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South Africa: South Gauteng High Court, Johannesburg
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2009
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[2009] ZAGPJHC 63
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La Consortium & Vending CC t/a LA Enterprises v MTN Service Provider (Pty) Ltd In re: MTN Service Provider (Pty) Ltd v La Consortium & Vending CC t/a La Enterprises and Others (2011 (4) SA 577 (GSJ)) [2009] ZAGPJHC 63; 2004/20602, A5014/08 (17 August 2009)
In
the South Gauteng High Court
Johannesburg
Case:
2004/20602
A5014/08
In
the matter between:
La Consortium & Vending CC t/a
LA Enterprises
Appellant
a
nd
MTN S
ervice
Provider (Pty) Ltd
Respondent
In re:
MTN S
ervice
Provider (Pty) Ltd
Plaintiff
a
nd
L
a
Consortium & Vending CC t/a La Enterprises
First Defendant
L
ance
Henry Froneman
Second Defendant
C
ondoprops
1021 CC
Third Defendant
Judgment
Malan J
:
[1] The appellant appeals against
the judgment of Claassen J ordering the appellant to pay to the
respondent the amount of R 3 403 903,30
with interest and
costs in respect of goods sold and delivered. The appeal is with the
leave of the court a quo. The appeal is
based primarily on two
grounds; first, that the respondent failed to establish on a balance
of probabilities that it had delivered
the goods to the appellant;
and, secondly, that the computer generated documents relied upon by
the respondent amounted to inadmissible
hearsay evidence.
1
[2] The respondent sells cellular
telephones and provides cellular telephone services. The appellant
conducted business as a distributor
of the respondent’s
cellular telephones and services. Originally, the parties concluded
three written agreements (varied
by subsequent addenda). Two of them
are relevant for the purposes of the respondent’s cause of
action: the Electronic Distribution
Agreement of the 28
th
of January 2002; and the Prepaid Distribution Agreement concluded on
the 2
nd
of April
2001.
2
In terms of the agreements, the respondent would sell and the
appellant would purchase: cellular handset kits; airtime in the form
of physical vouchers as well as ‘airtime’. Over a period
of time the appellant purchased these goods from the respondent.
The
parties conducted their commercial relationship for approximately 2
years and 6 months. Thereafter the respondent terminated
the
agreements in terms of the respective termination provisions, ie by
providing the appellant 90 days written notice. During
October 2003,
and at the time of the notification of the intended cancellation of
the agreements, and in terms of the agreements,
all amounts
outstanding at the date of termination became due, owing and payable
by the appellant to the respondent.
3
The terms of the agreements were never placed in dispute by the
appellant. After the respondent received the respective letters
of
termination, the appellant placed no further orders, nor did the
respondent deliver any further products to the appellant.
[3] The court a quo found in respect
of claim A that the respondent ‘had proved on a balance of
probabilities that it had
delivered the physical stock reflected in
the copy tax invoices vis-à-vis purchase orders 1000948 and
1000941 dated 10 October
2003. The acknowledgements of receipt were
signed by one Fiona Campbell and similarly bore the appellant’s
company stamp.
The court a quo found that in terms of clause 7.8 of
the Pre paid Distribution Agreement, same constituted ‘absolute
and
incontrovertible proof of delivery of the stocks referred to
therein’.
[4] In respect of claim B the court a
quo found that Lodge’s (the respondent’s Senior Manager,
Operational Finance)
evidence stood uncontradicted, and that the
respondent had never queried the outstanding amounts on the
statements delivered to
it. There was no evidence to contradict the
evidence of Lodge as confirmed by Mphofu (the respondent’s
Product Manager) that
the status of the purchase orders namely
1000954, 1000947 and 1000900 was in fact activated. In terms of the
Electronic Distribution
Agreement, ‘activation’
constituted delivery of network packages.
4
[5] The relevant parts of clause 6 of
the Electronic Distribution Agreement provide:
‘
6.1 The
Distributor shall be entitled to place orders for Pre Paid Network
Packages via electronic mail (“e-mail”) or
any other
means acceptable to the Service Provider and stipulated in the
Business Specification annexed hereto ... and in the format
determined by the Service Provider, from time to time. A pro forma
order form is annexed hereto as Annexure “F”. Any
such
e-mail orders shall be sent to a designated e-mail address stipulated
by the Service Provider, from time to time. Any e-mail
order
emanating from an e-mail address nominated by the Distributor from
time to time, shall be prima facie proof of such order
submitted by
the Distributor.
6.3 After
acceptance by the Service Provider of any order submitted in
accordance with 6.1 above, the Service Provider shall effect
delivery
of the Pre Paid Network Packages by way of electronic delivery in a
format in accordance with the Business Specification.
The parties
wish to record that this format is considered by the Distributor to
be a secure format and that the Distributor shall
adhere to any
security specifications set out by the Service Provider ... Such
order shall be delivered to the Distributor by way
of e-mail or any
other format stipulated by the Service Provider in the Business
Specification from time to time, in an encrypted
file in the
denominations stipulated by the Distributor in each relevant order.
Such Pre Paid Network Packages shall be inactive
and shall only be
elevated to a status zero i.e. , activated status, once the
Distributor has acknowledged receipt of the encrypted
file by way of
return e-mail to a designated address nominated by the Service
Provider, from time to time. In the event of the
Distributor failing
to acknowledge receipt of such encrypted file, within twenty four
(24) hours of such file being sent by the
Service Provider to the
Distributor, the Service Provider shall be entitled to cancel such
order or any part thereof and the Distributor
shall be obliged to
re-submit an order in accordance with the provisions of 6.1 above.
6.4 Receipt
of the Pre Paid Network Packages by the Distributor shall be deemed
to have taken place either once acknowledgement
of the receipt as
referred to in 6.3 above, has been forwarded by the Distributor to
the Service Provider or such Pre Paid Network
Packages have been
activated by the Service Provider for use on the Network or any one
of the Pre Paid Network Packages contained
in any one file is
utilised on the Network, whichever is the sooner. Receipt of the Pre
Paid Network Packages by the Distributor
shall constitute delivery of
such Pre Paid Network Packages to the Distributor.’
