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[2011] ZASCA 58
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AB Ventures Ltd v Siemens Ltd (2011 (4) SA 614 (SCA)) [2011] ZASCA 58; 294/10 (31 March 2011)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 294/10
In the matter between:
AB VENTURES LIMITED
...............................................................
Appellant
and
SIEMENS LIMITED
......................................................................
Respondent
Neutral citation:
AB
Ventures v Siemens
(294/10)
[2011] ZASCA 58
(31 March 2011)
Coram:
NUGENT, CLOETE,
PONNAN, SNYDERS and BOSIELO JJA
Heard:
10 MARCH 2011
Delivered: 31 MARCH 2011
Summary: Delict – pure
economic loss – negligence of an associated contractor –
plaintiff capable of having avoided
the loss contractually – no
grounds to extend Aquilian liability.
_______________________________________________________________________
ORDER
_______________________________________________________________________
On appeal from: North Gauteng
High Court, Pretoria (Fabricius AJ sitting as court of first
instance)
The appeal is dismissed with
costs that include the costs of two counsel.
_______________________________________________________________________
JUDGMENT
_______________________________________________________________________
NUGENT JA (CLOETE, PONNAN,
SNYDERS and BOSIELO JJA concurring)
[1] The appellant (AB Ventures)
sued the respondent (Siemens) in the North Gauteng High Court for
damages in delict. Siemens excepted
to the particulars of claim on
the grounds that they lacked averments necessary to found an action.
The exception was upheld by
Fabricius AJ and AB Ventures now appeals
with the leave of that court.
[2] An exception of this kind
must be determined as if the allegations of fact in the particulars
of claim have been established.
I do not intend setting out those
allegations in detail. It is sufficient for present purposes for them
to be summarized.
[3] AB Ventures concluded a
written agreement with Lumwana Mining Company Limited (Lumwana) under
which AB Ventures undertook to
construct to completion the Lumwana
Copper Mine in northern Zambia. A joint venture between Ausenco
Americas LLC and Bateman International
Projects BV was to supply four
specialized electrical units (referred to in the particulars of claim
as ‘the drives’)
that were to be used by AB Ventures in
the project. The joint venture concluded a written agreement with
Siemens under which Siemens
undertook to engineer, design,
manufacture, supply and commission the drives.
[4] Siemens delivered, installed
and commissioned the drives at the construction site. After the
drives had been commissioned they
malfunctioned, resulting in a
failure of the transformers in which the drives were used. That
caused the completion of the project
to be delayed, in consequence of
which, AB Ventures alleged, it became liable to Lumwana for penalties
or damages under the construction
contract, and it also incurred
additional expenses. AB Ventures alleged that the malfunction of the
drives and the resultant loss
was caused by negligence on the part of
Siemens and it claimed damages to compensate for its loss.
[5] Although
not elegantly expressed the issue that was presented by the exception
was whether the conduct of Siemens – which
must be accepted to
have been negligent for present purposes – was wrongful and
thus actionable at the hands of AB Ventures.
That is quintessentially
a matter that is capable of being decided on exception.
1
[6] Liability
for negligent conduct has been developed and continues to develop
incrementally as the expectations and needs of society
evolve. The
law has for long recognised that physical loss caused by a positive
act of negligence is actionable. It is now 32 years
since this court
in
Administrateur,
Natal v Trust Bank van Afrika Bpk
2
took a
significant step in the development of the law when it placed its
imprimatur
3
on the
recognition of a claim for recovery of damages for pure economic loss
caused by a misstatement that is made negligently.
4
Since then the
law has been developed further to recognize that a bank may be liable
to the true owner of a cheque that it collects
negligently,
5
and to
recognise claims for pure economic loss in other diverse
circumstances,
6
and no doubt
the law will continue its development to include other circumstances.
This is one such case in which we are asked to
take another step in
that direction.
