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1986
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[1986] ZASCA 108
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Cgee Alsthom Equipments Et Enterprises (Electriques, South African Division) v GKN Sankey (Pty) Ltd. (128/86) [1986] ZASCA 108; [1987] 3 All SA 619 (AD) (25 September 1986)
IN THE SUPREME COURT OF SOUTH AFRICA
(
APPELLATE DIVISION
)
In the matter of:-
CGEE ALSTHOM EQUIPEMENTS ET ENTERPRISES
ELECTRIQUES, SOUTH
AFRICAN DIVISION
appellant
and
GKN SANKEY (PROPRIETARY) LIMITED
respondent
CORAM
: CORBETT, VILJOEN, et BOTHA, JJA, NICHOLAS et NESTADT,
AJJA.
Datesof hearing
: 25 and 26 August 1986. .
Date of
judgment
: 25 September 1986
JUDGMENT
CORBETT
, JA:
The respondent in this matter sued appellant in the Mitwatersrand Local
Division for damages for
breach of contract in the sum of R113 947,05. After
/ a long
2
a long and tortuous trial the trial Judge (MARGO J) gave judgment for the
respondent in an amount of R86 687,60, together with costs
of suit (save for the
costs incurred in a certain interlocutory proceeding). With the leave of the
Court a
quo
appellant appeals to this Court against the whole of the
judgment and order of the trial Court, apart from the order as to the costs
of
the aforementioned interlocutory proceeding.
In broad outline the facts are as follows. The appellant is a company
incorporated in France, which carries on business in South Africa.
The contract
in issue is connected with the construction of the Koeberg nuclear power station
near Cape Town. The main contract for
the construction of the entire power
station was awarded by the Electricity Supply Commission ("Escom") to a
con-sortium of four
French companies. Each member of the consortium undertook
responsibility for a particular aspect
/ of
3
of the work. The company responsible for the supply of,
inter alia
,
the electrical equipment was Alsthom Atlantique, which is a major shareholder in
the appellant. By arrange-ment between them (apparently
by way of a
sub-contract) the appellant undertook to carry out the electrical work which was
the responsibility of Alsthom Atlantique.
Part of this work consisted of the
supply and installation of about 20 000 electrical cables, totalling 1 200 kms
in length, and
the support system for these cables. The support system, as
designed, consisted of steel cable trays which, when fitted together
and
installed, would provide a continuous running platform for the cables; of steel
cantilever arms upon which the trays would rest;
of vertical steel hangers to
which the cantilever arms would be attached; and of a headplate (usually to be
bolted to the ceiling
of the building in which the system was situated), to
which headplate the hanger was to be attached. Certain of the cable trays were
to be
/ "cable ladders"
4
"cable ladders", consisting of long parallel siderails joined together by
rungs, similar to the normal ladder; others known as "solid
base trays", were to
have metal sheets instead of rungs between the side rails.
Appellant decided to employ a sub-contractor to fabricate and supply the
cable trays and other components of the electrical support
system for the power
station. It received the names of potential suppliers, including that of the
respondent, a company engaged in
the manufacture of steel metal components,
including supportive systems for electrical reticulation. It initially
approached respon-dent
in November 1978 for a quotation, "giving best conditions
of price and time delivery", precise quantities to be defined later. Respondent
was given a cable trays technical speci-fication and a specification for a
quality assurance pro-gramme and was also asked to complete
and return a quality
assurance questionnaire. Respondent submitted a prelimi-
/ nary quotation
5
nary quotation and returned the questionnaire duly completed.
Thereafter followed protracted negotiations. Appellant's officials visited
respondent's factory and va-rious meetings between appellant's
officials and
respondent's officials took place. Many letters and telexes were ex-changed. An
important factor in the design and
construc-tion of the power station, in all
its features, was the capacity to withstand the shock of a seismic disturbance.
This applied
specifically to the cable support system. Another factor which had
to be considered in regard to the cable support system was its
capacity to
sustain the phy-sical loads imposed by the cables themselves, which varied
between 40 mm and 60 mm in thickness. All
this entailed investigation and report
from time to time by expert consul-tants. Tests had to be conducted. The
investigations and
tests resulted in various revisions of the specification and
drawings and of the quality assurance and quality control
/ programmes
6
programmes. A further factor of importance was the fact that, since the power
station was located at the coast, metal structures were
particularly liable to
cor-rosion. This placed emphasis upon the need for a suita-ble protective finish
for the components of the
cable sup-port system.
On 31 January 1979 respondent submitted a further quotation for the cable
ladders only; and this was followed by a general quotation
on 15 February 1979.
Thereafter there ensued lengthy negotiations and exchanges, mainly in regard to
the matters described above.
