Steinberg v Lazard

The parties concluded a written agreement of sale on 6 June 2001 in terms of which the appellant sold his member’s interest in a close corporation to the respondent. The agreement included reciprocal undertakings that each party would procure the completion of a dwelling house on specified properties by 30 June 2002, failing which the defaulting party would pay a penalty of R50 000 per month of delay. Both parties failed to meet the deadline: the respondent completed his dwelling by 30 September 2002 and the appellant only by 15 June 2004. After set-off of reciprocal penalties and partial waiver, the respondent claimed R1 075 000 from the appellant. The appellant admitted breach but resisted liability for the full penalty, alternatively seeking a reduction under section 3 of the Conventional Penalties Act 15 of 1962.

The appeal was dismissed with costs, including the costs of two counsel, and the High Court order directing the appellant to pay R1 075 000 plus interest was confirmed.

The case is significant for clarifying South African law on penalty clauses under the Conventional Penalties Act. It authoritatively confirms that a creditor need not allege or prove prejudice to enforce a penalty clause and that the debtor bears the full onus of proving disproportionality when seeking a reduction. The judgment also confirms that earlier conflicting dicta have been overruled.