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[2011] ZAECPEHC 60
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Birch, Sidney Bonnen t/a LF Birch & Son v Santam Ltd (712/2011) [2011] ZAECPEHC 60 (30 September 2011)
17
Reportable
IN THE HIGH COURT OF
SOUTH AFRICA
EASTERN CAPE –
PORT ELIZABETH
Case No: 712/2011
Date Heard: 17/06/11
Date Delivered:
30/09/11
In the matter between
BIRCH, SIDNEY BONNEN
trading as LF BIRCH
& SON
…................................................
Applicant
and
SANTAM LIMITED
…...........................................................
Respondent
JUDGMENT
REVELAS J
[1] The applicant took
out a short term agricultural insurance policy with the respondent in
April 2010. In August of 2010 he instructed
his bank to withhold
payment of all his debit orders because he had exceeded his overdraft
and was experiencing cash flow problems.
On 15 September 2010 certain
valuable items insured under the policy were destroyed in a fire
which broke out on his farm. The
respondent rejected the claims
submitted by the applicant in respect thereof on the basis that the
insurance policy had been cancelled.
[2] In this application
the applicant seeks a declarator to the effect that as 15 September
2010, the respondent’s short-term
insurance policy was
applicable and “in force and of binding effect between them”.
In addition, the applicant also
seeks an order directing the
respondent to pay certain amounts to him, set out in his notice of
motion as follows:
“
2.1
R7 789 932.12
2.2 R 110 880.00
2.3 R 107 600.00
2.4 R 684 395.04”.
These amounts represent
the insurance values of items the applicant claims had been destroyed
in the fire of 15 September 2010.
[3] The respondent
in
limine
, raised the point that the applicant was obliged, given
the nature of the relief sought, to have proceeded by way of trial
action,
and not by way of application proceedings to persue the
relief he was seeking. The respondent also brought an application to
strike
out certain paragraphs and portions of paragraphs in the
applicant’s founding affidavits.
Discussion
Point in
Limine
[4] It is indeed so
that where disputes of fact are anticipated, it is inappropriate to
bring an application for claims sounding
in money particularly for
illiquid amounts. In such an event the litigant should proceed by way
of trial action.
1
In this matter the
applicant, albeit at a very late stage, indicated that he would only
pursue the issue of the respondent’s
liability in this
application and if successful, prove his damages in a trial action.
In cases where damages are claimed, the issues
relating to
quantification of damages are often, as a matter of course, separated
in terms of Rule 33(4) of the Uniform Rules of
Court, from the
question of liability by agreement between parties. The court may
also
mero
motu
separate
the issues.
[5]
Whereas, the question
of quantum would almost always be decided in trial proceedings, there
are however instances where many facts
are common cause and disputes
of facts are hardly foreseen, so that issues pertaining to liability
can be separately adjudicated
upon the papers. In
CADAC
(Pty) Ltd v Weber-Stephen Products Co and Others,
2
the applicant claimed
damages from the respondent, based on the unlawful seizure of goods
in circumstances which the court found
to be an abuse of the
Counterfeit Goods Act 37 of 1997
. In paragraphs [13]-[15] of the
Court’s judgment at 576B-577C, it was held by Harms DP that a
person claiming damages for
the wrongful seizure of goods may, in
motion proceedings apply for an order for directions as to how to
proceed with the quantification
of his damages, because such a
claimant is not seeking to have an illiquid claim settled in motion
proceedings. The learned judge
stated the following in paragraph
[13]:
“
I
cannot see any objection why, as a matter of principle and in a
particular case, a plaintiff who wishes to have the issue of
liability decided before embarking on quantification, may not claim a
declaratory order to the effect that the defendant is liable,
and
pray for an order that quantification stand over for later
adjudication”.
[6] In
casu
,
this is what the applicant has done (having conceded that the
monetary claim cannot be resolved on the papers) and I see no
objection,
in principle, against him doing so, provided it can be
shown that there are no facts in dispute which are not capable of
being
resolved of the papers. In my view, the question of liability
in this matter depends largely on the interpretation and inferences
to be drawn from undisputed facts and is capable of being determined
on the papers.
