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[2017] ZAWCHC 71
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Propell Specialised Finance (Pty) Ltd v Attorneys Insurance Indemnity Fund NPC and Others (16864/2013) [2017] ZAWCHC 71; [2017] 3 All SA 1005 (WCC) (30 June 2017)
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
CASE
NO:
16864/2013
In
the matter between:
PROPELL
SPECIALISED FINANCE (PTY)
LTD Plaintiff
v
ATTORNEYS
INSURANCE INDEMNITY FUND
NPC First
Defendant
BUURMAN
STEMELA LUBBE
INC. Second
Defendant
WILHELMINA
JACOB
LUBBE Third
Defendant
XOLA
COLUMBUS
STEMELA Fourth
Defendant
Coram:
Dlodlo J
Date
of Hearing:
29 May 2017
Date
of Judgment:
30 June 2017
JUDGMENT
DLODLO,
J
INTRODUCTION
(ISSUES FOR DETERMINATION)
[1]
The
plaintiff instituted an action as cessionary alleging that it took
cession of the second defendant’s rights of recourse
and it
claims as insured, against the first defendant as insurer. The
plaintiff specifically relies on a written cession agreement
in terms
of which the second defendant ceded and made over its rights and
claims against the first defendant to the plaintiff.
In
terms of its amended particulars of claim, the plaintiff seeks
monetary relief against only the first defendant and more
particularly
payment of its six damages claims which it has against
the second defendant.
[2]
The second defendant is a registered firm of attorneys, i.e. Buurman
Stemela Lubbe Incorporated whilst the third and fourth
defendants are
two directors of that firm of attorneys. Relief is claimed by the
plaintiff under the abovementioned case number
against the second and
fourth defendants. All that was claimed by the plaintiff under the
abovementioned case number from the from
the second to fourth
defendant was rectification of clause 14 and 15 of the written
agreement in terms of which the cession took
place between the second
defendant and the plaintiff. The rectification relief sought by the
plaintiff against the second to fourth
defendants was granted by
default on 26 March 2014. All the remaining relief sought by the
plaintiff is sought against the first
defendant.
[3]
The first defendant filed a plea on the merits of the plaintiff’s
action, taking issue with its liability for the six
monetary claims
of the plaintiff made against the second defendant; and it also took
issue with the right of the plaintiff in general
to have instituted
action against the first defendant.
[4]
The first defendant specifically raised three special pleas, which
included a first special plea of prescription. Prior to the
matter
proceeding to trial, the special plea of prescription was withdrawn
and the plaintiff’s costs in respect thereof were
tendered.
Thus, this court does not need to concern itself with the first
special plea. The matter was set down for hearing for
29 May 2017 on
the basis of the parties agreeing that the trial should first proceed
only in respect of the special pleas raised
by the first defendant
and be postponed
sine die
as far as the remainder of the
issues are concerned. The parties thus agreed on a separation of
issues in terms of Rule 33 (4)
of the Uniform Rules of Court.
[5]
At the commencement of the trial in the morning of 29 May 2017, and
as a result of the joint application of the plaintiff and
the first
defendant, this court ordered that the two remaining special pleas
raised by the first defendant be separated from the
remainder of the
issues and that the trial would only proceed in respect of the two
special pleas, the remaining issues are to
be postponed sine die. The
two remaining special pleas deal with respectively: (a) The
plaintiff’s
locus
standi in iudicio
,
i.e. whether the plaintiff as cessionary is entitled to make the
claims under the abovementioned case number against the first
defendant. This special plea is in effect an attack on the cession
upon which the plaintiff relies for its
locus
standi in iudcio
.
I point out that should a finding be made that the cession is bad in
fact and/or in law, then the plaintiff simply would have
no
locus
standi in iudicio
and that would be the end of the matter as it presently stands. (b)
The third special plea and the second one for adjudication
is a plea
in terms of which it is pleaded that the action under the
abovementioned case number should be stayed pending the final
adjudication of a claim instituted by the second defendant against an
entity called Ashtons. This special plea is dependent on
the content
of the agreement upon which the plaintiff relies and to which
reference is made in paragraph 67 of the amended particulars
of claim
on page 44 of the pleadings bundle. Needless to mention that the
first defendant accepted the duty to begin in respect
of the two
special pleas raised by it. It also conceded that it bears the onus
to prove the two special pleas. The first defendant
led evidence, the
summary of which appears hereunder.
EVIDENCE
ON BEHALF OF THE FIRST DEFENDANT
[6]
Mr Thomas Harban testified on behalf of the first defendant. He
identified himself as the general manager of the first defendant,
who
is the second most senior executive in control of the day to day
management of the first defendant. Mr Harban practised as
attorney
for ten years until 2007, when he took up employment with the
Auditor-General of South Africa, where he remained employed
until the
1
st
of April 2009. From the 1
st
of April 2009 to 2011, he was employed by Glenrand MIB, a company
which by means of contract with the first defendant attended
to the
day to day management and administration of the first defendant. In
2011, AON South Africa (Pty) Limited took over Glenrand
MIB and as a
result thereof Mr Harban was transferred to the employment of AON,
attended to the management and administration of
the first defendant
from 2011 until the 31
st
of December 2014.
[7]
On the 1
st
of January 2015, the contract in terms of which AON SA (Pty) Limited
oversaw the administration and management of the first defendant
expired. The mentioned agreement was not renewed and since the 1
st
of January 2015, the first defendant took over the management and
administration of its day to day business and attended thereto
itself. Mr Harban testified that the first defendant was established
as a creature of statute in 1993 and in terms of Section 40A(a)(i)
of
the Attorneys Act by the Attorneys Fidelity Fund, which is an
independent and different fund that has been established some
75
years ago (in terms of Section 25 of the Attorneys Act). The purpose
of the Attorneys Fidelity Fund is to compensate members
of the public
directly for the misappropriation and theft of monies from an
attorney’s trust account whereas the purpose
and aim of the
statutory enacted first defendant is to provide insurance cover to
practitioners in respect of claims which may
proceed from the
professional conduct of such practitioners. Mr Harban referred the
court to Section 40A (a) (i) of the Attorneys
Act.
[8]
The first defendant had a predecessor in title, i.e. a Scheme as
opposed to a Fund that was known as the Attorneys Fidelity
Fund
Professional Indemnity Scheme, which was also established by the
Attorneys Fidelity Fund in 1986 in terms of Section 40A(a)(ii)
of the
Attorneys Act. The Scheme did not operate as an insurance
company, but was underwritten by a commercial registered
insurer,
i.e. Aegis (the first defendant however is an insurance company in
its own right).
The
Scheme that operated and was in place between 1986 and 1993 was
replaced by the first defendant. There was a need for a specialised
insurer to only take care of the specific needs of a closed group of
insureds, i.e. practising attorneys. It was realised that
such a
special insurance company would be better suited and equipped to deal
with the insurance needs of practitioners, than a
commercial
insurance company like Aegis. This was so because the commercial
insurer, i.e. Aegis dealt with the provision of indemnity
insurance
to practitioners as part of its larger business which also included
attendance to other clients and insureds that were
not necessarily
practising attorneys.
[9]
Mr Harban testified that the only person at the AIIF who is his
senior in respect of the day to day management of the Fund is
the
managing director, who also serves on the board of directors of the
first defendant. The board comprise of ten directors of
which six are
practising attorneys who are nominated by the four Law Societies to
serve on the board of the first defendant. The
four Law Societies
nominate the six attorneys who serve on the board of directors
because the individual members of the four Law
Societies, i.e.
practising attorneys registered with the four Law Societies are in
essence the members of the first defendant.
