On 29 July 2009, Mr Scheibert sold his immovable property, Erf 2054, No 6 Bridle Road, Oranjezicht, Cape Town, to Mrs Allen for R7,375,000. On 4 August 2009, he warranted in writing that all alterations, additions and improvements to the property had been approved by the City of Cape Town. The property comprised a main house and a 70m² flatlet with two bedrooms, a bathroom and a kitchen. After transfer on 6 October 2009, when Mrs Allen sought to effect renovations, the City rejected her plans because the kitchen in the flatlet had never been approved and rendered the property a double residential unit in contravention of the zoning scheme and a title deed restriction. Mrs Allen chose to remove the kitchen rather than apply for removal of the title deed restriction. She then sued for damages for breach of warranty. Mr Scheibert had acquired the property with a R4 million bond and was desperate to sell after relocating to Germany in 2008. He initially asked for R10-11 million but gradually reduced the price to R8.9 million (his bottom line) and eventually accepted Mrs Allen's offer of R7,375,000.
The appeal was upheld with costs, including costs for two counsel. The order of the High Court was set aside and substituted with an order dismissing the plaintiff's claim with costs.
In a claim for damages for breach of warranty in a contract of sale of immovable property, the onus is on the plaintiff to prove that he or she has suffered damages as a result of the breach. The plaintiff must establish that there has been a diminution in the value of the property by proving an adverse difference between the purchase price paid and the market value of the property as delivered. Where the purchase price paid is lower than the market value of the property even after the breach of warranty, the plaintiff has not suffered any loss and is not entitled to damages. Damages for breach of contract are intended to put the innocent party in the position he or she would have been in if the contract had been properly performed, not to compensate for patrimonial loss as in delict.
The court noted that a litigant does not have an unqualified discretion in the selection of the measure to be employed in determining the extent of loss. If a party wants to use a measure other than the normal market value measure, the onus rests on that party to satisfy the court that the measure contended for is the appropriate one in all the circumstances of the case. The court also observed that in conducting comparable sales analysis for property valuation, proper methodology requires: (1) comparing like-for-like properties (in this case, double dwelling properties should be compared with other double dwelling properties); (2) making appropriate inflation adjustments to historical sales prices; and (3) not omitting significant comparable sales from the analysis. The court did not find it necessary to address the alternative defence of failure to mitigate damages or the ancillary claims for costs of removing the kitchen and redesigning plans, given its finding on the primary issue of proof of loss.
This case is significant in South African contract law for clarifying the onus of proof in claims for damages for breach of warranty in sale of immovable property. It establishes that a plaintiff must prove actual loss by showing an adverse difference between the purchase price paid and the market value of the property as delivered. The case demonstrates that where property is purchased below market value, a breach of warranty does not necessarily result in recoverable damages. The judgment emphasizes the importance of proper expert valuation methodology, including the need for appropriate comparable sales analysis, inflation adjustments, and like-for-like comparisons. It also reinforces the distinction between contractual damages (aimed at putting the party in the position had the contract been performed) and delictual damages (aimed at compensating for patrimonial loss).
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