African Products (Pty) Ltd v AIG South Africa Ltd (659/2007) [2009] ZASCA 27; 2009 (3) SA 473 (SCA) ; [2009] 4 All SA 99 (SCA) (27 March 2009)

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African Products (Pty) Ltd v AIG South Africa Ltd (659/2007) [2009] ZASCA 27; 2009 (3) SA 473 (SCA) ; [2009] 4 All SA 99 (SCA) (27 March 2009)

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THE SUPREME COURT OF
APPEAL
OF SOUTH AFRICA
Case number: 659/2007
In the matter between:
AFRICAN PRODUCTS (PTY) LTD
APPELLANT
and
AIG SOUTH AFRICA LIMITED RESPONDENT
Neutral citation:
African
Products (Pty) Ltd v AIG South Africa Ltd
(659/2007)
[2009] ZASCA 27
(27 March 2009)
CORAM: MPATI P, BRAND, CLOETE, CACHALIA JJA et
BOSIELO AJA
HEARD: 3 MARCH 2009
DELIVERED: 27 MARCH 2009
SUMMARY
: Insurance –
Interpretation of policy containing expression ‘unforeseen and
sudden’ – to avoid tautology ‘sudden’,
which also bears
meaning of unforeseen, to be given its temporal meaning, ie ‘abrupt’,
‘occurring quickly’ or ‘happening
all at once’.
_____________________________________________________
ORDER
_____________________________________________________
On appeal from
: High Court of
South Africa (Johannesburg)
(Joffe J sitting as court of first instance.)
The appeal is dismissed with costs, which are to include
the costs of two counsel.
_____________________________________________________
JUDGMENT
______________________________________________
MPATI P
(BRAND, CLOETE,
CACHALIA JJA and BOSIELO AJA concurring):
[1]
The issue in
this appeal is whether loss of gross profits, suffered by the
appellant company, due to loss of production as a result
of
electrical failure, is covered under a policy of insurance issued by
the respondent.
[2] The appellant is a subsidiary of
Tongaat-Hulett Group Ltd. It owns and operates a maize milling
facility situated at Kliprivier,
known as the Kliprivier Mill ('the
Mill'). The Mill was designed and constructed by Fluor SA (Pty) Ltd
and production commenced
in 1998, soon after completion of the
construction process. The designing of the Mill included the
installation of electricity
substations and layout of electricity
cables which transmitted power from an Eskom power point to, and
past, the substations to
the machinery in the plant. It is common
cause that all the equipment (machinery) used in the operation of the
Mill is powered
by electricity.
[3] It is not in dispute that at
04:50 on 11 September 2002 a cable failure was detected at the Mill
when a certain switch tripped.
Further cable failures were
experienced during the course of the day. Technicians who were called
in discovered that cables under
one of six substations, substation
two, were heating up. They had been laid in sand under a concrete
slab and bent at a 90°
angle beneath the substation before
entering it. A total of 650 cables were connected from the substation
to the Mill. The cables
beneath the concrete were not at all visible
from above. So also the cables inside the substation. To get to them,
the concrete
slab had to be excavated. Temporary cables had in the
meantime been connected so as to ensure continued production at the
Mill.
[4] After the concrete slab had been
broken up, closer inspection of the cables beneath it revealed that
the cables had been laid
close to each other. Because of this the
heat generated by the electric current which passed through the
cables did not dissipate
sufficiently. The result was that the
polyvinylchloride (PVC) insulation covering the copper conductors had
softened and worn away.
Consequently, some of the copper conductors
came into contact with each other and this caused the cable failure.
It was also discovered
that a substantial number of cables which had
not as yet come into contact with each other had functionally failed
because, having
regard to the wearing out of the insulation as a
result of the excessive heat, they were dangerously close to each
other and would
imminently come into contact and fail electrically.
[5] By 19 September 2002 it became
clear to the appellant that operations at the plant could not
continue since, in the view of
the management, it had become unsafe
to do so. Pending the redesign of the cables from substation 2 to the
Mill, temporary measures
were taken by laying cables in such a manner
as would bypass the failed ones. For this operation a decision was
taken to shut down
the Mill from 19 September 2002. It was reopened
on 15 October 2002. It is the loss of production during this period
of shut down
which the appellant seeks to recover under the
indemnification provided for in the contract of insurance.
[6] At the commencement of the trial
before
the court below
(Joffe J), an order was made, by agreement between the parties, in
terms of which the issues of the merits and quantum
were separated.
The trial accordingly proceeded on the issue of the merits of the
case only, which the court a quo decided in favour
of the respondent.
It consequently dismissed the appellant's claim with costs. This
appeal is with its leave.
[7] In terms of the contract of
insurance the respondent agreed to indemnify or compensate the
appellant ‘by payment or, at [the
respondent’s] option, by
replacement, reinstatement or repair, in respect of the Insured
Events occurring during the period of
insurance . . .'. The insured
event in this case is defined in section 3 of the insurance policy,
headed 'Business Interruption',
as:
'Loss
following interruption of or interference with the business in
consequence of damage occurring during the period of insurance
in respect of which payment has been made or liability admitted
under:
. . .
Section 2: Engineering.'
The Engineering section then defines the insured event
as '[u]nforeseen and sudden physical damage to the machinery
described in
the schedule from any cause . . . whilst it is at work
or at rest . . .' and goes on to provide that:
'Machinery shall mean all plant
and machinery and/or electronic equipment including that equipment
being an integral part of controlling
machinery, property held in
trust or on commission and foundations supporting machinery . . . .’
In order to succeed in its claim, therefore, the
appellant would not only have had to prove that the electrical cables
that failed
constituted machinery as defined, but also that the
damage it relied on, was 'unforeseen and sudden'.
[8] In opposing the appellant's claim the respondent
submitted that (a) the electricity cables did not constitute
machinery as defined
in the Engineering section; (b) that the
physical damage relied on may have been 'unforeseen', but it was not
'sudden'; and (c)
that in any event the claim was excluded by
specific exception 4 of the Engineering section of the policy, which
reads:
'The Insurers shall not be
liable to indemnify the Insured irrespective of the original cause in
respect of:
. . .
4. wastage of material or the
like or wearing away or wearing out of any part of the machinery
caused by or naturally resulting
from ordinary usage or working or
other gradual deterioration.'
On the specific exception, it was contended on behalf of
the respondent that the damage to the cables was due to wearing away
or
wearing out caused by gradual deterioration of the PVC insulation
and that the appellant's claim for indemnification was therefore

