South African Football Association v Mangope (JA13/11) [2012] ZALAC 27; (2013) 34 ILJ 311 ; [2016] JOL 35479 (LAC) (7 September 2012) per Murphy AJA (Waglay DJP and Tlaletsi JA concurring)

Few thought the common law would survive the introduction of the unfair labour practice in 1979.   Not only the labour court but also the labour appeal court (“LAC”) now deals on a fairly regular basis with common law claims based on material breach of contract.

Recently the LAC reduced an award of contractual damages from R1,777,000 to R669,903 after SAFA repudiated a fixed-term contract.  The case involves a common law claim based on SAFA’s repudiation of a fixed-term contract.   Mangope relied on that breach and cancelled the contract and by way of application, and not a statement, claimed substantial damages in the LC.

Mangope did not rely on the statutory right not to be unfairly dismissed.   The LAC reduced the damages awarded by Molahlehi J in Mangope v SAFA [2011] 4 BLLR 391 (LC).

Facts in brief

Mangope concluded a fixed term contract subject to certain terms and conditions.  SAFA purported to end the contract claiming that it was entitled to do so in terms of the contract.  Mangope alleged that SAFA has repudiated the contract by materially breaching it by ending it without notice and relying on that breach he cancelled the contract.

Mangope did not claim that he had been unfairly dismissed.  Instead he based his claim on material breach of contract and claiming contractual damages.

Common law and BCEA regarding termination

Employers do have the right to terminate an employment contract without notice but only for a material breach of contract by the employee.  The common law right is confirmed in the Basic Conditions of Employment Act 75 of 1997.   Section 37(6) reads as follows:

“Nothing in this section affects the right … (b) of an employer of an employee to terminate a contract of employment without notice for any cause recognised by law’.

The common law required SAFA to prove that Mangope had breached the contract in a material respect but failed to do so.  If SAFA had proved a material breach by Mangope it would have been the termination of a contract for ‘a cause recognised by law’ and notice to terminate would not have been required.  In effect SAFA would have accepted Mangope’s repudiation of the contract and cancelled it, but this did not happen.

The LAC held that SAFA had failed to prove that Mangope had breached the contract in any material respect.  For that reason alone SAFA had repudiated the contract and entitled Mangope to accept the repudiation, cancel the contract and claim contractual damages for the loss he suffered.

Contractual damages for breach of contract

Here are some extracts from the judgment of justice Murphy in the LAC judgment (the names of the parties have been used for ease of reference, footnotes have been left out and I have emphasised some passages in bold type):

[38]      Mangope’s case is that the termination of his employment was unlawful and in breach of contract.   In essence, his main contention is that he performed satisfactorily and there was accordingly no justification for termination in terms of either clause 5.6 or clause 18.2.3 of the contract.

At common law an employer may summarily terminate a contract of employment without notice provided there is a justifiable reason.  It is an implied term of every contract of employment that employees must exercise due diligence and skill and will perform their duties competently.

By applying for employment an employee is deemed to warrant impliedly that he or she is suited for that position.   Such warranty was expressly given by Mangope in this case in clause 3 of the contract.   If the employee is later found to be incompetent, “then in the eye of the law he stands in the same position as if he had been negligent in the discharge of his duties”.

Whether particular conduct justifies summary dismissal or termination of the contract will always be a question of fact.

What must be determined is whether the employee’s conduct or negligence is serious enough to constitute a repudiation of the contract, or a serious breach of a material express or implied term of the contract.

The lawfulness of the termination of the contract therefore depends on the justifiability of the reason for it.  Where the employer terminates the contract without lawful reason, the employer will have repudiated the contract permitting the employee to sue for specific performance or damages.

[39]      Mangope and the court a quo placed much in store on SAFA’s failure to follow the evaluation procedure in clause 5 of the contract prior to terminating the contract.  The reliance is to a certain extent misplaced in a suit for breach of contract as opposed to one for unfair dismissal.  Accepting that SAFA did not properly evaluate Mangope’s work performance or provide reasonable instruction or opportunity to improve, such breaches of contract by the employer would not necessarily be construed as material or causative at common law.