Eventually on 15 June 1979 respondent submitted
what I shall call its "tender". This was handed to Mr J F Cohou, the deputy
local
manager of appellant's operation in South Africa, by Mr E A Lovell, the
manager of respondent's engineering services division, on
18 June 1979. On 20
June 1979 respondent forwarded to appellant an addendum to its tender, in which
it gave
/ certain
7
certain additional prices for items not included in
its tender. On 25 June 1979, under circumstances
which I shall detail
later, appellant sent to respondent
a telex on the subject of the Koeberg
nuclear power station
in which it was stated,
inter alia
—
" we have pleasure in informing
you that the order for the above has been awarded to
yourselves."
Thereafter negotiations
and discussions between the parties continued into early August. Matters which
figured prominently in these
negotiations and discussions were the grade and
quality of steel to be used on the con-tract, finishes, quality assurance and
quality
control, a delivery programme, packing specifications, the dimensions of
certain of the cable ladder components and a document, referred
to as Exh. 2D,
which set forth at length and in considerable detail appellant's contractual
requirements as to general purchasing
conditions and as to commercial and
/ administrative
8
administrative conditions, and appellant's updated tech-nical specification.
The negotiations culminated in a series of meetings between
representatives of
appellant and respondent in the second week of August. It is common cause that
the purpose of all these continued
negotiations was to settle the terms of a
formal contract to be signed by the parties. Certain of the terms proposed by
appel-lant
for this formal contract were not acceptable to respondent. The
negotiations broke down. On 16 August appellant sent to respondent
an ultimatum:
unless respon-dent advised in writing that it was prepared to accept the terms
proposed by appellant "all negotiations
in connection with the proposed
contract" would immediately be terminated. Respondent replied thatit already had
a valid contract
with appellant. This in turn was de-nied by appellant. No
acceptance of all appellant's pro-posed terms was eventually forthcoming.
In the
meantime appellant had also been negotiating with Brownbuilt Metal
/ Sections
9
Sections, a division of Dorbyl Limited ("Brownbuilt") for the fabrication and
supply of the cable support system in question and on
22 August 1979 a contract
awarding the work to Brownbuilt was signed.
Broadly speaking, it is respondent's case that appellant's telex of 25 June
1979 constituted an acceptance of its tender, as modified
by the addendum of 20
June 1979; that such acceptance brought about a binding contract for the
fabrication and supply of the cable
support system; and that appellant's conduct
in August 1979, including its a-ward of the contract to Brownbuilt, amounted to
a repu-diation
of its contract with respondent. Hence respondent's claim in the
Court a
quo
for damages for breach of contract, such damages being
computed on the basis of the profit that respondent would have made on the
contract had it been per-mitted to execute it. Appellant's case, on the other
hand, is that the telex of 25 June 1979 did not result
in the
/ conclusion....
10
conclusion of a contract, mainly because at that stage there were a
number of matters, vital or material to the contract, which were
being
negotiated by the parties and upon which no final agreement had been reached.
The parties were thus still negotiating and had
not arrived at a enforceable
agree-ment. Appellant does not dispute that if a contract such as that alleged
by respondent had been
concluded, it was: repudiated by appellant, although this
was initially put in issue on the pleadings. On the pleadings appellant
also put
in issue whether respondent suffered damage as a result of the repudiation of
the alleged contract and the quantum of damages
claimed.
I have referred to the proceedings in the Court below as being lengthy and
tortuous. In summary what happened was this. When the trial
opened before MARGO
J respondent's counsel made application in terms of Rule of Court 33(4) for an
order that the issues as to
/ whether
11
had
whether or not the parties/concluded a contract as alleged
by the
respondent and the alleged repudiation, be tried
first and that hearing of
the issues concerning damagesbe
stayed pending decision of the former issues.
Despite
strenuous resistance by appellant's counsel, the applica-
tion was
granted and the trial proceeded on the contractual
issues. At the end of a
fairly lengthy hearing, during which
both parties presented evidence, MARGO J
gave a ruling to
the effect that respondent had succeeded in establishing
a
contract in terms of its tender and a repudiation thereof.
In dealing with an argument that no contract had been con-
cluded because the shape of the ladder rungs had not been
finally settled at the time when appellant sent the telex
of 25 June, the trial Judge stated that this point fell
away —
".... because no rungs were included in the quotation. The rungs were left to
be agreed upon as an extra item."
/it
12
It is now common cause that this finding was erroneous. While the shape of
the rungs may not have been settled as at 25 June, there
is no question that the
tender (or quotation, as the trial Judge called it) did include rungs. Rungs are
an essential component of
a cable ladder: without rungs there can be no ladder.
The find-ing nevertheless placed respondent in a dilemma when the trial was
resumed on the issues relating to damages. Its claim for damages, which
basically represented the difference between the contract
price and the
estimated cost of pro-ducing the contract goods, was founded on the premise that
the tender included the rungs; i.e.
that the contract price incorporated a
charge for rungs and that the estimated pro-duction costs also assumed that the
rungs were
part of the contract. Respondent could, therefore, not proceed with
its damages claim as originally formulated without risking an
adverse judgment
because its claim did not conform to
/ the
13
the Court's ruling as to the content of the contract. In other words, by
reason of the Court's ruling the profit on the rungs could
no longer be claimed
as part of respondent's damages. On the other hand, the respondent believed the
Court's finding in regard to
the rungs to be unsound; but this could only be
corrected on appeal ahd at that stage no appeal could be lodged. In the end
respondent
chose to re-formulate its damages claim by omitting the rungs. Since
the tender gave no separate price for the rungs, this en-tailed
placing a
notional "price" thereon and reducing the contract price accordingly. In
addition the estimate of the cost of production
had to be revised so as to omit
any charge for the rungs.
