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[2011] ZAGPPHC 21
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Human v CMC Chemicals (Edms) BPK and Another (9832/2007) [2011] ZAGPPHC 21 (4 February 2011)
NOT
REPORTABLE
IN
THE HIGH COURT OF SOUTH AFRICA
/ES
(
NORTH
GAUTENG HIGH COURT. PRETORIA
)
CASE
NO: 9832/2007
DATE:
04/02/2011
IN
THE MATTER BETWEEN
F
J HUMAN
….........................................................................................
PLAINTIFF
AND
CMC
CHEMICALS (EDMS) BPK
….......................................................
1
st
DEFENDANT
TIMBERLIFE
(EDMS) BPK
…...............................................................
2
nd
DEFENDANT
JUDGMENT
OMAR.
AJ
This
is an action in which the plaintiff claims from the defendants
payment of an amount of R222 630,00 and an amount of R300 0000.00
together with ancillary relief for remuneration in terms of an
agreement, marked as annexure "A" to the plaintiffs
particulars
of claim, in terms of which he was appointed by the
defendants to investigate and quantify their insurance claims against
Mutual
& Federal Insurance Company ("M&F").
The
insurance claims arose from a fire which had gutted the factory
premises in Waltloo, Pretoria on 26 April 2002 where the first
defendant had been conducting its business, namely the manufacturing
of timber-treatment chemicals. The second defendant was the
owner of
the premises. The defendants approached the plaintiff for assistance
in the quantification of their claims after M&F
had repudiated
liability in terms of the relevant insurance policy.
The
plaintiff alleges that the defendants breached the terms of the
agreement in that the defendants, on or about 11 December 2006,
agreed and settled their claims against M&F in respect of the
quantum
amount
by way of an offer of settlement in terms of Rule 34 of the Rules of
Court, without the plaintiff being involved or dealing
with the
quantum
and
without the plaintiffs written approval thereto. The offer of
settlement and acceptance thereof is marked as annexures "B"
and "C" to the plaintiffs particulars of claim. As such,
the plaintiff alleges that he was entitled to cancel the agreement
and claim damages calculated as 10 per cent of the insured sums. The
insured sums were summarised in annexure "D" to
the
plaintiffs particulars of claim as being R2 226 300,00 and R3 000
000,00.
The
defendants' plea as amended reflected in essence the following
defences, namely, that-
(a)
the plaintiff had failed to properly investigate and quantify the
defendants' damages in that,
inter
alia,
the
plaintiff did not provide supporting proof of each item of machhinery
and equipment and trading stock;
(b)
the plaintiff neglected or failed to negotiate with M&F or their
legal representatives with regard to agreement on
quantum;
(c)
the plaintiff had breached certain tacit/implied terms of the
agreement in that,
inter
alia,
the
plaintiff did not act in a
bona
fide
manner
towards the defendants as he misled the defendants by stating that he
had certain communications with M&F and thereby
intending to
influence the defendants or their legal representatives with regard
to the manner in which the action is to be conducted
against M&F.
Further,
the plaintiff resigned from the Institute of Loss Adjusters of
Southern Africa ("ILASA") during the taking place
of a
disciplinary hearing against the plaintiff whereby the credibility
and expertise of the plaintiff would be directly negatively
influenced.
(d)
The agreement amounted to a
pactum
de quota litis
which
is
contra
bonos mores
and
unenforceable in that,
inter
alia,
it
allowed the plaintiff to gamble or speculate in litigation and
intentionally exaggerate or inflate the
quantum
of
claims;
(e)
clause 4 of the agreement constitutes a penalty as intended in terms
of section 3 of the Conventional Penalties Act 15 of 1962;
(f)
the
quantum,
as
formulated by the plaintiff, was never agreed to or accepted by M&F
as correct;
(g)
the defendants denied not complying with the conditions of the
agreement on the basis of an unconditional and unequivocal waiver
by
the plaintiff on 8 November 2006 of his right that the claims could
not be settled with the insurer without his written approval.
The
plaintiff testified himself and Mr Barend Lubbe testified on behalf
of the defendants.
