Cracks in the wall – What recourse does a subsequent purchaser have?

November 1st, 2013

By Jason Mitchell

The scenario should be all too familiar: A client purchased a house and it transpires that the foundations are riddled with structural defects caused by negligent building. In the deed of sale is the usual voetstoots clause, barring any recourse on the basis of latent defects, and, being a private sale, the Consumer Protection Act 68 of 2008 is of no refuge. It would seem that the only avenue for redress is attempting to overcome the voetstoots clause by showing deliberate concealment of the defects, a formidable hurdle. The client will no doubt ask whether the architect, structural engineer, or contractor involved in the construction may be sued for negligence. In terms of the common law, this possibility is instinctively rejected out of hand.

Is it correct to think that the client is without recourse in the law of delict? This article will show that the answer to the subsequent-purchaser question is not immediately obvious, and indeed might run contrary to legal instincts.

Wrongfulness in delict

Like many other contentious issues in the law of delict, the answer to this question rests in the wrongfulness inquiry: Should negligent conduct of a building professional be branded wrongful vis-à-vis a subsequent purchaser?

Wrongfulness is an elastic concept that begets no concise definition. The decision whether a particular instance of harm-causing conduct is wrongful is the outcome of the exercise of judicial discretion, taking into account various policy considerations (Francois du Bois (ed) Wille’s Principles of South African Law 9ed (Cape Town: Juta 2007) at 1098). The ultimate question that the court asks is whether, assuming that the other requirements for delictual liability are satisfied, it is reasonable to impose liability in the particular instance (Trustees Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd 2006 (3) SA 138 (SCA) at para 12).

Delictual liability in a contractual setting

Delictual and contractual liability may overlap in circumstances where conduct constituting a breach of contract also constitutes a delictual wrong. The key point is that a claim in delict is available only alongside a contractual action if the conduct complained of, apart from the breach of contract, also wrongfully and culpably infringes a legally recognised interest of the plaintiff that exists independently of the contract (J Neethling and JM Potgieter Law of Delict 6ed (Durban: LexisNexis 2010) at 259). In other words, a plaintiff cannot rely on the breach of contract alone as wrongful conduct for the purposes of a delictual claim (see Lillicrap, Wassenaar and Partners v Pilkington Brothers (Pty) Ltd 1985 (1) SA 475 (A)).

The courts are careful to thwart attempts by litigants to circumvent contractual relationships by means of delictual claims. It is clear from the case law that the extension of delictual liability will not readily be allowed in the field of contract law if the prejudiced party was in a position to afford himself or herself adequate contractual remedies.

Indeed, in the seminal decision of the Supreme Court of Appeal in the Two Oceans case, the chief reason that motivated Brand JA to find against the plaintiff on the issue of wrongfulness was that there was no reason why the plaintiff could not have covered itself against the risk of harm due to the defendant’s negligence by means of appropriate contractual stipulations.

Liability in the subsequent-purchaser situation

Based on the above discussion, it would seem that the courts would shut their doors to a subsequent purchaser relying on a delictual claim to recover pure economic loss. The subsequent purchaser is in a position to cover himself or herself for damage caused by negligent construction by means of an appropriate stipulation in the deed of sale (or by not agreeing to a voetstoots clause). However, the concluding paragraphs of Brand JA’s judgment in the Two Oceans case could hold the key to unlocking such a claim:

‘Finally, the appellants argued that the position of the trust vis-à-vis the respondent is analogous to that of the relationship between the subsequent owner of a building and the builder responsible for its construction. They therefore sought support for the extension of Aquilian liability in the present context in those cases where the subsequent owner was afforded a remedy in delict against the builder for damages resulting from the negligent execution of the building contract to which the subsequent owner was not a party … . In the light of the view that I hold on the facts of this matter, I find it unnecessary to enter into the rather complex debate regarding the extension of delictual liability to afford a remedy in the subsequent-purchaser situation. Unlike the relationship between the trust and the respondent in this matter, there is never any direct contractual relationship between the builder and the subsequent purchaser. Unlike the trust, the subsequent purchaser would therefore not have had any opportunity to arrange the features of that relationship by way of contract. That, as far as I am concerned, is a material difference. Whether that material difference will lead to a different result in the subsequent-purchaser situation, is one we do not have to decide’ (at paras 26 – 27).

In the above paragraphs, Brand JA deliberately distances his judgment from the subsequent-purchaser situation. The effect of this may well be that the subsequent-purchaser case is distinguishable from the Two Oceans case, giving scope to argue that the law of delict should place its imprimatur on a delictual remedy in these situations, notwithstanding the contractual relationships at play.

For some reason, Brand JA did not, in his brief discussion of the subsequent-
purchaser situation, deal with the only South African case directly on point. In Tsimatakopoulos v Hemingway, Isaacs & Coetzee CC and Another 1993 (4) SA 428 (C), the Cape Provincial Division (as it then was) allowed a subsequent purchaser to sue an engineering firm for damages caused by its negligence in constructing a retaining wall. Briefly, the facts of the case were as follows: In 1987, the defendant was engaged by the then owner of the property, Crawford, to design a retaining wall to be built on the property. Crawford built the wall according to these plans. The property was sold to the plaintiff approximately two years later. It was common cause that the design of the wall had been negligent. As a result, approximately six months after the plaintiff purchased the property, the wall began to tilt upwards, obliging the plaintiff to take steps to restore the stability of the wall. In doing so, the plaintiff suffered economic loss.

