About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2013
>>
[2013] ZASCA 161
|
|
Country Cloud Trading cc v MEC: Department of Infrastructure Development (751/12) [2013] ZASCA 161; 2014 (2) SA 214 (SCA); [2014] 1 All SA 267 (SCA) (26 November 2013)
REPORTABLE
SUPREME COURT OF APPEAL OF SOUTH
AFRICA
JUDGMENT
Case No: 751/12
DATE : 26 November 2013
In
the matter between:
COUNTRY CLOUD TRADING
CC
...........................................
APPELLANT
and
MEC,
DEPARTMENT OF INFRASTRUCTURE
DEVELOPMENT
...................................................................
RESPONDENT
Neutral citation:
Country
Cloud Trading CC v MEC, Department of Infrastructure Development
(751/12)
[2013] ZASCA 161
(26 November 2013).
Coram:
Brand, Leach, Tshiqi,
Theron
et
Saldulker JJA
Heard:
8 November 2013
Delivered: 26 November 2013
Summary: Delictual claim by
stranger to a contract against contracting party who intentionally
repudiated the contract for loss
suffered by the stranger as a result
of that repudiation.
ORDER
On appeal from:
South Gauteng
High Court, Johannesburg (Satchwell J sitting as court of first
instance):
The appeal is dismissed with costs
including the costs of two counsel.
JUDGMENT
BRAND JA
(LEACH, TSHIQI,
THERON et SALDULKER JJA concurring):
[1] The respondent is a Member of the
Executive Council in the province of Gauteng with responsibility for
the provincial Department
of Infrastructure Development, which was
formerly part of the Department of Public Transport, Roads and Works
(the Department).
The appellant is a close corporation, Country Cloud
Trading CC (Country Cloud). The appeal originates from a building
contract
between the Department and a construction company, Ilima
Projects (Pty) Ltd (Ilima). In terms of this contract Ilima undertook
to complete the construction of the partially built Zola Clinic in
Soweto at a contract price of R480 million. In order to comply
with
its obligations under the contract, Ilima borrowed R12 million from
Country Cloud. In terms of the loan agreement between
these two
parties, Country Cloud stood to make a profit of R8, 5 million.
[2] After Country Cloud had paid the
R12 million to Ilima, the Department cancelled the construction
contract, which ultimately
led to the liquidation of Ilima. Following
upon these events, Country Cloud instituted an action against the
Department in the
South Gauteng High Court, Johannesburg for
delictual damages in an amount of R20,5 million together with
interest at 15,5 per cent.
In the event the matter came before
Satchwell J who dismissed the claim with costs. The present appeal
against that judgment, which
has since been reported as
Country
Cloud Trading CC v MEC, Department of Infrastructure Development
[2012] 4 All SA 555
(GSJ), is with the leave of the court a quo.
[3] A proper understanding of the
issues arising requires a broad outline of the background facts. What
eventually proved to be
a rather sad tale of woe for all parties
concerned, started on 10 May 2006 when the Department awarded a
tender to build the Zola
Clinic in Soweto, which was designed as a
300 bed district hospital, to a joint venture of four companies at a
contract price of
about R335 million. Ilima was one of the four
companies in the joint venture. In terms of the ensuing contract, the
project had
to be completed by May 2008. But the joint venture never
really got off the ground. In March 2008 Ilima’s three partners
withdrew, which left it as the last contractor standing. At that
stage only 20 per cent of the hospital had been completed.
[4] The Head of the Department at the
time, Mr Sibusiso Buthelezi, was then landed with the responsibility
of appointing a contractor
to complete the building project. The
Departmental Acquisition Council (DAC), which concerned itself with
the procurement of goods
and services for the Department, recommended
to Buthelezi that the contract should once again go through the
tender process. On
the other hand, the recommendation by senior
officials of the Department was that, due to the urgency of the
situation, the completion
contract should, without further ado, be
awarded to Ilima as the only surviving member of the joint venture.
This is what Buthelezi
then did. Although Buthelezi himself did not
testify at the trial, it appears from the documentary evidence that
he was of the
view that, as the accounting officer of the Department,
he was entitled to override the advice of the DAC and that due to the
exigency
of the situation, he should do so. In motivating this
decision in subsequent correspondence, Buthelezi pointed out, for
instance,
that the people of Soweto were in dire need of a hospital
which was destined to be completed by May 2008; that by that time
only
20 per cent of the work had been done; and that going out on
tender was bound to give rise to further delay and additional costs.
