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[2015] ZAGPPHC 757
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Mechanised Equipment Sales (Pty) Limited v Lion of Africa Insurance Company Limited (32874/2013) [2015] ZAGPPHC 757 (14 August 2015)
IN
THE HIGH
COURT
OF
SOUTH
AFRICA
(GAUTENG
DIVISION,
PRETORIA)
CASE
NO: 32874/2013
DATE:
14/8/15
IN
THE MATTER B
ETWEEN:
MECHANISED
EQUIPMENT SALES (PTY)
LIMITED
PLAINTIFF
and
LION
OF AFRICA INSURANCE COMPANY
LIMITED
DEFENDANT
JUDGMENT
KOLLAPEN
J:
Introduction
and background
1.
The plaintiff who conducts the business of renting out of tower
cranes for use in the construction industry, has issued
summons
against the defendant seeking payment of the sum of Rl 990 000-00 as
indemnification arising out of a contract of insurance
with the
defendant and following an incident on the 19th of January 2012 when
a mobile crane, the property of the plaintiff, was
damaged.
2.
The defendant, while admitting the existence and validity of the
contract of insurance,
declined liability on the basis that the
events and circumstances giving rise to the damage to the mobile
crane fell outside the
scope of the insurance cover that governed the
relationship between the parties.
3.
The parties were able to reach agreement on much of the factual
issues that underpinned the
dispute and the matter proceeded by way
of a stated case in terms of the provisions of Rule 33 of the Rules
of the above Honourable
Court.
The
facts agreed upon
4.
The parties, as described in the particulars of claim, entered into a
written agreement of insurance on the 25th of February
2011 which was
regulated by, and consisted of, the following documents:
i.
A two page 'Confirmation of Renewal' document (Annexure A);
ii.
A schedule and supplementary schedule (Annexure B);
iii.
A two page set of annexures (Annexure C);
iv.
A contract works and public liability insurance policy wording
(Annexure D).
5.
At the time of contracting the parties were aware of the following
background facts, as described in the Written Statement:
5.I
The Plaintiff s business was that of the renting out of tower
cranes
for use on construction sites in the construction industry;
5.2
Tower cranes would be transported to the construction sites in
modular
sections on semi-trailers, and then assembled on site and, at
the close of the contract, disassembled on site and transported back;
5.3
The assembly and disassembly of the tower cranes involved the use
of
hydraulic mobile cranes owned by the Plaintiff;
5.4
The mobile cranes would be driven to the construction sites for
the assembly and disassembly of the tower cranes,
and then driven
back from the construction sites thereafter.
6.
The insurance agreement contains the following relevant provisions:
6.1
"INSURED
CONTRACTS
6.1.1
All contracts and work commenced after inception of this Policy
or work undertaken by the Insured for which the
Insured has agreed to
effect insurance more specifically defined as:
REPAIRS
TO AND RETURN OF MOBILE AND TOWER CRANES AND PASSENGER/GOODS LIFTS
BELONGING TO THE INSURED OR OTHERS FOR WHICH THE INSURED
IS LEGALLY
LIABLE IN TERMS OF CONTRACT CONDITIONS" ("the schedule
cover provision");
6.1.2
that the indemnity in respect of mechanised equipment contracts was
limited to the sum of R2 000 000,00;
6.1.3
that the applicable deductible in the event of a claim under the
contract works section of the insurance agreement
amounted to RI O 000,00;
6.2
"INDEMNITY
CLAUSE
The
Company
will
indemnify
the
Insured
against physical loss
of
or damage to
an
y
part of
the
Property Insured
a.
Whilst
in
transit
including
loading
and
unloading
or
whilst temporary stored
at any premises
en route
to or
from
the
Contract Site
within the
Territorial
Limits
b.
From the time of unloading at the Contract Site and thereafter
until the Property
Insured
has
been officially
accepted
by the
Employer and
becomes
his responsibility
by means
of a notice
of completion
certificate or
similar evidence of
legal
transfer of
risk
c.
During
the contractual defects liability or
Maintenance Period which shall not exceed the
period
reflected
in the Schedule
but only
insofar as the Contractors and/or Sub-Contractors may be liable
for such loss
or
damage under
the
defects
liability
or
maintenance condition/s of
the
Insured
Contract";
6.3
"PROPERTY
INSURED
The
Contract works
(including free issue material
if
applicable)
to be undertaken
in
terms
of the Insured
Contracts
including
all
temporary works
erected
or
in the course
of
erection and all materials
and
other
thingsfor incorporation
therein.
'Temporary
works' shall include all construction aids equipment, structures or
works (not being part of the permanent works) the
value of which has
been included in the contract price or intendedfor use on the insured
contract and which:
a.
