THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Reportable
Case no: 197/06

In the matter between:

IMPERIAL GROUP (PTY) LIMITED

APPELLANT

and

NCS RESINS (PTY) LIMITED

RESPONDENT

________________________________________________________________

CORAM:
SCOTT, CAMERON, CLOETE, PONNAN et

MLAMBO JJA

DATE OF HEARING:
15 February 2007
DATE OF DELIVERY:
20 March 2007

Summary:  Interpretation of warehousing contract – Obligation to insure
against fire not giving rise to inference that risk of loss lay with the insured.

Neutral citation:  This judgment may be referred to as Imperial Group (Pty)
Ltd v NCS Resins (Pty) Ltd [2007] SCA 13 (RSA).

SCOTT JA/…..

SCOTT JA:

[1] The appellant carries on business as a supplier of transport and
warehousing services. In August 2000 it entered into a written contract, styled a
‘Logistic Services Agreement’, with Sentrachem Limited in terms of which it
undertook for reward to provide inter alia warehousing and transport services to a
division of Sentrachem called NCS Resins. Subsequently, Sentrachem, with the
written consent of the appellant, assigned its rights and obligations under the
contract to the respondent, NCS Resins (Pty) Ltd. I shall refer to the appellant as
Imperial and to the respondent as NCS. On about 22 March 2002 there was a
fire at Imperial’s warehouse in Wadeville, Gauteng, resulting in destruction of and
damage to NCS’s property. NCS sued Imperial for its loss in the Johannesburg
High Court alleging that the loss was due to Imperial’s negligence and breach of
contract. One of the defences raised in Imperial’s plea was that on a proper
construction of the contract, NCS, and not Imperial, bore the risk of loss by fire
and that accordingly the claim had to fail even if it were established that the fire
was caused by a breach of contract on the part of Imperial. By agreement
between the parties it was ordered in terms of Rule 33(4) that this issue was to
be disposed of first and that the other issues, including the question of Imperial’s
negligence, would stand over for later determination. Goldstein J, who heard the
matter, found for NCS but granted Imperial leave to appeal.

[2] Both parties rely upon the express terms of the contract in support of their
competing interpretations, NCS principally on clause 9.6 and Imperial on clause
11.6. Before referring to these provisions it is necessary to make certain general
observations regarding the contract and its structure so that the provisions in
issue may be understood in their contextual setting.

[3] The contract is a bulky document with many annexures and contemplates
further ‘service agreements’ which, it is recorded, are to form ‘part of this

agreement’. The contract itself is divided into chapters which deal with a complex
business relationship between the parties covering a wide range of activities
including transport, warehouse stock rotation, inventory management, decanting
and the use of computer programmes. The language used appears to be that of
businessmen rather than lawyers. It is not particularly well drafted.  Clauses are
frequently out of place and the impression created is that an initial draft was
subsequently altered by the insertion of additional provisions. The words
‘damage’ and ‘damages’ are used interchangeably and often incorrectly. Imperial
was represented by one of its divisions, IWL Warehousing and Logistics, and the
abbreviation ‘IWL’ used in the contract is in reality a reference to Imperial.

[4] Chapter 9 is headed ‘Liabilities’. Clauses 9.1 and 9.3 contain warranties
which are not relevant to the present case. Clause 9.2 is similarly not relevant
and appears to be out of place. Clause 9.4 deals with ‘damage to and/or loss of
goods during transport, including loading and unloading’. Clause 9.5 deals with
‘damages (sic) to third parties, such as but not limited to movable or immovable
goods, personal injuries, environmental damages’. Clause 9.6, being the clause
relied upon by NCS, reads:

‘In case of damages (sic) other than covered hereabove, and caused by IWL [‘s] breach of this
Agreement and corresponding Service Agreements, IWL will assume full liability except if IWL
provides the proof that this damage has been caused by NCS’ fault. IWL will assume same
liability in case its activities and services are carried out by Sub-contractors.’

It is common cause that the ordinary meaning of this clause is wide enough to
include damage by fire and, subject to any other provision to the contrary, the
clause would therefore have the effect of rendering Imperial liable for the damage
suffered by NCS in the instant case. In passing, it should also be noted that the
reference to damage ‘other than covered hereabove’ is a reference to the
damage referred to in clauses 9.4 and 9.5, being the only damage dealt with
‘hereabove’.

[5] Chapter 11 is headed ‘Insurance’. The relevant part of the introductory
clause provides:

‘IWL, its subsidiaries and potential sub-contractors shall maintain in effect the following insurance,
at their own expense, with reputable and solvent insurance Companies,  . . . .’ (Emphasis added.)

