Armaments Corporation of South Africa Ltd. v Solas Products (Pty) Ltd. (167/88) [1990] ZASCA 17 (16 March 1990)

ARMAMENTS CORPORATION OF SOUTH AFRICALIMITED AppellantandSOLAS PRODUCTS (PROPRIETARY) LIMITED Respondent

Case No 167/88 - mp

IN THE SUPREME COURT OF SOUTH AFRICA APPELLATE DIVISION

In the matter between:

ARMAMENTS CORPORATION OF SOUTH AFRICALIMITED AppellantandSOLAS PRODUCTS (PROPRIETARY) LIMITED Respondent

CORAM: HOEXTER, E M GROSSKOPF, VIVIER, KUMLEBEN, JJA et NIENABER, AJA

HEARD: 26 February 1990 DELIVERED: 16 March 1990

JUDGMENT

HOEXTER, JA...

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HOEXTER, JAIn the Transvaal Provincial Division the respondent company ("Solas") instituted an action for damages against the appellant company ("Armscor"). The cause of action was an alleged breach of contract. The only issue at the trial was whether or not on 11 June 1984, or alternatively during the period May/June 1984, the parties had entered into a contract for the supply of certain goods by Solas to Armscor. Solas alleged and Armscor disputed the existence of the contract. The trial came before ROUX, J. Having heard argument the learned Judge on 3 September 1986 ruled in favour of Solas. He declared that a contract had been concluded between the parties on 11 June 1984 and he ordered Armscor to pay certain costs in regard to the proceedings. Thereafter the matter of the quantum of damages was agreed between the parties. On 18 April 1988, and by consent, the learned

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Judge granted judgment in favour of Solas in the sum of R80 000 with costs. With leave of the trial Court Armscor appeals against the f inding of the Court a quo that a contract had been concluded between the parties.Solas carries on the business of an importer and exporter. Its principal place of business is in Sandton but its head office is at Hout Bay; and its attorneys are in Cape Town. Armscor has its head office in Pretoria. It carries on business, inter alia, as a supplier of arms and equipment to the South African Defence Force. The contract alleged to have been concluded related to the supply and commissioning of an expensive battery. The relevant—negotiations between the parties were largely, but not exclusively, conducted by the use of telex communications between Armscor in Pretoria on the one hand, and on the other hand Solas (in Hout Bay) or its attorneys (in Cape Town).

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At the trial, and with the approval of ROUX J, the parties invoked the provisions of Rule 33(4). There was placed before the trial Court a "Statement of Admitted Facts" in which reference was made to various telexes and letters exchanged between the parties during the period May/June 1984. The telexes and letters in question were reproduced in a bundle of documents which was likewise placed before the trial Court. The parties requested the Court a quo to determine the issue (whether or not a contract had been concluded) by reference to the documents contained in the bundle.

In what follows reference to individual documents in the bundle will be made by indicating both the date thereof and the alphabetic symbol assigned thereto in the Court below. I proceed to consider the sequence and main content of the negotiations between the parties.

(1) On 2 May 1984 and by way of a "Request

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for Offer"("A") Armscor invited offers for thesupply of the battery. (2) By letter dated 2 May 1984 addressed to Armscor ("B") Solas undertook to act as an importer of the battery on behalf of Armscor at a total price of R973 000

(3) In response to this offer Armscor on 16

May 1984 sent a telex message ("C") to

the attorneys of Solas.

The message stated:-

"OFFER E13/84/419 DATED 1984-05-02 SOLAS PRODUCTS . ACCEPTED SUBJECT SOLAS CONDITIONS WITH AMENDMENTS BY ARMSCOR AS WELL AS ARMSCOR ADDITIONAL CONDITIONS. TOTAL VALUE R973 000,00".

On the same date Armscor wrote a letter ("D") to Solas in which the following was recorded:

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"Your proposal dated 1984-05-02, for the supply of the equipment as specified in annexure 'A', has been accepted. Enclosed is order KP 165078 (DP) which is subject to the conditions as detailed in annexure 'A'."

