D & H Piping Systems (Pty) Ltd v Trans Hex Group Ltd. and Another (119/05) [2006] ZASCA 29; 2006 (3) SA 593 (SCA) ; [2006] 3 All SA 309 (SCA) (24 March 2006)

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D & H Piping Systems (Pty) Ltd v Trans Hex Group Ltd. and Another (119/05) [2006] ZASCA 29; 2006 (3) SA 593 (SCA) ; [2006] 3 All SA 309 (SCA) (24 March 2006)

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Case number : 119/05
Reportable
In
the matter between :
D
& H PIPING SYSTEMS (PTY) LIMITED APPELLANT
and
TRANS HEX GROUP LIMITED AND ANOTHER
RESPONDENTS
CORAM : HOWIE P, MTHIYANE, CLOETE JJA, MAYA
et
CACHALIA
AJJA
HEARD : 27 FEBRUARY 2006
DELIVERED : 24 MARCH 2006
Summary: Contract ─ (1) purchase and sale: The
concept of a ‘manufacturing
seller’
liable for consequential loss arising from a latent defect in the
article
sold,
defined and expertise held irrelevant; (2) incorporation of standard
terms
and
conditions by a course of dealing on the basis quasi-mutual assent,
discussed.
Neutral citation: This judgment may be referred to as
D & H Piping Systems
(Pty)
Ltd v Trans Hex Group Ltd
[2006] SCA 31 (RSA).
___________________________________________________________________
JUDGMENT
CLOETE JA
/
CLOETE JA:
[1] The present appeal concerns primarily the liability
of a manufacturing seller for consequential loss arising out of a
latent defect
in goods sold by him to a customer.
[2] The appellant manufactures concrete products
including concrete pipes. It has for more than thirty years purchased
dolomitic aggregate
and sand from the respondent
1
for this purpose. The respondent’s business is primarily the
manufacture of lime products for the building industry. Aggregate
and
sand are also produced which are of no use to the respondent for its
principal activity and these are screened out, stockpiled
and sold to
customers, such as the appellant. During the second half of 1998 the
appellant purchased aggregate and sand from the
respondent which it
used to manufacture concrete sewerage pipes for one of its customers,
a company in the Stocks group. The appellant
alleges that the
aggregate and sand purchased by it was latently defective, in
consequence of which part of the pipes failed with
result that it
incurred liability of more than R13 million to its customer. The
appellant claims this amount from the respondent.
[3] Certain issues were by consent separated out for
decision and the court
a quo
(Van Zyl J) made the appropriate
order in terms of rule 33(4). The learned judge then found for the
respondent on these issues and
refused leave to appeal. The appeal is
accordingly with the leave of this court.
[4] It is necessary to set out in some detail the
contractual relationship between the parties and the responsibilities
of the appellant’s
three employees called to testify on its behalf.
Mr Lombard was the works manager of the appellant. He was duly
authorised to contract
on its behalf with the respondent for the
supply of aggregate and sand. He said that his practice was to
contact a representative
of the respondent and agree a price for the
supply of these products to the appellant for the ensuing six months.
He would then send
what was termed a ‘bulk order’, in which
quantities were not specified, to the respondent. The bulk order in
question, dated
3 July 1998, read:
‘
BULK ORDER FOR PERIOD JULY TO DEC 1995
DOLOMITIC
SAND D-6
DOLOMITIC
STONE 6-20
AS
PER AGREED GRADING ENVELOPE’.
None of this evidence was challenged.
[5] After the order had been placed by Lombard the
appellant’s storeman, Mr Gordon, would from time to time telephone
Ms Cynthia
Hugo, the sales clerk of the respondent, and order
specific quantities of the products referred to in the bulk order to
be delivered
to the appellant. On each occasion when aggregate and
sand arrived at the appellant’s factory, Gordon was presented with
the respondent’s
delivery note. Gordon in turn filled in a goods
received note and forwarded this document together with the
respondent’s delivery
note to Ms Rust, the appellant’s accounts
clerk.
[6] Ms Rust would, in addition to the documents sent to
her by Gordon, also receive invoices from the respondent. Ms Rust’s
function
was to check that the information on the invoices accorded
with the information on the goods received notes sent to her by
Gordon
and capture this information on her computer. She then waited
for the respondent’s monthly statement, reconciled what appeared
there with the record on the computer, prepared a draft cheque for
signature by Lombard and forwarded the cheque, the reconciliation
and
the respondent’s statement to him. Neither the respondent’s
delivery notes nor its invoices were part of this bundle of
documents.
[7] The correct analysis of the contractual relationship
between the parties is this. During the six month period referred to
in the
bulk order, there was a
pactum de contrahendo
, ie an
agreement to make a contract in the future, in existence. The
respondent undertook to the appellant that it would supply such
quantities of aggregate and sand, of the sizes specified at the price
agreed, as the appellant might order during the six month period.
2
All that remained for contracts of purchase and sale to come into
existence, was for the amounts of aggregate and sand to be
determined.
