Article 53: Beware of the Fine Print!
Contractors are regularly called upon to purchase goods from suppliers on terms which could significantly disadvantage the contractor. Indeed having looked at a number of these sales agreements, one must conclude that the purchasing contractors who agree to such draconian conditions either do not read the contract of sale alternatively do not understand it! Such a contract was the subject matter of an appeal to the Supreme Court of Appeal resulting in a judgment being handed down on 14 September 2009 which, whilst having no precedential significance, provides useful guidance for both contractors and suppliers in these circumstances. The case is Cladall Roofing (Pty) Ltd v S S Profiling (Pty) Ltd (2009) ZASCA 92. This appeal arose out of a judgment given in the Port Elizabeth High Court in which the claimant in that action, Cladall had its claim for damages against S S Profiling dismissed and was ordered to pay in excess of R250 000.00 being the balance of the purchase price due to S S Profiling from the contractor, Cladall Roofing.
Cladall had ordered 13 000 square meters of galvanised IBR roof sheeting from S S Profiling. The order was precise as to the description of the roof sheeting in so far as thickness tensile strength and production quality was concerned. S S buys raw material from a steel producer and thereafter cuts and profiles this steel to the customer’s requirements. For the purposes of the Court action it was accepted that S S delivered IBR sheeting to Cladall that was not in accordance with the specifications as described in the order. Cladall, after the sheeting had been installed, instituted action against S S claiming damages comprising the reasonable cost of re-instating the roof according to specification and refused to pay the outstanding balance of the purchase price.
S S defended the action and instituted a counter claim for the balance of the purchase price and relied upon its “standard conditions of agreement” which form part of the credit application completed by Cladall and were also attached to each of its delivery notes. The relevant clauses relied upon by S S were as follows:
“6.4 The customer hereby confirms that the goods or services on any tax invoice issued duly represent the goods or services ordered by the customer at the price agreed to by the customer and, the delivery/performance has already taken place, that the goods or services were inspected and that the customer is satisfied that these confirm in all respects to the quality and quantity ordered and are free from any defects (my underlining).
7.3 No claim under this agreement shall arise unless the customer has, within three days of the alleged breach or defect occurring, giving S S Profiling thirty days written notice by prepaid registered post to rectify any defect of breach of agreement.
11.1 A customer has no right to withhold payment for any reason whatsoever and agrees that no extension of payment of any nature shall be extended to the customer and any such extension will not be applicable or enforceable unless agreed to by S S Profiling, reduced to writing and signed by the customer and a duly authorized representative of S S Profiling.
18 The customer agrees that no indulgence whatsoever by S S Profiling will affect the terms of this agreement or any of the rights of S S Profiling and such indulgence shall not constitute a waiver by S S Profiling in respect of any of its rights herein. Under no circumstances will S S Profiling be estopped from exercising any of its rights in terms of this agreement”.
The Port Elizabeth Court came to the conclusion that Cladall were unable to “get around” clause 6.4. With reference to clause 7.3, the Court stated that since it was common cause that Cladall did not give S S thirty days written notice by prepaid registered post, or otherwise, to rectify the defect or breach, Cladall was without any remedy. The Court accordingly concluded that S S were entitled to rely on the special conditions in particular clauses 6.4 and 7.3 as valid defences against Cladall’s claim for damages. Cladall were accordingly not entitled to withhold payment for the goods delivered and the Court dismissed Claddal’s claim for damages for the re-instatement cost of the roofing to the correct specification and gave judgment to S S on its counter claim ordering Cladall to pay the balance of the purchase price, namely, R254 396.96 with interest from 17 February 2006.
