Kern Trust (Edms) Bpk v Hurter

• Jurisdiction: South Africa
• Judge: Schock J and Friedman J
• Judgment Date: 24 April 1981
• Citation: 1981 (3) SA 607 (C)
• Hearing Date: 02 March 1981
• Court: Cape Provincial Division

Friedman, J.:

This exception by defendant to plaintiff's particulars of A claim raises pertinently the question whether a negligent misstatement which induces the person to whom it is made to enter into a contract with the person making it, is capable of giving rise to an action for damages. For convenience I shall refer to the excipient and the respondent as defendant and plaintiff respectively.

The relevant allegations contained in plaintiff's particulars of claim B are these: On 1 June 1977 plaintiff entered into a written agreement with defendant and one Du Toit in terms of which palintiff purchased from defendant and the said Du Toit, the entire issued share capital of a company called Malbou Investments (Edms) Bpk and Hotel Da Gama Strand C (1975) (Edms) Bpk, as well as the loan accounts of defendant and Du Toit in the said companies, for the sum of R175 000.

In para 3 plaintiff alleges that at all relevant times:

(a)

Defendant was the chairman of the board of directors of Volkskas Bank Ltd, chairman of the board of directors of SaambouNational Building Society and vice chairman of the Industrial Development Corporation.

(b)

Plaintiff was a client of Volkskas Bank Ltd.

(c)

D A certain Mrs Anderson was a director of plaintiff, a client of Volkskas Bank Ltd and a shareholder in a company called Rössing Uranium Ltd.

(d)

The Industrial Development Corporation had a substantial commercial interest in Rössing Uranium Ltd.

E During the negotiations which preceded the conclusion of the contract of sale, defendant, Mrs Anderson and plaintiff were aware of the facts set out in para 3 of the particulars of claim. Defendant, Mrs Anderson and plaintiff were also aware that the hotel premises owned by Malbou F Investments (Edms) Bpk and in which Hotel Da Gama Strand (1975) (Edms) Bpk traded, urgently required certain improvements. In para 5 (c) of the particulars of claim plaintiff avers that:

"Defendant:

(i)

Orally represented to plaintiff, represented by one H Anderson, the husband of the aforementioned Mrs Anderson, that save for G certain management problems, the hotel business conducted by Hotel Da Gama Strand (1975) (Edms) Bpk was a sound business.

(ii)

Orally assured plaintiff, represented by the said Mrs Anderson, that Saambou-National Building Society would increase the H amount of mortgage loan to Malbou Investments (Edms) Bpk to facilitate the aforementioned improvements.

(iii)

Orally assured plaintiff, represented by the said Mrs Anderson, that the dividends payable to Mrs Anderson by Rössing Uranium Ltd in respect of her shares in that company would be sufficient to enable Mrs Anderson to lend the necessary monies to plaintiff to enable it to meet its commitments to defendant and the said Du Toit in terms of the written agreement of sale, annexure 'A'."

Plaintiff goes on to aver (in para 6) that the aforementioned representation was made and the said assurances were given by defendant

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with the intention of inducing plaintiff to enter into the agreement of sale and in the knowledge that plaintiff would rely thereon. In para 7 plaintiff avers that it relied upon the said representation and assurances, and that, induced thereby, it entered into the said agreement.

A The particulars of claim contain the further averment that after the conclusion of the agreement of sale it became apparent to plaintiff that the hotel business conducted by Hotel Da Gama Strand (1975) (Edms) Bpk was in fact not a sound business. Furthermore SaambouNational Building B Society was not prepared to increase the amount of the aforementioned mortgage loan to Malbou Investments (Edms) Bpk and plaintiff was thereby obliged to borrow the necessary funds from Volkskas Bank Ltd at an interest rate higher than that which would have been payable to Saambou-National Building Society. Moreover, Rössing Uranium Ltd failed C to declare dividends so as to enable Mrs Anderson to lend the necessary money to plaintiff to enable it to meet its commitments to defendant and the said Du Toit in terms of the written agreement of sale. As a consequence of these facts, plaintiff alleges that it suffered financial loss amounting in all to R516 261,57. In para 11 plaintiff avers as follows:

"(a)

That by reason of the facts set forth in paras 3, 5 and 6 above, D defendant owed a legal duty towards plaintiff to ensure that the representation made and the assurances given to plaintiff by defendant as aforesaid were in fact correct and/or capable of fulfilment.