[5] Ilima was confident that it was
able to complete the construction of the hospital on its own. Yet it
needed immediate financial
assistance in an amount of R12 million to
do so and the Department was clearly aware of this need. Hence the
Department made various
concessions to assist Ilima in obtaining a
loan so as to facilitate the expeditious completion of the hospital.
First the Department
undertook, as part of the construction contract,
to pay Ilima a so-called ‘site re-establishment and
mobilisation fee’
equal to five per cent of the contract price
of R480 million – that is R21,5 million – within 30 days
of concluding
the contract. Secondly, the Department allowed its
managing agent, Tau Pride (Pty) Ltd (Tau Pride), to give a formal
undertaking
to Country Cloud that the loan of R12 million be paid
directly to it out of the site rehabilitation and mobilisation fee of
R21,5
million when Ilima became entitled to this fee.
[6] On this basis Country Cloud
agreed, in terms of a loan agreement with Ilima to advance an amount
of R12 million to the latter
to perform its obligations under the
completion contract. In turn, Ilima undertook to repay the amount of
R12 million when the
site rehabilitation and mobilisation fee became
payable. In addition, Country Cloud would receive a handsome profit
of R8,5 million
which Ilima undertook to pay by 1 May 2009. The
construction contract for the completion of the Zola Hospital, which
ended up as
the source of this litigation, was then concluded between
Ilima and the Department on 4 August 2008. It soon became known as
‘the
completion contract’. Following upon the conclusion
of the completion contract, Country Cloud advanced the R12 million to
Ilima.
[7] Trouble started on 4 September
2008 when the Department cancelled the completion contract before it
had made any payments thereunder,
either to Ilima or, via Tau Pride,
directly to Country Cloud. This despite a certificate by the
principal agent in terms of the
construction contract, that an amount
of R21,5 million became due and payable by the Department. The
comprehensive letter of cancellation
on behalf of the Department was
written by Buthelezi. In essence it relied on two misrepresentations
by Ilima prior to the conclusion
of the completion contract, which
were alleged to be both intentional and material. The first related
to a representation conveyed
through a tax clearance certificate from
the South African Revenue Service (SARS), to the effect that Ilima
had complied with all
its tax obligations and was in good standing
with SARS. This was alleged to be untrue in that, at the time,
Ilima’s tax affairs
were in serious disarray. The second was
that it had received a level 8 accreditation from the Construction
Industry Development
Board.
[8] Subsequently, as I have indicated
by way of introduction, Country Cloud had been liquidated for being
unable to meet its financial
obligations to its creditors. This
happened in March 2010. Prior to its liquidation, summons was issued
on behalf of Country Cloud
against the Department for contractual
damages in an amount of R1.4 billion on the basis of its alleged
unlawful repudiation of
the completion contract. What happened to
this claim is not entirely clear. Apparently it went to mediation,
which proved to be
unsuccessful, but whether it was then pursued
further and, if not, why not, we simply do not know.
[9] Country Cloud’s particulars
of claim reveals clear difficulty in the formulation of a claim in
delict. As it happened,
the basis finally relied upon was only
introduced by way of an inelegantly drafted amendment shortly before
Country Cloud closed
its case in the court a quo. Not revealing the
scars of amendments, the formulation eventually followed the
following lines:
(a) The Department owed Country Cloud
a so-called ‘duty of care’ not to cancel the completion
contract without any lawful
ground prior to payment of the site
rehabilitation and mobilisation fee to Ilima. (The reason for the
‘so-called’ is
to highlight the confusion revealed by the
reference to ‘a duty of care’ to which I propose to
return.)
(b) On 4 September 2008 the Department
intentionally, and in breach of its duty of care, unilaterally
cancelled the completion contract
without any lawful grounds.
(c) But for the conduct of the
Department, Ilima would have received payment of an amount of R21,5
million and would have been able
to pay the R12 million and R8,5
million which it owed to Country Cloud.
