THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

Reportable

CASE  NO: 86/2003

In the matter between :

UNITRANS FREIGHT (PTY) LTD
Appellant

and

SANTAM LIMITED
Respondent

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Before:
HOWIE P, NUGENT, CLOETE, HEHER JJA & PONNAN AJA
Heard:
15 MARCH 2004
Delivered:
29 MARCH 2004
Summary:
Extension clause in motor insurance policy – whether it obliges
insurer to indemnify authorised user of insured vehicle as
contemplated by s 156 of the Insolvency Act 24 of 1936

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J U D G M E N T
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NUGENT JA

NUGENT JA:
[1] Because this appeal concerns an exception to the appellant’s
particulars of claim I will refer to the allegations in the particulars of claim
as if they were established facts.
[2] The respondent (Santam) was the insurer of a motor vehicle that
collided with a vehicle in which the appellant (Unitrans) had an interest
thus causing loss to Unitrans. Unitrans sued Santam in the Johannesburg
High Court for the recovery of the loss. Santam excepted to the particulars
of claim on the grounds that they did not disclose a cause of action. The
exception was upheld by the court a quo (Willis J) and Unitrans now
appeals with leave granted by this court.
[3] The insured under the policy was a firm known as JG
Olieverspreiders. In terms of the policy Santam undertook (subject to
various limitations and exceptions that are not now relevant) to indemnify
the insured against, amongst other things, liability incurred by the insured
towards third parties for damage caused by a defined event. A defined
event included any accident caused by or through or in connection with the
insured vehicle.
[4] A clause in the policy (I will refer to it as the extension clause)
extended that indemnity to ‘any person who is driving or using [the]
vehicle on the insured’s order or with the insured's permission [when a
defined event occurs]’.

[5] At the time of the collision the insured vehicle was being driven by a
certain Mr Shai and it was his negligence that caused the loss to Unitrans.
Shai was employed by a close corporation known as De Kroon
Brandstofverspreiders CC (De Kroon) and he was driving the insured
vehicle in the course and within the scope of his employment. De Kroon
thus became vicariously liable to Unitrans for the loss. When the collision
ocurred De Kroon was using the vehicle with the permission of the insured.
De Kroon has since been placed under a winding up order.
[6] No doubt Unitrans thought it was futile to attempt to recover its loss
from an insolvent close corporation and instead it sought to recover it
directly from Santam in reliance upon s 156 of the Insolvency Act 24 of
1936. The section reads as follows:
‘Whenever any person (hereinafter called the insurer) is obliged to indemnify
another person (the insured) in respect of any liability incurred by the insured towards a
third party, the latter shall, on the sequestration of the estate of the insured, be entitled to
recover from the insurer the amount of the insured’s liability towards the third party [up
to the limit of the indemnity].’
[7] The section does not add to the contractual liability of an insurer. It
merely allows a person who is not a party to the policy of insurance to
recover directly from the insurer in particular circumstances. It entitles a
person who has a claim against someone who is indemnified against such
liability by an insurer to pursue the claim directly against the insurer if the
estate of the indemnified person is sequestrated. (The effect of s 66 of the

Close Corporations Act 69 of 1984 read together with s 339 of the
Companies Act 61 of 1973 is to make s 156 applicable where the
indemnified person is a close corporation that has been placed under a
winding up order : Supermarket Leaseback (Elsburg) (Pty) Ltd v Santam
Insurance Ltd 1991 (1) SA 410 (A) 411 I). Scott JA explained the purpose
and effect of the section as follows in Le Roux v Standard General
Versekeringsmaatskappy Bpk 2000 (4) SA 1035 (SCA) para 6:
‘Artikel 156 van die Wet verleen aan 'n eiser die reg om in bepaalde
omstandighede 'n bedrag direk van 'n versekeraar te vorder wat deur die versekerde aan
die eiser verskuldig is. Soos uit die artikel blyk, ontstaan die reg by die sekwestrasie van
die boedel van die versekerde. By ontstentenis van so 'n wetsbepaling sou 'n eiser in
daardie omstandighede verplig gewees het om sy eis teen die versekerde se insolvente
boedel in te dien en sou sy verhaalsreg beperk gewees het tot enige dividend wat die
kurator aan konkurrente skuldeisers moes betaal. Die kurator sou op sy beurt verplig
gewees het om ten gunste van al die skuldeisers die versekerde se reg op vrywaring uit
hoofde van die tersaaklike polis teen die versekeraar af te dwing. Die gevolg van art 156
is dus om die eiser aansienlik te bevoordeel deurdat ander skuldeisers nie in die
opbrengs van die polis kan deel nie (kyk Woodley v Guardian Assurance Co of SA Ltd
1976 (1) SA 758 (W) op 759E-G; Supermarket Haasenback (Pty) Ltd v Santam
Insurance Ltd 1989 (2) SA 790 (W) op 793C-G; Przybylak v Santam Insurance Ltd
1992 (1) SA 588 (K) op 601J-602A).’
[8] A person who wishes to recover from an insurer in reliance upon the
section must show not only that he has a good claim in law against the
insolvent person but also that the insurer is obliged in law to indemnify the