That was done on each occasion when the appellant’s
storeman, Gordon, requested delivery of specified quantities by
telephoning
the respondent’s sales clerk, Ms Hugo.
[8] The appeal raises the following issues:
(i) Whether
it was a term of the contracts of purchase and sale between the
parties that the respondent undertook to supply to the
appellant
dolomitic aggregate and sand for use in the manufacture of concrete
piping.
(ii) Whether
the respondent was a manufacturing seller of the aggregate and sand
and therefore liable to the appellant for any consequential
loss that
the appellant might prove it suffered in consequence of alleged
latent defects in the goods sold; or whether the respondent’s
general terms and conditions, which contain exclusion clauses in wide
terms, formed part of the contracts of purchase and sale concluded
by
the parties.
(iii) Whether the parties tacitly agreed to exclude
liability on the part of the respondent for consequential loss.
The appellant has sued in contract and claimed
contractual damages. The basis of the liability of a manufacturing
seller has not been
authoritatively determined.
3
It was not argued in this appeal, it is not necessary for a
determination of the issues raised and I shall accordingly refrain
from
expressing any view on the question.
[9] The first issue can be disposed of briefly. The
appellant originally contended in its particulars of claim for an
express, alternatively
an implied, alternatively a tacit term that:
‘
The defendant would supply to the plaintiff dolomitic
aggregate and sand for use in the manufacture of concrete piping with
a sacrificial
layer of calcium aluminate cement.’
The allegation that the term was express, was abandoned
in the court below. During the hearing before this court counsel
representing
the appellant sought an amendment to the formulation of
the term to delete the words ‘with a sacrificial layer of calcium
aluminate
cement’ and a consequential amendment to the notice of
appeal. Counsel representing the respondent found himself unable to
contend
that any prejudice to his client would result if the
amendments were granted. There can be no doubt that in terms of the
contractual
arrangement between the parties the respondent expressly
undertook to supply dolomitic aggregrate and sand to the plaintiff.
Mr Conradie,
the production manager of the respondent, said in his
evidence in chief that it was generally known that the appellant
manufactured
concrete pipes and that the respondent knew this at the
time relevant to the action. He in fact went further and said that he
had
known that the appellant manufactured concrete sewerage pipes.
That disposes of the first issue. The amendments took up an
insignificant
amount of court time and no order as to costs in this
regard is warranted.
[10] I now propose dealing with the question whether the
respondent’s general terms and conditions governed the contractual
relationship
between the parties. Those terms and conditions provided
inter alia:
‘
7. Trans
Hex [the respondent] does not give any warranty or guarantee or make
any representations whatsoever in respect of the goods
or the fitness
of the goods or any part of it for any particular purpose whether or
not that purpose is known to Trans Hex or accept
any liability for
any defect (latent or patent) in the goods or any part of it. Trans
Hex does not give any warranty that any specifications,
weights,
dimensions or any technical information relating to the goods that
may be given by Trans Hex to the purchaser is correct.
In no event
shall Trans Hex’s liability exceed the liability to replace
defective or wrongly delivered goods or the value thereof.
All
warranties or guarantees otherwise implied by common law or claims by
the purchaser are hereby expressly excluded.
8. Trans
Hex shall be exempt by the purchaser from and shall not be liable
under any circumstances whatsoever for any direct, indirect
or
consequential damages of any nature whatsoever or any loss of profit
or market share or any special damages of any nature whatsoever
and
whether in the contemplation of the parties or not, which the
purchaser may suffer as a result of any breach by Trans Hex of
its
obligations under the contract or from the use or application of the
goods.’
I pause to remark that the evidence did not establish
for how long these clauses formed part of the respondent’s general
terms and
conditions or even for how long the respondent had general
terms and conditions.
[11] The respondent’s case was pleaded as follows:
‘
The
general terms and conditions of sale were printed on the reverse of
the Second Defendant’s delivery notes and invoices. The
documents
in question will be discovered by the Defendants. The front of the
delivery notes and invoices stated the following “
for branch
addresses and conditions see reverse side
”. As a matter of
consistent practice the Plaintiff was provided with delivery notes
and invoices containing the general terms and
conditions of sale on
the reverse thereof. The general terms and conditions of sale were
incorporated in each agreement relating
to the supply of dolomitic
aggregate and sand. The Plaintiff was aware,
alternatively
is
deemed to have been aware, that the supply of dolomitic aggregate and
sand was subject to such general terms and conditions.’
The
onus was on the appellant to prove that the general terms and
conditions did not govern their relationship:
Topaz Kitchens (Pty)
Limited v Naboom Spa (Edms) Beperk
;
4
Stocks & Stocks (Pty) Limited v T J Daly & Sons (Pty)
Limited
;
5
Union Spinning Mills (Pty) Limited v Paltex Dye House (Pty)
Limited and another
.
6
[12] No-one on the appellant’s behalf expressly
assented to the incorporation of the respondent’s general terms and
conditions.