(b)

That plaintiff's aforementioned financial loss was caused by the E fault of defendant, who negligently, and in breach of his aforementioned legal duty towards plaintiff, wrongfully made the said representation and gave the said assurances to plaintiff without ensuring that the said representation and assurances were F in fact not (sic) correct and/or capable of fulfilment."

Having sought and been furnished with further particulars to the particulars of claim (the nature of which it is unnecessary to set out herein), defendant filed an exception and a notice to strike out. The exception reads as follows:

"Geliewe kennis te neem dat die verweerder teen die eiser se G besonderhede van eis eksipieer op grond daarvan dat dit nie 'n eisoorsaak openbaar nie deurdat:

Die eiser staat maak op nalatige wanbewerings wat hom sou beweeg het om die kontrak met die verweerder aan te gaan terwyl daar regtens geen aanspreeklikheid ontstaan uit nalatige wanbewerings in kontraktuele H verband of wat aanleiding gee tot kontraksluiting nie.

Weshalwe vra die verweerder dat die eiser se eis met koste van die hand gewys word."

In the alternative defendant applied for paras 5 (c) (ii) and (iii) of the particulars of claim to be struck out on the ground that these paragraphs were irrelevant.

Having regard to the form in which the exception has been cast, the question which arises is whether a person who has been induced to

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enter into a contract as a result of a negligent misstatement made by the other contracting party during the course of the negotiations leading up A to the conclusion of the contract, could have an action for damages against the latter, or whether - as defendant contends - such an action could in no circumstances lie.

This question was considered in the case of Hamman v Moolman 1968 (4) SA 340 (A) where WESSELS JA in an obiter dictum said the following:

"It would seem that, in the field of contract, the making of honest but B carelessly mistaken statements of fact or opinion can by no means be regarded as a modern phenomenon and peculiar to present-day circumstances. The incidence of such statements must surely have been noted and considered long before now, and the call to modify 'old practice and ancient formulae' could hardly be said to arise from any recently detected urgent need 'to keep pace with the requirements of changing conditions'. C The existing law grants what appears to be adequate protection in the field of contract to a party to whom a misrepresentation is made. Thus a contracting party may safeguard himself against loss by simply taking the elementary precaution of requiring the representor to guarantee the truth of his representations. Adequate remedies are available where misrepresentations are tainted with dolus, and in appropriate circumstances an aggrieved party is granted relief in the case of an innocent misrepresentation. Although pure logic and the never-ending D development and expansion of legal ideas do not appear to be opposed in principle to a conclusion that in appropriate circumstances an action might be maintained to recover pecuniary loss caused by honest but carelessly made verbal (or written) misrepresentations, there is as yet in our law no authoritative determination or generally accepted definition of the principles to be applied in deciding in what circumstances such an action will lie in the field of contract. The practical difficulties involved in any general and unqualified extension of the principles of our E law of negligence, as applied to negligent conduct causing injury to persons or property, to honest but carelessly made misrepresentations causing pecuniary loss are referred to in Herschel v Mrupe (supra). I am by no means satisfied that the practical necessity of a remedy of the kind contended for has been demonstrated, nor that its recognition might not result in more ills than the one it is intended to remedy, namely the F failure of the unwary representee to have proper regard to his own interests in the field of contract."

In Administrateur, Natal v Trust Bank van Afrika Bpk 1979 (3) SA 824 (A) the Appellate Division recognised the existence in our law of a delictual action for damages based on negligent misstatements, outside the contractual field. The Appellate Division found it unnecessary in that G case to decide whether delictual liability for negligent misstatements could arise within a contractual context. That question was left open for determination in an appropriate case, and now pertinently arises in this case.

The dictum of WESSELS JA in Hamman v Moolman (supra) was approved by LEWIS J in Murray v McLean NO 1970 (1) SA 133 (R). In Latham and Another H v Sher and Another 1974 (4) SA 687 (W) at 694 MARGO J, while recognising that there is no reason in principle why a negligent misrepresentation which is material and which is intended to and does induce the representee to contract, should not give rise to an action for damages ex delicto in the same way as a fraudulent misrepresentation does, felt himself bound to refuse to recognise such a right of action in the light of the remarks of WESSELS JA in Hamman v Moolman. MARGO J expressed himself thus at 695H - 696A:

"Plainly there is much to be said in favour of recognizing an Aquilian action for damages consequent on...