About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2003
>>
[2003] ZASCA 134
|
|
Consol Ltd. t/a Consol Glass v Twee Jonge Gezellen (Pty) Ltd and Another (483/02) [2003] ZASCA 134; [2004] 1 All SA 1 (SCA); 2005 (6) SA 1 (SCA) (28 November 2003)
THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
REPORTABLE
Case number: 483/02
In
the matter between:
CONSOL
LIMITED t/a CONSOL GLASS
APPELLANT
and
TWEE JONGE GEZELLEN
(PTY) LTD FIRST RESPONDENT
NICHOLAS CHARLES KRONE
JUNIOR SECOND RESPONDENT
CORAM: HOWIE P, BRAND,
CLOETE, HEHER JJA and VAN HEERDEN AJA
HEARD: 13 NOVEMBER 2003
DELIVERED: 28 NOVEMBER
2003
Summary
:
Contract â
interpretation of â whether provision imposes contractual
obligation â whether compliance with the obligation is
a
precondition for reliance on indemnities â whether tacit term
established â meaning of 'standard', 'written guarantee' and
'implied guarantee'.
_________________________________
JUDGMENT
_________________________________
BRAND JA
/
BRAND JA
:
[1] The issues in this
matter turn on the interpretation of a written agreement between the
parties. The appellant ('Consol') is a
manufacturer of glass
products, including wine bottles. The first respondent ('Twee Jonge
Gezellen') produces wine and sparkling
wine at its estate near
Tulbagh in the Western Cape. The second respondent, Mr N C Krone
Junior ('Krone'), is a shareholder in and
director of Twee Jonge
Gezellen.
[2] Since 1991, Twee
Jonge Gezellen has from time to time purchased bottles for its wine
production from Consol. These purchases were
governed by the terms of
a general supply agreement ('the supply agreement'). The terms of the
supply agreement were contained in
Consol's standard credit
application form which was signed by Krone on behalf of Twee Jonge
Gezellen in August 1991. At the same
time Krone bound himself as
surety and co-principal debtor to Consol for the payment of all
amounts owing to it by Twee Jonge Gezellen.
[3] During 1999 Consol
instituted action against Twee Jonge Gezellen and Krone in the Cape
High Court. Its claim was for the purchase
price of wine bottles sold
and delivered to Twee Jonge Gezellen during 1998. Apart from a
relatively minor discrepancy in relation
to the amount thereof,
Consol's claim was not disputed. The issues which arose for
determination relate to Twee Jonge Gezellen's
claim in reconvention.
[4] As will shortly be
described in more detail, an important part of Consol's defence to
the claim in reconvention was founded on
the exemption and limitation
provisions contained in the so-called 'claims clause' of the supply
agreement. At the commencement of
the trial ten issues were
identified by agreement between the parties for separate and prior
adjudication, all of which arose from
the terms of the claims clause.
The remaining issues stood over for later determination. Immediately
prior to judgment one of the
ten issues was, again by agreement
between the parties, excluded from the preliminary adjudication. In a
judgment since reported
as
Consol Ltd t/a Consol Glass v Twee
Jonge Gezellen (Pty) Ltd and Another
2002 (6) SA 256
(C), the
Court
a quo
(Blignault J) found in favour of Twee Jonge
Gezellen on six of the remaining nine issues. Consol's appeal is
directed against these
findings. The other three issues were decided
against Twee Jonge Gezellen. The cross-appeal by the latter is
against the findings
on two of these issues. Both the appeal and the
cross-appeal are with the leave of the Court
a quo
.
[5] Twee Jonge Gezellen's
claim in reconvention, which eventually gave rise to the preliminary
issues arose from the sale to it, during
1996 and in terms of the
supply agreement, of 29 720 sparkling wine bottles. The bottles
were used by Twee Jonge Gezellen for
the production of its 1994
vintage Krone Borealis sparkling wine which was produced in
accordance with a method known as
cap classique
or
méthode
champenoise
. This method is characterised by a second
fermentation of yeast in the bottled wine after the primary
fermentation in tanks.
[6] It is common cause
that, unbeknown to Twee Jonge Gezellen, the inside surface of these
bottles had been treated by Consol, during
the manufacturing process,
with a gas called Freon 134A. The purpose of this treatment was to
combat a phenomenon known as 'bloom'
which sometimes occurs when
bottles are placed in storage for periods in excess of three months.
It appears as a haze on the inside
of the bottle making it
unattractive to Consol's customers.
[7] When the bottles were
used for their intended purpose Twee Jonge Gezellen experienced
problems during the second fermentation
process. As a consequence of
these problems, so Twee Jonge Gezellen alleged in its pleadings, it
lost a large portion of its 1994
vintage Krone Borealis and sustained
additional losses listed under various heads. According to the claim
in reconvention the damages
suffered as a result of these losses
added up to more than R10m in all. Twee Jonge Gezellen's case is, in
essence, that the problems
which were experienced in the second
fermentation process of its 1994 vintage sparkling wine, and its
consequent losses, must be
attributed to Consol's use of Freon 134A
during the manufacturing process. The claim is based on two
alternative grounds. The main
ground is Consol's alleged failure to
comply with a provision of the claims clause that all bottles
supplied 'are manufactured according
to Consol's standard
manufacturing procedures and techniques, utilising standard
materials'. I will presently return to this provision.
As an
alternative ground Twee Jonge Gezellen relies on the allegation that
Consol was the manufacturer or merchant seller of the
bottles
concerned.
[8] As indicated, Consol
raised a number of defences to the claim in reconvention that were
based on the provisions of the 'claims
clause' in the supply
agreement. Consequently, the provisions of this clause form the focal
point of the appeal. It is therefore
necessary to set these
provisions out in some detail. The clause reads as follows:
"CLAIMS:
All goods supplied are
manufactured according to the company's standard manufacturing
procedures and techniques, utilizing standard
raw materials.
No claims shall be
recognised by the company unless lodged within 21 (twenty one) days
after receipt of goods. If goods are damaged
at the time of delivery
the customer shall advise the customer's nearest sales office within
twenty-four hours of delivery.