The time for this to be done, was when the oral agreement
which preceded the bulk order was concluded by Lombard, who had
authority
to agree to them; and his evidence, which was accepted by
the court
a quo
and not challenged on appeal, was that he was
unaware of their existence before this litigation.
[13] Nor can there be any question of the appellant’s
other two employees tacitly consenting to the respondent’s general
terms
and conditions. The individual orders placed by Gordon were
made pursuant to the oral agreement confirmed (in part) in the bulk
order
by Lombard. Gordon merely had to fix the quantities to be
supplied from time to time and acknowledge receipt of what was
delivered.
The delivery notes received by Gordon and sent by him to
Ms Rust and the invoices received by Ms Rust from the respondent did
have
the words pleaded by the respondent at the foot of the front
page; but only the invoices had the respondent’s general terms and
conditions printed on the back. Gordon said that he never saw the
writing at the foot of the delivery notes and he was believed by
the
court
a quo
. It was nevertheless submitted by the respondent’s
counsel that he probably did. The evidence of Ms Rust was that she
must have
been aware that something was printed on the back of the
invoices but she paid no attention to what this might be; and she did
not
realise that the printing set out contractual terms. She was
unable to say whether she had noticed the reference to the terms and
conditions at the foot of the front page of the invoices. But even
assuming that both Gordon and Ms Rust knew that the respondent
had
standard terms and conditions, this takes the matter no further for
the respondent. Lombard’s evidence that neither Gordon
nor Ms Rust
had authority to bind the appellant to any terms and conditions went
unchallenged. If they knew of the existence of the
respondent’s
terms and conditions, such knowledge cannot accordingly be attributed
to the appellant.
[14] No ostensible authority on the part of Gordon or Ms
Rust was relied on and no estoppel was raised. The question then
arises whether
the respondent was reasonably entitled to assume that
the appellant assented to the respondent’s general terms and
conditions.
The answer depends upon whether in all the circumstances
the respondent did what was reasonably sufficient to give the
appellant
notice of them ─ an objective test:
Durban’s Water
Wonderland (Pty) Ltd v Botha and another
.
7
[15] Neither a delivery note nor an invoice is a
contractual document ie the type of document in which the recipient
would expect
to find terms and conditions intended to form part of
the contract between the sender of the document and the recipient.
8
Both the delivery notes and the invoices received by the appellant’s
employees reflected performance, or part performance, of a
contract
already concluded. Neither constituted an offer to do business. They
would therefore not have required the attention of
a person
authorised by the appellant to negotiate and agree to the terms of
any contract with the respondent. The respondent could
accordingly
not reasonably have expected that they would come to the attention of
such a person, as opposed to the person(s) who
would acknowledge
receipt of goods delivered or process invoices for payment; and this
is particularly so both because the respondent
must have known that
the appellant is a large company, with different employees authorised
to perform different functions on its
behalf and also because, to the
knowledge of the respondent, the terms of its contractual
relationship with the appellant had already
been negotiated with
Lombard. Once it is established that no person authorised to bind the
appellant to the respondent’s general
terms and conditions ever
became aware of them, or could reasonably have been expected to do
so, it does not avail the respondent
to point to the number of
occasions on which such documents were sent to the appellant or the
period of time over which this was
done.
9
[16] The respondent’s counsel relied in argument on
the English case of
Circle Freight International Ltd (t/a Mogul
Air) v Medeast Gulf Exports Ltd (t/a Gulf Export)
.
10
The facts in that matter were the following. The plaintiff was a
freight forwarding agent. The defendant was an exporter of various
goods. The defendant in a counterclaim sued for the loss of goods
which the plaintiff had agreed to export. The plaintiff pleaded
that
the defendant’s loss was covered by certain clauses in the standard
conditions of the Institute of Freight Forwarders (IFF),
which the
plaintiff contended were incorporated into the contract between the
parties. The test applied by the court was whether
the plaintiff had
given reasonable notice of the terms in question. The court held that
it had, inter alia because eleven invoices
had been sent to the
defendant on previous occasions, all of which referred to the IFF
terms.
[17] Taylor LJ said:
11
‘
[I]t
is not necessary that notice of the conditions should be contained in
a contractual document where there has been a course of
dealing.’
In
the absence of actual knowledge of conditions this statement does not
reflect the South African law, which is as stated in para
[15] above.
[18] The
Circle Freight
case is also
distinguishable on the facts on three bases. The first is that in
that matter the trial judge had found,
12
and the Court of Appeal accepted,
13
that the defendant’s managing director Mr Zacaria knew that freight
forwarders (such as the plaintiff) normally dealt on standard
terms.
In the matter before this court there was no cross-examination
whatever directed at Lombard to establish that he knew that
there
were usual terms and conditions for the type of business carried on
by the respondent. The second point of distinction appears
from the
judgment of Bingham LJ
14
as follows:
‘
[H]e
[ie Mr Zacaria] must have seen some writing on the invoice.’
