Sandlundlu (Pty) Ltd v Shepstone and Wylie Inc

The appellant, Sandlundlu (Pty) Ltd, owned the Estuary Hotel in Port Edward. Its shareholders, Mr and Mrs Reardon, negotiated a complex series of transactions with Dr Kotter, majority shareholder in Biz Afrika 987 (Pty) Ltd, including a lease of the hotel business. The parties orally agreed on a monthly rental of R50,000 with 12% annual escalation. The respondent attorney firm, through Mr Breytenbach, acted for the appellant. When Breytenbach presented the written lease drafted by the other party's attorney for signature, it incorrectly reflected R4,500 monthly rental with 10% escalation. Despite Reardon pointing out the error, Breytenbach instructed him to sign with an undertaking to amend it before the other party signed. Breytenbach failed to make the amendments and forwarded the incorrect lease to the other party, who signed it. Biz Afrika took possession in June 2000, paid R300,000 in November 2000, but thereafter paid no rental. The appellant had to pursue arbitration proceedings to rectify the lease (successful in February 2005), then eviction proceedings (successful in December 2005, eviction effected April 2006). Biz Afrika was liquidated in May 2007 with no dividend. The appellant recovered no rental.

• Whether the respondent attorney's negligent failure to amend the rental amount in the lease agreement was the factual cause of the appellant's loss
• The quantum of damages recoverable for breach of mandate, specifically the period for which lost rental could be claimed
• Whether attorney and client costs or only party and party costs of the arbitration proceedings were recoverable as damages
• The date from which interest on damages should be calculated

The appeal was dismissed with costs. The cross-appeal was dismissed with costs. The judgment of the court below (Nicholson J) was upheld, granting damages for loss of rental income restricted to March 2002, with interest at 15.5% per annum from service of summons, and a declarator that the appellant was entitled to attorney and client costs of the arbitration proceedings.

Where an attorney negligently fails to execute a mandate to ensure a written contract reflects the parties' oral agreement, and this creates an opportunity for the other party to act dishonestly by relying on the incorrect written terms, the attorney's negligence remains the factual cause of loss suffered by the client, applying the 'but-for' test based on probabilities. In assessing contractual damages, the court must limit the award according to principles of reasonable foreseeability and avoid undue hardship to the defaulting party. Attorney and client costs of rectification proceedings necessitated by an attorney's breach of mandate are recoverable as damages where such costs were reasonably foreseeable as a probable consequence of the breach. Factual causation requires proof on a balance of probabilities that the breach was a causa sine qua non of the loss, applying a sensible retrospective analysis rather than engaging in speculation or metaphysics.

The court emphasized that one of the very reasons for instructing an attorney to conclude a written agreement reflecting the true bargain is to avoid dishonesty, whether by an attorney or client. The court noted that parties cannot contemplate what they cannot foresee, and what is required to be reasonably foreseeable is not that an event will occur with certainty or even high probability, but minimally that its occurrence is not improbable and would tend to follow upon the breach as a matter of course. The court observed that where interest on arrear rental was not part of the lease agreement and no demand for payment was proved, interest as damages could only run from the date of service of summons, which constituted the demand.

This case clarifies the application of factual causation principles in contractual damages claims against attorneys for professional negligence. It demonstrates that the 'but-for' test must be applied sensibly based on probabilities rather than speculation, and that subsequent dishonest conduct by third parties does not necessarily break the causal chain where the attorney's breach created the opportunity for such dishonesty. The case also provides guidance on limiting damages according to reasonable foreseeability principles and reinforces that attorney and client costs of necessary remedial proceedings (such as rectification) are recoverable as damages where reasonably foreseeable. It illustrates the practical application of the Holmdene principles for assessing contractual damages and the need to draw appropriate temporal limits on damages to avoid undue hardship to the defaulting party.