Mr
F J Human testified, briefly, that he has a B.Com degree and is a
fellow of the Chartered Insurance Institute in London and has
been
involved in the short term insurance industry since 1970. He has also
been a member of ILASA until 2005 when he resigned.
He acts as a loss
adjuster for insurance companies and also acts for the public in
quantifying insurance claims. He assisted the
defendants in
formulating its claims against M&F and was recommended by Mr
Cilliers of Cilliers Reynders Attorneys. Once he
has satisfied
himself that there is a reasonable chance of a successful claim in
the end where
quantum
will
be paid he draws up an agreement with the client. At the time of his
first meeting with the defendants he conducted a preliminary
investigation. He studied the letters of repudiation and looked at
the claim documents prepared by the defendants' brokers and
boxes
full of quotations and other documents. He felt at that stage that
there was a 60/40 per cent chance of success and he explained
to the
defendants what his terms would be to assist them and he prepared an
agreement to record the terms and conditions as discussed.
This is
the agreement which is marked as annexure "A" to the
plaintiffs particulars of claim. In terms of the agreement
he was
appointed to investigate and quantify the defendants' claim against
their insurers and also to negotiate with the defendants
and their
insurers and/or their legal representatives with regard to reaching
agreement on the
quantum
of
their claims. He had to rely on the defendants to tell him what was
there and a quantity surveyor, recommended by him, was appointed
to
prepare a report and based on that he formulated the claim for the
building. The physical examination and verification of invoices
and
quotations was done at the defendants' offices. The actual
formulation was done at his offices. There were boxes full of
documentation
that he had to work through. Apart from the damages to
the building itself, this building was also subject to a bond with
Absa
Bank. The amount of Rl 492 795,31 would have been the maximum
amount which the insurance company would have had to pay directly
to
Absa Bank. After he had provided his
quantum
formulation
on both claims his work was partly done. It was expected that M&F
would defend the matter. In terms of his agreement
with the
defendants he had to negotiate with the defendants' insurers and/or
legal representatives but he could not do so as protocol
prevented
him from doing so. He agreed that he would assist the defendants on a
contingency basis and if the defendants did not
succeed with their
claim against M&F he would get nothing apart from the loan
payment of R7 500,00 which had to be paid to
him when the agreement
was signed. Would there be a settlement, negotiated or accepted by
M&F or their legal advisors or ordered
by the court, then he
would be entitled to 10 per cent of the final settlement amount. The
reason for him not allowing a settlement
without his written consent
is that he sees this as a power of attorney as it will obviously
affect his remuneration and that is
why he has made provision for the
penalty clause in the agreement. The defendants' attorney was not
happy with the way he had replied
to the request for further
particulars and confirmed to him in a letter that the legal advisors
of M&F did not accept his
quantum
calculation
as correct.
Mr
Human further testified, in summary, that he at all relevant times
acted in good faith towards the defendants and he explained
the
intent of the information received from M&F as well as the
non-significance of his resignation from ILASA. He also denied
waiving his rights relating to the settlement of the claims on the
occasion of the 8 November 2006 meeting. He stated that when
the
defendants negotiated and concluded the final settlement of the
claims on 11 December 2006 by accepting the offer of R2 850
000,00.
without his involvement and approval they breached the terms of the
agreement as a result thereof. As such he was entitled
too cancel the
agreement which he did and was entitled to the application of the
calculation of his remuneration in terms of clause
4 of the
agreement.
Under
cross-examination by counsel for the defendants, briefly, he stated
that he paid an amount of R2 500,00 to Mr Carpenter, an
employee of
Alexander Forbes as a referral commission and ILASA perceived this as
being a misconduct. He had offered the money
because it is his
marketing strategy. He had offered Alexander Forbes a 10 per cent
referral commission which they refused. He
conceded that he lied to
ILASA by saying that he did not pay Mr Carpenter anything. He stated
that he lied because he did not want
to jeopardise the man's career.
He also conceded that he lied to the defendants about his source in
M&F because he wanted to
get the
quantum
aspect
finalised. He stated that he did not consent to the R4 million offer
from M&F as it would have been counter-productive.