The appellant never disputed that
delivery took place in respect of
the
orders referred to, nor did it dispute that it failed to pay the
amount outstanding in this regard. No evidence was led by the
appellant disputing the correctness of the amounts paid by the
appellant as reflected in the summary of transactions.
5
[6] In terms of claim A, the
respondent claimed payment in the amount of R323 701,26 in
respect of cellular telephone kits
sold and delivered by it to the
appellant. The appellant conceded that delivery of the goods referred
to in claim A took place.
In terms of Claim B, the respondent claimed
payment in the amount of R3 080 202,04 consisting of
‘airtime’
sold and delivered by it to the appellant. The
appellant closed its case without leading evidence. On its behalf it
was submitted
that the since the respondent was claiming the balance
owing on a running account the respondent should have proved the
opening
balance. In addition, it was submitted that the evidence
presented on behalf of the respondent and in particular the
certificates
furnished in terms of
s 15(4)
of the
Electronic
Communications and Transactions Act 25 of 2002
constituted hearsay
evidence and were consequently inadmissible. Nor was the evidence
relied upon the ‘best evidence’
since no source
documentation was presented.
[7] The respondent’s main
witness was Mr L J Lodge. He testified that his day to day functions
included managing teams of
people whose function it was to administer
the agreements governing the relationship between the respondent and
its distributors
as well as collecting outstanding monies owed by
distributors to the respondent. He was familiar with the appellant.
6
He had a team which managed distributor accounts as well as the
day-to-day operations of those accounts. The latter’s
activities
included the physical printing of the documents and their
issuing to various distributors.
7
The respondent relied on an accounting software package known as the
Oracle Accounting System, which manages stock and debtors.
He
furthermore testified to the integrity of the system:
8
the system was audited on a regular basis by both the respondent’s
internal auditors as well as external auditors. He testified
9
that
‘
there
is a separation of duties and certain staff have the ability to
create transactions in the system, based on the job that they
have,
and once the transaction is created in the system there is auditing
logs and procedures that track the transaction is not
altered in any
form ... Each staff member deals with a particular portion of a
transaction and therefore is not able to alter the
overall
transaction and there is controls and notifications that would go out
should certain transactions be amended on the system,
and those are
sent to various managers to be able to monitor any variances on the
system.’
The statements relied upon by the
respondent were under his control and stored on the respondent’s
computer system.
10
In terms of the respondent’s statement dated 30 November 2003
the appellant was indebted to the respondent in the amount
of R3 419
014,95.
11
The customer number appears on the statement, namely 5182, which is
the appellant’s customer number. Having regard to this
statement, Lodge was able to identify and isolate the transactions in
terms of which monies were still outstanding by the respondent.
The
method adopted by him in isolating the outstanding payments on the
individual transactions was as follows: As at 17 October
2003, ie the
date of the termination notice, there were no outstanding orders
which the appellant placed and the respondent similarly
did not after
that date deliver any stock whether physical or airtime.
12
It was not in dispute, that the respondent on receipt of monies from
the appellant, would allocate same to the oldest unpaid
transactions.
13
On the basis of that practice a consolidated summary of the
transactions was prepared for the purposes of the trial.
14
It indicated that the following purchase orders together with their
respective invoice numbers identified by Lodge remained unpaid
namely: PO100900 (Electronic Distribution Agreement) dated 18
September 2003; PO100948 (Prepaid Distribution Agreement) dated 10
October 2003; PO100941 (Prepaid Distribution Agreement) dated 10
October 2003; PO100947 (Electronic Distribution Agreement) dated
13
October 2003; and PO100954 (Electronic Distribution Agreement) dated
15 October 2003.
[8] Once the transactions had been
isolated by Lodge, the relevant POD copy tax invoices were identified
evidencing delivery of
the product to the appellant. The POD copy tax
invoices were signed by one Fiona and bore the respondent’s
company stamp
thereon. In terms of clauses 7.7 and 7.8 of the Pre
Paid Distribution Agreement such returned delivery note duly signed
and stamped
served as absolute and incontrovertible proof of
delivery. The appellant has, in any event, conceded that delivery of
the goods
relating to claim A has been proved. Clauses 7.7 and 7.8
provide:
15
Clause 7.7:
‘Forthwith upon the delivery of any Pre paid Kits and/or Pre
paid Debit Cards, the Distributor will return to
the Service Provider
or the nominated Distributor, an acknowledgement of receipt in the
form of the Service Provider’s official
despatch or Delivery
Note signed, dated and stamped (with the Distributor’s official
company stamp) by a nominated and authorised
representative of the
Distributor. It is compulsory for the Distributor or an authorised
representative of the Distributor, for
the purposes of this clause
7.7, to sign the Delivery Note aforementioned by writing out its name
in full and not just initialling
the said Delivery Note.’
Clause 7.8:
‘Upon receipt by the Service Provider of a duly returned
despatch or Delivery Note referred to in clause 7.7 above
and whether
the contents of the delivery have been checked by the Distributor or
not, such despatch or Delivery Note shall serve
as absolute and
incontrovertible proof of delivery ...’
[9] Lodge, applying the
aforementioned methodology and reconciliation, identified the
individual and outstanding transactions in
respect of the Electronic
Distribution Agreement. Insofar as delivery of the airtime is
concerned, that took place by way of an
e-mail containing an
encrypted file in the denominations stipulated by in this instance,
the appellant. According to Lodge, the
network services were
initially inactive and were only activated once the appellant had
acknowledged receipt of the encrypted file
by way of a return e-mail
to the designated address. Delivery of the airtime (network services)
was deemed to have taken place
either once the acknowledgement of the
receipt of the encrypted file or files had been e-mailed back by the
appellant to the respondent,
or once those network services had been
activated by the respondent for use on the network whichever was the
sooner.