No guarantee or warranty
regarding supply or quality is given or implied unless specifically
stated in writing by an authorised company
representative. Where any
written warranty is given, the company's liability will be limited to
replacement of defective goods on
proven non-compliance with the
warranty or accepted specification. Under no circumstances, with or
without written guarantee or warranty,
shall the company be liable
for any consequential loss or damage howsoever arising.
The customer shall have
no claim for short delivery unless the quantity short delivered is
endorsed on all copies of a delivery note
presented for signature.
The company shall be the sole adjudicator in respect of all claims
and any decision undertaken by the company
in this regard shall be
binding on the customer.'
[9] The formulation of
the ten preliminary issues arising from Consol's reliance on these
provisions that were identified for separate
adjudication is set out
below. The paraphrased answer of the Court
a quo
on each issue
which forms the subject matter of the appeal and the cross-appeal, is
indicated in parenthesis:
'1. Whether in terms of
the supply agreement, [Consol] was obliged to manufacture all
bottles delivered to [Twee Jonge Gezellen]
according to Consol's
standard manufacturing procedures and techniques, utilising standard
raw materials.
(Yes, Consol did have
such obligations.)
Whether the bottles [in
question] were manufactured by [Consol] according to its standard
manufacturing procedures and techniques,
utilising standard raw
materials, in particular:
2.1 Whether at the time
those bottles were made, internal treatment of
cap
classique
bottles with Freon 134A gas was part of the [Consol's] standard
manufacturing procedures and techniques.
(Yes, it was.)
2.2 Whether when
manufacturing those bottles [Consol] applied Freon 134A gas in
accordance with its standard procedures or techniques;
(By agreement between
the parties, this issue was excluded from preliminary adjudication.)
2.3 Whether at the time
the bottles were made, Freon 134A gas was a standard raw material
for the manufacture of the bottles in question.
(Yes, it was.)
If such bottles were not
manufactured by [Consol] according to its standard manufacturing
procedures and techniques, utilising standard
raw materials, whether
[Consol] was entitled to rely on the further provisions of the
clause of the supply agreement headed 'Claims'.
(No, in this event
Consol would not be entitled to rely on the further provisions of
the claims clause.)
Whether the provision of
the supply agreement that all goods supplied were manufactured
according to [Consol's] standard manufacturing
procedures and
techniques, utilising standard raw materials, is a warranty as
contemplated in the aforesaid clause.
(No, it is not such a
warranty.)
Whether [Consol's]
liability for the breach alleged by [Twee Jonge Gezellen] was
limited to the replacement of bottles proven to
have been defective.
(No, Consol's liability
is not so limited.)
Whether [Consol] was
exempted from liability in the event of [Twee Jonge Gezellen] not
having lodged its claim within 21 days of
delivery of the bottles in
question, or whether it was a tacit term of the supply agreement
that [Consol] would only be entitled
to rely on the provision that
no claim would be recognised unless lodged within 21 days after
receipt of the goods if the circumstances
giving rise to the claim
were reasonably apparent to [Twee Jonge Gezellen] within 21 days of
receipt of the allegedly affected
bottles.
(No, Consol was not
exempted, because there was such a tacit term.)
Whether [Consol] was
exempted from liability for [Twee Jonge Gezellen's] claim set out in
para 3 of the claim in reconvention [which
rests on the basis that
Consol was a manufacturer or merchant seller of wine bottles] unless
an authorised representative of [Consol]
specifically guaranteed or
warranted the relevant quality of the bottles in writing.
(No, such a written
guarantee or warranty was not a prerequisite for Consol's liability
on this basis.)
Whether the damages
claimed by [Twee Jonge Gezellen] constituted consequential loss or
damage as contemplated in the aforesaid clause
of the supply
agreement.
(Yes, those claims are
for consequential loss.)'
[10] Consol's appeal is
directed at the decisions of the Court
a quo
in respect of the
first and the third to the seventh preliminary issues. The
cross-appeal is directed at the findings in relation
to parts one and
three of the second preliminary issue. As regards the eighth
preliminary issue, the finding by the Court
a quo
to the
effect that the damages claimed by Twee Jonge Gezellen were
consequential in nature, is not appealed against by the latter.
[11] I now proceed to
deal with the preliminary issues presented for adjudication on appeal
in their numerical sequence.
The first preliminary
issue
[12] For ease of
reference, I will repeat the formulation of the issue. It is:
'Whether, in terms of
the supply agreement, [Consol] was obliged to manufacture all bottles
delivered to [Twee Jonge Gezellen] according
to [Consol's] standard
manufacturing procedures and techniques utilising standard raw
materials.'
The issue arises from the
introductory sentence of the claims clause which provides that 'All
goods supplied are manufactured according
to the company's standard
manufacturing procedures and techniques, utilising standard raw
materials.' Twee Jonge Gezellen contends
that this sentence imposed
an obligation on Consol. Consol denies that this is so. The contrary
position for which it contends is
that the sentence created no rights
or obligations but that it is merely a recital in the nature of a
preamble or an introduction
to the operative provisions of the claims
clause.
[13] Provisions are
sometimes inserted in written contracts by means of recitals or
preambles which create no obligations for any
of the contracting
parties. The purpose of such provisions is, for example, to serve as
an introduction to the rest of the contract
or to record good
intentions or pronouncements of good faith. The question whether a
provision constitutes a mere recital, on the
one hand, or a
contractual obligation, on the other, is dependent upon the intention
of the parties. Such intention is to be found
in the language of the
stipulation itself, read in its proper context and construed in
accordance with the recognised tenets of construction.
Consequently,
an answer can rarely be transposed from one case to another unless
their facts are almost identical. Nevertheless,
considerations
underlying the decisions in comparable cases may serve as useful
guidelines.
[14] In
First National
Bank of SA Ltd v Rosenblum and Another
2001 (4) SA 189
(SCA)
the bank sought to protect itself against liability for damages
by way of an indemnity clause in its standard contract. The clause
(quoted in para [3] 194C-D) provided,
inter alia
, that
'The bank hereby notifies
its customers that while it will exercise every reasonable care, it
is not liable for any loss or damage
caused to any article lodged
with it for safe custody ⦠whether the loss or damage is due to the
bank's negligence or not.'
