About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Eastern Cape High Court, East London Local Court
SAFLII
>>
Databases
>>
South Africa: Eastern Cape High Court, East London Local Court
>>
2012
>>
[2012] ZAECELLC 19
|
|
Mercedez Benz South Africa (Pty) Ltd v Buffalo City Municipality (EL 1123/11, ECD 1956/11) [2012] ZAECELLC 19 (27 September 2012)
15
IN THE HIGH COURT OF
SOUTH AFRICA
EAST LONDON CIRCUIT
LOCAL DIVISION
CASE NO: EL 1123/11
ECD 1956/11
In the matter between
MERCEDEZ-BENZ SOUTH
AFRICA (PTY) LTD .
.....................
PLAINTIFF
and
BUFFALO CITY
MUNICIPALITY
.......................................
DEFENDANT
J U D G M E N T
REVELAS J:
[1] The defendant, at
the commencement of the hearing of the trial, brought an application
in terms of Rule 33(4) of the Uniform
Rules of Court, for the
separation of certain questions of law which, it argued, could be
conveniently decided before any evidence
was led on the merits. The
application was opposed by the plaintiff. I granted the application
and the matter proceeded on the
legal questions which are set out
below. It is necessary to first refer to the pleadings from which
these issues arise.
[2] The plaintiff is a
manufacturer of motor vehicles which uses electricity on a
substantial scale for its production and operational
requirements. It
concluded an agreement with the defendant on 9 December 1999 styled
the Electricity Supply Agreement (the agreement),
in terms of which
the defendant would provide the plaintiff with a new bulk supply of
electricity with effect from 4 January 2004.
[3] On 26 September
2009, a voltage fluctuation occurred which fell outside the
parameters of the agreed supply of electricity in
terms of the
agreement. The fluctuation consisted of a power dip of 9,624 volts,
followed by an overvoltage which peaked at 12,274
volts for over six
hours in duration. The agreed supply was for 11 000 volts. In
terms of the agreement, the municipality
was obliged to ensure that
any variation beyond 7.5% of the required voltage of electricity
supplied would not continue for a period
in excess of ten minutes.
The power dip and overvoltage constituted respectively a low
deviation of 12,51% and a high deviation
of 11,58%, both in excess of
what was stipulated in the agreement. It lasted for three days, which
is much longer than the maximum
period provided for.
[4] The plaintiff’s
case is that, as a result of these voltage fluctuations, in breach of
the agreement, certain of its machinery
and equipment were damaged
beyond repair, necessitating their replacement, and the interruption
of production for a period of three
days resulted in additional
salary payments for extra work hours to meet its supply obligations.
[5] The plaintiff
claims damages from the defendant in the amount of R2 300 234.38,
together with interest thereon calculated
at the legal rate of 15.50%
per annum
from 29 October 2009 to date of payment, and costs
of suit.
[6] The plaintiff
contends in its particulars of claim that the defendant’s
breaches of the terms of agreement led to the
voltage fluctuations
referred to. Those breaches are enumerated as the defendant’s
alleged failure to:
regulate the supply of
electricity to the plaintiff and to ensure that the supply fell
within the parameters stipulated;
ensure that any
variation beyond 7.5% of the required voltage of electricity
supplied did not continue for a period in excess
of ten minutes;
properly maintain and
set its plant and equipment in the West Bank Sub-station;
carry out on-load tap
change tests simultaneously and to correctly set the out-of-step
timer so as to avoid an out out-of-step
sequence in the supply of
electricity;
to ensure that an
out-of-step alarm was in working order, alternatively, to monitor
and observe the activation of the out-of-step
alarm which indicated
a voltage fluctuation outside the parameters of the agreed supply.
[7] In the alternative
to the aforesaid alleged breaches, which are all premised on terms of
the agreement, the plaintiff pleads
that the defendant was liable in
delict for the damages suffered by the plaintiff, on the basis that
the defendant breached its
duty of care towards the plaintiff by
failing to perform its duties. The various breaches of its duty of
care are set out in the
plaintiff’s particulars of claim. In a
nutshell, the plaintiff’s cause of action is based on delict,
as an alternative
to contractual liability.
