MTN must pay dealer R11.4m in damages

The Supreme Court of Appeal (SCA) this week threw out MTN’s appeal against a judgment ordering it to pay R11.4 million in damages, plus interest, to a dealer whose business was shut down in 2011 for breach of contract.

MTN had accused the dealer, Belet Industries, of dishonesty after an internal auditor arrived at one of the two stores operated by the company. The general manager of the store instructed shop assistants to place 15 obsolete items considered unnecessary to the audit in black bags and keep them outside the shop until the audit was complete.

To MTN, this looked like an attempt to hide something from the auditor. MTN claimed the 15 “hidden” items were grey goods that the shop was not authorised to stock in terms of the contract with the network provider, and that by placing them outside, the store was obstructing the audit process.

MTN felt it could no longer trust the dealer and cancelled its agreement with Belet in September 2011. The breach was so severe, claimed MTN, that it could not be remedied, not even by the payment of money.

Belet had an entirely different view of what transpired.

The 15 items were either obsolete or defective and did not form part of the MTN audit. Nor were they hidden. They were simply placed outside the store so as not to be counted as stock.

“MTN dispossessed Belet of its business by placing guards outside both stores and refusing Belet access to the stores, taking back all stock, terminating the electronic access to the systems needed to trade and refusing to supply further stock,” reads the judgment.

MTN then notified the landlords of the two stores that it had terminated the dealer agreement, and substituted itself as the lessee.

In December 2011, Belet sued for damages in the High Court in Johannesburg on the basis that MTN had breached or repudiated the dealer agreement. The high court awarded R11.4 million plus interest, which was based on the expected profit had Belet been allowed to continue operating for another 10 years.

MTN defended the action but the SCA found several inconsistencies in their arguments, among them changing reasons for the cancellation of the dealer agreement.