[10] In the original version of its
plea the Department persisted in the defence that the completion
contract had been validly cancelled
on grounds of Ilima’s
material and intentional misrepresentation. As in the cancellation
letter, the two misrepresentations
relied upon again related to the
content of the tax clearance certificate provided by Ilima and the
representation that Ilima had
been accredited by the Construction
Industry Development Board with a level 8 rating. Moreover, and in
any event, the Department
denied that it was liable in delict to
Country Cloud for the damages claimed. Shortly before the
commencement of the trial the
Department amended its plea so as to
introduce a further defence. According to this new defence the
completion contract was in
any event invalid because ‘the
tender awarded to Ilima was contrary to the procurement regulations
and policies of the .
. . Department’ in that ‘it was not
advertised and [did not invite] . . . other companies to bid for the
tender; and
it was not evaluated and adjudicated by the appropriate
internal structures of the Department’.
[11] Prior to the commencement of the
trial the Department admitted that Ilima possessed the required level
8 rating. Hence the
evidence at the trial focussed on (a) the
validity of the tax clearance certificate and (b) the Department’s
contention that
the award of the tender to Ilima was invalid from the
start. As to the first issue, it was common cause that Country Cloud
produced
a tax clearance certificate issued by SARS on 5 December
2007 which was valid for a period of one year – that is until 5
December 2008 – which obviously extended beyond the conclusion
of the completion contract on 4 August 2008. In support of
the
contention that there was nothing wrong with this certificate,
Country Cloud presented the evidence of Dr Tembalegise Lupepe,
who
was the founder of and driving force behind Country Cloud. For the
contrary proposition, the Department relied on the testimony
of a Mr
Wayne Broughton, a senior employee of SARS. The only other witness of
note was Mr Mohlomphegi Thulare, a departmental official,
who was
called by the Department to testify in support of its non-compliance
defence.
[12] At the end of the trial, the
court a quo was thus enjoined to decide three issues: (a) whether the
award of the completion
contract to Ilima was valid and lawful; (b)
whether the contract was validly cancelled on the basis that the
clearance certificate
provided by Ilima was invalid; and (c) whether
the Department could be held liable in delict for the damages
allegedly sustained
by Country Cloud as a result of the repudiation
of the contract by Buthelezi on behalf of the Department. The court a
quo decided
first to consider the issue in (a). It then concluded
that the award of the contract to Ilima was indeed invalid and
unlawful.
In consequence, the court found it unnecessary to embark
upon the other two issues at all.
[13] Without any intent to be
uncharitable, the defence on which the Department eventually
succeeded was – perhaps in retaliation
of the similar
lackadaisical approach to pleadings adopted by Country Cloud –
introduced at a very late stage by means of
an ineptly drafted
amendment to the plea and then presented in an even worse way. The
factual basis advanced for the alleged unlawfulness
of the award of
the completion contract was that it was not advertised and that it
did not go through the tender and bidding process.
The legal basis
pleaded was that the award of the tender was therefore ‘contrary
to the procurement regulations and policies’
of the Department.
At the trial the Department sought to establish this defence through
the evidence of Thulare. It then emerged
that the legal basis for the
defence had nothing to do with ‘Departmental policy’ but
instead derived from a myriad
of statutory provisions, including the
Public Finance Management Act 1 of 1999 (the Act); the
Preferential
Procurement Policy Framework Act 5 of 2000
; regulations promulgated
under these Acts; practice notes issued by the National Treasury; and
so forth. Relying on these statutory
provisions, the theme of
Thulare’s testimony proved to be that:
(a) as a general rule, procurement of
goods and services by the Department had to follow the prescribed
advertising and competitive
bidding process which was not adopted in
the award of the completion contract;
(b) although the prescribed process
could be departed from in cases of emergency, the circumstances
surrounding the award of the
completion contract did not constitute a
case of emergency;
(c) the DAC, of which Thulare was a
member, had recommended to Buthelezi that the completion contract
should once again go through
the prescribed process, which advice
Buthelezi had refused to follow.