In para 2.1 of Annexure "A" to letter ("D") it was stated that the order was subject to the provisions of Armscor's "General Conditions of Contract". Para 2.2 of Annexure "A" to the letter further set forth seven "Supplementary Conditions." Para 2.2.2 contained the following supplementary condition:-

"2.2.2 As the price basis is delivered into store, any costs incurred by Armscor as a result of clearing the goods will be recovered from the Contractor (except thát

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these amounts will not cause the amount of R22 000,00 as specified in the guotation to be exceeded)."

(4) On 23 May 1984 Solas sent to Armscor an invoice ("E") reflecting, inter alia:-

"To total net amount due -payment to be effected as detailed in your order R973 000".

(5) On 29 May 1984 the attorneys for Solas sent a telex message ("F") to Armscor referring to the latter's letter dated 16 May 1984 ("D") and a meeting held at the offices of Armscor on 25 May 1984.

The relevant portions of telex ("F")

read:-

"YOUR CONDITIONS RELATING TO THE ABOVE ORDER ARE ACCEPTABLE TO OUR CLIENT, SAVE FOR THOSE CLAUSES, WHICH

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OUR CLIENT REQUIRES TO BE AMENDED AS FOLLOWS:-

One of the clauses which in its telex Solas required to be amended was supplementary condition 2.2.2.

(6) Solas proposed to import the battery

from a supplier in Portugal ("Tudor").

On 5 June 1984 Solas sent a telex message ("G") to Armscor informing it

that in the meanwhile another party hadconfirmed a like order with Tudor andthat Solas had been advised by the

latter:-

"THAT UNLESS THE DOWNPAYMENT AND THE LC" (letter of credit) "WILL BE AT HAND WITHIN 48 HOURS THE PRICE AS WELL AS THE DELIVERY TIME WILL HAVE TO BE REVISED."

(7) In response to telex "G" Armscor on 6

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June 1984 sent a lengthy telex message

("H") to Solas informing it that:-

"2. PAYMENT WITHIN 48 HOURS NOT POSSIBLE DUE TO THE FOLLOWING REASONS."

One of the reasons mentioned was:-

"2.4 NO CONSENSUS HAS BEEN REACHED BETWEEN THE PARTIES IN RESPECT OF SUB-CLAUSE 2.2.2 OF ARMSCOR'S CURRENT COUNTER OFFER."

In para 4 of the telex ("H") Armscor

"...PROPOSED THAT THE EXISTING SUB-CLAUSE 2.2.2 AS CONTAINED IN ARMSCORS CURRENT COUNTER OFFER BE ACCEPTED."

Para 5 of telex "H" was typographicallymarred by the omission of certainwords. How Armscor had intended para

5 to read may be seen from the

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undermentioned quotation from para 5 in which the words accidentally omitted in telex "H" are underlined:-

"5. SHOULD YOU AGREE TO ACCEPT THE CONDITIONS AS STATED IN SUB-CLAUSE 2.2.2, IT IS PROPOSED THAT IN ORDER TO EXPEDITE THE EVENTUAL PAYMENT THE REQUIRED INVOICE BE SUBMITTED TO ARMSCOR AS SOON AS POSSIBLE".

(8) It is common cause that on the same day

(6 June 1984) Armscor advised Solas by telephone of the above omission in telex "H"; and that on 7 June 1984 and by way of a further telex message to Solas ("J") Armscor repeated telex "H" but reworded par 5 so as to include the words which on the previous day had been inadvertently omitted from telex "H". That these facts are common

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cause appears from para 10 of the"Admitted Facts", which is in the

following terms -

"10. On 7th June 1984 at 08h24, Defendant sent a telex to Plaintiff and Plaintiff's attorneys (Annexure 'J' hereto), being a correction of Annexure 'H' of which Plaintiff was telephonically advised on 6th June 1984."

(9) Solas responded to telex "H" by way of

a telex message to Armscor ("I") transmitted during the evening of 6 June 1984. Ex facie telex "I" it was sent at 19h53. It will be remembered that prior to telex "G" on 5 June 1984

(in which Solas had stated that failing

a down-payment and a letter of credit within 48 hours the price and delivery

time would have to be revised) the12

parties had negotiated on a firm total price of R973 000. In telex "I", however, Solas stated:-

"DUE TO ESCALATION OVERSEASWE HAVE TO INPORM YOU THATOUR OFFER FOR THE ABOVEAMENDS AS FOLLOWS: "

whereafter various components of a new price totalling R1 006 420 were set forth. In telex "I" Solas went on to say: -

"SUB CLAUSE 2.2.2 IS ACCEPTED, PROVIDED OUR LIABILITY DOES NOT EXCEED R20 000,00."