[7] Various
epithets have been used to express the nature of the enquiry to be
made when the law is sought to be developed in that
way
7
–
whether
the ‘legal convictions of the community’ call for the
recognition of liability, whether the plaintiff’s
interest
falls within ‘the range of interests that the law sees fit to
protect against negligence’, the ‘boni
mores’ of
society, the ‘general criterion of reasonableness’ –
but in each case the expression is so wide
as not to be a true test
at all. They nonetheless help to direct attention to the nature of
the enquiry.
[8] Cases that
have been decided in this court for thirty years and more make it
clear that the enquiry underlying those expressions
is whether
contemporary social and legal policy calls for the law to be extended
to the exigencies of the particular case.
8
Thus as early
as
Trust
Bank
Rumpff
JA said that when ‘legal duty’ (wrongfulness) is under
consideration ‘policy considerations’ come
into play.
9
He likened it
to the ‘duty concept’ in the English tort of negligence,
which Millner,
Negligence
in Modern Law
10
,
described as
‘a device of judicial control over the area of actionable
negligence
on
grounds of policy
’
.
He went on to cite the description by Fleming,
The
Law of Torts
11
of the nature
of that policy enquiry:
‘
In
short, recognition of a duty of care [in the parlance of this
country, whether the conduct is wrongful] is the outcome of a value
judgment, that the plaintiff’s invaded interest is deemed
worthy of legal protection against negligent interference by conduct
of the kind alleged against the defendant. In the decision whether or
not there is a duty, many factors interplay: the hand of
history, our
ideas of morals and justice, the convenience of administering the
rule and our social ideas of as to where the loss
should fall. Hence,
the incidence and extent of duties are liable to adjustment in the
light of the constant shifts and changes
in community attitudes.’
[9] For in
each such case a court is being asked to extend the common law, and
all of the common law, from its beginnings, is the
product of
contemporaneous social and legal policy. That was aptly captured by
the famous statement of Oliver Wendell Holmes Jr
in the introduction
to his lectures on the common law – ‘the life of the
common law has not been logic: it has been
experience’ –
and from what followed:
12
‘
The
felt necessities of the time, the prevalent moral and political
theories, intuitions of public policy, avowed or unconscious,
even
the prejudices which judges share with their fellow-men, have had a
good deal more to do than the syllogism in determining
the rules by
which men should be governed. The law embodies the story of a
nation’s development through many centuries, and
it cannot be
dealt with as if it contained only the axioms and corollaries of a
book of mathematics. In order to know what it is,
we must know what
it has been, and what it tends to become . . . The
substance of the law at any given time pretty nearly
corresponds, so
far as it goes, with what is then understood to be convenient . . .’.
[10] Thus by
the very nature of the enquiry it will generally not be helpful in a
particular case to look to what has been decided
in other cases of an
altogether different kind. Where the case is not one that fits within
the social and legal policy that has
led to liability being
recognised in other cases, then what is called for instead is
reflection upon what considerations there
might be that necessitate
the law also being advanced to meet the new case. That calls not for
a mere intuitive reaction to the
facts of the particular case but for
the balancing of identifiable norms.
13
[11] For in
Telematrix
(Pty) Ltd v Advertising Standards Authority SA AB Ventures
14
Harms JA
reminded us that the first principle of the law of delict is that
loss ordinarily lies where it falls and that Aquilian
liability
provides an exception to that rule. He went on to say that
‘
[w]hen
dealing with the negligent causation of pure economic loss it is well
to remember that the act or omission is not
prima
facie
wrongful
. . . and that more is needed. Policy considerations must
dictate that the plaintiff should be entitled to be
recompensed by
the defendant for the loss suffered . . .. In other words,
conduct is wrongful if public policy considerations
demand that in
the circumstances the plaintiff has to be compensated for the loss
caused by the negligent act or omission of the
defendant.’