[8] Clause 5.3 of the
agreement featured prominently in the pleadings as well as the
submissions advanced by the parties. Under
the heading
“
CONTINUITY,
REDUCTION OR VARIATION OF SUPPLY
”
the
agreement provides that the defendant “
shall
not be liable for damages, expenses or costs caused to the consumer
(
the plaintiff
)
as a result of a reduction interruption in the supply or
variation
of voltage frequency
or
any failure to supply electricity” (
emphasis
added) .
[9] The defendant
relying on clause 5.3, which is an indemnity clause, pleads that it
precludes the plaintiff from claiming any
damages caused by the
fluctuations in the supply of electricity, as has happened on 26
September 2009. In its amended plea, the
defendant seeks
rectification of clause 5.3 of the agreement to the effect that the
phrase “variation of voltage frequency”
should read
“variation of voltage
or
frequency”. The
import of the rectification is to reflect the true intention of the
parties when the agreement was concluded
which was to even further
limit the liability of the defendant for damages. As a result, the
defendant would not be liable for
damages resulting from variations
of voltage, even if more than 7.5%, as provided for in the agreement.
[10] Paragraph 5 of the
plaintiff’s particulars of claim reads as follows:
“
At
all material times the Defendant was aware that in the event it
supply of electricity to plaintiff was not maintained within
the
parameters stipulated by the agreement, the Plaintiff’s
machinery and equipment would be damaged requiring replacement
and
production in Plaintiff’s factory would be lost and required to
be made up at an additional cost so as to meet its obligations
of
supply. The agreement, Annexure “A” was concluded on the
basis thereof”.
In response thereto,
the defendant pleads that it constitutes a variation of the agreement
not having been reduced in writing, which
in terms of the
non-variation clause (18.1) is of no force and effect. It is further
pleaded that the allegations in paragraph
5 offend the parol evidence
rule, rendering them inadmissible.
[11] In response to the
plaintiff’s delictual claim, the defendant pleads that those
allegations also amount to an alteration
of the agreement in conflict
with the parole evidence rule. The contention is that that the
plaintiff was not in law entitled to
rely on a delictual claim where
the plaintiff had chosen to enter into a contractual relationship in
order to regulate the risk
of harm and to protect itself.
[12] The defendant
further pleads that the plaintiff was also negligent in failing to
protect its own equipment and plant as is
required by the agreement.
It furthermore disputes the damages alleged by the plaintiff. These
of course are aspects for evidence.
[13] The matter was set
down for trial on Wednesday 12 September 2012. I could only hear the
matter the following day. On Thursday
when the trial in the present
case should have commenced, the defendant brought its application for
separation in terms of Rule
33(4). The defendant contended that it
would be convenient to both the court and the litigants if the
following issues were to
be decided separately:
Whether the phrase
“
variation of voltage frequency”
in
clause 5.3 of the agreement should read
“
variation
of voltage
or
“
variation
of voltage
or
frequency”.
In other words, the issue of rectification of
clause 5.3.
Whether the plaintiff
was precluded from relying on a “duty of care” as stated
in paragraph 5 of its particulars of
claim by virtue of the
non-variation clause (18.1) of the agreement and the parol evidence
rule.
Whether clause 5.3
(the indemnity clause) of the agreement precluded the plaintiff from
claiming damages in accordance with the
alleged breaches of the
agreement in its particulars of claim as set out above.
Whether the plaintiff
was precluded from claiming in delict (in the alternative or
otherwise).