In
the present matter, the person authorised to contract on behalf of
the appellant, ie Lombard, did not even see the invoices or
the
delivery notes. The third point of distinction is that the plaintiff
in the English case, unlike the present appellant, was a
small
company which employed only four people.
15
[19] I therefore conclude that the court
a quo
was wrong in finding that the respondent’s general terms and
conditions formed part of the contracts of purchase and sale
concluded
by the parties.
[20] The next question is whether the respondent
manufactured the aggregate and sand which it sold to the appellant.
The appellant
alleged in its particulars of claim that the respondent
‘produced’ the aggregate and sand and in the alternative, that
the respondent
‘publicly held itself out to be an expert seller of
the dolomitic aggregate and sand for use in concrete products’. The
appellant
abandoned reliance on the second allegation in the court
a
quo
. So far as the first allegation is concerned, although
‘produce’ is a wider concept than ‘manufacture’,
16
it is clear from the approach followed in the court
a quo
and
the argument advanced in this court that the appellant seeks to hold
the respondent liable as a manufacturing seller. Two questions
arise:
(i) Does
liability attach to a manufacturing seller without more for
consequential damages caused by a latent defect in the article
sold?
If so:
(ii) Did
the respondent manufacture the aggregate and sand it sold to the
appellant?
[21] It would be convenient before considering these
questions to set out the process which was followed by the appellant
at the relevant
time at its factory. Dolomitic rock mined from a
quarry was delivered by trucks where it was tipped into a bin. The
rock in the bin
was pushed into a crushing machine which crushed the
larger rocks. Once the rock had been crushed it was fed onto a
conveyor belt.
The conveyor belt transported the rock to the top of a
screen house. At the top of the screen house were two vibrating
screen tables,
each of which was fitted with two different size
screens. The one set of screens had a coarse screen with holes in it
that permitted
stones 20 millimetres or less to pass through, and a
fine screen situated below the coarse screen with holes in it that
permitted
stones of six millimetres or less to pass through. The
other set of screens had a coarse screen that permitted stones of
less than
16 millimetres to pass through and a fine screen that
permitted stones six millimetres or less to pass through.
[22] Stones that were larger than 20 millimetres or 16
millimetres were transported by a conveyor belt to a stockpile and
were later
used to make lime. Stones that were six millimetres or
less were designated as crusher dust and transported via a conveyor
belt to
a stockpile; it was from this stockpile that the respondent
supplied the appellant with the ‘dolomitic sand D-6’ referred to
in the bulk order. (The ‘D’ obviously refers to dust and the ‘6’
to 6mm.) Stones that were between six and 20 millimetres
and between
six and 15 millimetres were stockpiled separately. It was from these
two stockpiles that the respondent supplied the
appellant with the
‘dolomitic stone 6-20’ referred to in the bulk order.
[23] I turn to consider the concept of a manufacturing
seller. The learned judge in the court
a quo
held that the
production of aggregate and sand by the respondent ‘could not have
required any special skill or expertise such as
that envisaged by
Pothier’ in para 214 of his work on sale (quoted in para [25]
below). The respondent’s counsel submitted (I
quote from the heads
of argument filed in this court):
‘
The
aggregate and sand is not the result of any process of manufacture of
these products involving a degree of expertise.’
The
question which arises is whether the passage in Pothier must be
interpreted as requiring a manufacturing seller to have these
attributes.
[24] Voet in his chapter on the Edict of the Aediles,
redhibition and the
actio quanti minoris
, says:
17
‘
A seller however who was aware of a defect is held
liable in addition to make good the whole loss which has been
inflicted upon the
purchaser as a result of the defective things;
though one who was ignorant is not put under obligation for this
unless he was a craftsman.’
The word translated by Gane as ‘craftsman’ was
artifex
in the original text and it implies skill.
18
It is a combination of
ars
(skill) and
facere
(to make)
and may be contrasted with
opifex
, a workman, which is a
combination of
opus
(work) and
facere
.
[25] Pothier in para 214 of his treatise on sale to
which the learned judge
a quo
referred is wider than Voet in
two respects: he includes the
artifex
, but adds a merchant who
sells articles of his own manufacture as well as a merchant who sells
articles of commerce which it is his
business to supply, as being
persons liable for consequential loss. Pothier’s para 214 was
translated by Jones J (with whom Centlivres
J agreed) in
Young’s
Provision Stores (Pty) Limited v Van Ryneveld
19
as follows:
‘
[T]here
is one case, in which the seller, even if he is absolutely ignorant
of the defect in the thing sold, is nevertheless liable
to a
reparation of the wrong which the defect caused the buyer in his
other goods; this is the case where the seller is an artificer,
or a
merchant who sells articles of his own make, or articles of commerce
which it is his business to supply
20
.
The artificer or tradesman is liable to a reparation of all the
damage, which the buyer suffers by a defect in the thing sold in
making a use of the thing for which it was destined, even if such
artificer or tradesman were ignorant of the defect. For example,
if a
cooper or a dealer in casks sells me some casks, and in consequence
of defects in any of the casks the wine which I put in them
is lost,
he will be liable to me for the price of the wine which I have lost.