With
the aforementioned as the relevant background, Mr Harban testified
that the first defendant as an insurer is in fact a
sui
generis
insurer who also regards its insureds as being sui generis and
accordingly also regards the relationship between itself and its
insureds as
sui
generis
.
[10]
In this respect, Mr Harban’s testimony can be summarised as
follows: The first aspect which renders the first defendant
sui
generis
according to Mr Harban is the fact that it has its origin in
legislation. It is a creature of statute, i.e. Section 40A(a)(i) of
the Attorneys Act as opposed to commercial insurers like Aegis, which
do not originate from legislation, but for reasons of commerce.
This
aspect places the first defendant on a different footing from other
commercial insurers, in that it was born from legislation
for a
specific purpose, i.e. to provide insurance cover to a specifically
defined risk pool, i.e. practitioners for a limited purpose,
i.e. in
respect of claims which may proceed from the professional conduct of
such practitioners. The enacting legislation also
has the result that
the licence issued to the first defendant as a licenced insurer is
restricted to the aspects for which it was
expressly enacted, i.e. to
provide insurance cover to practitioners and to enter into bonds of
security to the satisfaction of
the Master of the High Court, so as
to provide security on behalf of a practitioner in respect of work to
be done by such practitioner
as executor in the estate of a deceased
person, etc. In comparison, a commercial insurer comes into existence
in order to fulfil
a commercial purpose and is therefore not
restricted in the licence for which it applies.
[11]
The first defendant is a non-profit company and is registered as
such. It does not concern itself with the making of a profit
but
rather the delivery of a service to its members, i.e. all admitted
practising attorneys in South Africa. On the other side,
the
commercial insurer exists for purposes of being commercially viable
and has as part of its business the intention and aim to
make a
profit to the satisfaction of its shareholders as opposed to the
members of the first defendant.
[12]
All members of the first defendant, i.e. all practising attorneys
enjoy automatic insurance cover without it being necessary
to apply
therefore regardless of whether such indemnity cover is required or
not, as opposed to the commercial insurer’s
client who need to
apply for cover. The process of applying for insurance cover is used
by the commercial insurer as a means to
assess its risk in providing
insurance cover, whereas the first defendant does not conduct any
risk assessment save for it being
known to the first defendant that
its risk pool is restricted to a specifically defined group, i.e.
practising attorneys. In the
case of the first defendant, no premium
is paid by the individually insured attorneys who enjoy insurance
cover from the first
defendant. A single annual premium is instead
paid by a separate entity, the Attorneys Fidelity Fund, who in turn
generates its
income from the interest raised on the trust accounts
of all practising attorneys. On the other hand, the commercial
insurer only
accepts the risk placed with it, against payment of a
pre-determined premium by the individually insured. The premium is
determined
in accordance with the risk assessment conducted by the
insurer.
[13]
Upon the decision to accept the risk, a commercial insurer will in
addition to the premium determined by it, against payment
of which it
would accept the risk, also dictate other terms and conditions of the
policy on the basis of which it is willing to
accept the risk. On the
other hand, the first defendant has one standard master policy with
exactly the same terms and conditions
applicable to every insured
irrespective of the individual details applicable to every respective
insured. The insured placing
insurance with a commercial insurer will
make known to that insurer at least its identity. That identity will
be part of the risk
analysis and risk assessment conducted by the
commercial insurer as opposed to the First Defendant, who do not have
any details
of the identity of the insureds covered by it until a
claim is made. The only information available to the first defendant
is that
its insureds all belong to a defined group, i.e. practising
attorneys. In the case of the commercial insurer, it will be in
possession of a file in respect of its respective insureds,
containing inter alia the application form, risk assessment,
correspondence
pertaining to renewal of insurance, unique terms and
conditions etc. as opposed to the first defendant who keeps no
records in
respect of its insureds, who enjoy insurance cover
irrespective of the differences between them. With reference to the
aforegoing
aspects, Mr Harban during his testimony emphasised the sui
generis nature of the first defendant as an insurer in comparison to
a commercial insurer.
[14]
In respect of the
sui
generis
nature of the first defendant’s insured, Mr Harban has
emphasised that: It is only admitted attorneys who qualify for
cover with the first defendant as opposed to the public at large
which qualifies as potential insureds of commercial insurers.
To be
an admitted attorney a person needs to satisfy no less than six
requirements. To be admitted as an attorney you need to be
a South
African Citizen, pass matric with University exception, obtain the
prescribed law degree, serve the prescribed period of
articles,
successfully complete the Attorneys Admission Examination and satisfy
a Court on application that you are a fit and proper
person to be
admitted as an attorney. In addition to it being a requirement that
the insureds of the first defendant should be
admitted attorneys,
they should also practise on a day to day basis as attorneys as the
enacting legislation stipulates that the
first defendant shall
provide insurance cover to practitioners in respect of claims which
may proceed from the professional conduct
of such practitioners.
Lastly, the insureds enjoying cover with the first defendant, need to
be in possession of a Fidelity Fund
Certificate or they need to be
obliged to apply for a Fidelity Fund Certificate. The requirements to
obtain a Fidelity Fund Certificate
are an annual unqualified audit
and payment the requisite annual fee. Mr Harban emphasised the fact
that the requirement pertaining
to an annual unqualified audit is
regarded by the first defendant as important as it serves as evidence
of the healthy status of
its respective insureds’ practices.
[15]
The
sui generis
nature of the insured enjoying cover with the
first defendant can be summarised by stating that all insureds fall
within a specifically
defined closed group, i.e. practising attorneys
who on an annual basis receive an unqualified audit of their trust
accounts. The
insureds enjoying cover with the first defendant are
accordingly a group of people to which very specific requirements are
applicable
in order to qualify as a member of the group. When dealing
with the
sui generis
nature of the relationship between the
sui generis
insurer, i.e. the first defendant and its
sui
generis
insureds, i.e. the practising attorneys, Mr Harban
highlighted the following aspects:
The
relationship is a relationship borne out of legislation. The public
company to which reference is made in Section 40A(a)(i)
of the
Attorneys Act is the first defendant. The only other party or entity
referred to in that section is the practitioners which
are the
defined closed group of people. The relationship is thus regarded by
the first defendant as a personal and closed relationship
which
allows for no one else, but the first defendant and practitioners.
[16]
In the case of the commercial insurer, its relationship with its
insureds is not borne from legislation but in fact comes into
existence as a result of commerce. It is also for this reason that
the commercial insurers’ insured is not restricted to
a
specific closed group but virtually allows for the public as a whole
to enjoy cover upon making successful application for such.
In the
case of the first defendant, the very same legislation giving rise to
the personal relationship also restricts the cover
applicable to that
relationship. The relationship is ex facie the empowering and
enacting legislation restricted to claims which
may proceed from the
professional conduct of the practitioners enjoying cover. In the case
of the commercial insurer, the relationship
is restricted by the
election of the parties only and on the basis of commercial decisions
and not as a result of any of legislation.
[17]
In the case of the commercial insurer, the insurance contract usually
has a limited duration of one year where after a renewal
is
considered by the insurer. On the side of the AIIF, the insurance
cover is continuing on condition only that the attorney remains
a
practising attorney. The cover extended by the first defendant to its
members is more lenient than the cover enjoyed by insureds
under a
commercial policy. Clause 6.5.1 on page 5 of exhibit “A”
serves as an example of the more lenient nature of
the cover extended
by the first defendant to its insureds. This clause specifically
provides that the first defendant shall not
seek to void, repudiate
or rescind the insurance upon any ground whatsoever including in
particular non-disclosure or misrepresentation.