[10] Lodge described how orders were
placed in terms of the Electronic Distribution Agreement for Pre Paid
Network Packages ie by
email in terms of clause 6 to a designated
email address stated in the contract.
16
Deliveries were made to a designated email address of the appellant.
17
No specific orders were referred to - only as examples did Lodge
refer to some.
18
Neither the original orders placed nor copies were made available. In
fact, Lodge testified
19
with reference to the account that ‘[o]nce the order was
received it was captured on the Oracle accounting system and which
resulted in the invoice taking place.’ Also in relation to
payments received on the account Lodge was unable to state whether
the payments were made by cheque, cash or transfer.
20
Copies were kept of statements but they were not presented to
court:
21
‘These are the documents that would be originating from Oracle,
the Oracle documents would obviously be – the invoice
would be
captured from a purchase order, the receipt would be captured from a
receipt that has gone through our bank account.’
Lodge conceded
that that there was documentary proof of orders that were placed by
the appellant.
22
Where orders in terms of the electronic agreement which were placed
electronically by email were concerned, Lodge conceded that
there
were records of these transactions:
23
‘We have gone through our archiving systems and we have not
been able to find the actual physical purchase order that was
electronically sent to us ... Our computer system from Oracle refers
to the purchase order and also two copies of emails requesting
the
activation of those particular airtime vouchers, we have copies of
those emails coming back from Mr Froneman.’ It was
put to
Lodge:
24
‘So you have copies of the emails ordering and requesting
activation? – We have copies of the emails requesting
activation.’
Lodge’s evidence is based on the printout on
Excell from Oracle:
25
‘
It
is a transaction register that is run and then is placed into Excell.
It comes from the accounting system, it is not as though
the staff go
and capture the information from the statements and capture them into
this particular report.’
He further said:
26
‘
The
order is captured by a department – order management department
... By order control – order administrative staff
who work in
department at that stage known as order management, and that was
managed during this period by Kumaran Vandayar. ...
It is captured on
Oracle and it is also captured on the electronic system. ... The
order goes for approval and validate –
it validates to see
whether or not the particular account has sufficient credit facility
or whether the account is in overdue position.
That goes to the
credit manager and if there is sufficient credit and the account is
within its credit terms then the transaction
is automatically
approved. If it is not it needs to be approved by that particular
manager, by the commercial credit manager, the
commercial credit
manager reports to myself.’
The commercial credit department was
under the control of Lodge and the order management department under
that of Mr Vandayar. Lodge
conceded that there would have been a
large number of people who would have been responsible for the
different elements of a transaction.
27
When he was asked who had placed a value on an order he responded:
28
‘
The
accounting system has various products which have been created, these
products have a selling price and there is also from time
to time
certain discounts that are offered in terms of the commercial
agreement, in accordance with annexure C ... the system
then picks
up the customer from the system and goes and picks up the discount
for that particular agreement and determines the
selling price of the
particular products.’
‘
And
when is the value of the order allocated to it on the system? –
The value of the order is allocated to it on capturing
of the order.
... The account – the debtors account is debited with amount
when an invoice is generated and an invoice is
generated at point of
shipping the product out of our warehouse.
So the
debit takes place before delivery takes place? – That is
correct, for – in terms of the prepaid distribution
agreement.
And for the
electronic agreement? – It is done in retrospect, after
activation. ...
Who
activates? – Activation is done by – you are talking
about in terms of the prepaid electronic distribution agreement?
...
It is done by another department and that is run by Shepherd [Mpofu].
Now when he
activates does he tell somebody it has been activated you must debit
the account or does he debit the account? –
He tells the –
at that stage he sends notification down to our warehouse to ship the
transaction, which generates the invoice.
... And then the account is
debited.
How many
people work or do things to finally get all this information captured
on your oracle accounting system? The exact number
I am not sure but
there would be a large number of people who would be responsible for
different elements of the entire transaction.
And there
can be mistakes? - ... It might be possible that mistakes are made
but there are checks and balances that are in place
to make sure that
if mistakes are made they are identified and necessary adjustments
are processed to rectify the situation.’
[11] In respect of purchase order
100900 dated 18 September 2003 and purchase order 100947 dated 13
October 2003 and purchase order
100954 dated 15 October 2003, these
network packages were activated by the respondent according to Mr
Mphofu’s evidence.
Mphofu is the respondent’s product
manager (‘I look after the electronic distribution of
airtime’).
29
His evidence was not challenged by the appellant.
A few extracts from his evidence
will suffice to describe the process involved:
30
‘
-
Okay, effectively, the process entails our link between our MTN SP
and our customers, how emails are set up, how the encryption
files
for the secure transfer is also managed and at what point we are
advancing stock.
Mr Fischer:
Is there a particular process within MTN, you do not receive a
request in vacuum. How does it work, how is it linked?
– The
link effectively is the order entry department from our environment,
so basically process an order from our customer,
which they capture
into the system. It comes through to us and then we encrypt which
means we will put it into a secure mode and
transmit now to our
channels. On confirmation from the channel that they have received
their stock and they are happy with all
the contents of that
particular order they request that we activate. So at that point then
we activate. So at that point we activate
the stock to be available
on the MTN network.
Just put in
layman’s terms, how do you effect delivery? – Delivery is
effected on an email format. We submit the file,
or we make an
attachment onto the email and send it to the designated email that we
basically agree on with our customers and then
we send it to that
particular email, we wait for a response confirmation to us to say we
are happy with the stock can you ...
Mr Fischer:
Perhaps just, can one ascribe your function as the electronic
warehouse so to speak? – Ja as the electronic warehouse,
is
because we are not holding physical stock, but it is just the pin
definition of the stock that we are holding. So effectively
we are
managing this stock in sort of systems rather than holding a physical
card.
Court: Ja
the pin really the key, is it not? – Yes it is the key.