[7] The following facts
are relevant to this application:
The applicant is the
sole proprietor of a farming enterprise which conducts farming
operations at the farm van Aardstkraal near
Middleton since 2000. The
main farming activity is ostrich farming. Unfortunately, when the
fire broke out on the farm on 15 September
2010, it destroyed an
ostrich incubator, the applicant’s office, house, and one of
his vehicles.
[8] Prior to March
2010, the applicant’s short term insurer was Mutual and
Federal. He had cancelled his insurance contract
with the latter
(after twenty four years) to take out insurance with the respondent
as from April 2010. He did so because his broker
advised him that the
respondent provided for lower premiums.
[9] The cash flow
problems experienced by him the applicant avers, were caused by the
following factors: During 2008, he became
involved in an empowerment
project where he, as a trustee of his family trust concluded a joint
venture agreement with the Middleton
Workers Trust (‘the
trust’). Due to various problems the project floundered. One of
these problems was that the Department
of Rural Development and Land
Reform did not make payment of the full amount of grant funding that
had been approved in favour
of the trust.
[10] During July 2010
the applicant exceeded his overdraft facility of R1 million. He
alleged that this occurred while he was awaiting
payment from the
Department of R1.6 million in respect of farm equipment and vehicles
purchased by the trust. His bank threatened
with legal action. On
Monday 2 August 2010, the applicant confirmed his request he had made
to his bank manager the previous day
(Sunday) to return all his debit
orders and briefly set out the reasons for his cash flow problems in
an e-mail. As a result of
this e–mail to his bank, a copy of
which was attached to the founding affidavit, the premium in favour
of the respondent
was not paid on his behalf by the bank when the
respondent submitted the debit order against his account.
[11] After the bank
heeded the applicant’s instruction and the monthly premium
payable to the respondent for August was not
paid on his behalf by
his bank, the respondent notified the applicant on 7 August 2010 as
follows:
“
The
premium in respect of the above-mentioned policy, which was payable
by a financial institution on your behalf, was not remitted
to us.
This has resulted in your policy being cancelled. In terms of your
contract you do not have cover from the cancellation
date shown
below. Please contact your broker or nearest Santam office”.
[12] The applicant did
not query the above letter (Annexure G to the founding affidavit) at
the time. He accepted its contents,
i.e. that he did not have cover
for August 2011 and thereafter.
He later termed
this letter illegal and “a purported cancellation”.
According to him,
he did not read the policy
documents sent to him by his broker in April 2010. He did so only
after the fire broke out. The applicant
did however ensure that
before the end of August,
the premiums payable in
respect of his life insurance policies were met. He did not take the
same precaution for his short term
policy with the respondent.
Therefore, the last premium paid in respect of his policy with the
respondent, was in July 2010. The
applicant’s bank had also
called up his overdraft policy on 18 August 2011.
The Arguments
[13] The applicant
contended that the purported cancellation was illegal and in conflict
with the respondent’s own general
conditions in its policy. In
support of this contention the applicant placed strong reliance on
the respondents “GENERAL
CONDITION – CONTINUATION OF
COVER WHERE PREMUIM IS PAYABLE BY BANK DEBIT ORDER” and in
particular general condition
3B which was amended to read:
“
(a)
The premium is payable in arrear if the insured’s policy number
is followed by the letters “AG”, otherwise
it is payable
in advance.
(b) If the premium is
not paid to the company upon request (on submission of the debit
order against the payer’s bank account)
then the insured will
still have cover for the month for which no premium has been
received. The premium is therefore still due
to the company and can
be settled in cash at any office of the company.
(c) At the next request
for payment two debit orders will be submitted (if the outstanding
premium has not been settled in cash);
the unpaid one, as well as the
one for the new month. If only one debit order is paid, this money
will be used to settle the original
outstanding premium.
(d) When an event
occurs which results in a claim during the month for which the
premium has not been paid, the insured will be
required to first
settle the outstanding premium before the claim can be processed.
(e) If the premium for
two consecutive months (on submission of two debit orders) are not
paid, the policy will be cancelled with
retrospective effect from
midnight on the last day to where premium will be made.”
