Transfer of the right of ownership

The four CIDB-approved standard forms of contract deal with the transfer of ownership, particularly with regard to plant and materials delivered to site in different ways, explains Chris Binnington.

It is not unusual for a contract to provide that, once the employer has made payment for plant and materials, and/or goods delivered to site, the employer has thereby acquired ownership.

See, for example, Joint Building Contracts Committee (JBCC) 2000 series Clause 31.7: “Materials and goods certified shall become the property of the employer and shall not be removed without the written consent of the principal agent.”

Similarly Clause 29 of General Conditions of Contract for Construction Works (GCC) 2000 provides: All materials brought on to the site by or on behalf of the contractor… shall, immediately on delivery to the site… be deemed to have become the property of the employer”

New Engineering Contract (NEC) and International Federation of Consulting Engineers (FIDIC) provide a more enlightened approach. NEC3 Clause 70.2: “Whatever title the contractor has to plant and materials brought within the working areas passes to the employer if it has been brought within the working areas.” FIDIC 1999 Clause 7.7: “Each item of plant and equipment shall, to the extent consistent with the laws of the country, become the properly of the employer at whichever is the earlier of the following times, free from liens or other encumbrances; a) when it is delivered to site; b) when the contractor Is entitled to payment….”

The problem with JBCC and GCCZOD4 is that they both purport to create rights of ownership where potentially no such rights exist and, as a consequence, such rights cannot be created by a contractual term.

Ownership

NEC and FIDIC both recognise that, if the contractor is not the owner of the goods, no amount of contract drafting can displace the rightful ownership of the legal owner of the plant/materials or goods.

The question of ‘ownership’ is one the Roman Dutch common law principles have traditionally held in high esteem. Accordingly, the law generally reacts very forcefully when an attempt is made, unlawfully In the broadest sense, to relieve the rightful owner of his right of ownership, which JBCC definitely does and GCC2004 does to a lesser extent by virtue of the deeming’ provision quoted above.

The common law position regarding transfer of ownership, insofar as move- able goods are concerned, is that ownership passes on delivery not on payment. This, of course, assumes that the party effecting delivery has rightful title (ownership) in the first place and can accordingly transfer such title to the recipient of the goods by delivery. As this is a common law principle, it is capable of being amended by the terms of sale such that, particularly where a credit sale is effected whereby payment is expected to follow some time after delivery of the goods, the seller retains rights of ownership as against payment by the purchaser.

Our law also recognises certain obvious practicalities to the right of retention of ownership. One is the principle of accession of the goods to the works (accessio). Where goods have been fixed into the works in such a way that to remove them would cause damage to the surrounding works, those goods are said to have acceded to the works and the right of retention of ownership is destroyed. This leaves the seller with the right of action for the purchase price against the party to whom it has sold.

It is for this reason that conditions of contract have attempted to overcome the obstacle created by the necessity to pay for plant/materials and/or goods delivered to site while, at the same time, the employer can never be sure that it has, in fact, acquired ownership notwithstanding delivery and, frequently, payment. This leaves the employer in an invidious position if it has discharged its payment obligations to the contractor, who thereafter does not make payment to its supplier. This situation is further exacerbated where the main contractor is subsequently liquidated without making payment and ncw the lawful owner arrives at the employer’s works with a court order to recover its goods since it has not relinquished ownership and is now unlikely to receive payment from the liquidator. The employer may well end up paying twice for the goods under these circumstances.

Konstanz Properties v WM Spilhous

Two recent cases have come to the assistance of employers and improved their position when faced with a potential claim from a supplier with whom the employer has no contractual relationship.

In Konstanz Properties (Ply) Ltd v WM Spilhous en Kie (WP) Bpk 1 996 (3) SA 273 (A), the owner of the farm Konstanz entered into an agreement with a corporation called Pumps for Africa in terms o which the corporation was to install an irrigation system on the farm.

Pumps for Africa bought the various components of the system (including pipes, pumps and valves) from a wholesaler called WM Spilhaus.