[12] In this
case counsel for AB Ventures placed heavy reliance upon cases that
fall under the rubric of what has come to be called
‘products’
or ‘manufacturer’s’ liability. It was submitted
that, analogous to those cases, Siemens
held itself out as having
special skill and knowledge relating to the design and manufacture of
units of the kind that are now
in issue, and is thus liable for loss
caused to the user by a defect in the product. The submission aligned
itself with what was
said in
Ciba-Geigy
(Pty) Ltd v Lushof Farms (Pty) Ltd
:
15
‘
[A]
manufacturer who distributes a product commercially, which, in the
course of its intended use, and as the result of a defect,
causes
damage to the consumer thereof, acts wrongfully and thus unlawfully
. . .’..
16
[13] The
landmark case that commenced that form of liability in England was
the famous case of the snail in the bottle of ginger
beer (
Donoghue
v Stevenson
17
)
and in the United States the case of the defective motor vehicle
(
MacPherson
v Buick Motor Co
18
).
The significance of those cases was that they loosened the
contractual nexus that until then had been required for liability.
Professor Boberg
19
has pointed
out that there has been no such landmark judgment in this country in
which the more flexible principles of our law have
allowed for its
development to encompass those circumstances.
20
[14] I do not
find it necessary to deal with the cases of that kind that we were
referred to
21
or to examine
the elements of ‘products liability’ generally.
22
Liability has
been recognized in cases of that kind for reasons that have no
application in this case. Professor Boberg points out
that they are
founded on the perceived need to protect consumers against the risks
to which they are exposed by the impersonal
distribution of consumer
goods in modern society:
‘
The
manufacture and sale of goods that is the essence of an
industrialized capitalist economy is an activity potentially harmful
to others. For the ultimate purchaser or a third party may suffer
damage to his person, property or purse through a product that
is
defective or even through one that is not. He will demand legal
redress, and the law must determine under what conditions it
should
be given to him. In so doing the individual’s interest will
have to be weighed against the socio-economic utility
of the
damage-producing activity, and the ensuing liability so fashioned
that it affords adequate protection without stifling beneficial
industrial progress . . .. The growth of mass-production
and technology tends to increase consumer risk (identical products
suffer from identical defects) and to relegate the intermediate
dealer to a position of mere distributorship, focusing attention
upon
the manufacturer as the appropriate defendant. His liability to those
with whom he has not contracted can only be found in
delict.’
23
To the same
effect Professor Neethling et al
24
say that the
problem that has given rise to products liability
‘
is
inherent in modern highly industrialised communities. Increasing
industrialisation and mechanisation have brought about a constant
and
daily potential of prejudice in the form of the unavoidable risk
which defective consumer products create for the individual.’
25
[15] The considerations of policy
that underlie cases of products liability have no bearing upon a case
of the present kind. We
are not concerned in this case with anonymous
consumers of mass-produced goods. We are concerned with a major
construction project
involving a multiplicity of contractors and
sub-contractors whose co-operation was defined through a web of
inter-related contractual
rights and obligations. That bears no
resemblance to the distant and impersonal relationship that
characterises the distribution
of bottles of ginger beer and motor
vehicles.
[16] It seems
to me that there would be major implications for a multi-partied
project of this kind if each of the participants
was to be bound not
only to adhere strictly to the terms of its specific contractual
relationship but, in addition, it was to be
held bound to all the
other participants by a general regime of reasonableness. As pointed
out in
Lillicrap,
Wassenaar and Partners v Pilkington Brothers (SA) (Pty) Ltd,
26
in a related
context that finds equal application in this case:
‘
[In]
general, contracting parties contemplate that their contract should
lay down the ambit of their reciprocal rights and obligations.
To
that end they would define, expressly or tacitly, the nature and
quality of the performance required from each party. If the
Aquilian
action were generally available for defective performance of
contractual obligations, a party’s performance would
presumably
have to be tested not only against the definition of his duties in
the contract, but also by applying the standard of
the
bonus
paterfamilias
.
How is the latter standard to be determined? Could it conceivably be
higher or lower than the contractual one?’
In this case in which Siemens
bound itself to the joint venture to conform to the standards
specified in its contract, it would
be most anomalous if it was to be
bound to a stranger to conform to a different standard.