[14] Previously, before
its amendment, the applicable General Condition read as follows:
“
The
premium is due in advance and, if not received by the insurer by due
date, this insurance shall be deemed to have been cancelled
at
midnight on the last day of the preceding period of insurance, unless
the ensured can show that failure to make payment was
an error on the
part of his bank,
or
other paying agent. Due date will be the first day every calendar
month.
[15] Subsequent to the
fire, on 21 September 2011,
applicant advised Mr
Pierre Gerber of the respondent,
that “
Christine
Coldicott of First National Bank confirmed in the letter of Thursday
16 September 2010 that the reason that First National
Bank never
allowed the premium to be paid was due to insufficient funds and not
that I had instructed them to permanently cancel
the Debit Order”.
[16] The applicant
emphasized that no specific instruction was given to the respondent
that the policy was being cancelled as one
might have expected. He
also reiterated that his temporary problem with the facility limit at
his bank was the only reason for
the August 2010 premium not having
been paid. In the same letter he pointed out that Ms Christine
Coldicott of his bank had mentioned
erroneously, that two premiums
were unpaid, whereas in fact the unpaid August premium was the only
one in issue.
[17] The applicant
argued that in terms of the respondent’s amended condition 3B,
which was applicable at the time, the respondent
had no right to
permanently cancel the policy on 7 August 2010, because it was
obliged to process a double premium in September
2010. The respondent
was obliged to wait until then. If, no payment was made on 1
September 2010, only then was the respondent
entitled to cancel the
agreement between them.
[18] The applicant also
attached to his founding affidavit, in support of his argument a copy
of the standard letter to the respondent’s
policy holders,
which is applicable when a premium had been unpaid for
one month as was the case in this matter,
where
the August premium was not paid. The relevant portion of the letter
reads as follows and incorporates the provisions of Condition
B3 (as
amended):
“
Die
finansiële instelling wat, premie of u polis oorbetaal, het u
jongste debietorder onbetaald teruggestuur .
.
.
en die rede word aangedui as: geen voorsiening gemaak.
By Santam verstaan
ons hoe belangrik dit is dat u korrek verseker is. Ons verstaan ook
dat dit soms kan gebeur dat die premies met
die beste van bedoelings
nie betaal word nie. . . . U is wel steeds ‘n premie aan ons
verskuldig. Om die saak reg te stel,
gaan ons met die volgende
aanvraag twee debietorders vir betaling aanbied: en ten opsigte van
die onbetaalde debietorder en een
vir die nuwe maand. . . . Help ons
asseblief om seker te maak dat daar voldoende fondse beskikbaar is om
hierdie premies te dek.
Indien net een van
die debietorders betaal word om watter rede ookal, sal die geld
gebruik word om die oudste bedrag verskuldig
te delg. Neem asseblief
kennis dat ons beleid oor premie-betalings bepaal dat ‘n polis
gekanselleer word wanneer ‘n
debietorder vir twee opeenvolgende
maande nie betaal word nie”.
[19] The applicant
contends that the aforesaid standard letter was the one which he
should have received on 7 August and not the
letter of cancellation
(Annexure G) also quoted above.
[20] The respondent
adopted the approach that the policy was cancelled by the applicant
and therefore the applicant did not enjoy
the protection of its
Short-Term Rules, which includes condition 3B. Mr Gerber, who deposed
to the respondent’s answering
affidavit, stated that in
accordance with the
“
established practice
of the bank and by reason of the fact that the instruction to stop
payment had emanated from the Applicant,
the reason given by the bank
was just that,
i.e. stop payment”.
[21] Mr Gerber went on
to explain that the respondent runs an ACB collection program with
all banks nationwide. The various codes
utilized by the banks and
insurance companies in order to reflect non-payment of a debit order
are the following:
B – insufficient
funds
C – stop payment
D – account
closed
F – insured
deceased.
