendant and undertook not to sue on the same issue again. At the same time judgment was also entered for the defendant on its counter-claim. That consent judgment then remitted the question of quantum of damages for assessment by the court.
The counter-claim is contained in the re-amended defence and counter-claim, which was allowed by the Hon. Justice Kumitsonyo on 17th February, 2000. In this judgement it has been quoted in its entirety. I do not propose to read out the quoted counter claim. Suffice to say that counsel will read out same when they get copies of the judgment.
13. The defendants repeat paragraphs 2 to 4 inclusive of the defence and state that at the time of contracting with the plaintiffs , the plaintiffs knew that the PVC material was required to manufacture tarpaulins on a contract with SFFRFM.
14. By reason of the plaintiffs supply PVC material of unmerchantable quality SFFRFM cancelled the contract and the defendants have suffered loss and damage.
(a) The plaintiff knew or ought to have known that their supply of unmerchantable quality material for manufacture of tarpaulins in Malawi would or was likely to adversely affect the reputation of the defendants as a manufacturer and supplier of tarpaulins having regard to the size and special circumstances of the market itself.
(i) The plaintiff was a supplier of PVC material to the Malawi market and therefore knew or ought to have known that the market in Malawi was small;
(ii) The plaintiff knew or ought to have known that tarpaulins market was a specialist one with limited number of consumers;
(iii) The plaintiff had a Commission Agent in Malawi namely Mr J. Chikwenga who represented the interests of the plaintiff in Malawi.
(iv) The defendant had a legitimate expectation that the plaintiff would supply good quality material.
15. The defendants state that as a result of and in consequence of the matters referred to in this counter-claim, the defendants' reputation on the tarpaulin market within the Republic of Malawi was adversely affected and the defendants have lost their market share and in consequence have suffered considerable loss and damage.
(i) Prior to 1993 and for the years 1990, 1991, 1992 and 1993, the defendants tarpaulin sales in Malawi market were on annual average US$627,472.00.
(ii) Since the matters pleaded in this counter-claim the average tarpaulin sales in US dollars for four years after 1993, that is in respect of the years 1994, 1995, 1996 and 1997 inclusive, have shown an annual average of US$61,697.00 thereby representing a drop in sales of 90.17%.
(iii) The defendants profit mark-up is 30% on gross turnover and therefore the defendants have suffered and will continue to suffer a loss of US$169,732.50 per annum.
16. The defendants counter-claim against the plaintiffs for:-
(i) The Malawi Kwacha equivalent at the rate prevailing at the date of payment of the sum of US$26,656.78 representing the profits the defendants would have made on the contract with SFFRFM.
(ii) The annual profit in Malawi Kwacha equivalent of the sum of US$169,732.50 for the years 1994, 1995, 1996, 1997 and 1998.
(iii) General damages to be assessed to cover the present and future loss to be suffered in consequence of the matters pleaded in paragraph 15 hereof.
(iv) Costs of these proceedings.
Paragraph 13 refers to paragraphs 2 to 4 of the defence. Those paragraphs were in the following terms:-
2. The defendant states that the plaintiff contracted
to supply PVC material to the defendant and it was an express term of the agreement or alternatively it was an implied term of the agreement that such material as would be supplied by the plaintiff would be of merchantable quality.
3. In the alternative, the defendant contends that the material contracted to be sold was covered by Malawi Bureau of Standards number MBS: 263:1991 and therefore it was an implied term of the contract that the PVC material to be supplied by the plaintiff under the contract should comply with the minimum standard set by the law. The defendant will at the trial of this cause and action, refer to the terms of the standard for its full terms and effect.
4. The defendant states that in breach of the said terms as are pleaded in paragraphs 2 and 3 hereof, the plaintiff supplied PVC material of unmerchantable quality which failed to pass the standard test.
The plaintiff filed a Reply to Re-amended Defence and Counter-claim. It is dated 2nd day of March 2000. I will quote in full the Amended Defence to Counter-claim.
Amended Defence to Counter-claim
5. The plaintiff refers to paragraph 13 of the Counter-claim and states that it delivered to the Defendant two (2) consignments of 340 rolls or 34,000 linear metres of PVC material.
6. The plaintiff further states that prior to the delivering of the first consignment of PVC material, the defendant did not inform the plaintiff of the contract between Smallholder Farmers Fertiliser Revolving Fund of Malawi and the defendant.