Whether the indemnity
clause was unconstitutional and of no force and effect as pleaded by
the plaintiff in its replication,
[14] Except for the
rectification issue which required the leading of witnesses
(according to both parties), although only to a
limited extent, I
regarded the remaining matters capable of disposal by way of legal
argument and I consequently, on the following
day, ordered the
separation. The defendant then requested a postponement for purposes
of consulting with the person who represented
the respondent’s
predecessor, when the agreement was concluded. I was also informed
that the whereabouts of the witness was
uncertain as well as what he
would say. This seemed rather strange given that this witness was
required to give evidence about
what the intentions of the parties
were when they concluded the agreement in 1999, and in particular
that the word “
or”
was supposed be present between
the words “voltage” and “frequency” in the
indemnity clause.
[15] This witness, it
seems, is Mr David Chester Orgley, who, in his capacity of chief
executive of the defendant’s predecessor,
represented it when
the agreement was concluded. I gleaned as much from the covering
sheet of the agreement. Apparently, the legal
representatives of the
defendant had not yet consulted with him and they moreover did not
know whether he could be located in Cape
Town.
[16] I dismissed the
application for a postponement for the reason that the separation of
issues was ordered at the behest of the
defendant, and in the face of
strong opposition from the plaintiff, based on considerations of
convenience. That would have been
utterly defeated by a postponement
since the next available date on the trial roll was in August 2013.
The search for the witness,
even if he was found, seemed to be a
futile in the circumstances. The resultant prejudice to the plaintiff
is obvious.
[17] The parties
proceeded to argue the separated legal issues without the leading of
any evidence. The separated issues are inter-linked
and can be
summarised as follows:
Whether the indemnity
clause is capable of rectification and if not, whether it
indemnifies the defendant from liability based
on contract; and
Whether the
plaintiff’s allegation that the damages it suffered were
reasonably foreseen and in the contemplation of the
parties when
they contracted with each other (special damages), was ousted by the
non-variation clause and too remote to confer
liability on the
defendant;
Whether the plaintiff,
as a matter of law, was entitled to sue in contract and in delict,
as concurrent claims, albeit the delictual
claim having been pleaded
in the alternative.
Whether the indemnity
clause is valid or offends public policy and constitutional values,
the defendant being a municipality and
thus an organ of state.
Is clause 5.3
capable of rectification?
[18] Counsel for the
defendant submitted that the absence of the term “voltage
frequency” anywhere else in the agreement,
in particular in the
definitions and provisions in the NRS, is of significance and
provides an indication that the word “or”
should separate
the two words, which is what the parties must have intended.
[19] The defendant
emphasized the difference between the two concepts: voltage is
measured in volts and frequency in hertz, as is
evident from the
usage of two concepts in the pleadings, the agreement and the
applicable legislation. If I understood correctly,
the word “or”,
if introduced between “voltage” and “frequency”
would change the meaning of
frequency
ex facie
the indemnity
clause from “commonness of occurrence” to “number
of cycles per carrier wave” or “rate
of recurrence of
vibration” as in physics (see: The Concise Oxford Dictionary
6
th
edition). In Afrikaans the difference is more obvious
from the phrases “gedurige herhaling” (continued
repetition)
as opposed to “frekwensie”, which is measured
in hertz.
[20] If the word “or”
is inserted as contended for by the defendant, it would substantially
widen the range of circumstances
in which the defendant would be
indemnified from liability. Circumstances in which the defendant
would not be liable for damages
were in fact foreseen and those are
defined in clause 22 of the agreement. These are acts of God,
industrial actions, lock-outs,
trade disputes, fire, government
directions and/or war. The plaintiff’s opposing contention is
that the defendant’s
indemnity is limited to the circumstances
enumerated in this clause.
[21] There does not
appear to be a factual or evidentiary basis for the defendant’s
contention that the parties intended to
include the word “or”
between the words “voltage” and “frequency”.
It, for one, plainly does
not read better that way: neither does it
make more business sense. The plaintiff was never amenable to the
construction contended
for by the defendant and it therefore
unilaterally relies on it, without evidential support having been
tendered.
[22] Reference was made
to another electricity supply agreement concluded between Eskom
Holdings and the defendant, in October 2004
(the Eskom agreement).