This would
have caused financial loss for the defendants and himself. Everything
was for the money including the lie. He disagreed
with the contention
by counsel for the defendants that he negotiated himself into a
position where he can veto a settlement between
two litigating
parties, which is in itself against good legal order. He stated that,
with the exclusion of the business interruption
claim, all the other
claims were correct. The calculation of the claim is correct but it
is not the amount payable as the average
clause was not mentioned. He
denied that it was deliberately concealed. He conceded that the
moment an expert gets a financial
interest in a case, he loses his
independence. He stated further that the average clause applies
automatically if there is a total
loss.
On
re-examination, he stated that he presented two scenarios to the
defendants. His intention was to give them the scenarios, and
explain
to them exactly what it meant and what it boiled down to and he then
sat back.
That
was the plaintiffs case.
Mr
B Lubbe, on behalf of the defendants, testified, briefly, that he is
a business man and a director of Timberlife (Pty) Ltd, the
second
defendant in the matter. The first and second defendants were
separate companies but they are now one company called Timberlife.
On
26 April 2002 a fire gutted the building belonging to the first
defendant and M&F repudiated the claims of the first and
second
defendants. The defendants approached the plaintiff, Mr Human, to
assist in the quantification of their claims against M&F.
Mr
Human suggested that there was a good chance of success and agreed to
act as a
quantum
expert
and an agreement was signed between the parties, namely annexure "A"
to the particulars of claim. He received a
letter on 27 March 2003
from Absa Bank confirming that the balance outstanding on the bond
over the property as at 26 April 2002
was Rl 492 795,31. He was not
happy with the business interruption claim as quantified by Mr Human
as they did not lose any money
but accepted what Mr Human said as he
was the
quantum
expert.
During 2003 action was instituted against M&F based on the
strength of the calculations by Mr Human. He recalls a meeting
on 8
November 2006 at the offices of Adv Gerhard Cilliers where he was
present together with Adv Cilliers, Mr Human, Mr Grobler
and Mr
Conradie. The gist of the meeting was to discuss the allegations of
wrongdoings against Mr Human. Adv Cilliers was not happy
with the
explanation given by Mr Human because obviously it had an influence
on the future continuance of the case of the defendants
against M&F.
On or about 20 November 2006 an offer was made in terms of Rule 34 by
M&F to settle the claims of the defendants.
The amount offered
was R2 850 000,00 and represents the outstanding balance and interest
owing to Absa Bank. The offer was accepted
and a VAT invoice was made
out in favour of M&F by the first defendant. He was advised by
their auditors that this is the procedure
that they would want to
follow to handle the documentation after obtaining the figure from
the bank. At some stage they said we
need to get the VAT story sorted
out. He had his auditors handle this and the auditors instructed him
to issue an invoice though
CMC Chemicals at that which he did. The
whole amount was paid into their attorneys' trust account and from
there it was paid into
their account and then to Absa Bank.
Under
cross-examination by counsel for the plaintiff, briefly, he agreed
that he never said that there was a problems with the quantification
of Mr Human, but stated that he was not asked to comment on that. He
stated that he did not ask Mr Human to negotiate as he left
that to
his legal team. He was unaware, at the time of entering into the
agreement with the plaintiff, that the plaintiff was a
member of
ILASA. It did not matter to him whether Mr Human was a member of
ILASA or whether he resigned or not. He, however, had
a concern about
the information relating to the ILASA disciplinary hearing obtained
from the internet during September 2006 and
the impact it may have on
the credibility of the plaintiff. His legal team raised the concern
regarding the accuracy of the quotations
supplied by Mr Human and
they suggested that we start the process of obtaining other
quotations to make sure that the information
is correct. He forwarded
the request for further particulars, regarding the
quantum,
to
Mr Human to answer on as he was the expert. He stated that Mr Human
and his legal team would drive the matter directly and jointly.