[14] Undoubtedly as a result of the
way in which this defence was presented, the court a quo gained the
impression, which proved
to be mistaken, that the authority to decide
whether or not deviation from the prescribed process was justified,
did not rest with
Buthelezi but with the DAC. Since the DAC ‘to
which Buthelezi . . . was accountable, did not approve the deviation
from inviting
competitive bids’, so the court held (in para
36), the completion contract was concluded without authority. In
consequence
the Department could not be held liable under the
completion contract (see para 61). On appeal it was common cause,
however:
(a) that
sections 38
to
44
and the
Practice Notes issued by National Treasury bestowed the authority to
deviate from the prescribed procedure on the ‘accounting
officer’;
(b) that in terms of s 36 of the
Act, Buthelezi was indeed the accounting officer; and
(c) that Buthelezi therefore had the
authority to ignore the DAC’s advice that the completion
contract should again go out
to tender.
[15] The interpretation of the
relevant statutory provisions thus accepted by counsel for both
parties – which I regard as
correct – essentially
deprived the judgment of the court a quo of its whole substructure,
ie that Buthelezi had no authority
to deviate from the prescribed
procedure. Nonetheless, the Department contended that the award of
the contract was unlawful on
the basis that the circumstances
surrounding the award did not qualify as a case of emergency. In
support of this contention it
relied on the evidence of Thulare. As I
see it, however, there are at least three reasons why this reliance
cannot be sustained.
First, Thulare’s opinion is inadmissible
on matters of law. Secondly, insofar as his opinion pertained to
matters of fact,
it was equally inadmissible since he was not called
as an expert witness. Thirdly, I cannot see why his opinion should be
preferred
to that of Buthelezi and other senior members of the
Department who held the view that the completion of the Zola Clinic
was indeed
required as a matter of urgency. In this light I conclude
that the Department’s defence resting on an unlawful award of
the
completion contract, should not have been upheld.
[16] The Department’s further
defence, based on the proposition that the completion contract was
validly cancelled, can be
disposed of with even less ado. It will be
remembered that this defence was based on the premise that the tax
clearance certificate
submitted by Ilima was false. At the trial the
Department set out to establish this defence through the evidence of
Broughton,
a senior official in the employment of SARS. Since
Broughton was not directly involved with the issue of the
certificate, the high-water
mark of his evidence was, however, that
the certificate should not have been issued. The basis he advanced
for this view was that,
at the time the certificate was issued,
Ilima’s tax affairs were in serious disarray. Under
cross-examination he conceded,
however, that a tax clearance
certificate could nonetheless be issued if Ilima had come to an
arrangement with SARS. He further
conceded that he could not exclude
the possibility that such an arrangement had in fact been reached.
These concessions in turn
led to the concession by counsel for the
Department – which was, in my view, rightly and fairly made –
that the defence
based on cancellation of the completion contract
could not be sustained.
[17] This leads to a consideration of
the Department’s further defence that, in any event, it cannot
be held liable in delict
for the damages claimed because Country
Cloud had failed to establish the element of wrongfulness, which is
essential for Aquilian
liability. The contention must of course be
understood in the light of the evolution of our law with regard to
delictual liability
for pure economic loss that started with the
decision of this court in
Administrateur, Natal v Trust Bank van
Afrika Bpk
1979 (3) SA 824
(A). Prior to
Trust Bank
,
Aquilian liability was limited, as a general rule, to loss resulting
from physical injury to the person or property of the defendant.
But
in
Trust Bank
it was extended to liability for pure economic
loss. What Rumpff CJ immediately realised in that case (at 833A) was
that this extension
gave rise to the danger of ‘oewerlose
aanspreeklikheid’ (limitless liability). Experience tells us
that economic effects
are not subject to the laws of physics. They
can be much more widely spread. Hence the problem of the extension
was one of limitation.
Or, as this court said in
Fourway Haulage
SA (Pty) Ltd v SA National Roads Agency Ltd
[2008] ZASCA 134
;
2009 (2) SA 150
(SCA)
para 17, when we abolished the absolute exclusion of liability for
pure economic loss, we abandoned the bright line of limitation.
That
gave rise to the question: where is the next bright line to be drawn?