In
Elgin Brown &
Hamer (Pty) Ltd v Industrial Machinery Suppliers (Pty) Ltd
[1993] ZASCA 55
;
1993
(3) SA 424
(A) the relevant part of the clause concerned (quoted at
427D-E) reads as follows:
'Whilst reasonable care
will be taken to ensure that first class materials and workmanship
will be used in the execution of the contract
IMS will not be liable
for any loss or damages whatsoever, ⦠due to ⦠defective, faulty
or negligent workmanship or material
â¦'
[15] In both cases this
Court held that the provisions introduced by 'while' and 'whilst' in
the respective clauses concerned, constituted
no more than a recital
which imposed no contractual obligation on the promisor. Broadly
stated, both decisions appear to have been
influenced by two central
considerations. The first was that the provisions in issue were
ushered in by 'whilst/while' which is indicative
of a mere
introduction signifying no more than 'notwithstanding that'. The
second consideration was that if the stipulations concerned
were
interpreted as creating contractual obligations such interpretation
would result in a clear antithesis between the introductory
words and
the operative parts of the indemnities (see
Elgin Brown &
Hamer (Pty) Ltd
at 428C-429B-D and
First National Bank of SA
Ltd
at 198G-J).
[16] Based on the latter
consideration, it was argued on behalf of Consol that, if the first
sentence of the claims clause is to be
construed as imposing
contractual obligations it would likewise create an antithesis with
the operative part of the indemnity clause.
More particularly, this
argument relied on the specific exclusion in the remainder of the
clause of any 'guarantee or warranty regarding
quality'. I do not
agree with this approach. The antithesis contemplated in the two
decisions of this Court would require that Consol
is placed under a
particular obligation but, at the same time, exonerated from any
breach of that obligation. The first sentence
of the claims clause
could not produce this result. Even if the first sentence is
understood to impose an obligation on Consol to
ensure that its
standard manufacturing procedures and techniques are applied and that
it utilises standard raw materials, it would
not create any warranty
of
quality
with regard to the products themselves. If the use
of standard procedures and materials resulted in a product of
inferior quality
that is what customers would have to accept. If
customers wanted a warranty as to quality they would have to obtain
one in writing
as contemplated in the later provisions of the clause.
[17] With regard to the
particular wording of the first sentence, it gives no indication,
unlike words such as 'while' or 'whilst'
or 'notwithstanding', that
it is of an introductory nature. The sentence contains a positive
statement of fact relating to matters
which could, in their ordinary
context, be expected to form the subject matter of a contractual
obligation undertaken by Consol.
[18] Significantly, in my
view, other clauses in the same document are, in contradistinction to
the first sentence of the clause,
indeed prefaced by 'while' or
'whilst'. So, for example, the clause under the heading 'packing'
begins as follows:
'Whilst the company will
have regard under this heading, to any preference by the customer,
the method of packing shall be determined
by the company ⦠'
And under the heading
'Force Majeure' the document provides that:
'While the company will
use every endeavour to execute orders in accordance with the terms
and conditions thereof, it will not be
responsible for any delays or
non-deliveries due to ⦠circumstances over which it has no direct
control.'
In contrast with the
first sentence of the claims clause, it is in my view quite clear
from the ordinary language used in these provisions
that they were
not intended to impose any contractual obligation on Consol but to
serve as a mere introduction to the operative parts
that follow them.
Though mindful of the fact that I am not dealing with the
interpretation of a statute, it appears to be a fair
inference that a
deliberate change of expression in a carefully prepared document such
as this was intended to indicate some change
of intention on the part
of the
stipulator,
i e Consol.
[19] In the final
analysis one wonders why, if the provision under consideration was
not intended to impose any contractual obligation,
such a recital
would be necessary at all. What does it contribute? It serves no
introductory function and a customer could hardly
derive any comfort
from a 'promise' that Consol will apply its standard manufacturing
procedures and utilise standard raw materials
if Consol is not bound
at all by that promise. Consequently I find myself in agreement with
the decision of the Court
a quo
that the first sentence in the
claims clause does impose a contractual obligation on Consol, which
means that the appeal against this
decision must fail.
The second preliminary
issue
[20] The second
preliminary issue raises two questions. Firstly, whether internal
treatment of
cap classique
bottles with Freon 134A gas was
part of Consol's 'standard manufacturing procedures and techniques';
and secondly, whether Freon 134A
could be described as one of
Consol's 'standard raw materials' for the manufacture of these
bottles as contemplated by the first
sentence of the claims clause.
The Court
a quo
decided both questions in Consol's favour.
Twee Jonge Gezellen contends that these decisions were not supported
by the facts. A consideration
of this contention consequently
requires a somewhat more detailed analysis of the evidence.
[21] As indicated, Freon
134A was used for the prevention of a phenomenon called bloom. Bloom
has always been a problem for Consol,
particularly at its Bellville
factory. The reason why bloom formation is more prevalent in the
Western Cape than in Gauteng, where
Consol's other three factories
are located, has to do with the difference in climate between the two
areas. About 1993, bloom took
on what Consol regarded as alarming
proportions. Consequently Consol's technical experts were enjoined to
do something about the
problem. One of these technical experts was
Consol's laboratory services manager, Mr J Polasek who gave evidence
on behalf of Consol
at the trial. At that stage, it had been known in
the industry for quite some time that formation of bloom could be
prevented by
neutralising the alkalinity of the inside surface of
newly manufactured glass bottles. The method for achieving this
result, which
had also been known for over thirty years, was to treat
the inside of the bottles with a fluorine-containing gas compound,
called
Freon. Amongst the glass manufacturers applying this method
was a company in the United States of America, Owens Brockway. This
company
is one of the two largest manufacturers of glass containers
in the world. It also holds 19% of the shares in Consol. Because of
this
relationship, Owens Brockway and Consol have a so-called
'technical agreement', in pursuance whereof Owens Brockway renders
technical
assistance to Consol on a regular basis.
[22] The Freon gas
compound utilised by Owens Brockway for the internal treatment of
glass bottles has always been Freon 152A. In
1993, when Consol
decided that something had to be done about the prevention of bloom
Freon 152A was therefore the known remedy.
