01 February 2005 | Construction, Engineering and Infrastructure Law
At issue in a recent Supreme Court of Appeal decision1 was whether a builder’s reservation of ownership of equipment to be supplied in terms of a building contract was effective.
The relevant facts were:
Following the liquidation of Fisher Foods, a controversy inevitably arose between the three parties as to who owned the items of equipment supplied by Club.
If they were owned by Club, it was entitled to remove them as it was common cause they were movables and had not acceded to the building.2
If ownership had passed to Fisher Foods, then the IDC would be entitled to the proceeds of the sale of the equipment by the liquidators by virtue of its notarial bond.
Of lesser moment, to all but the liquidators, was the fact that if ownership in the goods had passed to Fisher Foods, the liquidators would be entitled to a fee on the proceeds of the sale of the goods.
Club applied to the High Court for an order declaring it to be the owner of the goods. The IDC decided not to participate in the proceedings which were contested only by the liquidators of Fisher Foods.
The first point raised by the liquidators was that the provisions of section 84(1)3 resulted in ownership of the equipment passing to the company in liquidation.
The court dismissed this argument on the basis that where goods are supplied in terms of a building contract, they are not the subject of a sale as contemplated in the relevant section of the Insolvency Act. A building contract is a contract distinct from a sale contract and is a contract of locatio conductio operis, namely a contract for the supply of work and materials.
The liquidators then raised further arguments as follows:
In the result the court upheld Club’s claim and confirmed that it was entitled to be treated as the owner of the equipment concerned.
In a recent Australian case4 the High Court of Australia refused to hold a builder liable for a pure economic loss claim made by a successive owner attributable to latent defects.
The question posed by the court and answered in the negative was as follows:
“The question in this appeal is whether it is a principle of the Australian law of torts5 that those involved in the design or construction of commercial premises owe a duty to subsequent purchasers of the premises to take reasonable care to ensure that the building is free from defects, so as to prevent pure economic loss to those purchasers.”
The court took the view that it was up to a purchaser of a building to protect himself against latent defects in his contract with the seller. The court also noted that the purchaser:
The decision by the Australian court is in sync with the decision of our Supreme Court of Appeal6 in which the court declined to uphold a claim for pure economic loss against an engineer at the instance of a successive owner where the building had turned out to be unsuitable for its intended purpose. However, our courts have upheld claims by successive owners for defective building work where physical damage to the property has been occasioned by the defective work.7
A cession of the type mentioned would be particularly appropriate where, as is most often the case, a seller sells voetstoots.
1A D Pellow NO & Another v Club Refrigeration CC, Case No 469/03. Judgment delivered 29/9/04.
2 In which case ownership would have passed by law to Fisher Foods.
3Section 84 deals with the sale of goods in terms of an instalment sale contract and provides that if goods have been sold to an insolvent subject to a reservation of ownership clause, upon insolvency ownership is nonetheless transferred to the insolvent estate leaving the seller with a claim for payment secured to the extent of the proceeds of the goods in question.
4Woolcock Street Investments (Pty) Ltd v CDG (Pty) Ltd HCA 16 (April 1 2004).
5Delict in South African law.
6Lillicrap, Wassenaar & Partners v Pilkington Brothers (SA) (Pty) Ltd 1985(1) SA 475 A.
7Paul Leatham Humphrys NO v Henry John Barnes – See Cox Yeats Construction Law Bulletin March 2004.