Non-compliance with procedural provisions in a contract of employment ordinarily will ground a claim for unfair dismissal in terms of the LRA, even where there is a justifiable substantive reason for dismissal;  but at common law a procedural breach will be of no contractual consequence unless it results in damages, particularly where there has been a material breach or repudiation by the employee entitling the employer to cancel.

In the law of contract there must be a causal nexus between the breach (procedural or otherwise) and the actual damages suffered.   A contractant must prove that the damage for which he is claiming compensation has been factually caused by the breach.  This involves a comparison between the position prevailing after the breach and the position that would have obtained if the breach had not occurred.

Accordingly, if Mangope’s contract is found to have been lawfully terminated on account of his repudiation of the warranty of competence, he would have suffered no contractual damages arising from the procedural breaches.   As I have just explained, he may have been entitled to compensation (not damages) in terms of the LRA for a procedurally unfair dismissal, but then he needed to refer an unfair dismissal dispute to the CCMA in terms of section 191 of the LRA.

[40]      It follows that the principal enquiry before the Labour Court ought to have been whether Mangope had repudiated or breached the contract by reason of his alleged incompetence.

The learned judge a quo correctly refused to refer the matter to oral evidence on the grounds that no real dispute of fact had arisen on the papers.   However, he held that SAFA had repudiated the contract by failing to follow the evaluation procedure in clause 5 and that such entitled Mangope to damages in the amount of R1,777,000.

His reasoning, with respect, is unsustainable for the reasons just discussed.   The procedural flaws alone may not directly have resulted in damages and would have been immaterial from a contractual perspective if it was established on the evidence before court that Mangope had not performed satisfactorily in terms of the contract.

The court thus erred by not determining on the papers whether Mangope had breached or repudiated the warranty of competence in a manner justifying lawful termination by SAFA.

[41]      Be that as it may, as it turned out Mangope was entitled to relief because, as already discussed, SAFA did not prove that he had breached or repudiated the contract.   The allegations of unsatisfactory performance or incompetence were not established.

In those instances where Mangope may have fallen short, it cannot be said that his conduct attained a level of habitual negligence or persistent incompetence as to constitute a breach of the warranty of competence or a repudiation of the contract.  

All the more the case when SAFA neglected to follow the procedure in clause 5 to put Mangope on terms a propos his performance.   The inescapable conclusion is that SAFA repudiated the contract, permitting Mangope  to accept the repudiation and to claim damages.

[42]      Mangope filed a supplementary affidavit inter alia quantifying his damages, and in which he claimed the balance of his fixed term contract; which he determined to be 31 months at R60,000 per month = R1,86 million, less certain interim earnings of R83,000, giving a total of R1,777,000, the amount which the Labour Court awarded.

[43]      The quantum of damages awarded seems to rest upon an uncritical application of the standard enunciated 60 years ago by the Cape Provincial Division in Myers v Abramson 1952 (3) SA 121 (C) which in relation to damages for breach of a fixed term contract of employment (as opposed to an indefinite term contract terminable on notice) stated the following:

‘The measure of damages accorded such employee is, both in our law and in the English law, the actual loss suffered by him represented by the sum due to him for the unexpired period of the contract less any sum he earned or could reasonably have earned during such latter period in similar employment.’ (at 127 D-E).

There is a tendency among lawyers practising in the field of labour law to rely on these dicta to contend that the unlawful premature termination of a fixed term contract of employment entitles the wrongfully dismissed employee to be paid the balance of the unexpired portion of his or her contract.

That view has been reinforced by the order made more recently by the Constitutional Court in Masetlha v President of the RSA and Another 2008 (1) SA 566; 2008 (1) BCLR 1 (CC).