He
did not instruct Mr Human. He was still prepared to honour the
agreement with Mr Human on 8 November 2006, if it was justified
in
what he did and did not have any influence on the merits or the
success of the case. He stated that at the meeting on 8 November
2006, Mr Human walked out and cancelled dealings with them. He
understood that Mr Human would walk out of the contract for a fee
of
R150 000,00 which he will take up with us. Mr Human also stated that
he will no longer be their broker and that they should
deal with his
company LATSURE. The last he heard was that Mr Human would supply his
legal team with documentation to prepare a
defence if the issue
regarding his credibility came up. He agreed with what is written in
the defendants' plea that Mr Human agreed
not to veto the settlements
is correct. After the meeting of 8 November 2006 they had to take a
decision to continue or to stop.
They were not 100 per cent sure of
the merits of the case as they were investigating the influence of
all that transpired during
that period. He stated that the amount
that was settled for was to cover the amount owing to Absa Bank. That
was the case for the
defendants.
It
is common cause that M&F paid the amount of R2 850 000,00 into
the defendants' attorneys' trust account and that that amount
was
then paid into the first defendant's account who issued a VAT invoice
for the amount of R350 000,00.
It
is also clear from the evidence that the plaintiff had complied with
his obligation to investigate and quantify, save for the
aspect
relating to the business interruption claim, and he was willing to
perform the obligation to negotiate.
Counsel
for the defendants further submitted that it is not necessary to deal
with the aspects relating to the non-compliance by
the plaintiff, the
waiver of a right by the plaintiff and breach of contract by the
plaintiff.
It
is further clear from the evidence that the
quantum
as
formulated by the plaintiff was not agreed to or accepted by M&F
as correct. What is in issue is whether:
(a)
the agreement amounted to a
pactum
de quota litis
which
was
contra
bonos mores
and
as such unenforceable;
(b)
clause 4 of the agreement constitutes a penalty as intended in terms
of section 3 of the Conventional Penalties Act 15 of 1962;
(c)
the defendants breached clause 3 of the agreement.
I
will deal with the issue of
pactum
de quota litis
first.
Counsel for the plaintiff submitted that a
pactum
de quota litis
is
not per definition unlawful and unenforceable. In my view the
agreement clearly amounts to a
pactum
de quota litis
or
an agreement to receive a portion of the proceeds of a court case.
There
are a number of South African cases dealing with such agreements
which were always treated as unlawful and unenforceable as
it allowed
a person to traffic, gamble or speculate in litigation. The only
exception to this was a case where anyone in good faith
gave
financial assistance to a poor suitor thereby helping him to
prosecute an action in return for a reasonable compensation or
interest in the suit.
In
the matter of
Price
Waterhouse Cooper Inc & Others v National Potato Co-operative Ltd
2004
6 SA 66
(SCA) at 79 SOUTHWOOD AJA held that this exception is now
recognised by the Constitution of the Republic of South Africa. This
only consolidated the case of the needy litigant. See also:
1.
Thomas
Hugo & Fred J Moller NO v The Transvaal Finance & Mortgage
Co
(1894) 1 OR 336
at 339-341;
2.
Schweitzers
Claim Holders' Rights Syndicate Ltd v Rand Exploring Syndicate Ltd
(\per cent 96)
3
OR 140
at 144;
3.
Green
v De Villiers, Dr Leyds NO & Rand Exploration Syndicate
(1895)
2 OR 289
at 293-4;
4.
C
VJJPlatteau
vSP Grobler
(1897)
4 OR 389
at 394;
5.
Campbell
v Welverdiend Diamonds Ltd
1930
TPD 287.
This
case clearly in my view does not fall within the exception, as it
appears from the evidence, there was clearly no need for
such an
arrangement ie the contingency arrangement in order for the
defendants to have access to the court. The defendants were
not
impecunious litigants as they paid the legal fees to their attorneys
to advance their case and they employed many other experts
without
such a contingency arrangement.
Counsel
for the plaintiff, in fact, during cross-examination put it to Mr
Lubbe that he paid an amount of R300 000,00 to his lawyers
to proceed
with the case. The submission by counsel for the plaintiff that no
evidence was presented to prove that the defendants
were or were not
impecunious is in my view untenable and is rejected with the
contempt it deserves. In my view the only reason why this agreement
was entered into was because of the way the plaintiff did his
business. He, in fact, stated in evidence that he concluded a number
of agreements in this manner and actually dealt with defendants'
attorneys in the past. The fact that no one took up this aspect in
the past does not mean that what the plaintiff is doing is correct.
