King Sabata Dalindyebo Municipality v Landmark Mthatha (Pty) Ltd & another

King Sabata Dalindyebo Municipality (the Municipality) leased land to Landmark Mthatha (Pty) Ltd (Landmark) for 30 years in October 2006 for a retail development. Landmark engaged African Bulk Earthworks (Pty) Ltd (Bulk Earthworks) in April/May 2007 to perform bulk earthworks. Work commenced on 7 May 2007. On 25 May 2007, the Regional Land Claims Commissioner published a land claim by the KwaLindile Community over the land. Landmark experienced financing difficulties and could not pay Bulk Earthworks. On 13 August 2007, Landmark advised Bulk Earthworks to cease work. Bulk Earthworks cancelled the contract and sued Landmark. On 2 October 2007, the Land Claims Court granted an interim interdict prohibiting development pending negotiations until 30 November 2007. Negotiations failed and the interdict lapsed on 21 January 2008. The Commissioner threatened further interdict action if development continued. Landmark joined the Municipality as a third party, claiming breach of contract for failure to provide vacant possession enabling lawful completion of the development. The Municipality pleaded supervening impossibility of performance due to the land claims and interdict.

• Whether the Municipality breached the lease agreement by failing to provide Landmark with vacant possession enabling lawful completion of the development
• Whether supervening impossibility of performance excused the Municipality from its contractual obligations
• Whether the impossibility was self-created through the Municipality's fault or conduct
• Whether knowledge of land claims by the Municipality or Landmark was relevant to the breach of contract claim
• What is the appropriate capitalisation rate for calculating loss of profit damages
• Whether the interest rate of 15% per month on bridging finance was reasonable
• From what date interest on unliquidated damages should run

1. The appeal was dismissed with costs. 2. The cross-appeal succeeded with costs. 3. Paragraph (h) of the High Court order was amended to direct the Municipality to pay interest on R130,521,053 at 15.5% per annum from 5 March 2008 (rather than 16 January 2012) to date of payment. The Municipality remained liable to pay Landmark total damages of R141,781,201.85 plus interest and costs.

The binding legal principles are: (1) Fault is not a requirement for a claim for damages based on breach of contract. (2) The general rule that impossibility of performance caused by vis major or casus fortuitus excuses contractual performance does not apply where the impossibility is self-created through the defendant's fault or failure to take reasonable steps to prevent or remove the impossibility. (3) In assessing whether impossibility is self-created, courts must examine whether the party had available means to prevent or remove the obstacle and whether failure to use those means constitutes fault. (4) Once a land claim is published under s 11(1) of the Restitution of Land Rights Act, development of the land is prohibited without proper notice under s 11(7), and reasonable steps such as s 34 applications may be required to discharge contractual obligations. (5) The onus of proving that mitigation measures (such as obtaining bridging finance at particular interest rates) were unreasonable rests on the party asserting unreasonableness, who must show that less expensive alternatives were available. (6) Interest on unliquidated debts runs from the date of service of demand or summons (whichever is earlier) per s 2A(2)(a) of the Prescribed Rate of Interest Act 55 of 1975, unless there is just reason to depart from this rule under s 2A(5).

The Court made several non-binding observations: (1) It noted uncertainty about whether publication of a land claim under s 11 of the Restitution of Land Rights Act affects development already commenced before publication, though this was not argued. (2) The Court observed that it would be pure speculation to determine why Markovitz used a particular capitalisation rate without questioning him about it. (3) The Court noted that it was not argued whether the 15% per month interest rate was usurious or against public policy, and observed (citing African Dawn Property Finance) that there is no standard rate beyond which transactions become usurious. (4) Regarding the capitalisation rate issue, the Court noted that the question became "moot" due to the operation of the in duplum rule by the time of the appeal. (5) The Court observed that while an application for costs on an attorney-client scale was sought, there was no basis for granting such costs despite the Municipality's remiss handling of the matter. (6) The Court observed that the Commissioner was obliged to publish qualifying land claims under s 11(1), though it found it unnecessary to discuss whether publication was brought about by the Municipality's fault.

This case is significant for South African contract law and land claims jurisprudence because: (1) It clarifies that fault or knowledge is not a requirement for breach of contract claims (distinguishing this from misrepresentation claims). (2) It establishes that supervening impossibility caused by vis major will not excuse performance where the impossibility is self-created through the defaulting party's fault or failure to take reasonable steps. (3) It demonstrates the impact of land claims under the Restitution of Land Rights Act 22 of 1994 on commercial development and contractual obligations. (4) It affirms that once a land claim is gazetted under s 11(1), development is prohibited without proper notice under s 11(7), and failure to comply with the Act or seek relief under s 34 may constitute fault. (5) It establishes principles regarding the onus of proof for reasonableness of mitigation measures (including interest rates on bridging finance). (6) It reaffirms the principle in West Rand Estates regarding when interest on unliquidated debts commences (from date of demand/service of summons per s 2A(2)(a) of the Interest Act), and that deviation requires justification.