This type of leniency
is ordinarily not associated with the terms and conditions of a
commercial insurance policy. In the case
of a commercial insurance
policy the expense of litigation incurred as a result of the defence
of any claim is deducted from the
cover enjoyed by the insured and as
a result the cover is diminished by the cost of litigation. In the
case of the first defendant,
the expense pertaining to litigation in
defending any particular claim, is covered in addition to the
indemnity cover enjoyed by
the insured, the extent of which appears
from clause 8.4 of the policy and pages 7 and 8 of exhibit “A”.
[18]
In addition to the more lenient nature of the policy, the first
defendant’s insurance policy in fact makes it possible
for its
insured to elect to approach the first defendant to consider the
settlement of the claim being made against the insured
and not to
necessarily defend such a claim. This provision enables the closed
group of insureds, i.e. practising attorneys to maintain
its
relationship with its client and to ensure the future existence of
that relationship. He referred to Clause 6.12 of the insurance
policy
on page 6 of exhibit ‘A’. The aforementioned is the
evidence specifically adduced in respect of the
sui generis
nature of the relationship between the
sui generis
insurer,
i.e. the first defendant and its
sui generis
insureds, i.e.
the practising attorneys.
In
response to questions posed under cross-examination and dealt with in
re-examination, Mr Harban testified
inter alia
as follows:
Although
the first defendant is a registered short-term insurer like other
short-term insurers, it differs from other short-term
insurers in
that it is a creature of statute that originates from Section
40A(a)(i) of the Attorneys Act. The enacting legislation
gives rise
to the personal relationship between the first defendant and the only
other party mentioned in the legislation, i.e.
practitioners. The
empowering legislation also restricts the business of the first
defendant. Although the policy concerned is
more lenient than
ordinary commercial insurance policies, it is more lenient towards
the intended beneficiary, i.e. insureds as
defined, i.e.
practitioners.
[18]
Although the plea in response to the plaintiff’s citation
denies that the plaintiff was previously known as Baedex, paragraph
67 of the particulars of claim in terms of which it is alleged that
inter
alia
the plaintiff and second defendant entered into the agreement
containing the cession, is common cause for purposes of adjudicating
the special pleas. The admission of liability that appears
ex
facie
the
agreement entered into between the plaintiff and the second defendant
is an admission of liability in respect of the damages
allegedly
suffered by the plaintiff and in respect of the six claims of the
plaintiff instituted against the second defendant in
the Magistrate’s
Court. This admission of liability by the second defendant prejudices
the first defendant in that it would
be bound by the admission if it
is held that is liable to indemnify the second defendant in terms of
the policy. In such a case,
it would not be able to defend the six
claims on the merit thereof, because the insured have already
admitted liability in the
very same agreement which contains the
cession. It is for this reason that the first defendant is prejudiced
by the mentioned admission.
[19]
The admission set out on page 31 of exhibit “A” is to be
differentiated from clause 14.2 of the very same agreement
in terms
of which it is stated that the second defendant does not guarantee
that it has any right to cede. The admission, on page
31 pertains to
an admission of liability in respect of the six claims based on the
misappropriation of money whereas clause 14.2
deals with the rights
of recourse and claims ceded by the Second Defendant. The repudiation
of the second defendant’s claims
for indemnification does not
result in the first defendant not having any further interest in the
policy. This is so because a
finding that the repudiation was not
justified will give rise to liability on the part of the first
defendant in terms of the insurance
policy. Such finding by a Court
or other entity will constitutes the first stage of a two-stage
enquiry. If it is held that the
first defendant is liable in terms of
the policy to indemnify the second defendant, the first defendant
would in terms of the remainder
of the policy inclusive of clause 6.6
and 6.7.1 thereof be entitled to insist upon defending the underlying
claims, i.e. the six
claims of the plaintiff in the name of the
insured, i.e. the second defendant. The first defendant would also be
entitled to insist
upon the assistance of the insured, i.e. the
second defendant in resisting the six underlying claims. The six
underlying claims
will constitute the second stage of the enquiry.
The effect of the cession is to render the first defendant’s
rights in terms
of clause 6.6 and 6.7.1 nugatory because it is absurd
and nonsensical to expect of the plaintiff who then because of the
cession
finds itself in the shoes of the insured to defend its claim
against itself and/or to render assistance to the first defendant to
defend its claim against itself.
[20]
In practice, the two-stage enquiry would be dealt with irrespective
of the form of the pleadings by first dealing with the
first issue,
i.e. the issue of liability for indemnification under the policy
before the second issue, i.e. liability in respect
of the six claims
are dealt with. This happens every day in practice and in terms of
the provisions of Rule 33(4) of the Uniform
Rules of Court. It is
thus not a case where because it has repudiated the claims of the
second defendant under the policy and has
thus walked away, the first
defendant can thereafter not rely on the provisions of the policy if
it is found that it is in fact
in terms of the policy liable to
provide indemnification. In the context of the present matter and
present litigation, the first
defendant is prejudiced and its
position is weakened because the cession brought about a factual
situation where the insured and
the third party claiming against the
insured are effectively the same entity, i.e. the plaintiff. The
effect of this is that the
aforementioned two-stage enquiry is forced
into one, because if it is found that the first defendant is liable
to provide indemnification,
such indemnification needs to be provided
to the new insured, i.e. the plaintiff who would not be able to
effectively assist in
the defence of its very own six underlying
claims.
[21]
The drafter of the policy probably did not include an express
prohibition against cession in so many words because on a proper
construction of the policy as a whole and with reference to the
preamble, clause 2.5, clause 1, clause 6.6, 6.7.1 and 6.8 thereof
in
particular, it is clear that the drafter contemplated that an insured
would not be entitled to transfer its rights of indemnification.
Other than what the plaintiff seems to suggest, there is no
difference between a claim for specific performance and effectively
becoming the insured in terms of the policy. The only party who can
by means of specific performance claim performance of the obligations
of the insurer under the policy is the insured. Therefore, a claim
for specific performance can only be brought by the insured.
It is
therefore nonsensical to suggest that whilst the plaintiff is
claiming specific performance of the first defendant’s
obligations under the indemnification policy, it has not taken in the
position of the insured.
DISCUSSION
(APPLICATION OF RELEVANT LEGAL PRINCIPLES)
[22]
Mr Van Der Merwe was very critical of Mr Harban’s evidence. He
described him as argumentative and evasive. In his observation,
this
was not a good witness. He described him further as not independent.
He asked this court not to trust or rely upon Mr Harban’s
evidence. I must hasten to mention that I totally differ from the
views expressed by Mr Van Der Merwe with regard to Mr Harban.
I
expand on this later in this judgment. Mr Van Der Merwe
contended that the second defendant did not admit liability to
the
plaintiff or made any admission in respect of the grounds upon which
the relief is sought against the first plaintiff vicarious
liability
of second defendant) for the damages suffered by the plaintiff due to
the actions of Buurman and/or Van Der Merwe alternatively,
a breach
of the second defendant’s legal duties to the plaintiff. Cf
Absa
Bank Ltd v Swanepoel NO
2004 (6) SA 178
(SCA) at [6] and [7]. Referring to
Christie’s
Law of Contract in South Africa
(7
th
ed) at page 261, Mr Van Der Merwe contended that in the event of any
difficulty in interpreting or dealing with any contradiction
between
clause 14.2 and the recordal of the Cession Agreement, Clause 14.2
have greater weight in the light of the maxims of
generalia
specialibus non-derogant or expressio unius est exclusio alterius.
He
rejected the argument regarding the sui generis identity of the
insurer and the insured (inclusive of the sui generis relationship
between them and due to the
sui
generis
origin), nature and extent of the insurance contract and related
legislation and dismissed same as a red herring.