Do not comprise mobile plant
b.
Are not intended to be removed from the Contract Site on completion
of the Contract other than scaffolding, shuttering and formwork
as
well as construction equipment specifically designed and/or
constructed for any Insured Contract and which is not intended for
immediate reuse on another contract;
c.
Have
no residual
value
at
the completion
of the
Contract
(other
than scrap value) solely
due
to their specialised
nature. "
6.4
EXCEPTIONS
"The
Company shall not be liablefor
I.
2.
Loss
of or damage
to a.
...
b.
...
c.
any item of construction plant tools or equipment (or other
plant defined herein as being "temporary works")"
("the
exclusion provision").
7.
On the 19th day of January 2012, a mobile crane:
7.I
of which the Plaintiff had at all material times been the owner;
7.2
whilst being used to place:
7.2.1
the head of a tower crane, which had been:
7.2.1.1
owned by the Plaintiff;
7.2.1.2
sold by the plaintiff to a third party ("the purchaser"),
("the new tower head");
7.2.2
onto a tower crane of which the purchaser was the owner ("the
foreign tower crane"),
("the
replacement operation"),
("the
insured mobile crane") toppled over, in consequence whereof the
insured mobile crane was damaged ("the operation
damage")
("the
incident")
8.
The Plaintiff did not rent:
8.1
the new tower head;
8.2
the foreign tower crane, to any lessee at any time material to this
action.
9.
9.1
9.1.1
The insured mobile crane did not
constitute work to
be undertaken in terms of
the replacement operation.
9.1.2
Nor did the insured mobile crane constitute a
construction aid, equipment, structure
or work:
9.1.2.1
the value of which was included in the contract price in respect of
the replacement operation; or
9.1.2.2
which was not intended to be removed from the contract site on
completion of the replacement operation;
or
9.1.2.3
which was specifically designed and/or constructed for purposes of
the replacement operation and was not
intended for immediate re-use
on another contract; or
10.1.2.4
which would, by virtue of its specialised nature, have no
residual value (other than scrap value) at the completion
of the
replacement operation.
9.1.3
The insured crane was, moreover, an item of mobile plant.
9.2
Ifthe insured mobile crane constitutes Contract Works or Temporary
Works as defined, then the replacement operation falls within
the
ambit of the exclusion provision, in consequence whereof the
liability of the Defendant to indemnify the Plaintiff:
(a)
for the operation damage;
(b)
pursuant to the insurance agreement, would be excluded in the event
of:
9.2.1
the Defendant being entitled to rely on the exclusion provision;
9.2.2
the Defendant being unable to establish that the exclusion provision
ought to be regarded as
pro
non scripto.
The
dispute
7.
While the parties are in agreement that the agreement of insurance
was intended to cover repairs to mobile cranes of the
kind
damaged on the 19th of June 2012, they are in disagreement as to the
extent of such cover. The plaintiff s stance is
that the insurance
policy covered repairs to and return of mobile cranes in their
entirety while the defendant takes the position
that the policy only
covered damage to mobile cranes when such damage occurred while the
mobile cranes were in transit or in temporary
storage while en route
from a contract site.
The
plaintiff's contentions
8.
The schedule cover provisions which are to be found in the
Supplementary Schedule describe the scope of the cover as:
'Repairs
to and
return
of mobile
and
tower
cranes
and passenger/goods
lifts
belonging
to
the
insured
or
others for
which
the
insured
is
legally
liable
in terms of contract
conditions
'.
The
parties are in agreement that this cover extends to damage to the
Plaintiff s tower cranes and mobile cranes.
9.
Notwithstanding this, the exclusion provisions of the contract
provides that the defendant shall not be liable for 'any item
of
construction plant tools or equipment (other than plant defined
herein as being 'temporary works')' and when one considers this
in
the context of the definition of temporary works provided for in the
contract, its effect is to totally exclude all cover for
mobile
cranes, which could never have been and was in fact, not the
intention of the parties.
10.
Consequently the exclusion provision, if given effect to, would
totally remove the sub-stratum of the contract the parties agreed
upon, namely to cover damage to mobile cranes. Under such
circumstances the exclusion provisions fall to be ignored in order to
give effect to the contract. To do otherwise would defeat the purpose
of the contract.
The
defendant's contentions
11.
While in agreement that the schedule cover provision afforded cover
to the plaintiff in respect of mobile cranes and tower cranes,
its
stance is that the extent of the exclusion is not to nullify the
mobile crane cover. In this regard it argues that the exclusion
as
read with the indemnity clause and the definition of property insured
would have the consequence of still providing cover
for mobile
cranes while they were in transit to and from a construction site or
whilst in temporary storage en route (to a construction
site).