(10) On 7 June 1984 Armscor transmitted a

telex message ("J") to Solas. It has already been mentioned that "J" is simply a corrected version of "H" in which the words missing from para 5

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of "H" were supplied. Save f or this emendation the body of telex "J", which contains no less than seven paragraphs, is in terms identical with that of telex "H". It is clear, furthermore, that telex "J" was a response to telex "G" transmitted by Solas on 5 June 1984. Para 1 of telex "j" explicitly states:-

"1. YOUR TELEX DATED 05/06/84

REFERS."(11) Early in the morning (at 07h07) of 11

June 1984 Solas sent a further telex message ("K") to Armscor. The first three paragraphs of telex "K" read thus:-

"1. OUR PARIS OFFICE HAS ADVISED THAT AFTER FURTHER NEGOTIATIONS WITH THE

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SUPPLIER LATE ON FRIDAY THE 8TH OF JUNE AN AGREEMENT HAS BEEN REACHED WITH TUDOR WHEREBY ALL PRICES AND CONDITIONS REMAIN VALID AS PER OUR PROPOSAL 1984-05-02. IN RETURN SOLAS HAD TO PLACE THIS ORDER WITH TUDOR THEN.

2. WE CONFIRM THAT WE HEREBY ACCEPT YOUR ORDER AS SUBMITTED TO US INCLUDING SUB-CLAUSE 2.2.2. THEREFORE THIS ORDER HAS BECOME VALID NOW. 3. HOWEVER I BELIEVE THAT IN TODAYS MEETING YOU WILL BE ABLE TO AMEND CERTAIN OTHER POINTS AS DISCUSSED AND BASICALLY AND PROVISIONALLY AGREED UPON (TELEX 29-5-84 -10-26 FROM S BRASG)".

(12) In the late afternoon (at 16h42) of 11

June 1984 Armscor sent a telex message ("L") to Solas. Telex "L" beglns thus:-

"YOUR TELEX DATED 5 JUNE 1984 ARMSCOR'S RESPONSE THERETO PER TELEX DATED 5 JUNE 1984 AND YOUR TELEX DATED 6 JUNE

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1984 REFERS." The above reference related to telex messages "G", "H" and "I" respectively. Following upon the introductory reference quoted above paras 1 and 2 of telex "L" proceeded to state:-

"1. CONDITIONS RELATING TO YOUR REVISED OFFER AS EMBODIED IN YOUR ABOVE TELEXES NOT ACCEPTABLE TO ARMSCOR.

2. REGARDING YOUR TELEX DATED 11 JUNE 1984, WE WISH TO ADVISE THAT AS A RESULT OF YOUR COUNTER PROPOSAL TO ARMSCOR AS EMBODIED IN THE TELEX OF ABE, DINNER, DINNER AND BRASG AND RECEIVED BY ARMSCOR'S L29 MAY 1984, ARMSCORS COUNTER PROPOSAL AS SET FORTH IN ARMSCORS LETTER OF ACCEPTANCE DATED 16 MAY 1984 HAS BEEN NULLIFIED, THEREFORE NO VALID ACCEPTANCE BY SOLAS PRODUCTS IN TERMS THEREOF NOW POSSIBLE."

(13) On 12 June 1984 representatives of the

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parties held discussions at the officesof Armscor. On behalf of Armscor theview was expressed that no validagreement existed; and this view wasconfirmed by a telex message ("M") sentby Armscor to Solas at 14h39 on 12 June

1984. At 16h57 on the same day theattorneys of Solas responded thereto bya telex message ("N") to Armscor inwhich, inter alia, the following was

said:-

"WE CONFIRM THAT IT IS OUR CLIENT'S CONTENTION THAT YOUR COUNTER OFFER CONTAINED IN YOUR ORDER OF 16 MAY 1984, WAS ACCEPTED ORALLY AND/OR BY CONDUCT AND/OR BY IMPLICA-TION.

