first QUARTER 2011
Step Ahead Newsletter
The scope and validity of
exemption clauses in contracts
We are all constantly confronted by exemption clauses
in contracts. These clauses incorporate terms into the
particular contract which exclude or limit the liability of
a contracting party, such as its liability for damages.
The decision of the KwaZulu-Natal High Court in
Swinburne v Newbee Investments (Pty) Ltd 2010 (5) SA
296 (KZD) explains the court’s approach to exemption
clauses in contracts.
In the Swinburne case, the plaintiff, Mr Swinburne,
was the tenant of a flat in Arli Court, a building owned
by the defendant, Newbee Investments. The lease
agreement contained two exemption clauses which
purported to exclude the liability of Newbee
Investments. On 16 April 2006, Mr Swinburne fell and
injured himself while climbing a short flight of stairs
that led from the garage area of Arli Court to a path that
gave access to the flats at Arli Court themselves. It had
been raining heavily on that day and sand had washed
onto the stairs. Mr Swinburne’s foot had slipped on
the sand causing him to lose his balance and fall
backwards. He suffered a severe fracture to his leg in
this fall.
Mr Swinburne sued Newbee Investments for damages,
claiming that the latter had been negligent in not
providing a handrail alongside the stairs. Newbee
Investments denied negligence and as an alternative
defence it relied on the two exemption clauses
mentioned above to deny its liability.
Citing earlier judicial decisions, the court held that the
law is clear that the owner of a property is ordinarily
liable to ensure that the property does not present
undue hazards, and is under a legal duty to ensure that
the premises are safe for those who use them,
irrespective of whether those person are tenants or
those whom the tenants have invited onto the premises.
The court accordingly held that Newbee Investments
owed Mr Swinburne a legal duty to ensure that the
stairs in question were safe to use. Furthermore, the
court held that a reasonable person would have
foreseen the possibility of someone slipping on loose
material, such as sand or leaves washed down from the
higher ground, while walking up or down the stairs, and
that the accident suffered by Mr Swinburne was a
result of negligence on the part of Newbee Investments
in not providing a handrail for persons using the stairs.
The court then needed to consider the two exemption
clauses contained in the lease. Newbee Investments
abandoned reliance on the first of these clauses and
concentrated on the latter of these clauses, in particular
on the following words:
“ The LESSOR shall not be responsible or liable
to the LESSEE for any damage suffered as a
result of any negligent act or omission on the
part of the LESSOR…”
Citing earlier case law, the court held that if the
language of the exemption clause is such that it
exempts the contractant from liability in express and unambiguous
terms, effect must be given to that meaning. However, if there is
ambiguity in the exemption clause, the language must be interpreted
against the contractant in whose favour the exemption operates, in
this case, Newbee Investments. Such ambiguity must not be “fanciful”
or “remote”.
Seen in context, the court held that the word “damage” in the clause in
question seemed to refer to damage to property rather than to personal
injury. Dictionary definitions of the word “damage” supported this
interpretation. Consequently, the court held that a reasonable person
reading the clause would not have understood that the reference to “any
damage” extended to a claim for damages arising from personal injury.
The clause in question was at best ambiguous and in terms of the
principles discussed above, it fell to be construed against Newbee
Investments.
In short, the court held that the exemption clause in question was not
wide enough to cover and exempt Newbee Investments from legal liability
for the personal injuries negligently occasioned to Mr Swinburne. This
finding put an end to Newbee Investment’s defence to Mr Swinburne’s
claim for damages.
Are such exemption clauses invalid because they are contrary to public
policy or unconstitutional?
There is great interest in what the court then went on to say about what the
legal position would have been if the exemption clause had indeed been
wide enough to cover personal injury. Would the clause have been legally
valid? Or would it have been invalid as against public policy, or as being
inconsistent with the right to bodily integrity now enshrined in our
constitutional Bill of Rights? However, it was not necessary for the court to
make a ruling on the public policy or constitutional issue as the case could
be decided based on the interpretation of the exemption clause itself.
If an arbitrator’s decision errs on the facts or the law,
can the aggrieved party take that decision on appeal
to the ordinary courts?
Litigation is often expensive and protracted. One way of avoiding
litigation in the ordinary courts, is to ensure that your commercial
agreements contain a clause saying that any disputes that arise will
be resolved by arbitration.
Is the inclusion of an arbitration clause in an agreement an iron-clad
guarantee that the dispute will stay out of the courts?
If, for example, the arbitrator makes an error of law in his decision,
can the aggrieved party ask a court to set his decision aside? In our
constitutional dispensation, are the courts not always the final arbiter
in all disputes?
The Arbitration Act, 1965, provides in section 20(1) that–
An arbitration tribunal may... at any stage before making a final
award, state any question of law arising in the course of the
reference in the form of a special case for the opinion of the
court...