12.
In its view the exclusion would accordingly not defeat the purpose of
the contract but would have the effect that both the schedule
cover
and the exclusion provision could be given effect to and there would
accordingly be no need to ignore the exclusion provision
as the
plaintiff would have the Court do.
Analysis
13.
The resolution of the question of law in dispute essentially involves
the interpretation to be given to the contract of insurance
entered
into between the parties. As such it may be useful to restate the
approach to interpreting documents as crystallised by
our Courts over
time.
14.
In
FEDGEN
INSURANCE
LTD
v
LEYDS
1995 (3) SA 33
(AD), the Court held that:
'The
ordinary
rules
relating to
the
interpretation
of
contracts must be
applied
in
construing
a
policy
of
insurance. A
court
must
therefore endeavour
to ascertain the intention
of the
parties.
Such intention is, in the
first
instance, 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
(Scottish Union and
National Insurance Co Ltd v Native Recruiting Corporation Ltd
1934
AD
458
at 464-5). Any provision
which
purports
to
place
a limitation upon
a clearly expressed obligation to indemnifY must be
restrictively interpreted
(Auto Protection Insurance Co Ltd v
Hanmer-Strudwick
1964
(1)
SA
349
(A)
at 354C-D); for it is the
insurer 's duty
to make
clear
what particular
risks it
wishes to
exclude
(French
Hairdressing Saloons Ltd v National Employer's Mutual General
Insurance Association Ltd
1931 AD
60
at
65;
Auto Protection Insurance
Co
Ltd v
Hanmer-Strudwick
(supra at 354D-E). 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
preferentum
rule, which requires a
written
document
to
be
construed
against
the person who
drew
it
up, would
operate
against Fedgen
as drafter
of the
policy
(Kliptown Clothing Industries (Pty) Ltd v Marine
and Trade Insurance Co of SA Ltd
1961
(1) SA 103 at
108C).'
(at page 38A-E)
15.
In
SCOTTISH
UNION
&
NATIONAL
INSURANCE
CO.,
LTD
v
NATIVE
RECRUITING CORPORATION, LTD
1934 AD 458
the Court held that:
'If,
however, the ordinary sense of the words necessarily leads to some
absurdity or some repugnance or inconsistency with the rest
of the
contract,
then the Court may modify the word
s
just
so much as to
avoid that absurdity
or
inconsistency but no more'
.
(at page 465 to 466)
16.
Finally In
NATAL JOINT
MUNICIPAL
PENSION FUND
v
ENDUMENI
MUNICIPALITY
2012 (4) SA 593
(SCA)
WALLIS
JA summarised the present state of our law with regard to the
interpretation of documents, including legislation, as follows:
'Interpretation
is the
process
of attributing
meaning to the words used
in a
document,
be
it legislation,
some
other
statutory
instrument,
or
contract, having regard
to the
context provided
by reading
the
particular
provision or
provisions
in the light of the document as a whole and the circumstances
attendant
upon its
coming into
existence.
Whatever the nature of the document,
consideration
must be given
to the
language used in light of the ordinary rules of grammar
and
syntax;
the context
in which
the
provision appears;
the
apparent
purpose
to
which
it
is
directed
and
the
material known to those responsible
for
its
production. Where
more than
one meaning i
s
possible
each
possibility
must be weighed in the light of all
these
factors.
The
process
is objective, not subjective. A sensible meaning is to be
preferred
to one that leads to insensible or
unbusinesslike
results or undermines the apparent
purpose
of the document. Judges must be alert
to, and guard
against,
the
temptation
to substitute
what
they regard
as reasonable, sensible or
businesslike
for
the words actually used.
To
do so in regard
to a statute
or
statutory
instrument
is to cross
the divide
between interpretation and
legislation; in
a
contractual context it
is
to
make
a
contract
for
the
parties
other than the one they infact
made. The
'inevitable
point
of departure
is the
language
of the provision
itself', read
in context and
having
regard
to the purpose
of the provision
and
the background
to the
preparation
and
production of the
document.'
(at 603F-604D)
17.
The crisp question for determination is whether the insured
mobile crane constitutes the Contract Works or Temporary Works
as
defined. If it does then the exclusion can be reconciled with the
cover provisions. If it does not then the exclusion nullifies
the
cover provision, would not be reconcilable with the cover provisions
which in such event would have the result that the exclusion
provision would have to be jettisoned in favour of the cover
provisions in order to give the contract of insurance meaning and
purpose.
18.