Clause 14.3 of that agreement is virtually identical to clause 5.3 of
the agreement under discussion, but
for the word “or”
which does occur between the words “voltage” and
“frequency”. The Eskom agreement
was not properly
introduced in evidence. Its relevance escapes me. It was concluded to
enable the defendant to purchase bulk electricity
from Eskom. It is a
different type of contract: specific provision is made for
“under-frequency load-shedding schemes”
as well as “load
curtailment” and shortages of “generating and/or
transmission capacity” in it. The parties
clearly contemplated
and planned for different outcomes and eventualities in that
agreement. It cannot serve as evidence that the
parties in the
agreement under consideration intended something different at the
conclusion thereof some 13 years ago.
[23] Clause 5.3 of the
agreement between the parties, in my view, is not capable of
rectification and remains as it is within the
parameters stipulated
in the agreement.
Is the plaintiff
precluded from relying on the allegations in paragraph 5 of its
particulars of claim by virtue of the non-variation
clause in the
agreement as well as the parol evidence rule as pleaded by the
defendant?
[24]
This
question must be answered as if clause 5.3 of the agreement does not
exist. Paragraph 5 of the particulars of claim (quoted
above) it will
be remembered, alleges that the agreement was concluded on the basis
of the defendant being aware that if its electricity
supply to the
plaintiff was not maintained within the parameters stipulated in the
agreement, the plaintiff’s machinery would
be damaged,
requiring replacement and resulting in a loss of production.
[25] The plaintiff is
wholly dependent on the supply of bulk electricity by the defendant.
It is not an ordinary business consumer.
It has specifically sought
to introduce limits to voltage variations over certain periods by
introducing particular terms in the
agreement. In those circumstances
it is open to the plaintiff to contend that the parties envisaged
that damages would occur if
the supply of electricity is not
maintained.
[26] The defendants’
principal objection to this paragraph is that it introduces a claim
for special damages and such damages
do not flow naturally and
directly from a breach of the agreement, as would be the case in
general or intrinsic damages. Special
damages are damages which may
reasonably have been in the contemplation of the parties, at the time
they concluded the contract,
where they have knowledge of special
circumstances and contract on the basis of such knowledge.
1
[27] Therefore, the
plaintiff had to demonstrate, not only that it was contemplated at
the time of contracting that such damages
would flow from the breach
but also, that the contract was entered into on the basis of the
parties’ knowledge of special
circumstances so that in
substance they formed part of the contract itself.
2
[28] In
Holmdene
Brickworks (Pty) Ltd
3
v Roberts
Construction Co Ltd
special
damages was defined thus:
“
those
damages that, although caused by the breach of contract, are
ordinarily regarded in law as being too remote to be recoverable
unless, in the special circumstances attending the conclusion of the
contract the parties actually or, presumptively contemplated
that
they would probably result from its breach”.
In
Transnet
Ltd v The MV Snow Crystal
4
Scott JA (para 35),
described special damages thus:
“
In
the case of ‘special damages’ on the other hand, the
foreseeability of the harm suffered will be dependent on the
existence of special circumstances known to the parties at the time
of contracting”.
[29] The plaintiff’s
business is that of the manufacturing of vehicles. Its machinery and
equipment are operated electronically
and use a lot of electricity.
To this end, it entered into a new bulk supply of electricity
agreement with the defendant. The parties
specifically contracted
that the electricity supply of electricity must be consistent and for
such interruptions in the supply
of electricity which could be
foreseen, specific time limits were set. The agreement also barred
stipulated degrees of fluctuation.
All these have been dealt with
above. As a matter of plain logic, in the event of a breach of the
contentious terms of the agreement,
damages to the plaintiff’s
costly machinery and further losses were inevitable.