In
the
Schweitzers
Claim Holders Rights Syndicate
case
supra
at
144-145 it was stated that:
"...
the plaintiff company has therefore done nothing else than advance
money in order to make a profit out of a law suit,
and in order to
obtain a share of a judgment for itself, being inspired solely by the
desire for speculation."
In
my view this is exactly what the plaintiff did. The plaintiff also
stated in his evidnece that if these insurance claims fail
in court
in total he will get nothing, if it succeeds he will get 10 per cent
of whatever it succeeds with. This arrangement, in
my view, is
clearly of a gambling nature.
In
the
Campbell
v Welverdiend Diamonds
case,
supra,
it
was stated that: "It is clear from the authorities that while a
transaction of this kind may be properly entered into, and
may be
supported whether it is a genuine case of assisting a litigant for a
fair recompense, it cannot be supported in other cases;
a court is
not to give effect to arrangements which are made by persons who
traffic in litigation."
In
my view the plaintiff was indeed trafficking, gambling or speculating
in litigation. Therefore, the common law prohibition against
this
kind of agreement is fully in tact. As such, this court cannot
enforce this agreement as it is contrary to public policy.
The
plaintiff further failed to present evidence to show that it was
necessary to enter into this agreement, which is clearly a
pactum
de quota litis,
to
assist someone to get access to court.
Further,
clause 3 of the agreement provides that the defendants may not agree
to any
quantum
amount
without the written consent of the plaintiff. The effect of this
provision is that the plaintiff has a veto right and as
such being a
non-party to the envisaged litigation would take the drivers seat.
All the litigants, all the lawyers and even the
court will be
subjected to the plaintiffs whims. Even if M&F, the defendants,
their attorneys, their advocates and the court
feel that this matter
could and should be settled on an equitable basis the plaintiff would
be in a position to overrule them all
and to command that the
litigation proceeds. In other words, the plaintiff has put himself in
a position where he can hold the
litigating parties, their
representatives as well as the court to ransom. Clearly a provision
such as this can never be enforced
by a court. It obviously follows
that if such a provision is unforceable the non-compliance therewith
cannot found a claim.
I
am
satisfied that the defendants have established on a balance of
probabilities that the agreement between the parties amounted
to an
unlawful and unenforceable agreement.
Accordingly
the plaintiffs claim against the defendants is dismissed with costs
on this ground alone.
As
far as the issue of the Conventional Penalties Act is concerned, it
was submitted by counsel for the defendants that clause 4
of the
agreement upon which this action is based, is clearly a conventional
penalty as contemplated in section 1(1) of the Conventional
Penalties
Act 15 of 1962. Counsel for the plaintiff submitted that it was not.
The
relevant part of section 1(1) of the Correctional Penalties Act 15 of
1962 reads as follows:
"A
stipulation whereby it is provided that any person shall in respect
of an act or omission in conflict with a contractual
obligation, be
liable to pay a sum of money or to deliver or perform anything for
the benefit of any person, hereinafter referred
to as a creditor,
either by way of a penalty or as liquidated damages, shall subject to
the provisions of this act, be capable
of being enforced in any
competent court."
Although
counsel for the plaintiff submitted that clause 4 of the agreeement
merely provided for a method of calculation of remuneration,
the
plaintiff himself in his evidence, referred to the clause as a
penalty clause and conceded that it was a penalty clause. Clause
4 of
the agreement, in my view, simply means that if something happens
which results in a breach of the contract, then the "defaulting"
debtor will pay a certain amount to the creditor. This clearly in my
view constitutes a penalty, and such a penalty is subject
to a
reduction by the court if it is out of proportion to the prejudice
suffered by the creditor, in terms of section (3) of the
Conventional
Penalties Act 15 of 1962.
Counsel
for the defendants submitted that the best method of determining
whether the penalty is excessive, is to compare the effect
thereof
with the plaintiffs position if the defendants have not defaulted.
