Limitations on liability in delict

April 1st, 2014

Country Cloud Trading CC v MEC, Department of Infrastructure Development (SCA) (unreported case 751/12, 26-11-2013) (Brand JA)

By Ian Chadwick

In Country Cloud Trading CC v MEC, Department of Infrastructure Development (SCA) (unreported case 751/12, 26-11-2013) (Brand JA) the Supreme Court of Appeal (SCA) was confronted with a claim brought in delict by the appellant, Country Cloud Trading CC, that was a stranger to a contract concluded between the respondent and another party (Ilima). The appellant claimed that it had suffered damages as a direct consequence of the repudiation or unlawful cancellation by the respondent of its contract with Ilima and, in consequence thereof, claimed that it was entitled to compensatory damages from the respondent. Such a claim is, as far as I am aware, novel. Brand JA, who delivered the unanimous judgment of the court, dismissed the claim.

Briefly, the facts of the case were that Ilima had concluded a contract with the respondent (referred to in the judgment as the ‘completion contract’) for the completion of the Zola Clinic in Soweto for a contract price of R 480 million. Ilima was unable to proceed with the work without funding. It obtained this funding by means of a loan that it raised with the appellant in the sum of R 12 million. The appellant was to be repaid the loan, together with a profit of R 8,5 million, out of progress payments by the respondent to Ilima. Prior to any progress payments being made, the respondent cancelled the completion contract alleging material misrepresentations that induced it to conclude the completion contract. Subsequently Ilima went into liquidation without paying the appellant anything.

At the appeal hearing, the SCA accepted the appellant’s contention that the respondent had wrongfully repudiated the completion contract in that its representative had intentionally cancelled it without any legal justification. The court then proceeded to examine whether the element of wrongfulness necessary to sustain a delictual action had been proved. In doing so, the court reviewed the development of the law of delict within the context of liability for pure economic loss, starting with the decision in Administrateur, Natal v Trust Bank van Afrika Bpk 1979 (3) SA 824 (A).

In the Trust Bank case, when extending liability for pure economic loss, the court realised the danger of ‘limitless liability’ inherent in the extension and concluded that the ‘instrument of control to prevent limitless liability’ is the delictual element of wrongfulness.

Subsequent decisions of the then Appellate Division and SCA and, more recently, the Constitutional Court in Le Roux v Dey (Freedom of Expression Institute and Restorative Justice Centre as Amici Curiae) 2011 (3) SA 274 (CC) have held that wrongfulness, in the context of delictual liability, is determined by considerations of legal and public policy. In the Dey case, the court was at pains to point out that reasonableness in the context of wrongfulness has nothing to do with the reasonableness of the defendant’s conduct, but concerns the reasonableness of imposing liability on the defendant for the harm resulting from that conduct (at para 122).

With reference to the appellant’s argument that public policy should impose liability because the respondent’s representative knew that cancellation of the completion contract would cause harm to the appellant, the court approved the statement of M Loubser and R Midgley in The Law of Delict in South Africa 2 ed (Cape Town: Oxford University Press 2012) at 141 that ‘intentionally causing harm to others will not always be wrongful’ and that ‘intent does not necessarily indicate wrongfulness’. The court concluded that, in the end, the nature of the fault and the degree of blameworthiness are considerations to be weighed up with all others in determining whether delictual liability should be imposed. The court further concluded that, since foreseeability of harm is a prerequisite for delictual liability in all cases, that feature could not render the appellant’s claim deserving of special treatment.

The court further concluded that since the imposition of delictual liability on the respondent would, as a general principle, render contracting parties liable in delict for harm suffered by strangers that flows from the repudiation of their contract, this was a strong pointer away from the imposition of delictual liability. To find otherwise would open the door to ‘indeterminate liability’. A further consideration to which the court referred was the appellant’s (lack of) ‘vulnerability to risk’. Vulnerability to risk signifies that the plaintiff could not reasonably have avoided the harm suffered by other means.

The court stated that it has now become well-established in law that the finding of non-vulnerability on the part of a plaintiff is an important indicator against the imposition of delictual liability on persons such as the defendant (respondent) in the present case. Thus, where it is reasonably possible for the plaintiff to take steps to protect itself, the law will be less inclined to step in and impose a duty on the defendant to protect the plaintiff from the risk of pure economic loss.

Ian Chadwick BA LLB PGDip Tax (UKZN) is an attorney at Shepstone & Wylie in Umhlanga.

This article was first published in De Rebus in 2014 (April) DR 44.