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[2015] ZAWCHC 121
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Homsek (Pty) Limited t/a Homsek Suiwel v J.W. Muller & Seun (A33/2014) [2015] ZAWCHC 121 (2 September 2015)
IN THE HIGH COURT OF
SOUTH AFRICA
WESTERN CAPE DIVISION,
CAPE TOWN
CASE: A33/2014
DATE: 02 SEPTEMBER 2015
In the appeal between:
HOMSEK (PTY)
LIMITED
.............................................................................................
APPELLANT
t/a HOMSEK SUIWEL (Defendant in the
Court a quo)
And
J.W. MULLER &
SEUN
................................................................................................
RESPONDENT
(Plaintiff in the Court a quo)
JUDGMENT
DELIVERED ON 2 SEPTEMBER 2015
GOLIATH, J:
INTRODUCTION
[1] This is a case about a milk supply
agreement that has gone sour. The product is the acclaimed Ayrshire
milk and the exclusive
purchaser was Woolworths. The Appellant
contends that it was a tacit term of the agreement that a reduced
milk price would be paid
to suppliers, one of whom being the
respondent, in the event of the milk being downgraded by Woolworths
due to poor quality. The
milk in question was rejected by Woolworths,
consequently the Respondent was only entitled to the reduced price.
The Respondent
contends that it duly performed in terms of the
agreement between the parties, and was therefore entitled to payment
in full and
not a reduced amount as alleged by the appellant. The
Court a quo ruled in favour of Respondent and Appellant now appeals
this
finding. The fate of this appeal hinges on proof of a tacit term
in one or other forms pleaded by the appellant.
Factual Background
[2] The scheme to supply Ayrshire milk
to Woolworths was the brainchild of the appellant. By virtue of
existing business connections
between appellant and Woolworths, the
appellant negotiated a contract with Woolworths to facilitate a
regular supply of milk to
Woolworths. The agreement between appellant
and Woolworths was not part of the record. It is common cause that
Woolworths had specific
stringent standards and requirements for the
milk.
[3] Appellant approached various
farmers to buy into the scheme, which included the Mosselbay
Conglomerate, a group consisting of
eleven farmers, the respondent
being one such farmer. Meetings were held to discuss the terms of
participation in the scheme.
An agreement was concluded between
appellant and individual farmers of the Mosselbay Conglomerate.
Respondent did not sign the
contract but participated in the scheme.
All the farmers were aware that the client is Woolworths. They
capitalized on the business
opportunity and the milk was to be sold
at R2,90 per litre instead of their usual tariff of R1,90 per litre.
In terms of the agreement
entered into between appellant and the
individual farmers the Woolworths standards had to be complied with
as stipulated in Clause
4 of the agreement which provides that:
3.1 Sour milk or milk of which the
temperature is higher than 4 degrees Celsius will not be accepted or
paid for by the purchaser.
3.2 The milk should be delivered free
of BST.
3.3 Only A grade milk with a total
bacteria count of 50 000 would be paid for at the full agreed amount.
3.4 No Ecoli or water may be present in
the milk and colivormers are limited to a maximum of 5000.
3.5 The minimum bottervet is agreed to
be 4%, protein 3,55% and the maximum somatic cell count 250 000.
3.6 No fodder may be used which
negatively affects the taste or quality of the milk.
3.7 The purchaser or representative
shall conduct a taste and smell test as prescribed by the University
of Free State on collection
of the milk.
3.8 The hygiene standards as prescribed
by Woolworths must be maintained.
3.9 Tests are to be conducted at least
3 times per month by the purchaser or representative in order to
subject the milk to certain
tests.
3.10 Clause 4.2.9 provides that in the
event of failure to comply with specified standards, the purchaser
is entitled to return
the milk, destroy it or discard it.
3.11 Clause 5 provides that the risk of
the milk passes to the purchaser as soon as it is collected and
pumped into the tank.
[4] The parties agree that the
agreement between the parties was in part oral, and was supplemented
by the terms of the supply agreement.
Respondent, having been
identified as the largest supplier, was to receive 5 cents more per
litre than other suppliers. The milk
delivered by respondent and
other milk -producing farmers would be received by the appellant in a
tanker wherein all the milk of
the Mosselbay group would be pooled
and mixed.
