At own risk! A court ruling that could impact liability cover

A disclaimer is a contract that the public is taken to agree to, either by signing it or viewing it when entering business premises. South African courts usually uphold a disclaimer provided it is unambiguous and it can be shown that the third party was aware of (or should have been aware of) it.

Although the layperson views such decisions as unfair, the courts are simply enforcing the strong "freedom of contract” principal enshrined in our law. In terms of a liability policy, if the insured has a strong enough disclaimer, insurers can reject third party claims on the basis of the disclaimer alone.

In most cases the courts uphold disclaimers where ordinary negligence occurs. The interesting debate is whether the same disclaimer can release a person from gross negligence or recklessness? One of the better known cases dealing with this issue is the Supreme Court of Appeal ruling in Afrox Healthcare Limited v Christiaan George Strydom.

A patient was admitted to hospital for surgery and suffered certain injuries as a result of negligent treatment by the hospital staff. The hospital denied that its staff had been negligent, but in the alternative (had they indeed acted negligently) relied on the hospital disclaimer, which released the hospital from any liability.

The patient argued the matter on the basis that the clause was contrary to public policy, was in conflict with the principals of good faith, and that the hospital clerk did not draw his attention to the disclaimer in the contract that he signed.

Public policy favours freedom of contract and requires that commercial transactions should not be unduly restricted. And the law holds that a contract term that is deemed unfair to the extent it conflicts with public policy is unenforceable. Even so, the court seldom interferes with contractual terms, whether in contracts or disclaimers.

The patient argued that there was no fair bargaining position and that the disclaimer was forced on him. The court held that this did not mean that the term was against public policy, but rather that it was one of many factors to be taken into account. On the facts presented the court concluded that the patient was not in a weaker bargaining position (a decision which has since been heavily criticized).

The patient argued further that while the hospital’s duty was to provide medical treatment in a professional and skilful manner, the affect of the disclaimer goes so far as to free the nursing staff from any gross negligence, which in itself is contrary to public policy.

The court held that the actual negligence complained of was ordinary negligence and it was therefore unnecessary to deal with the issue and found in favour of the hospital. Even if the court assumed that the disclaimer clause freed the hospital from gross negligence, it would not automatically invalidate the disclaimer!

There are other cases where the courts have upheld disclaimers despite apparent gross negligence. A good example is that of First National Bank of Southern Africa Limited v Rosenblum handed down by the Supreme Court of Appeal in 2001.

In this case a watch was stolen out of the bank’s safety deposit box by one of the bank’s staff. Its defence hinged on the disclaimer which stated that that the bank had no liability at all, regardless of whether the loss was due to its negligence or not.

Rosenblum submitted that gross negligence (which they believed this was) was not covered by the disclaimer. The judge stated he could not uphold this view because a disclaimer could exclude both ordinary and gross negligence which this specific disclaimer did. The bank was held not liable for the loss.

Likewise in the case of Fibre Spinners and Weavers the disclaimer was held to cover both forms of negligence. It was also held there was no "public policy” reason why a clause exempting a person from liability for gross negligence should not be enforceable.

These results seem to discriminate unfairly against the public that uses company facilities. It seems a disclaimer might prevent them from seeking compensation for damages even when such damages ensue from an act of gross negligence.

It allows disregard for any duty of care towards third parties merely based on a carefully formulated disclaimer. Such decisions contradict the long-held view that the courts would be influenced by both the Constitution and the sprit of the Consumer Protection Act. But there are changes afoot.

The recent case of Naidoo v Birchwood Hotel, handed down in April 2012, could change the way disclaimers and indemnity forms and contracts are treated in our law. The case was heard by the South Gauteng High Court which is binding on all lower courts and persuasive in others.

It is a landmark decision, which if confirmed in the Supreme Court of Appeal, could result in an increase in personal injury claims on liability matters.

If the decision stands up to appeal then disclaimers and indemnity forms can no longer be relied upon to mitigate an insurer’s risk with respect to liability and impact the underwriting of said risk. The facts of the case were relatively simple.

Mr Naidoo was staying at the hotel as a guest and during his stay a large gate on the property fell on him causing him serious bodily injuries. He sued the hotel for his medical bills as well as his pain and suffering and other associated costs.

The hotel defended the matter – as many property owners would – on the basis of the disclaimers that were displayed around the property advising guests that they came onto the property at their own risk. In addition their registration card – signed by the client – stated:

"The guest hereby agrees on behalf of himself and the members of his party that it is a condition of his/their occupation of the Hotel that the Hotel shall not be responsible for any injury to, or death of, any person or the destruction of or damage to any property on the premises, whether arising from fire, theft or any cause, and by whomsoever caused or arising from the negligence (gross or otherwise) or wrongful acts of any person in the employment of the Hotel.”

The South African law that deals with these issues is based on our law of contract, which in turn has its origins in the Roman Dutch law. There is freedom to contract and therefore if one freely enters into a contract in their sound and sober senses, they are bound by the terms and conditions thereby. The principals were strongly laid down in previous cases where the disclaimers were upheld even where the decisions seemed unfair.

By awarding Naidoo judgment for his claim, the judge departed from the principles of previous Supreme Court of Appeal cases, saying these decisions were given prior to the Constitution. The Constitution requires that public policy be taken into account when looking at contracts.

He also distinguished the case by saying that the inherent risk in visiting a theme park or hospital is significant when compared to visiting a hotel or shopping centre. The distinction is scant consolation for owners of shopping centres, restaurants and car parking areas to name a few, because the judgment could render their disclaimers "not worth the signage they are printed on.”

The new Consumer Protection Act was not at issue here as the contract was signed prior to the Act coming into force. It is likely the wording of this Act will affect how judges interpret disclaimer wordings in future court actions!

As for the layperson it seems only fair that a shopping centre, hotel or restaurant owner cannot rely on a carefully worded disclaimer to absolve himself of the duty of care "owed” the public. The legal fraternity will watch this case with interest when it goes on appeal.