Similarly if the wood of the cask, by its bad quality,
communicates a
bad odour to the wine, the custom is in such a case that the seller
is condemned to take the damaged wine for his
own account and to pay
me for it according to the price of that which remains undamaged.
The reason is that the artificer by the profession of
his art
spondet peritiam artis
. He renders himself in favour
of those who contract with him responsible for the goodness of his
wares for the use to which they
are naturally destined. His want of
skill or want of knowledge in everything that concerns his art is
imported to him as a fault,
since no person ought to publicly profess
an art if he does not possess all the knowledge necessary for the
proper exercise: want
of skill is attributed to him as a fault (Dig.
50.17.132). It is the same in regard to the merchant whether he makes
or does not
make the article which he sells. By the public profession
which he makes of his trade he renders himself responsible for the
goodness
of the merchandise which he has to deliver for the use to
which it is destined. If he is the manufacturer, he ought to employ
for
the manufacture none but good workmen for whom he is responsible.
If he is not the manufacturer he ought to expose for sale none
but
good articles; he ought to have knowledge of his wares and ought to
sell none but good.’
[26] Pothier’s third category, that of the merchant
seller, was considered by this court in
Kroonstad Westelike Boere
Ko-operatiewe Vereniging Bpk v Botha and another
.
21
Holmes JA said:
22
‘
Reviewing
all the foregoing, it seems to me that it can safely be said that, as
a general proposition, sec.214 of Pothier
on
Sale
, in
so far as it deals with the liability of a merchant seller, is
recognised as being part of our law’
but
limited the field of application of the rule by saying:
23
‘
In
my opinion the preponderant judicial view, and which this Court
should now approve, is that liability for consequential damage
caused
by latent defect attaches to a merchant seller, who was unaware of
the defect, where he publicly professes to have attributes
of skill
and expert knowledge in relation to the kind of goods sold.’
[27] The conclusion reached in the
Kroonstad
case
was questioned in
Langeberg Voedsel Bpk v Sarculum Boerdery Bpk
24
but the correctness of the decision was not debated before us, nor is
it necessary to consider it for the purposes of deciding the
present
appeal. What is of importance, however, is the statement in the
Langeberg
case
25
repeated by this court in
Graf v Buechel
26
that, where a rule of law is clear and in general terms, it is
unnecessary to enquire in each instance whether the considerations
which motivated the rule are present. Pothier in the first part of
para 214 states the rule in regard to the three categories of
persons
and then goes on in the second part to give the reason why each
category of person he identifies, is liable. The approach
of the
court
a quo
and of the respondent’s counsel elevates the
reasons for the rule (want of skill or want of knowledge) to part of
the rule itself,
which is not correct.
[28] In three decisions of this court Pothier’s second
category has been accepted without the qualification that the
manufacturing
seller has to possess, much less publicly profess,
attributes of skill and expert knowledge in relation to the goods he
sells. In
the
Holmdene Brickworks
case
27
Corbett JA said:
‘
The
legal foundation of respondent’s claim is the principle that a
merchant who sells goods of his own manufacture or goods in relation
to which he publicly professes to have attributes of skill and expert
knowledge is liable to the purchaser for consequential damages
caused
to the latter by reason of any latent defect in the goods. Ignorance
of the defect does not excuse the seller. Once it is
established that
he falls into one of the abovementioned categories, the law
irrebuttably attaches this liability to him, unless
he has expressly
or impliedly contracted out of it . . . . The liability is additional
to, and different from, the liability to redhibitorian
relief which
is incurred by any seller of goods found to contain a latent defect .
. . .’
In
Sentrachem Bpk v Wenhold
28
F H Grosskopf JA said:
29
‘
Die
Hof
a quo
het bevind dat die eiser hom ook op ‘n ander
skuldoorsaak kon verlaat het, nl op die basis dat die verweerder, as
handelaar wat
openlik voorgegee het dat hy oor bedrewendheid en
deskundige kennis met betrekking tot die produk beskik, regtens
aanspreeklik is
vir enige gevolgskade veroorsaak deur ‘n verborge
gebrek in die produk wat hy verkoop het . . . . Die verweerder kon
natuurlik
ook vir gevolgskade aangespreek word op grond van die feit
dat hy die vervaardiger was van die Classic [the product sold to the
plaintiff
by the defendant] wat hy verkoop het.’
In
Consol Ltd t/a Consol Glass v Twee Jonge Gezellen (Pty) Ltd and
another
30
Brand JA said:
31
‘
It
will be remembered that Twee Jonge Gezellen relies, as an alternative
basis for its damages claim, on the principle of our law
of contract
that merchants who sell goods of their own manufacture or goods in
relation to which they publicly profess to have attributes
of skill
and expert knowledge, are liable for consequential damages caused to
the purchaser by reason of a latent defect in the goods
….’
[29] There does not appear to be any academic criticism
of the rule as formulated by this court. On the contrary, academic
authors
have accepted it without adverse comment.
