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REPORTABLE

IN THE HIGH COURT OF SOUTH AFRICA

(WESTERN CAPE HIGH COURT, CAPE TOWN)

CASE NO. 21218/08

In the matter between: CORAM : KOEN AJ

POLYOAK PACKAGING (PTY) LTD …......................................Plaintiff/Respondent

and

ESKOM LIMITED ….................................................................Defendant/Excipient

Adv for Plaintiff/Respondent : Adv. W Duminy SC

Adv. JL Van Dorsten

Attorneys : Marais Muller Yekiso Inc.

Mr. T R de Wet

Adv for Defendant/Excipient : Adv. W Trengove SC

: Adv. B Mokala

Attorneys : Edward Nathan Sonnenbergs

c/o Edward Nathan Sonnenbergs K Machanik

Date(s) of hearing : 09 February 2011

Date of judgment : 24 March 2011

THE REPUBLIC OF SOUTH AFRICA

IN THE HIGH COURT OF SOUTH AFRICA

WESTERN CAPE HIGH COURT, CAPE TOWN

REPORTABLE

CASE NO: 21218/2008

In the matter between:

POLYOAK PACKAGING (PTY) LTD ….............................................................Plaintiff

and

ESKOM HOLDINGS LIMITED ….................................................................Defendant

JUDGMENT: 24 MARCH 2011

KOEN AJ

1. Electricity is an indispensable and versatile source of energy. Without it life would not be the same. For the most part electricity is generated by power stations, and then distributed though a network of transmission lines to our homes, offices and factories. It is, however, exceptionally difficult to store in anything like the quantities we need. This means that it is necessary for it to be continually generated in quantities sufficient to meet our ever-increasing demand.

2. For all intents and purposes Eskom Holdings Limited ("Eskom"} is solely responsible for the generation and supply of electricity in our country. A few years ago Eskom's ability to supply as much electricity as was needed became seriously compromised. In order to prevent nationwide blackouts and chaos when there was a risk that it would not be able to meet the demand Eskom switched off the electricity supply to parts of the country on a rotational basis. It called this process "loadshedding". Loadshedding inconvenienced almost all South African citizens and businesses, and caused most of them financial loss of one or other kind¹.

3. Polyoak Packaging (Pty) Limited ("Polyoak") was a casualty of loadshedding. Its electricity driven manufacturing plant stood idle when its supply of electricity was switched off. It has instituted an action against Eskom claiming damages of a little over R6.6 million. Polyoak says that its loss was brought about by the fact that it incurred the full costs of the operation of its machines, save for the cost of electricity, when its supply of electricity was disconnected.

4. Polyoak's claim is founded in delict. Polyoak maintains that Eskom wrongfully and negligently by its conduct caused it loss. The conduct which lay at the heart of Polyoak's complaint was expressed in the particulars of claim as a failure on Eskom's part to take various steps to prevent loss from being incurred by Polyoak.

5. I have some doubt that the particulars of claim are susceptible only of meaning that Polyoak's complaint is that Eskom is guilty of an omission, or a failure to act in a way so as to prevent loss. The particulars can also be interpreted to mean that Polyoak's alleged loss was caused by the negligent performance on the part of Eskom of a positive act, namely, the generation and supply of sufficient electricity. But this is neither here nor there because it is clear that the claim is one for the recovery of so-called pure economic loss, that is, loss which does not flow from physical damage to property². In the same way as our law treats a negligent failure to act, or omission, in pure economic loss cases it is not assumed that the conduct giving rise to the loss is wrongful. Such conduct is wrongful only if it is in breach of a legal duty. And a legal duty exists only if a Court finds that the circumstances are such that legal or public policy considerations, which are consistent with constitutional norms, require the defendant to be held liable for the plaintiffs loss³.

6. Eskom delivered an exception to Polyoak's claim. Eskom contends that it is not liable in law to make good the loss claimed because a Court would not find that legal or public policy considerations such as to make its conduct wrongful exist even if all the facts alleged by Polyoak were to be proved. In the alternative, Eskom argues that Polyoak's claim is vague and embarrassing because it is impossible for Eskom to determine what case it has to meet and to plead sensibly to it.

