Guardian National Insurance Co Ltd v Springgold Investments (Pty) Ltd (526/08) [2009] ZASCA 112; [2010] 1 All SA 301 (SCA) (23 September 2009)

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[2009] ZASCA 112
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Guardian National Insurance Co Ltd v Springgold Investments (Pty) Ltd (526/08) [2009] ZASCA 112; [2010] 1 All SA 301 (SCA) (23 September 2009)

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THE
SUPREME COURT OF APPEAL
REPUBLIC
OF SOUTH AFRICA
JUDGMENT
Case no: 526/08
No precedential significance
GUARDIAN
NATIONAL INSURANCE
COMPANY
LIMITED Appellant
and
SPRINGGOLD
INVESTMENTS (PTY)
LIMITED Respondent
___________________________________________________________________
Neutral citation:
Guardian National Insurance Co Ltd v
Springgold Investments (Pty) Ltd
(526/08)
[2009]
ZASCA 112
(23 September 2009)
CORAM:
HARMS,
MTHIYANE, LEWIS, VAN HEERDEN and MAYA JJA
HEARD:
24 AUGUST 2009
DELIVERED:
23 SEPTEMBER 2009
CORRECTED:
SUMMARY:
Insurance –
contamination of palm
olein oil by water leaking from steam pipes in storage tanks –
policy excluding liability for loss caused
directly and solely by
contamination – insured alleging holes in steam pipes caused by
sabotage – on factual evidence sabotage
highly improbable –
expert evidence not tipping probabilities in favour of insured.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from
:
The High Court, Durban
(Patel J sitting as court of first instance).
1 The appeal is upheld with costs.
2 The order of the court below is set aside and substituted as
follows:
‘The plaintiff’s claim is dismissed with costs.’
___________________________________________________________________
JUDGMENT
___________________________________________________________________
VAN HEERDEN JA
(
HARMS, MTHIYANE, LEWIS and MAYA JJA
concurring):
Introduction
[1] This is an appeal, with the leave of the court below, against a
judgment in favour of an insured against an insurer for an
indemnity
claimed under a policy covering property damage.
[2] Edible palm olein oil, which had been stored in two large tanks
on the insured’s property, had been contaminated by water
leaking
from steam heating coils inside the tanks. The oil was insured, but
the insurance policy excluded liability for loss caused
directly and
solely by contamination. On that basis the insurer repudiated
liability. The insured then instituted action against
the insurer,
alleging that the escape of steam from the heating coils into the oil
had been caused by malicious damage to the coils
and that its claim
was thus not excluded under the policy. The Durban High Court (per
Patel J) found that the holes in the pipes
forming the coils had
indeed been ‘deliberately and maliciously caused by persons whose
identity is unknown’. It is against,
inter alia, that conclusion
that the present appeal is directed.
[3] The principal issue to be decided is whether the insured
succeeded in establishing that the pipes forming the heating coils

had been sabotaged. The second issue in the court below, to which we
do not get, was whether the benefit under the policy was forfeited
as
a result of fraudulent means or devices employed in making the claim.
Background
[4] During 1996, Feedmill Developments (Pty) Ltd (‘Feedmill’),
trading as Capital Oils Mills, carried on the business of
manufacture,
distribution and storage of edible oil and related
products in Pietermaritzburg. In terms of an ‘assets all risks
policy’ the
appellant, Guardian National Insurance Company Limited
(‘Guardian’), insured Feedmill against loss of or damage to
property
owned by Feedmill or in its custody or under its control.
[5] Feedmill had three large tanks on its property which were
designed for the storage of palm olein oil. This kind of oil is
either solid or very viscous at room temperature and needs to be
heated to about 50 or 60 degrees in order to be easily pumped.
To
that end, heating coils consisting of an arrangement of pipes were
laid just above the floor of each tank, to carry steam to
heat the
oil in the tanks. The networks of pipes making up the heating coils
were assembled outside the tanks and pressure tested
there. The
heating coils were then lifted by crane into the tanks. Once the
coils were in position inside the tanks, the links
between the steam
inlet and outlet in each tank were welded. The coils were then
pressure tested again. There are 154 welded joints
in each of two
tanks and 153 welded joints in the third.
[6] During July 1996, Feedmill established that a large quantity of
palm olein oil in two of its storage tanks had been contaminated
by
water, evidently through steam leaking from the pipes comprising the
heating coils. As a result of the contamination of the
oil by water,
it was no longer fit for use in the manufacture of margarine, as had
been intended. In mitigation of its loss, Feedmill
used the oil in
the manufacture of soap.
[7] Feedmill notified Guardian of its loss. After investigations had
been conducted on its behalf by two loss adjusters, Mr Escott-Watson