32
[30] The liability of a manufacturing seller as stated
by this court is clear. The addition of qualifications requiring such
a person
to have some degree of skill or expertise would lead to
confusion and uncertainty and there is no warrant for it. The
respondent’s
counsel submitted that such a conclusion would expose
manufacturing sellers to enormous risk. The answer is that they are
free to
contract out of it.
[31] I therefore conclude that a vendor who sells goods
of his own manufacture is liable for consequential loss caused by a
latent
defect in the goods sold even if he is ignorant of the latent
defect, irrespective of whether he is skilled in the manufacture of
such goods and irrespective of whether he publicly professes skill or
expertise in that regard.
[32] The next question is whether the respondent was a
‘manufacturer’ of the aggregate and sand it sold to the
plaintiff. There
appear to be no decided cases on the point in the
context of liability for consequential loss. It is not necessary or
desirable to
attempt a comprehensive definition. Some guidance is to
be found in income tax cases which deal with the phrase ‘process of
manufacture’
which occurs in the Income Tax Act.
33
[33] In
Secretary for Inland Revenue v Hersamar (Pty)
Limited
34
Williamson JA said:
35
‘
Some
judicial
dicta
seem to emphasise “a change of the character
of the raw materials” out of which something is made. Others again
state that the
“difference” must be “substantial” or
“essential”’
and
went on to say:
36
‘
But
it must be recognised that the term “essentially” obviously
imports an element of degree into the determination of the
sufficiency
of the change that must be effected for a process to be
one of “manufacture”. As a result of being processed, a change
may take
place in regard to the nature or form or shape or utility,
etc., of the previous article or material or substance. There can be
no
fixed criteria as to when any such change can be said to have
effected an essential difference. It is a matter to be decided on the
particular facts of the case under consideration. The most exhaustive
examination of imaginary examples of change really does not
carry the
matter further.’
The
learned judge did however refer
37
to two examples taken from the judgment of Van Winsen J in
ITC
1052:
38
‘
The
one is that of the nail made out of wire. The physical make-up or
nature of the wire is in no way altered; merely the shape or
form of
a small segment is altered by being flattened on one end and
sharpened on the other, but, though it is the same piece of
steel
wire, it is clearly a different thing that has eventuated ─ a thing
with a definitely different utility and object. It can
be said
therefore to be essentially different. The freezing of water into
blocks of ice for sale or for commercial or industrial
use is also
the making of an article essentially different.’
[34] In
Secretary for Inland Revenue v Safranmark
(Pty) Ltd
39
Galgut AJA
40
quoted with approval the following remarks of Miller J in
ITC
1247:
41
‘
That
the ordinary connotation of the term “process of manufacture” is
an action or series of actions directed to the production
of an
object or thing which is different from the materials or components
which went into its making, appears to have been generally
accepted.
The emphasis has been laid on the difference between the original
material and the finished product.
. . .
Invariably, in cases in which plant or machinery has
been found to have been used in a process of manufacture, the result
of such
process has been the creation of a substance or an article
which, although it might have contained all the various components
from
which it evolved in the process of manufacture, became upon
completion an essentially different entity in its own right.’
[35] I turn to the facts of the present matter. The
respondent did not simply dig up sand or pebbles from a riverbed. The
processes
used by the respondent at its factory changed the nature of
the rock which arrived from the quarry from uneven lumps of stone
into
(amongst other things) stockpiles of dust and sand. The dust and
sand had a commercial utility which the raw material did not, as
is
evidenced by the fact that there was a market for these products:
apart from the appellant, customers who purchased them included
Frazer Fyfe and Cape Concrete who manufactured concrete products, and
Kynoch who manufactured fertilizer from them. Because the aggregate
and sand were separated into different stockpiles of consistent size
(D-6 millimetres; 6-15 millimetres and 6-25 millimetres) customers
of
the respondent could select and specify the size suitable for their
requirements; and this is precisely what the appellant did.
[36] It was submitted on behalf of the respondent that
it manufactured lime products (as held by this court in
Secretary
for Inland Revenue v Cape Lime Co Limited
42
─ it was the respondent in that matter) and that because the
aggregate and sand sold to the appellant were merely by-products of
this process, the appellant did not manufacture either. It is true
that the aggregate and sand in question were screened out of the
lime
production process. But it does not follow that because a process is
designed to manufacture one product, another product which
is
produced incidentally as part of the process is not also
manufactured. It is the result, not the intention of the producer or
the primary purpose of the process, which is relevant; and here, as I
have said, the result of the respondent’s process is the
production
not only of lime but also of sand and aggregate which are different
in nature to the original raw material from which
they were produced
and which have a commercial utility in consequence of the process to
which they were subjected.
[37] There is one final matter which must be dealt with.