insolvent person against the claim (Le Roux’s case, supra, para 7; Coetzee v
Attorney’s Insurance Indemnity Fund 2003 (1) SA 1 (SCA) para 20).
[9] On the facts alleged in the present case Unitrans indeed has a good
claim in law against De Kroon for recovery of its loss. The only remaining
question is whether those facts establish that Santam was obliged under the
policy to indemnify De Kroon against its liability to Unitrans.
[10] The exception that was taken by Santam was misconceived at the
outset. In the relevant portion of the notice of exception it was alleged by
Santam that the particulars of claim do not disclose a cause of action
‘because no allegations are made that a contractual relationship existed between
[Unitrans] and [Santam] in terms of which [Unitrans] is entitled to rely on the contract
of insurance.’

That allegation rather misses the point.  Section 156 does not require
there to be a contractual relationship between Unitrans and Santam – it is
precisely because there is no such relationship that s 156 was enacted so as
to enable the person who has suffered the loss to pursue the claim directly
against the insurer.  What the section requires is only that the insurer is
contractually bound to indemnify the person who is liable to make good the
loss (in this case De Kroon).   Moreover, the section does not apply only
where it is the insured (the person who contracted with the insurer) who has
incurred that liability to the plaintiff, for it applies expressly whenever the
insurer is obliged to indemnify any person in respect of the liability that is
the subject of the claim.  Thus the question is not whether Santam was

obliged under the policy to indemnify Unitrans (clearly it was not) but
rather whether Santam was obliged by the policy to indemnify De Kroon
against De Kroon’s liability to Unitrans.  If the policy did oblige Santam to
indemnify De Kroon then s 156 entitles Unitrans to pursue its claim
directly against Santam now that De Kroon is in liquidation.
[11] In support of its submission that Santam was obliged by the policy to
indemnify De Kroon against its liability for the claim Unitrans relied upon
the terms of the extension clause which I referred to earlier (for it is not in
dispute that at the time the collision occurred the insured vehicle was being
used by De Kroon with the permission of the insured). It was submitted on
behalf of Unitrans, in this court and in the court a quo, that the extension
clause constitutes a stipulation for the benefit of third parties (including an
authorised user like De Kroon) – a stipulatio alteri – which conferred a
right upon De Kroon to enforce its terms.  Santam’s reply was that if the
clause is a stipulation for the benefit of De Kroon there is no allegation in
the particulars of claim that the benefit was accepted by De Kroon – a
necessary precondition for Santam to incur contractual liability to De
Kroon (McCullogh v Fernwood Estate Ltd 1920 AD 204 at 205;
Commissioner for Inland Revenue v Estate Crewe and Another 1943 AD
656 at 674-5) and that without that allegation the particulars of claim are
excipiable.

[12] Although that was not the ground upon which the exception was
taken (I referred earlier to the relevant ground for the exception) I will deal
with it nevertheless because it was advanced and argued both in this court
and in the court a quo.
[13] The learned judge in the court a quo held that the extension clause
‘does not apply to a person in the position of [Unitrans]’ and for that reason
he dismissed the exception. No doubt that finding was influenced by the
form in which the exception was presented but again, in my respectful
view, it rather misses the point: the question is not whether the extension
clause afforded an indemnity to Unitrans (if the policy had indemnified
Unitrans it would have had no need to resort to s 156) but rather whether it
afforded an indemnity to De Kroon.
[14] Although De Kroon was indeed an authorised user as contemplated
by the extension clause it does not follow that it acquired contractual rights
against Santam as submitted by counsel for Unitrans. In order for such
contractual rights to have arisen it was not enough that the clause purported
to confer a benefit on De Kroon: what was required in addition was an
intention on the part of the original contracting parties (the insurer and the
insured) that the benefit, upon acceptance by De Kroon, would give rise to
rights that were enforceable at the instance of De Kroon, for that intention
is ‘of the very heart of the stipulatio alteri’ (Ellison Kahn: ‘Extension
Clauses in Insurance Contracts’ (1952) 69 SALJ 53 at 56). In Total South