and Dr Garforth, Guardian repudiated liability for the claim, relying
on the exclusion in the policy of damage caused by ‘contamination

or pollution’. Feedmill then instituted action against Guardian in
1998. Feedmill was, however, subsequently liquidated and the

respondent, Springgold Investments (Pty) Ltd (‘Springgold’), as
cessionary of Feedmill’s claim against Guardian, was substituted
as
plaintiff in the action.
[8] Springgold sought to get around the exclusion clause in respect
of contamination by pleading that the introduction of steam
into the
oil was caused by ‘malicious damage to the said heating coils
carried out by a person or persons, the identity of whom
is to the
plaintiff unknown’. The alternative basis of its claim (malfunction
of the heating coil system) was subsequently abandoned.
[9] The hypothesis advanced by Springgold was that one or more
persons gained entry to each of the relevant tanks when it was empty

and, using either a gas welding torch or a small diameter carbon arc
rod, proceeded deliberately to make holes in the pipes so
that steam
would escape and contaminate the oil. In other words, sabotage, a
cause falling within the ambit of the policy.
[10] Although initially disputed, during argument before the court
below Guardian ultimately conceded that it would be difficult
to
resist the proposition that, if the holes in the steam pipes were
caused by sabotage, those acts of sabotage were the proximate
cause
of the damage to the oil. So too, before this court, Guardian
approached the appeal on the basis that, if Springgold had

established sabotage, then it would be ‘likely to succeed’ in the
appeal. But, if sabotage had not been established, then contamination

was the proximate cause of the damage to the oil and Springgold must
fail. The fate of the appeal thus depends on whether or not
sabotage
had been established.
Evidence
[11] Springgold accepted that it bore the onus of proving that the
holes in the pipes had been caused by sabotage. In order to
discharge
this onus, Springgold led the evidence of two experts, Mr Nimmo and
Mr Bodger, both mechanical engineers. Mr Nimmo was
engaged by
Springgold in early September 1997 to investigate the failure of the
steam heating coils. He went into all three tanks
and visually
inspected every single weld. This visual inspection revealed that, in
Tank 1, there were apparently four holes of
about one millimetre in
diameter, each in the heat affected zone adjacent to a weld, two of
which were on straight sections of
the pipes and two on bends. The
two straight sections of pipe with the holes were cut out and sent to
the Metallurgical Laboratory
of the Department of Mechanical
Engineering at the University of Natal, Durban, for microscopic
analysis. According to Mr Nimmo,
there was no evidence of any repair
work having been done on the welds in Tank 1.
[12] By the time Mr Nimmo conducted his investigation, the ‘weld
failures’ in Tanks 2 and 3 had already been repaired. Mr Nimmo

found 17 such weld repairs (randomly scattered) in Tank 2 and four in
Tank 3 (these four all being on the first bend on the incoming
steam
line).
[13] In respect of Tank 1, the microscopic analysis of the two
straight sections of pipe revealed one hole in each positioned
similarly at the edge of the butt weld. The ‘hole’ in the one
section had not, however, fully penetrated the wall of the pipe.
The
microscopic analysis was carried out by a Mr Bartholomew, but as he
had passed away prior to the trial, Mr Bodger testified
to Mr
Bartholomew’s report and the photographs attached to it. Both the
report and the photographs were also annexed to Mr Nimmo’s
report
and much of his evidence related to conclusions to be drawn from an
examination of the photographs.
[14] According to Mr Nimmo, his examination of the holes in Tank 1
‘from the outside’ did not lead him to suspect sabotage.
The
first time he had thought of sabotage was in his discussion with Mr
Bartholomew after the latter ‘had ascertained that the
line of the
hole was away from the weakness, the line of weakness’. In his
report, Mr Nimmo stated the following in this regard:
‘
The weakest part of a weld
join is the heat affected zone, ie the area alongside the welded join
where the two different metals
mix and fuse. Any natural attack, eg
corrosion, erosion or cracking, in a weld join, would most likely
occur along this zone line.
It is clear from these photos [the
photographs of the microscopic examination of the holes attached to
Mr Bartholomew’s report]
that the direction of the holes does not
follow any natural line of weakness, but rather they move away from
the weak points into
the parent pipe material.’
[15] Counsel for Guardian submitted, correctly in my view, that from
Mr Nimmo’s evidence and from a consideration of Mr Bartholomew’s

