16 May 2022

Pacta Sunt Servanda - Agreements must be kept!

by Siphesihle Ngubane, Associate, Durban,
Practice Area(s): Shipping & Logistics |

Contracts are increasingly forming part of our everyday life. The importance of information and the terms and any conditions thereof,  contained in these contracts cannot be overstated, as when things go south, as they usually do, the terms of the contract will be key in determining how the issue is to be resolved, by when the breach should be addressed, who is entitled to act in terms of the contract and regardless of the amount of harm suffered, the extent to which the claimant must be reimbursed for any harm suffered.

Despite the importance of a contract, people seldom read the contents thereof in great detail (the so-called “small print”), or alternatively rarely understand the consequences should the contract be breached. One would think that this would be limited to lay persons and not big corporations with legal departments, however, it seems corporations are also not immune. 

A case which highlights this very well is that of SCHENKER SOUTH AFRICA (PTY) LTD v FUJITSU SERVICES CORE (PTY) LTD, this case dealt with a claim for damages by Fujitsu for an amount of US$516 877 as result of the theft of its goods from the South African Airways (“SAA”) cargo warehouse at the OR Tambo International Airport (“ORTIA”), in Johannesburg, by an employee of Schenker. To put things into context, converted to ZAR, the damage suffered amounts to approximately ZAR 8 091 523.36.

As a result of the theft of its goods by an employee of Schenker, Fujitsu instituted a delictual action for damages (as opposed to a claim for breach of contract) against Schenker. It is, in passing, trite law that a party will not be able to circumvent the terms of a contract and any limitation of liability provided therein, simply by suing in delict.  Schenker conceded that their employee was acting within the course and scope of his employment and that, unless liability was excluded in terms of the contract, it was vicariously liable for the loss suffered because of the deviant conduct of its employee.

Schenker argued that in terms of the contract between the parties, a delictual claim based on theft was excluded and therefore, it was not liable for Fujitsu’s loss. In contrast, Fujitsu argued that on a proper construction, the agreement did not exclude or limit liability for the theft of the goods.

The court a quo found in favour of the Fujitsu. The High Court found that the employee did not execute the contract when he attended to South African Airways Cargo warehouse to steal Fujitsu’s goods and that the theft was an act outside the performance of the agreement. It held that the exemption clauses 17 read with 40 and 41 of the STC, relied upon by Schenker to escape liability, did not apply to the theft in issue because the claim did not arise pursuant to or during the services rendered by Schenker or while the goods were in its custody or control.  

However, when the matter came before the Supreme Court of Appeal (“SCA”), it found in favour of Schenker based on the following:

“Apparent from the clear language of clause 17 a claim against Schenker in respect of valuable goods, as in this case, is governed by the provisions of clauses 40 and 41. Sub-clause 40.1 expressly excludes Schenker’s liability ‘. . . for any claim of whatsoever nature (whether in contract or in delict) and whether for damages or otherwise, howsoever arising. . .’. A delict can arise through intentional or negligent acts. Read contextually and having regard to the agreement as a whole, the phrases ‘of whatsoever nature’ and ‘howsoever arising’ should be given their ordinary literal meaning and are, in my view, sufficiently wide in their ordinary import to draw into the protective scope of the exemption the deliberate and intentional acts of the employees of Schenker. The exclusion of liability under clause 40.1 includes loss, damage or expense arising from or in any way connected with the non-delivery or mis-delivery of any goods”.

Much has been said and will be said in future, about the correctness of this judgement, but it remains the law as it currently stands. Anyone concluding a contract needs to be clear on what is being agreed upon as any misunderstanding could lead to serious financial losses which could have been avoided had proper diligence been exercised. It is therefore advisable that before anyone concludes a contract, they approach an expert to review it. Should one require assistance in this regards, Shepstone and Wylie is here to help.