What does this mean? In the case of Dorman Long Swan Hunter (Pty)
Ltd v Karibib Visserye Ltd 1984 (2) SA 462 (C), the Cape High Court
said that the purpose of this section is:
to ensure that ultimate control over legal issues arising in the
course of an arbitration is left to the court.
However, in Road Accident Fund v Cloete N.O and others 2010(6) SA
120 (SCA) the Supreme Court of Appeal has now firmly rejected that
proposition, saying that this statement by the Cape High Court “can
no longer be regarded as good law”.
The Supreme Court of Appeal then went on to make some important
observations about the essential nature of arbitration, saying that:
T
he fact is that when parties agree to refer their disputes to
arbitration, they select an arbitrator as the judge of fact and law.
Ordinarily, the award of an arbitrator is final and conclusive,
irrespective of how erroneous, factually or legally, the decision was.
In other words, arbitration is not foisted upon the parties. Arbitration
comes about because the parties have agreed to submit their dispute
to arbitration, rather than to resolve it by way of litigation in the
ordinary courts. And, by agreeing to arbitration, they implicitly agree
to accept the result of the arbitration.
Arbitration would be futile if the losing party could ask the courts to
set aside the arbitrator’s decision on the basis that it was wrong. As
was made clear by the Supreme Court of Appeal in Road Accident
Fund v Cloete, referred to above, the arbitrator’s decision is final,
even if it is wrong in its determination of the facts in issue, or wrong
in its application of the law.
Arbitration agreements between a company and
its shareholders
The relationship between a company and its shareholders can be a
hotbed of quarrels and grievances.
In such a situation, the most valuable remedy of an aggrieved
shareholder is the so-called “oppression” remedy contained in
section 252 of the Companies Act, 1973. In terms of this provision:
Any member of a company who complains that any particular
act or omission of a company is unfairly prejudicial, unjust or
inequitable, or that the affairs of the company are being
conducted in a manner unfairly prejudicial, unjust or inequitable
to him or to some part of the members of the company, may...
make an application to the Court for an order under this section.
If a court concludes that there was indeed conduct on the part
of the company that was “unfairly prejudicial, unjust or inequitable”
to the shareholder who is applying for relief under this provision,
the court is empowered to make any order it sees fit. This could,
for instance, be an order that the company purchase the shares
of the aggrieved shareholders at their fair value, as determined
by auditors.
Assume, however, that the company’s articles of association (which,
as a matter of law, have the force of a contract between the company
and its shareholders) provide that disputes will be resolved by
arbitration. Does the existence of such an arbitration clause bar the
shareholder from applying to a court for relief in terms of section 252?
direction that is precisely the reverse of that which so many
judges and academics have suggested, by forcing parties into
court, even though they wish to save time and costs by using
arbitration as their alternative dispute resolution mechanism of
choice. [at para 78]
This issue has not, to date, become before a South African court, but
it has recently received the attention of the English courts in the case
of Fulham Football Club Ltd. v Richards [2010] EWHC 3111 (Ch). In
his judgment, Vos J said:
I have, therefore, concluded that the statutory right conferred on
shareholders to apply for section 994 relief is not an inalienable
one. Members of companies and the companies themselves can
agree to refer disputes that might otherwise support unfair
prejudice petitions to arbitration, provided that third parties are
not to be bound by the award... [at para 79]
It is true that the [English Companies Act of 2006] establishes
a complex statutory regime for the birth, life and death of
companies, but there are very few steps that fall within that
regime that only the court can take. One of them is certainly the
making of a compulsory winding up order. But no such order is
sought here... [at para 77]
...In my judgment, to prevent the parties agreeing to arbitrate
disputes that normally come to court in the form of unfair
prejudice petitions [in other words, applications similar to those
brought in terms of section 252 of South Africa’s Companies
Act, 1973] would be wholly contrary to the requirements of
party autonomy, enshrined in the [Arbitration Act, 1996]...
Moreover, the [alternative] course... would take the law in a
This dictum is therefore in line with the thinking of the South African
Supreme Court of Appeal, as expressed in Road Accident Fund v
Cloete, referred to above, where the court rejected the proposition
that ultimate control over legal issues arising in the course of an
arbitration must remain in the hands of the courts.
The philosophy of both the South African courts and the English
courts is that if people enter into an agreement that their disputes will
be resolved by arbitration, then effect should be given to this
agreement, and the courts should not insist on intruding themselves
into the process, nor should the parties be forced to resolve their
differences by litigation.
Don’t draw your will in a way that will ignite
a family feud
A will is one of the most important documents
you will draw in your life. It is the final gift you
leave your loved ones, and you need to give it
the most careful thought.
There are technical legalities to be observed in
the drawing up and signing of wills, and in the
way you deal with the various legal structures
such as companies and trusts that you may
have created during your lifetime. You will
depend on the expertise of your attorney to
guide you in this respect.
There is also an important psychological
dimension to the drawing of your will – and in
this regard, it is you who has the expert, inside
knowledge.
It is an unfortunate fact of human nature that
families that have lived together in reasonable
harmony and affection whilst a parent was alive
can descend into the most bitter acrimony
when the parent dies and the assets in the
estate have to be distributed in accordance with
the will.
A thoughtfully drawn will can go a long way
toward pre-empting family quarrels.
Take for instance the question of the appointment of an executor. Every will must, of course,
appoint an executor to handle the winding up of
the estate. But who should the executor be? It
can be anyone you like – your attorney, your
accountant, a friend, or a member of the family.
Very often the testator decides to make his or
her surviving spouse the executor, or one or
more of the children. You are quite free to do so
but be warned – it is asking for trouble to appoint
as an executor someone who is also one of
several beneficiaries of the estate – or even
worse, someone who is resentful at the way you
have drawn your will. This can create a conflict
of interest – or at least a perceived conflict of
interest – that can tear the family apart.
An extreme example of this appears from the
recent decision of the Johannesburg High
Court in Judin NO v Jankelowitz [2010] JOL
26471 which involved a dispute between the
deceased’s son (who had been appointed as
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executor of the estate), his stepmother, and other
members of the Judin and Jankelowitz families.
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The information contained in this
newsletter has been compiled from
various sources. Although all reasonable
care is taken to ensure that the
information contained herein is
correct at the time of publication,
Brink Cohen Le Roux Inc does not make
any representation or give any warranty
of whatever nature in respect thereof.
The contents of this newsletter are
The Judin family and the Jankelowitz family, who
had been neighbours, had a tangled and intertwined history. The parents (for brevity, Judin
Pater and Judin Mater) had several children. The
Jankelowitz couple (for brevity, Jankelowitz Pater
and Jankelowitz Mater) also had several children.
There was a divorce in both the Judin and the
Jankelowitz families that was caused by an
extramarital relationship between Judin Pater and
Jankelowitz Mater – who subsequently married
one another.
Judin Pater later died, leaving a will in which he
left all his assets to his new wife, the erstwhile
Mrs Jankelowitz. In effect, Judin’s will disinherited
his own son. The will appointed the erstwhile
Mrs Jankelowitz and Judin’s disinherited son as
joint executors.
It may have been perfectly sound, in law, for Judin
Pater to appoint his disinherited son and his second
wife, the previous Mrs Jankelowitz, as co-executors,
effectively hand-cuffing them together to wind up
his estate and distribute the assets in accordance
with his will – but, as a matter of human psychology,
it was of course, a disastrous decision.
Why the late Judin could not see that it would be
a catastrophe is a mystery – in particular, why did
he not see that it would stick in his disinherited
son’s craw to be obliged as executor, to distribute
to his stepmother assets from his late father’s
estate that he believed should rightfully have been
inherited by him?
It comes as no surprise that the various parties
were soon at each other’s throats. As the judge
remarked, in masterly understatement:
“there is a degree of hostility and mistrust
between the families”.
It is also little surprise that the estate was soon
being diminished by legal expenses in an opposed
High Court application by the Jankelowitz family
for the removal of Judin Jnr as executor.
In the result, the court held that Judin Jnr was in
a conflict of interest. It was understandable, said
the court, that as a son he would want to purchase
for himself certain assets from his late father’s
estate. The result, said the court, was that Judin
Jnr could not have the appearance of impartiality
that the law requires of an executor.
The judge remarked in this regard that –
I regard it as undesirable that [Judin Jnr]...
should be the person who winds up the estate.
It is not difficult to detect [his] grief at having
been disinherited by [his] father and hostility
toward the recipients of those assets.
The court ordered that, although he had not
misconducted himself as executor, Judin Jnr
should be removed as executor of his late father’s
estate and that he be replaced by one or more
executors appointed by the Master of the High
Court, who would not be from the Judin or
Jankelowitz families.
The moral of this unhappy story is – when drafting
your will, and deciding on key questions such as
who the executor should be and to whom you are
going to leave your various assets – take proper
account of the emotional turmoil you will leave
behind and try to draw your will in a way that will
not ignite a family feud.
intended to provide general guidance to
the readers thereof and do not constitute
formal legal advice or opinion on the
issues discussed herein. Readers are
urged to seek appropriate professional
Recent events and achievements
advice on the matters that form the
subject of articles contained herein, prior
to acting thereon. Brink Cohen Le Roux
Inc does not accept any liability
whatsoever for any loss, whether direct,
indirect or consequential, including,
without being limited to, any loss of profit
In February this year, Brink Cohen Le Roux received PMR.africa’s Gold Arrow Award 2011 for being the
second highest rated law firm in South Africa in the medium sized law firm category, following completion
of Professional Management Review’s annual independent confidential survey of SA law firms in terms of
a random national sample of 225 respondents comprising of inhouse corporate legal advisors, MD’s
CEO’s, financial directors, company secretaries and senior managers of large or listed South African
companies, during 2010.
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