In a recent decision of the Constitutional Court in Fujitsu Services Core (Pty) Limited v Schenker South Africa (Pty) Limited [2023] ZACC 20, the court had to consider exemption clauses in light of an employee stealing a consignment of laptops and accessories. The two main issues before the court were: 1) whether an exemption clause excluded liability for wrongful acts, and if it did, 2) whether the clause offended public policy, in other words, was the contractual provision enforceable?
Prior to the court action, in 2009, Fujitsu (an importer and distributor of laptops, computers and accessories) concluded a national distribution agreement with Schenker (a warehouse operator, freight forwarder, logistics manager, and forwarding agent). The contract contained a broad exemption clause which limited Schenker’s liability. Simply put, an exemption clause protects or shields a party from loss for negligent or wrongful acts, and usually is worded to prevent loss in all circumstances howsoever arising. The agreement also contained a clause which effectively required Fujitsu to make “special arrangements” with Schenker in relation to all valuable goods, and that where these “special arrangements” were not made, Schenker would incur “no liability whatsoever”. The agreement was subject to the South African Association of Freight Forwarders (“SAAFF”) trading terms and conditions.
In April 2012, a Schenker employee – who was responsible for the collection of cargo at a SAA warehouse – used his security clearances and company documents and collected a consignment of laptops and accessories and never returned to work, therefore effectively stealing the goods. As a result of this theft, Fujitsu instituted an action for damages against Schenker. In the High Court, it was established that the employee was acting within the course and scope of his employment and that, unless liability was excluded in terms of the contract, Schenker was vicariously liable for the loss suffered as a result of the theft. The High Court found that theft was an act outside the performance of the parties’ contract and that the exemption clause should not apply. It found further that Schenker should not be allowed to rely on an exemption clause in circumstances where the contract was not being executed, and if Schenker intended the exclusion clauses to apply to the delictual claim of theft, it ought to have spelt it out with the necessary precision and clarity. This is an important point that we will return to below.
Conversely, the Supreme Court of Appeal (“SCA”) focused on the wording of the contract, which excluded Schenker’s liability for any claim of “whatsoever” nature (whether in contract or delict) and whether for damages or otherwise “howsoever arising”. The SCA found that this provision was “sufficiently wide enough in [its] ordinary import” and that the exemption clause should apply. The SCA reversed the High Court’s decision.
In the Constitutional Court, a narrow majority of the bench of the apex court ultimately agreed with the SCA’s decision, and held that the exemption clause was valid and enforceable, and that it did not offend public policy.
The majority of the court reasoned that there is nothing contrary to public policy with two contracting parties agreeing that one party will be exempted from liability, leaving it to the other party to take out an insurance policy. The court concluded that in these specific circumstances, with the contract in question, Fujitsu should have abided by the terms of the contract and notified Schenker of the valuable goods and made “special arrangements”. Failure to do this meant that Schenker avoided liability, and that the SCA’s decision was correct (although the Constitutional Court focused on compliance with the contract as a basis for its decision, it agreed with the SCA’s decision, and ultimately found that these types of clauses were acceptable and not contrary to public policy).
The majority of the apex court reiterated the maxim of pacta sunt servanda, which means that contracts freely and voluntarily entered into should be enforced. Consequently, this decision reinforces the fact that parties can rely on exemption clauses to exclude liability for wrongful acts.
Should courts be infusing constitutional principles such as human dignity, the achievement of equality, and the advancement of human rights into commercial deals? What is the role of fairness and ubuntu in the law of contract? Those are complicated questions that cannot be answered here. However, as the law currently stands, there are two questions to be asked to determine if a contract will be enforceable (and be found to be “fair”). Firstly, is the clause itself unreasonable? Amongst others, this requires a consideration of public policy which is a dynamic concept. It also requires a consideration of pacta sunt servanda and the need for certainty in commerce. Usually, an exemption clause is perfectly reasonable and a standard clause in a commercial relationship. Secondly, once it is found the clause is reasonable, one must consider the circumstances surrounding the contract, its enforcement, and the relative situation of the contracting parties. There is usually nothing inherently unreasonable or inimical to public policy in the context of exemption clauses, where one party relies on an exemption clause to protect itself from liability (particularly in the case of two corporate entities where no apparent disparity in bargaining power exists).
Be that as it may, as alluded to in the High Court, and reflected on in the subsequent litigation, parties should carefully consider the wording of their contracts – they should spell out the terms with “the necessary precision and clarity”. Using standard form recycled contracts should be avoided at all times.
It is interesting to note that the exemption clause in this matter was subject to the SAAFF trading terms and conditions. Considering the high number of businesses that rely on these terms and conditions, this decision is a timely reminder for parties to carefully consider the provisions of their contracts and exemption clauses, and to not blindly rely on the fact that such provisions are subject to SAFF trading terms and conditions. Most importantly, parties should engage the services of a legal practitioner well versed in contract law, rather than relying on an old contract with different circumstances, or downloading something from the internet.
Authors: Lee Swales & Khanya Mgebisa
Law Blog 