In this regard the plaintiff concedes that if the mobile crane can
definitionally be included in the Indemnity Clause read with
the
definition of the Property Insured, then the exclusion clause will
not nullify the purpose of the contract, while on the other
hand the
defendant makes a similar concession that if the mobile crane cannot
be definitionally included in the Indemnity Clause
read with the
definition of Property Insured, then the exclusion clause will have
the effect of nullifying the purpose of the contract.
19.
The exceptions to the policy include, as provided for in Clause 2(c),
'any item of construction plant tools or equipment (other
than plant
defined herein as being "temporary works")'.
In
Section 1 titled 'Contract Works', there is an undertaking to
indemnify against physical loss or damage to any part of the Property
Insured under certain conditions. The sub-section 'Property Insured'
then proceeds to include under its scope Contract Works and
Temporary
Works. Neither Contract Works nor Temporary Works are expressly
defined and it may be useful, regard being had to the
tools and
method of interpretation to which reference has already been made, to
consider what may be the plain, ordinary
and popular meaning of
these terms.
20.
In the publication
Construction All Risks Insurance
(2014) published by Sweet & Maxwell, the learned author Paul
Reed QC in dealing with the broad area of construction insurance
makes the observation that generally
construction insurance falls into two distinct categories
-
property and liability. The former covers contract works and
materials including the cost of remedying accidental damage caused
to
physical property.
21.
In acknowledging that there exists no single generic Construction All
Risks policy wording, the learned author makes the point
that
Underwriters have developed their own policies over time in response
to changing market requirements. He however makes the
following
general observations in this regard:
a)
Every contract is to be interpreted by reference to all its terms;
b)
Where a clause (or an interpretation of a clause) would defeat the
fundamental purpose of the contract, the clause should be
rejected;
c)
Where more than one interpretation of a clause is possible, a
construction of an insurance agreement that leads to an absurd
result
must be rejected in favour of a construction that produces a more
reasonable result;
d)
In contracts where there is a mix of standard terms and bespoke
terms, and where there is a conflict between them, priority is
given
to bespoke terms.
22.
None of the above principles appear to be contentious. If anything
they accord with the principles of interpretation to which
reference
has been made.
(See
also
Sentinel
Mining
Industry
Retirement
Fund
and
Another
v
Waz Props
(Pty) Ltd
and
Another
2013 (3) SA 132
and
Principles
of
the Interpretation
of Contracts in South Africa
(2002) by S J Cornelius, published by Butterworths.
23.
In dealing with Contract works, the learned author Reed describes
these generally as follows:
insurance
falls into two distinct categories - property and liability. The
former covers contract works and materials including
the cost of
remedying accidental damage caused to physical property.
21.
In acknowledging that there exists no single generic Construction All
Risks policy wording, the learned author makes the point
that
Underwriters have developed their own policies over time in response
to changing market requirements. He however makes the
following
general observations in this regard:
a)
Every contract is to be interpreted by reference to all its terms;
b)
Where a clause (or an interpretation of a clause) would defeat the
fundamental purpose of the contract, the clause should be
rejected;
c)
Where more than one interpretation of a clause is possible, a
construction of an insurance agreement that leads to an absurd
result
must be rejected in favour of a construction that produces a more
reasonable result;
d)
In contracts where there is a mix of standard terms and bespoke
terms, and where there is a conflict between them, priority is
given
to bespoke terms.
22.
None of the above principles appear to be contentious. If anything
they accord with the principles of interpretation to which
reference
has been made.
(See
also
Sentinel
Mining
Industry
Retirement
Fund
and
Another
v
Waz Props
(Pty)
Ltd
and
Another
2013 (3) SA 132
and
Principles of
the Interpretation
of
Contracts in South Africa
(2002) by S J Cornelius,
published by Butterworths.
23.
In dealing with Contract works, the learned author Reed describes
these generally as follows:
'Permanent
Works. What constitutes the Permanent Works will usually be
straightforward, either as a matter of common sense, as set
out in
the construction contract or in a schedule to the policy. However,
more difficult questions can arise in seeking to distinguish
between
the Permanent Works and the pre-existing site. These distinctions can
be crucial, because damage to thepre-existing site
will not be
covered by the policy.
Temporary
Works. Temporary Works are those structures erected for the purpose
of building the Permanent Works but that will notform
part of the
final build. For example, on a road-construction project, temporary
drainage structures that will not be incorporated
into the final
drainage scheme would constitute Temporary Works. The definition
would also typically include any structures necessary
for access to
orfor the support of the Permanent Works, or that are required in
their construction.
Contractor
's Plant.
Insured
Property_will
also invariably include the
Contractor 's Plant,
machinery,
apparatus,
tools,
equipment
and
temporary buildings,
offices
and site
huts such
as are necessary
for the construction
of
the Works.