IN THE LIGHT OF YOUR TELEX OF 7 JUNE 1984 WHEREIN YOU CONTENDED THAT THERE HAD NOT BEEN AN ACCEPTANCE OF YOUR ORDER, OUR CLIENT DEEMED IT

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PRUDENT TO FORMALLY RECORD ITS ACCEPTANCE IN WRITING AS PER ITS TELEX OP 11 JUNE 1984."

(14) In answer to telex "N" Armscor on 19

June 1984 sent a telex message ("O") to

Solas, of which para 2 reads:-

"2. EVEN IF YOU ARE CORRECT IN YOUR CONTENTION THAT OUR ORIGINAL OFFER WAS REOPENED FOR ACCEPTANCE IN OUR TELEX OF 6 JUNE 1984, CORRECTED COPY OF WHICH WAS TELEXED TO YOU ON 7 JUNE 1984 (WHICH

CONTENTION WE DO NOT ADMIT)

OUR POSITION STILL REMAINS THAT YOUR TELEX RECEIVED BY US ON 7 JUNE 1984 CONSTITUTED A MATERIAL COUNTER PROPOSAL WHEREBY ANY OFFER OF OURSELVES WAS INVALIDATED."

Dealing with the telex messages exchanged between the parties the learned trial Judge remarked in the course of his judgment:-

"It remains unresolved on the papers what the

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defendant's reaction to Item 'I' was. On the following day the 7th June, 1984 the defendant per Item 'J' again suggested to plaintiff that the ' current counter-offer' ( i e Item ' D' ) be accepted. I must conclude Item 'I' was ignored by the defendant. In any event the overseas suppliers of the plaintiff did not insist on a higher price so the problem posed in Item 'I' was resolved and became academic. On the 11th June, 1984 the plaintiff accepted the defendant's 'counter-offer' mentioned in both Items 'H' and 'J' The acceptance ref erred to in Item 'K' is an acceptance of Item 'D'. The terms of Item 'D' are those which the defendant urged the plaintiff to accept as per Items 'H' and 'J'. I find that a valid agreement was concluded between the parties on the receipt by defendant of the telex message Item 'K'." It will be remembered that in telex "I", dated 6

June 1984, Armscor was informed that Solas had amended its

initial offer by increasing the total price from R973 000

to R1 006 420. Dealing with the passage from the trialCourt's judgment quoted above, I must differ, with respect,

from the learned Judge's finding that the reaction of

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Armscor to telex "I" does not emerge from the papers. Inthe first place it is clear that in telex "L" dated 11 June1984 Afmscor made specific reference to three priortelexes, one of which was -

"Your telex dated 6 June"and then proceeded to state (in para 1 of "L") that

"conditions relating to your revised offer as embodied inyour above telexes not acceptable to Armscor." In the

second place it is to be noted that in telex "O", dated 19June 1984, Armscor contended that:-

"....your telex received by us on 7 June 1984 constituted a material counter proposal whereby any offer of ourselves was invalidated."

It is common cause that in telex "O" the words "your telex

received by us on 7 June 1984" constituted a reference to

telex "I" transmitted by Solas on 6 June 1984 at 19h53.

In concluding that telex "I" was simply ignored by Armscor

the learned Judge therefore erred. In resolving the issue

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between the parties telex "I" cannot be overlooked.Against the contextual setting of the negotiations between the parties before 6 June 1984 it is necessary next to consider the legal effect of telex "I" sent by Solas to Armscor on that date. On 2 May 1984 Solas made an offer ("B") to which reference may conveniently be made as "the original offer". Armscor's letter ("D") dated 16 May 1984 constituted a counter-offer ("the Armscor counter-offer") which was the legal equivalent of a refusal of the original offer. Despite the lapse of the original offer a contract would have resulted if Solas had accepted the Armscor counter-offer embodied in "D". By its telex ("I") sent in the early evening of 6 June 1984, Solas intimated its acceptance of sub-clause 2.2.2, which was a vital term of the Armscor counter-offer in regard to which the parties had hitherto not reached agreement. But whereas prior to the transmission of telex "I" the parties

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in their negotiations had been ad idem as to the total price (R973 000) for the battery, in telex "I" Solas elected to stipulate for a higher price (R1 006 240). The resultant legal position is that telex "I" constituted a counter-offer ("the Solas counter-offer") which operated as a refusal by Solas of the Armscor counter-offer. Accordingly the Armscor counter-offer was thereby extinguished; and thereupon no offer remained open for Solas to accept. In' the course of his argument before us counsel for Solas was constrained to concede that this was the legal position.