7. At this juncture it is necessary to turn to Polyoak's particulars of claim. The circumstances which Polyoak contends give rise to a duty on the part of Eskom to prevent loss to consumers of electricity through supply interruptions can be summarised as follows: Eskom is a monopoly and the only supplier of electricity to the City of Cape Town, which in turn supplied electricity to consumers such as Polyoak; the City, and the consumers to whom it supplied electricity were entirely dependent upon Eskom; consumers, like Polyoak, required a continuous supply of electricity and would suffer loss if there were interruptions in the electricity supply; Eskom knew that consumers of electricity depended upon it properly managing and maintaining the electricity supply; Eskom knew that consumers would probably suffer loss in the event that there were unplanned and unmanaged interruptions in the electricity supply; that there was no contract for the supply of electricity between Polyoak and Eskom; that Eskom was required to comply with the terms of the licence granted to it by the National Energy Regulator, in particular a term which required Eskom to give at least five days notice to consumers of planned interruptions in the supply of electricity; and that Eskom was bound by the terms of its licence not to reduce or discontinue the supply of electricity to Polyoak, except for reasons which were beyond its control.

8. As I have mentioned in paragraph 6 above the first leg of the exception was the argument that Polyoak's claim is bad in law because Eskom's conduct would not beheld to be wrongful in the circumstances described in the particulars of claim. I propose to deal with this part of the exception first, in more or less the order in which the argument was presented.

Foreseeabilitv and Breach of a Public Law Duty

9. It was submitted on behalf of Eskom, that to establish the existence of a legal duty it is not enough for Polyoak to allege in its particulars of claim that Eskom had acted in breach of a statutory duty or that the loss it allegedly caused was foreseeable. It is
quite so that taken on their own these two considerations do not necessarily lead to
the conclusion that a legal duty exists⁴. But they are relevant considerations and
cannot be excluded from account. Because this is an exception, in deciding this case I
must accept that Polyoak will prove that the loss it sustained through loadshedding
was foreseen by Eskom, and that Eskom acted in breach of a public law, or statutory,
duty to ensure that Polyoak's electricity supply was not disrupted through
loadshedding.

The Legislative Framework

10. It was submitted on behalf of Eskom that viewed in the legislative framework in
which it operates Eskom is a public utility owned, and controlled, by the State. It is, it
was submitted, responsible for the generation and supply of electricity in the public
interest and it performs its public function under a strict regulatory regime, which
affords consumers a range of statutory remedies which may be employed whenever Eskom fails to perform its duty. Because of the public character of its existence, and the fact that it performs its duty to generate and supply electricity in the public interest, its position is akin to that of a public body performing a statutory duty. It was argued, therefore, that I should follow the approach of the Courts, and apply the principles enunciated, in the cases of Knop v Johannesburg City Council⁵ and Steenkamp v Provincial Tender Board, Eastern Cape⁶. These cases dealt, inter alia, with the proper approach to the question of wrongfulness in cases where a plaintiff claims damages from a public body through the negligent exercise of a statutory duty.

11. Before dealing with the possible effect the principles emerging from Knop and Steenkamp may have on this case one matter requires, I think, mention. The facts in both Knop and Steenkamp are characterised by a particular feature which is not present in this case. In Knop damages were claimed on account of the Council having approved plans which it should never have (legally) approved. Curiously, the basis of Knop's claim was that he had suffered damages on account of being deprived of an approval to which he was not entitled in the first place. A similar state of affairs prevailed in Steenkamp. In that case the claim for damages arose because a tender which should never have been awarded, but was, was subsequently cancelled⁷. Both matters thus involved claims for damages which arose in circumstances where a plaintiff claimed to have lost something it should never have had in the first place. This was a feature of those cases which played a part in the Court deciding that theconduct on the part of the statutory bodies was not wrongful. The same does not apply in this case. Because the facts are not the same some caution should be exercised, in my view, in transporting the principles which emerge from Knop and Steenkamp to this case.