[18] What Rumpff CJ decided in
Trust
Bank
was to cast the element of wrongfulness in the role of an
instrument of control to prevent limitless liability. In this way the
role of wrongfulness became far more pivotal than the one it
traditionally performs with reference to conduct causing physical
harm. In the latter situation wrongfulness is rarely contentious. In
fact, in these cases wrongfulness is presumed with the result
that
the onus is on the defendant to exclude the inference of wrongfulness
arising from physical harm (see eg
Santam Insurance Co Ltd v
Vorster
1973 (4) SA 764
(A);
Telematrix (Pty) Ltd t/a Matrix
Vehicle Tracking v Advertising Standards Authority SA
2006 (1) SA
461
(SCA) para 13;
Roux v Hattingh
2012 (6) SA 428
(SCA) para
32). But in the case of pure economic loss, wrongfulness performs the
function of a safety valve; a control measure;
a long stop which
enables the court to curb liability where despite the presence of all
other elements of the Aquilian action,
right-minded people will
regard the imposition of liability as untenable. Decisions building
upon
Trust Bank
demonstrate the clear recognition by different
members of this court that wrongfulness in the context of delictual
liability for
pure economic loss is ultimately dependent on an
evaluation based on considerations of legal and public policy. The
enquiry is
thus: do these policy considerations require that harm
causing conduct should be declared wrongful and consequently render
the
defendant liable for the loss, or do they require that harm
should remain where it fell, ie with the plaintiff? (See eg
Indac
Electronics (Pty) Ltd v Volkskas Bank Ltd
[1991] ZASCA 190
;
1992 (1) SA 783
(A) at
797E-H;
Knop v Johannesburg City Council
1995 (2) SA 1
(A)
26J-27D.)
[19] Yet, for some or other reason
there was a clear reluctance, during the early stages of the
development of the delictual action
for pure economic loss, to admit
that we are dealing with considerations of policy. Perhaps the
reluctance was motivated by fear
that an express reference to vague
notions of policy would fuel the criticism of those who contended
that the extension of liability
in
Trust Bank
would result in
the substitution of judicial discretion for principle. But whatever
the reason, in
Trust Bank
Rumpff CJ (at 833A) introduced the
concept of a ‘legal duty’ as the yardstick to determine
when policy considerations
will require the imposition of delictual
liability for pure economic loss. With the passage of time, further
attempts were made
to formulate some practical yardstick for this
purpose. Included amongst these was the concept of the ‘
boni
mores’
or ‘legal convictions’ of the community;
and the ‘general criterion of reasonableness’, which
poses the
question whether or not it would be reasonable to impose
liability on the defendant (see eg
S M Goldstein & Co (Pty)
Ltd v Cathkin Park Hotel (Pty) Ltd
2000 (4) SA 1019
(SCA) para
7). Unfortunately, these yardsticks gave rise to confusion. While the
concept of a ‘legal duty’ was often
confused with the
concept of a ‘duty of care’ in English law – which
straddles both wrongfulness and negligence
– the ‘general
criterion of reasonableness’ was frequently associated with the
reasonableness of the defendant’s
conduct, which is an element
of negligence (see
Trustees, Two Oceans Aquarium Trust v Kantey &
Templer (Pty) Ltd
2006 (3) SA 138
(SCA) para 11). Our case law
illustrates that this confusion had practical consequences in that it
often led to a complete negation
of either negligence or wrongfulness
(see eg
Local Transitional Council of Delmas v Boshoff
2005
(5) SA 514
(SCA) paras 17-20;
Telematrix
para 14). I raise
this because, despite the frequent warnings against this confusion by
this court over the last ten years, it again
raised its head right
throughout the proceedings in this case.
[20] Fortunately, in the light of the
confusion caused by the yardsticks, our courts have since found their
way open to acknowledge
in express terms that wrongfulness, in the
context of delictual liability, is determined by considerations of
legal and public
policy. This appears for instance from the following
statement by the majority of the Constitutional Court in
Le Roux v
Dey (Freedom of Expression Institute and Restorative Justice Centre
as Amici Curiae)
2011 (3) SA 274
(CC) para 122:
‘
In
the more recent past our courts have come to recognise, however, that
in the context of the law of delict:
(a)
the criterion of wrongfulness ultimately depends on a judicial
determination of whether — assuming all the other elements
of
delictual liability to be present — it would be reasonable to
impose liability on a defendant for the damages flowing
from specific
conduct; and
(b)
that the judicial determination of that reasonableness would in turn
depend on considerations of public and legal policy in accordance
with constitutional norms. Incidentally, to avoid confusion it should
be borne in mind that, what is meant by reasonableness in
the context
of wrongfulness has nothing to do with the reasonableness of the
defendant's conduct, but it concerns the reasonableness
of imposing
liability on the defendant for the harm resulting from that conduct.’