When the ACB is
presented to the banks and a premium is not met, the bank in turn
notifies the respondent of the reason for the
non-payment of a
particular debit order by way of reference to one of the codes listed
in the previous paragraph. Therefore, if
the reason for non-payment
is code B or code D (insufficient funds, or the insured person closed
his account with the bank in question)
the matter is dealt with in
accordance with the amended terms of general condition 3B and a
letter such as the one quoted in Afrikaans
above, is sent out to the
policy holder (a code B letter). If the notification is code C stop
payment, which emanates from the
insured party, the respondent
accepts this as notification by the insured, in terms of clause 3A of
the general terms of the policy,
for the immediate cancellation of
the policy. This code system was not placed in dispute by the
applicant.
[22] It was submitted
by the respondent, that only the insured party is able to stop
payment. It then follows that if indeed no
alternative arrangements
were made, (as foreshadowed in Annexure G) the respondent was
entitled to view the “stop payment”
or code C
notification as an indication that the insured no longer wished to be
bound by the terms of the insurance agreement and
had repudiated or
cancelled it. According to the respondent, the letter sent to the
applicant (Annexure G) was an acceptance of
the cancellation. In
circumstances where the “stop payment” or code C
instruction had been given a cancellation letter
such as the one
received by the applicant, is automatically generated by the computer
Annexure G. Mr Gerber stated that such a
letter is an acknowledgement
of the cancellation of the policy by the insured party rather than a
cancellation by the respondent.
This is not actually how it reads and
it is reminiscent of the wording of the policy before amendment.
However, it is not inconsistent
with the respondent’s
explanation.
[23] According to Mr
Gerber, if the debit order was returned by virtue of there being
insufficient funds in his bank account, the
notification from his
bank would have been in terms of code B, and the provisions of the
amended General Condition 3B would have
applied. It was also
submitted that even if it was a matter of insufficient funds and
condition 3B applied, the respondent would
have been entitled to
terminate the agreement on 1 September 2011 with retrospective
effect, because the debit order would have
been returned for a second
time because the bank called up the applicant’s overdraft
facility on 18 August 2010. It was submitted
by Mr Gerber that it was
hardy likely that the applicant would have had his financial
expectations met by the trust or the Department
of Land Affairs,
between 15 August and 1 September 2010. In my view, this proposition
is somewhat speculative and ought to be discounted
in my
deliberations herein.
[24] The applicant
described the respondent’s distinction between “stop
payment” and “insufficient funds”
as specious,
since the August debit order was returned for one reason only: The
applicant had insufficient money in his bank account.
The instruction
to the bank, albeit a deliberate instruction, the applicant argued,
was to stop payment for that period, not to
permanently terminate the
agreement. Therefore, the respondent was not entitled to view the
stopping of payment as a cancellation.
Application To
Strike Out
[25] The respondent’s
application to strike out certain paragraphs pertains to the founding
affidavit and replying affidavit.
[26] In paragraph 30 of
his founding affidavit the applicant condemned the respondent’s
cancellation of the insurance contract
as “illegal” and
“criminal”. The respondent contends this paragraph is
vexatious and ought to be struck
out. If the applicants’
assertion that the premium was returned only because of insufficient
funds were to be accepted, then
the letter of cancellation (Annexure
G to the founding affidavit) would be in breach of the Short-term
Insurance Policy rules.
The applicant also relied on certain
provisions of the Policyholder Protection Rules (Short-term
Insurance) of the
Short-Term Insurance Act 53 of 1998
, under the
heading “Debit Orders”.
[27] This legislation
provides in
Rule 7.2(b)
that an
“
insurance
party shall not unilaterally terminate any
current
debit order signed by a policyholder without having informed the
policyholder in writing of the intention so to terminate
the debit
order at least thirty days before the effective date of such
envisaged termination”.
Condition 3B and
the wording of the code B letter quoted to above, were undoubtedly
drafted with this rule in mind.
[28]
Rule 7.5
of the
Short-term Policy legislation provides that an insurer
“
shall
ensure that a policy contains a provision for a period of grace for
the payment of premiums of not less than 15 days after
the relevant
due date: Provided that in the case of a
monthly
policy
such
provision must apply with effect from the second month of the
currency of the policy”.
(emphasis
added)
Rule 9
goes on to label
a contravention of the Act as an offence “and on conviction
liable to a penalty or fine . . .”