12. In Knop the principle to be applied in determining whether it is wrongful for a statutory body to fail to perform a duty imposed upon it by law - and thus be liable in delict if the other elements of delictual liability are present - was expressed as follows: "The essence of the plaintiff's claim is that the Council caused him loss by the negligent exercise of a statutory power. The source of that power being statutory, it is necessary to examine the legislation by which it was brought into being, for it is self-evident that the legislature is an important, and may possibly be decisive, feature of the circumstances material to the determination of whether or not a legal duty existed. The legislative intention is to be ascertained with reference to the nature of the powers conferred, the nature of the duties involved in their exercise, the procedures prescribed for their exercise and for persons aggrieved by it to obtain redress, and the objects sought to be achieved by the legislature."⁸ It was stated later in the judgment that 'The fundamental question, therefore, is this: did the legislature intend that an applicant should have a claim for damages in respect of loss caused by the negligence of the local authority?"⁹ In Steenkamp, in both the SCA and, later, in the Constitutional Court, this approach was endorsed. It is therefore necessary, in order to determine whether Eskom's allegedly negligent conduct was wrongful, to examine the statutory setting within which Eskom functions.

13. Eskom started life in 1922 when the Electricity Supply Commission was established and vested with juristic personality under the Electricity Act 42 of 1922¹⁰. The Electricity Supply Commission became known as Eskom in 1987¹¹. It had thus existed as a juristic person created by statute from 1922 until 2001. By virtue of the provisions of section 3 of the Eskom Conversion Act, 13 of 2001, Eskom was converted to a public company known as Eskom Holdings Limited, the present defendant. From the aforegoing it is clear that until 2001 Eskom's juristic personality was derived from statute, and from 2001 it has been a company created by statute.

14. Eskom's primary function, since its inception in 1922, has been to generate and supply electricity to our country. This is clear from the legislation.

15. The object of the Eskom Conversion Act was "to convert Eskom into a public company having a share capitaL.with its entire share capital held by the state".¹² In addition to powers not relevant to this matter the Conversion Act provided that Eskom would have the powers "contained in the memorandum and the articles of association and the Shareholder compact".¹³ Eskom's memorandum and articles of association were to be determined by the Minister of Public Enterprises. The "Shareholder compact" is a performance agreement concluded between Eskom and the Government of South Africa¹⁴. The Conversion Act also provides that in entering into the Shareholder compact, as well as in determining the articles, the Minister "must take into account..the developmental role of Eskom Holdings Limited; and the promotion of universal access, and the provision of, affordable electricity, taking into account the cost of electricity, financial sustainability and the competitiveness of Eskom/'¹⁵

16. The control and regulation of the generation and supply of electricity by Eskom and its juristic predecessors-in-title has also been regulated by law since 1922. The 1922 Act created the Electricity Control Board¹⁶. The Electricity Control Board became the National Electricity Regulator in 1987. Its functions were taken over by the National Energy Regulator on 17 July 2006¹⁷. In terms of the Electricity Regulation Act the National Energy Regulator is "the custodian and enforcer of the regulatory framework"¹⁸* and is obliged to "enforce performance and compliance, and take appropriate steps in the case of non-performance." ¹⁹ Since 1922 the proper performance by Eskom of its task of generating and supplying electricity has thus been controlled and governed by a regulatory body created by statute.

17. It is evident, I think it is safe to say, that since 1922 the legislature has regarded it as its responsibility to ensure that the citizens of our country do not go without electricity. It has done this through the creation of a body - now known as Eskom ­whose primary function it is to generate and supply electricity, and through the creation of a controlling or regulatory entity - now known as the National Energy Regulator - whose task it is to exercise control over Eskom. As I attempted to illustrate in the opening paragraphs of this judgment the reason for this arrangement is clear - electricity is a vital resource without which our country cannot do.

18. It is therefore correct, in my judgment, that Eskom performs a duty imposed by statute to generate and supply electricity in the public interest. At present it bears, to all intents and purposes, sole responsibility for this function.

19. However, it is also clear from the legislation that the legislature intends that other future providers of electricity may have a role to play in the electricity industry in South Africa. Thus the Electricity Regulation Act gives the National Energy Regulator the power to issue licenses to other entities authorising them to operate electricity generation, transmission or distribution facilities. It is apparent, therefore, that the legislature does not intend that Eskom's present monopoly wilt endure indefinitely. Indeed, as was pointed out in argument on behalf of Eskom the Minister has already invoked a power afforded to her under the Electricity Regulation Act to make a determination that new electricity generation capacity is needed. What this means is that as time passes other entities will play an increasingly important role in the supply of electricity to the citizens of South Africa.

20. I turn now to the question whether it is apparent from the legislative regime under which Eskom functions that the legislature intended it not to be liable in delict forloss it might negligently cause. Eskom contends that the wide range of remedies afforded by the relevant legislation to consumers of electricity is an indication of a legislative intent to limit such remedies to those specified.

21. The remedies in question are indeed extensive. They include a provision which requires Eskom "to pay compensation for any damage caused by its officers or employees in the performance of its duties upon ... land"²⁰; a provision which requires Eskom to compensate those who suffer loss as a result of the inspection or removal by it of electricity lines, and other apparatus²¹; and a provision which deems damage or injury which is electricity-related to have been caused by the Eskom's negligence, unless credible evidence to the contrary exists²². In addition, complaints may be lodged by consumers with the National Energy Regulator if Eskom fails to abide by its license conditions²³. In considering such complaints the National Energy Regulator is vested with wide powers of investigation²⁴ and may direct Eskom to abide by its license conditions if a complaint is upheld²⁵". And if Eskom fails to abide by its license conditions in spite of a direction being issued the National Energy Regulator has the power to impose a penalty on Eskom equal to 10% of its annual turnover or R 2 million for every day of its default²⁶.

22. Furthermore, consumers are given the right to have disputes with Eskom settled by the National Energy Regulator "by such means and on such terms" as the National Energy Regulator deems fit ²⁷. Section 31 of the Electricity Regulation Act gives consumers who are dissatisfied with the settlement of a dispute by the National Energy Regulator the right to review such decision in accordance with the Promotion of Administrative Justice Act, 2000, or the right to appeal the decision to a High Court in certain circumstances.

23. Yet, notwithstanding the extensive remedies afforded to consumers which I have summarised above, there are aspects of the legislative framework which evidence an intention of the part of the legislature not to limit a consumer's remedies to those listed above.

24. The provisions of the Electricity Act, 1987, were in force for a part of the time that Polyoak alleges it suffered losses as a result of loadshedding. It thus forms part of the legislative framework which it is necessary to examine. That Act provided that a failure on the part of a licensee to meet its license obligations was an offence and it empowered the regulator to make a recommendation to the Minister that another person take over the assets and liabilities of a licensee who defaulted in this manner. It also empowered the regulator to withdraw the license of a licensee in these circumstances²⁸. Section 12 (3) of that Act provided that if the regulator were to take such steps against a defaulting licensee this would not "prejudice om/ civil claims²⁹ which any consumer or other person may have against a licensee arising from his failure to fulfil his obligations in terms of the conditions of his license."

25. Section 24 of the Electricity Regulation Act empowers a licensee to do what is necessary on the "roads or streets and associated infrastructure" if this is necessary to enable it to carry out its licensed activities. The section goes on to provide that "Nothing in this section may be construed as ...relieving a licensee from any liability in respect of any loss or damage caused by its negligence"³⁰

26. As mentioned earlier in this judgment the Electricity Regulation Act contains a provision which reads as follows: "In any civil proceedings against a licensee arising out of damage or injury caused by induction or electrolysis or in any other manner by means of electricity generated or transmitted by or leaking from the plant or machinery of any undertaker, such damage or injury shall be presumed to have been caused by the negligence of licensee, unless there is credible evidence to the contrary."³¹

27. In paragraph 7 above I observed that Polyoak contends that Eskom holds a license granted to it by the National Energy Regulator which gives it legal authority to generate, and distribute electricity. Polyoak contends that Eskom has breached the terms of its license which require it, inter alia, not to reduce or discontinue the supply of electricity to consumers, except for reasons which are beyond its control. It seems to me that the legislature has contemplated in the sections I have referred to above that the private law remedy of an action in damages might lie against Eskom if it breaches the terms of its license. Put another way, I think that the legislative framework viewed as a whole militates against the conclusion that the legislature intended a consumer's remedies against a defaulting licensee to be limited to those expressly given by the law to them, because there are provisions in the relevant legislation which contemplate that consumers may have a private law remedy against a defaulting licensee in the form of a civil claim. If anything, particularly because electricity is such an essential resource to our social and commercial communities, it is more likely that the legislature intended that consumers, and the National Energy Regulator, would have an extensive array of weapons available to them by which licensees could be compelled to comply with their licence conditions and held accountable if they did not.

28. Section 34 (1) (a) of the Electricity Regulation Act empowers the Minister to "determine that new generation capacity is needed to ensure the uninterrupted supply of electricity". The Minister has invoked these powers and approved of an Integrated Resource Plan which provides, inter alia, for the construction of new generation plants based on renewable energy technologies. Other entities, not necessarily owned and controlled by the State, may be involved in the generation of electricity on a sustainable basis.

29. This is another factor which, I think, militates against the conclusion that there is a legislative policy which excuses Eskom from liability for damages in delict. Eskom is, of course, a state owned and controlled company. This factor, it was argued, likened it to the City Council in Knop and the tender board in Steenkamp, and thus made the principles applicable in those cases applicable in this case. However, the legislative framework which has been summarised earlier in this judgment reveals the existence of a policy aimed at encouraging the generation of electricity though otherrenewable, and thus environmentally friendly, energy technologies, by other entities which are not necessarily state owned or controlled³². The reason is obvious. To put all one's eggs in one basket, as is presently the position, carries obvious and unacceptable levels of risk.

30. This policy is clearly intended to promote and encourage a more efficient, sustainable and environmentally less damaging means of generating electricity. This is undoubtedly a commendable objective, and in the public interest. But I think it would be defeated if there were different rules for different suppliers of electricity. Aspirant licensees, intending to generate electricity by way of renewable resources which place less stress upon our environment, would be discouraged if Eskom was to be exempted from delictual liability and they were not. Moreover, such a result would be essentially anti-competitive, not something which legal and social policy considerations would easily countenance³³. In this regard, it is noteworthy that Eskom's "competitiveness" is a consideration which the Minister must take into account in determining Eskom's articles, and in entering into the Shareholder compact.

31. Reference was also made during argument to the performance agreement, or shareholder compact, agreed between the State and Eskom. The terms of this agreement, which were not before the Court, may be of assistance in interpreting the legislative framework, and in ascertaining whether or not one can find evidenceof an intention on the part of the legislature that Eskom would not be liable for loss of the kind Polyoak claims to have suffered.

32. I do not think, therefore, that that it is possible to distil from the legislative framework an intention on the part of the legislature to exempt Eskom from liability in delict. There are aspects of the legislative framework which point both ways.

Indeterminate Liability

33. On behalf of Eskom it was submitted, further, that if Polyoak enjoys a claim in delict against Eskom for recovery of the losses it claims to have suffered on account of loadshedding, then so too would every other South African who suffered financial loss as a result of the power interruptions. These claims, it was submitted, would be extensive and would continue to mount for as long as it took Eskom's capacity to generate electricity to catch-up with the national demand. Our law, it was submitted, does not permit claims in delict which would or might lead to indeterminate liability of this kind.

34. In the case of Administrates, Natal v Trust Bank van Afrika ³⁴ our law recognised that a delictual action would lie for the recovery of pure economic loss caused by the making of a negligent misstatement. In that case the Court cautioned that care should be taken to prevent the extension of liability from creating what was termed "oewerlose aanspreeklikheid"³⁵. I was urged to find that it was implicit in the judgment in Trust Bank that a Court would not find that a legal duty existed to prevent harm of kind Polyoak says it suffered, where such a duty would give rise to indeterminate liability.

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