With no
pin, no delivery? – No delivery ...
Is that
what you talk of when you say, about a pin number? – Ja, the
pin number. It is actual inventory. It ... inventory
in a way, in a
physical environment.
Like an
inventory? – Like in a card. You know the scratch card that you
hold, it has got a pin behind there. This pin we sell
it in an
electronic format. ...
Mr Fischer:
Once you have “delivered” to a particular customer, is
that product active on the system at that point in
time already or
not” – No it is not active.
What is the
next, in order to activate the product, what is the next step that
one would have to go through in order to activate
this product? –
On order to activate we have to get confirmation from the said client
or customer to say he is happy with
the stock, he has received it and
confirm ad request that we activate.
How would
he do that? – Through an email process.
Turn to
page 326, 327 [Record 2.4: 685-6] ... Do you see that, 326?
31
– Yes I am looking at it. ... This particular document
basically is coming from our customer confirming that the stock has
been received and they are requesting that we activate the stock. ...
The
customer basically initiates that LA 57, because that is his
reference number, he raises an order, a physical order from his
side
and say and submit us LA 57. When it comes through my section, the
order entry section they capture that order to say ...
customer order
number LA 57.
- Yes for
reference purposes we capture that to say this is order that we are
processing from this customer.
Mr Fischer:
What is the purpose of this email? – The email that is in front
of me is basically requesting that we, they have
received the order
and they would like us to activate it.
That
presumes that delivery has taken place, is that right? – Yes it
is. ...
He is now
waiting to make use? To make use of it which he requires activation.’
[12] The data messages relied upon
in this case are not only real evidence but includes hearsay. This is
apparent from the cross-examination
of Mr Mphofu:
32
‘
Mr
Mphofu, you say that the electronic, in terms of the electronic
agreement there would be an order, is that correct? – Yes
that
is correct.
Then on the
order there would be a delivery, correct? – Yes.
There are
documents to substantiate the orders, is that correct? – Yes
that is correct.
There are
documents to substantiate the deliveries, is that correct? –
Yes.
Then after
that there is a document requesting activation, is that correct? –
Yes.
The
activation itself is also documented or not? – The confirmation
of the activation, yes comes through.
Yes, but
somebody physically must go to a computer and press a button to
activate that airtime, is that correct? – That is
right, yes.
It also follows from Mphofu’s
evidence that there were other documents available showing the
activation of all the orders
but that they were not presented to the
court a quo: ‘We could print a longer script of that’.
33
For evidence of the activation of the orders he relied on the
document attached to his certificate showing that the orders relied
upon had a status ‘4’ meaning that they were activated.
34
[13] Lodge testified, that the last
payment received from the appellant was on 13 October 2003 in the
amount of R600 000,00.
35
The appellant did not always give an indication as to which
transaction the payment was to be allocated to and generally paid in
round amounts. The respondent would then have allocated such
payments to the oldest transaction.
36
Lodge’s evidence was not challenged by the appellant nor was
any version put to him. Lodge testified that stock was taken
every
single month to investigate any variances as against
physical stock. In respect of virtual stock
(airtime), reconciliations are done on a monthly basis, and if there
were errors and
duplications those would have been identified and
reconciliations would have been effected. He testified that Froneman
(the sole
member of the respondent) never queried any particular
transaction.
37
[14] Mr Chongo
38
a commercial credit manager of the respondent was called to testify
but he did not deal with the accounts of the appellant at the
time
the transactions were concluded. He, however, gave evidence of the
procedures followed after a customer had placed an order.
After the
order had been validated it was sent to his department where he would
have looked at the availability of credit on the
account. If he was
satisfied he would have sent the order back to order management to
proceed with its implementation. All the
customer’s information
was stored on Oracle under Accounts Receivable, a debtors management
system.
[15] Mr Vandayar
39
was in charge of the order management department at the time the
orders were placed by the appellant. He gave evidence of the
different mediums in which orders could be placed, ie via fax or
through email or by electronic data interchange. The checks made
were
the same whatever medium was used to place the order: the department
would have verified the existence of the customer in
their books and
that the order emanated from a legitimate source such as the email
address mentioned in the agreement, that the
value of the order fell
within the agreed amount and that the goods ordered were within the
agreed bouquet of products.
40
‘
Now
just to give you a bit of a background why we do these checks is
because when an agreement is signed with any customer all the
information of that agreement, the customer’s name, the
registration details, delivery address and the pricing structure
is
captured on a system so that my department does not have any
influence of changing any of the information, all we do is we call
up
the customer who insert the product and the relevant pricing actually
automatically comes up, we cannot change the price at
that stage.
Once we have checked all this information we actually capture the
physical order to our commercial credit department
who verifies the
relative credit amounts or proof of payment amount.’
The credit department would then
have returned a copy of the physical order with some kind of stamp
indicating their approval.
‘
With
some kind of stamp of approval or what? – Yes we stamp it
basically just to write, the original purchase order comes
from the
customer, the stamp that we put on it, we actually write down our
system order number on that copy, on that stamp and
we also write
this person that is processing the order. When we get it back it is
either signed or it is not signed. There are
two streams to this
process. The one is an electronic stream and the one is physical. ...
Yes so the physical copy of the order,
we use that to capture it on
the system. ... We send that copy of the order, after we have
captured it on the system we write our
system order on that piece of
paper with a stamp and we send it down to commercial credit. ... When
they get that piece of paper
they call up that order number that we
have captured. So they can call it up on their system to verify that
the order was for these
products to those values and what was
captured on the system is also the same. ...
This
purchase order 100948, who allocates this purchase order number to
this particular purchase? Who does that? – We do,
by capturing
that order, yes.