[30] The consequences
of those losses must have been, and accordingly were in the
contemplation of the parties: the parties could
not have intended
that the plaintiff’s machinery and vehicles could be “fried
with impunity”, as Mr
Ford
,
for the plaintiff, put it. The agreement could never have been
concluded on the basis that damages caused by interruptions beyond
the limits stipulated in the agreement were excluded and therefore
not claimable.
Does clause 5.3
preclude the plaintiff from claiming the damages allegedly caused by
the defendant?
[31] The defendant
maintains that clause 5.3 in clear and unambiguous terms states that
it shall not be liable for damages etc.
as a result of a variation in
the voltage supply. Evidence to explain it, so the argument went,
would be impermissible. This argument
is unassailable. The
considerations discussed in the aforesaid paragraph do not apply to
clause 5.3 Accordingly, the plaintiff
is not entitled to contractual
damages as referred to in this clause.
Is the plaintiff
precluded from claiming in delict?
[32] The defendant
contended that a delictual claim is not competent where there is a
contractual claim and relied
inter
alia,
on
the judgment in
Lillicrap,
Wassenaar and Partners v Pilkington Brothers.
5
In that matter
the court was concerned
with the question of whether the breach of a contractual duty to
perform professional work with due diligence
was
per
se
a
wrongful act for the purposes of
Aquilian
liability, with the
result that if the breach were negligent, damages could be claimed
ex
delicto
.
The court, for policy reasons, declined to extend the remedies under
the
lex
Aquilia
.
[33] In
FF
Holzhausen v ABSA Bank Limited
6
Cloete JA held that the
judgment in
Lillicrap
“
is not authority
for the more general proposition that an action cannot be brought in
delict if a contractual claim is competent”.
On the contrary,
the court pointed out, that Grosskopff JA, who wrote for the court in
Lillicrap
“
was at pains to
emphasize (at 496 D-I) that our law acknowledges a concurrence of
actions where the same set of facts can give rise
to a claim for
damages in delict and in contract, and permits the plaintiff in such
a case to choose which he wishes to persue”.
Cloete JA in
Holzhauzen
also referred to the
judgment in
Durr
v ABSA
Bank
Ltd
7
where Schutz
JA found no difficulty
(at 453 G) with the claim as pleaded which relied upon a contract,
alternatively on delict, and was presented
as one in delict.
[34] Cloete JA also
criticized the judgment in
Pinshaw
v Nexus
Securities
(Pty) Ltd
8
for misinterpreting the
effects of
Lillicrap
.
In
Pinshaw
the plaintiff sued the
director of an investment company (as second and first defendants
respectively) in delict for pure economic
loss suffered as a result
of a bad investment made in regard to funds she had entrusted to
them. The court in
Pinshaw
recognized that a legal
duty giving rise to an action in delict can exist independently of a
contract, and correctly so, according
to Cloete JA, who critisized
the court in
Pinshaw
for
erring in two respects, the first of which is relevant to the present
matter. It reads as follows:
“
First,
the premise underlying the reasoning is that
Lillicrap
decided
that
where delictual liability coexists with liability for breach of
contract, the aggrieved party is limited to a claim in contract.
That
premise is wrong, as I have already shown”.
9
The defendant’s
objection to the plaintiff’s case as pleaded is therefore
misplaced and it is accordingly rejected.
Is clause 5.3
unconstitutional?
[35] Finally, it must
be decided whether or not the indemnity clause (clause 5.3) of the
agreement is unlawful and of no force and
effect, as pleaded by the
plaintiff in its replication. The relevant part thereof reads as
follows:
“
.
. . in circumstances where Defendant contracted in terms to provide a
supply of electricity within specified parameters essential
to
Plaintiff’s manufacturing and operational requirements it is
contrary to the principles of justice, public policy and
the
interlinking constitutional values of public policy, that Defendant
should be indemnified in respect of its breach of an express
and
material term of the agreement and its failure to have taken adequate
measures to discharge its contractual obligations”.