[17] That points to why it is
fallacious to align a case of this kind to cases concerning products
liability. In those cases it
is not possible in any practical sense
for a consumer to protect himself or herself against harm caused by
the negligence of the
manufacturer. But where an activity is engaged
in that is itself the product of a contractual arrangement then
generally the very
contract that brought about the engagement will be
capable of regulating exposure to loss. That is the ground upon which
the claim
failed in
Pilkington Brothers
and why it must
similarly fail in this case.
[18]
Pilkington
Brothers
was
also decided on exception. The facts alleged were that Pilkington
Brothers (the plaintiff) appointed Lillicrap, Wassenaar and
Partners
(the
defendant) as its consultant engineer to investigate the suitability
of a site for the construction of a glass manufacturing
plant. If the
site was found to be suitable then the defendant was to design and
supervise construction of the plant. The defendant
advised the
plaintiff that the site was suitable and it proceeded to design the
works. A formal agreement was then executed confirming
the
appointment. (The rights and duties under the agreement were later
assigned to a third party but for present purposes I need
deal only
with the position before that occurred.) The plaintiff alleged that
the defendant was negligent in failing to incorporate
in its design
sufficient safeguards against soil movement and that it was negligent
in its supervision of the works and it claimed
loss alleged to have
been incurred through such negligence. Its claim was brought in
delict and an exception was taken to the particulars
of claim on the
same grounds that the exception was taken in this case – that
the conduct complained of was not wrongful
for purposes of delictual
liability.
27
[19] Pointing
out that our law ‘does not extend the scope of the Aquilian
action to new situations unless there are positive
policy
considerations which favour such an extension,’
28
Grosskopf AJA
said that the first question to be asked was whether there was a need
for the law to be extended to protect the plaintiff
against
negligence. He concluded that there was no such need because the
existing law enabled the plaintiff to protect itself through
the
contract that it had concluded. He reasoned as follows:
‘
In
my view, the answer [to the question whether an extension of Aquilian
liability is justified in the present case] must be in
the negative,
at any rate in so far as liability is said to have arisen while there
was a contractual
nexus
between
the parties. While the contract persisted, each party had adequate
and satisfactory remedies if the other were to have committed
a
breach . . .. When parties enter into such a contract, they
normally regulate those features which they consider important
for
the purpose of the relationship which they are creating . . ..
[I]n general, contracting parties contemplate that
their contract
should lay down the ambit of their reciprocal rights and obligations.
To that end they would define, expressly or
tacitly, the nature and
quality of the performance required from each party.’
29
And later:
‘
Apart
from defining the parties’ respective duties (including the
standard of performance required) a contract may regulate
other
aspects of the relationship between the parties. Thus, for instance,
it may limit or extend liability, impose penalties or
grant
indemnities, provide special methods of settling disputes (eg by
arbitration) etc. A Court should therefore in my view be
loath to
extend the law of delict into this area and thereby eliminate
provisions which the parties considered necessary or desirable
for
their own protection. The possible counter to this argument, viz that
the parties are in general entitled to couch their contract
in such
terms that delictual liability is also excluded or qualified, does
not in my view carry conviction. Contracts are for the
most part
concluded by businessmen. Why should be law of delict introduce an
unwanted liability which, unless excluded, could provide
a trap for
the unwary?’
30
In conclusion:
‘
To
sum up, I do not consider that policy considerations, require that
delictual liability be imposed for the negligent breach of
a contract
of professional employment of the sort with which we are here
concerned.’
31
[20] Counsel for AB Ventures
pointed out, correctly, that in that case a contractual nexus existed
between the plaintiff and the
defendant, but that in this case AB
Ventures and Siemens are not in contractual privity. He submitted
that in those circumstances
AB Ventures was not capable of protecting
itself against the negligence of Siemens in the same way.
[21] The
principle that emerged from
Pilkington
Brothers
was
that there was no call for the law to be extended when the existing
law provided adequate means for the plaintiff to protect
itself
against loss.
