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[2009] ZASCA 53
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St Paul Insurance Co. SA Ltd v Eagle Ink System (Cape) (Pty) Ltd (300/08) [2009] ZASCA 53; 2010 (3) SA 647 (SCA) ; [2009] 4 All SA 46 (SCA) (27 May 2009)
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THE
SUPREME COURT OF APPEAL
REPUBLIC
OF SOUTH AFRICA
JUDGMENT
Case No: 300/08
ST
PAUL INSURANCE CO SA LIMITED Appellant
and
EAGLE
INK SYSTEM (CAPE) (PTY) LTD Respondent
Neutral citation:
St Paul
Insurance Co SA Ltd v Eagle Ink System (Pty) Ltd
(300/08)
[2009]
ZASCA 53
(27 May 2009).
Coram:
FARLAM, CLOETE,
LEWIS, MHLANTLA JJA
et
TSHIQI AJA
Heard:
11 MAY 2009
Delivered:
27
MAY 2009
Summary:
Continuation of a
trial when the judge has died; interpretation of 'contaminated' in a
public liability insurance policy; effect
of exclusion in extension
clause.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from: the Cape High Court (Griesel J sitting
as court of first
instance).
1 The appeal is upheld with costs, including the costs
of two counsel.
2 The order of the Cape High Court is set aside and the
following order substituted:
'The plaintiff's claim is dismissed with costs,
including the costs of the proceedings before Knoll J and the costs
of two counsel
at both stages of the proceedings.'
______________________________________________________________
JUDGMENT
______________________________________________________________
CLOETE JA (FARLAM, LEWIS, MHLANTLA JJA
et
TSHIQI AJA concurring):
[1] The appellant, St Paul Insurance Company SA Ltd, is,
as its name suggests, an insurance company and I shall refer to it as
such.
The respondent, Eagle Ink System (Cape) (Pty) Ltd, to which I
shall refer as Eagle Ink, is a manufacturer, importer and distributor
of printing inks and related products. The insurance company issued a
policy of insurance to Eagle Ink which, as the plaintiff,
sued the
insurance company in the Cape High Court for indemnity under the
policy. Knoll J presided at the trial but died before
she could
deliver judgment. By agreement between the parties a transcript of
the evidence together with the documentary exhibits
were placed
before Griesel J who heard further argument. There is precedent for
such a procedure, and it is eminently sensible:
Mhlanga
v Mtenengari
1993 (4) SA 119
(ZS). Griesel J
found in favour of Eagle Ink but subsequently granted leave to appeal
to this court.
[2] I shall first deal briefly with the facts and
thereafter with the relevant terms of the insurance policy. One of
Eagle Ink's
customers to whom it supplied ink was Nampak Products
Ltd, which trades as Nampak Polyfoil ('Polyfoil'). Polyfoil concluded
a contract
with an American entity known as Bunzl Distribution
Southeast Inc ('Bunzl') for the supply of several million plastic
shopping
bags destined for the supermarket chain WalMart in the USA.
It was a term of the contract between Bunzl and WalMart that the
plastic
bags would be free of heavy metal, including lead. This
requirement was comunicated to Polyfoil and at the latter's request,
Eagle
Ink gave a written assurance (which Polyfoil passed on to
Bunzl) that 'all inks supplied for export work are heavy metal free'.
[3] Due to the negligence of Mr Matthews, an employee of
Eagle Ink who worked at the Polyfoil plant, some of the ink supplied
to
Polyfoil contained lead. What Matthews did was to take ink
containing lead that had been recovered from Polyfoil's printing
presses
after jobs for customers other than Bunzl had been completed,
and mix it with the lead free ink delivered to Polyfoil's premises
by
Eagle Ink for the Bunzl contract. Matthews was actuated by the best
of intentions â he wanted to save Polyfoil money. The
consequence
of his actions was that Bunzl rejected the bags manufactured by
Polyfoil because of the lead in the ink and claimed
from the latter
the return of the purchase price it had paid, together with damages.
Polyfoil in turn claimed from Eagle Ink; and
Eagle Ink claimed
indemnity, up to the limit of the policy, from the insurance company,
which repudiated the claim.
[4] The insurance policy was a public liability (claims
made) policy. It comprised, in addition to a schedule and the
definitions
section, a section which contained the operative clause;
a section which contained exclusions and another which contained
conditions;
and various extensions, including a products liability
extension. The operative clause read:
'The Company will indemnify the
Insured against their legal liability to pay compensation for claims
first made against the Insured
during the Period of Insurance in
respect of Injury and/or Damage arising out of the performance of the
Business within the Territorial
Limits on or after the Retroactive
Date stated in the Schedule.'
'Damage' was defined as 'loss of or damage to tangible
property' and the 'Business', according to the business description
in the
schedule, was that of 'Manufacturers, Importers &
Distributors of Printing Inks and Related Products'. Exclusions 7.5
and 10
read:
'The Company will not indemnify
the Insured in respect of
. . .
7. any liability caused by or
arising from claims for
. . .
7.5 products sold or supplied by
the Insured
. . .
10. claims arising out of
10.1 liability directly or
indirectly caused by seepage pollution or contamination provided that
this exclusion shall not apply
where such seepage pollution or
contamination is caused by a sudden unintended and unexpected event
10.2 the cost of removing
nullifying or cleaning up seeping polluting or contaminating
substances unless the seepage pollution or
contamination is caused by
a sudden unintended and unexpected event'.
Product liability was therefore excluded by clause 7.5
of the exclusions in absolute terms. But the products liability
extension
formed part of the policy. It read:
'The following Extension is
deemed to apply only if so stated in the Schedule and unless
specifically varied herein shall be subject
to the terms exclusions
and conditions of this policy. . .
PRODUCTS LIABILITY EXTENSION
Notwithstanding anything to the
contrary contained in exclusion 7.5 the Company will indemnify the
Insured in terms of this Policy
anywhere in the Territorial Limits as
stated in the schedule and caused by products sold or supplied by the
Insured
. . .
Exclusions
This extension does not cover
liability:
. . .
iii) arising from defective or
faulty design formula plan or specification (unless due to negligence
in following same) treatment
or advice by or on behalf of the Insured
iv) arising from inefficacy or
failure to perform or conform to specification (unless due to
negligence in following same) or fulfil
its intended function as
specified or guaranteed but this exclusion shall not apply to
consequent injury or damage
. . .'.
[5] One of the defences raised by the insurance company
was based on exclusion 10.1, the insurance company contending that
Polyfoil's
claim against Eagle Ink was one 'arising out of liability
directly or indirectly caused by . . . contamination' of the ink with
lead.
The Oxford English Dictionary
(2 ed) gives 'contaminate' the meaning 'To render impure by . . .
mixture; to . . . pollute' and 'pollute', the meaning 'To make
physically impure . . . To contaminate (the environment, atmosphere
etc) with harmful or objectionable substances'. On these definitions,
the ink supplied by Eagle Ink to Polyfoil could undoubtedly be said
to have been 'contaminated' with lead. Indeed, Eagle Ink could
hardly
contend the contrary as the claim form prepared by Mr Groenewald, its
group financial director, said that the loss to Eagle
Ink had been
caused by 'mixing of contaminated ink with heavy metal free ink for
export work'; and Eagle Ink's pleadings repeatedly
used the word
'contaminate' and 'contamination' to describe the presence of lead.
[6] Eagle Ink's counsel nevertheless argued, and the
court a quo upheld the argument, that what exclusion 10.1 envisaged
was contamination
of something else by the ink, not contamination of
the ink itself. The court a quo reached this conclusion by invoking
the
eiusdem generis
rule in regard to the phrase 'seepage pollution and contamination' in
exclusion 10.1 and also by having regard to exclusion 10.2
which,
Eagle Ink's counsel argued, meant that 'a "mess" of some
sort is envisaged, not a mere incorrect mixing of a formula'.
The
court a quo accordingly concluded that the parties did not intend the
word 'contamination' to be understood in the sense set
out in the
previous paragraph above.
[7] I am unable to support this conclusion. Although
'pollution' and 'contamination' have similar meanings, 'seepage' does
not.
'Seepage' connotes a gradual leak. It may or may not produce
pollution or contamination. None of the three words necessarily
denotes
a mess. Nor does exclusion 10.2: that clause excludes inter
alia 'claims arising out of the cost of removing . . . contaminating
substances', which would cover the cost of removing the lead from the
ink, and the ink from Polyfoil's presses, both of which could
result
in delay and a claim for damages. In my view there is no warrant for
confining exclusion 10.1 to claims arising out of contamination
by,
and excluding contamination to, inks supplied to Polyfoil by Eagle
Ink. The exclusion covers both.
[8] The court a quo, again following the argument
advanced by counsel for Eagle Ink, found that exclusion 10.1 did not
apply for
another reason. The court had regard in particular to
exclusions (iii) and (iv) of the products liability extension and
reasoned
as follows:
'On the evidence as a whole,
there can be little doubt that the mixing of pigments containing
heavy metals with the plaintiff's
carbon-based black ink was contrary
to the specification of heavy metal-free inks for the export market,
and that the mixing was
an act of negligence on the part of Matthews
in following such specification. Similarly, the inefficacy or failure
to conform to
specification was due to the same negligence. Finally,
the damage did not cause the plaintiff damage to its property or
plant itself,
but was clearly consequential damage as envisaged in
the expression "consequent injury or damage" in exclusion
(iv).
The express inclusion within
the products liability extension of liability arising from defective
specification or a failure to
conform to specification where due to
negligence can only be taken to be a specific variation of other
general terms and exclusions
where such might otherwise have been
applicable, such as clause 10.1 of the general exclusions.'
[9] Again, I am unable to support this conclusion. Ink
which does not conform to specification is not necessarily
contaminated.
Exclusions (iii) and (iv) cover the former possibility
and exclusion 10.1, the latter. Effect must be given to all
provisions of
the policy particularly as the introductory words of
the products liability extension specifically provide that: 'The
following
Extension . . . unless specifically varied herein shall be
subject to the . . . exclusions . . . of this policy'. Exclusion 10.1
is not 'specifically varied' by exclusions (iii) or (iv) â they
deal with different situations; and the fact that Eagle Ink escapes
the provisions of exclusions (iii) and (iv) does not mean that
exclusion 10.1 is rendered inapplicable.
[10] I therefore conclude that the court a quo should
have dismissed Eagle Ink's claim as it arose out of liability
directly or
indirectly caused by contamination as envisaged in
exclusion 10.1 of the policy.
[11] The following order is made:
1 The appeal is upheld with costs, including the costs
of two counsel.
2 The order of the Cape High Court is set aside and the
following order substituted:
'The plaintiff's claim is dismissed with costs,
including the costs of the proceedings before Knoll J and the costs
of two counsel
at both stages of the proceedings.'
_______________
T D CLOETE
JUDGE OF APPEAL
Appearances:
Counsel for Appellant: J C Butler SC
A J van Vuuren
Ms S van Vuuren
Instructed by
Everinghams Attorneys, Cape Town
Webbers Attorneys, Bloemfontein
Counsel for Respondent: R G Goodman SC
S Miller
Instructed by
Bernard Vukic Potash & Getz, Cape Town
Lovius Block, Bloemfontein