At the resumed hearing before MARGO J respondent applied to amend the further
particulars to its particulars of claim so as to give
effect to this revised
basis for claiming damages and for a consequential reduction in the
/ quantum
13(a)
quantum claimed to the sum of R86 687,60. This application for amendment was
opposed by appellant, but granted by the trial Judge.
Appellant asked for
further particulars to the respondent's further particulars, as amended. These
were furnished. Appellant then
gave notice in terms of Rule of Court 23(1) that
respondent's particulars of claim, read with the further particulars as amended,
were vague and em-barrassing and invited respondent to remove the cause of
complaint. This respondent did not do and then appellant
took exception to
respondent's particulars of claim, as amended, on the ground that they were
vague and embarras-sing and disclosed
no cause of action, broadly on the grounds
that the claim was based upon a sale price which had not been agreed upon
between the
parties and that there was ac-cordingly no valid sale. There was a
concomitant application to strike out certain portions of respondent's
further
par-ticulars. MARGO J dismissed both the exception and the
/ application
14
application to strike out.
After this preliminary skirmishing the trial pro-ceeded on the damages
issues. Respondent led evidence, but appellant closed its case
without calling
any witnesses. The trial Judge then gave judgment, holding that respon-dent had
substantiated its claim for damages
in the sum of R86 687,60. The interlocutory
proceedings in respect of which a special order as to costs was made consisted
of the
application to amend respondent's further particulars.
As in the Court a
quo
, the two main issues on on appeal were (i) the
conclusion of the alleged contract and (ii) the damages. I shall deal first with
the
contract.
Before us the argument of appellant's counsel, Mr
Osborn
, on the
contract issue was, in brief, as follows: (a) the telex of 25 June cannot be
construed as the accep-tance of any contractual
offer by the appellant; and
(b)
/ in
15
in any event, having regard to all the material matters which at that stage
were still being negotiated between the parties, the telex
could not and did not
give rise to a contract. In regard to leg (b) of this argument counsel made
reference to the following cases:
Margate Estates Ltd v Moore
1943 TPD
54
, at pp 58-9;
OK Bazaars Ltd v Bloch
1929 WLD 37
;
Blundell v
Blom
1950 (2) SA 627
(W), at p 632; and
Pitout v North Cape Livestock
Co-operative Ltd
.
1977 (4) SA 842
(A) at pp 850-51.
Before considering these arguments it is appro-priate to take a closer look
at the facts and circumstances relating to the submission
of respondent's tender
and the transmission of appellant's telex of 25 June.
The tender is in the form of a letter addressed to appellant and headed
"Electrical Support Systems - Koeberg Nuclear Power Station".
It commences with
the words —-
/ "We
16
"We have pleasure in submitting our quotation generally in accordance with
CGEE Alsthom drawings KBA-AA one through thirty two dated
1.6.79."
Then follow brief clauses relating to matters such as
inspection, terms of
payment, the incorporation of printed
terms and conditions on the back of the
quotation, the
period for acceptance, contract price adjustment, gene-
ral
sales tax, deliveries and penalties. After this
are lists of prices for the
components of the support
system, with various alternative prices depending on
the type of finish
required.
15 June was a Friday and, as I have indicated, the tender was handed by
Lovell to Cohou on 18 June, which was the following Monday.
This took place at
appellant's premises. There is some dispute between Lovell and Cohou and certain
other of appellant's witnesses,
as to what happened at this and other meetings
which took place du-ring the ensuing week. It is, therefore, pertinent at
/ this
17
this stage to refer to the trial Judge's credibility findings.
One grave defect in Lovell's evidence is that
he
had
deposed to having/a brief meeting with a
Mr J R M Cornillon,
a director of appellant, on 25 June. It was shown
conclusive-
ly that Lovell was wrong about this as Cornillon was in
France
at the time. In regard to this episode the trial Judge sta-
ted
that his impression was not that Lovell was a deliberately
dishonest witness,
but that he was confusing certain events
and that his recollection was faulty. He stated further —
" it is clear that Mr Lovell's evidence
is not altogether reliable, and that it can be accepted only where it is
undisputed or unrebutted, or where it is supported
aliunde
, or by the
probabilities, or by admissions made by the defendant's witnesses."
Of appellant's three witnesses, Messrs Augonnet, Cohou and
Cornillon, each of whom appeared to be a youngish man in
his late twenties or early thirties, the trial judge had
the following,
inter alia
, to say:
/
Augonnet
18
Augonnet
:
"He was an intelligent, resourceful and articulate witness, but the criticism
I have of his evidence is that his obvious purpose was
not merely to testify on
what he knew, but to present the defendant's case as its spokesman. He made
asser-tions on and explained
the intention be-hind telexes and letters to which
he had not been a party and of which he could have had no direct knowledge. His
evidence on these aspects was almost entirely hearsay and highly
subjective."
Cohou:
"In cross-examination Mr Cohou seemed to me to be most uncomfortable, and his
evidence was punctuated by much hesitation."
(And the trial Judge then proceeded to give a number of
instances where he found the evidence of Cohou unsatisfac-
tory and unacceptable.)
Cornillon
:
"In cross-examination Mr Cornillon was often hesitant and evasive, and at
times discursive to a degree."
(Then follows a detailed criticism of his evidence.)
/ I now
19
I now revert to 18 June. It is clear that
after Lovell had handed over the
tender to Cohou a dis-
cussion took place. Cohou appeared to be generally
happy
with the quotation, but wanted a 2½% discount should
ap-
pellant effect payment within 30 days. Lovell agreed
to this and a
suitable note was made on the tender docu-
ment. Other clauses of the tender
were also discussed
and an amendment to the cost price adjustment clause
was
agreed to and noted. Furthermore Cohou handed to Lovell
appellant's
general purchasing conditions, which constitute
part I of Exh. 2D, and told
Lovell that these conditions
would apply to any contract between appellant
and respon-
dent. Cohou also showed a document, part in type and part-
ly
handwritten, which corresponded to part II of Exh. 2D,
to Lovell and Lovell
read through it. There was some dis-
cussion about certain of the provisions
in this document.
Lovell stated that he could not commit himself on the clauses
/ relating
20
relating to penalties and to a performance bond.
Lovell again visited appellant's premises and saw Cohou on either 19 or 20
June. On this occasion Cohou gave Lovell part II of Exh
2D (which in the
meanwhile had been completely typed). According to Cohou Lovell had already
received a copy of part III of Exh.
2D, in the first week of June 1979. Certain
details of the contract were discussed. Cohou told Lovell that a component known
as "cable
rises" were no longer part of the contract and that certain cable
ladders were to be increased in length from 5 metres to 6 metres.
The shape of
the ladder rungs was also discussed. Lovell stated in evidence that at this
meeting Cohou told him that respondent should
go ahead with the work and
congratulated him on the contract being awarded to respondent. This was denied
by Cohou, though he did
concede that on 18 June Augonnet told Lovell that
respondent's prices were acceptable and that he saw
/ no
21
no reason why the contract should not be awarded to res-pondent. This was
confirmed in evidence by Augonnet.
The trial Judge appears to have preferred
the
evidence of Lovell on the issue as to what Cohou
told him
at the meeting of 19 or 20 June. Certainly Lovell's
conduct after
the meeting tends to support his version.
For on the afternoon of 20 June a meeting was held attended
by various
members of respondent's staff concerned with the
Koeberg contract. At this meeting various decisions were
made and points
were noted indicating that respondent was
gearing itself to go ahead with the execution of the con-
tract. For example one note reads:
"Start up production on 25th July. In order to save time and assist
commencement of programme, C. Brits will shear strip and bend
for rungs. This
will continue until rolls are completed."
In addition there are from respondent's records three inter-
office memoranda, dated either 20 or 21 June, which convey
/ the
22
the same impression. The meeting of 19/20 June certainly seems to have left
Lovell with the impression that the contract was theirs;
and this impression he
immediately conveyed to his colleagues.
On 25 June 1979 Lovell again met Cohou at appellant's place of business.
According to Lovell he went there to get written confirmation
of the award of
the contract to res-pondent. It is clear, however, that one of the matters
discussed was the steel to be used in
the fabrication of the cable tray
components. The quality and availability of this steel had been under discussion
for months. The
original idea had been to use commercial quality steel and this
was the basis of respondent's tender. Subsequently (after 25 June)
it was
decided to change to structural steel. Respondent had a certain amount of steel
in stock, but this was not sufficient for
the whole contract. It was thus
necessary, if respondent was to execute the contract, that it should order
additional steel from
its
/ supplier,
23
supplier, which was the South African Iron and Steel In-dustrial Corporation
Ltd ("Iscor"). At that time Iscor required three months
"lead time", which
apparently refers to the time taken to execute an order. On 8 June 1979 Lovell
had been given a note by Cohou
giving delivery dates. According to this note
certain quantities of fabricated com-ponents were to be delivered on 15 August
1979,
half of the remainder on 15 October 1979 and the balance on 15 January
1980. (On 20 July this was superseded by a more elaborate
delivery programme in
writing, in which the delivery dates were 25 August and 10 October 1979 and 10
January 1980.) It was thus evident
that if the delivery date in October was to
be met an order for steel from Iscor had to be placed more or less immediately.
It was
in this context that Cohou raised the question of steel at the meeting of
25 June and, more particularly, asked Lovell to place an
order for steel so as
to be able to meet the October delivery. Lovell replied that he could not order
steel without an
/ order
24
order in writing from appellant. Cohou asked whether a
telex would do and
Lovell agreed that it would. The telex
was sent there and then and Lovell was
given a photocopy
thereof. This is the full text of the telex:
"SUBJECT: KOEBERG NUCLEAR POWER STATION/ CABLE TRAYS
FOLLOWING OUR VARIOUS MEETING(S) WE HAVE PLEASURE IN INFORMING YOU THAT THE
ORDER FOR THE ABOVE HAS BEEN AWARDED TO YOURSELVES. THE
OFFICIALISATION OF THIS
ORDER WILL BE TRANSMITTED AT THE LATEST BY FRIDAY 29TH JUNE 1979. THEREFORE WE
WOULD BE VERY GRATEFUL IF
YOU WOULD ORDER ALL THE NECESSARY STEEL YOU MAY NEED
TO START MANUFACTURE AND SO THAT THE FIRST DELIVERY DATE MAY BE MET."
The word "officialisation", appearing in this
telex,
was much debated in the evidence. Lovell said that
he understood it to mean a letter on appellant's official
letterhead stating what was contained in the telex. Having
the telex, however, he did not attach much importance to this.
Cohou, on the other hand, averred that what he meant by
"officialisation of the order" was the issue of an official
/ company
25
company order with all the necessary annexures, including the documents (Exh.
2D), which had already been handed over to Lovell and
upon which agreement still
had to be reached. In view of the fact that, according to the telex, the
officialisation of the order
was to be "transmitted" within a matter of four
days, Cohou's interpretation, for what it is worth evidentially, seems
improbable.
Be that as it may, no such officialisation took place by 29 June and
in fact nothing really seems to turn on this portion of the
telex.
The request in the telex that respondent order the steel needed to start
manufacture so that the first
delivery date might be met does not quite accord with the intention that
respondent would commence manufacturing with its own stocks
of steel, but at all
events on the following day (26 June) respondent placed an official order with
Iscor for various quantities
of different types of steel
/ to
26
to a total value of R203 324,00. And on 27 June Lovell wrote to Cohou telling
him that the steel ordered from Iscor would be delivered
in September.
Thereafter, as I have indicated, the parties con-tinued to negotiate about
various aspects of the contract, to meet and to exchange
letters and telexes
until eventually negotiations broke down in mid-August. I shall refer later to
certain of these exchanges between
the parties. I pro-ceed now to the question
as to whether a binding contract between appellant and respondent came into
existence.
As WATERMEYER ACJ remarked in
Reid Bros (South Africa) Ltd v Fischer
Bearings Co Ltd
,
1943 AD 232
, at p 241, "....a binding contract is as a rule
constituted by the acceptance of an offer". Despite Mr
Osborn
's
submissions to the contrary, I am satisfied that the tender of 15 June, together
with the written addendum of 20 June, constituted
an offer made
animo
contrahendi
by the respondent.
/it
27
It is true that the tender makes reference to drawings which are not annexed
to the tender, but in my opinion the rele-vant drawings
were at the time readily
identifiable. Draw-ings marked KBA-AA, numbered 1 to 32, bearing the date-stamp
1 June 1979 and showing
details of the cable trays and the compónents to
be manufactured were brought out to South Africa from France by a Mr Pejan,
appellant's designer, on 5 June 1979. These were revised by Pejan on 8 June to
correct a mistake in regard to quantitiés and
on about 11 June Cohou
handed to Lovell a copy of Pejan's revised draw-ings. It seems obvious that
these are the drawings re-ferred
to in the tender. Apart from the correspondence
between the general description in the tender and the drawings, the quantities
in
the tender tally with Pejan's revised quantities. It is also true that at the
meeting of 19/20 June it was verbally agreed that cable
rises would be omitted
from the contract and that the length of certain
/ ladders
28
ladders would be increased from 5 to 6 metres. The tender must accordingly be
read subject to these alterations; and from here on
all references by me to "the
tender" must be understood as meaning the written tender as verbally altered on
19/20 June. Mr
Osborn
argued that these verbal amend-ments contradicted
respondent's further particulars, which alleged a written contract. This is
correct,
but the evidence as to these amendments was fully canvassed in
evi-dence by both parties and I do not think that at this stage this
small and
technical discrepancy between the pleadings and the evidence should be allowed
to affect the position.
The next question is whether the telex of 25 June constituted an acceptance,
animo contrahendi
, of respon-dent's tender. And here I would mention in
passing that it is not disputed that Cohou had the authority to contract on
appellant's behalf.
/ In
29
In my opinion, the essential words of the telex —
" we have pleasure in informing you that the order for
the above has been
awarded to yourselves" —are, in all the circumstances, susceptible only of
the meaning that the
respondent's tender is accepted. Admittedly, as
emphasized
not
by Mr
Osborn
, the telex does/say in terms that the tender
is
accepted, but what other meaning could it have? The circumstances were that the
parties had been negotiating about this contract
for months, respondent had made
a final tender, and between the date of the tender and 25 June, even on the
evidence of appellant's
witnesses, res-pondent had been given a strong
indication that the contract was to be awarded to it. The telex itself speaks of
"the
order for the above" and this clearly has reference to what is stated at
the beginning of the telex, viz. "Subject Koeberg nuclear
power station/cable
trays". This was indeed the subject-matter of the tender.
/ The
30
The difficulty of construing the telex as any-thing other than an acceptance
of the tender is demonstra-ted by the tangle Cohou, the
author of the telex, got
him-self into when trying to explain it away. His evidence on this tópic
was full of contradictions
and evasions. In evidence-in-chief Cohou stated that
when on 25 June he asked Lovell to order the steel and Lovell told him that
he
could not do so without an order from appellant, he (Cohou) proposed "an intent
to order". Lovell was not satisfied with this
proposal. Cohou then proposed "an
intent of order" together with a statement that appellant would "officialise"
within a few days.
This satisfied Lovell and it was on this basis that the telex
was sent. Its purpose was to enable Lovell to order the steel. Under
cross-examination Cohou conceded that the wording of the telex was not
consistent with it being merely a telex of intent. When asked
why the te.lex did
not say "we intend to contract with you", he replied "because Mr Lovell
(Cont. p 32) / was
32
was not pleased with that". He agreed that Lovell wanted a firm order so as
to be able to order the steel and that he agreed to "write
it that way". He said
that neverthe-less there was a "gentleman's agreement" between himself and
Lovell that the telex, although
so worded, was only to enable Lovell to order
the steel and that agreement had to be reached on all outstanding matters before
a
contract was signed. He suggested that Lovell required the order in this form
in order to satisfy "internal procedures". This evidence
as to a gentleman's
agreement was repeated when Cohou replied to certain questions put by the trial
Judge at the end of his evidence.
The averment of a gentle-man's agreement was
never put to Lovell in cross-examination and was clearly an afterthought on
Cohou's
part. The trial Judge rejected Cohou's evidence as to the meaning and
in-tent of the telex and, in my view, he was fully justified
in doing so. At the
same time it is significant that
/ Cohou
33
Cohou did not regard the telex as having reference to anything other than the
respondent's tender, as the fol-lowing extract from
his evidence under
cross-examination indicates:
"You can do the following Mr Cohou... --Yes?
You can say - 'We will accept your order in part. We will reject your order.
We will accept your order subject to certain condi-tions.'
Correct?-- Yes.
Which one did you choose to use?-- Well, the one which was chosen was 'We
accept your quotation subject to the outstanding matters
to be agreed'.
Where is that said?-- It is not said,
but that's what Mr Lovell knew about
that."
I turn now to the second leg of Mr
Osborn
's argument on the contract
issue, viz. that because as at 25 June a number of material and important
matters relating to the work
to be performed under the contract were still being
negotiated by the parties, the tender and the telex could not be regarded as
having given rise to a binding
/ contract
34
contract. There is no doubt that where in the course of negotiating a
contract the parties reach an agreement by offer and acceptance,
the fact that
there are still a number of outstanding matters material to the contract upon
which the parties have not yet agreed
may well prevent the agreement from having
contractual force. A good example of this kind of situation is provided by the
case of
OK Bazaars v Bloch
,
supra
(see also
Pitout v North Cape
Livestock Co-operative Ltd
,
supra
). Where the law denies such an
agree-ment contractual force it is because the evidence shows that the parties
contemplated that consensus
on the outstanding matters would have to be reached
before a binding contract could come into existence (see
Pitout
's case,
supra
, at p 851 B-C). The existence of such outstanding matters does not,
however, necessarily deprive an agreement of contractual force.
The parties may
well intend by their agreement to conclude a binding contract, while agreeing,
either expressly or by
/ implication
35
implication, to leave the outstanding matters to future negotiation with a
view to a comprehensive contract. In the event of agreement
being reached
ón all outstanding matters the comprehensive contract would incorporate
and supersede the original agreement.
If, however, the parties should fail to
reach agreement on the outstand-ing matters, then the original contract would
stand. (See
generally Christie,
The Law of Contract in South Africa
, pp
27-8.) Whether in a particular case the initial agreement acquires contractual
force or not de-pends upon the intention of the
parties, which is to be gathered
from their conduct., the terms of the agreement and the surrounding
circumstances (see
Pitout
's case,
supra
, at p 851 D-G). I did not
understand counsel to dis-pute the correctness ofthesegeneral propositions.
Turning to the facts of this case, there is no doubt that as at 25 June there
were still outstanding a
/ number
36
number of matters material to the contract which had been raised and
discussed in the course of the negotiations and upon which the
parties had not
yet reached agreement. These were -
(a) quality assurance and quality control;
(b) the polyurethane finish and packing specifica-tions;
(c) the proposed terms contained in Exh. 2D, which, as I have mentioned, related
to general purcha-sing conditions, commercial and
administrative conditions and
the updated technical specifi-cation;
(d) delivery dates of fabricated components;
and
(e) the dimensions of certain cable ladder components and the shape of the
ladder rungs.
It is not necessary to consider these
matters in detail,
as their materiality and importance is conceded by res-
pondent. Some matters were more important than others.
Packing specifications, for example, were of very minor
importance and possibly fell outside the original ambit
of the contract inasmuch as the tender made provision
/ for
36a
number of matters material to the contract which had been raised and
discussed in the course of the negotiations and upon which the
parties had not
yet reached agreement. These were -
(a) quality assurance and quality control;
(b) the polyurethane finish and packing specifica-tions;
(c) the proposed terms contained in Exh. 2D, which, as I have mentioned, related
to general purcha-sing conditions, commercial and
administrative conditions and
the updated technical specifi-cation;
(d) delivery dates of fabricated components;
and
(e) the dimensions of certain cable ladder components and the shape of the
ladder rungs.
It is not necessary to consider these
matters in detail,
as their materiality and importance is conceded by res-
pondent. Some matters were more important than others.
Packing specifications, for example, were of very minor
importance and possibly fell outside the original ambit
of the contract inasmuch as the tender made provision
/ for
37
for "delivery ex works". In many instances the parties reached agreement on
these matters in the negotiations which proceeded after
25 June. But, of course,
as I have shown, complete consensus was not reached and the parties did not
conclude a final comprehensive
contract. The question is whether in all the
circumstances the agreement concluded by the acceptance of respondent's tender
on 25
June gave rise to a binding contract.
The very existence of these outstanding matters and the importance attached
to them by the appellant un-doubtedly constitute a strong
pointer in the
direction of no binding contract and in the absence of cogent factors pointing
in the opposite direction I would have
been in-clined to hold in favour of the
appellant on this issue. There are, however, in my opinion, very cogent factors
pointing
in the opposite direction.
In the first place there is the wording of the
/ telex
38
telex itself. It appears on the face of it to be an unconditional acceptance
of respondent's tender. There are no qualifications or
reservations. There is no
sug-gestion that it is a provisional agreement, subject to the successful
conclusion of further negotiations.
Cohou, the author of the telex, had at all
times been at the very cen-tre of the negotiations and knew about the matters
outstand-ing.
He had ample opportunity to word the telex in such a way as to
indicate that it was not by itself a binding agreement; but he did
not do so.
His explanation for not having done so - the so-called gentleman's agreement
between himself and Lovell - is totally unconvincing.
Secondly, there are the circumstances under which the telex was sent. These I
have outlined above. There was the need to order steel
soon so as to be able to
adhere to the delivery programme and there was the respondent's insistence that
it could not commit itself
to
/ Iscor
39
Iscor without a written order from appellant. In addition, the evidence shows
that, apart from the question of the steel, Cohou was
under pressure from
appellant's head office in Paris to "get the contract fixed up" by the end of
June. In the circumstances Cohou
would have felt impelled to commit his company
to the respondent, the only tenderer under serious consideration by appellant at
that
stage. As to the outstanding matters, Cohou may well have considered that
these could safely be left to sub-sequent negotiation.
Until then the protracted
nego-tiations between the parties appear to have been con-ducted on a very
constructive and amicable basis
and this would have provided Cohou with good
grounds for think-ing that the outstanding matters could be ironed out without
difficulty.
Thirdly, the subsequent conduct of the parties supports the view that they
both regarded the contract as
/ having
40
having been awarded to respondent. I have already des-cribed how immediately
after the telex of 25 June res-pondent proceeded to order
over R200 000 worth of
steel from Iscor. On 17 July a meeting was held at Escom's premises, Megawatt
Park, to discuss appellant's
revised specification for the cable trays and in
particular the question of finishes. Lovell and a Mr Bates, represent-ing
respondent,
attended the meeting at Cohou's invitation; and Lovell took with him
representatives from Monoweld Galvanisers and Polyman Powder
Coating, experts on
finishes, who were to apply the necessary finishes to the fabricated cable trays
as respondent's sub-contractors.
Lovell stated that he would not have gone to
this meeting if there had been no contract. On the following day Bates wrote to
Cohou
thanking him for having invited respondent's repre-sentatives to the
meeting with Escom. In his letter Bates refers to "the informed
comment of our
sub-contractors"
/ and
41
and the tenor of the letter is that of a supplier to whom
a contract has
been awarded. In similar vein were a
telex sent by appellant to respondent on
19 July and a
letter of the same date from respondent in reply
thereto.
This letter concludes:
"May we now please have your instructions as to your requirements for the
immediate future against this contract. We look forward
to a happy association
with you on this contract."
On 20 July appellant sent to respondent a telex confirming
decisions taken at a meeting held on that date. These
decisions included (a) changing the steel order to Iscor
to structural grade steel and an agreement as to the
extra cost of such steel; (b) that —
"The commercial quality steel you have already in stock (roughly 400 T) will
be used until the date at which the structural steel
is expected to be
delivered";
and (c) that respondent would at its own expense conduct
/ tesbs
42
tests with reference to the steel. On 1 August a telex
was sent from
appellant's head office in Paris to Cornillon
and Cohou in South Africa with
reference to the cable trays.
It concludes —
" nothing will prevent the start
of manufacture in such a way as to per-mit a delivery on site on 08/09/79.
Having regard to the above, we ask you to start manufacture."
On 2 August appellant sent to Escom a quality control plan
for the cable
trays in which respondent is reflected as
"the supplier".
Having weighed all this evidence, I am of the opinion, as a matter of
probability, that the telex did constitute an unqualified acceptance
of
respondent's ten-der and that, despite the existence of outstanding matters,
this agreement was intended by the parties to constitute
a binding contract. At
this stage there is no dispute that this contract was repudiated. Accordingly
the appeal
/ against
43
against the findings of the Court a
quo
on the contractual issues must
fail.
I turn now to the question of damages. In the heads of argument filed by
appellant's counsel the judg-ment of the Court a
quo
on the damages issue
is subjected to a detailed critical analysis. As I have shown, how-ever, the
Court's judgment on this issue
was founded on the premise that ladder rungs were
not included in respondent's tender. It is now common cause that this premise,
contained in the Court's ruling on the contractual issues, is erro-neous,
Obviously at this stage this Court must deal with the matter
on the correct
factual basis, namely that the rungs were included in the tender. The judgment
of the trial Judge on damages is thus
no longer relevant and it is not necessary
to deal with the criticisms thereof con-tained in appellant's heads of argument.
In the
circum-stances this Court must consider afresh, on the material
/ placed
44
placed before it, the question of damages.
It follows from the finding that a binding con-tract was concluded between
the parties upon the acceptance of respondent's tender
and that this contract
was repudia-ted by appellant that respondent was entitled to be award-ed damages
by the Court a
quo
. In regard to the quantum
of such damages this Court fortunately has the assistance
of a formal admission made by the appellant.This formal
admission was
made at a pre-trial conference held on 3-
September 1982. This was just a
year after the délivery
of the trial Court's ruling on the contract
issues and
about a year before the resumption of the trial on the
damages
issues. The full text of the admission is as
follows:
"1. The defendant admits that the profit which the plaintiff would have
earn-ed from the execution of a contract to supply to the
defendant the goods
re-ferred to in schedules 1 and 2 to the
/ Further
45
Further Particulars to plaintiff's summons in the quantities set out in
Column "A" thereof in commercial quali-ty steel with a Hot
Dip Galvanised finish
to SABS 763/1977 is the sum of R113 947,05.
2. This admission is made without the defen-dant admitting that the plaintiff
has proved a contract between the plaintïff to
the defendant of the goods
referred to in paragraph 1 hereof and wïthout the defendant admitting that
the sum of R113 947,05
is made up as set out in the abovementioned schedules 1
and 2."
This admission has reference to respondent's further par-ticulars as
originally drafted, ie prior to the amendment designed to delete
rungs from the
contract and the claim. Before us it was conceded by Mr
Osborn
(correctly
in my view) that, if this Court should hold that a contract had been concluded
by appellant's acceptance (
per
the telex of 25 June) of respondent's
tender, the admission would apply and that the admission absolved the respondent
from establishing
its damages by way of evïdence.
/ He
46
He added two riders to this concession. The first was that by reason of the
amendment to respondent's pleadings respondent was now
limited to damages in the
sum of R86 687,60. This is unquestionably correct and was not disputed by Mr
Schreiner
for the respondent. The second rider was that in the light of
the admission res-pondent should be ordered to pay all costs incurred
in the
Court a
quo
after 3 September 1982.
In support of this latter rider Mr
Osborn
submitted that by accepting
the Court a
quo
's incorrect ruling in regard to the rungs and proceeding
to lead evi-dence as to damages on this incorrect premise respondent was
responsible for all the "wasted" costs incurred there-by. These costs are
"wasted" because, as I have indi-cated, the evidence is
no longer relevant. I do
not agree with this submission. I have already described the dilemma in which
the respondent was placed
by the trial Judge's
/ erroneous
47
erroneous ruling. Asked what the respondent ought to have done in the
circumstances, Mr
Osborn
replied that it ought to have closed its case at
the resumption of the trial. Mr
Osborn
conceded that had respondent done
this it would inevitably have been faced with an adverse judgment (pro-bably
absolution from the
instance) from the trial Court, but he argued that
respondent could then have relied upon setting matters right on appeal. No doubt
this was an option open to respondent as an alternative to what it did, but I am
not persuaded that in taking the course which it
did in order to obtain a
favourable, and not an adverse, judg-ment from the Court a
quo
(and
incidentally in the process sacrificing over R27 000 in damages) the respondent
acted so unreasonably that it should be mulcted
in costs in the Court below.
For these reasons the appeal is dismissed with costs,
including the costs of two counsel. M M CORBETT. VILJOEN JA) BOTHA JA)
NICHOLAS AJA) CONCUR. NESTADT AJA)