So in the
process of receiving the fax you then do the capturing and then you
allocate this purchase order number to that particular
order? –
Well it is a system generated purchase order. ... So when we capture
it the system gives us an invoice number or
order number. ... Okay so
after the commercial credit department has checked their funding and
they approve it they send the piece
of paper back to us, indicating
that on the system they have actually went into the order and the
order that we have captured and
they have approved it. So when I call
that order up the next time I call it up I will actually see that the
status has changed
from being captured to being approved. ... Okay on
approval my next step would be to release this order to the warehouse
for the
physical picking of the stock. Once they have picked the
stock to match the order they ship that stock and when they ship that
stock, the shipping function generates ... They ship it. It is a
function, it is a status on the system. After approval it is released
to the warehouse and they ship the stock. When they ship it the
system generates an invoice number ... Now obviously the only next
step after that is the warehouse hands it over to our courier company
who goes out and deliver it and obtains the signatures.’
You say it
is a system generated function. Is it not? – A manual function.
You cannot do it manually.
Ja but is
there not a manual element in somebody in the warehouse typing with
their fingers? – From the order perspective
yes, someone has to
manually capture it.’
[16] As far as orders placed in
terms of the Electronic Distribution Agreement were concerned,
Vandayar testified that the only
difference from the placing of
orders by fax
41
‘
is
that for electronic orders it had to be via an email facility and not
fax and would be different verifications. The email would
have an
order attachment. ... So it is usually in a Microsoft Excell file and
once you open the Excell file you would have the
customer’s
logo with his company details and all the relevant order information
as in the physical order. That is the product’s
name, the
quantity, the pricing, the details of the customer and so forth. ...
The verification from an order perspective is exactly
the same as
physical. We have to verify that the customer is in existence on our
books..we have to verify that we have received
the order from a
legitimate source which is either the email address mentioned in his
agreement and he is ordering products to
the price value as agreed in
the agreement. Those are the verification steps from an order
perspective and then the same process
flows from an order
perspective. ... Delivery, well no there would not be a delivery
address in the electronic distribution agreement,
because the
ultimate goods that he is ordering will actually be emailed through
to him, it would not be delivered. ...
Court: Who
does the actual verification of the email and identity, the machine
or somebody sitting in front of the machine, looking
at the email
that came in? – The email would be set up our system as part of
the agreement. So once the agreement is signed
off they would put
those, that information in and upon processing, after my, or the
processor, I am sure one of the next witnesses
are going to talk
about that, their process would be to ensure that they are sending
the file of goods to the same email address
as captured in the
system. ... The verification is to look at the screen. ... Yes, but
the sending of the file, they actually have
to physically type it to
send it to that email address. The system does not do that
automatically.
It is possible to ascertain from the
computer records ‘who processed [an order] at each stage. So it
will tell you that someone
in my department processed the physical
capturing of the order. Someone in the commercial credit department
released the credit
hold which basically approves the order. It would
said that someone else in my department pick release the order and it
will tell
you who shipped it in the warehouse. So it is full order
trail by function.’
42
[15] Lodge and Mphofu provided
certificates in terms of s 15 of Act 25 of 2002.
43
Mphofu’s certificate certifies the order activation record
stored on the respondent’s computer and Lodge’s the
running account statements so stored. Section 2(1) of the Act
provides:
‘
The
objects of this Act are to enable and facilitate electronic
communications and transactions in the public interest and for that
purpose to promote legal certainty and confidence in respect of
electronic communications and transactions.’
Section 4
provides:
‘
Subject
to any contrary provision in this section, this Act applies in
respect of any electronic transaction or data message.’
Section 1
defines ‘data’
as ‘electronic representations of information in any form’.
A ‘data message’
‘means data generated, sent,
received or stored by electronic means and includes … (b) a
stored record’.
Section 15
provides for the admissibility and
evidential weight of data messages:
‘
(1)
In any legal proceedings, the rules of evidence must not be applied
so as to deny the admissibility of a data message in evidence
–
(a)
on the mere grounds that it is constituted by a data message; or
(b)
if it is the best evidence that the person adducing it could
reasonably be expected to obtain, on the grounds that it is not
in
its original form.
(2)
Information in the form of a data message must be given due
evidential weight.
(3) In
assessing the evidential weight of a data message, regard must be had
to –
(a)
the reliability of the manner in which the data message was
generated, stored or communicated;
(b)
the reliability of the manner in which the integrity of the data
message was maintained;
(c)
the manner in which its originator was identified; and
(d)
any other relevant factor.
(4) A data
message made by a person in the ordinary course of business, or a
copy or printout of or an extract from such data message
certified to
be correct by an officer in the service of such person, is on its
mere production in any civil, criminal, administrative
or
disciplinary proceedings under any law, the rules of a
self-regulatory organisation or any other law or the common law,
admissible
in evidence against any person and rebuttable proof of the
facts contained in such record, a copy printout or extract.’
[12] Section 15(4) is
controversial.
44
Schwikkard and Van der Merwe
45
submit:
‘
The
definition if “data message” is sufficiently broad to
include hearsay evidence and accordingly the section subjugates
the
hearsay rule in so far as the admissibility of computer printouts are
concerned. The courts appear to have no discretion in
respect of the
admissibility of a data message but rather they are required to
exercise their discretion when they assess the weight
to be attached
to the evidence.’
The authors state that the provisions
of
s 15(4)
are a great improvement ‘on the prior, muddled,
state of affairs and it is anticipated that the provisions will allow
for
a more equitable approach to computer generated evidence ...’
This approach has not been followed and a more careful view
of the
section is called for. Zeffertt et al
46
suggest that a ‘data message’ ‘is clearly hearsay
within the meaning of
s 3(4)
whenever it is tendered in evidence in
circumstances where the probative value of the evidence depends, in
this sense, on the credibility
of such a person.’ The sense
referred to concerns the case where the probative value of the
evidence depends on the credibility
of the person who enables the
computer system accurately to register and process information
contained in the print-out. This raises
the question of the effect of
s 15.
