Seeking Damages – Contracts and the Law of Delict
Brian Martin, Executive Director Legal and Compliance
Renasa Insurance Company Limited
Lay people often presume that when they have suffered loss or damage due to the fault of others, they automatically have the right to seek compensation, irrespective of whether there is a contractual relationship between the parties. This perception is incorrect, particularly where the loss allegedly suffered, is a purely economic loss not associated with loss of or damage to property.
The law adopts the position that parties who have a relationship established by contract are entitled to have their relationship governed by that contract. Where there is no contractual relationship between the parties, an action for damages to compensate for a pure financial loss caused by negligent or wrongful conduct, will only be allowed in exceptional circumstances.
In the case of Van Rooyen v Trinamic Consulting Engineers (Pty) Ltd (case no. 84775/2014 Gauteng Division, Pretoria) the plaintiff had contracted with a building contractor to construct a house. The contractor, entered into sub-contracting agreements with the three defendants, a structural engineer, a building contractor and an architect.
The contractor, with whom the plaintiff had concluded the agreement, was liquidated. The homeowner thereafter, alleging that the house was so defective and structurally unsound that it required to be demolished and rebuilt, sued the three defendants alleging that the defendants were individually, or jointly and severally responsible for the defects. The action was based on the law of delict, as no contract existed between the plaintiff and the defendants.
An exception to the plaintiff’s particulars of claim was taken on the basis that no contractual relationship had been concluded between the plaintiff and the defendants, and that an action in delict was not sustainable. It was common cause that the plaintiff’s claim was for pure economic loss (financial loss) and that there was no contractual relationship between the plaintiff and any of the defendants, all of whom concluded a contractual relationship with the contractor (in liquidation).
The court referred to the case of Lillicrap, Wassenaar & Partners v Pilkington Brothers 1985 (1) SA 475(A) and held that the fundamental question was whether, in a delictual action, the plaintiff alleged sufficient facts to constitute a cause of action for damages, independent of the contractual relationship of the parties. A claim for pure economic loss caused by negligent conduct was only available in the law of delict.
The court held that to succeed, the plaintiff must prove that the defendant had been guilty of conduct that was wrongful and culpable i.e. the claim had to exist independently of any contractual relationship and could only exist where all the elements for delictual liability were established.
It was argued that to impose delictual liability upon the defendants would amount to the imposition of delictual liability on a party under circumstances where no contractual chain existed. The matter had to be viewed in the context of a contractual relationship intended to regulate their respective rights and obligations.
The court following the principle laid down in the Lillicrap case, held that our law is generally reluctant to recognise claims for pure economic loss, especially where this would constitute an extension of the law of delict beyond historically established limits. The law of delict will not be extended to eliminate provisions in contracts which parties considered necessary. The lack of a contractual relationship could not create a basis for liability. Any action for damages based in delict has to stand on its own in accordance with the principles for delictual liability.
The Van Rooyen case is a reminder of the risks associated with building contracts and other similar arrangements where various parties are involved in the rendering of services. The precise relationship between the various parties must be clearly defined and the avenues available to a party suffering potential loss must be adequately addressed.
Renasa Insurance Company Limited
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