Consol Limited t/a Consol Glass v Twee Jonge Gezellen (Pty) Ltd and Another

Consol, a glass bottle manufacturer, supplied wine bottles to Twee Jonge Gezellen (wine producer) since 1991 under a standard supply agreement. Mr Krone signed as director and stood surety. In 1996, Consol sold 29,720 sparkling wine bottles that had been treated internally with Freon 134A gas during manufacturing to combat 'bloom' (a haze on glass surfaces). This treatment was unknown to the purchaser. When Twee Jonge Gezellen used these bottles for its 1994 vintage Krone Borealis sparkling wine produced using méthode champenoise (second fermentation in bottle), problems occurred during fermentation causing alleged losses exceeding R10 million. Consol sued for unpaid purchase price; Twee Jonge Gezellen counterclaimed for damages alleging Consol breached its obligation to manufacture bottles according to standard procedures using standard materials, and alternatively relied on liability for latent defects. The supply agreement contained a detailed 'claims clause' with various exemptions and limitations of liability.

• Whether the opening sentence of the 'claims clause' stating 'All goods supplied are manufactured according to the company's standard manufacturing procedures and techniques, utilising standard raw materials' imposed a contractual obligation on Consol
• What constitutes 'standard' manufacturing procedures and raw materials - does it refer to a quality benchmark or to normal/usual procedures?
• Whether internal treatment with Freon 134A was part of Consol's standard manufacturing procedures and whether Freon 134A was a standard raw material
• Whether compliance with the obligation to use standard procedures/materials was a precondition for Consol's reliance on the exemption and indemnity clauses
• Whether the undertaking regarding standard procedures/materials constituted a 'written warranty' limiting liability to replacement of defective goods
• Whether a tacit term existed requiring defects to be reasonably apparent within 21 days before the time-bar applied
• Whether the exclusion of 'implied warranties' of quality excluded liability for latent defects imposed by law on manufacturer-sellers

The appeal was upheld with costs (including costs of two counsel) on issues 3, 6, and 7. The cross-appeal was dismissed with costs (including costs of two counsel). The court declined to interfere with the costs order in the court a quo (which reserved costs). The findings on preliminary issues 1-7 were amended as set out in the judgment, with Consol succeeding on the crucial issues of whether the exemption clauses could be relied upon, the 21-day notice requirement, and the exclusion of latent defect liability.

The binding legal principles established are: (1) A provision in a contract stating what a party 'does' (present tense) can constitute a contractual obligation rather than a mere recital, depending on the language used and context - the use of introductory words like 'whilst/while' indicates a recital, while their absence and positive statement form suggests obligation. (2) The word 'standard' when used to qualify a company's procedures or materials means 'normal, usual or regular' for that company, not a quality benchmark or industry-wide standard. (3) A contractual obligation does not automatically become a precondition for relying on exemption clauses in the same contract unless the contract language or structure clearly indicates such a relationship. (4) The 'bystander test' for tacit terms requires that both parties would have given immediate, unanimous assent to the proposed term; if one party would have sought clarification or time to consider, the term cannot be implied. (5) An exclusion of 'implied warranties of quality' in a contract is effective to exclude the manufacturer-seller's liability for latent defects imposed by law, as this liability is commonly understood in legal parlance as an 'implied warranty' regardless of its jurisprudential classification.

The court made observations that: (1) While from a jurisprudential perspective it may be inappropriate to describe a seller's liability for latent defects (imposed by law) as an 'implied warranty', in ordinary legal parlance and commercial contracts, this is precisely how such liability is commonly described and understood. (2) The court noted that interpreting 'standard raw materials' as requiring conformity to worldwide or even national standards (rather than the company's own standards) would render the provision virtually meaningless and impractical. (3) The court observed that Consol's use of Freon 134A was 'part of a learning curve' and never produced satisfactory results, yet this did not prevent it from being a 'standard procedure' in the sense of being the normal/usual procedure actually employed during the relevant period. (4) The court suggested that even if the suggested tacit term regarding the 21-day notice were to be modified, Consol might reasonably have insisted on some time limit (such as 21 days from manifestation of the defect) rather than no time limit at all.

This case is significant for South African contract law, particularly regarding: (1) The interpretation of exemption and indemnity clauses in commercial contracts; (2) The distinction between contractual obligations and preconditions for relying on exemptions; (3) The meaning of 'standard' in manufacturing contexts (normal/usual vs. quality benchmark); (4) The application of the 'bystander test' for establishing tacit terms; (5) The scope of exclusion clauses relating to 'implied warranties' and whether they can exclude statutory liability for latent defects imposed by law on manufacturer-sellers; (6) The interpretation of time-bar clauses in commercial contracts. The case demonstrates the court's reluctance to imply terms that would substantially alter clear contractual provisions, and confirms that parties can contractually exclude even liability imposed by law (such as for latent defects) if the language is sufficiently clear.