(See also Froneman J in
F v
Minister of Safety and Security
2012 (1) SA 536
(CC) paras
117-124.)
[21] Pivotal to Country Cloud’s
contention as to why considerations of public policy dictate the
imposition of delictual liability
on the Department, was the
proposition that Buthelezi cancelled the completion contract without
any legal justification and that
he did so with the intent – at
least in the form of
dolus eventualis
– to repudiate the
contract. Stated somewhat differently, in the language of
dolus
eventualis
, Buthelezi subjectively foresaw the possibility that
he had no legitimate grounds to cancel the contract, but reconciled
himself
with that possibility and nonetheless continued to do so,
regardless of the consequences. That, so the argument went,
distinguishes
this case from the situation where the degree of
blameworthiness associated with the repudiation of a contract can be
placed no
higher than negligence.
[22] As to the factual basis for its
contention regarding Buthelezi’s state of mind, Country Cloud
relied on the following:
(a) The evidence by Thulare that
Buthelezi came under severe pressure, not only from the Department
itself, but also in the media,
for not following the recommendation
of the DAC to put the completion contract out to tender and that he
was desperately looking
for reasons to cancel.
(b) The allegation in Country Cloud’s
particulars of claim to the effect that the Department intentionally
cancelled the contract
without any legitimate grounds for doing so.
(c) The fact that it must have been
patently clear to the Department that the sting in that allegation
was pointed directly at Buthelezi
and that the Department nonetheless
failed to call him as a witness.
(d) The fact that the two grounds for
cancellation of the completion contract advanced by Buthelezi both
proved to be entirely unfounded.
[23] These circumstances, so Country
Cloud argued, gave rise to the inference that Buthelezi at least
foresaw that the cancellation
was unjustified and that he reconciled
himself with that possibility. Absent any explanation by Buthelezi,
so the argument went,
that inference became the most probable one.
Despite the Department’s arguments to the contrary, it seems to
me that the
logic of Country Cloud’s reasoning cannot be
faulted. In consequence, the factual basis of the policy
consideration for which
Country Cloud contends appears to be
well-founded.
[24] For the legal basis of the policy
consideration based on the blameworthiness of Buthelezi’s state
of mind, Country Cloud
sought to find support in the following
statement by this court in
Minister of Finance v Gore NO
2007
(1) SA 111
(SCA) para 86:
‘
We
do not think that it can be stated as a general rule that, in the
context of delictual liability, state of mind has nothing to
do with
wrongfulness. Clear instances of the contrary are those cases where
intent, as opposed to mere negligence, is itself an
essential element
of wrongfulness. These include intentional interference with
contractual rights (see eg
Dantex
Investment Holdings
(Pty)
Ltd v Brenner and Others NNO
[1989 (1) SA 390
(A)])
and unlawful competition (see eg
Geary
& Son (Pty) Ltd v Gove
[1964
(1) SA 434
(A)])
.
[25] Again I can
find no fault with Country Cloud’s point of departure that,
generally speaking, the nature of the defendant’s
fault and the
degree of blameworthiness of the conduct are policy considerations
that can legitimately be taken into account in
deciding whether or
not delictual liability should be imposed. Max Loubser (Editor), Rob
Midgley (Editor) André Mukheibir
Liezel Niesing and Devina
Perumal
The Law of Delict in South Africa
2 ed (2012) at 141
develop this thesis somewhat further. Under the Aquilian action, so
they say, the element of fault is satisfied
by either negligence or
intent. As a general rule, no weight is therefore given, under the
rubric of fault, to the degree of blameworthiness
or any
reprehensible motive on the part of the defendant. This is so because
the element of fault leaves no scope for considerations
of policy. In
determining wrongfulness, on the other hand, these very
considerations of policy do indeed come into play. But it
goes
without saying, as is underscored by Loubser, Midgley et al op cit
157, that ‘[i]ntentionally causing harm to others
will not
always be wrongful’ and that ‘intent does not necessarily
indicate wrongfulness’. In the end the nature
of the fault and
the degree of blameworthiness are therefore considerations to be
weighed up with all others in determining whether
delictual liability
should be imposed.
[26] With
reference to the quotation from
Gore NO,
it will be realised
that the present is not the type of situation contemplated in cases
such as
Dantex.
