Category Legal Affairs

Deneys Reitz comment on recent Supreme Court of Appeal judgement regarding 2004 Makro fire

30 October 2008 Deneys Reitz Inc.

The Makro fire – 13 May 2004

 Written by: John Neaves (pictured)(director), Deneys Reitz Inc.

Many of you will be aware of the fire that destroyed the Makro store on the West Rand on 13May 2004. On 12 September 2008 the Supreme Court of Appeal delivered a sequel in a judgment in the appeal of Masstores (Pty) Ltd (“Masstores”) where Masstores sued Murray & Roberts Construction (Pty) Ltd (“Murray & Roberts”). The appeal was brought against a finding of the Witwatersrand Local Division dismissing Masstores’ claim against Murray & Roberts on exception. Very briefly, Masstores contracted with Murray & Roberts to extend its existing store. Masstores alleged that Murray & Roberts were grossly negligent in carrying out the contract in that it breached various construction regulations and failed to supervise the use by sub-contractors of certain steel cutting equipment without taking any precautions and exposing the building to fire. The existing store and contents were set on fire causing the store and contents to be totally destroyed. Masstores’ damages totalled in excess of R170 million. The court accepted the allegations of gross negligence for the purpose of this exception challenging the right to claim.

The issue was whether the contract excluded Murray & Roberts’ liability for the destruction of the existing store and contents. The contract was the standard building contract prepared by the JBCC (Joint Building Contracts Committee) in 2000. The relevant clause in determining the dispute was one of a set of clauses and provided for the following indemnity:

9.2 The employer (Masstores) indemnifies and holds the contractor (Murray & Roberts) harmless against loss in respect of all claims, proceedings, damages, costs and expenses arising from …

9.2.7 Physical loss or damage to an existing structure and the contents thereof in respect of which this agreement is for alteration or addition to the existing structure”.

Masstores said that the clause did not exempt Murray & Roberts for its negligent or grossly negligent conduct and argued that the clause was ambiguous.

The court held that despite a common perception to the contrary, a finding of ambiguity is not a precondition to permit the interpretation of a provision in a contract by having regard to the context of the contract and the surrounding circumstances. Masstores also argued that:

1. The use of the words “indemnify and hold harmless” means to indemnify and hold harmless against claims of third parties and not by the parties to the contract. 2. The clause did not specifically exempt negligent conduct and therefore could not exclude liability for such conduct.

The court held that “the clause is admittedly not elegant” and that the words “indemnify” and “hold harmless” would not normally be used to provide an exemption for claims against a contracting party brought by another contracting party. However, the contract must be interpreted having regard to the intention of the parties established, in this case, from the contract in its entirety. In the context of the contract in question, the words did not apply only to third party claims.

With regard to the argument that the contract did not expressly exclude liability for negligent conduct, the court held that the principle is not applicable “if there is no doubt that the negligent conduct is included in the embrace of the exemption provisions”.

The court held that negligent conduct was included within the embrace of the exemption provision and that the exclusion applied equally to conduct alleged to be grossly negligent on the authority of the case of Government of RSA v Fibre Spinners & Weavers (Pty) Ltd.

Despite the constitution and the epidemic of consumerism, good exemption clauses are still an effective contractual defence but such exemption clauses must say what they mean and mean what they say. Make sure the exemption clause that you rely on is clearly worded.

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