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[2001] ZASCA 66
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Isando Foods (Pty) Lrd v Fedgen Insurance Company Ltd (394/99) [2001] ZASCA 66; [2001] 4 All SA 62 (A); 2001 (3) SA 1278 (SCA) (23 May 2001)
reportable
case no: 394/99
In the matter between:
ISANDO FOODS (PTY) LIMITED
Appellant
and
FEDGEN INSURANCE COMPANY LIMITED
Respondent
Coram
:
Hefer, ACJ, Howie, JA and Nugent,
AJA
Heard
:
4 May 2001
Delivered
:
23 May
2001
Insurance – fire – property "for which (the insured) are
responsible" – limits insurer's liability to loss sustained
by
insured.
___________________________________________________________
J U D G M E N T
___________________________________________________________
NUGENT,
A J A
:
[1]
On 13 September 1996 a fire occurred on certain
premises in Isando from which the appellant was conducting its business
extracting
and selling seed-oil. The appellant had purchased the premises
earlier that year from a company known as Epic Oil Mills (Pty) Ltd
(Epic) and
was occupying and using it in anticipation of the property being transferred. A
seed-oil extraction plant, which had
been constructed on the premises by Epic
and improved by the appellant at considerable cost, was damaged by the fire.
[2]
The fire occurred during the currency of a policy of fire insurance
that was issued by the respondent in favour of the appellant.
The property
insured under the policy was specified in the schedule as “plant,
machinery, landlord’s fixtures and fittings
for which the insured is
responsible and all other contents excluding property more specifically
insured” situated on the premises.
The event that was insured against
(referred to in the policy as the “defined event”) was described as
follows:
“Damage to the whole or part of the property described in the schedule,
owned by the Insured or for which they are responsible
by (fire, lightning or
thunderbolt, explosion or such additional perils as are stated in the schedule
to be included).”
[3]
The appellant sued the respondent in the Transvaal Provincial
Division to recover under the policy the cost of reinstating the extraction
plant and various further losses alleged to have been sustained as a result of
the damage. The respondent resisted the claim on
a number of grounds. Amongst
other things the respondent denied that the damage to the extraction plant
constituted a defined event
as contemplated by the policy more particularly
because (so the respondent contended) the extraction plant was not property for
which
the respondent was responsible at the time the fire occurred. At the
commencement of the trial the learned judge directed that the
question whether a
defined event had occurred should be determined separately from the remaining
issues in the action. Ultimately
he found for the respondent and he dismissed
the appellant’s claims but granted the appellant leave to appeal to this
court.
[4]
The extraction plant was not owned by the
appellant at the time the fire occurred and the debate in the court below and in
this court
centred upon whether it was property “for which the insured
(was) responsible”. When phrased in those terms the question
is
misleading because it suggests that the enquiry is whether the extraction plant
itself was an item insured under the policy.
That is not what the policy
means. All the items specified in the schedule (which includes the extraction
plant in question) were
insured under the policy. The effect of the phrase
“for which they are responsible” is rather to limit the insurance
to
the insured’s interest in the insured items.
[5]
As pointed
out by the learned judge in the court
a quo
the phrase “for which
they are responsible” was introduced into English insurance practice in
order to restrict the liability
of the insurer to the loss that is suffered by
the insured. In
The North British & Mercantile Insurance Company v
Moffat & Another
(1871) 7 LR 25
(CP), which concerned a policy that
insured “merchandise ... the assured’s own, in trust or on
commission for which they
are responsible,” Keating J observed (at 31)
that:
“In
London and North Western Ry. Co. v Glyn
[120 ER 1054]
Erle and
Hill, JJ., had thrown out that if insurance companies wished in future to limit
their responsibility to the responsibility
of the assured, they must employ
express words to that effect. It seems to us that the present plaintiffs have
done so in this policy."
[6]
In
Engel v Lancashire
& General Assurance Company, Limited
(1925) 21 Lloyds R. 327 (KB) that
decision was considered to have held that the words limited the insurance to the
insured’s
interest in the goods. Support for that construction was found
in the following
obiter dictum
of the Master of the Rolls in
North
British and Mercantile Insurance Company v London, Liverpool, and Globe
Insurance Company
5 Ch 569
at 578:
“... the insurance company who have insured
Barnettt & Co
.
against liability (for they have only insured them for goods held in trust or
for which they are responsible, and it is therefore
an insurance in terms
against liability) ...”