In that case the court held that the dismissal of Masetlha from his post of Director-General of the National Intelligence Agency was in violation of his constitutional rights.   In exercising its discretion in terms of section 172(1)(b) of the Constitution to grant a remedy which is just and equitable, the Constitutional Court ordered Masetlha to be paid the remuneration payable for the balance of his fixed term contract.

It is not clear from the judgment whether the court gave any consideration to either a contractant’s duty to mitigate damages or the collateral benefit rule as envisioned in the dicta pronounced in Myers v Abramson.

The order in Masetlha, being one in terms of the Constitution, was not intended, in my opinion, to re-define the contractual measure of damages in respect of a material breach of a fixed term contract of employment.

[44]      The standard in Myers v Abramson intimates that an employee will be entitled to his proven actual damages reduced by collateral benefits and other justifiable deductions.   In an action for damages the onus of proving damages rests on the plaintiff.

The mitigation rule requires the defendant to prove that the amount claimed by the plaintiff does not represent the true amount because of a failure to take reasonable steps to mitigate; the evidentiary burden shifts to that extent.   There remains nonetheless a duty on a plaintiff to prove the value of the prospective loss of the expectancy of income.

[45]      In accordance with general principle, a plaintiff claiming damages for a prospective loss of future salary must adduce evidence enabling a fair approximation of the loss even though it is of uncertain predictability and exactitude.   It is not competent for a court to embark upon conjecture or guesswork in assessing damages when there is inadequate factual basis in evidence.

Moreover, allowance has to be made for the contingency or probability that the anticipated future loss may not in fact eventuate, at least not in its entirety, because the dismissed employee may obtain another job or source of income.   There should be evidence as to the reasonable period it would take a person in the position of the respondent to obtain analogous employment.

By similar token, any amount awarded as damages for future loss has to be discounted to current value.   In other words, the value of the expectancy of future salary before and after the breach has to be determined in order to quantify damages.   Where it is highly probable that the expectancy would have been realised but for the breach, the value of the expectancy will usually be the value of the expected income (the salary for the unexpired period) less amounts which reasonably might be earned (potential collateral and mitigated amounts), adjusted firstly by a contingency for the possibility of the entire loss not being realised, and discounted in addition for the advantage of the expectancy being accelerated or received earlier than it would have been.

[46]      In the present case, SAFA did not allege or prove any failure by Mangope to mitigate his accrued damages.   In its answer to the supplementary affidavit it however submitted:

‘As to the quantum of damages claimed, the Applicant (Mangope) has not alluded to what the future prospects are of him mitigating his damages.   I am advised that a discounted factor must be taken into account to reflect the prospects of the Applicant (Mangope) mitigating his damages during the balance of the fixed-term contract.’

Mangope proved his actual, past damages, but did not adduce any evidence to support his claim for the non-realisation of his future income beyond the date of the Labour Court judgment.   No evidence was before the Labour Court with regard to the future value of Mangope’s package, an appropriate rate at which to discount it or a proper basis for adjusting for contingencies.   SAFA merely proved his accrued mitigated damages, his damnum emergens.  

[47]      It was therefore, in my opinion, wrong for the Labour Court to equate, without further ado, Mangope’s damages with the salary owing for the balance of the unexpired period of his fixed term contract.   Such an amount, in the nature of things, will in all cases be the maximum payable as damages.   But the maximum does not axiomatically follow upon breach.

As a result, the award of damages was not reasonable, as required by section 77(A) of the BCEA.   A reasonable award in the circumstances would be the amount of the actual damages proved.  

The dismissal was at the end of November 2009 and the judgment of the Labour Court was handed down on 17 December 2010; meaning that the damages proved amounted to 12 months’ salary at R60,000 per month and R60,000 at a ratio of 17:31 in respect of December 2010, less the amount of R83,000 in collateral earnings.   Thus R720,000 + R32,903 – R83,000 = R669,903.   The appeal should therefore succeed to that extent and the order be varied accordingly.

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