32
There is no
principial distinction between the two cases. The distinction lies
only in the form in which each plaintiff might have
protected itself.
[22] If AB Ventures indeed
sustained loss then the reason that it did so was because it
attracted the loss to itself in its contract
with Lumwana. By its own
contractual act it took upon itself the risk of liability arising
from delay and expenses that might be
caused by the default of other
contractors. The act of Siemens in causing delay and expense was no
more than the trigger for that
liability to arise. Had AB Ventures
not contracted to accept that risk in the first place then it would
not have suffered the loss
at all. That it had no contractual nexus
with Siemens means only that it was not capable of shifting the loss
that it had brought
upon itself to Siemens contractually but that is
beside the point. We are concerned with whether it was capable of
avoiding the
loss, and not whether it was capable of shifting it
elsewhere, and clearly it was capable of doing so.
[23] Indeed, the standard-form
general conditions of the construction contract that AB Ventures
concluded with Lumwana anticipated
that there might be delay caused
by defective performance by other contractors and clause 8.4 entitled
AB Ventures to an extension
of time for completion if that came
about. Whether or not that clause protected AB Ventures in the
present circumstances is not
an issue that is before us. I refer to
it only to illustrate how it might have protected itself. No doubt it
could also have protected
itself against additional expenses in a
similar way. The only reason that the case is before us is that AB
Ventures took liability
upon itself when it might just as well not
have done so.
[24] It was submitted that there
is no certainty that AB Ventures would have secured the contract had
it insisted on excluding liability
caused by the default of other
contractors or sub-contractors and that evidence should be required
on that point. Whether or not
it would have secured the contract is
immaterial. It is not entitled as of right to secure a contract and
has no cause for complaint
if it chooses to contract on unfavourable
terms. The question to be asked is only whether the law calls for
extension to recover
loss where the law already provides a means for
it to be avoided.
Pilkington Brothers
answered that in the
negative and the same must be said for this case.
[25] In my view the exception was
correctly upheld and the appeal should be dismissed with costs that
include the costs of two counsel.
_________________
R W NUGENT
JUDGE OF APPEAL
APPEARANCES:
For
appellant: D M Fine SC
A
W T Rowan
Instructed
by:
Rudolph,
Bernstein & Associates, Sandhurst;
Naudes,
Bloemfontein
For
respondent: J J Reyneke SC
Instructed
by:
Tiffenthaler
Attorneys, Rivonia;
Honey
Attorneys Inc, Bloemfontein
1
Telematrix
(Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards
Authority SA
2006 (1) SA 461
(SCA) para 3.
2
Administrateur,
Natal v Trust Bank van Afrika Bpk
1979 (3) SA 824
(A).
3
Approving
the views expressed in
Suid-Afrikaanse Bantoetrust v Ross &
Jacobz
1977 (3) SA 184
(T) and in the court below reported as
Administrator, Natal v Bijo
1978 (2) SA 256
(N) at 260B-261B.
The claim was nonetheless dismissed on its facts.
4
See,
too,
Bayer South Africa (Pty) Ltd v Frost
[1991] ZASCA 85
;
1991 (4) SA 559
(A),
Standard Chartered Bank of Canada v Nedperm Bank Ltd
[1994] ZASCA 146
;
1994 (4) SA 747
(A),
Siman & Co (Pty) Ltd v Barclays National
Bank Ltd
1984 (2) SA 888
(A),
International Shipping Co (Pty)
Ltd v Bentley
1990 (1) SA 680
(A).
5
Indac
Electronics (Pty) Ltd v Volkskas Bank Ltd
[1991] ZASCA 190
;
1992 (1) SA 783
(A).
The matter was decided on exception.
6
Delphisure
Group Insurance Brokers Cape (Pty) Ltd v Dippenaar & others
2010 (5) SA 499
(SCA) and
Fourway Haulage SA (Pty) Ltd v SA
National Roads Agency Ltd
[2008] ZASCA 134
;
2009 (2) SA 150
(SCA).