Clauses 11.1, 11.2 and 11.3 make provision respectively for ‘corporate Third
Party/Operations insurance’, ‘insurance against accidental pollution’ and ‘motor
third party liability insurance’. Clause 11.4 deals with excess clauses. Clause
11.5 deals with subrogation in relation to insurance policies taken out by Imperial.
It reads:

‘All IWL insurance policies must contain clauses whereby IWL and the insurance companies
waive their subrogation rights against NCS and the latter’s insurers throughout the duration of the
Agreement with regard to any damage or loss submitted by equipment and plant whether these
are or not owned by IWL. All IWL insurance policies will name NCS as an additional insured.’

Clause 11.6, being the clause relied upon by Imperial reads:

‘NCS will insure its stock against fire and natural disasters at their cost whilst in the IWL
warehouse.’

Clause 11.7 reads:

‘IWL will at its own cost insure the NCS stock against stock losses and theft.’

It will at once be observed that clause 11.6 is out of place in relation to the
introductory clause; it deals with insurance at the instance of NCS and not
Imperial. In clause 11.7 the word ‘will’ is used, as opposed to ‘shall’ in the
introductory clause, without any apparent reason.

[6] Imperial’s case, in a nutshell, is that clause 11.6 by necessary implication
imposes the risk of damage by fire on NCS and to this extent qualifies clause 9.6.

In other words, it is contended that clause 9.6, when read with clause 11.6, must
be construed as meaning that if the damage is caused by fire, NCS is to bear the
loss even if it is occasioned by Imperial’s negligence and breach of contract. This
construction did not find favour with the court a quo which held that by applying
the eiusdem generis rule the word ‘fire’ had to be restrictively interpreted so as to
cover only a fire which Imperial could not have controlled or prevented.
Accordingly, so the court reasoned, a fire caused by a breach of contract on the
part of Imperial was not covered by clause 11.6 and the defence raised by
Imperial had to fail.

[7] In this court counsel for Imperial criticised the court a quo for its reliance
on the eiusdem generis rule. He submitted that it was well-established that where
specific words were followed by general words the rule could be invoked, when
appropriate, to confine the general words to things of the same kind as those
specified; however, the rule could not be invoked to give a restricted meaning to
a specific word which preceded the general words. Counsel is undoubtedly
correct. See eg Rex v Nolte 1928 AD 377 at 382. Indeed, counsel for NCS did
not attempt to argue the contrary but supported the order granted by the court a
quo for different reasons. In short, counsel for NCS submit that the express
provision dealing with liability for damage, ie clause 9.6, precludes an inference
arising from clause 11.6 that NCS is to bear the risk of loss by fire and that there
is no room for the qualification of clause 9.6 contended for by Imperial.

[8] In advancing the interpretation of clause 11.6 for which he contends,
counsel for Imperial placed much reliance on Mensky v ABSA Bank Ltd t/a Trust
Bank  [1997] 4 All SA 280 (W). In that case the plaintiff had hired a safety deposit
locker in terms of a written agreement which provided (at 282f):

‘While the Bank will exercise every reasonable care for the security of the Locker Area, it is a
special term and condition of the acceptance thereof that no responsibility for loss or damage of
the contents of the Locker whether partial or total, from whatever cause, whether by theft, fire,

water, explosion, war, riot or otherwise, is accepted and that the client himself shall be
responsible to insure the contents of the locker.’ (Emphasis added.)

The locker went missing when the Bank relocated to different premises. The
court found it unnecessary to decide whether the loss following the removal of
the safety locker to other premises fell within the scope of the disclaimer as ‘in
the context of the defendant’s disclaimer clause the stipulation that the plaintiff
was to insure her goods amounted to an allocation to her of all risks or loss or
damage which could be insured against’ (at 299d).  Counsel argued that the
same meaning had to be given to clause 11.6 in the present case. In my view,
the Mensky case is distinguishable. Clause 11.6 is not to be read in the context
of a disclaimer of liability by Imperial. On the contrary, the very opposite is true.
Clause 9.6 in express terms imposes liability on Imperial. The implication sought
would therefore require a qualification to that clause. But there is nothing in the
clause itself which is indicative of such a qualification, for example, a phrase
commencing with ‘subject to . . .’ or similar words. On the contrary, as noted in
para 4 above, clause 9.6 places full liability for damage upon Imperial save for
damage ‘covered hereabove’. The clause therefore expressly precludes any
other limit to its application.