The respondent’s counsel submitted ─ for the first time on appeal
─
that the respondent should not be held liable for consequential
loss as a manufacturer because such liability was excluded either
tacitly or on the basis referred to by Macdonald ACJ in
J K
Jackson (Pvt) Limited v Salisbury Family Health Studios (Pvt)
Limited
,
43
namely:
‘
The
second class comprises those cases where the exclusion arises not
from the contract itself as alleged in the declaration but from
the
facts of the case on which the defendant relies. Those facts would
properly comprise the terms, the subject matter and the nature
of the
contract: the circumstances surrounding its formation, the position
and means of knowledge of the parties, the nature of the
defect and
any “other facts relevant to the question of exclusion”.’
The
learned Acting Chief Justice went on to say:
44
‘
In
the circumstances of this case, the parties could not, in my
judgment, have intended the contract to be subject either to the
normal
warranty against latent defects or the manufacturer’s or
merchant’s warranty. Both these warranties were excluded tacitly as
well as by necessary implication arising out of the surrounding
circumstances.’
It
must be accepted, in view of the passage in the
Holmdene
Brickworks
case quoted in para [28] above, that the liability
which attaches to a manufacturing seller can be excluded expressly or
tacitly.
But I have, with respect, difficulty with the phrase ‘as
well as by necessary implication arising out of the surrounding
circumstances’
in the passage just quoted from the judgment of
Macdonald ACJ. Either the plaintiff was a manufacturing seller or he
was not; and
if he was, then, as appears from the same passage in the
Holmdene Bricks
case, the law irrebuttably attaches liability
to him or her for consequential loss flowing from a latent defect
unless he or she
has contracted out of it. The ‘surrounding
circumstances’ to which Macdonald ACJ refers are relevant only in
deciding whether
or not there has been a tacit exclusion.
[38] It is not open to the respondent to contend for a
tacit exclusion in this case. Despite the argument to the contrary
advanced
by the respondent’s counsel, there is an obvious
difference between a denial that the respondent was a merchant
seller, which was
pleaded, and the assertion that if it was,
liability was tacitly excluded ─ which was not. Nor was the issue
canvassed in evidence.
It is too late to raise it in argument before
this court. As Christie says:
45
‘
Because
the surrounding circumstances have to be investigated it is difficult
to see how the issue of a tacit term could ever be raised
successfully for the first time on appeal.’
[39] To sum up: It is clear that the respondent agreed
to supply dolomitic aggregate and sand to the appellant for use by
the appellant
in the manufacture of concrete piping. The respondent
was a manufacturing seller and its liability as such to the appellant
for consequential
loss rising out of any latent defect(s) in the
goods sold was not excluded by the provisions of the respondent’s
general terms
and conditions, because they did not form part of the
contracts between the parties; and the respondent cannot now contend
for a
tacit exclusion of such liability. The appeal must accordingly
succeed, with costs. The appellant’s counsel asked in this event
for the costs of the hearing to date in the court
a quo
to be
awarded to his client. The respondent’s counsel made no submission
in this regard but I did not understand him to have conceded
liability for such costs. The appellant has a number of hurdles still
to overcome before the relief it seeks can be awarded to it.
It may
not succeed in recovering anything at all. I cannot conceive of any
prejudice to either party if the costs of the hearing
on the
preliminary issues in the court below were to be made costs in the
cause.
[40] The following order is made:
1. The appeal succeeds, with costs, including the costs
of two counsel.
2. The order of the court
a quo
is set aside and
the following order is substituted:
‘
(a) It
is declared
(i) that it was a term of the contracts of purchase and
sale concluded by the plaintiff and the second defendant that the
second
defendant would supply to the plaintiff dolomitic aggregate
and sand for use in the manufacture of concrete piping;
(ii) that
the second defendant’s general terms and conditions did not form
part of the contractual relationship between the plaintiff
and the
second defendant; and
(iii) that
the second defendant is liable to the plaintiff as a manufacturing
seller for any consequential damages which the plaintiff
might prove
it suffered in consequence of any latent defect(s) which the
plaintiff might establish existed in the said goods.
(b) The costs of the hearing to date are made costs in
the cause and the costs of two counsel shall be allowed on taxation.’
______________
T
D CLOETE
JUDGE
OF APPEAL
Concur: Howie
P
Mthiyane JA
Maya
AJA
Cachalia AJA
1
The
appellant sued two defendants in the court below but withdrew its
claim against the first defendant during those proceedings.
It is
therefore not clear to me why the first defendant has been cited as
the first respondent on appeal. I shall simply refer
to the second
respondent, Trans Hex Mining Limited who was the second defendant,
as the respondent.
2
See
Hirschowitz v Moolman and others
1985 (3) SA 739
(A) at
765I-766D.
3
See
Holmdene Brickworks (Pty) Ltd v Roberts Construction Co Ltd
1977 (3) SA 670
(A) at 686F-687B.
4
1976
(3) SA 470
(A) at 474A-C.
5
1979
(3) SA 754
(A) at 762E-767C.
6
2002
(4) SA 408
(SCA) para 6 at 441A.
7
1999
(1) SA 982
(SCA) 991G-992A; and see also
Cape Group Construction
(Pty) Ltd t/a Forbes Waterproofing v Government of the United
Kingdom
2003 (5) SA 180
(SCA) para 22.
8
Union
Spinning Mills (Pty) Limited v Paltex Dye House (Pty) Limited
(above n 6) para 6 at 411B;
Micor Shipping (Pty) Limited v Treger
Golf and Sports (Pty) Limited and another
1977 (2) SA 709
(W) at
716A-B.
9
Cf
Dyer v Melrose Steam Laundry
1912 TPD 164
at 167-8;
R v
Thompson
1926 OPD 141
at 143;
Frocks Ltd v Dent and Goodwin
(Pty) Ltd
1950 (2) SA 717
(C) at 723-4; the
Micor Shipping
case (above, n 8) at 717H;
Bok Clothing Manufacturers (Pty) Ltd
and another v Lady Land (Pty) Ltd (under provisional judicial
management)
1982 (2) SA 565
(C) at 569E-57C; Christie
The Law
of Contract
4 ed p 207.
10
[1988]
2 Lloyd’s LR 427 (CA).
11
At
433 col 2.
12
See
429 col 2.
13
Taylor
LJ at 433 col 2; Bingham LJ at 435 col 2 ─ 436 col 1.
14
At
435 col 1.
15
See
429 col 1.
16
Berman
Brothers (Pty) Limited v Sodastream Limited and another
1986 (3) SA 209
(A) at 244A-B: ‘“Produce” is a wider concept
than “manufacture”. It would include the fabrication or
manufacture of goods,
but it would also include, for example, the
raising of animal products and the growing of agricultural products
(operations which
would not fall under the description of
“manufacture”) ....’
17
Ad
Pandectas
21.1.10, Gane’s
translation vol 3 p 655.
18
Cf
Voet 19.2.14 Gane’s translation vol 3 p 419 under the heading
‘Damages for defect when lessor a craftsman, or knew of defect’:
“
Fourthly
and finally the object [of the
actio conducti
] is the making
good of reparation for the whole of the loss which the lessee has
suffered from a defect in the property hired.
As often as the
property let is concerned with craftsmanship, and the lessor is a
craftsman [
artifex
], this applies whether the lessor knew or
did not know of such a defect; inasmuch as in such a case he
certainly ought to have
known things which were part of his craft.
Here belongs what the jurist says of defective jars from which wine
has flowed away
being let out, namely that the ignorance of the
lessor was by no means excused.
But
if a thing has been let out in regard to which no profession of
craft is usually concerned, as when it was a glade for pasturage
where ill weeds were growing which caused the dying off or worsening
of the lessee’s animals, the lessor can only be sued for
damages
if he knew that the defect existed. If he did not know he is
relieved to this extent, that he is freed by a remission of
rent.”
19
1936
CPD 87
at 91-2.
20
The
three categories in the original French (taken from Pothier’s
Oeuvres: Les Traités du Droit Français
compiled
by Dupin) are: ‘c’est le cas auquel le vendeur est un ouvrier,
ou un marchand qui vend des ouvrages de son art, ou
du commerce dont
il fait profession’. Cushing translates this passage as ‘and
this is the case, where the seller is an artisan,
or a tradesman who
sells the manufactures of his own trade, or of the kind of dealing
of which he makes a business.’ (That Pothier
has the
artifex
in mind as constituting the first category, appears from the second
part of para 214 where the reasons for holding such a person
liable,
are set out.)
21
1964
(3) SA 561
(A).
22
At
571E.
23
At
571G-H.
24
[1995] ZASCA 148
;
1996
(2) SA 565
(A), Hefer JA at 568J and Schutz JA at 570ff.
25
At
570I and 571D-E.
26
2003
(4) SA 378
(A) para 15.
27
Above
n 3,at 682
in fine
– 683C.
28
1995
(4) SA 312
(A).
29
At
318H-I.
30
2005
(6) SA 1
(SCA).
31
Para
56.
32
See
eg De Wet & Van Wyk
Kontraktereg en Handelsreg
5 ed p
341; Gibson
South African Mercantile and Company Law
8 ed pp
140 and 143; Lotz in Zimmerman & Visser (eds),
Southern
Cross, Civil Law and Common Law in South Africa
p 379;
Mackeurtan’s
Sale of Goods in South Africa
5 ed by Hackwill
para 11.4 p 162; McQuoid-Mason in McQuoid-Mason (ed)
Consumer Law
in South Africa
p 89; Wille’s
Principles of South African
Law
8 ed by Hutchison, Van Heerden, Visser & Van der Merwe p
538.
33
Act
58 of 1962 s 11.
34
1967
(3) SA 177
(A).
35
At
187B-C.
36
At
187C-E.
37
At
182F-G.
38
26
SATC 253
at 255-6.
39
1982
(1) SA 113
(A).
40
At
122G –
in fine
.
41
38
SATC 27
at 31 and 32.
42
1967
(4) SA 226
(A).
43
1974
(2) SA 619
(R, AD) at 623E-G.
44
At
623G.
45
In
the work referred to in n 9 above, p 198.