[7]
It was submitted by
Mr van der Linde SC for the appellant that the phrase "for which the assured are
responsible" merely describes
the insured's insurable interest in the subject
matter of the insurance which was the appellant's potential liability for loss
while
the property was under its control. I do not think the phrase was
intended to be merely descriptive of the insurable interest in
the property for
then it would serve no functional purpose. Nor, I might add , do I think the
phrase purported to identify which
property was insured with reference to
whether the insured was potentially liable for its loss. That construction
(which was the
construction that was rejected in
Engel's
case) would seem
to me to introduce such vagueness as to the identity of the property insured
that it could not have been intended
by the parties.
[8]
I agree
with the learned judge in the court
a quo
that the words in the present
policy have been used with the same intention and effect as they have been used
in English practice
which is to limit the
extent
to which the goods are
insured rather than to describe the insurable interest or to define the goods
that were insured. What was
insured was the specified property but only to the
extent of the insured's responsibility for damage or loss (i.e. to the exclusion
of the interest of the owner). I can see no other meaningful construction to
place on the phrase in the context in which it occurs.
[9]
The
question then is whether the appellant can be said to be
“responsible” for the damage that occurred in the present
case.
More often than not a person who has been entrusted with the property of another
will be responsible to the owner for damage
to the property in the sense of
being “answerable (or) accountable” (Oxford English Dictionary) to
the owner for the
damage. For example when property is held under a contract
of lease, or pledge, or bailment, or loan, the custodian is answerable
or
accountable to the owner for damage unless it was not caused by his fault
(
Frenkel v Ohlsson’s Cape Breweries Ltd
1909 TS 957
at 962) which
means, in effect, that he is responsible to the owner for damage caused by his
negligence or the negligence of those
for whose conduct he is responsible. I
can see no reason, however, why the word should be restricted to pecuniary loss
that falls
upon the shoulders of the insured indirectly as in those cases.
Bearing in mind particularly the context within which the phrase
occurs it seems
to me that it does not stretch language unduly to say that the insured is
“responsible” for loss that
falls directly on himself. I do not
think that accountability to a third person is necessarily required. All that
is required
is that the loss should fall ultimately on the
insured.
[10]
The learned judge in the court
a quo
appears
to have held that the loss in the present case did not fall on the appellant but
rather on the owner of the property and
for that reason he dismissed the
appellant’s claims. To consider that aspect of the matter it is
necessary to set out in
more detail the circumstances in which the appellant
came to be in occupation of the premises at the time the fire occurred.
[11]
The premises (including the extraction plant) were sold by Epic to a
certain Mr Muller or his nominee on 4 January 1996. The agreement
of sale
provided for a deposit to be paid by the purchaser upon conclusion of the
agreement, and for the balance of the purchase
price to be paid upon
registration of transfer of the property. A guarantee for the payment of that
sum was required to be furnished
by the purchaser within thirty days of the
agreement being concluded. The agreement, which was in standard form with
modifications
in manuscript, contained the following clause
3:
“On registration of transfer, possession and the risks of ownership shall
pass to the purchaser, from which date the purchaser
shall receive all benefits
from and be responsible for all rates and taxes levied upon the property and the
purchaser shall refund
to the seller any rates and taxes paid in advance of that
date.”
(The latter part of the clause was modified by a further manuscript clause which
cast the responsibility for payment of rates and
taxes upon the purchaser with
effect from 1 January 1996 but that is not important). The agreement also
provided that:
“ ... occupation of the property, shall be given to the purchaser on 1
January 1996 by which date the seller or other occupier
shall be obliged to
vacate the property.”
[12]
The deposit was paid and Mr Muller took occupation of the property
on the day that the agreement was concluded. Presently a guarantee
securing
payment of the balance of the purchase price was furnished and in the normal
course the property would have been transferred
to the purchaser within weeks.
Before that occurred, however, Epic became aware that Mr Muller intended
nominating a business competitor
as the purchaser of the property and Epic
attempted to resile from the agreement. Meanwhile Mr Muller nominated the
appellant
(which was indeed a business competitor) as the purchaser and the
appellant took occupation of the premises as it was entitled to
do. Protracted
litigation followed with Epic alleging that the agreement was invalid and the
appellant resolutely asserting its
validity. While this continued Epic naturally
refused to transfer the property and the appellant remained in occupation. The
dispute
was ultimately resolved but that was only after the fire had occurred.