[23]
Mr Van Der Merwe contended that whatever the nature, origin or cause
of the existence of the first defendant and its insured,
the fact
remains that the first defendant is a short-term insurer and that the
Policy is a written insurance contract. In his contention,
the rights
and obligations of the parties to the Policy should be determined
from the Policy itself and according to ordinary contractual
principles. He referred me to DM Davis: Gordon & Getz –
The
South African Law of Insurance
(4 ed), Volume 12.1 of
LAWSA
at
261, and at page 246. In Van Der Merwe’s contention,
there is no statutory or other legal prohibition against the
cession,
nor is it immoral or contrary to public policy. He pointed out that,
on the contrary, the rule of our law is that all
rights in
personam
,
subject to certain exceptions based principally upon the personal
nature of the right, can be freely ceded. He referred to
Trust
Bank of Africa Ltd v Standard Bank of South Africa Ltd
1968
(3) SA 166
(A).
[24]
The first defendant seeks to rely on alleged implied term (never
pleaded) or a tacit term. Of course a tacit term will only
be
inferred if it is necessary in the business sense to give efficacy to
the contract, i.e. if it is such a term that one can be
confident
that if at the time the contract was being negotiated someone had
said to the parties: ‘
What
will happen in such a case?’
they would have both replied: ‘
of
course, so-and- so we did not trouble to say that; it is too clear.
This is known as the officious bystander’
test.
However,
since one may assume that the parties to a commercial contract are
intent on concluding a contract which functions efficiently,
a term
will readily be imported into a contract if it is necessary to ensure
its business efficacy; conversely, it is unlikely
that the parties
would have been unanimous on both the need for and the content of a
term, not expressed, when such a term is not
necessary to render the
contract fully functional. See
Wilkins
NO v Voges
[1994] ZASCA 53
;
1994
(3) SA 130
(A) at 136-137.
It
appears that the first defendant is alleging that if it should be
held that it wrongly repudiated the Claims, it has the option
to
elect to either pay same or to defend the actions instituted by the
plaintiff against the second defendant. However, because
of the
alleged admission made in the Cession Agreement, as well as the fact
that it cannot secure the assistance of the second
defendant as
provided in terms of the Policy, particularly in opposing the Action,
it is materially prejudiced to such a degree
that the Claims could
not and were not lawfully and validly ceded.
[25]
The Policy is and remains an insurance contract between the first
defendant (as the insurer) and the second defendant (as the
insured).
Cession is a juristic act which transfers the right from the estate
of the creditor, the cedent, to that of another,
the cessionary, who
thereby becomes creditor, in his stead. See
Johnson
v Incorporated General Insurance Ltd
1983 (1) SA 318
(A) at 331 G-H. It is not an assignment or a
combined cession and delegation whereby
a
third party, by agreement of all concerned, steps into the shoes of
one of the parties to a contract and replaces it entirely
both as
creditor and debtor. See
Simon
NO v Air Operations of Europe AB and Others
[1998] ZASCA 79
;
1999
(1) SA 217
(SCA) at 2281. In Mr Van Der Merwe’s submissions,
the plaintiff
only
acquired the claims. It did not substitute the second defendant as
the insured in terms of the Policy. He pointed out that
nothing
precludes the first defendant from relying on,
inter
alia
,
clauses 6.7.1 and 6.7.2 of the Policy as against the second
defendant, whilst the claims were submitted by the second defendant
prior to the repudiation by the first defendant, as required by
clause 6.1 thereof. Mr Van Der Merwe maintained that the first
defendant repudiated the claims and once it had done so, the second
defendant had no option but to deal with the actions instituted
against it as it deemed appropriate in its sole discretion. In the
exercise of its discretion, the second defendant concluded the
Cession Agreement on terms it deemed to be appropriate.
[26]
In
Dettmann
v Goldfain & Another
1975
(3) SA 385
(A) it was held,
inter
alia
,
that:
‘…
prima
facie, all contractual rights can be transmitted unless their nature
involves a delectus personae or the contract itself shows
that they
were not intended to be ceded.’
The
above decision also held that in order to determine whether the
nature of the contractual rights involves a
delectus
personae
and
whether the contract itself shows that the rights were not intended
to be ceded, all circumstances would have to be taken into
account.
In other words, the proper interpretation depends on all
circumstances. What this tells me is that in order to adjudicate
whether the nature of the contractual rights concerned in the present
case involves a
delectus
personae
and whether the contract itself shows that the rights concerned were
not intended to be ceded, all circumstances need to be taken
into
account. The fact that all circumstances need to be considered even
when it comes to the interpretation of the contract concerned,
is
also borne out by the recent law on the issue of interpretation. In
Bothma-Batho
Transport (Edms) Bpk v S Bothma &
Seun
Transport (Edms) Bpk
2014 (2) SA 494
(SCA), the following was held in respect of
interpretation at paragraph 12:
“
[12]
That summary is no longer consistent with the approach to
interpretation now adopted by South African courts in relation to
contracts or other documents, such as statutory instruments or
patents. Whilst the starting point remains the words of the document,
which are the only relevant medium through which the parties have
expressed their contractual intentions, the process of interpretation
does not stop at a perceived literal meaning of those words, but
considers them in the light of all relevant and admissible context,
including the circumstances in which the document came into being.
The former distinction between permissible background and surrounding
circumstances, never very clear, has fallen away. Interpretation is
no longer a process that occurs in stages but is 'essentially
one
unitary exercise'. Accordingly it is no longer helpful to refer to
the earlier approach.’
[27]
In the recent decision of the Supreme Court of Appeal reported as
G4S
Cash Solutions (SA) (Pty) Ltd v Zandspruit Cash & Carry (Pty) Ltd
& Another
2017 (2) SA 24
(SCA), the following was held in
context of a trial concerned with the interpretation of a contract in
the Court
a quo
at paragraphs 10, 12 and 13:
‘
[10]
No evidence was led at the trial and, after argument, Van Oosten J
held that the time limitation in clause 9.9 of the agreements
did not
apply to the respondents' delictual claims. The trial court
accordingly dismissed the special plea. As recorded above,
the
appellant's subsequent appeal was dismissed by the full court which
agreed with Van Oosten J that clause 9.9 of the agreements
did not
apply to delictual claims and that the respondents' claims were
accordingly not time-barred.’
‘
[12]
To determine whether or not the respondents' delictual claims are
time-barred, it is necessary to interpret the agreements
and in
particular clause 9.9 thereof. Whilst the starting point is the words
of the agreements, it has to be borne in mind, as
emphasised by Lewis
JA in Novartis SA (Pty) Ltd v Maphil Trading (Pty) Ltd
2016 (1) SA
518
(SCA) ([2015] ZASCA 111) para 27, that this court has
consistently held that the interpretative process is one of
ascertaining
the intention of the parties — in this case, what
they meant to achieve by incorporating clause 9.9 in the agreements.
To
this end the court has to examine all the circumstances
surrounding the conclusion of the agreements, ie the factual matrix
or
context, including any relevant subsequent conduct of the parties.
[13]
As recorded above, the special plea was determined separately and at
the hearing neither party presented any evidence. In the
result no
facts were available to the court in the interpretative process
regarding the circumstances surrounding the conclusion
of the
agreements or of any relevant subsequent conduct of the parties. The
only available evidence upon which the court had to
determine what
the parties meant to achieve by incorporating clause 9.9 in the
agreements, and in particular whether or not they
intended including
delictual claims within the ambit of clause 9.9, was the agreements
themselves. Whilst it is not for the court
to prescribe to litigants
whether or not, or to what extent, they should present evidence, it
seems to me that a party bearing
the onus in a dispute regarding the
proper interpretation of a contract, should bear in mind that to
simply rely on a linguistic
interpretation alone may not suffice to
discharge the onus. Therefore, if available, relevant evidence
regarding the factual matrix
in which the contract was concluded and
the subsequent conduct of the parties, should be called in aid of the
interpretative process.’