Zeffertt et al conclude:
47
‘
The
thinking behind the new
section 15
seems to be expansive and the
purpose of the legislature was probably to free as much
computer-generated evidence from the hearsay
trap as could be
justified without doing violence to the important values served by
the exclusionary rule. To that end it provided
that the rules of
evidence must not be applied so as to deny the admissibility of a
“data message” in evidence “on
the mere grounds
that it is constituted by a data message”. What does this mean,
and does it achieve the desired purpose?
Consider, for instance, the
situation where a party tenders in evidence, via the computer,
information that has been processed
and generated by that computer
(where, that is, the computer has not been used merely to
store
information). If it is accepted – as we submit it must be –
that this evidence is on the face of it – before,
that is, we
consider the effect of the new Act – hearsay, can
section 15
be
used to admit it? It can, it seems, if the only impediment to its
reception is the fact that it is “constituted by a data
message”. Would it be admissible, then, if it were
not
so constituted? To answer this question, one has to ask what it
would
be if it were not constituted by a data message. If it were to be
regarded as direct oral evidence furnished by a person upon whose
credibility the probative value of the evidence depends, it would
clearly not be hearsay and would be admissible. But if it were
to be
regarded as evidence tendered by a witness other than the person upon
whose credibility the probative value of the evidence
depends, it
would still be hearsay and would, to be admissible, have to satisfy
the requirements of section 3 of the 1988 Act or
some other exception
to the hearsay rule (such as section 221 or section 222 of the
Criminal Procedure Act).’
The learned authors advocate an
approach that
48
‘
would
leave all the work – as far as hearsay is concerned – to
the other exceptions, a conclusion that is not indefensible
in view
of the wide sweep of
section 3(1)(c)
of the
Law of Evidence Amendment
Act 45 of 1988
which allows for the reception of hearsay if the court
is of the view, after considering the stipulated factors, that its
admission
would be in the interests of justice.’
[13] The definition of ‘data
message’ in s 1 is sufficiently wide to include not only real
but also hearsay evidence.
49
This follows from the wide description of ‘data’ as the
‘electronic representations of information in any form’
but also from the definition of ‘data message’ as ‘data
generated, sent, received or stored by electronic means’
including ‘(a) voice, where the voice is used in an automated
transaction; and (b) a stored record’. This, however,
does not
mean that hearsay is admissible just because it is contained in a
data message. The principle of ‘functional equivalence’
does not free data messages from the normal strictures of the law of
evidence but only from those referred to in s 15(1).
50
It follows that, despite the very wide words of s 15(4), any hearsay
contained in a data message must pass the criteria set out
in s 3 of
the Law of Evidence Amendment Act 45 of 1988.
[14] Section 3 of the Law of
Evidence Amendment Act 45 of 1988 provides:
‘
(1)
Subject to the provisions of any other law, hearsay evidence shall
not be admitted as evidence at criminal or civil proceedings,
unless
–
each
party against whom the evidence is to be adduced agrees to the
admission thereof as evidence at such proceedings;
the
person on whose credibility the probative value of such evidence
depends, himself testifies at such proceedings; or
the
court, having regard to –
the
nature of the proceedings;
the
nature of the evidence;
the
purpose for which the evidence is tendered;
the
probative value of the evidence;
the
reason why the evidence is not given the person upon whose
credibility the probative value of such evidence depends;
any
prejudice to a party which the admission of such evidence might
entail; and
any
other factor which should in the opinion of the court be taken into
account,
is of the opinion that such evidence should be admitted
in the interests of justice.’
[15] The appellant submitted that
since the data produced by the Oracle Computer System is the product
of human intervention of
at least ten persons it is not the computer
that generated the data.
51
Since the computer did not generate the data, s 3 of the Law of
Evidence Amendment Act 45 of 1988 renders the printouts used by
the
respondent inadmissible. In particular, it was argued on behalf of
the appellant that the orders in regard to both claims A
and B
allegedly placed by the appellant were not proved. Adopting this
approach, the factors listed in s 3(1)(c) must all be considered.
Since they overlap their combined effect must also be given
appropriate weight.
52
Moreover, the alleged hearsay is contained in ‘data messages’.
This entails an enquiry into the reliability of the
manner in which
the data message was generated, stored or communicated and in which
its integrity was maintained and the manner
in which its originator
was identified (s 15(3) of the Act). These questions also overlap to
some extent with the issues posed
by s 3 of Act 45 of 1988. It is to
the provisions of the Law of Evidence Amendment Act 1988 to which I
now turn to determine whether
the ‘data messages’ relied
upon should be admitted despite their containing hearsay evidence.
[16] The nature of the proceedings
(s 3(1)(c)(i)) and the evidence tendered (eg evidence of the orders
placed, of the running account
and deliveries made etc) speak for
themselves. The admission of the evidence was sought in a civil
trial. The evidence presented
was presented for the truth of its
contents (s 3(1)(c)(iii)) and consists in what may be characterised
as ‘data messages’
(or their copies or printouts (see s
15(4)) reflecting purchase orders, invoices, requests to activate
airtime, evidence of payments
and receipts and also evidence (not
necessarily documentary) of employees capturing information onto the
system. The probative
value of the evidence presented is high (s
3(1)(c)(iv)): The Oracle software system, manages a particular
customer (in this instance
the appellant) at every step of the
process. The respondent led evidence concerning the reliability of
the manner in which the
data messages was generated, stored or
communicated; the reliability of the manner in which the integrity of
the data messages
was maintained; the manner in which its originator
was identified. These aspects were not challenged by the appellant
under cross-examination,
and no evidence was led by the respondent in
this regard. The Oracle computer software system is, in addition, not
merely utilised
for storing information. It also creates additional
information such as calculations as to what the appellant owes the
respondent.
This is real evidence the probative value of which
depends on the reliability and accuracy of the computer and its
operating systems.
Nor does there appear to be any cogent reason to
suppose that any of the computer entries relating to, for example,
the orders
placed, were incorrect.
