South Africa: Construction Law Bulletin - Exclusion Of Liability Clause

Introduction

The Supreme Court of Appeal handed down an interesting judgment in the latter part of 2009 dealing with the entitlement of a materials supplier to invoke certain exclusion of liability clauses in relation to material supplied which did not conform to the contractual specification.

Background

Cladall Roofing (Pty) Ltd ("Cladall") was awarded a contract in early 2006 by the Addo Citrus Corporation for the installation of roofing at a cooling facility in Addo in the Eastern Cape. The cooling facility was required for the storage of oranges in preparation for export.

The contract required IBR sheeting with a minimum thickness of 0,5 millimetres. In addition the sheeting was required to be of industrial strength, otherwise known as "full hard". This was necessary because the roof trusses were far apart and the roof was required to be trafficable. In other words, the roof had to be able to withstand human traffic without bending or sagging.

The Contract

Cladall invited SS Profiling (Pty) Ltd ("SS") to quote for the supply of the required IBR sheeting. In its invitation Cladall specified that it required 13 000 square metres of IBR sheeting to the following specification:

"0,50 millimetres IBR FH Galvanised Z275 Spelter as per ISCOR"

Z275 indicated the minimum galvanised content of the IBR sheeting. FH is an abbreviation for full hard. Iscor was the acronym for the Iron and Steel Corporation which has subsequently become known as Mittal Steel.

SS  confirmed that it could supply the requisite material to the specification required and Cladall then placed a formal order on SS  for the material for delivery in February 2006.

When it had opened its account with SS, Cladall had been required to sign in acceptance of certain standard conditions of agreement incorporated in SS's credit application. Two of the relevant clauses contained in these standard conditions and which played a part in the case read as follows:

The standard conditions also included a clause which prohibited a customer from withholding payment of any invoice for any reason whatsoever.

The Delivered Material

In February 2006 a truck arrived at site loaded with the roof sheeting.

Cladall's representative noticed that the dimensions of the sheeting did not appear to be uniform and this aroused his suspicions that the sheeting was not in accordance with Cladall's order specification.

It was of course not possible to ascertain with the naked eye whether the material in fact met the specification and any determination of the galvanised content and tensile strength of the sheeting would have required laboratory testing.

The Cladall representative immediately contacted SS  who sent a representative to site. After lengthy discussions between the SS  representative and the SS  factory, Cladall was reassured that the material was indeed the correct material and had all the attributes asked for.

Cladall remained concerned and a Cladall representative himself contacted the SS  factory to double check the position. He was reassured again that the material was the correct material.

Two weeks into the six week installation period Cladall's workmen reported that the roof was showing indentations after being walked on.

Cladall realised that there was a major problem with the sheeting. At this stage Cladall had paid the greater part of the purchase price for the sheeting.

Tests were undertaken on the sheeting which revealed considerable variations in the sheeting. In the face of this Cladall refused to pay the balance of the purchase price. However, SS demanded payment of the outstanding balance.

Court A Quo

The dispute between the parties was taken to the Port Elizabeth High Court for determination.

The issues between the parties were whether SS could rely on the standard conditions quoted above to exonerate it from liability for having delivered non-conforming materials and whether Cladall was obliged in that event to pay the balance of the purchase price.

It was common cause that Cladall had not given a written notice to SS as contemplated in clause 7.3 of the standard conditions.

The Port Elizabeth High Court found in favour of SS and held that it could indeed rely on the relevant clauses to escape liability for its failure to comply with the contract. It consequently held that Cladall had to pay the balance of the purchase price and entered judgment against it accordingly.

SCA Decision

Cladall appealed the finding of the Port Elizabeth High Court to the Supreme Court of Appeal in Bloemfontein.

The SCA reversed the finding of the High Court holding that SS could not rely on the clauses, that Cladall was not obliged to pay anything further for the material concerned and directed that the case should be referred back to the High Court for a determination of the damages that Cladall was entitled to be paid by SS for having delivered the wrong material. In the High Court proceedings Cladall had included a claim for damages for all the costs and expenses it had incurred in having to remove the defective sheeting and replace it with the correct material.

The reasoning underpinning the SCA's decision was simple.

It held that it was clear from the evidence that Cladall had ordered a very specific product and that SS had agreed to provide that product. It was common cause that the bulk of the product delivered by SS, whilst it was indeed IBR roof sheeting, was not of the required thickness, was not full hard industrial strength, had not been galvanised according to the Z275 specification and had not been manufactured and produced according to Mittal standards. Not one of the specific attributes of the roof sheeting agreed upon between the parties had thus been met. The material bore no relation to the goods ordered and was an entirely different and inferior product.

The court stated that the contract could not be performed by SS simply by delivering IBR sheeting irrespective of its specification. It could only be performed by the delivery of IBR sheeting of the required specification.

The court held that, properly interpreted, clauses 6.4 and 7.3 of SS's standard conditions only governed situations where defective goods were delivered by SS to a customer. The clauses could not apply to a situation where the goods delivered by SS were an entirely different product to the goods ordered by a customer and bear no resemblance to what had been agreed between the parties.

Consequently SS had not performed at all in terms of the contract and its reliance on the exclusion of liability clauses concerned was misplaced.

Conclusion

The Supreme Court of Appeal drew the distinction between the situation where material is delivered which is basically in conformity with what has been ordered but has perhaps some defects and the situation where material has been delivered which is so vastly different to what had been contracted for that it is not defective as such but simply a different and wrong material.

If for example the material had conformed to the specification but in certain isolated sheets had not had the required galvanising thickness, then that would have constituted a defect and SS could have relied on its standard conditions to avoid liability.

In the case concerned however the sheeting had failed to measure up to every single important element of the specification and was accordingly something entirely different to what had been ordered.

The court's decision provides contractors with welcome relief from the pernicious effect of exclusion of liability clauses which have all too often been used unfairly as a tool by suppliers to avoid the consequences of their own defective contractual performance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.