If the applicant’s
argument is found to be correct, then
Rule 9
would be applicable. In
these circumstances, the impugned paragraph cannot be said to be
vexatious. Accordingly it should not be
struck out.
[29] The respondent
also applied for paragraph 31 of the founding affidavit to be struck
out. Therein the applicant refers to the
fact that when the premiums
on his other policies were returned, his other insurers did not send
him a cancellation letter, as
the respondent had done. In my view,
this paragraph may not be entirely relevant, but it need
not be struck out.
[30] The next paragraph
sought to be struck out was paragraph 32 of the founding affidavit
wherein the applicant states that he
did in fact pay the August
instalment on his other (life) policies before the end of August
2010, despite the debit orders having
been returned by his bank on 2
August. This paragraph played a significant role in my reasoning, as
will appear later herein and
it should not be struck out.
[31] Since paragraphs
44.2 and 44.3 of the founding affidavit amount to hearsay they are
struck out.
[32] Paragraph 51 of
the answering affidavit amounts to a disclosure if something
specifically marked “without prejudice”
in settlement
negotiations, and it is therefore struck out.
[33] For the same
considerations referred to above in dealing with paragraph 30 of the
founding affidavit, I decline to strike out
paragraphs 59, the last
sentence in paragraph 64 and paragraphs 68.2 and 68.3 thereof, and
also paragraph 5 of the replying affidavit.
[34] Because of my
findings in this matter, it is not necessary to strike out paragraphs
71-72 of the founding affidavit which deal
with the monetary part of
the applicant’s claim. The same applies to paragraph 8.2 of the
applicant’s replying affidavit.
[35] Paragraphs 22.7 of
the replying affidavit deals with an accusation made in the answering
affidavit regarding the inability
of the applicant to pay his
premiums after 18 August 2010, when the bank called up his overdraft
facility. The applicant was entitled
to make reference to his other
bank accounts to rebut this speculative accusation. Accordingly, this
paragraph need not to be struck
out.
[36] Even though only
partially successful, the defendant is entitled to its costs in the
application to strike out.
Liability
[37] The applicant
deliberately prevented the premium due in August 2010 month from
being paid. The instruction by the applicant
to his bank was
communicated to the respondent by the applicant’s bank as a
code C cancellation repudiation. The respondent
then accepted the
repudiation. The contract could only be revived if the applicant
contacted the respondent as he was invited to
do. He had also
accepted the cancellation contained in the letter, and did not
contact the respondent about it.
“
Where
one party to a contract, without lawful grounds, indicates to the
other party in words or by conduct a deliberate and unequivocal
intention no longer to be bound by the contract he is said to
‘repudiate’ the contract. .
.
Where that happens, the other party to the contract may elect to
accept the repudiation and rescind the contract. If he does so,
the
contract comes to an end upon communication of his acceptance of
repudiation and rescission to the party who has repudiated
. . .”
3
[38] Had the applicant
simply done nothing about his financial situation and the debit order
was returned with a notification from
his bank to the respondent,
explaining that the non-payment was due to insufficient funds (code
B), then the respondent would have
been obliged to comply with
condition 3B (as amended).
[39] From the
respondent’s viewpoint, it did not matter why the debit order
was stopped and the respondent was under no obligation
to find out
whether it was because the applicant had insufficient funds in the
bank, or because he found another insurer who offered
more
competitive terms, or for whatever reason. The applicant’s bank
advised the respondent of a code C return of debit order
(‘stop
payment’), and the respondent was therefore entitled to respond
to the stopping of the payment as if it were
a cancellation or
repudiation. It was not obliged, in law, to remind the applicant that
if he did not meet his next premium payment,
his cancellation would
be accepted. This is so, because the respondent did not receive a
code B notification. Later communications
by banking officials, after
the fire, that the reason for stopping payment was due to
insufficient funds did not alter what the
codes had conveyed when the
debit order was presented.
[40] The test for
repudiation has been held to be an objective one
.