[36] Mr
Pienaar
,
who, with Mr
Louw,
appeared for the
defendant, relied on the judgment in
Afrox
Healthcare Bpk v Strydom
10
,
where
the court rejected a constitutional challenge to an indemnity clause
excluding liability for negligently caused injury in
a private
hospital’s contract of admission. The court however did affirm
that inequality in bargaining power could be a factor
in striking
down a contract on public policy and constitutional grounds, where
evidence is produced of a weaker bargaining position.
11
[37] In the present
matter one of the factors for consideration pertaining to a weaker
bargaining position or not, is that the plaintiff
could not obtain
electricity from anyone other than the defendant municipality. The
question moreover arising is whether the municipality,
as a form of
government, is in effect the State, which would also distinguish this
matter from the
Afrox
matter. In this regard
Mr
Pienaar
referred me to the case
of
Mateis
v Ngwathe Plaaslike Munisipaliteit en Andere
12
where it was held that
the concept ‘State’ was an amorphous juristic-political
concept with no general meaning in legislation
and in particular, a
municipality could not be equated therewith.
13
14
[38] The plaintiff is
clearly in a weaker bargaining position for the supply of electricity
than the defendant, who has no competitor.
It must also be remembered
that the defendant has to buy the electricity it supplies from Eskom,
who in turn, bargains with the
Government for the rates it sells it
for. To a large extent, all consumers are at the mercy of Eskom, and
so is the defendant.
That may not strengthen the plaintiff’s
position, but it certainly dilutes the defendant’s bargaining
position as the
perceived sole and omnipotent provider of
electricity.
[39] This is a
contractual matter. In some instances it is quite clear why certain
constitutional values, such as non-racialism
and non-sexism could
lead to the invalidation of a contractual term. In this case, I fail
to see what constitutional values would
be imperilled by an indemnity
clause in an electricity supply agreement of this kind.
[40] In the
circumstances, I conclude that clause 5.3 of the agreement does not
offend the Constitution.
[41] As to costs, both
parties being successful, I consider it just and fair
that the costs thus far
incurred, save for the costs of the application for separation (in
respect of which I held on the day it
was argued, that no order as to
costs will be made) should follow the result in the action.
[42] Accordingly, it is
declared that:
Clause 5.3 of the
agreement between the parties remains as it stands but does
indemnify the defendant from liability flowing from
the agreement.
Paragraph 5 of the
plaintiff’s particulars of claim does not constitute a
variation of the agreement, nor is it inadmissible
by virtue of the
parol evidence rule.
The plaintiff is
entitled to base its claim, in the alternative, on delict.
The costs thus far
incurred (save for the costs of the application for separation),
shall be costs in the cause.
_______________________
E REVELAS
JUDGE OF THE HIGH
COURT
COUNSEL FOR
PLAINTIFF ADV B FORD SC
ADV DE LA HARPE
PLAINTIFF’S
ATTORNEYS DRAKE FLEMMER & ORSMOND
COUNSEL FOR
DEFENDANT ADV B PIENAAR SC
ADV F LOUW
DEFENDANT’S
ATTORNEYS NIEHAUS McMAHON ATTORNEYS
DATE OF JUDGMENT
27 SEPTEMBER
2012
1
Wille’s
Principles of South African Law, Ninth Edition 883.
2
Lavery
& Co v Jungheinrich
1931 AD
; Schatz Investments (Pty) Ltd
v Kalovyrnas
1976 (2) SA 545
(A) 552B.
3
1977
(3) SA 670 (A) 678.
4
(250/07)
[2008] ZASCA 27
, dated 27 March 2008.
5
1985
(1) SA 475
(A).
6
(280/03)
dated 7 September 2004 para [9].
7
2002
(2) SA 510
(SCA).
8
1997
(3) SA 448
(SCA)
9
Para
[9].
10
2002
(6) SA 21
(SCA).
11
At
para [12].
12
2003
(4) SA 361
(SCA).
13
Para
[7], [8] and [9].
14
Napier
vs Barkhuizen
2006 (4) SA (SCA) at
paragraph [14] 8 G-H.