[17] The appellant, however, sought
to cast doubt as to the correctness of the amounts claimed and
reflected in the account relied
upon. In particular, it was submitted
that there was no indication as to how the opening balance of R
1 612 448,87 on
2 July 2003 was arrived at. Lodge has
indeed explained how he identified the outstanding and unpaid
transactions.
53
It was further submitted that an order for R 258 000 had been
repeated on various occasions with different order numbers.
Lodge, to
my mind explained this satisfactorily:
54
‘
[I]t
is not uncommon that orders would be placed for a bulk amount and
that due to the file size that we are sending over the –
by
email, that that file would be broken up into a size that could be
transmitted and it might be that a similar amount or quantity
would
be processed in that particular file. ...
So delivery
would have been too big to do in one batch, you would split it up? –
Potentially.
Yes but
then you would have the same order number? – Yes that is the
same order number.
No, no? –
For all the transactions on that particular invoice there is the same
order number.
No, if we
look at 9 July, the order number for the first R 258 000is
100686 and the order number for the second of R 258 000
is
100693, it is not the same order number? – Which indicates that
when we captured it there were two orders for that particular
–
they were received on that particular day.
Isn’t
that peculiar, Mr Froneman says it is highly unlikely that one would
place the exact same order in two batches, I mean
if you order on one
day you order all in one go? – The date that is reflected on
there is the date on which invoice was generated.
And as I have said,
invoices generated after activation so that it is possible that
activation took place on one day, two days,
and then both were
invoiced on the same day.’
Moreover, an amount of R 1 290 000
was entered on 23 July 2003 but allegedly duplicated under different
orders, PO 100737
and PO 100751. Other amounts were also referred to
in Lodge’s cross-examination. Again Lodge explained this
satisfactorily;
he said that it was not uncommon that their
distributors would order the same quantity on a regular basis.
55
‘
Is
it not possible that there could have been a duplication of the
transaction? – If there was a duplication of the transaction
our stock control procedures – because the stock would then
have credited our stockholding in our system, we take stock every
single month, and investigate any variances as part of our control,
that is for physical stock. For logical stock reconciliations
are
done on a monthly basis to check the reconciliation between the
various systems, so if there were errors and duplications those
would
have been or should have been identified in those reconciliations. I
am not aware of any issues that came up in those reconciliations
at
that time. And Mr Froneman has never queried these particular
transactions before.
I am saying
to you is there a possibility that there could have been a
duplication? – It is possible but highly unlikely given
the
controls that are in place to have identified it.’
[18] In considering the
admissibility of hearsay a court is also obliged to consider the
reason why the evidence is not given by
the person on whose
credibility the probative value of the evidence depends (s
3(1)(c)(v)). A number of people would have had to
have testified to
prove, for example, the entry of the particulars of the orders
placed. No reason was given why they were not
called to testify.
This, however, is not conclusive of the matter. The margin for error
in making the entries is minimal and some
or other conspiracy can be
discounted. In addition, the agreements envisaged the placing of some
orders and their performance (delivery)
by electronic means. Indeed
the greater part of the respondent’s business, certainly in so
far as the relevant orders were
concerned, was conducted primarily
within the ‘electronic stream’ as opposed to the
‘physical stream’.
In these circumstances the evidence
was correctly admitted by the court a quo. The appellant suffered no
prejudice by the admission
of this evidence nor can a procedural
disadvantage, if any, be regarded as ‘prejudice’ (s
3(1)(c)(vi)). If the interests
of justice require the admission of
the evidence a judgment based upon the evidence admitted cannot
constitute ‘prejudice’.
56
As I have said, the appellant could have placed any specific order or
delivery in dispute. Nothing of the kind was done. Given
the above
considerations the evidence relied upon by the respondent was
correctly admitted.
[19] A data message must according
to s 15(2) be given ‘due evidential weight’. In assessing
the evidential weight of
a data message s 15(3) requires that regard
must be had to the manner in which it was generated, stored or
communicated; the reliability
of the manner in which its integrity
was maintained; the manner in which its originator was identified and
any other relevant factor.
What I have said above relating to the
probative value of the evidence tendered is also applicable to these
considerations particularly
those relating to the manner in which the
data messages was generated, stored and communicated and the
reliability of the manner
in which their integrity was maintained.
The ‘originator’, ie the person who captured the data on
the computer, of
the data messages was not one but several persons in
the employ of the respondent. They were not identified and did not
give evidence.
I am nevertheless satisfied that they entered the
information on the computer duly and within the scope of the
employment and under
the supervision of Lodge, Vandayar and other
supervisors. The data messages contain information of both credits
and debits on the
appellant’s account. The fact that more than
one person contributed to their existence does not constitute a valid
objection
to the admission of the data messages into evidence and the
court affording them ‘due evidential weight’. It follows
that the appeal should be dismissed.
The appeal is dismissed with costs.
Malan J
Judge of the High Court
I agree
Van Oosten J
Judge of the High Court
I agree
Mokgoatlheng J
Judge of the High Court
Counsel for
appellant: DH Den Hartogh
Appellant’s
attorneys: Eugene Maritz Attorneys
Counsel for
respondent: HJ Fischer
Respondent’s
attorneys: Bowman Gilfillan Inc
Date of
appeal: 1 June 2009
Date of
judgment: 17 August 2009
1
Record 991-2.
2
Record 61-83 and 24-6.
3
Record 40 (clause 19.2) and Record 73 (clause 16.2).
4
Clause 6.4 of the Electronic Distribution Agreement; Record 69.
5
Exhibit A and documents attached to Exhibit C at Record 5:321-5.
6
Record 799.
7
Record 817.
8
Record 817-8.
9
Record 818.
10
Record 820.
11
Record 5:254.
12
Record 3.1:815-6.
13
Record 3.1:805, 815.
14
Record 5:321 ff.
15
Record 33.
16
See para 5 above; Record 3.1:808.
17
Record 3.1:809.
18
Record 2.4: 685-6 and 690.