In those cases a delictual remedy is afforded
to a party to a contract who complains that a third party – who
is a stranger
to the contract – has intentionally deprived him
or her of the benefits he or she would otherwise have obtained from
performance
under the contract. Examples include, preventing a lessee
from taking occupation of the leased property in terms of the lease
(
Dantex
); enticing another person’s employees to breach
the contract (
Atlas Organic Fertilizers (Pty) Ltd v Pikkewyn
Ghwano (Pty) Ltd
1981 (2) SA 173
(T) at 202G-H); and so forth
(for a more complete list of illustrations see J Neethling, J M
Potgieter and P J Visser
Law of Delict
5 ed (2006) translated
and edited by J C Knobel) at 282; Loubser, Midgley et al supra at
para 17.2). For Country Cloud to succeed,
we must extend delictual
liability to a contracting party for damages suffered by a stranger
to the contract resulting from the
intentional repudiation of the
contract by that contracting party. This, as counsel for Country
Cloud rightly conceded, has never
been done before. And, as Grosskopf
AJA said in
Lillicrap, Wassenaar and Partners v Pilkington
Brothers (SA) (Pty) Ltd
1985 (1) SA 475
(A) at 504F-G:
‘
South
African law [unlike English law] approaches the matter in a more
cautious way, as I have indicated, and does not extend the
scope of
the Aquilian action to new situations unless there are positive
policy considerations which favour such an extension.’
[27] Aside from
intent on the part of Buthelezi, the only other positive policy
consideration proposed by Country Cloud in favour
of imposing
delictual liability on the Department is that all departmental
officials involved, including Buthelezi, foresaw the
damages that it
would suffer if they were to repudiate the completion contract. I
know that foreseeability of harm has in the past
been recognised by
this court as a factor in establishing wrongfulness (see eg
Gouda
Boerdery BK v Transnet
2005 (5) SA 490
(SCA) para 12).
Nonetheless, I have some reservation about this approach, mainly
because it is bound to add to the confusion between
negligence and
wrongfulness (see eg
Steenkamp NO v Provincial Tender Board,
Eastern Cape
2006 (3) SA 151
(SCA) para 18). Moreover,
foreseeability is a requirement of negligence and also plays a role
in the determination of legal causation.
A defendant will therefore
not be held liable for harm which was not foreseeable (see eg
Fourway
Haulage SA (Pty) Ltd supra
paras 28, 34 and 35).
[28] I find this
last mentioned consideration of particular significance in the
present context. The import, as I see it, is this:
since
foreseeability of harm is a prerequisite for delictual liability in
all cases, that feature cannot render the claim by Country
Cloud
deserving of special treatment. Imposition of delictual liability on
the Department in this case will therefore as a general
principle
render contracting parties liable in delict for harm suffered by
strangers which flows from the repudiation of their
contracts. The
realisation that this is so immediately raises a feature which is
generally regarded as a strong pointer away from
the imposition of
delictual liability, namely that of indeterminate liability. In fact,
this consideration is directly linked to
the very reason for the
initial doubt as to whether pure economic loss should be actionable
at all. If delictual liability were
to be imposed on the Department
for the loss suffered by Country Cloud, what about all others who
lent money to Ilima? And what
about Ilima’s employees? And what
about its subcontractors? And so the list of potential plaintiffs
goes on and on. In argument
counsel for Country Cloud was constrained
to concede that there would be no difference in principle between
these potential claimants,
on the one hand, and Country Cloud on the
other. What exacerbated that difficulty was counsels’ further
concession, rightly
made, that there appears to be no reason why the
claims of all these potential claimants would not be cumulative with
one another
and with the contractual claim of Ilima as well.
[29] The
problems of limitation thus arising are reminiscent of those referred
to by Schreiner JA in
Union
Government v Ocean Accident and Guarantee Corporation Ltd
1956
(1) SA 577
(A) at 585B-D. In that case the Government claimed for the
loss it had suffered as a result of negligently inflicted injury to a
Government employee (a magistrate). In explaining why this court
declined to expand Aquilian liability beyond the injured person
himself to those who may indirectly suffer harm as a result of the
injury, Schreiner JA said (at 585F-H):
‘
Once
one goes beyond physical proximity and considers the possibilities
that may arise out of the relationships, contractual or
other,
between the physically injured person and other persons who may
suffer indirectly, though materially, through his incapacitation,
one
is immediately met with the prospects of an unmanageable situation.