[5] The milk had to comply with the
standards as reflected in the agreement and was subject to tests
before delivery thereof would
be accepted. Respondent duly delivered
milk in the manner provided in the contract. A problem arose with the
milk supplied by the
Mosselbay Conglomerate. Investigations concluded
that the milk had a bad smell and taste after a few days, especially
when heated
up. The rancidity of the milk was only noticed five days
after it was packed. Consequently the milk was rejected by Woolworths
and returned to appellant. Appellant thereafter sold the milk to
another client at a reduced rate of R2,30 per litre, and reduced
each
producer’s rate accordingly. The farmers were informed of the
problems and that investigations revealed that the poor
quality of
the milk was as result of the fodder that was used to feed the
cattle. Appellant’s entitlement to reduce the payment
due to
the producers is explained in its plea as follows:
5.1 The group of milk producers and the
respondent would jointly assume the risk should the milk not comply
with the Woolworths
standards and requirements;
5.2 Should the milk be downgraded by
Woolworths on account of poor quality, the unit price per litre would
be reduced pro tando.
Consequently, the respondent is only entitled
to a reduced price of R2,30 per litre instead of R2,95 per litre.
Appellant’s contentions
[6] Appellant contends that it was
common cause that the standards specified by Woolworths applied and
that the Woolworths standards
could only be tested after delivery.
The milk had a bad taste and smell a few days after delivery and the
problem was also exposed
when the milk was heated up. The agreement
provided stringent requirements with regard to the quality of the
fodder used. Producers
were not allowed to make use of fodder that
could have an influence on the taste and quality of the milk.
Clause 4.2.9 explicitly authorizes the
buyer, where milk does not comply with the standards of Woolworths,
to return, destroy or
get rid of it in any manner.
[7] Appellant does not dispute that
respondent’s milk passed the tests before delivery. However,
the appellant maintains that
on a proper interpretation of Clause 5
it becomes clear that the risk provision had not been intended to
cover any risks directly
related to the standards of Woolworths not
being achieved, which standards were not tested prior to delivery.
Appellant argues
that two rules of interpretation give rise to such
finding:
7.1 When words or stipulations used in
a contract are capable of different meanings, a purposive
construction may be applied. In
this instance the purpose of the
contract was that milk was to be delivered that could be sold by
Woolworths as drinking milk.
If that purpose could not be achieved
for the reason that the agreed standards are not met, the milk must
be dealt with in terms
of clause 4.2.9 (See: Venter and Others v
Credit Guarantee Insurance Corporation of Africa Ltd and Another
[1996] ZASCA 50
;
1996 (3) SA 966(A)
973 D; Christie, The Law of Contract in South
Africa 6th Edition, p 221 - 222).
7.2 With reference to Christie quoting
Pothier and Van Linden’s second rule of interpretation at p228,
appellant stated that,
“When a stipulation is capable of two
meanings, it should rather be construed in that sense in which it can
have some operation
than in that which it cannot have any”.
[8] It was therefore contended that
clause 4.2.9 will only have meaning when it is interpreted to
override clause 5, in circumstances
in which milk is found to
contravene Woolworths standards, subsequent to delivery. Consequently
the conclusion is inevitable that
clause 5 does not protect the
producers where the standards of Woolworths have not been complied
with.
[9] On a proper construction of clause
4.2.9 the producers pooled their milk and were meant to be treated as
one. Clause 4.2.9 does
not require the appellant to only penalise the
particular guilty producer, but in fact by implication authorises it
to treat them
the same. The producers were therefore jointly liable
for the quality of the milk. Consequently appellant was entitled to
deal
with the milk in question in terms of clause 4.2.9 and therefore
no claim lies against it for doing so. Alternatively, the appellant
contends that the provisions of clause 5 do not absolve the
respondent and other producers from supplying milk which complies
with the Woolworths standards. The clause 5 risk provision does not
exclude liability arising from a latent defect in the milk.
Appellant
referred to Dutch Reformed Church Council v Crocker
1953 (4) SA 53
(C) at 60D where the following was stated:
“Such risk is, however, one of
the damage to, and destruction of, the property after its sale and
does not apply to an inherent
or latent defect in the property in
existence as at the date of its sale, even though discovered at a
later stage”.