19
Record 5.1:831 and 847.
20
Record 3.1:834, 838-9.
21
Record 3.1:840, 842.
22
Record 3.1:843.
23
Record 3.1:846-7.
24
Record 851.
25
Record 851.
26
Record 851-2.
27
Record 854.
28
Record 853-5.
29
Record 3.2:891.
30
Record 3.2:891 ff.
31
These two emails are referred to merely as examples.
32
Record 903.
33
Record 906.
34
Record 5: ‘LA3’ at 333.
35
Record 833.
36
Record 834.
37
Record 3.1:858-9.
38
Record 3.2:906 ff.
39
Record 3.2: 878ff.
40
Record 879, 886.
41
Record 886-8.
42
Record 889-890.
43
Record 5: 331 and 334. See
Trend Finance
(Pty) Ltd and Another v Commissioner for SARS and Another
[2005] 4 All SA 657
(C) para 49.
44
For the history of the Act and the
Uncitral
Model Law on Electronic Commerce with Guide to Enactment
(1996) on which it was based, see Andrew Rens ‘Approach with
Caution’ June 2003
De Rebus
23;
Tana Pistorius ‘”Nobody Knows You’re a Dog”:
The Attribution of Data Messages’ 2002 (14)
SA Merc LJ
737; Jos
é
Angelo Estrella Faria ‘e-Commerce and International Legal
Harmonization: Time to Go beyond Functional Equivalence’
2004
(16)
SA Merc LJ
529
as well as the discussion in
Ndlovu v
Minister of Correctional Services and Another
[2006]
4 All SA 165
(W) 171 ff.
45
PJ Schwikkard and SE van der Merwe in collaboration with DW Coller,
WL de Vos, A St Q Skeen and E van der Berg
Principles
of Evidence
(2002) para 21.4 at 385. This
conclusion no doubt ties in with the idea of ‘functional
equivalence’ which Tana Pistorius
‘”Nobody Knows
You’re a Dog”: The Attribution of Data Messages’
2002 (14)
SA Merc LJ
737 at 746 says ‘dictates this – it will be wrong to
adopt rules that create disparity between paper-based and
electronic-based transactions.’ (See also para 16 of the
Guide
). Cf CWH
Schmidt and H Rademeyer
Law of Evidence
(2003) who remark that ‘[t]hese
provisions make it clear that information given in electronic form
is in principle to be
treated, with only some adaptation, as the
equivalent of other forms of evidence, particularly documentary
evidence.’
46
DT Zeffertt, AP Paizes and A St Q Skeen
The
South African Law of Evidence
(2003) 394.
See
Ndlovu v Minister of Correctional
Services and Another
[2006] 4 All SA 165
(W) 172: ‘Subsection (1)(a) appears, on a quick reading, to
render a data message admissible without further ado. However,
it
would be anomalous if that were the case, since the ECT Act would
then elevate a data message evidentially above an ordinary
document.
Rather, on a proper reading, section 15(1)(a) prohibits the
exclusion from evidence of a data message on the mere grounds
that
it was generated by a computer and not by a natural person, and
section 15(1)(b) on the mere grounds that it is not in its
original
form.’
47
At 394.
48
At 395. ‘”Hearsay evidence” is evidence, whether
oral or in writing, the probative value of which depends upon
the
credibility of any person other than the person giving such
evidence’ (s 3(4) of Act 45 of 1988).
49
S v Ndiki and Others
[2007]
2 All SA 185
(Ck) para 8.
50
On the ‘best evidence rule’ see Zeffertt et al 357 ff
and 685 ff. Section 15(1) allows for the admission of a data
message
when either subs (a) or (b) is complied with.
Article
9 of the Model Law provides for the admissibility and evidential
weight of data messages:
‘(1) In any legal
proceedings, nothing in the application of the rules of evidence
shall apply so as to deny the admissibility
of a data message in
evidence:
(a)
on the
sole ground that it is a data message; or,
(b)
if it is the best evidence that the person
adducing it could reasonably be expected to obtain, on the grounds
that it is not in
its original form. (2) Information in the form of
a data message shall be given due evidential weight. In assessing
the evidential
weight of a data message, regard shall be had to the
reliability of the manner in which the data message was generated,
stored
or communicated, to the reliability of the manner in which
the integrity of the information was maintained, to the manner in
which its originator was identified, and to any other relevant
factor.’ The
Guide
dealing with article 9 states: ‘70. The purpose of article 9
is to establish both the admissibility of data messages as
evidence
in legal proceedings and their evidential value. With respect to
admissibility, paragraph (1), establishing that data
messages should
not be denied admissibility as evidence in legal proceedings on the
sole ground that they are in electronic form,
puts emphasis on the
general principle stated in article 4 and is needed to make it
expressly applicable to admissibility of
evidence, an area in which
particularly complex issues might arise in certain jurisdictions.
The term “best evidence”
is a term understood in, and
necessary for, certain common law jurisdictions. However, the notion
of “best evidence”
could raise a great deal of
uncertainty in legal systems in which such a rule is unknown. States
in which the term would be regarded
as meaningless and potentially
misleading may wish to enact the Model Law without the reference to
the “best evidence”
rule contained in paragraph (1).
‘71. As regards the assessment of the evidential weight of a
data message, paragraph
(2) provides useful guidance as to how the
evidential value of data messages should be assessed (e.g.,
depending on whether they
were generated, stored or communicated in
a reliable manner).’
51
The appellant relies on
Ndlovu v The Minister
of Correctional Services and Another
2006
(4) All SA 165
(W) and
State v Ndiki and
Others
2008 (2) SACR 252
(CK).
52
Zeffertt et al 372 ff.
53
See para 7 above and also the Record 3.1:815, 819, 822,834, 839 and
855.
54
Record 3.1:856-7.
55
Record 3.1: 857 ff.
56
Cf
S v Ndhlovu and Others
2002
(2) SACR 325
(SCA) para 50.