The agreement between Pumps for Africa and WM Spilhaus was a hire purchase agreement in terms of whicI the purchaser would not become owner of the goods until they were paid for in full. WM Spilhaus would therefore retain ownership until Pumps for Africa had paid the purchase price in full.

Pumps for Africa installed the system on the farm and was paid by the farmer. Pumps for Africa did not, however, pay the supplier for the component parts.

WM Spilhaus obtained judgement against Pumps for Africa and the deputy sheriff of the Court was ordered to attach the irrigation system in the event of Pumps for Africa not paying.

The farmer immediately applied to Court for an order declaring him to be the owner of the system so that it could not be removed In payment of the debt of Pumps for Africa.

The farmer raised a number of arguments to defend his claim that he was the owner of the goods. One of these arguments was that WM Spilhaus had represented that Pumps for Africa had authority to transfer ownership of the goods. He argued that WM Spilhaus had created an impression that Pumps for Africa would be entitled to freely transfer ownership and that WM Spilhaus should be held to this representation and should be estopped from denying its truth.

Judge of Appeal Nienaber held that, in the ordinary course, the mere act of giving one’s property to another will not be enough to create the impression that the other person has the authority to transfer ownership. Simply giving possession of one’s property to another is therefore not sufficient to create the misrepresentation needed for estoppel. Where the owner of the goods who is giving possession to another is a wholesaler and the person to whom possession is given is a retailer then, said the Court, it may well be that a situation of estoppel has arisen. Here the owner (wholesaler) is aware that the retailer will be keeping the goods as part of his stock in trade and that he will be selling’ the goods to members of the public, and he may well be estopped from asserting his ownership as against a purchaser.

In deciding whether or not WM Spilhaus was in the position of a wholesaler who is estopped when he has delivered goods to a retailer, the court stressed a number of facts including:

  • WM Spilhaus was aware of the nature of business conducted by Pumps for Africa.
  • Nothing in the agreement between WM Spilhaus and Pumps for Africa in any way prohibited Pumps for Africa from transferring the goods during the period that credit was extended.
  • WM Spilhaus must have been aware that Pumps for Africa intended reselling the goods.
  • The farmer bought the goods, allowed them to be installed and paid for them while he was under the impression that Pumps for Africa was entitled to transfer ownership of the goods.

In light of these and other factors, the Court found that there was a representation to the effect that Pumps for Africa was entitled to transfer ownership. In addition the court found that there had been negligence on the part of WM Spiihaus because the reservation of ownership by it created the possibility that an unsuspecting client, such as Pumps for Africa. could find itself paying for goods in the belief that it is acquiring ownership thereof only to discover that the goods belong to someone else who Is intent on recovering them.

Given the negligence and the representation upon which the farmer did act to his detriment, the court found that WM Spilhaus was indeed estopped from claiming ownership of the irrigation system. The farmer was therefore entitled to retain the irrigation system as owner thereof.

Concor v Potgieter

Subsequently, in the case of Concor Holdings (Ply) Lid i/o Concor Technicrete v Polgieter 2004 (6) SA 491 (SCA), supplier Concor brought a rei vindicotio (action based on ownership) against Potgieter, the building owner, who countered with a plea of estoppel.

The Court found that Concor’s conduct Cm delivering the paving stones to the site and allowing the contractor to install the stones on the site) constituted a representation by conduct, which estopped the supplier from relying on his ownership.

The Court in fact found that Concor was negligent. The alienation of the paving stones in question by the contractor to the building owner took place with the approval and in accordance with the expectations of Concor — that was the very purpose they were supplied. Concor must have been aware of the possibility that the builder might not pay the amount owing to it. It should also have foreseen that Potgieter would pay for the stones in the belief that he would thereby become the owner.

Rest easy

Accordingly, employers can rest a little more easily when faced with the necessity to make payment for plant/materials and/or goods, the law having evolved to protect the employers’ position in these circumstances by providing a far more practical approach to this long-standing problem.

THE CIVIL ENGINEERING CONTRACTOR MARCH 2007