The only submission which in the end counsel for Solas found himself able to advance in support of the conclusion reached by the Court a quo was that, notwithstanding the legal effect of telex "I", Armscor had revived or renewed the Armscor counter-offer when it sent telex "J" to Solas on 7 June 1984, thus enabling its

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acceptance by Soias on 11 June 1984.It was urged upon us that inasmuch as the parties had elected to negotiate with each other by way of telex messages the issue should be approached as if during the negotiations the parties were facing each other across a table. On this approach, so the argument proceeded, it should be inferred that when Armscor despatched telex "J" on 7 June 1984, it had already received and digested telex "I"; and it should therefore further be inferred that by sending telex "J" on 7 June 1984 Armscor intended - and was understood by Solas to intend - to revive the Armscor counter-offer which telex "I" had extinguished. In this connection counsel for Solas sought to place some reliance upon the case of Entores, Ltd v Miles Far East Corporation [1955] EWCA Civ 3; (1955) 2 ALL ER 493 (CA) in which the English Court of Appeal decided that communications by telex should be classified with instantaneous communications. This is a

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general rule, but it is by no means a universal one; andits application necessarily must hinge upon the particularfacts of the case and the precise circumstances in whichthe parties negotiate. Here reference may usefully be,made to the following remarks of Lord Wilberforce in thecourse of his speech in the House of Lords decision inBrinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesells-

schaft mbH (1982) 1 ALL ER 293 (HL), at 296 C/D:-

"Since 1955 the use of telex communication has been greatly expanded, and there are many variants on it. The senders and recipients may not be the principals to the contemplated contract. They may be servants or agents with limited authority. The message may not reach, or be intended to reach, the designated recipient immediately: messages may be sent out of office hours, or at night, with the intention, or on the assumption, that they will be read at a later time. There may be some error or default at the recipient's end which prevents receipt at the time contemplated and believed in by the sender. The message may have been sent and/or received through machines operated by third persons. And many other variations may occur. No universal rule can cover all such cases; they must be resolved by reference to the intentions of the

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parties, by sound business practice and in some cases by a judgment where the risks should lie: see Household Fire and Carriage Accident Insurance Co Ltd v Grant (1879) 4 Ex D 216 at 227 per Baggallay, LJ and Henthorn v Fraser (1892) 2 CH 27 , (1891-4) ALL ER Rep 908 per Lord Herschell." Turning to the facts of the instant case it

appears to me that there is no room for the application ofthe general rule. Even without recourse to the "AdmittedFacts" it is difficult to believe that in sending telex "J"Armscor could have intended to revive the Armscor counter-offer. It is no less difficult to credit that Solaswould so have construed telex "J", which makes not even a

fleeting reference to telex "I". Such a constructionwould be a strained and artificial one. It would, I think,

have been quite unbusinesslike for Solas so to interpret

telex "J". It is unnecessary to say anything more in this

regard, however, for the simple reason that in the light of

what is said in para 10 of the "Admitted Facts" (to whose

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terms no reference is made in the judgment of the Court below) it is obvious both what the true intention behind telex "J" was and that such intention was fully known to Solas. In the light of para 10 of the "Admitted Facts" the argument that telex "J"constituted a revival of the Armscor counter-offer is thoroughly untenable.For the aforegoing reasons it follows that the trial Court wrongly ruled in favour of Solas. The appeal succeeds with costs, including the costs of two counsel. Orders 1 and 2 granted by the trial Court on 3 September 1986 (as reflected on page 140 of the record on appeal) are set aside. The trial Court's judgment given on 18 April 1988 (as reflected on page 142 of the record on appeal) is altered to read:-

"Absolution from the instance is granted withcosts."E M GROSSKOPF JA )VIVIER JA ) G G HOEXTER, JAKUMLEBEN JA ) ConcurNIENABER AJA )