Africa (Pty) Ltd v Bekker NO 1992 (1) SA 617 (A) 625D-G Smalberger JA
expressed it as follows:
'As was pointed out by Schreiner JA in Crookes NO and Another v Watson and
Others 1956 (1) SA 277 (A) at 291B-C, "a contract for the benefit of a third person is
not simply a contract designed to enable a third person to come in as a party to a
contract with one of the other two". The mere conferring of a benefit is therefore not
enough; what is required is an intention on the part of the parties to a contract that a
third person can, by adopting the benefit, become a party to the contract. (Joel Melamed
and Hurwitz v Cleveland Estates (Pty) Ltd; Joel Melamed and Hurwitz v Vorner
Investments (Pty) Ltd 1984 (3) SA 155 (A) at 172D-E).'
[15] The intention of the contracting parties is to be determined upon a
consideration of the policy as a whole. Attached to the particulars of claim
was an extract from the policy containing the extension clause itself but we
were provided by the parties with the remaining terms of the policy and it
was agreed that they should be regarded as having been incorporated in the
particulars of claim. That Santam did not intend to confer enforceable
rights upon De Kroon is clear from Clause 11 of the General Exceptions
Conditions and Provisions and the question whether Unitrans was obliged
to allege that the benefit had been accepted simply does not arise. Clause
11 reads as follows:
‘Unless otherwise provided, nothing in this policy shall give any rights to any
person other than the insured. Any extension providing indemnity to any person other
than the insured shall not give any rights of claim to such person, the intention being

that the insured shall claim on behalf of such person. The receipt of the insured shall in
every case be a full discharge to the company.’ (My emphasis).
[16] But it does not follow from the fact that De Kroon acquired no rights
that it could enforce against Santam that Santam was not ‘obliged to
indemnify’ De Kroon as that expression is used in s 156.  For clause 11
also makes it clear that Santam intended the indemnity contained in the
extension clause to be capable of being enforced:  its reservation was only
that it should not be enforced by anyone but the insured.  As pointed out by
A. Chaskalson 1963 Annual Survey 382 in relation to a similar clause in
another contract:
‘There seems to be no reason in principle to prevent parties to a contract from
prescribing a specific procedure to be adopted in regard to the form of action. Nor, if the
clause can be construed in this way, is there any reason for a court to decline to enforce
the indemnity simply because it has been sued for in accordance with the prescribed
procedure, which is different from the procedure normally adopted.’
In my view that is indeed the proper construction to place upon the
clause. To construe the clause otherwise would be in conflict with
Santam’s expressed intention and would deprive it of effect.
[17] It has been suggested that an indemnity given in that form might be
void for lack of an insurable interest on the part of the insured1 – and that

Ellison Kahn: ‘Extension Clauses in Insurance Contracts’ (1952) 69 SALJ 53; Gordon and Getz on
The South African Law of Insurance 4ed by DM Davis 445.  But see the contrary views of A. Chaskalson
1963 Annual Survey 381-2; MFB Reinecke: ‘Versekering sonder versekerbare belang?’ 1971 CILSA 193
218-20.

has been held to be the case in other jurisdictions2 – but that is not a ground
upon which the particulars of claim were attacked and it has not been
argued before us. Indeed, it would be surprising if an insurer who has given
an earnest undertaking to indemnify a person in what is clearly a policy of
insurance and not a gambling contract (as pointed out by Chaskalson, loc
cit, the requirement of insurable interest is designed to ensure that
insurance policies are not used as a basis of gambling) were to repudiate its
obligations on those grounds.
[18] In my view Santam was indeed obliged to indemnify De Kroon
against its liability for the loss as contemplated by s 156 (albeit that the
indemnity was enforceable only by the insured) and Unitrans is entitled to
enforce its claim directly against Santam now that De Kroon is in
liquidation.   Naturally that does not mean that Unitrans will necessarily
succeed if the facts alleged in the particulars of claim are established for it
is clear from the policy that a claim might yet be defeated for want of
compliance by the insured with the conditions of the policy (the claim in Le
Roux’s case failed on those grounds).  But the particulars of claim are not
excipiable (see First National Bank of Southern Africa Ltd v Perry NO &
Others 2001 (3) SA 960 (SCA) 965D) and the exception ought to have
been dismissed.

Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 (PC) 80-81; Old
Mutual Fire & General Insurance Company of Rhodesia (Pvt) Ltd v Springer 1963 (2) SA 324 (SR)
329C-G.

[19] The appeal is upheld with costs. The order of the court a quo is set
aside and the following is substituted:
‘The exception is dismissed with costs’.

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NUGENT JA

HOWIE P)
CLOETE JA)
HEHER JA)

CONCUR
PONNAN AJA)