excluded.
[9] I am prepared to accept, without deciding, that the
electricity cables fall under 'all plant and machinery' in the
definition
section and thus constituted machinery as defined in the
policy document. It is perhaps convenient at this stage to give a
closer
description of the design of the cables with which we are here
concerned. Although evidence was led before the trial judge, no
transcript of it formed part of the appeal record in this court. It
appears that the evidence was not mechanically recorded during
the
trial. The parties were agreed, however, that the facts are
essentially common cause and have been accurately summarised in
the
judgment of the court a quo. In its judgment the court summarised the
evidence of Dr Peter Carstensen,
1
a chemical engineer, on the description of the cables as follows:
'Carstensen testified that
electrical cables are designed to either convey electrical energy
(these cables are called power cables)
or electrical signals (these
cables are called control cables) from one point to another. The
power cables relevant to the present
matter consist of four copper or
aluminium conductors. Each aforesaid conductor is covered by an
intact sheath of plasticised
polyvinylchloride ("PVC")
which serves to insulate the one conductor from the other. The four
conductors are twisted
together to make a core and are kept together
with a polyester tape. A PVC bedding is extruded over the tape. The
bedding is in
turn covered by galvanised steel wire armour. The steel
wire armour is utilised for mechanical purposes. It, in turn, is
covered
by a PVC outer sheath. According to Carstensen, the
electrical properties and the thickness of the insulation layer
determines
the voltage which can be imposed on the cable. The
cross-section of the conductor determines the resistance of a
conductor and
hence the maximum allowable current that can be carried
by the cable.'
[10] It is not in dispute that if the copper conductors
conveying the electricity come into contact with each other the cable
will
fail. And if the PVC insulation wears away, the conductors will
come into contact with each other.
[11] Counsel for the appellant submitted that damage to
the mechanical properties of the cable does not in and of itself lead
to
a failure of the cables. The proposition was that it is only when
the electrical properties of the cable fail, that is, when the
copper
conductors come into contact with each other, that the cable fails.
Counsel accordingly contended that even though the damage
to the
copper wires may have flowed from the softening of the PVC
insulation, physical damage in this instance occurred when the
copper
conductors came into contact with each other and that this happened
instantaneously. The cables could still be used even
though there was
damage to the PVC. The physical damage thus relied upon in support of
the appellant's claim is that when the copper
cables failed, ie when
the copper conductors touched, this constituted actual and
independent damage, which, says the respondent,
was unforeseen and
sudden.
[12] In construing a policy of insurance the ordinary
rules relating to the interpretation of contracts must be applied, so
as to
ascertain the intention of the parties. As was said in
Fedgen
Insurance Ltd v Leyds
,
2
'[s]uch intention is . . . to be gathered from the language used
which, if clear, must be given effect to. This involves giving
the
words used their plain, ordinary and popular meaning unless the
context indicates otherwise. . . Any provision which purports
to
place a limitation upon a clearly expressed obligation to indemnify
must be restrictively interpreted; . . . for it is the insurer's
duty
to make clear what particular risks it wishes to exclude . . . . A
policy normally evidences the contract and an insured's
obligation,
and the extent to which an insurer's liability is limited, must be
plainly spelt out. In the event of a real ambiguity
the
contra
proferentem
rule, which requires a written
document to be construed against the person who drew it up, would
operate against . . . [the] drafter
of the policy.'
3
[13] Since the words 'unforeseen' and 'sudden' are
joined by the conjunctive 'and', the physical damage to the cables
must have
been both unforeseen and sudden, and because the two words
may, depending on the context, bear the same meaning, they must each

be given a meaning that will avoid tautology or superfluity. In
Wellworths Bazaars Ltd v Chandler's Ltd
4
this court quoted with approval the following passage from the
decision of the Privy Council in
Ditcher v
Denison
:
5
'It is a good general rule in
jurisprudence that one who reads a legal document whether public or
private, should not be prompt
to ascribe – should not, without
necessity or some sound reason, impute – to its language tautology
or superfluity, and should
be rather at the outset inclined to
suppose every word intended to have some effect or be of some use.'
A court should thus be slow to conclude that words in a
single document are tautologous and superfluous.
6
[14] The Shorter Oxford English Dictionary gives the
primary meaning of the word 'sudden' as 'happening or coming without
warning
or premonition'; 'taking place or appearing all at once'. The
Collins Thesaurus (New) defines 'sudden' as 'quick, rapid,
unexpected,
swift, hurried, abrupt, hasty, impulsive, unforeseen'.
'Unforeseen' is defined as 'unexpected, unanticipated, unpredicted,
surprise/ing,
sudden, startling, accidental, abrupt, out of the blue,
unlooked for, unenvisaged'. In the Collins English Dictionary the
word
'sudden' is defined as 'occurring or done quickly or
unexpected'. 'Unforeseen' is given the meaning of 'not anticipated or
predicted'.
The Concise Oxford Dictionary defines 'sudden' as
'occurring or done unexpectedly or without warning, abrupt; hurried;
hasty'.
'Unforeseen' is defined as 'not foreseen'.
[15] Counsel for the appellant submitted that there is
no reason, in this case, not to give the word 'sudden', in the
context of
the policy of insurance, the meaning of 'happening or
coming without warning'. This submission was predicated on another
contention
by counsel that the question was whether or not the policy
could have contemplated that any physical damage ought to have been
'sudden' from an objective perspective or from the perspective of the
insured. It could hardly have been the intention of the parties,

counsel argued, that the insured upon whom physical damage was
suddenly sprung in circumstances where it could have taken no steps

to avoid such damage, would be deprived of protection of the policy
because something was manifesting itself over a period of time
which
could not have been known to or come to the attention of the insured.
To interpret the word 'sudden' in a way other than
that contended for
by him, counsel contended, would be to deprive the policy of the
sound commercial principles and good business
sense referred to by
Boruchowitz J in
Grand Central Airport (Pty)
Ltd v AIG SA Ltd.
7
In that case the following was stated:
'An insurance policy should be
construed in accordance with sound commercial principles and good
business sense, so that its provisions
receive a fair and sensible
application. The literal meaning of words must not be permitted to
prevail where it would produce an
unrealistic and generally
unanticipated result, as, for example, where it would absolve the
insurer from liability on the chief
risks sought to be covered by the
policy. (MacGillivray and Parkington
On
Insurance Law
8
th
ed paras 1077 and 1078).'
8
[16] Counsel accordingly submitted that to give the
meaning of 'instantaneous' to the word 'sudden' would be
unnecessarily restrictive
and would defeat the object of the policy,
because it would exclude indemnity where there was nothing the
appellant could have
done to avoid what was encountered by it in this
case. Counsel also relied for these submissions on the decision of
the Supreme
Court of the State of Rhode Island (United States of
America) in
Textron Inc v Aetna Casualty &
Surety Co
.
9
In that case the court dealt with the meaning of the expression
'sudden and accidental' in a pollution clean-up policy of insurance

that excluded liability for personal or bodily injury or loss of or
damage to property due to pollutants or contaminants into or
upon
land. The exclusion would, however, not apply if the discharge or
release of such pollutants was 'sudden and accidental'.
In ascribing
a meaning to the word 'sudden' the court reasoned as follows:
'While the modern word certainly
has acquired a secondary, temporal meaning, the original and still
perfectly functional meaning
of the word is happening without warning
or anticipation. Thus, reading the word "sudden" in the
context of insurance
policies to mean "unexpected" not only
harmonizes with its context but also remains true to the word’s
original meaning.
Our present interpretive problem with this word may
arise from our modern forgetfulness that it is often used to describe
a subjective
state, that is, the mental state of the person visited
by the event.'
10
[17] The court a quo, however, preferred the approach of
the Supreme Court of the Australian Capital Territories in
Vee
H Aviation (Pty) Ltd v Australian Aviation Underwriting Pool (Pty)
Ltd
,
11
a case concerning the interpretation of the
words 'sudden and unforeseen damage' in an insurance policy
indemnifying the breaking
down of an aircraft engine. There the court
said:
'31. "Sudden", to my
mind, is to be contrasted with "gradual". Synonyms are
"abrupt" and "quick".
It is often a connotation
of the word that the event it describes should be "unforeseen",
or "unexpected",
or "without warning" but these
words, alone or in conjunction, do not express its denotation.
. . .
33. In the ordinary, every day
meaning of the word, "sudden" is not the same as
"unforeseen and unexpected".'
The court went further to say
12
that the requirement that the damage should be both sudden and
unforeseen was not tautologous; that the words have different
meanings,
and that the requirements that they express were
cumulative. The court a quo accordingly held that the word 'sudden'
in the policy
of insurance in the present matter 'is to be
interpreted as meaning temporally abrupt'.
[18] Although in
Textron
the Rhode Island Supreme Court referred to a number of supporting
decisions of the Supreme Courts of other American States, counsel
for
the respondent referred to decisions of yet other States which have
taken a contrary view on the meaning of the word 'sudden'
in the
expression 'sudden and accidental' in pollution exclusion clauses in
pollution coverage insurance policies. The Supreme
Court of Michigan,
for example, held as follows in
The Upjohn
Company v New Hampshire Insurance Co:
13
‘
We conclude that when
considered in its plain and easily understood sense, "sudden"
is defined with a "temporal element
that joins together
conceptually the immediate and the unexpected".'
14
[19] In this court counsel for the appellant accepted
that anything happening without warning or unexpectedly (the meaning
they
contend should be ascribed to 'sudden') is also 'unforeseen'.
The interpretation contended for would, in my view, amount to
surplusage
as the expression 'sudden and unforeseen' would, in
effect, mean 'unforeseen and unforeseen'. That would be contrary to
the view
this court approved in
Wellworths
Bazaars,
that one should not be prompt
without necessity or some sound reason, to ascribe tautology or
superfluity to the language of a
legal document. It follows that I
agree with Joffe J, in the court a quo, that the word 'sudden' in the
expression 'unforeseen
and sudden' in the context in which it is used
in the insurance policy concerned, should be understood in its
temporal sense, meaning
'abrupt' or 'occurring quickly' or 'taking
place all at once'.
[20] When a temporal sense is ascribed to 'sudden', the
requirement that physical damage be both unforeseen and sudden is not
tautologous.
Indeed, the intention of the parties becomes clear. Were
a motor which drives a conveyor belt in the production line in the
plant
to stop running suddenly and without warning (unexpectedly) and
it is subsequently discovered that a new screw inside the motor
had
snapped, causing other parts to be dislodged, the insurer would be
liable to indemnify the insured for lost production while
repairs to
the motor were being effected. The physical damage that would have
occurred as a result of the snapping of the screw
would have been
both unforeseen and sudden. Were it to be found, however, that a
screw inside the motor had broken as a result
of wearing out over a
period, then the physical damage, though unforeseen, would not have
been 'sudden'. The wearing out would
have happened over time but
would only have manifested itself when the screw eventually broke. In
this scenario the insurer would
not be liable to indemnify the
insured for loss of production. The fact that the physical damage
(wearing out) was undiscovered
until the screw broke does not make
the breaking sudden.
[21] I can find no reason why giving a meaning with a
temporal element to the word 'sudden' would not be in accordance with
sound
commercial principles and good business sense. While I do not
question the soundness of the view expressed by Boruchowitz J
15
that the literal meaning of words must not be permitted to prevail
where it would produce an unrealistic and generally unanticipated

result, it must be remembered that the learned judge was not dealing
in that case with the interpretation of an expression that
contains
words that may bear the same meaning as in the present matter. He was
dealing with the question whether an exception in
a clause in a
policy of insurance excluded liability where the insured had incurred
no expenses as yet in replacing or reinstating
damaged property.
16
But the paramount object in construing an insurance contract is to
ascertain the intention of the parties which is to be gathered
from
the words used and which must be given effect to, if clear when the
words are given their plain, ordinary and popular meaning.
17
[22] It also follows that I do not agree with the
submission on behalf of the appellant that this court should find the
expression
'unforeseen and sudden' in the insurance policy concerned
to be ambiguous. As I have attempted to demonstrate above, there is
no
ambiguity when 'sudden' is given a meaning with a temporal element
such as 'abrupt' or 'taking place all at once'. Nor do I agree
that
physical damage must have been sudden from the perspective of only
the insured. An objective perspective seems to me to be
in accordance
with sound commercial principles and good business sense. I say this
because if the unforeseen physical damage occurs
suddenly, viewed
objectively, the insurer will become liable. If, on the other hand,
it is not sudden from an objective perspective
no liability will
attach. It would otherwise be difficult, if not impossible, to
dislodge an assertion by a claimant that, viewed
subjectively,
physical damage was sudden even though such damage may be shown to
have been gradual and to have occurred over a
long period. In my
view, this could never have been the intention of the parties.
[23] Counsel for the respondent sought to argue that
because there was documentary evidence that the first cable failure
occurred
during July 2002, the events of September 2002 cannot, on
the probabilities, be regarded as either unforeseen or sudden. I am
unable
to agree. One cannot conclude that merely because of an
earlier cable failure the subsequent events of cable failure would
have
been, or must have been, foreseen. I am in any event prepared to
accept, for present purposes, that the cable failure on 11 September

2002 was unforeseen. The question that remains to be answered is
whether the damage to the cables was sudden.
[24] I do not agree that the 'physical damage' to the
cables (machinery) only occurred when the copper conductors came into
contact
with each other, as submitted on behalf of the appellant. It
is true that the cables failed, in the sense that as a result of the

copper conductors touching, a switch tripped. But as counsel for the
appellant correctly contended, electricity could still be
transported
through the copper conductors even when the PVC insulation and
covering was wearing away. It was only when the copper
conductors
touched, due to the damage (physical) to the PVC, that the cables
failed. Clearly, therefore, the damage to the cables
occurred when
the PVC wore away, resulting in the copper conductors becoming
exposed, with the inevitability of them coming into
contact with each
other.
[25] Photographs of the cables taken after the concrete
slab had been broken up displayed many cables in an advanced state of
deterioration.
The insulation appears discoloured and brittle. In his
expert report Dr Carstensen described the cables as being
'mechanically
stressed' and as having been 'exposed to high
temperatures . . .
for periods so long
that the insulation had discoloured and the polyester tape . . .
disintegrated'. (My underlining.) The physical damage to the cables

was therefore not sudden. It is the manifestation of the damage that
was sudden and not the actual damage, which had occurred over
a
lengthy period of time as observed by Dr Carstensen.
[26] It follows that the appeal must fail. In view of
this conclusion it becomes unnecessary for me to consider the other
questions
raised by counsel for the appellant, viz the issue whether
the events in question were insurable; causation and whether the
claim
is excluded by specific exception 4 of the Engineering section
of the policy of insurance.
[27] In the result the appeal is dismissed with costs,
which are to include the costs of two counsel.
………………
L MPATI P
Appearances:
For
Appellant : A E Bham SC
D
G Leibowitz
Instructed by:
Mervyn Taback Inc
Johannesburg
Correspondence:
Webbers
Bloemfontein
For
Respondent: A E Franklin SC
B
Berridge
Instructed By:
Webber Wentzel
Marshalltown
Correspondence:
Mcintyre & Van Der Post
Bloemfontein
1
Dr Carstensen was one of four witnesses who
testified on behalf of the appellant.
2
1995 (3) SA 33
(A) at 38A.
3
Ibid,
at p 38.
4
1947 (2) SA 37
(A) at 43.
5
(11 Moor PC 325 at 357).
6
Wellworths Bazaars,
fn
5 at p 43.
7
2004 (5) SA 284
(W).
8
Ibid,
para 9.
9
754 A 2d 742
(2000).
10
At para 9.
11
[1996] ACTSC 123.
12
At para 34.
13
438 Mich 197
at 207.
14
See also
Northville
Industries Corp v National Union Fire Insurance
89
NY 2d 621
;
Northern Insurance Co of New
York v Aardvark Associates Inc.
[1991] USCA3 862
;
942 F
2d 189
CA 3 (Pa) 1991);
Lumbermen's
Mutual Casualty Co v Belleville Industries Inc
407
Mass 675
;
Olin Corp v Insurance Company
of North America et al
762 F Supp 548;
Freedom Gravel Products Inc v Michigan
Mutual Insurance
819 F Supp 275.
15
In the
Grand Central
Airport
case, above fn 7.
16
The exception reads: ‘Until expenditure has
been incurred by the insured in replacing or reinstating the
property, the company
shall not be liable for any payment in excess
of the amount which would have been payable if these conditions had
not been incorporated
herein.’
17
Fedgen Insurance Ltd v Leyds
above
fn 3.