The nature and course of the dispute between Epic and the
appellant are not now
relevant and it is sufficient to say that on the evidence before us the
agreement of sale was at all times
valid and binding notwithstanding
Epic’s assertion to the contrary.
[13]
Generally, when property is sold the risk that
the property might be damaged passes to the purchaser once the sale is perfected
even
though delivery has not yet taken place but that does not mean that all
risk passes to the purchaser irrespective of how it is caused.
The risk that
passes upon sale is the risk of damage through no fault of the seller. In other
words it is only the risk of damage
by
vis major
or
casus
fortuitus
or damage caused by third parties through no fault of the seller
that passes to the purchaser (Pothier
Sale
53, 54, 56, 57; Voet 18.6.2;
Frumer v Maitland
1954 (3) SA 840
(A) 845 C-D; Wille’s Principles
of South African Law 8
th
ed by Hutchison 533; Lee and Honoré:
The South African Law of Obligations 2
nd
ed par 240).
[14]
In the present case clause 3 of the agreement of sale provided
that “on registration of transfer ... the risks of ownership
shall pass to
the purchaser”. That clause did no more than prevent those risks from
passing that would otherwise have passed
upon perfection of the sale. It did
not purport to confer greater risk upon the seller than it already had. Nor, by
the same token,
did it purport to absolve the appellant of any risk that it
might assume. Upon taking occupation of the property in anticipation
of
becoming the owner it must follow, in my view, that the appellant assumed the
risk of damage to the property caused by its own
fault (or that of third persons
for whose conduct it was responsible) for that was not a risk that the seller
took upon itself.
If delivery of the property had been tendered to the
appellant after it had been damaged by the appellant’s fault the appellant
could hardly have been heard to say that the seller was obliged to make good the
damage. The loss would of necessity have fallen
upon the appellant for no
reason but that the risk of it occurring was not assumed by the seller. In my
view that would indeed
be a loss for which the appellant would be
“responsible” for purposes of the policy. I do not think the loss
is any
different in principle from the loss which is sustained by a lessee, or a
pledgee, or any other custodian of property of another
if the property is
damaged by fault on his part.
[15]
Mr Burger SC for the
respondent submitted that the policy could not have been intended to insure
against the risk of loss of that
nature because that would be in conflict with
General Condition 3 which provides that “the insured shall take all
reasonable
steps and precautions to prevent accidents or losses.” The
effect of construing the insuring clauses to include loss caused
by negligence,
it was submitted, would at the same time negate the insurance because it would
conflict with that condition. That
seems to me to beg the question what is
meant by the insuring clause. If, properly construed, it insures against
negligence (and
in my view it does for I can see no other meaning) then the
condition must necessarily be construed in another way for otherwise,
as pointed
out by Lord Goddard in
Woolfall & Rimmer, Ltd v Moyle
[1941] 3 AER
304
(CA) at 311:
“...it would follow that the underwriters were saying, ‘I will
insure you against your liability for negligence on condition
that you are not
negligent,’ ...”
He went on to say of such a
clause that:
“It is a condition which is put in for the protection of the underwriter,
or perhaps one might say to limit the field of the
underwriter’s liability
to the extent that he is saying: ‘I will insure you against the
consequences of your negligence,
but understand that I am insuring you on the
footing that you are not to regard yourself, because you are insured, as free to
carry
on your business in a reckless manner. You are to take those reasonable
precautions to prevent accidents which ordinary business
people take. That is
to say, you are to run your business in the ordinary way, and not in a way which
invites accidents.’”
(See
Bates & Lloyd
Aviation (Pty) Ltd & Another v Aviation Insurance Co
1985 (3) SA 916
(A)
937 A-B)
[16]
All that remains, then, is to determine whether it
has been shown that the damage now in issue fell within the terms of the
insurance
as I have construed it. It was for the appellant to bring its claim
within the four corners of the policy. That required it to
establish that it
was responsible for the damage in the sense that the loss fell upon itself and
not upon the owner. That it could
do only by establishing that the fire was
not due to fortuitous causes or the acts of third parties for which the owner
bore the
risk. The evidence goes no way at all to establishing the cause of the
fire let alone that the loss fell upon the appellant. In
those circumstances,
in my view, the appellant’s claims were bound to fail and they were
correctly dismissed.
The appeal is dismissed with costs including the
costs occasioned by the employment of two counsel.
__________
R W Nugent
Acting Judge
of Appeal
Hefer ACJ)
Howie JA) concur