report, as testified to by Mr Bodger, it is clear that the path of
the holes is central to the proposition that these holes were
the
result of sabotage. However, an examination of the photographs
showing the penetration into both samples of pipe analysed does
not
support the conclusion that the ‘line of the hole was away from the
weakness’. In respect of the fully penetrating hole,
the
penetration is in fact perpendicular, ie not away from the heat
affected zone of the weld join, but equally not towards it.
In
respect of the second ‘hole’, which had not fully penetrated the
pipe, the angle of penetration is actually towards the
weld. Indeed,
Mr Bodger conceded in cross-examination that the penetration was
‘more or less straight downwards’ and that,
as regards the second
hole, ‘the indentation here actually ate away some of the welding.
It goes into the welding a little bit
and eats some of the welding
away.’
[16] From the expert evidence, it cannot be disputed that there
was
a second application of heat to the two weld joins which were
examined by Mr Bartholomew and that this second application of heat

was deliberate. Both Mr Nimmo and Mr Bodger denied the possibility
that this second application of heat might have occurred in
the
course of a botched attempt to repair or neaten the original welding
work. However, contrary to Mr Nimmo’s report, it is
clear from Mr
Bartholomew’s photographs that there
had
been at least one
attempt at repairing or neatening a weld join in Tank 1, by applying
an extra weld run to an existing weld, thereby
causing changes in the
microstructure of the surrounding metal due to the applied heat.
These changes are identical to those commented
on by Mr Nimmo and Mr
Bodger in respect of the metal surrounding the weld joins where the
holes had been found. Furthermore, as
regards Tank 2, one of the 17
weld repairs identified by Mr Nimmo was already present when Mr
Escott-Watson examined the heating
coils in Tank 2 in October 1996,
but the pressure tests conducted by him on the coils in Tank 2 showed
that water was not escaping
through this weld join. This would also
seem to indicate that repairs had been carried out in Tank 2 before
the later repairs made
to remedy the holes in Tank 2 through which
steam escaped into the oil.
[17] Both Mr Nimmo and Mr Bodger initially maintained that the holes
in the samples analysed by Mr Bartholomew had been made using
a gas
welding torch. In this regard, Mr Nimmo explained that –
‘
. . . the reason is that a
gas welding torch is more portable
–
I
mean there is a lot of logistic reasoning, if you were going to go in
there with an arc welding you would have to have electricity
supply
from a nearby power point, you would have to have a supply cable of
100/150 metres, you would have to have wheeled your
welding machine
down to the entrance of the tank and you would then go in to a
completely steel vessel with your electric cable,
all of those things
tell me that somebody wishing to do this undetected would find it
difficult, whereas if you get a portable
welding torch you can get a
gas cylinder about the size of a fire extinguisher and that is quite
portable, you can walk in there
with that thing and operate within
the tank.’
[18] Mr Nimmo conceded, however, that ‘metal spatter’ would not
occur with a gas welding torch being used to make a hole as
there
would be no deposit of metal around the hole. Metal would only be
deposited if an arc welder was used. When his attention
was drawn to
the presence of metal spatter in the vicinity of both holes revealed
by Mr Bartholomew’s report and photographs,
he conceded the
possibility that the holes were made using an (electric) arc welder,
but stated that the diameter of the welding
electrode used would have
had to be very thin. Later on during his cross-examination, he denied
that the holes might have been
made in the course of a botched
attempt to repair existing welds, giving as his reason for this
denial the fact that there was
no deposit of metal around the holes.
At this stage, he appeared to have forgotten about or ignored the
presence of metal spatter
in the vicinity of both holes appearing
from Mr Bartholomew’s report and photographs.
[19] Similarly, when Mr Bodger was asked in cross-examination whether
he could exclude the possibility that the holes were the
‘unfortunate
product of some rather inept work’ by one or more of the welders
who had originally worked on the heating coils,
his response was the
following:
‘
Yes, I would say so, because
the welder would have been using an electric arc, and he would have
been using a welding rod. He couldn’t
make that hole with a welding
rod, because a welding rod deposits metal. He would have had to
change either to a carbon rod, which
doesn’t deposit, or just use
gas.’
Here too, the presence of metal spatter in the vicinity of both holes
revealed by Mr Bartholomew’s report and photographs appears
to have
been overlooked.
Conclusions
[20] In my view, in light of the inconsistencies highlighted above,
an overview of the evidence given by Mr Nimmo and Mr Bodger
does not
exclude the reasonable possibility that the holes in the two sections
of pipe examined by Mr Bartholomew were caused by
poor workmanship or
by a botched attempt to repair or neaten the original welding. Mr
Escott-Watson, the first person who had examined