Consol's problem was,
however, that Freon 152A was virtually unobtainable in this country
in commercially viable quantities. A solution
to this problem was
suggested in a memorandum prepared by one of Consol's technical
personnel in February 1994 after a visit to the
technical centre of
Owens Brockway in Toledo, Ohio. According to the memorandum it had
been experimentally established in the laboratories
of Owens Brockway
that Freon 152A could be replaced in the internal treatment process
with another fluorine-containing gas called
Freon 134A. Although
Owens Brockway itself consistently used Freon 152A and had never
substituted Freon 134A for it, it is claimed
in the memorandum that
'Freon 134A is a direct equivalent of Freon 152A and is used to
replace the CFC refrigerant in the automotive
and industrial air
conditioning industry'.
[23] As far as Consol
knew Freon 134A had not been used by anyone else in the world for the
internal treatment of glass bottles. Because
of its application in
the refrigeration industry it was, however, more freely available
than Freon 152A. Solely for reasons of availability,
Consol therefore
decided to integrate the internal treatment system developed by Owens
Brockway into the production lines of its
Bellville factory but to
adapt that system by substituting Freon 134A for Freon 152A.
[24] Treatment with Freon
134A was introduced in Consol's Bellville factory in about March
1994. The
cap classique
bottles that eventually gave rise to
Twee Jonge Gezellen's claim for damages were manufactured in that
factory during February 1996.
By that time the system had therefore
been in operation for almost two years. In the meantime Consol had
installed a system of internal
treatment with Freon 134A into all but
one of its other factories. The exception was the factory at
Clayville in Gauteng which manufactured
beer bottles only. Since
bloom formation is associated with storage for periods in excess of
three months and the turnover period
of beer bottles is much shorter,
it was unnecessary to treat these bottles for the prevention of
bloom.
[25] Because internal
treatment with Freon 134A, as opposed to Freon 152A, had not been
utilised at a production level before, the
system at the Bellville
factory was reviewed on a regular basis. Polasek was responsible for
these reviews. The main purpose of the
reviews was to assess how
successful the system had been in achieving the prevention of bloom.
From the reports filed by Polasek
on his reviews of the Bellville
system at regular intervals, it appears that Consol never really
succeeded in applying Freon 134A
to the inside of all manufactured
bottles on a consistent basis. So, for example, Polasek's report of
30 November 1994 stated:
'It is clear from recent
observations at the factory and analysis that the bloom protection
through Freon treatment is lacking.'
And:
'The suspicion falls
clearly on the choice of Freon as the major deviation from the [Owens
Brockway] process manual.'
[26] The technical
difficulties giving rise to the problem of inconsistent treatment
were associated with the way in which the Freon
gas was physically
injected into each bottle. What contributed to the problem was the
fact that Freon is an invisible gas. Operators
on the production line
therefore had no way of knowing whether every bottle actually
received its prescribed dose of the gas or was
over- or
under-treated. With Freon 152A this quality was, however, of lesser
consequence than with Freon 134A. The reason is that
Freon 152A is
considerably more inflammable than Freon 134A. Because Freon 152A has
a relatively low point of combustion it creates
an unmistakable blue
flash when injected into the bottle. As a consequence, the success or
otherwise of a particular injection can
be determined by operators
through visual inspection. Freon 134A, on the other hand, does not
create such a flash. On the production
line this difference is of
vital importance.
[27] The last available
report by Polasek relates to a review which he did in July 1997. In
this report he summarised the problems
encountered with Freon 134A
treatment as follows:
'There is a concern that
internal treatment (I T; freon treatment) of ware is inadequate to
provide long term protection against bloom
â¦
There is a perspective
that I T application [with Freon 134A] is synonymous with bloom
protection. This is a very hopeful view â¦
The technology is thirty
years old and our experience is three, with systems that have a large
element of our own design and practice.
⦠I T has never really
worked at Bellville at all since its inception. There is in fact
ample evidence that ware has been treated
properly but not always
consistently.
â¦
The overall finding is
that I T application is still erratic, not much changed from what has
been seen before and pointed out in
earlier reviews.'
As the primary solution
to the problem, Polasek recommended a 'switch to Freon 152A'.
[28] Towards the end of
1997, Freon 152A became more freely available in this country. In the
result, Polasek's recommendation that
Freon 134A should be replaced
with 152A in the internal treatment system was ultimately implemented
by Consol. In cross-examination
Polasek conceded that Consol's use of
Freon 134A never reached the stage where the results achieved were
considered to be satisfactory.
He also conceded that Consol's use of
Freon 134A was 'part of a learning curve' and that this learning
curve continued for the whole
period during which this gas was used,
until the time when usage thereof was discontinued towards the end of
1997.
[
29] Against this
background I now turn to the questions raised by the issue under
consideration. The answer to the questions relating
to both procedure
and raw material depends, firstly, on whether the relevant 'standard'
refers to the situation in 1991, when the
supply agreement was
concluded, or to 1996 when the bottles were sold. Twee Jonge
Gezellen's contention is that the enquiry is to
be directed at
Consol's 'standards' as they existed in 1991. Since it is common
cause that in 1991 Consol used no Freon 134A at all
it is apparent
that if this contention is held to be correct, the issue must be
decided in Twee Jonge Gezellen's favour. However,
I find myself in
agreement with the finding by the Court
a quo
(at 273A-E) that
this result could not have been intended by the parties. It must be
borne in mind that the supply agreement did
not, in itself,
constitute an agreement of sale. It contemplated that there would be
sales from time to time and provided that the
standard terms set out
in the supply agreement would then be incorporated into these future
sales. Accordingly, when the contract
of sale pertaining to the
bottles concerned was concluded in 1996, these predetermined
provisions were embodied in the contract.
Nevertheless, these
provisions can only be construed as part of an agreement that came
into existence in 1996.
[30] If Twee Jonge
Gezellen's contention were to be upheld it would render Consol's
position impossible. Its options would be either
to apply in
perpetuity its standard procedures and use its standard raw
materials, as they were in 1991, or it would have to seek
and obtain
the approval of Twee Jonge Gezellen and, presumably, of all its other
customers, each time it tried to improve or change
its standard
procedures or raw materials. I do not believe that the parties could
have intended their agreement to have these impractical
results. The
questions relating to Consol's standard procedures and to standard
raw materials should therefore be determined with
reference to the
situation which pertained in 1996.