[28]
In respect of the nature of the rights involving a
delectus
personae
courts have expressed themselves fully. For instance in
Hersch
v Nel
1948 (3) SA 686
(A), it was held within the context of a right to buy
being ceded that where the contract was for cash, it could make no
difference
to the vendor (in
casu
t
he
insurer) whether he is dealing with a millionaire or a pauper, with
an honest man or a convicted thief. It was held that because
the
right to buy, that was ceded, was one of purchase for cash, there
could not be any objection but that an option to obtain a
loan would
obviously stand on an entirely different footing from an option to
buy for cash. This is authority for the proposition
that in order to
determine whether the nature of the right involves a
delectus
personae
,
it is necessary in the present context to determine if it makes a
difference to the insurer (i.e. the first defendant) whether
he is
dealing with a millionaire or a pauper etc and thus whether it makes
a difference to it, whether he is dealing with an attorney
as opposed
to the plaintiff, i.e. an entity that is not a practitioner. The
testimony led in this matter is that it is important
to the first
defendant to only deal with practising attorneys as its legislative
mandate restricts it to the provision of insurance
cover for
practising attorneys.
[29]
It seems correct to contend that if the rights of the practising
attorneys to indemnification are held to be capable of transfer,
it
will prejudice the position of the first defendant because then
whenever the stage enquiry arises, it would not be able to defend
the
underlying claims in the name of the insured and would not be able to
insist upon the assistance of the insured in defending
those
underlying claims. In
South
African Board of Executors and Trust Co. Ltd (in liquidation) v
Gluckman
1967 (1) SA 534
(A), the Court had to decide whether the right of a
liquidator to bring proceedings for the setting aside of a
disposition without
value could be ceded to a third party. The court
held that the rights concerned involves a
delectus
personae
.
In this regard, the court specifically held that the right had its
origin in legislation and that the legislation clearly did
not
contemplate the exercise of the right by a third party. The court
further held that the right in terms of the legislation could
only be
exercised by the liquidator in a representative capacity and that,
that capacity cannot by cession be bestowed upon another.
In
the present matter, the right to automatic indemnification /
insurance cover originates from legislation. See Section 40A (a)
(i)
of the Attorneys Act. The legislation does not provide for the right
to enjoy insurance cover to be exercised by a third party,
i.e. a
party other than a practitioner. The empowering legislation (the
Attorneys Act) do not contemplate the exercise of the right
by a
third party (the plaintiff – an entity which is not an
attorney). All what the empowering and enacting legislation
stipulates is that the first defendant shall provide insurance cover
to practitioners, i.e. a capacity that cannot by cession be
bestowed
upon another.
[30]
In
McPhee v McPhee & Others
1989 (2) SA 765
(N), the
following was held at 768C:
‘
I
am in respectful agreement with the learned Judge's views. Some
rights are so personal that they can never be transferred to anyone
else. The examples given by Nestadt J are, in my view, clear. Others
can be found in the law of cession where a delectus personae
is
involved, although, of course, in that instance the impediment need
not be absolute for in some cases at least the right may
be ceded
with the consent of another party. See Eastern Rand Exploration Co
Ltd v Nel and Others
1903 TS 42
at 53. Perhaps a more suitable
example can be found in the prohibition against the cession of
maintenance orders. See Schierhout
v Union Government (Minister of
Justice)
1926 AD 286
at 291 and Greathead v Greathead
1946 TPD 404
at
411.
Consider
the (perhaps fanciful) case of a husband suing his wife for a
divorce. In the course of the proceedings the wife obtains
an order
for maintenance; in some interlocutory step the husband obtains an
order for costs. Clearly, on the cases, he could not
set off his
claim for costs against her right to maintenance. Nor can she cede
her right to maintenance to a third party. Could
she, in order to
enforce her claim for maintenance, attach his right, title and
interest in his action? Clearly she could not.
Mr McLaren submitted
that this
is so because the transaction would be contra bonos mores. It might
be, but that is surely not the whole answer. The reality
is that the
right is so personal to her husband that he cannot be deprived of it
and no one else could exercise it.”
Thus
a right to maintenance cannot be ceded to a third party because the
right is so personal to the relationship between husband
and wife
that it cannot be transferred to anyone else. In the present matter,
the right to indemnification originates from the
personal
relationship between the first defendant as a creature of statute and
the only other party to which reference is made
by the enacting
legislation, i.e. practitioners. I am of the view that the right of
an attorney for indemnification in the present
matter cannot be ceded
because of the personal and restricted nature of the relationship
brought about by the empowering and enacting
legislation. The
evidence by Mr Harban which I accept, shows that all short-term
insurers are not on exactly the same footing.
As opposed to other
short-term insurers, the first defendant was enacted and borne from
legislation. The relationship which entitles
any practising attorney
to indemnification by the First Defendant is a relationship that
would not exist outside of the specific
legislative provision. It is
comparable to a right of maintenance that would not exist outside the
relationship of husband and
wife.
[31]
I was also referred to
Densam (Pty) Ltd v Cywilant (Pty) Ltd
[1990] ZASCA 120
;
1991 (1) SA 100
(A) where the then Appellate Division held the
following at page 112B to G:
‘
This
approach I consider to be contrary to principle and authority. The
question whether a claim (that is, a right flowing from
a contract)
is not cedable because the contract involves a delectus personae
falls to be answered with reference, not to the nature
of the
cedent's obligation vis-à-vis the debtor, which remains
unaffected by the cession, but to the nature of the debtor's
obligation vis-à-vis the cedent, which is the counterpart of
the cedent's right, the subject-matter of the transfer comprising
the
cession. The point can be demonstrated by means of the lecture-room
example of a contract between master and servant which
involves the
rendering of personal services by the servant to his master: the
master may not cede his right (or claim) to receive
the services from
the servant to a third party without the servant's consent because of
the nature of the latter's obligation to
render the services; but at
common law the servant may freely cede to a third party his right (or
claim) to be remunerated for
his services, because of the nature of
the master's corresponding obligation to pay for them, and despite
the nature of the servant's
obligation to render them. In Eastern
Rand Exploration Co Ltd v A J T Nel, J L Nel, S M Nel, M M E Nel's
Guardian and D J Sim
1903 TS 42
at 53 Innes CJ stated the principle
of our law as follows:
'Now,
speaking generally, the question of whether one of two contracting
parties can by cession of his interest, establish a cessionary
in his
place without the consent of the other contracting party depends upon
whether or not the contract is so personal in its
character that it
can make any reasonable or substantial difference to the other party
whether the cedent or the cessionary is
entitled to enforce it.
Subject to certain exceptions founded upon the above principle rights
of action may, by our law, be freely
ceded.'
When
the learned Chief Justice referred to the contract being personal in
its character, it is clear, in my view, that
he
had in mind the obligation of the debtor ('the other party'), for it
is only in relation to the performance of that obligation
that it can
make any difference to the debtor whether it is the cedent or the
cessionary who is entitled to enforce the contract.’
In
the present matter, the nature of the debtor’s obligation
vis-à-vis
the cedent is to provide indemnity to a defined and closed risk pool.