the heating coils in
the tanks, testified that his impression was that it was poor welding
that had caused the holes in the pipes
and that –
‘
It’s quite easy when
welding to accidentally or on purpose, for that matter, if the
welding voltage is too high, to not complete
the weld properly and
you will end up with a hole
–
if
you stick the rod in too hard or too fast, yes, you could well end up
with a hole.’
Mr Escott-Watson was, admittedly, not an expert in welding. However,
Mr Nimmo also testified that there was evidence of welding
with too
high a current –
‘
. . . those gouge marks on
the outsides of the weld deposit material shows that he is welding
with too high an electric current
and a suitably qualified person
would not have done that, they would have adjusted the current. So,
it is a comment on the competence
of the . . . welder.’
[21] In his report, the late Mr Bartholomew was highly critical of
the quality of the welding. Thus, he considered the lack of
root
penetration on the samples analysed by him as being ‘totally
unacceptable for welded pipework carrying steam’, as well
as the
poor fit-up of the pipes being ‘unacceptable in most codes
covering welded pipe.’ In his conclusion, Mr Bartholomew
stated
that ‘the quality of the welding on the two samples of pipe
examined would be considered unacceptable to any code of practice
for
fusion welded pipework carrying steam.’
[22] As pointed out by counsel for Guardian, although the expert, Mr
Bodger, when speaking to Mr Bartholomew’s report, was a
rather
reluctant critic of the welding work, he ultimately had to concede
that Mr Bartholomew’s analysis was correct.
[23] In
Michael & another v Linksfield Park Clinic (Pty) Ltd
& another
2001 (3) SA 1188
(SCA) at paragraph 40, this court
stated the following:
‘
Finally, it must be borne in
mind that expert scientific witnesses do tend to assess likelihood in
terms of scientific certainty
. . . [The] essential difference
between the scientific and the judicial measure of proof was aptly
highlighted by the House of
Lords in the Scottish case of
Dingley
v The Chief Constable, Strathclyde Police
200
SC (HL) 77 and the warning given at 89D-E that
“
(o)ne cannot entirely
discount the risk that by immersing himself in every detail and by
looking deeply into the minds of the experts,
a Judge may be seduced
into a position where he applies to the expert evidence the standards
which the expert himself will apply
to the question whether a
particular thesis had been proved or disproved – instead of
assessing, as a Judge must do, where the
balance of probabilities
lies on a review of the whole of the evidence.” ’
1
[24] On the factual evidence in this case, sabotage of the kind
alleged by Springgold is, in my view, highly improbable. First,
it
would have been very difficult to obtain access to the tanks
undetected. Each tank is about ten metres in diameter and ten metres

high. Access to a tank (when empty) is gained through a manhole in
the wall of the tank. The manholes are secured to the side of
the
tank with very substantial 24 millimetre bolts. The shortest estimate
of the time it would take to open one of the manholes
appears to be
that of Mr Nimmo, who put it at an hour and a half to two hours if
two people were unbolting the hatch. Mr Escott-Watson
estimated that
it would probably take half a morning to remove one manhole cover,
depending on how tight the bolts were, while
Mr Essack, a director of
Springgold who testified at length during the trial, expressed the
view that it would take at least half
a day to unbolt and remove a
single manhole cover.
[25] The three storage tanks were situated near the north-western
corner of the plant, the only entrance to which at that time
was at
the south-eastern corner, a considerable distance away from the
tanks. Feedmill’s soap plant lay immediately to the north
of the
three tanks and its margarine facility ranged to the east/south-east
of the tanks. According to Mr Essack, at the time of
the discovery of
the loss in 1996, the soap plant ran either five or seven days a
week, 24 hours per day, while the margarine plant,
depending on
orders, sometimes worked a day shift and sometimes 24 hours per day.
There was both internal and external security
at the plant,
comprising about six or seven security guards per shift. The plant
was properly fenced, with brick walls, razor-wire
fences and a gate.
Because both plants ran night shifts at times, the whole area was
well lit.
[26] I agree with the submission by counsel for Guardian that, given
these facts, the prospect that saboteurs could gain entrance
to the
plant, traverse the entire length of it to get to the tanks, remove
the manhole covers in full view of the soap and margarine
plants and
the employees in that area, make holes in the pipes inside the tanks
and then re-seal the manhole covers, again in full
view of others, is
extremely remote. It is also highly improbable that saboteurs would
go to the trouble of making about 21 tiny
holes scattered in a random
manner through the three tanks when, on the evidence, there were
considerably simpler and more effective
means of sabotaging the tanks
so as to contaminate the oil contained in them.
[27] In explaining his conclusion that the holes in the pipes had
been maliciously caused by persons unknown, Patel J stated the

