If you sue someone under a contract for a breach of obligations that person can rely on a disclaimer clause in the contract to defeat the claim. Can you get around the disclaimer clause by suing in delict where you rely on general principles of liability for harm caused rather than the contract itself? According to the Supreme Court of Appeal in a recent judgment the defendant can rely on the disclaimer clause in both actions.
The issue has arisen a number of times in the courts in regard to security guards who cause or allow a third party to suffer loss of goods being guarded by such security guards.
In the latest case Viv’s Tippers (Pty) Limited v Pha Phama Security Staff Services t/a Pha Phama Security (132/09) [2010] ZASCA 26 the court let the security company off the hook in a claim by a third party because the security company had contracted out of liability in its contract with the custodian of the lost good.
The facts were as follows: In September 2004 Viv’s Tippers had let several of its trucks to Lone Rock Construction (Pty) Ltd (“Lone Rock”) which was carrying out construction works on a site at Kibler Park, South of Johannesburg. Security guards from Pha Phama Security (“Pha Phama”) were deployed to guard the site in terms of a contract between Lone Rock and Pha Phama. It was a term of a contract between Viv’s Tippers and Lone Rock that security had to be provided at the construction site where Viv’s Tippers’ trucks were kept. Viv’s Tippers was aware of the security that was being provided.
During the long weekend of 23 to 26 September 2004 trucks belonging to Viv’s Tippers were parked on the site, amongst them a Mercedes Benz with registration FBX 943 N. The site was enclosed and could only be accessed through a gate where a Pha Phama security guard was posted. On Sunday, 26 September two men purporting to be from a firm of truck repairers arrived at the site and presented a letter to the guard. The letter stated that on that day mechanics would be sent to the site to repair the diesel pump of the Mercedes Benz truck. The letter also stated that whilst the truck would be repaired on site, mechanics would test drive it. The guard allowed the men to drive the truck away from the site and it was never seen again.
In a previous case in similar circumstances, ( Compass Motors Industries (Pty) Limited v Callguard (Pty) Limited 1990 (2) SA 520 (W)) a different decision was reached. One of the judges in the latest Viv’s Tippers case previously wrote an article criticising the Compass Motors case. Sitting as a judge in Viv’s Tippers, she must have been delighted to have the opportunity to overturn the decision. What is controversial is the manner in which the court did so.
If someone (“the perpetrator”) causes physical harm to your property or causes you bodily injury the courts will presume that the perpetrator has acted wrongfully. In those circumstances, the courts will hold the perpetrator responsible for the consequences of their actions if they are also wilful or negligent in causing that harm.
If, however, the perpetrator causes you to suffer what the courts call ‘pure economic loss’, then there is no presumption that the perpetrator acted wrongfully. Wrongfulness will have to be established in court. What happens in practice is that you (as the plaintiff) have to demonstrate to the court that in the circumstances the perpetrator’s actions were blameworthy (wrongful) in the eyes of the community. Here the courts apply what they ‘the legal convictions of the community test’.
The most famous example of this kind of cases is the case of Lillicrap Wassenaar & Partners v Pilkington Brothers (SA) (Pty) Ltd 1985 (1) SA 475 (A). The engineers built a float glass factory for the manufacturers of glass, Pilkington Brothers. The floor of the factory was not perfectly level. This prevented the glass company from floating good quality sheets of glass. There was no actual damage to the factory. The factory was merely unable to perform the function for which it was designed. For anyone else it was a perfectly good factory.
In the circumstances the factory had a lower value than it would otherwise have had. What Pilkington Brothers suffered therefore was not damage to their property but an economic loss because the value of its asset was reduced. There was a major engineering contract between the Pilkington Brothers and the engineers which included various clauses regarding risk and contracting out of liability by the engineers. For various reasons Pilkington Brothers did not sue on the contract. They sued under the general law of delict on the basis that they had suffered pure economic loss. The court found that there is no reason to allow that additional right of action when the parties had carefully and in detail spelt out their rights and obligations in the elaborate engineering contract.
Similarly, in various cases the question has arisen whether a security company can rely on its disclaimer of liability between it and the person employing the security company to perform security duties in order to defeat the claim of someone else whose goods are being guarded. Does the guard at your motor dealer have a duty to you to prevent your car from being stolen when serviced?
In Viv’s Tippers the court controversially labelled the loss of the vehicle by theft as pure economic loss thus requiring the court to decide whether the security guard acted wrongfully in relation to the owner of the stolen vehicle. Until now it has generally been accepted that if there is physical loss of property (the asset is totally lost) or there is damage to the property, the only question is whether your negligence caused the harm. Seeing that the security guard in Viv’s Tippers was not negligent, the whole enquiry whether he was wrongful and could rely on the disclaimer clause was arguably unnecessary.
Because the court found that the theft led to pure economic loss, wrongfulness had to be proved. The court could therefore take into account the disclaimer clause and did so. It found that where the security company had the benefit of the disclaimer clause in relation to the person employing the security company, the security company could rely on the disclaimer clause in relation to a third party’s claim as well.
The outcome is curious. It means that if the security guard had negligently allowed the wrongdoers to cause physical damage to the third parties vehicle they cannot rely on the disclaimer clause but where the vehicle is stolen and totally lost, they can rely on the disclaimer clause. The distinction is difficult to justify.
The message is clear however. The courts do not want to open a floodgate of claims by third parties against contracting parties who think they are protected by a disclaimer clause.
The remedy should really be different. If a security company enters into a security contract and includes a disclaimer of liability they should ensure that their employer also disclaims liability in relation to anyone they do business with. It is easy enough in a situation such as in Viv’s Tippers for Lone Rock to include in its contract with Viv’s Tippers a disclaimer clause covering the security company as well.
The way to tackle the situation such as that which arose in the Viv’s Tippers case is different. The court should find that in the circumstances there is prima facie wrongfulness on the part of the security company but this inference is rebutted by the fact that they have contracted out of liability when agreeing to do the guarding duties. Presumptions of wrongfulness are not irrebutable. If you can rebut them on good grounds you can escape liability. For instance, if you were to shoot somebody it is a defence to prove that you did so in self defence. The inference of wrongfulness is rebutted by the facts of the case. That approach would avoid odd distinctions between total loss of an asset and damage to an asset as the basis for there being a claim or not being a claim.
Either way the outcome is the same. People who undertake to perform tasks on a certain contractual basis are entitled to be protected by the terms of their contract. The Supreme Court of Appeal gave a clear message that as the guardian of what is public policy in relation to wrongfulness in these circumstances the contractual disclaimers will be upheld.
The scope for contractual disclaimers is going to be limited in future by the Consumer Protection Act when it comes into force on 24October 2010. Disclaimers will still be possible in some circumstances provided they are in clear language and boldly brought to the attention of the consumer sought to be bound. There will be a limited ability for the manufacturer or seller of defective goods, for instance, to rely on disclaimers in future and contracts are going to have to be very carefully crafted.
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