See:
Plumbago
Financial Services (Pry) Ltd t/a Toshiba Rentals v Janap Joseph t/a
Project Finance
2008
3 SA 47
(T).
In
terms of clause 2 of the agreement, if the defendants had fully
complied with the agreement, the plaintiff would have earned
10 per
cent of an amount eventually agreed upon or awarded by the court. It
is clear from the evidence that no one knows what amount
would have
been agreed to or ordered. What is known is that the claim of the
first defendant could not have succeeded for more
than Rl 799 058,37
because of the application of the average clause to the business
interruption claim. The plaintiffs claim in
terms of the penalty
clause is R222 630,00. The penalty clause puts the plaintiff in a
position of R42 640,00 better than he would
have been if the
agreement had been complied with. The penalty is clearly excessive.
Further,
if all the actions were settled or decided on the basis that Absa
Bank's claim succeeds, while the other claims are dismissed
on the
merits, the plaintiff would have earned no commission at all. In
terms of the penalty clause his remuneration would be R300
000,00.
The penalty is clearly excessive.
From
the documents and the evidence the plaintiff has failed to establish
or prove which amount would have been reasonable. I am
satisfied that
the defendants have shown that the penalty is excessive and the
plaintiffs claim is accordingly reduced to zero.
As
far as the breach of clause 3 of the agreement is concerned, the
plaintiff alleges that the defendants on or about 11 December
2006
agreed and settled their claims against M&F in respect of the
quantum
amount
by way of an offer of settlement in terms of Rule 34 of the Rules of
court, without the plaintiff being involved or dealing
with the
quantum
and
without the plaintiffs written approval thereto.
It
is clear from the wording of clause 3 of the agreement that the
plaintiffs veto right is limited to the
quantum
amount
only and does not extend to a settlement or concession of the merits
of any claims. There is clearly a difference between
settling the
quantum
amount
and the merits.
Counsel
for the plaintiff submitted that the wording of clause 3 of the
agreement should be interpreted to mean "ooreengekom"
as
negotiated downward from what was claimed and in terms of
negotiations on the
quantum.
This
submission is untenable as in my view each and every word should be
interpreted in terms of their normal meaning in order to
give effect
to the intentions of the parties.
The
plaintiff bore the
onus
of
proving that the defendants had settled or agreed to any
quantum
amount.
The plaintiff did nothing more than relying on the wording of the
offer and acceptance in terms of Rule 34 which was totally
inarticulate about the aspects of the case or cases that were
settled. The evidence of the defendants was that the amount of R2
850
000,00 which was settled upon, rpresented the outstanding capital and
interest owing to Absa Bank.
The
plaintiff had ample opportunity to obtain evidence or call witnesses
from M&F, its erstwhile attorneys or any official from
Absa Bank
regarding the outstanding amount due to Absa Bank but failed to do so
to this detriment. The plaintiff was not dependant
on the defendants'
discovery to do so and could have requested the relevant documents
from the defendants in terms of Rule 35 of
the Rules of Court which
he failed to do.
As
far as the invoice for R350 000.00 from the first defendant is
concerned, it was the uncontested evidence of the defendants that
the
invoice was issued on the instructions of their auditors for reasons
best known to them. The amount of the invoice, in any
event,
does not cover the claim of the first defendant and nothing can be
deduced from that. The plaintiff has failed to convince
this court
that he has discharged his
onus
of
proving that the defendants had breached clause 3 of the agreement.
As
far as the demeanour of the plaintiff is concerned, the court has not
found him to be a very impressive witness. He failed to
acknowledge
simple truths and gave the court the distinct impression that he was
prepared to lie just for the sake of making money.
In fact, counsel
for the defendants referred to him on several occasions as a liar and
a scoundrel. I tend to agree with the sentiments
of counsel for the
defendants.
In
the result, I make the following order: The plaintiffs claims against
the defendants are dismissed with costs.
SS
OMAR
ACTING
JUDGE OF THE NORTH GAUTENG HIGH COURT
9832-2007
HEARD
ON:
FOR
THE APPELLANT:
INSTRUCTED
BY:
FOR
THE RESPONDENT:
INSTRUCTED
BY: