ARMAMENTS CORPORATION OF SOUTH AFRICA

LIMITED Appellant

and

SOLAS 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 AFRICA

LIMITED Appellant

and

SOLAS PRODUCTS (PROPRIETARY) LIMITED Respondent

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

HEARD: 26 February 1990

DELIVERED: 16 March 1990

J U D G M E N T

HOEXTER, JA...

2

HOEXTER, JA

In 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

3

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).

4

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

5

for Offer"("A") Armscor invited offers for the

supply 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:

6

"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

8

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 had

confirmed a like order with Tudor and

that 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

9

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 typographically

marred by the omission of certain

words. How Armscor had intended para

5 to read may be seen from the

10

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

11

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) the

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parties had negotiated on a firm total

price of R973 000. In telex "I",

however, Solas stated:-

"DUE TO ESCALATION OVERSEAS

WE HAVE TO INPORM YOU THAT

OUR OFFER FOR THE ABOVE

AMENDS 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

13

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

15

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 offices

of Armscor. On behalf of Armscor the

view was expressed that no valid

agreement existed; and this view was

confirmed by a telex message ("M") sent

by Armscor to Solas at 14h39 on 12 June

1984. At 16h57 on the same day the

attorneys of Solas responded thereto by

a telex message ("N") to Armscor in

which, 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

18

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 trial

Court'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. In

the first place it is clear that in telex "L" dated 11 June

1984 Afmscor made specific reference to three prior

telexes, 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 in

your above telexes not acceptable to Armscor." In the

second place it is to be noted that in telex "O", dated 19

June 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

22

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) 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

23

general rule, but it is by no means a universal one; and

its application necessarily must hinge upon the particular

facts of the case and the precise circumstances in which

the parties negotiate. Here reference may usefully be,

made to the following remarks of Lord Wilberforce in the

course of his speech in the House of Lords decision in

Brinkibon 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

24

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 of

the general rule. Even without recourse to the "Admitted

Facts" 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 Solas

would so have construed telex "J", which makes not even a

fleeting reference to telex "I". Such a construction

would 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

25

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 with

costs."

E M GROSSKOPF JA )

VIVIER JA ) G G HOEXTER, JA KUMLEBEN JA ) Concur NIENABER AJA )