Not only is that obligation restricted by the empowering
legislation
to a specific group, i.e. practitioners, the licence conditions under
which the first defendant operates also restricts
its obligation to
the provision of indemnification to practitioners. The current
situation does fall within the ambit of the lecture
room example
mentioned above. The practitioner may not cede his right or claim to
receive this personal service from the first
defendant to a third
party without the first defendant’s consent because of the
restricted and legislative nature of the
first defendant’s
obligation to render the service. In this regard I put importance to
the evidence led which shows that
the first defendant is rendering a
service as a non-profit company to its members, i.e. the
practitioners as opposed to commercial
insurers who undertake and
accept the risk in return for commercial gain.
[32]
In
Namex (Pty) Ltd v Commissioner for Inland Revenue
1992 (2)
SA 761
(C), this court had to decide whether the Commissioner for
Inland Revenue could cede its claim for income tax in circumstances
where the evidence revealed that the Commissioner had participated in
numerous schemes involving remitting of taxes and cession
of the
Commissioner’s claim for taxes. The court held
inter alia
as follows on page 773 to 774:
‘
How
does one deal with questions of confidentiality? Can the cessionary
have access to defendant's files? What if plaintiff wishes
to review
the Government Mining Engineer's determination or to appeal against
the assessment? Need I continue?
The
claim of the defendant for income tax cannot be ceded. He is, in
relation to all matters of tax, akin to a delectus persona
and he may
not dispose of his rights or his duties. The rights and duties of a
local authority to collect rates and taxes have
similarly been held
not to be capable of waiver or remission (see the Mercian case
supra).
It
is apposite to note that in Nokes v Doncaster Amalgamated Collieries
Ltd
[1940] 3 All ER 549
(HL), the House of Lords held that an order
under the Companies Act 1929 which transferred the property, rights
and liabilities
of a company to another company did not ipso facto
transfer contracts of personal service, which are by their nature
incapable
of transfer. Viscount Simon LC put it thus (at 555):
Such
a right cannot be the subject of gift or bequest. It cannot be bought
or sold. It forms no part of the assets of the employer
for the
purpose of administering his estate. In short, s 154, when it
provides for "transfer", is providing, in my opinion,
for
the transfer of those rights which are not
incapable
of transfer, and is not contemplating the transfer of rights which
are by
their nature incapable of being transferred.'
It
is also clear from what I have said above that defendant cannot agree
to accept payment from the 'receivers' and thereby release
the
company as the scheme requires creditors to do.
Where
the Legislature intends defendant to have the power to remit moneys
due to the State, the power to do so is expressly and
specifically
given. Thus, in terms of s 76 of the Income Tax Act, defendant may
remit a penalty or allow payment by instalments.
Nowhere in the
Income Tax Act is defendant given a general power to reduce, waive,
cede or otherwise alienate a claim for tax.’
Mr
Heyns submitted that in the present circumstances, the claim of the
practitioner for indemnification is by its very nature incapable
of
transfer. I agree. The automatic right originates from legislation
and is afforded to all practitioners. In my view, it being
an
automatic right specifically given, it cannot be the subject of gift
or bequest. It cannot be bought or sold. It forms part
and parcel of
the capacity of a practitioner as such, its capacity cannot by
cession be bestowed upon another. The obligation on
the part of the
first defendant to provide insurance cover is expressly and
specifically given by the legislator in respect of
only practitioners
and no one else.
[33]
As to
a pactum de non cedendo
, one must have regard to what
was held in
Trust Bank of Africa Ltd v Standard Bank of South
Africa Ltd
1968 (3) SA 166
(A) at 189D:
‘
The
rule of our law is that all rights in personam, subject to certain
exceptions based principally upon the personal nature of
the rights,
not here relevant, can be freely ceded, but an owner's rights of free
disposal of his property may be restricted by
a pactum de non
cedendo. The effect of such a pactum depends upon the circumstances.
Voet, 2.14.20 and Sande, Restraints, 4.1.1,
and 4.2.1, point out that
an agreement whereby an owner deprives himself of the free right to
deal with his own property, is without
effect unless the other
contracting party has an interest in the restriction, contained in
the very agreement recording the right,
for in such a case the right
itself is limited by the stipulation against alienation and can be
relied upon by the debtor for whose
benefit the stipulationwas made.
G (Paiges v Van Rhyn Gold Mines Estates Ltd.,
1920 AD 600
at pp. 615
and 617, and see Windscheid, op. cit., para. (C) and note 5, and
Dernburg, Pandekten, 7th ed., vol. II, p. 141).’
The
full bench of this division upheld the aforementioned principle in
the matter of
Capespan
(Pty) Ltd v Any Name 451 (Pty) Ltd
2008 (4) SA 510
(C).
It
indeed follows from the abovementioned decisions that an owner’s
right of free disposal may be restricted by a
pactum
de non cedendo
.
All that must be borne in mind is that all circumstances need to be
considered in order to determine whether
a
pactum de non cedendo
is
present. The truth is where the right is created with a
restriction is contained in the very agreement recording the right,
the restriction is enforceable without qualification against the
entire world. I consider Mr Harban’s evidence as important.
He
testified that although the Policy document and the enacting
legislation do not in so many words contain an express prohibition
against cession, both the legislation and the Policy properly
construed at the very least provide an implied alternatively, tacit
agreement between the only two parties to the relationship, i.e. the
first defendant and the insured as defined not to transfer
rights
and/or claims without the consent of the insurer.
[34]
In
Densam (Pty) Ltd v Cywilnat (Pty) Ltd
[1990] ZASCA 120
;
1991 (1) SA 100
(A),
the following was said on page 114B:
‘
An
agreement between a banker and its customer that the former will not
cede its claim against the latter cannot be implied in the
contract
between them as a matter of law; if there is no express agreement to
that effect it can be found to exist only by way
of tacit consensus
between the parties, which is to be inferred from all the relevant
surrounding circumstances.’
One
must point out though, other than in the instance of an agreement
between a banker and its customer where an agreement not to
cede
cannot be implied into the contract between them as a matter of law,
it is possible in the present matter for such an agreement
to be
implied from the empowering legislation, which expressly restricts
the obligation to provide insurance cover to practitioners
i.e. a
specifically closed defined group. Additionally, the agreement can be
found to exist by way of tacit consensus between the
parties, i.e.
the first defendant and the second defendant (which is to be inferred
from all the relevant surrounding circumstances).
[35]
The evidence has shown that the Policy specifically provides for
three parties. The first party is the insured as defined.
Importantly, the definition of the insured is in line with the
enacting legislation and it restricts insureds to practitioners.
The
second is the insurer, i.e. the first defendant. The Policy also
provides for a third party who is to be differentiated from
the
insured as defined. A further reference to the third party is
to be found in clause 6.8 which refers to ‘
any
person’
other than the insured (as defined). It is clear from a proper
consideration of the wording of the Policy concerned that the
insurer
and insured by way of tacit consensus at least agreed that the
insured’s rights of indemnification would not be capable
of
transfer as such transfer will bring about a situation where the
three parties envisaged by the Policy will effectively become
two
parties. Clause 6.6 and 6.7.1 evidence that the at least tacit
consensus referred to above would not be capable of cession.
These
two clauses
inter
alia
provide that the insurer shall be entitled if it so desires, to take
over the conduct in the name of the insured of the defence
of any
claim. These clauses further provide that the insured shall render
such assistance as the insurer may reasonably require
(in respect of
any claim being made against the insured).
[36]
Perhaps it may be of importance to point out that clauses 6.6 and
6.7.1 of the Policy cannot and do not vanish or cease to
exist simply
because there has been a repudiation. If it is held during first
stage of the two-stage enquiry referred to by
Mr Harban that
there is liability on the part of the first defendant under the
Policy, the first defendant is and remains entitled
to rely on the
provisions of
inter alia
clause 6.6 and 6.7.1 of the Policy.