[9] Counsel for Imperial readily conceded that fire can be caused in any
number of ways not involving a breach of contract on the part of Imperial and that
it accordingly made good commercial sense for NCS to insure its property
against fire while stored in Imperial’s warehouses. He acknowledged, too, that
had clause 11.6 contained merely a recommendation that NCS insure against
fire, the clause would have been a neutral factor and would not have justified the
inference that NCS was to bear the risk of loss by fire. He referred in this regard
to First National Bank of SA Ltd v Rosenblum and another  2001 (4) SA 189
(SCA) where a clause to the effect that a client of a bank ‘should arrange suitable
insurance cover’ for the contents of a safety deposit box (para 3 at 144D) was
held to be a neutral factor and not to give rise to an inference of a transfer of risk

to the client (para 24). Counsel emphasized the use of the word ‘will’ in clause
11.6 in the present case and the obligation it imposed on NCS to insure. It was
this obligation, he submitted, that distinguished the present case from the
Rosenblum case and it was this that justified the inference that NCS was to bear
the risk of fire.

[10] As previously observed, the contract in question is essentially a
businessman’s rather than a lawyer’s contract. Clauses frequently appear to be
out of place and there is often a lack of consistency in the manner in which the
contract is drafted. Chapter 11 is itself a good example of this. In such
circumstances it is important for a court to adopt a common sense approach to
the matter of interpretation and to recognise that the parties through lack of
experience or skill in draftsmanship may use a word or language which is not
always the most appropriate. A court should therefore not be astute to draw an
inference from the use of language in one clause if that inference would be
contrary to a meaning unequivocally expressed in another.

[11] No doubt in appropriate circumstances an obligation to insure may give
rise to an inference that the party so obliged is to bear the risk. But there can be
no hard and fast rule to this effect. In each case the clause in question must be
examined in its contractual setting to determine whether such an inference is to
be drawn. In the present case clause 11.6 does not stand alone. Clause 9.6 in
express terms imposes liability on Imperial for loss, including loss by fire.
Imperial, therefore, seeks not only to draw an inference of a transfer of risk from
clause 11.6 but also to infer a far-reaching qualification of the express terms of
clause 9.6. In my view, the use of the word ‘will’ in clause 11.6 is insufficient to
justify such a construction.

[12] A final argument advanced on behalf of Imperial was that the insurance
contemplated in clause 11.6 had to be construed as being for the benefit of both
parties in the sense that each intended that both would be protected against the

loss and that accordingly NCS’s insurers who had indemnified NCS were
precluded from proceeding against Imperial by subrogation in the name of NCS.
The insurable interest which Imperial had in the loss, counsel submitted, arose
by reason of clause 9.6 which in the absence of the insurance would render
Imperial liable for the loss suffered. In support of this submission counsel relied
largely on Commercial Union Assurance Co of South Africa Ltd v Golden Era
Printers and Stationers (Bophuthatswana) (Pty) Ltd 1998 (2) SA 718 (BPD),
being a case concerning a lease which contained both a provision requiring the
lessor to insure against fire and a provision requiring the lessee to return the
premises in the same good condition as when they were received. There is much
that distinguishes the Commercial Union case from the present one but it is
unnecessary to embark upon an analysis of the former. It is enough to refer to
clause 11.5 of the contract in the present case (reproduced in para 5 above).
This clause, it will be observed, requires the insurance policies taken out by
Imperial to contain provisions in which the insurers waive their rights of
subrogation against NCS and nominate NCS as an additional insured. It is clear,
therefore, that both NCS and Imperial were alive to the benefits of insurance and
the right of an insurer to proceed by subrogation against a party responsible for
the loss covered by the insurance. Nonetheless, there is no clause in the contract
requiring similar provisions in the policies taken out by NCS. This to my mind is
the clearest indication that the parties contemplated that NCS’s insurers would
have the right to recover by subrogation any loss for which Imperial was liable
and which was covered by a policy issued to NCS. Counsel’s contention must
therefore fail.

[13] It follows that in my view clause 9.6 is not to be construed as being
qualified by clause 11.6, nor is the latter clause to be construed
as protecting Imperial as well as NCS against the loss covered by a policy
contemplated in that clause.

[14] The appeal is dismissed with costs, including the costs of two counsel.

__________

D G SCOTT

JUDGE OF APPEAL

CONCUR:

CAMERON
JA
CLOETE

JA
PONNAN

JA
MLAMBO

JA
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

IMPERIAL GROUP (PTY) LTD v NCS  RESINS (PTY) LTD
CASE NO  197/06

From :
The Registrar, Supreme Court of Appeal

Date:
20  March 2007

Status:
Immediate

Please note that the media summary is for the benefit of the media and does not form
part of the judgment of the Supreme Court of Appeal.

The SCA was called upon in this case to interpret a warehousing services
contract to determine whether the owner of the warehouse or the owner of the
property stored in it was obliged to bear the loss of the property as a result of a
fire. The owner of the warehouse pointed to a clause obliging the owner of the
property to insure. The latter in turn relied on an express provision to the effect
that the warehouse owner was liable for any damage. The SCA dismissed the
appeal holding that the Johannesburg High Court had correctly held that the
owner of the warehouse (the appellant) was to bear the loss.

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