Kantey and Templer (Pty) Limited and Another v Van Zyl NO and Another (A867/05) [2006] ZAWCHC 39; 2007 (1) SA 610 (C) (31 August 2006)

About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Western Cape High Court, Cape Town
SAFLII
>>
Databases
>>
South Africa: Western Cape High Court, Cape Town
>>
2006
>>
[2006] ZAWCHC 39
|

|

Kantey and Templer (Pty) Limited and Another v Van Zyl NO and Another (A867/05) [2006] ZAWCHC 39; 2007 (1) SA 610 (C) (31 August 2006)

THE HIGH COURT OF SOUTH
AFRICA
REPORTABLE
[CAPE OF GOOD HOPE
PROVINCIAL DIVISION]
Case No: A867/05
In the matter between:
KANTEY & TEMPLER (PTY) LIMITED
First
Appellant
PETER WORTHINGTON-SMITH
Second Appellant
and
CHRISTOPHER PETER VAN ZYL N.O.
First
Respondent
EILEEN FEY N.O.
Second Respondent
JUDGMENT DELIVERED ON THURSDAY 31
ST
AUGUST 2006
FOURIE, J:
INTRODUCTION
[1] This appeal concerns the liability in delict for
so-called pure economic loss, resulting from the representation by
project managers
who were responsible for the appointment of
contractors for the erection of a cold storage fruit terminal, that
they were acting
on behalf of an existing principal, while such
principal did not exist and never came into existence.
[2] Respondents are the joint liquidators of Gransteel
(Pty) Limited (“Gransteel”) who sued appellants jointly and
severally for
damages caused by the economic loss suffered by
Gransteel prior to its liquidation. Respondents initially claimed R2
333 127-67 as
damages, which amount was reduced to R1 616 366-00 at
the trial. The court
a quo
(Yekiso J) found that appellants
are jointly and severally liable to compensate respondents for the
loss incurred by Gransteel, but
that Gransteel had been equally to
blame for the loss and accordingly awarded respondents the sum of
R808 183-00 as damages, with
interest and costs.
[3] Appellants, with the leave of the court
a quo
,
appeal against the whole of the judgment and order made by Yekiso J.
Respondents, also with leave of the court
a quo
, cross-appeal
against the apportionment of the damages and the costs order allowing
the costs of one counsel only.
THE RELEVANT FACTS
[4] The facts relevant to respondents’ cause of action
are largely common cause or at least not disputed, given that
appellants
did themselves not lead any evidence. These facts appear
from the admissions made on the pleadings and the evidence of Messrs.
PJ McCoy
(the chairman of Gransteel),
G Ellis
( the
managing director of Gransteel) and
B Gutman
(the receiver in
a scheme of arrangement involving a company known as DTL Shipping and
Customs Services (SA) (Pty) Limited (“DTL”)).
[5] Gransteel was a relatively small company with
McCoy
and his wife as the only shareholders. It was founded in 1972 and
involved in the manufacture and erection of structural steelwork.
It
was wound up in 2001. First appellant is a large and well established
consulting engineering practice. Second appellant is a leading
applied refrigeration consultant. Gransteel,
McCoy
and
Ellis
had a longstanding business association with first
appellant (in particular
Dr. Twemlow
of first appellant) and
second appellant. Over a period of some thirty years Gransteel was
involved in a number of successful contracts
for the manufacturing
and erection of steelwork in conjunction with first and second
appellants.
McCoy
and
Ellis
had great respect for
Twemlow
and second appellant, both of whom they regarded as
brilliant engineers and leaders in their field.
[6] During October 1998, second appellant assisted DTL
with a proposal relating to a fruit terminal to be constructed on
land belonging
to Spoornet in the harbour area of Port Elizabeth.
This involved the erection of a building of ten thousand square
meters in size
at an estimated project cost of R23 million. At the
same time first appellant accepted an appointment from DTL to act as
engineers
in respect of the construction of the fruit terminal, with
responsibilities including the conclusion of contracts between the
developer
and contractors and, jointly with second appellant, the
co-ordination of contractors and consultants. First appellant also
engaged
second appellant in terms of an oral agreement to act as a
refrigeration consultant in relation to the project and second
appellant
thereafter acted in the course and scope of first
appellant’s employ. The developer of the project was to be a
consortium comprising
Spoornet, DTL and overseas investors.
[7] At the end of October 1998, second appellant
informed
Ellis
that he wanted Gransteel to manufacture and
erect the structural steelwork for the project.
Ellis
and
McCoy
understood second appellant to be acting on behalf of a
consortium of which Spoornet was a member.
Ellis
was informed
that the project was very urgent and had to be completed by 12 April
1999, in time for the citrus fruit season. This
was the reason that a
negotiated contract, rather than a tender process, was preferred.
Second appellant provided
Ellis
with a line drawing of the
proposed building prepared by first appellant. This drawing was used
by
Ellis
to prepare a budget quotation for the steelwork and
after further meetings with
Twemlow
and second appellant,
Gransteel provided more detailed drawings and a further quotation for
the steelwork. On 17 November 1998, and
at the request of second
appellant,
Ellis
provided a proposed program for the
steelwork, commencing on 7 December 1998 and ending approximately 22
February 1999.
Ellis
was shortly thereafter telephonically
advised by second appellant, or possibly by first appellant, to
proceed with the construction
of the steelwork.