Respondent’s contentions
[10] Respondent contends that he had
practised the same farming methods consistently and has never
produced milk suffering from
the alleged defects in question. The
agreement expressly recognises the “pooling” nature of
the scheme, and provides
for tests and standards to be passed and met
by the milk producer prior to or as at delivery. The tests applied at
delivery are
akin to a suspensive condition that delivery will only
be accepted, the sale become perfecta, and the risk pass to the
purchaser,
if the milk passes the tests. The respondent’s milk
passed all the tests and the poor taste and smell only developed
after
delivery. The protection measures for the purchaser built into
the contract recognised that once delivery and pooling of the milk
had been effected, quality checks would be too late since clause 5
then passed the risk to the purchaser.
[11] It was therefore argued that the
appellant incorrectly shifts the risk to the respondent and other
farmers contrary to the
provisions in the contract. The nature of
appellant’s risk is clearly defined in the contract which
included the risk associated
with the pooling of the milk, as well as
the risk of the milk developing a poor taste or smell after delivery.
Respondent avers
that appellant is driven to plead that it was a
tacit term of the agreement that the group producers would assume the
risk. Appellant’s
case is inconsistent with the express terms
of the milk supply contract in that the issue of risk is expressly
provided for in
the contract. Respondent contends that the express
terms and provisions of the milk supply agreement exclude the terms
pleaded
and relied upon by the appellant.
[12] The problems encountered with the
milk after delivery could not be disputed by respondent. However, as
a result of the pooling
of the milk it is impossible to determine the
source of the poor quality milk. It cannot be said that it was
respondent’s
milk that contributed to the problem. The onus to
prove that a latent defect existed rests on the appellant as
purchaser. (See:
Seboko v Soll 1949 (3) SA 337 (T) at 350). No latent
defect in respondent’s milk could be found and appellant is
unable to
discharge the onus of proving that the respondent’s
milk contained any such defect. Appellant’s special defence
raised
in the plea is accordingly excluded by the terms of the
written portion of the agreement between the parties. Consequently
the
respondent has met all the requirements and tests as determined
in the agreement and cannot be held responsible for problems of
taste
and smell which developed subsequent to delivery.
Legal Principles
[13] The court a quo applied the
bystander test and found that the tacit term pleaded by the appellant
cannot be sustained. The
court concluded that the importation of such
term would essentially be for the benefit of appellant and impose an
unreasonable
burden on respondent. The court found that due to the
nature of the term pleaded it is not appropriate in the circumstances
that
same be imported by mere application of the bystander tests.
[14] It is common cause that no
evidence was led in respect of the alleged terms as pleaded by the
appellant. On appeal, the main
issues to be determined revolved
around the existence of the tacit terms pleaded and the
interpretation of clauses 4.2.9 and 5.
In terms of clause 5 the risk
of the milk passes to the purchaser as soon as it is collected and
pumped into the tank. However,
the appellant pleaded the existence of
a tacit term to the effect that the group of milk producers would
jointly assume the risk
should the milk not comply with the
Woolworths standards and requirements. Furthermore, should the milk
be downgraded by Woolworths
on account of poor quality, the unit
price would be reduced to R2,30 per litre.
[15] As explained by Corbett, AJA in
Alfred McAlpine and Son (Pty) Ltd v Transvaal Provincial
Administration
1974 (3) SA 506
(A) at 531H - 532A, a tacit term is
an unexpressed provision of a contract, inferred by the court from
the express terms of the
contract and the surrounding circumstances.
In our law the test for establishing the existence of a tacit term is
the so-called
“bystander” or “officious bystander”
test. (See: Botha v Coopers and Lybrand
2002 (5) SA 347
(SCA) para
22-25; Consol Ltd t/a Consol Glass v Twee Jonge Gezellen (Pty) Ltd
and Another
2005 (6) SA 1
(SCA) para 50-51).
[16] The bystander test was described
as follows in the frequently quoted case of Reigate v Union
Manufacturing Co
1918 (1) KB 592
at 605:
“A term can only be implied if it
is necessary in the business sense to give efficacy to the contract;
i.e. if it is such
a term that it can confidently be said that if at
the time the contract was negotiated someone had 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’”.
[17] The court a quo referred to Rapp
and Maister v Aronovksy
1943 WLD 68
at 74 to 75 where Millin J stated
the following:
“It has often been pointed out
that it is not sufficient to show that the term would be highly
reasonable or convenient to
one or other or even both of the parties.
The cases show that the court has to be continually on its guard
against being persuaded
to introduce a term which, on analysis of the
argument, appears to be no more than a term which would make the
carrying out of
the contract more convenient to one of the parties or
to both of the parties and might have been included if the parties
had thought
of it and if they had both been reasonable. You are not
to imply the term merely because if one of the parties or a bystander
had
suggested it, you think only an unreasonable person would have
disagreed. You have to be satisfied that both parties did agree.
It
is quite a different proposition, if in the hypothetical case
Scrutton Lord Justice puts in, you feel the parties might say:
“You
have called our minds to something we have not thought of and what
you say is not unreasonable, let us discuss it.”
If that is all
that the Court feels might have happened, then the Court is not
entitled to imply the term.”
[18] In order to decide whether the
importation of a tacit term would be appropriate Nienaber, JA in
Wilkins NO v Voges
[1994] ZASCA 53
;
1994 (3) SA 130
(A) at 137A-C stated that “a
term will readily be imported into a contract if it is necessary to
ensure its business efficacy.”
In City of Cape Town (CMC
Administration) v Bourbon – Leftley and Another NNO
2006 (3) SA
488
(SCA) Brand, JA succinctly set out the legal principles governing
tacit terms at para 19:
“... [A] tacit term is based on
an inference of what both parties must or would necessarily have
agreed to, but which, for
some reason or other, remained unexpressed.
Like all other inferences, acceptance of the proposed tacit term is
entirely dependent
on the facts. But, as also appears from the cases
referred to, a tacit term is not easily inferred by the courts. The
reason for
this reluctance is closely linked to the postulate that
the courts can neither make contracts for people nor supplement their
agreements
merely because it appears reasonable or convenient to do
so (see e.g. Alfred McAlpine and Son (Pty) Ltd v Transvaal Provincial
Administration
1974 (3) SA 506
(A) at 532H). It follows that a term
cannot be inferred because it would, on the application of the
well-known ‘officious
bystander’ test, have been
unreasonable of one of the parties not to agree to it upon the
bystander’s suggestion. Nor
can it be inferred because it would
be convenient and might therefore very well have been incorporated in
the contract if the
parties had thought about it at the time. A
proposed tacit term can only be imported into a contract if the court
is satisfied
that the parties would necessarily have agreed upon such
a term if it had been suggested to them at the time (see e.g. Alfred
McAlpine
(supra) at 532H- 533B and Consol Ltd t/a Consol Glass
(supra) at para [50]. If the inference is that the response by one of
the
parties to the bystander’s question might have been that he
would first like to discuss and consider the suggested term, the
importation of the term would not be justified”.
[19] The Court is slow to import a
tacit term into the written contract. One reason, no doubt, is that
parties would choose to commit
themselves to paper can be expected to
cover all aspects that matters. In Union Government Minister of
Railways and Harbours v
Faux Ltd
1916 AD 105
at 112 the court stated
it as follows:
“Now it is needless to say that a
Court should be very slow to imply a term in a contract which is not
found to be there,
more particularly in a case like the present,
where in the printed conditions the whole subject is dealt with in
the greatest detail;
and where the condition which weare asked to
imply is one of the very greatest importance on a matter which could
not possibly
have been absent from the minds of the parties at the
time when the agreement was made”.
[20] The respondent participated in the
scheme based on the oral agreement in conjunction with the contract
which passes the risk
of the milk to the appellant on delivery. The
contract made provision for certain tests to be conducted before the
milk is accepted
for delivery. The milk of the producers is tested
individually, but pooled together in one tank. At the time of the
delivery of
the milk, respondent’s milk passed all the tests as
prescribed in respect of quality, and was accepted by appellant’s
representative as such. However, the critical point where Woolworths’
standards are determined is some time after the actual
delivery of
the milk. The contract is silent on any obligation on the producers
with regard to the pooled milk.
[21] The respondent was the largest
supplier of milk and was thus the producer who stood to lose most
should producers bear the
risk associated with pooling. He also has
his own insurance should the milk be defective. On the wording of the
tacit term pleaded
the respondent was obliged to ensure that there
was compliance with the Woolworths standards in respect of the pooled
milk. The
question as to who bore the risks of the pooling of the
milk would introduce various important considerations for the largest
supplier.
Had the notional bystander at the time of contracting asked
the respondent whether he was undertaking to ensure that the quality
of the pooled milk would comply with Woolworths’ standards, in
my view, at best the respondent would have wanted to consider
and
discuss it further. Nothing in the evidence warrants the conclusion
that the respondent’s answer would have been in the
affirmative.
[22] The tacit term pleaded purports to
saddle the respondent with the risks associated with the pooling of
the milk. There was
no compelling reason for respondent to agree to
such obligation bearing in mind that he is the largest supplier. Why
should respondent
have been prepared to guarantee the overall quality
of the milk over which he had no control and which could conceivably
cause
it substantial loss. At the time the contract was entered into
the respondent was not aware of potential problems which could arise
after delivery of the milk and could not have foreseen such problems.
[23] The tacit term pleaded would in
effect make the producers guarantors that there would be compliance
by all the producers with
Woolworths’ standards during and
after delivery of the milk. Considering the surrounding circumstances
relating to the nature
of the contract between the parties and the
pooling of the milk the respondent could not have contemplated the
eventuality of the
pooled milk not complying with Woolworths
standards. Consequently the respondent could not have intended to be
held liable or be
penalized for problems with the milk after
delivery. The risks associated with the non-compliance with
Woolworths’ standards
after delivery were not present in the
mind of respondent and can therefore not be imputed to the respondent
in terms of the contract.
(See: Delfs v Kuehne and Nagel (Pty) Ltd
1990 (1) SA 822(A)
at 828E). Such a provision would clearly not pass
the test for its inclusion as a tacit term. Against this background
it is inconceivable,
on the probabilities, that the respondent would
have agreed to assume the risks associated with the pooling of the
milk as pleaded
by appellant.
[24] A tacit term is derived from an
inference as to what both parties must have intended if they had
applied their minds to the
issue, and the inference will be drawn
only if the court is satisfied that it is a necessary one. Any
difficulty and doubt as to
how the term should be formulated will
negate the inference that the parties clearly intended the proposed
term to be part of their
agreement. (See: South African Mutual Aid
Society v Cape Town Chamber of Commerce
1962 (1) SA 598
(A) at 606B;
Desai and Others v Greyridge Investments (Pty) Ltd
1974 (1) SA
509
(A) at 522H - 523A). How would a tacit term be formulated which
provides for the joint responsibility of all producers in the event
of non-compliance with Woolworths’ standards after delivery of
the milk? It would be difficult to formulate such a term since
it is
wholly irreconcilable with clause 5 of the agreement.
CONCLUSION
[25] It follows that a tacit term
cannot be imported into a contract on any matter to which the parties
have applied their minds
and for which they have made expressed
provision for in the contract. (See: Robin v Guarantee Life
Assurance Co Ltd
[1984] ZASCA 72
;
1984 (4) SA 558
(A) at 567C-D). A tacit term can
also not be imported where it will contradict an existing expressed
term, such being well-established
in law. As stated by Van Winsen JA
in SA Mutual Medical Aid Society v Cape Town Chamber of Commerce
1962
(1) SA 598
(A) at 615D:
“A term is sought to be implied
in an agreement for the very reason that the parties failed to
agree expressly thereon.
Where the parties have expressly agreed
upon a term and given expression to that agreement in the written
contract in unambiguous
terms, no reference can be had to
surrounding circumstances in order to subvert the meaning to be
derived from a consideration
of the language of the agreement only.”
[26] Appellant bore the onus of proving
the existence of the tacit term for which it contended. Clause 5 of
the agreement provides
that the risk of the milk passes to the
purchaser on delivery of the milk. The scope and reach of the
agreement between the parties
transfers the risk from producers to
purchasers once the milk had been tested and pumped into the tank.
Considering the express
terms of the agreement and the surrounding
circumstances it was entered into, I am of the view that the tacit
term pleaded by the
appellant cannot be sustained.
[27] In the circumstances the following
order is made:
The appeal is dismissed with costs.
GOLIATH, J
Judge of the High Court
I agree.
SCHIPPERS, J
Judge of the High Court