7. The plaintiff refers to paragraph 14 of the Counter-claim and states that the plaintiff was not privy to the contract between Smallholder Farmers Fertiliser Revolving Fund of Malawi and the defendant regarding the sale of the tarpaulins. The plaintiff denies that the defendant has lost market share.
9. The plaintiff refers to paragraph 16 (1) of the Counter-claim and states in the alternative that the defendant is estopped and precluded from claiming that Malawi Kwacha equivalent of US$26.656.78 representing the profits the defendant would have made on the contract with Smallholder Farmers Fertiliser Revolving Fund of Malawi because by its telex dated 15th September 1993, the defendant stated that it could lose MK50,000.00 which they have not lost in any event.
10. The plaintiff denies that the defendant is entitled to annual profits in Malawi Kwacha equivalent of the sum of US$169,732.50 and damages to cover the present and future loss to be suffered as the same are remote.
11. The plaintiff denies that it ought to have known that its supply of the PVC material to the defendant would adversely affect the reputation of the defendant as a manufacturer and supplier of tarpaulins. The plaintiff did not deliberately supply PVC material knowing very well that the same would fail the Malawi Bureau of Standards test.
12. The plaintiff refers to paragraph 14 a(i) of the Amended Counter-Claim and denies that the PVC material market in Malawi is a small one.
13. The plaintiff refers to paragraph 14 a (ii) of the Amended Counter-Claim and denies that it ought to have known that the tarpaulin market is a specialist one.
14. The plaintiff refers to paragraph 14 a (iii) of the Amended Counter-Claim and denies that it had a Commission Agent in Malawi, Mr J. Chikwenga representing their interests in the country.
15. The plaintiff denies paragraph 14 a (iv) of the Amended Counter Claim.
16. The plaintiff prays to this Honourable Court that the defendant's Counter-Claim be dismissed in its entirety and costs.
Save as hereinbefore expressly admitted the plaintiff denies each and every allegation carried in the defence as if the same were set out herein and traversed seriatim.
These defences can be categorised into two. The first category relates to defences dealing with causation. The second category deals with quantum of damages. The defences in paragraphs (5) to (7) and (11) to (15) relate to the first category and deal with causation, state of mind, knowledge, etc. The defences in paragraph (9) and (10) relate to quantum of damages themselves. Paragraph (10) specifically contends that the claim for present and future loss of damages is not sustainable because such damages as claimed are remote.
B. THE ISSUES
The issues as narrowed down by the pleadings are:-
(a) Whether on the facts, the defendant is entitled to claim US$26,656.78 being profits the defendant would have made had it been able to supply Smallholder Farmers Fertiliser Revolving Fund of Malawi other tarpaulins as per the tender the defendant had won with SFFRFM.
(b) Whether the defendant is entitled to US$169,732.50 being annual profits over 5 years i.e. 1994 – 1998 and
(c) Whether the defendant is in the circumstances entitled to any general damages in respect of present and future losses.
3. THE LAW RELATING TO RULES OF PLEADING
A determination of this case depends first, on whether the issues in the counter-claim have been proved. Secondly, the decision must depend on whether the issues pleaded in the defence to counter-claim sufficiently destroy the right of the defendant to succeed on the counter-claim.
When a party seeks to recover damages that can be quantified, the rules require that he should both plead and prove the damages strictly (see O.18r8 R.S.C. and O.18r12 R.S.C. practice note 18/12/6 and practice note 18/12/19). The rules also require a defendant wishing to raise any ground on which it is open to that defendant to contest the claims for damages both to plead and prove by evidence the facts on which he intends to rely on. (see O.18r12 R.S.C. practice note 18/12/6 R.S.C dealing with defences to claims for damages). Practice note 18/12/6 states that this rule should be read together with O.18r13(4). Until 1989 rule 13(4) was in these terms:
".... any allegation that a party has suffered damage and any allegation as to the amount of damages is deemed to be traversed unless specifically admitted".
By RSC (amendment no.4) 1989 (S.1 1981 no.2427) and RSC (amendment no.4) 1991 (S.1 1991 no 2671) rule 13(4) of O.18 R.S.C. above quoted was revoked. Thus the position now since 1989 is that any allegation that a party has suffered damage and any allegation as to the amount of damages are no longer deemed to be traversed. The effect of r.13(4) being revoked is that it makes it imperative for any defendant who wishes to fight a case on damages to plead and prove his case. [See all later editions of the White Book which indicate abrogation of r13(4)].