It is easy to imagine the absurdities that would arise
if all persons
contractually linked to the injured person could sue the careless
injurer for the loss suffered by them.
The
case was put to us of the injured building contractor who in
consequence of his injury has to discontinue his contract, so that
his employees and the building owner and the architect and his
sub-contractors and their employees are all put to some loss.’
[30] A further
consideration, which, in my view, weighs heavily against the
imposition of delictual liability on the Department
in the
circumstances of this case, is the one that has become known in the
context of wrongfulness as the plaintiff’s ‘vulnerability
to risk’. As developed in our law under the influence of
Australian jurisprudence, vulnerability to risk signifies that the
plaintiff could not reasonably have avoided the harm suffered by
other means. What has by now become well-established in our law
is
that the finding of non-vulnerability on the part of the plaintiff is
an important indicator against the imposition of delictual
liability
on the defendant (see eg
Trustees,
Two Oceans Aquarium Trust
supra
paras 23-24;
Cape
Empowerment Trust Ltd v Fisher Hoffman Sithole
2013
(5) SA 183
(SCA)
paras
28-30). The import of this consideration is best illustrated, I
think, by McHugh J in
Perre
v Apand (Pty) Ltd
[1999] HCA 36
;
(1999)
198 CLR 180
(HCA) para 118:
‘
Cases
where a plaintiff will fail to establish a duty of care [or,
wrongfulness in the parlance of our law] in cases of pure economic
loss are not limited to cases where imposing a duty of care would
expose the defendant to indeterminate liability or interference
with
its legitimate acts of trade. In many cases, there will be no sound
reason for imposing a duty on the defendant to protect
the plaintiff
from economic loss where it was reasonably open to the plaintiff to
take steps to protect itself. The vulnerability
of the plaintiff to
harm from the defendant’s conduct is therefore ordinarily a
prerequisite to imposing a duty. If the plaintiff
has taken, or could
have taken steps to protect itself from the defendant’s conduct
and was not induced by the defendant’s
conduct from taking such
steps, there is no reason why the law should step in and impose a
duty on the defendant to protect the
plaintiff from the risk of pure
economic loss.’
[31] In this case it is clear to me
that there were at least two alternative remedies available to
Country Cloud to recover its
loss. It could either have claimed
repayment from Ilima in terms of the contract of loan or it could
have taken cession of Ilima’s
claim against the Department. The
reason why it did neither is not explained. The contention on behalf
of Country Cloud was that,
because of Ilima’s insolvency, it
was not able to recover its claim in full. But as I see it, there is
more than one answer
to this contention. First, it still does not
explain why Country Cloud did not take cession of Ilima’s claim
against the
Department if the liquidators elected not to pursue their
claim. Secondly, there is no reason to think that if Ilima or its
liquidator
had successfully pursued its claim for breach of contract
against the Department, it would still be unable to repay Country
Cloud.
Thirdly, if Ilima would remain unable to pay Country Cloud
despite its success against the Government, the cause of Country
Cloud’s
loss would no longer lie in the Department’s
breach but in Ilima’s insolvency. Logic dictates that this must
be so.
Once Ilima is – by means of an award of damages in
contract – placed in the position it would have been if the
Department
had complied with its obligations, any further damage that
Country Cloud could suffer could no longer be laid at the door of the
Department.
[32] It follows that in my view there
is no room for the imposition of delictual liability on the
Department for the loss claimed
by Country Cloud. In the result I
agree with the court a quo’s finding – albeit for reasons
that are quite different
– that Country Cloud’s claim
could not succeed.
[33] For these reasons the appeal is
dismissed with costs, including the costs of two counsel
F D J BRAND
JUDGE OF APPEAL
APPEARANCES:
For
Appellant: L J MORISON SC
X
STYLIANOU
Instructed
by: RAMSAY WEBBER INC
JOHANNESBURG
Correspondents: LOVIUS
BLOCH ATTORNEYS
BLOEMFONTEIN
For
Respondent: N DUKADA SC
B
SHABALALA
Instructed
by: STATE ATTORNEY
JOHANNESBURG
Correspondents:
STATE ATTORNEY
BLOEMFONTEIN