14 September 2011 by

The life of the common law has not been logic: it has been experience

Oliver Wendell Holmes Jr said once that the life of the common law has not been logic: it has been experience. This was reiterated in the recent case of AB Ventures Limited v Siemens Limited (294/10) [2001] ZASCA 58 (31 March 2011), where the Supreme Court of Appeal of South Africa (SCA) was asked to further develop the law of delict in relation to the recovery of damages for pure economic loss. Claims for pure economic loss were first recognised some 32 years ago in the case of Administrateur Natal v Trust Bank van Afrika Bpk 1979 (3) SA 824 (A).

AB Ventures had a written agreement with Lumwana Mining Company (Lumwana) in terms of which AB Ventures had undertaken to construct the Lumwana Copper Mine in Northern Zambia. AB Ventures had in turn contracted with a joint venture between Ausenco Americas LLC and Bateman International Projects BV. In terms of this agreement, the joint venture was to supply four specialised electrical units (the drives) that AB Ventures were to use in the project. The joint venture had in turn concluded a sub-contract with Siemens in terms of which Siemens agreed to engineer, design, manufacture, supply and commission the drives for the joint venture.

The drives Siemens supplied malfunctioned. As a result, the project was delayed and AB Ventures alleged that it became liable to Lumwana for penalties under the construction contract, and incurred additional expenses. AB Ventures instituted legal proceedings against Siemens, with which it had no contractual relationship, alleging that the malfunction of the drives and the resultant loss had been caused by the negligence of Siemens. It sought to recover these damages from Siemens in delict.

Accepting for the purposes of the proceedings that the conduct of Siemens was negligent, the SCA was asked to decide whether its conduct was wrongful and actionable in the hands of AB Ventures.

In seeking to advance its case AB Ventures submitted that the case was analogous to cases involving so called 'products' or 'manufacturer's' liability where liability is founded on the perceived need to protect defective consumers against the risks to which they are exposed by the impersonal distribution of consumer goods in modern society.

The SCA rejected this argument, finding that this was not a product liability case involving anonymous consumers of mass-produced goods. The SCA here was concerned with a major construction project involving a web of inter-related contracts and sub-contracts.

The SCA followed the decision in the case of Lillicrap, Wassenaar and Partners v Pilkington Brothers (SA) (Pty) Ltd 1985 (1) SA 475 (A). In this case the SCA concluded that the existing law enabled the plaintiff to protect itself through the contract that it had concluded with its consultant engineer.

AB Ventures sought to distinguish the Pilkington Brothers case on the basis that there was no contractual relationship directly between AB Ventures and Siemens and that in the circumstances AB Ventures was not capable of protecting itself against the negligence of Siemens in the same way. Rejecting this argument, the SCA found that there was no principal distinction between the two cases as, by its own contractual act, AB Ventures had taken upon itself the risk of liability arising from delay and expenses that might be caused by the default of other contractors. It also found that had AB Ventures not contracted to accept that risk in the first place, then it would not have suffered the loss at all. Clearly, the SCA found AB Ventures could have contracted in such a way as to have protected itself by excluding liability arising from delays caused by defective performance by other contractors.

This case demonstrates the understandable reluctance of our courts to extend the scope of the Aquilian delictual action to new situations, especially for contract related situations, unless there are positive policy considerations which favour such an extension.

Joe Whittle and Alessia Fowler

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