following:
‘
In reaching this conclusion I
am alive to the fact that the plant was securely guarded. Further
there may have been easier methods
than the one used to sabotage the
plant. Although it may have been difficult and time-consuming to
obtain access to the tanks,
it is not improbable that the damage may
have been caused shortly after the tanks were pressure tested by the
very persons who
did the welding and subsequent repairs. Considering
the evidence of Mr Haroun Essack and especially his demeanour in
court, and
without wanting to be uncharitable to him, he would in my
view not have been an easy task master to work with. Just like
necessity,
perversity is also a mother of invention.’
[28] That hypothesis is simply not supported by the evidence. As
counsel for Guardian pointed out, if there was any suspicion that
the
welders might have been disposed to do what Patel J speculated, Mr
Essack, who was in charge of the whole plant at all relevant
times,
would certainly have said so. On the contrary, Mr Essack testified
that the welders were local people, well known to Mr
Essack and his
staff –
‘
Local people we knew. They
always come around looking for work. If there’s any work for
fabrication, if there’s any work for
construction, they were the
guys who would move around . . . people who had worked for me since
I started Capital Oil, in and
out, Whenever I wanted them, they were
available.’
Moreover, Mr Essack was adamant that the welders were properly
qualified – ‘they were coded welders and they were qualified

boilermakers’ – and he described at length the careful and
meticulous process employed by them, stating that the end product,

after the final pressure testing, was ‘perfect’.
[29] No motive having been attributed to the welders in the evidence,
or any finger of suspicion pointed at them, Mr Essack was
not asked
whether, as one would have expected, the manhole covers were
immediately secured after the internal work in the tanks
had been
completed. His evidence was certainly not to the effect that the
tanks were left open for any length of time, giving the
welders the
opportunity to return undetected and surreptitiously make random
holes in the pipes after the welding work had been
completed, or
giving someone else an opportunity to gain access to the tanks and
inflict the damage without having to remove and
replace the manhole
covers.
[30] Springgold thus failed to discharge the onus of proving that, on
the balance of probabilities, the holes in the pipes through
which
steam leaked into and contaminated the palm olein oil were the result
of sabotage. After all, the expert evidence was the
high water mark
of Springgold’s case in support of its asserted hypothesis of
sabotage. As I have shown, that evidence, which
admits of other
reasonable inferences, falls short of tipping the probabilities in
its favour. This conclusion renders it unnecessary
for me to deal
with the numerous inconsistencies and contradictions in Mr Essack’s
evidence, or to address the issue of whether
Guardian managed to
establish that Springgold’s benefits under the policy stood to be
forfeited as a result of the employment
by Springgold of fraudulent
devices in making the claim.
Order
[31] The following order is made:
1 The appeal is upheld with costs.
2 The order of the court below is set aside and substituted as
follows:
‘The plaintiff’s claim is dismissed with costs.’
_________________
B J VAN HEERDEN
JUDGE OF APPEAL
APPEARANCES:
For
Appellant: P J Olsen SC
Instructed
by: Deneys Reitz
Durban
Webbers
Bloemfontein
For
Respondent: S R Mullins SC
Instructed
by: Shepstone & Wylie
Durban
Matsepe
Inc
Bloemfontein
1
See further in this regard, D T Zeffertt, A P
Paizes & A St Q Skeen
The South
African Law of Evidence (formally Hoffmann and Zeffertt)
(2003)
at 305-306.