Viv’s
Tippers (Edms) Bpk v Pha Phama Staff Services (Edms) Bpk h/a Pha
Phama Security
2010 (4) SA 455
(SCA) purports to be such a claim
but Prof Neethling has said that in truth it is not: J Neethling
‘Delictual Liability
of a Security Firm for the Theft of a
Vehicle Guarded by its Employees’
74 THRH 169
.
7
The
same considerations apply when the law is developed to encompass new
cases arising from negligent omissions.
8
Trust
Bank
, above, 833D-834A;
Indac Electronics (Pty) Ltd v
Volkskas Bank Ltd
[1991] ZASCA 190
;
1992 (1) SA 783
(A) 797E-G;
Knop v
Johannesburg City Council
1995 (2) SA 1
(A) 26J-27I;
Minister
of Safety and Security v Van Duivenboden
2002 (6) SA 431
(SCA)
para 16;
Road Accident Fund v Shabangu
2005 (1) SA 265
(SCA)
para 12;
Gouda Boerdery BK v Transnet
2005 (5) SCA 490 (SCA)
para 12;
Local Transitional Council of Delmas & another v
Boshoff
2005 (5) SA 514
(SCA) para 19;
Telematrix,
above,
para 13;
Steenkamp NO v Provincial Tender Board, Eastern Cape
2006 (3) SA 151
(SCA) para 1;
Trustees Two Oceans Aquarium Trust
v Kantey & Templer (Pty) Ltd
2006 (3) SA 138
(SCA) para 12.
And see generally MM Corbett, Aspects of the Role of Policy in the
Evolution of our Common Law’
(1987) 104
SALJ
52.
9
At
833C-D.
10
(1967)
p 24.
11
4
ed p 136.
12
O.W.
Holmes Jr.
The Common Law
(Little, Brown and Company 1881) pp
1-2.
13
Van
Duivenboden,
above, para 21,
Telematrix
, above, para 16,
Fourway Haulage,
above, para 22.
14
Above.
15
2002
(2) SA 447
(SCA).
16
The
quotation is taken from the headnote, which accurately paraphrases
and translates what was said at 470F-G.
17
[1931] UKHL 3
;
[1932]
AC 562
(HL).
18
217
NY 382.
19
PQR
Boberg
The Law of Delict
Vol 1 (1984).
20
P
194.
21
Amongst
which were
Cooper & Nephews v Visser
1920 AD 111
,
A
Gibb & Son (Pty) Ltd v Taylor & Mitchell Timber Supply Co
(Pty) Ltd
1975 (2) SA 457
(W) and
Ciba-Geigy (Pty) Ltd v
Lushof Farms (Pty) Ltd
, above. In those cases the claim was for
physical loss but a claim for pure economic loss was allowed in
Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd
2010
(1) 8 (GSJ). Subsequent to the hearing of the appeal in this case
judgment was handed down by this court on appeal against
that
decision:
Freddy Hirsch Group (Pty) Ltd v Chickenland (Pty) Ltd
[2011] ZASCA 22.
The quite different facts of that case, and the
basis upon which the claim was upheld, make it unhelpful to deciding
this case.
Reliance was also placed on the decision of this court in
Chartaprops 16 (Pty) Ltd & another v Silberman
[2008] ZASCA 115
;
2009 (1)
SA 265
(SCA). In that case the defendant was held vicariously liable
for the act of its servant and it has no application.
22
J
Neethling, JM Potgieter, PJ Visser
Law of Delict
5ed (
translated and edited by JC Knobel), pp 291-301.
23
Pp
193-194.
24
Law
of Delict
, above
.
25
P
292.
26
1985
(1) SA 475
(A) at 500H-I.
27
At
496I-497B. There were further grounds for the exception that are not
relevant to this case.
28
At
504G.
29
At
500F-I.
30
At
501E-G.
31
At
501G-H.
32
Followed
in
Trustees, Two Oceans Aquarium Trust v Kantey & Templer
(Pty) Ltd
2006 (3) SA 138
(SCA).