As mentioned above, it follows from
inter alia
those clauses
that the parties at least had tacit consensus that the rights of the
second defendant would not be capable of cession.
In
Bellingan v
Clive Ferreira & Associates CC & Others
1998
(4) SA 382
(W), the following was said at page 396C:
“
If
the respondents' case is indeed that the alleged term restricting
Prima Bank's right to cede was tacit, then considerations such
as
business efficacy or the application of the meddlesome onlooker test
would arise. On that score, in my view, business efficacy
would not
require the implication of such a term and I consider that the
parties would have given different answers to the questions
posed by
the hypothetical meddlesome onlooker.’
If
the meddlesome onlooker is asked in the present circumstances whether
an attorney who enjoys an automatic right of indemnification,
without
the obligation to make payment of a premium, which right originates
from legislation and is restricted in its application
to attorneys
and claims arising out of the conduct of the profession, would be
entitled to cede that right to a non-attorney, the
answer most
certainly would be in the negative. This would even be more so if
considerations of business efficacy are applied.
[37]
The right to indemnification applies automatically because the duty
to provide the insurance cover originates from legislation.
Attorneys
pay no premium in respect of the insurance cover enjoyed; at least
they make no direct payment of premiums. The provisions
of the Policy
are more lenient than those applicable to ordinary insurance cover.
The Policy even provides for an election on the
part of the insured
not to defend claims being made against it but for same to be
settled.
I
am of the view that it would not make business sense to conclude that
rights so personal in nature are capable of being transferred
outside
of the ambit and scope of the defined closed group entitled to those
rights. In practice, that will mean that the public
at large may
become entitled to rights which the legislator never contemplated to
bestow upon anybody else but a practitioner.
It will mean (I imagine)
that the public at large may become entitled to rights which the
parties to the Policy certainly did not
contemplate.
[38]
In
Corinth Properties (Pty) Ltd v Firstrand Bank Ltd
2002 (6)
SA 540
(W) the court held as follows (in
respect of a cession that impairs and negatively impacts the right of
the debtor, i.e. the first
defendant in this matter:
‘
At
page 159 he said, following Voet 18.4.13, that 'a creditor cannot
make the position of the debtor more grievous by means of a
cession,
and that, speaking generally, the cessionary must be subject to the
disadvantages that are incidental to his position.
. . . Voet says it
must also be considered inequitable that the rights of debtors should
be impaired or made more grievous by the
acts of their creditors,
especially as what is not permitted to the defendant or debtor ought
not to be allowed to a plaintiff
or creditor.'
Voet
18.4.13, after referring to the rule that a cessionary should be
subject to the same rights and exceptions as the cedent, stated
that:
'Finally
if a non-privileged person has ceded his actions to one who is
privileged, the cessionary cannot in the collection of such
an
account exercise any privilege arising out of his own status, but
ought to employ the common law of the cedent. It would be
extremely
harsh for the cause either of the debtor or of other creditors to be
made the harder by a change of creditor. Just as
it was thought
ridiculous for the claim of creditors to be destroyed or altered by
the agreements with the debtors, so contrariwise
ought it also to be
deemed unfair for the rights of debtors to be rendered worse or
harder by the act of a creditor. Especially
is that so since nothing
ought to be allowed to a plaintiff or creditor which is not allowed
to a defendant or debtor; and generally
the cause of a purchaser in
regard to claiming and defending ought to be the same as that of his
vendor.’
The
evidence showed at least three instances in which the position of the
debtor was made more grievous by means of cession. It
is pointed out
that the rights of the first defendant would be impaired. In this
regard, Mr Harban specifically testified that
the second defendant in
violation of the provisions of clause 6.6 of the insurance Policy
admitted liability in respect of the
six claims that the plaintiff
have instituted against the second defendant. The admission of
liability appears from page 31 of
Exhibit “A” where it is
stated that the second defendant has suffered a loss caused by
misappropriation of money and
is liable to the plaintiff for such
funds that the plaintiff has lost by the aforesaid misappropriation.
The evidence by Mr Harban
is that in addition to this admission being
a contravention of the provisions of clause 6.6 of the Policy, it is
also rendering
the position of the first defendant more grievous. He
testified that it is in fact impacting on the first defendant’s
its
rights as it would be bound by the admission of its insured if it
is held that it is liable in terms of the insurance Policy to
indemnify the insured.
[39]
The same clearly applies to the right of the first defendant to
insist upon assistance from its insured in defending the plaintiff’s
claims made against the insured, i.e. the second defendant and in
respect of the first defendant’s right to defend the
plaintiff’s
claim against the insured, as envisaged in clause
6.6 of the Policy in the event of it being held that the first
defendant is liable
to indemnify the second defendant. Mr Heyns
contended that the
suggestion
by Mr Van Der Merwe that because of the repudiation, the second
defendant was sent away whereafter the right to step
into the shoes
of the insured and to defend the six claims in the name of the
insured as well as the right to insist upon assistance
from the
insured can never be claimed, is simply wrong. Mr Heyns argued that
‘
The
correct position is, if it is held during the first stage of the
enquiry referred to by Mr Harban that there is liability on
the part
of the First Defendant to indemnify the Second Defendant, then such
indemnification needs to be done in terms of the policy.
It is this
very policy that contains clauses 6.6 and 6.7.1 amongst others. The
last-mentioned clauses are thus available for the
First Defendant to
rely upon irrespective of whether it initially repudiated the Second
Defendant’s claim.’
Clause
6.6 states that the insured shall not without the written consent of
the insurer make any admission.
[40]
I bear in mind the evidence by Mr Harban that the relationship
between the first defendant and its insured, i.e. practitioners
was
of such a personal and close nature that the rights flowing from that
relationship cannot be ceded. Mr Harban specifically
relied upon the
legislation and defined the relationship as being restricted to the
parties to which express reference is made
by the empowering
legislation, i.e. the first defendant and practitioners. The
objection is accordingly that the enacting legislation
give rise to
personal rights and obligations and thus the nature of the right
involves a
delectus
personae
as a result of which the right is not capable of being transferred. I
agree. Mr Harban demonstrated that clause 6.6 of the Policy
concerned
stipulates that the insured, i.e. the second defendant shall not
without the written consent of the first defendant negotiate
or offer
in connection with any claim. In this regard the objection is that
the cession agreement could not come into existence
without
negotiation and/or offer. The cession agreement in fact constitutes
the result of negotiation and offer and as such clause
6.6 is an
express, alternatively
tacit
pactum de non cedendo
.
By making an admission of liability in respect of the six claims, the
testimony that such an admission apart from being a clear
violation
of the provisions of clause 6.6 of the Policy, it also weakens the
position of the first defendant. It is our law (as
shown above) that
a creditor such as the second defendant cannot make the position of
the debtor such as the first defendant more
grievous by means of
cession. Needless to mention that clause 6.6 in this context states
that the insured shall not without the
written consent of the insurer
make any admission.
[41]
Mr Harban raised the fact that clause 6.6 provides that the insurer
shall be entitled (if it so desires) to take over the conduct
in the
name of the insured of the defence of any claim. Now that cession has
the effect of the plaintiff becoming the insured as
well as the party
who is making the claim against the insured and as a result the
entitlement of the insurer, i.e.
the
first defendant to defend the claim (of the plaintiff) in the name of
the insured is affected negatively to the extent to which
the right
is rendered nugatory. Clearly the prejudicial effect on the rights of
the first defendant is real irrespective of the
fact that it
repudiated the claims of the second defendant under the Policy.
[42]
Mr Harban relied on the provisions of clause 6.7.1 of the Policy
(providing that the insured shall render assistance to the
insurer if
such is reasonably required). This right to assist is also rendered
nugatory if the plaintiff against whose claims assistance
may be
needed in fact becomes the insured and thus the very same party who
should render the assistance. The point is that the
first defendant
is entitled in terms of the very same Policy from which the right to
indemnification flows to rely on clause 6.7.1
and to insist upon
assistance being rendered to it in order to defend the underlying
claims. The third party envisaged and contemplated
by the Policy
appears from the express wording of clause 1.1 which stipulates that
the indemnity granted in terms of the Policy
is in respect of the
insured’s legal liability to any third party arising out of the
conduct of the profession by the insured
(which legal liability is
the subject of a claim first made on the insured during the period of
insurance) irrespective of when
or where such liability arose.
[43]
Cession will bring about the effective elimination of one of the
three parties envisaged by the Policy. The truth is that the
moment
that the third party also becomes the insured, it is not only the
definition clause that is violated but also the tripartite
relationship envisaged and contemplated by the Policy. Importantly,
Mr Harban referred to clause 6.8 stipulating that nothing contained
in the Policy shall give any rights against the insurer (as defined)
to any person other than the insured. It is common cause that
the
first defendant relies upon the provisions of clause 6.8 as an
express, alternatively
tacit pactum de non cedendo
. It appears
from the clause that the objective of the Policy shall not give any
rights against the insurer, i.e. the first defendant
to any person
other than the defined insured. Thus, properly construed and
interpreted against all relevant circumstances, inclusive
of the
sui
generis
nature of the insurer, the insured and the relationship
between them, the clause is clearly indicative of consensus between
the
insurer and the insured, not to cede or transfer rights and/or
claims.
CONCLUDING
REMARKS
[44]
The rights and/or claims purportedly ceded could not be validly ceded
in that nature of the rights involves a
delectus
personae
,
i.e. a personal and closed relationship between the first
d
efendant
and the insured, i.e. a practitioner. The legislation giving rise to
the right of indemnification and the obligation to
provide insurance
cover in law imply an agreement between the parties referred to in
the legislation, i.e. the insurer and the
practitioner not to cede
the rights and/or claims referred to in the Policy and as such
impliedly creates
a
pactum de non cedendo
.
In fact having regard to the preamble, clause 1, clause 2.5, the
prohibition against negotiation and offering in clause 6.6 and
the
wording of clause 6.8, the parties to the Policy expressly,
alternatively tacitly agreed not to cede rights and/or claims and
thereby created
a
pactum de non cedendo
.
[45]
Cession of the rights and/or claims of the second defendant to the
plaintiff will undoubtedly render the position of the first
defendant
weaker (as said above) and will prejudicially affect its
rights and renders its position more grievous. This is
specifically
so in circumstances where the second defendant in contravention of
clause 6.6 admitted liability in respect of damages
suffered by the
plaintiff. These damages are the exact same damages which the
plaintiff seeks to recover by means of the particulars
of claim in
this case. I agree with the submission made by Mr Heyns that the
first defendant proved on a balance of probabilities
that the
particular rights and claims are not susceptible to cession. Cession
averred
in casu
to which the first defendant had not consented
is indeed bad in law. I hold that Mr Harban was a good witness. His
evidence was
systematic and logical. He painstakingly took the court
through the relevant legislation and did very well under grilling
cross-examination.
I can safely place reliance on Mr Harban’s
evidence in this matter. Having found that the cession was bad in
law, I proceed
to hold that the plaintiff does not have
locus
standi in iudicio.
THE
THIRD SPECIAL PLEA (THE STAY OF PROCEEDINGS)
[46]
The second issue for adjudication (3
rd
special plea) is concerned with the provisions of clause 12 of the
memorandum of agreement on which the plaintiff relies read with
clause 14.1 of the very same agreement. Clause 12 states that the
pending litigation between the plaintiff and the second defendant
will be suspended with all further steps in the litigation suspended
until the litigation between the second defendant and Ashtons
has
been finally resolved. It is common cause that the action between the
second defendant and Ashtons is still alive and pending.
[47]
The status of the litigation between Ashtons and the second defendant
and the fact that, that litigation has not been finally
resolved and
is alive (has not been abandoned) appears from a letter from the
second defendant’s attorney of 22 May 201.
This letter reflects
the current status of litigation between Ashtons and the second
defendant. That this litigation is alive and
pending is not presently
disputed by the plaintiff. In fact the status of litigation between
the second defendant and Ashtons became
common cause when the
plaintiff’s attorneys recorded that they have no objection in
the aforementioned letter being handed
in as evidence. I gather that
currently, the litigation between the plaintiff and the second
defendant comprising of the six claims
to which reference is made in
the particulars of claim in this matter, is suspended until the
litigation between the second defendant
and Ashtons has been finally
resolved.
[48]
In opposition to the stay of proceedings between the second defendant
and Ashtons, Mr Van Der Merwe contended that nothing
contained in the
cession Agreement prevents or prohibits the plaintiff from pursuing
any action against the second defendant once
it has been instituted.
He submitted that if the plaintiff should succeed in the action and
recover the amounts claimed from the
first defendant, the latter will
in any event (by way of subrogation), obtain the plaintiff’s
rights against the second defendant
in terms of the cession agreement
as far as the proceeds of the Ashton’s litigation to the first
defendant until such time
as it has repaid the full amount it
actually received from the first defendant.
[49]
Strangely clause 14.1 of the agreement provides that the plaintiff
may not institute any action against the first defendant
whilst the
litigation between the second defendant and Ashtons is in progress,
unless the action is instituted to prevent the claims
becoming
prescribed. Although (clearly) the current action was instituted in
order to prevent the claims becoming prescribed, clause
14.1 and 12
should be read in context together. If the two clauses are read in
context, it becomes apparent that there cannot be
indemnification in
respect of claims that are suspended. The indemnification claimed, is
in respect of the very same claims that
are suspended in terms of
clause 12.
[50]
The indemnity granted in terms of the Policy is in respect of the
insured’s legal liability to any third party arising
out of the
conduct of the profession by the insured (which legal liability is
the subject of a claim first made on the insured
during the period of
insurance) irrespective of when and where such liability arose. It
follows that there cannot be indemnification
and that no monetary
relief sought by means of the prayers of the present particulars of
claim can be granted. The monetary claim
sought is suspended by means
of clause 12 of the relevant agreement. I therefore conclude that
this special plea too has been proved
on a balance of probabilities
and it stands to be upheld. The finding that this special plea be
upheld is academic in view of the
finding I have already made
concerning the earlier special plea dealing with the
locus standi
in iudicio
.
ORDER
[48]
In the circumstances the following order is made:
(a) The second
special plea in respect of the absence of
locus standi in iudicio
on the part of the plaintiff is hereby upheld with costs.
(b) In view of the
order in (a) above, the plaintiff’s action against the first
defendant be dismissed with costs.
____________________________
D
V DLODLO
Judge
of the High Court
APPEARANCES:
HEARD:
29 May 2017
DELIVERED:
30 June 2017
COUNSEL
FOR PLAINTIFF:
Adv. D J Van Der
Merwe
ATTORNEY
FOR PLAINTIFF:
Marais Muller
Hendricks Inc.
Francois
Burger
COUNSEL
FOR FIRST DEFENDANT:
Adv. G F Heyns
ATTORNEY
FOR FIRST DEFENDANT
:
Gildenhuys Malatji Inc.
Wim Cilliers/Jones
Ditsela