[31] I deal first with
the question relating to standard procedures. Twee Jonge Gezellen's
one contention in this regard was that
since, on Consol's own
showing, it was never really satisfied with the results obtained with
its Freon 134A treatment, it cannot
be said that Consol ever accepted
this treatment as its 'standard procedure'. This contention obviously
involves 'standard procedures'
as conveying some criterion of
quality. It therefore appears to be based on the misconception that
the term 'standard' is used in
the sense of a 'measure to which
others conform', or 'a degree of excellence for a particular
purpose', i e, as synonymous with 'a
yardstick' or a 'benchmark'.
There is no doubt that the term 'standard' can have this meaning,
particularly when used as a noun (see
e g
The Concise Oxford
English Dictionary
(2002)). However, I find myself in agreement
with the Court
a quo
(at 274A-F) that this meaning cannot
sensibly be reconciled with the rest of the provision concerned. Read
in the context of the
provision as a whole, where the term 'standard'
is used as an adjective and in conjunction with a reference to 'the
company', a more
appropriate meaning would appear to be the one given
in e g Collins'
Dictionary of the English Language
(1979),
namely to denote what is 'normal', 'usual' or 'regular'. According to
this interpretation, the first sentence of the claims
clause imposes
no greater burden on Consol than to manufacture the bottles sold in
accordance with its normal and usual procedure.
Another reason why
the interpretation contended for by Twee Jonge Gezellen is untenable,
is that it would bring the undertaking contained
in the first
sentence into conflict with the express provision appearing later in
the claims clause, that 'no guarantee or warranty
regarding quality
is given or implied'.
[32] Twee Jonge
Gezellen's further contention was that, even if 'standard' means
'normal' or 'usual', Consol never reached the stage
where it accepted
Freon 134A treatment as its 'normal' or 'usual' procedure. In support
of this contention, reference was made to
the evidence from which it
appears that throughout the entire period, during which Freon 134A
was used from 1994 to 1997, the procedure
was subject to constant
review and change, and that the reason for these changes was because
the treatment produced inconsistent
results. In the end, so Twee
Jonge Gezellen argued, Polasek conceded that, right until the time
when Consol was constrained to give
up the practice, it was still
involved in an experimental process or 'learning curve'. I cannot
agree with this argument. In my view
it is based on a
non
sequitur
. Neither the fact that the procedure required constant
amendment and change because the results were inconsistent or
otherwise unsatisfactory,
nor the fact that Consol was eventually
driven to give up the procedure, justifies the conclusion that it was
never adopted by Consol
as its standard or normal procedure. On the
contrary, by the time the offending bottles were manufactured in
1996, Freon 134A had
been used by Consol for a period of about two
years in all its factories, bar one, as part of its normal and
regular manufacturing
process. The only factory where it was not used
was where bloom was not a problem. The procedure was consistent,
though the results
were not. Moreover, until the end of 1997, Freon
134A was the only gas used by Consol as a source of fluorine. In the
circumstances,
there was no other treatment to combat bloom which
presented itself as a 'standard' procedure. I therefore agree with
the finding
by the Court
a quo
that, when the bottles were
manufactured in February 1996, treatment with Freon 134A was part of
Consol's standard procedure, albeit
that the results obtained were
not uniform or satisfactory.
[33] This brings me to
the next question, namely, whether at the time that the bottles were
made, Freon 134A gas met the requirements
of a 'standard raw
material'. Twee Jonge Gezellen's submission in this regard was that,
since the word 'company's' in the claims
clause qualifies 'standard
procedure' but not 'standard raw materials', it means that the latter
must be of a more general standard
than merely Consol's own standard.
In view of the evidence that no-one except Consol used Freon 134A, so
Twee Jonge Gezellen argued,
this material must fail the 'standard'
test. Though the argument seems to derive support from a literal
interpretation of the provision
concerned, the problem which arises
with such a literal interpretation is that it would render the
meaning of the provision so vague
that it would become virtually
meaningless. So, for example, a literal interpretation immediately
invites the question whether the
requirement is that Consol can only
use raw material which is standard in the rest of the world. If so,
Consol would be in breach
if it used any locally available materials
differing from those used in other parts of the world. Or would it
suffice if the raw
material used is standard in South Africa? If so,
would Consol then be entitled, for example, to use lime derived from
sea shells
in the Western Cape (as it did in its Bellville factory)
despite the fact that this source of lime was not used in the rest of
the
country? In the circumstances I am satisfied that the provision
cannot bear its literal meaning.
[34] In the context of
this case I find myself in agreement with the view expressed by the
Court
a quo
(at 276A-C) that, if the use of Freon 134A
qualifies as a standard procedure, then Freon 134A, which constitutes
an essential part
of that same procedure, must necessarily qualify as
a standard raw material. In the present context, the expression
'standard raw
material' therefore does not create any additional
requirement.
[35] In the
circumstances, the second issue, in both its constituent parts, was
in my view rightly decided in favour of Consol and
the cross-appeal
cannot succeed.
The third preliminary
issue
[36] It will be
remembered that the third issue was formulated as follows:
'If such bottles were not
manufactured by [Consol] according to its standard manufacturing
procedures and techniques, utilising standard
raw materials, whether
[Consol] is entitled to rely on the further provisions of the clause
of the supply agreement headed 'Claims'.'
[37] What will also be
recalled is that Consol's undertaking to which reference is made,
performs a dual function in Twee Jonge Gezellen's
case. In the first
place, the undertaking serves as the foundation on which its main
claim for damages is based. The second role
which Twee Jonge Gezellen
seeks to attribute to the undertaking is that of a condition
precedent for Consol's right to rely on the
indemnities contained in
the remainder of the claims clause. There is no doubt that the
undertaking can, in principle, perform the
first function. It is the
second role which gave rise to the third issue.
[38] Perhaps as a result
of the way in which the matter was argued before the Court
a quo
,
the learned Judge (at 279D-G) dealt with this issue essentially on
the basis that it follows the answer to the first issue as a
matter
of course. In the event, his answer in favour of Twee Jonge Gezellen
on the first issue automatically attracted a similar
response on the
third.