The defendant argued that where the relationship between a plaintiff and defendant had its ‘origins in contract’, it would be inappropriate and impressible for a party such as the plaintiff in this case to institute action in delict. Rather, so the argument went, he would be limited to a contractual claim against the seller. The court was not persuaded by this argument, observing that while the relationship between the plaintiff and the seller has its origin in contract, there was never any contract between the plaintiff and the defendant (a key feature of the reasoning of Brand JA in the Two Oceans case).

The defendant raised the usual policy arguments traditionally used to militate against extension of delictual liability. In particular, it was argued that recognition of a delictual cause of action would open the door to a multiplicity of claims, and that it would render every building contractor and sub-contractor, architect, or engineer liable not only to his or her immediate contracting partner in contract, but also in delict to all of the latter’s successors in title ad infinitum. The court rejected this line of argument with the devastatingly simple retort that, in this particular instance, the wall could only fall over once. Once that event had occurred, it could not happen again. Therefore, the spectre of an unlimited class of possible plaintiffs could not arise in this case. The quantum of damages was necessarily limited to the cost of rebuilding the wall. The plaintiff’s claim was successful.

Given the fact that Brand JA deliberately distanced the subsequent-purchaser situation from his judgment in the Two Oceans case, it would seem that the Tsimatakopoulos case remains good law. However, it must be borne in mind that the principles espoused in this case have yet to be tested directly on an appellate level (see the extensive obiter support and justification for this decision emanating from the Cape High Court in Pinshaw v Nexus Securities (Pty) Ltd 2002 (2) SA 510 (C) and Humphrys NO v Barnes 2004 (2) SA 577 (C). The Pinshaw judgment was subsequently overturned by the SCA in Holtzhausen v ABSA Bank Ltd 2008 (5) SA 630 (SCA), but the latter judgment did not deal with the merits of the subsequent-purchaser situation as outlined in the Pinshaw case).

Limitation of liability

Assuming that a cause of action against a building professional could, in principle, be sustained by a subsequent purchaser, would the former be able to rely, directly or indirectly, on a limitation of liability contained in his or her contract with the seller? While the first port of call may be to deny such a possibility on the basis of a lack of privity between the building professional and the subsequent purchaser, the SCA’s decision in Viv’s Tippers (Edms) Bpk v Pha Phama Staff Services (Edms) Bpk h/a Pha Phama Security 2010 (4) SA 455 (SCA) suggests an affirmative answer to this question. In this case, the owner of a construction site had contracted with a security firm for it to provide security personnel on-site. The contract excluded liability of the firm for any damage or loss to the owner of the site. A truck, owned by the plaintiff, was stolen from the site, and the plaintiff sought to sue the security firm in delict for the value of the truck.

Lewis JA confirmed that no delictual claim is maintainable when the negligent conduct relied on consists solely in the breach of the contract. However, where the claim exists independently of the contract, a delictual claim for economic loss may certainly lie. This would be so even if the delictual claim would not exist but for the existence of the contract. Accordingly, it is possible that the assumption of contractual duties is capable of giving rise to delictual liability.

Having recognised that the plaintiff would, at least in principle, have a claim in delict against the defendant, the court went on to consider the relevance of the exclusion of liability in the contract between the defendant and the owner of the building site in determining whether the defendant’s conduct was wrongful. Of course, the exclusion of liability was not contractually binding on the plaintiff as there was no contract in existence between the plaintiff and defendant. However, the court ultimately held that, despite the lack of contractual privity, the exclusion of liability ought to inform the wrongfulness inquiry.

The court, quoting with approval the views of Professors Hutchison and Van Heerden (Dale Hutchison and Belinda van Heerden ‘The tort/contract divide seen from the South African perspective’ 1997 Acta Juridica 97 at 114) held that the plaintiff and defendant were contractually linked to the owner of the construction site, and that there was a clear tripartite understanding of where the risk would lie: ‘[E]ach party, with full knowledge of his risk exposure, could reasonably have been expected to have protected himself by other means. … To superimpose on the consensual arrangements a delictual duty of care would disturb the balance, by allowing a shifting of losses within the matrix contrary to the original understanding of the parties.’

Applying this to the subsequent-purchaser situation, the contract between the building professional and the seller would be taken into account in determining whether the building professional’s negligent conduct is wrongful vis-à-vis the subsequent purchaser. In particular, if the former contract contains an exclusion of liability in favour of the building professional, this might militate a finding against recognition of wrongfulness in the particular case.

Jason Mitchell LLB (UCT) is a candidate attorney at ENS in Cape Town. This article was written under the supervision of Cecil Gelbart (director, ENS) and Gerhard du Toit (senior associate, ENS).

This article was first published in De Rebus in 2013 (Nov) DR 44.

De Rebus