The
definition
will
usually
expressly
extend
to
include
all
such plant
that
is owned
by or
in the control
or custody of the
Contractor,
o
r
for
which
they are
otherwise
responsible.
There
will
often
be provision
for
the
inclusion
of
employee's
tools
and
effects,
albeit
usually
subject to
a
more modest policy
limit.
24.
Reed discusses the question of the possible overlap between items
that might be considered either Temporary Works or part of
the
Contractor's Plant. It would seem that if anything is intended to be
re-used, such as a crane, it would more readily be considered
as
Contractor's Plant. This would also accord more easily with the
definition of Contractor's Plant as including machinery, apparatus
and so forth.
That
being so it is difficult to understand how a mobile crane could
conceivably form part of the Contract Works, or the Temporary
Works
for that matter, and the stated case appears to accept this.
Temporary Works specifically excludes a mobile plant and the
stated
case accepts that the insured crane was a mobile plant.
25.
From this it must follow that definitionally there is simply no room
in the indemnity clause as read with the definition of
the Property
Insured to conceivably include the insured mobile crane. Therefore
the argument that it was covered in terms of these
provisions but
only to the limited extent contended for is unsustainable. If it was
not covered at all, which is what I am compelled
to conclude, there
can be no suggestion of a limited cover simply in order to give the
clause some relevance. That would have the
Court making the contract
for the parties, something which our Courts are enjoined not to do.
26.
A mobile crane would then, both logically and if regard is had to the
ordinary meaning of the words as well as the context in
which it is
used, form part of the construction plant, tools and equipment. Cover
for loss of or damage to these items is however
excluded by the
Exceptions provision in Clause 2(c) with the result that a situation
arises where a bespoke provision that is common
cause between the
parties - namely that the schedule cover afforded insurance cover to
the plaintiff in respect of damage to the
plaintiff s tower cranes
and mobile cranes, is not only contradicted but effectively nullified
by a standard term (the exclusion
provision).
27.
There can be little doubt, and counsel for the defendant conceded as
much in his heads of argument, that under such circumstances
where a
reconciliation is not possible, the exclusion provision is to be
jettisoned as a last resort.
28.
In the circumstances the cover provision would prevail, the
Exceptions provision would be ignored and as a consequence it would
follow that the cover provision would in fact have been operational
at the time of the damage to the plaintiff s mobile crane.
The stance
of the defendant in declining liability is not sustainable and it
must accordingly follow that judgment in the sum of
RI 999 000-00
should be entered in favour of the plaintiff.
Interest
and the date from which it is to be computed
29.
The parties were in agreement that interest at the rate of 15,5% per
annum should attach to the claim but disagreed about the
date from
which it should run. The plaintiff sought interest from May 2012,
being the reasonable date by which the defendant should
have accepted
liability for the claim. Alternatively it sought interest from the
30th of May 2013, being the date of the service
of summons. The
defendant on the other hand, argued that interest should only run
from the date of judgment.
30.
Having concluded that the repudiation of liability was not justified,
the plaintiff would have, all things being equal, been
entitled to
receive compensation during May 2012 or thereabouts.
31.
Our Courts have in numerous instances ordered arrear interest on
insurance claims and this appears to be a case where such an
order
would be justified, if not from May 2012 then certainly from May
2013, when summons was served.
32.
The parties were in agreement that the nature of the issue in dispute
warranted the employment of Senior Counsel and that costs
to be
awarded should include the costs of and associated with the drawing
up of the Stated Case as well as the heads of argument.
ORDER
33.
I accordingly make the following order:
i.
The defendant is liable to indemnify the plaintiff in the amount of
Rl 990 000-00, together
with interest thereon at the rate of 15,5%
per annum calculated from and including 30 May 2013 up to and
including the date of
payment thereof;
ii
The defendant is ordered to pay the plaintiff s costs, including the
following costs:
•
The plaintiff s costs of
employing Senior Counsel;
•
The costs of and
associated with the drawing up of the Stated Case; and
•
The costs of heads of
argument.
___________________________
N
KOLLAPEN
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA
32874/2013
HEARD
ON: 15 JUNE 2015
FOR
THE PLAINTIFF: ADV. J F MULLINS SC
INSTRUCTED
BY: SAVAGE JOOSTE & ADAMS INC (ref: N Marshall/TM/WP 85)
FOR
THE DEFENDANT: ADV. H B MARAIS SC and ADV. S STRYDOM
INSTRUCTED
BY: STRYDOM BESTER INC. (ref: JS Strydomlbg/H261/12)