The changes to the rules, particularly O.18r13(4), are significant because whether the defences set up can succeed or not depends on whether any particular issue canvassed at the trial was actually pleaded by the defendant.
4. THE EVIDENCE
The defendant called Mario De Angelis who is its Managing Director as its only witness. He tendered in court a lot of documents trying to prove that the defendant has suffered loss and damage. More notably are Exhibits D43 to D60. These are relevant to the issue of quantifying damages.
DW1, Mario De Angelis testified that the major buyers in the Malawi market are very few, namely ADMARC, SUCOMA, SFFRFM, Red Cross, World Food Programme and Railways. He further stated that most of the bodies being Government driven were inter related. In most cases the same personalities were on the various boards. In such circumstances a mistake with one will almost invariably be communicated to the others. He further testified that up until 1993, the defendant had a very big share of the market. Following the disaster with SFFRFM, the defendant was shunned by all the others. Despite efforts to remain in the market the defendant lost almost 90% of its market share.
In defending this Counter-Claim the plaintiff called witnesses. These witnesses stated as follows:
PW1 - Icy Chasara: His evidence was mainly
on the issue of liability which has already been resolved.
PW2 - Biswick Abbey Chinguwo who works for
SFFRFM as Logistics Manager. He worked in that position since 1993 having joined SFFRFM in 1984.
He stated that generally SFFRFM bought tarpaulins from the defendant. In 1993 the defendant won a tender to supply tarpaulins to SFFRFM. The defendant supplied the same. When the tarpaulins were examined by SFFRFM it was discovered that the quality was different from what was specified in the tender documents. Malawi Bureau of Standards were engaged in the matter.
The tarpaulins were returned to the defendant because of non-compliance on quality. The witness stated that the defendant has not been blacklisted. Under cross-examination, the witness confirmed that he equally knew that the defendant was also supplying tarpaulins to ADMARC.
PW3 - Gavin Mark Bailey who works for Apex
Corporation as a Divisional chief Executive and is based in Harare, Zimbabwe.
He stated that it is possible that the plaintiff supplied bad material. He specified that it was the second consignment, which was bad and that it was human nature to make errors. According to Exhibit P24, the inferior quality tarpaulins were loaded by error.
PW 4 - Gilbert Philemon Chikatiko who works
For Malawi Red Cross Society as Administration and Purchasing Officer. In 1993, he was a Purchasing Officer. He has had dealings with the defendant in the course of his duties. He said that he is responsible for purchasing relief items whenever there is a disaster. The Malawi Red Cross Society has not blacklisted the defendant as suppliers of tarpaulins and tents. In cross examination, the witness admitted that he could not remember quantities of tarpaulins which were bought from the defendants in 1990 and 1997 and that he had not brought any documents in support of these transactions. He admitted that in the year 2000, there was a natural disaster but the Malawi Red Cross did not buy any tarpaulins or tents from the defendant. In re-examination the witness explained that the donors themselves provided the tarpaulins. However, no document was produced.
PW5 - Amitton Newton Kamuyikeni who works
as Clearing Officer for ADMARC and has
been in that post since 1977. His duties are importing goods and buying goods locally. He tendered Exhibits P31 – P35 to show that in the year 2000, the defendant supplied ADMARC with tarpaulins and other items. He said that ADMARC has never black listed the defendant on the list of its suppliers. In cross-examination, the witness conceded that he is not a Purchasing Officer and that he is in the Imports Department. Further, goods locally sourced do not require clearing. He confirmed that the tarpaulins bought using Exhibits P31 – P35 were for vehicle canopies and not for covering produce. He pleaded his ignorance on whether ADMARC bought any tarpaulins from the defendant in the year 2000 for covering produce. Similarly, he could not remember any transaction for 1999. The witness stated that ADMARC bought tarpaulins in the year 2000 from other sources or suppliers. The witness confessed that he does not know why ADMARC stopped buying tarpaulins from the defendant. The witness stated that ADMARC just like SFFRFM is a statutory body. He said that he knew that ADMARC has a seat on the board of SFFRFM. In re-examination, the witness said that ADMARC still buys from the defendant.
Mr Salimu, the plaintiff's lawyer has attacked the defendant's claim of US$26,656.78. The basis of this claim has been laid down in paragraph 15(iii) of the defendant's counter-claim dated 17th February 2000. Mr Salimu's argument is that the defendant has not strictly proved its 30% profit mark-up. He has relied on the Malawi Supreme Court of Appeal judgement of Yanu Yanu Bus Company vs. Mbewe (1984-86) 11 MLR where the court quoted and applied the words of Lord Goddard, C.J. in Bonham-Carter vs. Hide Park Hotel Ltd [64 T.L.R. at page 178 as follows:-
" Plaintiffs must understand that if they bring actions for damages it is for them to prove their damages; it is not enough to write down particulars and , so to speak throw them at the head of the court saying: 'This is what I have lost; I ask you to give me these damages'. They have to prove it".
Furthermore, Mr Salimu has submitted that the defendant has failed to demonstrate by way of evidence that the contract for supply of goods between the plaintiff and defendant was directly linked to the contract between the defendant and SFFRFM. He has submitted that if the goods were intended for re-sale, the plaintiff's knowledge of that fact is crucial. He has cited the case of Mponda vs Khambadza T/A Khei Distributors (Private Ltd) (1987 – 1989) 12 M.L.R.6.
The response of Mr Mbendera, the defendant's lawyer is two limbed. Firstly, that the question of liability has been resolved by the judgment of 16th February 2000. In as much as the court has entered judgment for the defendant on the counter-claim, it places beyond question the issues which were joined in the pleadings and that the only issue remaining for trial was how far should the court go in compensating the defendant.
Secondly, in the alternative and in the event that the above argument fails, Mr Mbendera makes reference to Exhibit P14 and P24 dated 15th September 1993 and 15th October 1993 respectively. Exhibit P14 is from the defendant to the plaintiff while Exhibit P24 is the reverse.
It is expressly stated in Exhibit P14 that the defendant has won a tender to supply tarpaulins to SFFRFM. Further confirmation is found in Exhibit P27.
I think, I share similar views with Mr Mbendera that the consent judgement of 16th February 2000 resolved the question of liability and should not be allowed to come back through the back-door. Even if I were wrong on this position of the law, I would come to same conclusion that the plaintiff be liable to pay damages to the defendant on the basis of Exhibits P14, P24 and P27. I could have appreciated if the plaintiff's argument, if the defendant had given no formula on how it arrived at loss of profit in the abortive transaction with SFFRFM. I am not saying that since the defendant has mentioned the figure in the pleadings then the court would just pluck that figure and award damages. The process of assessment involves analytical and critical approach to the available evidence. In this matter, there should be evidence of how much the transaction was worth and secondly whether the 30% profit mark-up is realistic or exaggerated.
The evidence of DW1 Mario De Angelis was that the price agreed between the defendant SFFRFM was K403,095.00. In 1993, that figure represented a dollar denominated price of USD90,000.00 (approximately). Please refer to the average exchange rates in Exhibit D60. He further testified that in their business, which started in 1973, they worked on a profit margin of 30%. He testified that in the case of the contract between the defendant and SFFRFM that profit margin was maintained. In proof, the following Exhibits were produced; Exhibit D5, D6, D7, D8 D9 and D10. The question as to whether they maintained a profit margin of 30% is for obvious reasons, within the peculiar knowledge of the witness himself as a Managing Director of the manufacturing company. The pleadings did not indicate any denial of the fact that the defendant maintained a profit margin of 30%. The evidence of DW1 was not controverted.
The only issue that appears to have been vigorously canvassed was why the claim was converted to US dollars.
The additional question that has been raised with regards to this amount is the fact that there was a communication advising that the defendant would lose K50,000.00. The plaintiff argues that because of this communication the defendant is estopped and precluded from claiming any further amount except an amount limited to K50,000.00 as communicated in the telex of 15th September 1993. The document referred to was received by the court as Exhibit P14. The relevant bit of Exhibit P14 which contains the alleged communication is paragraph (b). It states as follows:
"...THE TWO CONTAINERS: We urgently require one container of 17000 metres yellow now. We have won the tender for Smallholder Farmers Fertilizer Revolving Fund of Malawi, to supply 100 tarpaulins size 60 x 40'. They have given us two weeks and five days from yesterday to supply the same. They also require a performance Bond, guaranteed by our bankers, for 10 percent. I cannot commit myself on the performance Bond, till I hear from you, as if I do so now I could lose MK50,000.00.'
It is clear from proper reading and construction of this exhibit that K50,000.00 is referring to the performance Bond representing 10% (rounded off) of the contract value. It has nothing to do with the profits anticipated on the transaction. The plaintiff made a big issue of this communication. But the extrapolation placed by the plaintiff on this communication is not justified in the context.
No evidence was brought to indicate that 30% of the profit margin was not possible. It was not even suggested that 30% of the profit margin was unreasonable nor was it put to the witness that the claim for 30% margin was outrageous. The fact that the defendant's tender inclusive of the 30% was competitive means that the profit they were claiming was within reasonable limits. No suggestion was made that the price tendered by the defendant was not competitive nor that the award to them was based on some other ground other than the competitiveness of their price and the quality of their product.
I accept as a proven fact that the defendants were making a profit mark-up of 30% in their business transactions.
The next issue that has exercised my mind is about the dollar claim. It is very clear that the transaction between the plaintiff and the defendant was in Uapta and that 1 Uapta was equivalent to US$1. However, the transaction between the defendant and SFFRFM was wholly in Malawi Kwacha. If the defendant had been paid in 1993 or early 1994, it could have received the Malawi Kwacha. It would be normal in my view to award interest at commercial bank lending rate to cushion against the defendant's loss of income through unprecedented fall of the Kwacha to a dollar or other standard currencies. The defendant is entitled to K120,928.50 being the 30% of the contract price. The defendant has been deprived use of this profit for a long time. It is common business practice that such money would have been re-invested or used for growth of the business. The plaintiff did not make any payment into court. Consequently, the defendant has suffered a further loss through the Kwacha depreciation. I order that the plaintiff should pay interest to the defendant on this money at 1% above the bank base lending rate with effect from 24th May 1994 up to the date of payment.
The second issue for determination is whether, the defendant is entitled to US$169,732.50 being annual profits over 5 years i.e. 1994 to 1998. The gist of the claim is that from 1990 to 1993, the defendant dominated the tarpaulin market in Malawi and made a lot of sales. Their major customers were ADMARC, SUCOMA, SFFRFM, Malawi Railways and many others. When the plaintiff supplied the defendant with inferior quality tarpaulin material, the defendant alleges that its tarpaulin market dwindled. It is alleged that the defendant was blacklisted on the market hence very poor sales for the years 1994 to 1998. The defendant produced Exhibits D43 to 50 as read with Exhibit D51 to prove the point. The plaintiff called witnesses from SFFRFM, ADMARC and Malawi Red Cross Society, inter alia, to prove that the defendant was not black listed. These witnesses by viva voce evidence stated that their institutions were still buying from the defendant. From the evidence of these witnesses it is clear that in business a manufacturer or trader can be blacklisted. In my view the plaintiff's witnesses should have produced such a blacklist. It could have been easier for he court to see for itself that the defendant was or was not on such a black list. Some of these witnesses were not even directly involved in the local purchasing from the defendant. It did not come to me as a surprise that they could not convincingly state why their institutions suddenly dropped buying from the defendant in large quantities after 1993. Again, and more importantly, even if this court was to accept the viva voce evidence of those witnesses as the whole truth, the plaintiffs pleadings did not go that far. I am bound by the plaintiff's pleadings to exclude the plaintiff's evidence relating to the blacklisting issue. I am convinced that the business of the defendant was adversely affected after 1993 due to the inferior quality material supplied by the plaintiff. However, I am not satisfied that this should be treated as special damages. It ought to be part of the general damages as probable and natural consequences flowing from the plaintiff's breach of contractual obligation. In this judgment, I will combine the claim for special and general damages. These claims will be considered under general damages i.e. to cover losses suffered by the defendant from 1994 to about 1999 when the defendant's business seemed to have picked up again. On the available evidence it cannot be denied that the defendant suffered a huge loss of profits in its business. Exhibits D43 to D50 support this view. I would therefore award the defendant K1.5 million as general damages.
The plaintiff is also condemned to pay the costs of these proceedings.
PRONOUNCED IN OPEN COURT this 11th day of February, 2003.