D & H Piping Systems (Pty) Limited v Trans Hex Group Limited and Another

The appellant manufactures concrete products including concrete pipes. For over thirty years it purchased dolomitic aggregate and sand from the respondent. The respondent primarily manufactured lime products, with aggregate and sand being screened out as by-products, stockpiled and sold. In the second half of 1998, the appellant purchased aggregate and sand which it used to manufacture concrete sewerage pipes for a customer in the Stocks group. The appellant alleged the products were latently defective, causing pipe failures resulting in liability exceeding R13 million to its customer. The contractual arrangement involved: (1) Lombard (works manager) negotiated six-month bulk orders with agreed pricing; (2) Gordon (storeman) placed specific quantity orders by telephone; (3) Gordon received delivery notes upon delivery; (4) Ms Rust (accounts clerk) processed invoices for payment. The respondent's delivery notes and invoices contained references on the front page to general terms and conditions printed on the reverse, which included broad exclusion clauses exempting the respondent from liability for latent defects and consequential damages. The respondent's production process involved: crushing dolomitic rock from quarries, feeding it through vibrating screens of different sizes (20mm, 16mm, 6mm), and stockpiling the separated materials by size for sale to customers.

• Whether the respondent undertook to supply dolomitic aggregate and sand for use in manufacturing concrete piping
• Whether the respondent was a manufacturing seller liable for consequential loss arising from latent defects
• Whether the respondent's general terms and conditions (containing exclusion clauses) formed part of the contracts of purchase and sale
• Whether liability for consequential loss was tacitly excluded by the parties
• What constitutes a 'manufacturing seller' for purposes of liability for consequential damages
• Whether expertise or skill is a requirement for manufacturing seller liability
• What constitutes 'manufacture' in the context of seller liability

The appeal succeeded with costs, including costs of two counsel. The court a quo's order was set aside and replaced with declarations that: (i) it was a term that the respondent would supply dolomitic aggregate and sand for use in manufacturing concrete piping; (ii) the respondent's general terms and conditions did not form part of the contractual relationship; and (iii) the respondent is liable to the appellant as a manufacturing seller for any consequential damages the appellant might prove it suffered from any latent defects established in the goods. Costs of the hearing to date in the court below were made costs in the cause.

A vendor who sells goods of his own manufacture is liable for consequential loss caused by a latent defect in the goods sold, even if ignorant of the defect, irrespective of whether he is skilled in the manufacture of such goods and irrespective of whether he publicly professes skill or expertise in that regard. This liability is irrebuttably attached by law unless expressly or tacitly contracted out. 'Manufacture' includes processes that effect an essential change in the nature, form, or commercial utility of raw materials, producing articles essentially different from the original materials - the result, not the intention or primary purpose of the process, is determinative. Standard terms and conditions printed on delivery notes or invoices (non-contractual documents reflecting performance of already-concluded contracts) are not incorporated into contracts unless they come to the attention of, or could reasonably be expected to come to the attention of, a person authorized to agree to contractual terms on behalf of the recipient.

The court noted that the basis of liability of a manufacturing seller has not been authoritatively determined and refrained from expressing a view on this question as it was not necessary for determination of the issues. The court observed that manufacturing sellers exposed to liability for consequential loss are free to contract out of such liability. The court distinguished the English case Circle Freight International Ltd v Medeast Gulf Exports Ltd, noting it does not reflect South African law on incorporation of terms through course of dealing, and was factually distinguishable because: (1) the defendant's managing director knew freight forwarders normally dealt on standard terms; (2) he had seen writing on invoices; and (3) the plaintiff was a small company with only four employees. The court expressed difficulty with the phrase in J K Jackson v Salisbury Family Health Studios regarding exclusion 'by necessary implication arising out of the surrounding circumstances', noting that surrounding circumstances are only relevant in deciding whether there has been tacit exclusion, not in creating a separate category of implied exclusion.

This case is significant in South African law for: (1) Definitively clarifying that a manufacturing seller is liable for consequential loss arising from latent defects WITHOUT any requirement of skill, expertise, or public profession thereof - rejecting the qualification suggested in Kroonstad Westelike Boere that was limited to merchant sellers. (2) Establishing that 'manufacture' includes processes that change the nature and commercial utility of raw materials, even when the products are by-products of another manufacturing process. (3) Providing authoritative guidance on incorporation of standard terms and conditions, particularly that: (a) delivery notes and invoices are not contractual documents where terms would be expected; (b) such documents reflecting performance of concluded contracts cannot reasonably incorporate terms; (c) the reasonable notice test is objective and considers whether documents would reach persons authorized to agree to terms. (4) Clarifying that tacit exclusion of manufacturing seller liability must be pleaded and proved, cannot be raised for the first time on appeal. (5) Confirming the distinction between express/tacit exclusion (which is possible) versus exclusion by implication from surrounding circumstances (which cannot override the irrebuttable attachment of liability to manufacturing sellers). The judgment provides important consumer protection by holding manufacturers strictly liable for consequential damages from latent defects unless they expressly contract out.