Cladall appealed this judgment and the matter proceeded to the Supreme Court of Appeal. The order from Cladall had expressly required IBR sheeting with a minimum thickness of 0.5mm and to be of industrial strength known in the industry as “full hard”. The galvanizing content was also specified as Z275 spelter as per ISCOR. On delivery of the first consignment to site on 17 February 2006 concern was expressed by an employee of Cladall that the dimensions of the sheeting appeared not to be uniform. As a result the employee sought confirmation from S S that the sheeting was indeed as had been ordered. Obviously it was not possible to ascertain with the naked eye whether the material met the specifications nor was it feasible to conduct a physical examination of every sheet forming part of the consignment. Confirmation was subsequently received that the correct material had indeed been despatched. The concern in regard to the quality of the sheeting however remained. Nevertheless Cladall proceeded to install the 13 000 square meters of roof sheeting which was anticipated to take approximately six weeks to complete. Within two weeks of the installation workmen reported the roof was beginning to show indentations after it had been walked on and they deduced this was because the tensile strength of the sheeting was below specification. At this stage it appears that S S realised that there was indeed a major problem with the quality of the sheeting supplied and Cladall elected, after having paid the bulk of the purchase price to withhold the balance. As S S insisted on the payment of the balance of the price and the matter remained unresolved Cladall had no choice but to institute action against S S claiming substantial damages.
S S contended that it was entitled to rely on the special conditions as a valid defence against Cladall’s claim for the payment of damages. In order to determine the matter in the most cost effective manner the parties agreed that it may be assumed that the supplied material was not compliant with the specifications in particular that the bulk of the materials supplied had not been galvanized according to the Z275 specification, had not been manufactured and produced according to the steel suppliers standards and was not “full hard” and also not of the required thickness. In the Port Elizabeth High Court Cladall had argued that what was delivered by S S was not the goods contracted for by the parties but indeed something else. Delivery was accordingly not in terms of the contract and S S could not rely on the special conditions to escape liability for damages. The Judge however found that the bulk of the sheeting supplied by S S whilst not conforming to the specifications did not however alter the essential nature of the material. What Cladall had ordered and what S S had delivered was IBR galvanised iron sheeting. It was accepted by Cladall as such, was installed and used for the purpose for which it was intended. The agreement, said the Judge, in any event caters for and thereby contemplates the possibility that the material delivered by the defendant might not comply with the contractual specifications (clauses 6.4 and 7.3). Non-compliance with the specifications in a particular delivery is dealt with contractually and the delivery therefore falls within the ambit of the contract. S S’s non-compliance with the contractual specifications may give rise to issues of damages but does not place the material outside the contract.
The Supreme Court of Appeal did not agree with this reasoning. It expressed the view that Cladall required and indeed ordered a very specific product and S S agreed to provide that product. Indeed not one of the specific attributes of the roof sheeting agreed upon between the parties had been met, in fact the roof sheeting delivered by S S bore no relation to the goods ordered but was an entirely different (and inferior) product. The contract could not be performed by delivering IBR sheeting, irrespective of its specification. It could only be performed by delivering IBR sheeting of the required specification. Properly interpreted the clauses which S S relied upon could only govern the situation where defective goods were delivered by S S to its customer in terms of the contract. The Supreme Court of Appeal concluded such clauses do not apply to a situation where the goods delivered are an entirely different product to the goods ordered and bear no resemblance to what had been agreed between the parties. Accordingly neither clause 6.4 nor 7.3 nor any of the other clauses relied upon by S S afforded it a valid defence against Cladall’s claim for the payment of damages. The Supreme Court of Appeal accordingly upheld the appeal and reversed the Port Elizabeth Court’s judgment. The Court found that S S were not entitled to rely on the special conditions as valid defences against Cladall’s claim for the payment of damages and further ruled that Cladall were entitled to withhold payment for the goods delivered.
These types of restrictive clauses which purport to protect suppliers are of course still competent clauses in law notwithstanding this judgment. However, before they can be effective, the goods supplied must essentially meet the specification. To the extent that they do meet the specification but contain defects, and subject to notice being given by the purchaser within the somewhat strict time period specified, rights and remedies of the parties will be dealt with in terms of the agreement.
Contractors should carefully examine the terms and conditions under which they purchase goods from suppliers. Proper risk management procedures would dictate that an assessment of the risk created by such clauses be made at the time of tender and wherever possible more neutral terms agreed. Of course, if contractors continue to accept terms and conditions without even giving the most cursory consideration to the content, sooner or later they will suffer the consequences.
C D Binnington Pr Eng
Binnington Copeland & Associates