[39] In this Court
Consol's contention was that the first and third issues are not
necessarily interlinked. In principle, I agree
with this contention.
The fact that the first sentence of the claims clause is understood
to be a contractual obligation, as opposed
to a mere introductory
recital, does not inevitably give rise to the inference that it also
constitutes a precondition for Consol's
reliance on the indemnities
in the rest of the clause. There appears to be no reason in principle
why the two concepts cannot operate
independently of each other.
[40] Twee Jonge Gezellen
found authority for the existence of a preconditional interlink
between the two concepts in
Minister of Education and Culture
(House of Delegates) v Azel and Another
1995 (1) SA 30
(A). In
that matter this Court (at 33G-H) found the undertaking by the
Minister contained in the clause concerned (which is quoted
at 33C-E)
to constitute a precondition for his reliance on the indemnities
embodied in the rest of the clause. It is apparent, however,
that the
decision in that case was based entirely on the wording of the
contractual provisions involved. This is hardly surprising.
The
answer to a question such as this is dependent on the intention of
the parties to the contract concerned, as it appears from
a proper
interpretation of the written language used by them. That, in my
view, is precisely where the present case differs from
Azel.
Unlike the clause concerned in
Azel
, the clause
in casu
gives no indication, either in its language or in the way in
which it is formulated, of a link between the undertaking and the
indemnities.
Purely as a matter of construction, there appears to be
no room for the reading in of a phrase such as 'provided that' or 'on
the
understanding that', as an introduction to the undertaking in the
first sentence of the clause (cf
Azel
at 33G-H).
[41] However, what
weighs even more heavily against the interpretation contended for by
Twee Jonge Gezellen, is that it will give
rise to anomalous
situations which could not, in my view, have been intended by the
parties. The thrust of the indemnities which
follow upon the
undertaking is obviously to limit Consol's potential liability for
claims by purchasers of its glassware. Broadly
stated, they do so in
three ways: Firstly, by imposing a time limit of 21 days after
receipt of the goods within which claims must
be made, failing which
Consol would not be liable. Secondly, by differentiating between the
ordinary or normal situation where the
purchaser buys standard
bottles from the run of the production process and special cases
where a written warranty of quality is given.
In the ordinary or
normal situation, Consol explicitly excludes any guarantee, express
or implied, regarding quality. It can therefore
not be held liable
for any deficiencies. In those cases where an express warranty of
quality is given, liability is limited to replacement
of the
defective goods. The third way in which Consol seeks to limit its
liability is by providing that Consol shall not, under any
circumstances, with or without a written guarantee or warranty, be
liable for any consequential loss or damage.
[42] If the undertaking
in the first sentence is to be construed as a precondition for
Consol's reliance on these indemnities, it
will not only undermine
the whole scheme and purpose of the clause, but it will result in
glaring inconsistencies. So, for example,
if Consol is in breach of a
written guarantee, its liability will be limited to replacement of
the goods. If, on the other hand,
it failed to comply with its
undertaking in the first sentence, it will be exposed to liability
for consequential damages. Moreover,
if the purchaser relies on
breach of a written guarantee, but can prove that at the same time
Consol had failed to follow its standard
procedures in the
manufacture of the goods, Consol would lose all the protection that
it derives from the indemnity clause. In this
hypothetical case it
would make no difference that Consol's deviation from its standard
procedure had nothing to do with its non-compliance
with the written
guarantee. Nor would it matter that there was no causal link between
Consol's non-compliance with its undertaking
and the damages claimed.
[43] Contrary to the
finding by the Court
a quo
, I am therefore of the view that
the third issue should have been decided in favour of Consol, which
means that, on this issue the
appeal must succeed.
The Fourth and Fifth
Preliminary Issues
[44] For reasons that
will soon be apparent, I find it convenient to deal with the fourth
and fifth issues as one. They were formulated
as follows:
'4. Whether the
provisions of the supply agreement that all goods supplied are
manufactured according to [Consol's] standard manufacturing
procedures and techniques, utilizing standard raw materials, is a
'warranty' as contemplated by the [claims] clause.
5. Whether [Consol's]
liability for breach alleged by [Twee Jonge Gezellen] is limited to
the replacement of bottles proven to have
been defective.'
Both these issues arise
from the provision in the claims clause that:
'Where any written
warranty is given, the company's liability will be limited to
replacement of defective goods on proven non-compliance
with the
warranty ⦠'
[45] With reference to
this provision, Consol argues that, since the words 'any written
warranty' are of wide import, they include
the obligation imposed
upon it by the first sentence of the claims clause. I do not agree
with this argument. The stipulation relied
upon is preceded by the
provision that:
'No guarantee or warranty
regarding ⦠quality is given or implied unless specifically stated
in writing by an authorised company
representative.'
[46] Read in the context
of the latter provision, it is apparent, in my view, that the
provision relied upon by Consol does not refer
to the undertaking in
the first sentence of the claims clause but to a 'warranty regarding
quality' specifically given 'in writing
by an authorised company
representative'. Since, apart from anything else, the undertaking in
the first sentence does not constitute
a warranty of quality (see
para [16] above), it is clear that the fourth issue should be decided
in favour of Twee Jonge Gezellen.
Since the determination of the
fifth issue is dictated by the conclusion reached on the fourth
issue, the decision of the Court
a quo
on both issues should,
in my view, be confirmed.
The Sixth Preliminary
Issue
[47] The sixth
preliminary issue is:
'Whether [Consol] was
exempted from liability in the event of [Twee Jonge Gezellen] not
having lodged its claim within 21 days of
delivery of the bottles in
question, or whether it was a tacit term of the supply contract that
[Consol] would only be entitled to
rely on the provision that no
claim would be recognised unless lodged within 21 days after receipt
of the goods if the circumstances
giving rise to the claim were
reasonably apparent to [Twee Jonge Gezellen] within 21 days of
receipt of the allegedly affected bottles.'
[48] The issue arises
from Consol's contention that it is exempted from liability because
Twee Jonge Gezellen had failed to lodge
its claim within 21 days of
delivery of the bottles concerned. It is common cause that the
defects relied upon by Twee Jonge Gezellen
would not have been
reasonably apparent to it within the 21-day period. In these
circumstances, Twee Jonge Gezellen contends that
Consol is precluded
from relying on the 21-day provision by a tacit term of their
agreement. According to the tacit term advanced
by Twee Jonge
Gezellen, Consol could only rely on the 21-day provision if the
circumstances giving rise to the claim would be reasonably
apparent
to Twee Jonge Gezellen within 21 days of receipt of the goods.
[49] The Court
a quo
decided this issue in favour of Twee Jonge Gezellen (at 278D),
inter alia
, on the basis of the
contra proferentem
rule.
I do not believe, however, that any assistance can be derived from
this rule in resolving the present problem. The rule is one
of
construction and it only comes into play where the difficulty lies in
resolving an ambiguity. Such a difficulty does not arise
in the
present context. The express provisions of the contract are clear.
The answer to the question raised by this issue is therefore
not
dependent on rules of construction but on whether the requirements
for the existence of a tacit term have been met.
[50] The test for
establishing the existence of a tacit term, which this Court has
often recognised and applied in the past, is the
so-called 'bystander
test' (see e g
Alfred McAlpine and Son (Pty) Ltd v Transvaal
Provincial Administration
1974 (3) SA 506
(A) 533A-B;
Wilkens
NO v Voges
[1994] ZASCA 53
;
1994 (3) SA 130
(A) 137A-D;
Botha v Coopers &
Lybrand
2002 (5) SA 347
(SCA) 359G-J.) The test has its origin in
the following
dictum
by Scrutton LJ in
Reigate v Union
Manufacturing Co (Ramsbottom) Ltd and Elton Cap Dyeing Co Ltd
[1918]
1 KB 592
(CA) 605:
'A term can only be
applied if ... it is such a term that it can confidently be said that
if at the time the contract was being negotiated
someone has said to
the parties: "What will happen in such a case" they would
both have replied, "Of course, so and
so will happen; we did not
trouble to say that; it is too clear." Unless the Court comes to
some such conclusion as that, it
ought not to imply a term which the
parties have not expressed.'
[51] Over the years the
courts have, through refinement, enhanced the practical functionality
of this test. So, for example, it was
decided by Colman J in
Techni-Pak Sales (Pty) Ltd v Hall
1968 (3) SA 231
(W)
236H-237A that the inference of a tacit term can only be justified if
the bystander's question 'would have evoked ⦠a prompt
and
unanimous assertion of the term' from both the contracting parties.
If the inference is that one of the parties would have sought
some
clarification or some time to consider before giving an answer, the
tacit term suggested would not pass the bystander test.
A further
requirement that has developed appears from the following statement
by Trollip JA in
Desai and Others v Greyridge Investments (Pty)
Ltd
1974 (1) SA 509
(A) 522H-523A:
'⦠I do not think that
it is either clear or obvious which of those forms of the term should
prevail, and hence none of them can
be implied. The reason is that
the implication of a term depends upon the inferred or imputed
intention of the parties to the contract
⦠and "once there is
difficulty and doubt as to what the term should be or how far it
should be taken it is obviously difficult
to say that the parties
clearly intended anything at all to be implied".'
[52] In finding for Twee
Jonge Gezellen on this issue, the Court
a quo
was influenced
(at 278D) by the consideration that, without the suggested term, the
21-day clause could operate extremely harshly
on the purchaser of
bottles, in that he would be deprived of all redress in the case of
latent defects which he could not possibly
discover within the 21-day
period. That is undoubtedly so. It can accordingly be accepted with
confidence that Twee Jonge Gezellen's
response to the bystander's
enquiry regarding the existence of the suggested tacit term would
have been a positive one. That, however,
is not the end of the
enquiry. The further step is to establish what Consol's response
would have been. Consol's problem with the
effect of the suggested
(tacit) term would in all likelihood have been that, once the defects
are of a kind that cannot reasonably
be recognised within 21 days,
there would be no time bar at all. Though Consol may well have
conceded that the 21-day provision was
to be amended or ameliorated
if the circumstances giving rise to the claim were not reasonably
apparent within 21 days, it cannot
be assumed that Consol would have
agreed to the suggestion that in those circumstances there would be
no time limit at all. At best
for Twee Jonge Gezellen, the inference
could be that Consol would have asked for time to consider or that it
would have insisted
that in these circumstances the claim should at
least be instituted within 21 days of the alleged problem having
manifested itself.
In these circumstances the tacit term suggested by
Twee Jonge Gezellen cannot be inferred.
[53] The problems
experienced by Twee Jonge Gezellen in establishing the tacit term for
which it contends, are similar to those encountered
by the insured in
Union National South British Insurance Co Ltd v Padayachee
1985 (1) SA 551
(A). In terms of the insurance policy concerned in
that case, all claims under the policy had to be instituted within 12
months from
the happening of the loss. Like Twee Jonge Gezellen, the
insured, who had failed to institute his action within 12 months,
sought
to avoid the consequences of this contractual time bar by
means of a tacit term. Upon application of the bystander test, this
Court
came to the conclusion that the inference of the tacit term
contended for could not be justified. From the judgment of Miller JA
(at 560A-G) it appears that the considerations which led to that
conclusion were essentially the same as those which have persuaded
me
that the tacit term relied upon by Twee Jonge Gezellen cannot be
inferred. Accordingly, the sixth issue should, in my view, be
decided
in favour of Consol which means that, on this aspect, the appeal must
succeed.
The Seventh
Preliminary Issue
[54] This issue is:
'Whether [Consol] is
exempted from liability for [Twee Jonge Gezellen's] claim set out in
para 3 of the claim in reconvention [which
relies on the alternative
basis that Consol was the manufacturer or merchant seller of the
bottles concerned] unless an authorised
representative of [Consol]
specifically guaranteed or warranted the relevant quality of the
bottles in writing.'
[55] The issue arises
from the provision in the claims clause that
'no guarantee or warranty
regarding ⦠quality is given or implied unless specifically stated
in writing by an authorised company
representative'.
[56] It will be
remembered that Twee Jonge Gezellen relies, as an alternative basis
for its damages claim, on the principle of our
law of contract that
merchants who sell goods of their own manufacture or goods in
relation to which they publicly profess to have
attributes of skill
and expert knowledge, are liable for consequential damages caused to
the purchaser by reason of a latent defect
in the goods (see e g
Kroonstad Westelike Boere Ko-operatiewe Vereniging Bpk v Botha and
Another
1964 (3) SA 561
(A) 571G-572A;
Sentrachem Ltd v
Prinsloo
1997 (2) SA 1
(A) 17H-18D;
Ciba-Geigy (Pty) Ltd v
Lushof Farms (Pty) Ltd en 'n Ander
2002 (2) SA 447
(SCA)
465G-466H).
[57] Consol's contention
is that since the basis of this claim amounts to an implied warranty
of quality it is expressly excluded
by the aforementioned provision
of the claims clause. Twee Jonge Gezellen's answer to this
contention is that, although the seller's
liability for latent
defects is often loosely described as being derived from an 'implied
warranty against latent defects', this
is a misnomer because such
liability is not dependent on any guarantee given by the seller,
implied or otherwise. It is imposed upon
the seller by law.
Accordingly, so the argument went, it cannot be said that Consol's
liability for latent defects is excluded by
a provision which relates
to 'implied warranties'.
[58] Though this argument
by Twee Jonge Gezellen found favour with the Court
a quo
(at
278G-279D), it is, to my mind, not well-founded. The statement that
the seller's liability for latent defects is imposed by law
and is
therefore not dependent upon any contractual
consensus
between
the parties, is correct. As a consequence it might, from a
jurisprudential point of view, be inappropriate to describe the
basis
of this liability as an implied warranty (see e g
Phame (Pty) Ltd
v Paizes
1973 (3) SA 397
(A) 416H; De Wet en Van Wyk
Kontraktereg
en Handelsreg
5 ed 342-3). That, however, is not really the
issue. The real issue is what the parties intended when they referred
to 'an implied
warranty of quality' in their written agreement. In
answering this question, it is to be borne in mind that the seller's
liability
for latent defects has invariably been described, also by
this Court, as being derived from an implied warranty. In fact, I
venture
to suggest that in ordinary legal parlance, one of the best
known examples of what is meant by an 'implied term' is the seller's
'implied warranty against latent defects' in contracts of sale. (See
e g
Hackett v G&G Radio and Refrigeration Corporation
1949
(3) SA 664
(A) 667;
Alfred McAlpine and Son (Pty) Ltd v Transvaal
Provincial Administration supra
531E-G; 532C-G.)
[59] In these
circumstances it must, in my view, be accepted that when the parties
agreed to exclude liability for any 'implied warranty
of quality',
they intended that exclusion to pertain to this most commonly known
'implied warranty' as well (see also
Greyling v Fick
1969 (3)
SA 579
(T) 580G-581B and compare the difference in the wording of the
contract in
Van der Westhuizen v Arnold
2002 (6) SA 453
(SCA)
470A-E). The purpose of the clause is to exclude liability not
expressly undertaken and its proper interpretation therefore
excludes
both a tacit term as to quality as well as a term implied by law. For
these reasons, the seventh issue should be decided
in favour of
Consol, with result that the appeal on this issue must succeed.
[60] In summary, I
therefore hold the view that the appeal on issues 3, 6 and 7 should
be upheld while the appeal on issues 1, 4 and
5, as well as the
cross-appeal must fail. As to the question of costs, Consol has been
substantially successful in the appeal and
it has succeeded entirely
in the cross-appeal. I can find no reason why costs should not, in
both instances, follow the event. Moreover,
since I consider that
Consol was justified in instructing two counsel, I intend to include
these costs in the order that I propose
to make.
[61] In the Court
a
quo,
no costs order was made because the learned Judge thought it
prudent (at 280E) to let all questions of costs stand over for later
determination. Although Consol has now on appeal achieved a greater
measure of success than in the Court below, there are still some
outstanding issues which can, at least in theory, lead to further
proceedings. In the circumstances, I consider it wise not to
interfere
with the costs order by the Court
a quo
.
[62] The following order
is made:
(a) The appeal is upheld
with costs, including the costs of two counsel.
(b) The cross-appeal is
dismissed with costs, including the costs of two counsel.
(c) The findings of the
Court
a quo
in regard to preliminary issues 1 to 7 are
amended. As amended the findings read as follows:
'Issue (1)
: In
terms of the supply agreement, plaintiff was obliged to manufacture
all bottles delivered to first defendant according to plaintiff's
standard manufacturing procedures and techniques, utilising standard
raw materials.
Issue (2) part 1
:
At the time when the bottles in question were made, internal
treatment of
cap classique
bottles with Freon 134A gas was
part of plaintiff's standard manufacturing procedures and techniques.
Issue (2) part 3
:
At the time when the bottles were made, Freon 134A gas was a standard
raw material for the manufacture of the bottles in question.
Issue (3)
: Even if
the bottles were not manufactured by plaintiff according to its
standard manufacturing procedures and techniques, utilising
standard
raw materials, plaintiff would still be entitled to rely on the
further provisions of the clause of the supply agreement
headed
'Claims'.
Issue (4)
: The
provision of the supply agreement that all goods supplied are
manufactured according to plaintiff's standard manufacturing
procedures
and techniques, utilising standard raw materials, is not a
warranty as contemplated in the claims clause.
Issue (5)
:
Plaintiff's liability for the breach alleged by first defendant is
not limited to the replacement of bottles proven to have been
defective.
Issue (6)
:
Plaintiff is exempted from liability in the event of first defendant
not having lodged its claim within 21 days of delivery of the
bottles
in question.
Issue (7)
:
Plaintiff is exempted from liability for first defendant's claim set
out in para 3 of the counterclaim on the ground that no authorised
representative of plaintiff specifically guaranteed or warranted the
relevant quality of the bottles in writing.
â¦â¦â¦â¦â¦â¦
.
F D J BRAND
JUDGE OF APPEAL
Concur
:
HOWIE P
CLOETE JA
HEHER JA
VAN HEERDEN AJA