Masstores (Pty) Ltd v Murray & Roberts Construction (Pty) Ltd

Masstores (Pty) Ltd, a wholesaler, engaged Murray & Roberts Construction (Pty) Ltd to extend one of its stores in Struben's Valley, Roodepoort. The contract was based on a standard form published by the Joint Building Contracts Committee, widely used in the South African construction industry. During the course of the building work, while employees of a subcontractor were cutting the roof of Masstores' existing store with an angle grinder, a fire broke out which destroyed the store and its contents. Masstores sued Murray & Roberts for breach of contract, claiming damages of R169,365,175, being the value of the structure destroyed and its contents. The alleged breaches included failure to comply with laws and regulations, failure to carry out work in a proper and workmanlike manner, failure to ensure subcontractors complied with safety levels, and failure to ensure work was executed safely so as not to endanger property in the vicinity. The breaches were alleged to have been negligent or grossly negligent.

• Whether clause 9.2.7 of the building contract precludes an action by the employer against the contractor for damage to the existing structure and its contents
• Whether the exemption clause excludes liability for negligent or grossly negligent breach of contract
• The proper approach to interpreting exemption clauses and indemnity provisions
• Whether the meaning of 'indemnify and hold harmless' excludes claims by the employer or only third-party claims
• Whether failure to expressly refer to negligent conduct means that liability for negligence is not excluded

The appeal was dismissed with costs, including costs of two counsel. The exception to the particulars of claim was upheld, meaning Masstores' claim against Murray & Roberts was struck out.

An indemnity clause in a construction contract that provides that the employer indemnifies the contractor against loss arising from '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' excludes the contractor's liability to the employer for damage to the existing structure caused by the contractor's negligent or grossly negligent breach of contract. Such clauses must be interpreted in the context of the contract as a whole and its commercial setting. Where a contract expressly provides for an exception to an indemnity in respect of negligent conduct in one clause (such as clause 9.2.6) but not in an analogous clause (such as 9.2.7), this indicates a deliberate allocation of risk irrespective of fault. The allocation of risk in construction contracts may be based on specified events or circumstances rather than on the presence or absence of negligent conduct. The words 'indemnify and hold harmless' in an exemption clause are not limited to third-party claims where the contract does not expressly so limit them, particularly where other clauses in the same contract do expressly refer to 'claims from other parties'.

Lewis JA observed that ambiguity is not a precondition for a court to interpret a contractual provision by having regard to the context of the contract and surrounding circumstances, noting that it had been more than ten years since the court in Pangbourne Properties Ltd v Gill & Ramsden (Pty) Ltd suggested it was time to reconsider the limitations placed on the use of surrounding circumstances in interpreting documents. The court reiterated that there are no special rules that apply to the construction of exemption provisions, citing Durban's Water Wonderland (Pty) Ltd v Botha, First National Bank of Southern Africa Ltd v Rosenblum, and Van der Westhuizen v Arnold. The court also noted the rhetorical question: why would a contractor undertake liability for the destruction of a structure and its contents worth about R169 million when the cost of the work to be done by it was only R13 million? This suggested commercial implausibility in Masstores' interpretation.

This case is significant in South African contract law for establishing important principles regarding the interpretation of exemption and indemnity clauses, particularly in the construction industry context. It clarifies that: (1) Exemption clauses are not subject to special interpretive rules different from other contractual provisions; (2) Ambiguity is not a precondition for interpreting a provision by reference to context and surrounding circumstances; (3) The allocation of risk in commercial contracts may be based on events and circumstances rather than fault; (4) The words 'indemnify and hold harmless' can exclude claims by the other contracting party, not just third parties; (5) Where a contract expressly excludes negligence in one clause but not in another similar clause, this indicates deliberate allocation of risk; (6) Exemption clauses can exclude liability for both negligence and gross negligence, and public policy does not prevent such exclusions in commercial contracts between sophisticated parties. The case reinforces the use of standard form contracts in the construction industry and the importance of parties obtaining appropriate insurance cover for risks allocated to them by contract.