[8] Gransteel ordered the steel required for the
construction of the steelwork shortly after 17 November 1998, and it
arrived at Gransteel’s
premises on 23 November 1998. Gransteel
commenced work immediately. According to
McCoy
and
Ellis
they would under no circumstances have commenced the work without an
instruction to proceed. On 30 November 1998, Gransteel provided
a
further quotation for additional work required. Approximately one
week after Gransteel had commenced work, second appellant
telephonically
requested
Ellis
to stop work as there might be
some problem. He did not indicate what the problem was. Gransteel
stopped work, but approximately
one week later, second appellant
telephoned
Ellis
and reported that everything had been sorted
out. He requested Gransteel to continue, which it did. Details of the
structural steelwork
carried out by Gransteel appear from annexures
PPC4, PPC5 and PPC6.1, to the amended particulars of claim.
[9] However, on 26 January 1999, the building
contractor, LTA Building (Eastern Cape) (Pty) Limited (“LTA”),
advised Gransteel
that all work on the site had to be suspended with
immediate effect. All work on the construction of the fruit terminal
ceased and
did not thereafter resume. After LTA had given the final
order to stop the work, LTA presented Gransteel with a written
contract
appointing Gransteel as the sub-contractor of LTA. Gransteel
signed the contract, but notwithstanding the efforts of various
parties
to salvage the project, same was abandoned. Gransteel
received no payment for the work performed by it in respect of the
construction
of the fruit terminal. This was instrumental in
Gransteel’s subsequent liquidation in 2001.
McCoy
testified
that he believed that had Gransteel been paid, its liquidation would
have been avoided.
[10] Although appellants adduced no evidence, their
knowledge of the consortium which was to be the developer of the
project, appears
from certain documentation and questions put in
cross-examination on their behalf. I refer to the following:
Twemlow
discussed the formation of the
consortium with Mr.
Pickstone-Taylor
of DTL, and was made
aware that the consortium still had to be formed and that until such
time as it was finalised, DTL would stand
good for any costs
incurred with the erection of the fruit terminal. This was not
conveyed to the representatives of Gransteel.
Ellis
testified
that had he been aware of it, he would not have ordered any
materials or continued with the contract.
On 25 November 1998, second appellant wrote to DTL
raising concerns regarding the project. He recorded that expenses
were being
incurred with DTL “standing security for these on
behalf of the ultimate client”. He also explained that it was
difficult to
answer questions as to whether the project was going
ahead. The reference to the “ultimate client” is obviously a
reference
to the consortium to be formed. These concerns of second
appellant were not conveyed to Gransteel nor was Gransteel informed
that
the “ultimate client” was not in existence.
A chronology prepared by
Twemlow
, records the
following: On 27 November 1998
Pickstone-Taylor
advised that
“our client will be a company to be formed in which DTL, Spoornet
and some European operations will be the shareholders”
and that
“agreement between the shareholders is being finalised”; on 30
November 1998
Pickstone-Taylor
instructed first appellant to
proceed; on 18 December 1998 reference is made to first appellant’s
appointment letter being revised
to refer to Fruit Terminal Port
Elizabeth (Pty) Ltd, after DTL had advised that this company would
undertake the development and
it is recorded that there were various
discussions with
Pickstone-Taylor
in December 1998 who
“advised that negotiations with the various potential shareholders
were proceeding; that funds would be
in place by 31 December 1998
and that until then DTL would fund the development”; on 8 January
1999
Pickstone-Taylor
“promises that progress is being made
with negotiations and payment will be by Wednesday 13 January” and
during January 1999
Pickstone-Taylor
“continues to promise
finance from overseas investors is imminent”.
From this chronology of
Twemlow
it appears that
appellants instructed Gransteel to proceed with the work even before
they had received such an instruction from DTL.
In addition, the
factual position regarding the consortium and its finances was not
conveyed to the representatives of Gransteel.
As testified by
McCoy
and
Ellis
, had they known these facts they would never
have undertaken the steelwork.
[11] On 8 December 1998,
Twemlow
wrote to DTL and
copied his letter to second appellant, but not to Gransteel. In this
letter he confirmed DTL’s verbal instruction
to accept the contract
with Gransteel. It will be recalled that appellants had already
shortly after 17 November 1998, given Gransteel
the instruction to
proceed. The letter also records that as the ultimate client company
was not in place, Gransteel required a payment
guarantee for R1.4
million being their anticipated expenditure during December 1998. As
I have already mentioned, Gransteel was unaware
that the ultimate
client was not in place. The statement that Gransteel required a
payment guarantee was also untrue. As testified
by the
representatives of Gransteel, had they known the true state of
affairs, Gransteel would not have requested a payment guarantee,
but
would simply not have taken on the contract at all.
[12] Appellants advised certain other contractors that
although DTL had given the instruction to proceed, DTL would not be
the final
contracting party. Appellants, however, failed to convey
this to Gransteel.
RESPONDENTS’ CASE
[13] Respondents sued appellants in delict on the basis
of the
actio legis
Aquiliae
. It was accordingly
necessary for respondents to prove, on a preponderance of
probabilities, conduct on the part of the appellants,
in the form of
a misrepresentation and/or omission, which was wrongful and negligent
and which caused economic loss to Gransteel.
[14] In their particulars of claim, as amended,
respondents allege that in concluding the structural steelwork
contract and thereafter
instructing Gransteel to proceed with the
structural steelwork, appellants represented to Gransteel that:
they were acting on behalf of the developer of the
project;
the joint venture developer (consortium) had been
established; and
the necessary financial arrangements were in place to
enable the project to proceed.
Respondents allege that the aforesaid representations
were false in that the developer did not exist, no joint venture had
been established
and the necessary financial arrangements to enable
the project to proceed were not in place.