“The emphasis is not on the repudiating party’s state of
mind, on what he subjectively intended, but on what someone
in the
position of the innocent party would think he intended to do;
repudiation is accordingly not a matter of intention, it is
a matter
of perception. The perception is that of a reasonable person placed
in the position of the aggrieved party. The test is
whether such a
notional reasonable person would conclude that proper performance (in
accordance with a true interpretation of the
agreement) will not be
forthcoming. The inferred intention accordingly serves as the
criterion for determining the nature of the
threatened actual
breach”.
4
[41] The argument that
the difference between stopping the payment of a debit order,
and a debit order being
returned due to insufficient funds,
was
specious,
is
an attractive one on the face of it. Yet it does not avail the
applicant. The distinction is a logical one.
[42] Condition 3B
applies to the following situation: Where there are insufficient
funds to meet the premium, it is the bank and
not the insured,
who refuses to pay the
premium. This happens because the bank is under no obligation to
“loan” the premium money to
its client. The bank is also
not under any obligation to the insurer, to ensure that its due
premiums are met. There is also no
discernable intention on the part
of the insured that he wishes to repudiate his insurance agreement in
this scenario in which
the insured could unwittingly find himself
without insurance cover. That is precisely the situation which the
amended condition
3B seeks to prevent. Hence the obligation to prompt
a second payment on the next due date was introduced.
[43] Condition 3B is
however not applicable to the following scenario: When the refusal to
pay the premium emanates from the insured,
(the bank’s client)
who has instructed non-payment for a particular reason, which may or
may not be because of insufficient
funds, the bank advises the
insurer that it has been instructed not to pay. The insurer is then
entitled to regard the instruction
as a cancellation, unless the
insured party advises the insurer differently.
[44] In this case, the
respondent created an opportunity to be advised differently by the
applicant in its letter to the applicant
and the latter did not avail
himself of that opportunity, there can be no duty on the insurer to
make a second attempt to collect
its premium, in anticipation of a
possibility that the insured did not really mean to cancel his
premium.
[45] If the applicant
wanted to continue with the insurance policy, having been informed in
writing that he did not enjoy any cover,
he should have contacted the
respondent to make this intention known.
[46] In my view, the
applicant elected not to have cover for August 2010 because he
deliberately chose not to take up the invitation
in the cancelation
letter to contact the respondent. On his own version, he accepted
that his insurance was terminated and he was
without cover. This
created the perception of a deliberate choice not to be bound by his
insurance contract. That impression is
further compounded in my mind,
by the fact that his other long-term insurance premiums were also
stopped by him, but he especially
provided for them to be paid
eventually, and before the end of August 2011, but did not make the
same provision for his short-term
agricultural policy which he that
stage, only had for three months. Sadly, these actions by the
applicant militate against the
argument that condition 3B applied to
the facts of his case.
[47] The applicant’s
belated reinstatement of the policy in September 2010, after the
fire, did not revive the terminated
agreement either. Therefore I
must conclude that on 15 September 2010, the date of his loss the
plaintiff was uninsured.
[48] Accordingly the
applicant’s claim against the respondent is dismissed with
costs. Such costs are to include the costs
of the respondent’s
application to strike out certain averments in the applicant’s
affidavits.
______________________
E REVELAS
JUDGE OF THE HIGH
COURT
Counsel for the
plaintiff
: Adv K J van Huysteen
Houghton
Johannesburg
Instructed by
:
Friedman Scheckter
Counsel for the
defendant
: Adv Ford
Grahamstown
Instructed by
:
Goldberg & De Villiers Inc
Date Heard
:
17 June 2011
Date Delivered
:
30 September 2011
1
See:
Room Hire Co (Pty) Ltd v Jeppe Street Mansions (Pty) Ltd 1949(3) SA
1155 T.
2
2011(3)
SA 570 SCA.
3
Per
Corbett JA in Nash v Golden Dumps (Pty) Ltd
1985 (3) SA 1
A 22D-F.
4
Per
Nienaber JA in Datacolor International (Pty) Ltd v Intamarket (Pty)
Ltd
[2000] ZASCA 82
;
2001 (2) SA 284
(SCA) at paragraph
[16]
294 E-F.
See
also: Wille’s Principles of South African Law, 9
th
Ed at 866.