[15] Respondents further allege that appellants knew,
alternatively ought in the circumstances to have known, that
Gransteel would
rely on the said representations and that Gransteel
in fact relied on same in concluding the structural steelwork
contract and in
proceeding with the steelwork. Respondents aver that
in the circumstances appellants owed Gransteel a duty of care not to
make the
said representations.
[16] Finally, it is alleged that the representations
were made deliberately, alternatively negligently, inter alia, in
that:
appellants failed to advise Gransteel of the fact that
the joint venture had not been established and no developer existed;
appellants failed to take reasonable steps to establish
whether a joint venture had been established and whether a developer
existed;
and
appellants failed to advise Gransteel that the
necessary financial arrangements to enable the project to proceed
were not in place
and that should Gransteel proceed with the
structural steelwork, it would do so at its own risk.
Respondents concluded by alleging that had Gransteel
been aware of the true facts, it would not have undertaken the
steelwork at all
and as a consequence thereof Gransteel sustained
damages as set out in the annexures to the particulars of claim.
[17] I should add that although deliberate
misrepresentations had been pleaded by respondents, their case at the
trial was advanced
only on the basis of the said misrepresentations
having been made negligently.
THE JUDGMENT OF THE COURT A QUO
[18] Yekiso J held that having regard to the previous
business dealings between the parties and appellants’ knowledge of
the financial
arrangements required to enable the fruit terminal
project to proceed, appellants owed Gransteel a duty of care to
disclose to Gransteel
the true state of affairs relating to the
ultimate client and, in particular, whether the necessary financial
arrangements were in
place to enable the envisaged project to
proceed. He further held that appellants’ failure to disclose these
facts to Gransteel
constituted wrongful conduct.
[19] With regard to the requirement of negligence, the
learned judge
a
quo
found that by “instructing
Gransteel to proceed with the contract without the ultimate client
being in place and with a clear knowledge
that financial arrangements
were not in place to enable the fruit terminal project to proceed,
both appellants ought to have foreseen
the reasonable possibility of
their conduct causing Gransteel to suffer financial loss, which
eventuality they were in a position
to guard against”. He
accordingly held that the failure by both appellants to guard against
this eventuality constituted negligence
on their part.
[20] The court
a quo
found that the
misrepresentations made by appellants induced Gransteel to conclude
the structural steelwork contract. The learned
judge further held
that had it not been for the misrepresentations, Gransteel would not
have proceeded with the contract and incurred
the expenses which
resulted in its financial loss. He accordingly found that the
requirements of causation had been met and that
the amount of R1 616
366-00 accurately reflected Gransteel’s loss.
[21] With regard to the finding of contributory
negligence on the part of Gransteel, the court
a quo
held that
Gransteel ought to have exercised caution as regards the party with
whom it was entering into a contractual relationship,
particularly
where it was invited to participate in a project of this magnitude
where there had been no general call for tenders.
He found that it
was not reasonable of Gransteel “to have deliberately shut its
eyes, refrained from making enquiries in circumstances
where it would
have been reasonable to do so”. In addition, the court
a quo
alluded to the fact that after the initial instruction to commence
the work, Gransteel was instructed to stop and later instructed
to
proceed, and this “ought to have excited suspicion on the part of
Gransteel which would have warranted a diligent enquiry”.
The court
a quo
accordingly found that Gransteel was equally to blame
for the economic loss it suffered.
[22] The court
a quo
did not deal with
respondents’ request for the costs of two counsel at all. The
learned judge merely ordered appellants to pay
respondents’ costs
of suit, duly taxed or as agreed.
SUBMISSIONS ON APPEAL
[23] Appellants submit that respondents failed to
establish conduct on the part of appellants, in the form of an act or
omission,
which was wrongful and negligent and which caused loss to
Gransteel. In regard to the quantum of damages, appellants submit
that
respondents failed to place sufficient evidence before the court
a quo
to enable it to compute the damages allegedly suffered
by Gransteel.
[24] Respondents support the findings of the court
a
quo
, save in regard to the finding that Gransteel was
contributory negligent. They submit that Gransteel was practically
and contractually
prevented from making the independent enquiries
which the court
a quo
required of them. In regard to costs,
respondents submit that the court
a quo
ought to have awarded
the costs of two counsel, as the case involves an unusual claim in
delict justifying the employment of two
counsel.
EVALUATION
[25] I proceed to consider whether respondents satisfied
the requirements for a delictual claim and also deal with the
ancillary issues
of contributory negligence, costs and interest.
CONDUCT ON THE PART OF APPELLANTS
[26] It is not in dispute that appellants represented to
Gransteel that they were acting on behalf of a consortium, but never
informed
Gransteel that the consortium was not yet in existence, nor
that the necessary financial arrangements were not in place to enable
the project to proceed.
WRONGFULNESS
[27] Negligent conduct manifesting itself in the form of
a positive act causing physical damage to the property or person of
another,
is
prima facie
wrongful. However, where the conduct
constitutes negligent omissions or negligent misrepresentations
causing pure economic loss,
wrongfulness depends on a legal duty not
to act negligently. The imposition of such a legal duty is a matter
for judicial determination
involving criteria of public or legal
policy consistent with constitutional norms. When a court is
requested to accept the existence
of a legal duty in the absence of
any precedent, as in the instant case, it is in reality asked to
extend delictual liability to
a situation where none existed before.
The crucial question in such event is whether there are any
considerations of public or legal
policy which require that
extension. In answering the latter question, what is called for is
not an intuitive reaction to a collection
of arbitrary factors, but
rather a balancing against one another of identifiable norms. See
Administrateur, Natal v Trust Bank van Afrika Bpk
1979 (3) SA
824
(A) at 833 A;
Gouda Boerdery Bk v Transnet
2005 (5) SA 490
(SCA) in para 12;
Minister of Safety and Security v Van
Duivenboden
2002 (6) SA 431
(SCA) in para 12, 21 and 22;
Telematrix (Pty) Ltd t/a Matrix
Vehicle Tracking v
Advertising Standards Authority SA
2006 (1) SA 461
(SCA) in para
6 and 14;
Trustees, Two Oceans Aquarium
Trust v Kantey and
Templer (Pty) Ltd
2006 (3) SA 138
(SCA) in para 10 – 12.
[28] As was pointed out by Navsa JA, in
Axiam
Holdings Ltd v Deloitte and Touche
2006 (1) SA 237
(SCA) in para.
11, the factors to be taken into account in considering whether a
party, in making a misrepresentation causing pure
economic loss,
acted in breach of a legal duty not to act negligently, were set out
with customary clarity by Corbett CJ in
Standard Chartered Bank of
Canada v
Nedperm Bank Ltd
[1994] ZASCA 146
;
1994 (4) SA 747
(A) at 770.
These include the context in which the statement was made; the nature
of the statement; the purpose of the statement;
the reliance by the
other party on the statement; the relationship between the parties
and considerations of public policy, fairness
and equity. In the
latter regard the spectre of limitless liability or the placing of an
unfair or undue burden on the defendant,
come into play. In my view
similar considerations would,
mutatis mutandis
, apply when
considering whether an omission causing pure economic loss,
constitutes a breach of a legal duty not to act negligently.
[29] In the instant case it is common cause that there
had been a long-standing business relationship between appellants and
Gransteel,
prior to the engagement of Gransteel by appellants to
manufacture and erect the steelwork for this project. It is clear
from the
evidence, that due to their successful previous dealings,
McCoy
and
Ellis
had absolute faith in the ability of
appellants to properly carry out their duties as project managers.
This was clearly justified
as Gransteel had successfully completed
several cold stores in tandem with appellants as engineers or project
managers and had always
received payment.
McCoy
and
Ellis
testified that in their past business dealings with appellants they
also did not meet the clients before contracting.
[30] The duties of first appellant included the
conclusion of contracts between the developer and the contractors
and, jointly with
second appellant, the co-ordination of contractors
and consultants. It follows, as had been the case throughout the
longstanding
business relationship of Gransteel and appellants, that
Gransteel would not deal directly with the ultimate client or
developer of
the fruit terminal project. All the negotiations leading
up to, as well as the conclusion of a contractual relationship, would
be
conducted by Gransteel and appellants, the latter acting on behalf
of the developer (the consortium). The evidence of Gransteel’s

representatives shows that in their previous dealings with
appellants, the ultimate clients always met their financial
obligations
to Gransteel and it can accordingly reasonably be
inferred that such clients were in existence.
[31] Appellants were aware when they contracted with
Gransteel to do the structural steelwork for the fruit terminal, that
the ultimate
client, the envisaged consortium, had not yet been
established. That notwithstanding, appellants represented to
Gransteel that they
were acting on behalf of the consortium, thereby
representing that the consortium was already in existence and, by
necessary implication,
that the necessary financial arrangements were
in place to enable the project to proceed.
McCoy
and
Ellis
had no reason to doubt that they were contracted by appellants on
behalf of a consortium which consisted of financially powerful
entities, with the result that they would, as in the past, be paid
their contractual remuneration.
[32] Appellants were at all material times aware that
the project was dependent on foreign funding by members of the
envisaged consortium.
Budget control and liaison with the ultimate
client were part of their responsibilities. They also knew that while
the consortium
was not finalised, DTL would have to stand good for
the costs of the project. DTL did not have the financial capacity to
fund the
project and according to
Gutman
it was well known
within the industry that DTL was experiencing financial difficulties.
On the probabilities this would have been
known to appellants; in
fact first appellant appears to have considered the situation so
serious that he requested a payment guarantee
from DTL in respect of
work done by Gransteel and falsely represented to DTL that Gransteel
required same.
[33] Appellants did not only represent to Gransteel that
they were acting on behalf of a consortium, which, unbeknown to
Gransteel,
was non-existent and in fact never came into existence,
but also concealed their concerns regarding the consortium and the
required
finance, from Gransteel. In addition, they required
Gransteel to commence with the steelwork as a matter of urgency. In
my view there
is clearly merit in respondents’ submission that
appellants withheld this crucial information from Gransteel knowing
that had Gransteel
been aware of the true position at the time it was
requested to undertake the structural steelwork, it would in all
probability have
declined to do so.
[34] It will be recalled that approximately one week
after Gransteel had commenced the work, it was requested by second
appellant
to stop as there was a problem. About one week later second
appellant gave the green light for Gransteel to continue with the
work.
He did not inform Gransteel of the reason for the stoppage, but
merely said that the problem had been sorted out. This conduct of
second appellant no doubt confirmed the impression of
McCoy
and
Ellis
that the state of affairs relative to the consortium and
its finances was in order. It is significant that at this stage
appellants
persisted in their failure to advise Gransteel that the
consortium had not yet been formed or that there were concerns
regarding
the finances of the project.
[35] It was submitted on behalf of appellants that
McCoy
and
Ellis
were, particularly in view of the comforting
presence of Spoornet, so unconcerned as to the nature of the
consortium and the identities
of its constituents, that these factors
cannot have been material to them. In fact, it was argued that the
probabilities favour the
conclusion that even if they had been made
aware of the non-existence of the consortium, they would have entered
into the contract
and commenced with the erection of the steelwork
for the project. It was also argued that in the circumstances
Ellis
and
McCoy
paid no heed to the financial arrangements being in
place and in any event confirmed that neither
Twemlow
nor
second appellant ever gave them any express assurance about the
financial ability of the consortium. In the circumstances, and
as
appellants were unaware of the identity of the prospective
participants in the consortium, it was argued that appellants were
under no duty to reveal to Gransteel that the consortium had not yet
been finalised.
[36] In my view the aforesaid contention of appellants
fails to take proper account of the long-standing relationship
between Gransteel
and appellants and the extent to which
McCoy
and
Ellis
relied upon the highly regarded
Twemlow
and
second appellant. The clear and uncontradicted evidence of
McCoy
and
Ellis
is that had they been made aware of the
non-existence of the consortium, they would definitely not have
entered into the contract
and commenced with the erection of the
steelwork. On the strength of what was conveyed to them by
Twemlow
and second appellant, they assumed that the consortium had been
finalised and that financial arrangements were in place. Appellants
did not tender any evidence to gainsay this evidence of
McCoy
and
Ellis
or to show that their assumption was unreasonable.
In my view there is no merit in the submission that had
McCoy
and
Ellis
been made aware of the non-existence of the
consortium, they would still have concluded the contract.
[37] I have no hesitation in finding that the
probabilities overwhelmingly show that had
McCoy
and
Ellis
been made aware of the non-existence of the consortium they would not
have concluded the contract and commenced with the steelwork
for the
project. I am further of the view that there is no merit in the
submission of appellants that in the light of Spoornet’s
presence
and the assurances of
Pickstone-Taylor
of DTL, appellants
could not reasonably have foreseen the possibility of the project not
going ahead and the finance not being available.
As submitted by
respondents, this is entirely at odds with the factual position and
it is in any event clear that, to appellants’
knowledge, Spoornet’s
involvement was limited to the provision of a site. To this should be
added the fact that appellants did
not testify, with the result that
there is no factual basis for this submission.
[38] In considering the relationship between appellants
and Gransteel, it should in my view be borne in mind that appellants’
own
documentation shows that at the time they engaged Gransteel to do
the steelwork for the project, they had no reasonable grounds for
believing that the consortium was already in existence. They were
accordingly fully aware of the fact that they did not have the
necessary authority to represent an existing consortium and to
conclude a contract with Gransteel on behalf of such a consortium.
Where a person represents to a third party that he or she has
authority to conclude a contract on behalf of a principal, but does
not have the necessary authority to do so, or where the principal is
in fact non-existent, no contract can come into existence between
the
third party and the principal (or fictitious principal), nor is the
would-be agent personally liable as principal. I obviously
exclude
the case where pre-incorporation contracts of a company to be formed,
are ratified in terms of section 35 of the Companies
Act No. 61 of
1973.
[39] In
Blower v Van Noorden
1909 TS 890
, Innes
CJ held that a person who concludes a contract in the name of another
but without authority, “must be held to have impliedly
promised
that his principal should be bound by it, and that if not he would
make good to the other party the damages resulting from
that fact”.
This is known as the agent’s liability for breach of his implied
warranty of authority. The extent of the agent’s
liability will be
to put the third party in the position in which the latter would have
been if the agent had had authority to conclude
the specific act.
That position will depend on the financial stability of the person on
whose behalf the agent professed to act and
on the terms of the
professed contract. It was, however, held in
Indrieri v Du Preez
1989 (2) SA 721
(C) that where the agent’s alleged principal is in
fact non-existent, no liability based upon the breach of the agent’s
implied
warranty of authority, arises. The reason for the
non-availability of this cause of action was convincingly explained
as follows
by Scott AJ (as he then was), Friedman J (as he then was)
concurring, at 728E:
“This cause of action is clearly inappropriate in a case such as
the present where the principal on whose behalf an agent purported
to
enter into a contract is non-existent. If for no other reason, this
is because any attempt to determine what a non-existent party
would
have been able to pay had he existed is not possible.”
See also, Kerr,
The Law of Agency
, 3
rd
Edition, page 318.
[40] It follows from the aforesaid, that were a third
party contracting with the “agent” of a non-existent principal,
to be denied
a claim in delict, he or she would be left without a
remedy to recover loss suffered as a consequence of the agent’s
misrepresentation
of authority or omission to advise the third party
of his lack of authority. In fact, a claim in delict appears to be
the only available
remedy for the innocent third party contracting
with the would-be agent of a non-existent principal. In this regard
Scott AJ said
the following in
Indrieri v Du Preez
, supra, at
728F:
“It does not follow, of course, that a party in the position of the
plaintiff in the present case is necessarily without a remedy.
Indeed, it is difficult to conceive of a case in which a would-be
agent who purports to act on behalf of an existent, but in truth
non-existent, principal would not have acted either negligently or
fraudulently.”
[41] I am of the view that in the peculiar circumstances
of the instant case, set out hereinbefore, considerations of public
policy,
fairness and equity demand the imposition of a legal duty
which required appellants not to negligently represent to Gransteel
that
they had the necessary authority to act on behalf of a
consortium, while such consortium was not yet in existence (or a
legal duty
not to negligently omit to inform Gransteel that the
consortium was not yet in existence). In my opinion the
representatives of Gransteel
had the right to have it communicated to
them that the consortium was not yet in existence, which right “would
be mutually recognised
by honest men in the circumstances”.
(
Pretorius and Another v Natal South Sea Investment Trust Ltd
(under Judicial Management
)
1965 (3) SA 410
(W) at 418E-F).
The relationship between Gransteel and appellants was, in my view,
such that the representatives of Gransteel were
entitled to rely on
the frank disclosure by appellants of material matters within the
latters’ exclusive knowledge regarding the
formation of the
consortium and its ability to finance the project. (
McCann v
Goodall Group
Operations (Pty) Ltd
1995 (2) SA 718
(C) at
723E-G).
[42] In imposing a legal duty of this nature on
appellants, there is also no concern for the creation of limitless
liability, as the
duty will only affect the present parties and apply
in the peculiar circumstances of this case. While realising that our
courts adopt
a cautious approach to the extension of the scope of the
Aquilian action to new situations, I am of the view that in the
circumstances
set out hereinbefore, there are sufficient positive
policy considerations for the extension of delictual liability in the
instant
case, by finding that appellants were subject to a duty to
avoid negligently causing Gransteel harm.
NEGLIGENCE
[43] In view of my finding that appellants owed
Gransteel the aforementioned duty of care, the next inquiry is
whether appellants
negligently breached this duty. The test to be
applied is that formulated in
Kruger v Coetzee
1966 (2) SA 428
(A) at 431, namely:
whether a reasonable person in the position of
appellants would have foreseen the reasonable possibility of
economic loss being
caused to Gransteel if appellants were to
represent to Gransteel that they acted on behalf of a consortium,
while omitting to inform
Gransteel that the consortium was not yet
in existence; and
whether a reasonable person would have taken steps to
guard against such occurrence; and
appellants failed to take such steps.
[44] In my opinion a reasonable person in the position
of appellants would have realised that in view of the manner in which
these
parties conducted their long-standing business relationship,
Gransteel would have depended upon appellants to inform them of any
material matters regarding the formation of the consortium or its
ability to afford the project. The reasonable person would, in
my
opinion, also have realised that as this was a very big contract for
Gransteel, which had to commence as a matter of urgency,
Gransteel
would have been even more reliant upon appellants to advise them of
any material fact within their knowledge, which may
reasonably
indicate that Gransteel may not be able to recover the expenses which
they were required to incur. In the prevailing circumstances
a
reasonable person would, in my view, have foreseen the reasonable
possibility of the consortium not coming into existence and the
resultant loss that Gransteel would then perforce suffer. As I have
already mentioned, there is in my view much to be said for the
contention that appellants withheld this crucial information from
Gransteel, knowing that had Gransteel been aware of the true
position,
it would have declined to do the steelwork. Their reason
for declining would obviously be a concern that a loss may be
incurred if
work is done by Gransteel prior to the formation of the
consortium.
[45] It follows, in my view, that a reasonable person
would in the circumstances have guarded against the resulting loss
suffered
by Gransteel, by making full disclosure to Gransteel of the
fact that the consortium was not yet in existence at the time when
the
contract was entered into. As it is common cause that appellants
failed to make such disclosure, I am in agreement with the court
a
quo
that appellants negligently breached the duty of care which
they owed Gransteel.
CAUSATION
[46] In
Minister of Police v Skosana
1977 (1) SA
31
(A) at 34F-G, Corbett JA (as he then was), authoritatively stated
the requirement of causation as follows:
“Causation in the law of delict gives rise to two rather distinct
problems. The first is a factual one and relates to the question
whether the negligent act or omission in question caused or
materially contributed to…the harm giving rise to the claim. If it
did not, then no legal liability can arise and cadit quaestio. If it
did, then the second problem becomes relevant, viz whether the
negligent act or omission is linked to the harm sufficiently closely
or directly for legal liability to ensue or whether, as it is
said,
the harm is too remote. This is basically a juridical problem in
which considerations of legal policy may play a part”.
[47] I have already found that had appellants made
McCoy
and
Ellis
aware of the non-existence of the consortium,
Gransteel would not have entered into the contract and commenced with
the erection of
the steelwork. In such event Gransteel would not have
suffered the loss which respondents now seek to recover from
appellants. This
satisfies the requirement of factual causation.
Appellants, however, argued that once Gransteel became contracted to
LTA, as mentioned
in paragraph 9 above, it was entitled to look to
LTA for payment. In view thereof appellants contend that the causal
link between
any negligent misrepresentation or omission on their
part, and the loss suffered by Gransteel, was legally severed. As I
understand
this contention of appellants, it relates to the
requirement of legal causation, in the sense that the intervention of
LTA could
be regarded as a
novus actus
which sufficiently
interrupted the chain of causality to absolve appellants from
liability.
[48] As remarked by Neethling
et al
,
Law of
Delict
, 4
th
edition, page 185, legal causation is
normally only problematic where a whole chain of consecutive or
remote consequences results
from the wrongdoer’s conduct, and where
it is alleged that he should not be held legally responsible for all
the consequences.
In the instant case the consequence of the
negligent misrepresentation or omission by appellants, was that
Gransteel embarked upon
the project. That establishes the causal
nexus between the conduct of appellants and the conclusion and
performance of the contract
by Gransteel, which led to Gransteel
suffering economic loss. As explained by JC Van Der Walt and JR
Midgley,
Principles of Delict
, 3
rd
edition, page
207, the remaining question then is whether the intervention of LTA
had the effect of completely neutralising the causative
potency of
appellants’ original conduct, which would render the link between
appellants’ conduct and the harm too tenuous. In
my view this
question has to be answered in the negative. Even if one accepts that
respondents have a claim against LTA based upon
the subsequent
appointment of Gransteel as LTA’s subcontractor, I fail to see why
this should impact negatively upon their claim
which they may have
against appellants in delict. It is not a case of concurrent claims
that are available to respondents, but two
separate causes of action
based on separate facts, which entitled respondents to choose whether
to sue appellants in delict or resort
to a contractual claim against
LTA. The existence of a contractual claim against LTA, can
accordingly not, in my opinion, result
in a finding that the link
between appellants’ negligent conduct and the loss suffered by
Gransteel, has been rendered too tenuous
to support a delictual claim
against appellants.
[49] In any event, a perusal of the written subcontract
concluded between Gransteel and LTA after the work had finally been
stopped,
leaves me in serious doubt as to whether it affords
respondents a contractual claim against LTA. Clause 12.2 of the
appendix to this
subcontract, provides that LTA would make payment to
Gransteel “within two days of either the due date of payment to, or
receipt
of payment by, the contractor (LTA), whichever is the
latest.” This indicates that Gransteel’s entitlement to payment
from LTA
was dependent upon the receipt of payment by LTA from the
ultimate client. As the consortium as ultimate client never came into
existence,
it is doubtful whether respondents would be able to
recover any payment from LTA.
[50] I accordingly find that respondents satisfied the
requirement of causation for their delictual claim against
appellants.
QUANTUM OF DAMAGES
[51] It is trite that the nature of delictual damages is
that of negative interesse, which is usually determined with
reference to
a person’s position immediately before a delict was
committed against him or her (or his or her position if a delict had
not been
committed). The object of an award of damages in the instant
case, must accordingly be to place respondents in the position in
which
Gransteel would have been, but for the misrepresentation of
appellants that they represented an existing consortium and their
concomitant
failure to apprise Gransteel of the true state of affairs
relative to the non-existent consortium whom they purported to
represent.
See Visser and Potgieter’s
Law of Damages
, Second
Edition, Part III.
[52] The basis upon which respondents calculated the
damages suffered by Gransteel, is set out in annexure PPC6 to the
particulars
of claim, read with Gransteel’s revised written
quotation, dated 23 November 1998. This comprises wasted expenses
incurred by Gransteel
in respect of the steelwork done and the
profits foregone by Gransteel, as a result of the negligent conduct
of appellants. Appellants
contend that respondents simply adduced the
various components which made up the basis for preparing Gransteel’s
contractual quotation
and accordingly failed to place sufficient
evidence before the court
a quo
of the amounts which Gransteel
had actually expended. In addition, appellants maintain that
respondents have failed to prove that
had Gransteel not undertaken
this project, it would have done other work which would have rendered
it a profit. In fact, appellants
argue that all that respondents did
was to claim the contractual award to which Gransteel was entitled,
which would represent the
positive interesse, and not the negative
interesse to which they are entitled as delictual damages.
[53] The evidence of
Ellis
in regard to the final
quotation dated 29 November 1998, is that it represents an accurate
computation of the costs and expenses incurred
by Gransteel in
performing its contractual obligations. According to
Ellis
this represented the cost of material obtained from suppliers and the
standard rate per hour paid to workers for the erection of
the
steelwork. The latter is based on an hourly rate per ton. His
evidence further shows that, save for the miscellaneous steelwork
not
done as set out in annexure PPC6, the rest of the steelwork which
Gransteel contracted for, was completed. In arriving at the
net
figure in regard to costs and expenses incurred by Gransteel, the
cost of the miscellaneous steelwork not done, is deducted.
In my
opinion this evidence of
Ellis
, which was in any event not
challenged, provides sufficient proof of the costs and expenses
actually incurred by Gransteel in partially
completing the steelwork
for the project. It was accordingly not necessary for respondents, as
submitted by appellants, to provide
independent documentary proof
from the suppliers of Gransteel and other sources, that such costs
were actually incurred.
[54] Appellants further contend that respondents failed
to provide acceptable evidence to show that had Gransteel not been
involved
in the Port Elizabeth project, it would have done other work
of the same magnitude which would have covered their fixed overhead
costs and earned the same profit. In this regard
Ellis
testified that had Gransteel not been employed on the Port Elizabeth
project, it is likely that it would have performed other work
which
would have rendered the same profit and covered its overhead costs.
This evidence of
Ellis
pertained to the period during which
the Port Elizabeth project was performed. According to him the
Gransteel factory was fairly
busy at the time and there was not a
shortage of work. Appellants argue that this evidence of
Ellis
was contradicted by
McCoy
in his affidavit in support of the
application for the winding up of Gransteel, where he stated that
“the construction industry
has, in the last few years, suffered a
downturn and (Gransteel) has not been immune”. I do, however, agree
with the submission
of respondents, that this statement of
McCoy
was a sweeping and general one, made in the context of an overall
assessment for the purposes of winding up. It does not in my view
detract from the evidence tendered by
Ellis
.
[55] Appellants criticised the aforesaid evidence of
Ellis
by submitting that it was not specific and insufficient
to show that Gransteel woud have been able to secure other work of
the magnitude
of the Port Elizabeth contract. I do not agree. It has
to be borne in mind that there will necessarily be uncertainty and
speculation
in assessing this leg of the damages claimed by
respondents. The fact of the matter is that Gransteel was involved in
the Port Elizabeth
project from mid November 1998 to approximately
the end of January 1999, with the result that no particular attention
would have
been paid to alternative tender opportunities which came
up during this period. It should also in regard to the availability
of alternative
work, be borne in mind that
Ellis
testified
that due to the collapse of the Port Elizabeth project, Gransteel
subsequently had to work a little bit harder to get more
work in,
which they in fact succeeded in doing. This underscores the view of
Ellis
that had Gransteel not been involved in the Port
Elizabeth project, it would probably have been able to obtain
sufficient alternative
work. Finally, in regard to the issue of
damages, I am satisfied that the nature of the damages proved by
respondents is that of
negative interesse, consisting of wasted
expenses incurred and profits foregone by Gransteel. As stated in
Visser and Potgieter’s
Law Damages
, supra, page 75, negative
interesse includes loss of prospective profits or income. I
accordingly conclude that respondents proved
on a balance of
probabilities that they are entitled to delictual damages in the sum
of R1 616 366-00.
CONTRIBUTORY NEGLIGENCE
[56] Section 1 (1) (a) of the Apportionment of Damages
Act No. 34 of 1956, provides that where any person suffers damage
which is
caused partly by his own fault and partly by the fault of
any other person, the damages recoverable in respect thereof shall be
reduced
by the court to such extent as the court may deem just and
equitable having regard to the degree in which the claimant was at
fault
in relation to the damage. As pointed out by Van Der Walt and
Midgley,
Principles of Delict
, supra, page 240, the provisions
of section 1 of the Act clearly relate only to cases where a
plaintiff has suffered harm partly
as a consequence of his or her
fault, and partly as a consequence of the fault of the defendant. A
defendant may, therefore, not
raise the contributory fault of a
person other than the plaintiff, except in cases based on vicarious
liability. At first blush it
would appear that respondents’ claim
as plaintiffs in the instant action is not subject to the provisions
of section 1 of the Act,
as there was no contributory negligence on
the part of respondents. The contributory negligence on which
appellants rely, is the
contributory negligence of Gransteel. I also
doubt whether the relationship between respondents and Gransteel can
be considered to
be vicarious in nature, so as to enable appellants
to rely on the alleged negligence of Gransteel in reduction of
respondents’
claim. However, in view of respondents’ concession
that the provisions of section 1 of Act No. 34 of 1956, are
applicable in the
instant matter and the conclusion which I have
reached in regard to the allegation of negligence on the part of
Gransteel, I proceed
to consider the issue of contributory negligence
on the basis that section 1(1)(a) of the said Act is applicable.
[57] I am of the opinion that the court
a quo
erred in finding that there was contributory negligence on the part
of Gransteel. As I have already mentioned, the task of liaison
with
the ultimate client was that of appellants. This was in line with the
long-standing business relationship between appellants
and Gransteel.
To this should be added the faith that
McCoy
and
Ellis
had
in appellants and their right to rely on appellants to
advise them of any material matters relating to the formation of the
consortium
and its ability to finance the project. This resulted in
appellants being subject to a duty of care not to negligently cause
Gransteel
harm. In the peculiar circumstances of this case,
appellants were Gransteel’s sole source of knowledge pertaining to
the envisaged
consortium and Gransteel’s representatives were
accordingly practically and contractually precluded from making
independent enquiries
regarding the consortium. I am accordingly
satisfied that a reasonable person in the position of Gransteel would
not in the prevailing
circumstances have conducted the enquiry
suggested by the learned judge
a quo
.
[58] Finally, in regard to the issue of contributory
negligence, I should refer to the finding of the court
a quo
,
that the instruction given to Gransteel to stop the work and later to
proceed, ought to have excited suspicion on the part of Gransteel
which would have warranted a diligent enquiry. This failure of
Gransteel to enquire, is a post-delictual ground of negligence, ie
it
occurred after the misrepresentation and/or omission which induced
Gransteel to enter into the contract. As held in
Gibson v
Berkowitz
1996 (4) SA 1029
(W) at 1052D, only the pre-delictual
negligence of a plaintiff will trigger the application of
contributory negligence to reduce
his or her damages. See also
Neethling
et al
Law of Delict
, supra, page 166-167.
[59] I conclude that the court
a quo
ought not to
have found any contributory negligence on the part of Gransteel.
COSTS AND INTEREST
[60] As mentioned above, the court
a quo
did not
deal with respondents’ request for the costs of two counsel at all.
The learned judge did accordingly not exercise his discretion
not to
allow the costs of two counsel and this court is therefore at large
to consider respondents’ request afresh. In my view
it was a wise
and reasonable precaution on the part of respondents to employ two
counsel in this matter. In particular, as it involves
an unusual
claim in delict for the recovery of pure economic loss.
[61] In regard to respondents’ prayer for interest,
the court
a quo
awarded them interest on the damages at the
rate of 15,5% per annum from date of judgment. Respondents correctly
contend that in
terms of
section 2A
(2) (a) of the
Prescribed Rate of
Interest Act No.55 of 1975
, as amended, they are entitled to interest
as from date of service of summons.
CONCLUSION
[62] In view of the aforesaid, I conclude that the
appeal falls to be dismissed, while the cross-appeal should succeed.
[63] In the result I would make the following order:
The appeal is dismissed with costs, including the costs
of two counsel.
The cross-appeal succeeds with costs, including the
costs of two counsel.
The order of the court
a quo
is amended to read
as follows:
First and second defendants are ordered, jointly and
severally, to pay to plaintiffs, in their capacity as liquidators
of Gransteel
(Pty) Ltd (in liquidation), an amount of R1 616
366-00, as damages;
Interest is awarded on the said damages at the rate of
15, 5% per annum, calculated from date of service of summons to
date of
final payment.
First and second defendants are ordered, jointly and
severally, to pay plaintiffs’ costs of suit, including the costs
of two
counsel.
_____________
P B Fourie, J
I agree
_____________
S Desai, J
I agree and it is ordered accordingly.
__________________
JHM Traverso, DJP