Discovery Insure Limited v Masindi (85613/2017) [2022] ZAGPPHC 198 (14 March 2022)

80 Reportability

Insurance Law

Brief Summary

Insurance — Leave to appeal — Application for leave to appeal against judgment partly upholding claim for repayment of benefits paid under insurance policy — Applicant contending that the court erred in its interpretation of the forfeiture clause and the implications of fraudulent claims — Court held that the appeal would not have reasonable prospects of success as the forfeiture clause was deemed punitive and the principles of law regarding claims and fraud were correctly applied.

Comprehensive Summary

Summary of Judgment

1. Introduction

This judgment concerned an application for leave to appeal brought in the Gauteng Division of the High Court, Pretoria. The applicant was Discovery Insure Limited (plaintiff in the main action), and the respondent was Tshamunwe Masindi (defendant in the main action).

The application sought leave to appeal to either the Supreme Court of Appeal or a full bench of the High Court against a prior judgment and order delivered on 8 September 2021. In that earlier judgment, the court had partly upheld Discovery’s claim for repayment of insurance benefits Discovery had paid to Masindi following a residential storm and flooding incident, but did not grant Discovery repayment of all benefits paid under the claim.

The dispute arose from a written insurance contract and centred on the consequences of a fraudulent component within a broader insurance claim, including whether the insurer could rely on a forfeiture clause to recover all payments made (including those referable to non-fraudulent losses) and whether the forfeiture operated retrospectively. The leave-to-appeal proceedings therefore concerned whether there were reasonable prospects that another court would overturn the conclusions reached in the September 2021 judgment.

2. Material Facts

The parties were in an insurer–insured relationship governed by a written policy in terms of which Discovery provided Masindi with cover for losses including those arising from the relevant insured event.

A single incident occurred, described as a storm and flooding of Masindi’s residence. From that incident, Masindi advanced various claims for different heads of loss. Discovery settled Masindi’s claims arising from that incident and made payments in respect of multiple components of the overall loss.

A material feature for purposes of the leave application was that one component of the claim, relating to accommodation, was found to be fraudulent, because the loss allegedly claimed under that head was not in fact suffered. The court noted that invoices supporting the fraudulent accommodation claim were submitted after Discovery had already made payment in respect of the credible (non-fraudulent) losses, and thus after payment of those earlier benefits had already been made.

The policy contained a forfeiture provision (referred to as clause 5.13 in the leave judgment). Discovery contended that, because there was one incident and (in its characterisation) one claim, the fraud tainted the entire claim and entitled it to recover all amounts paid under the claim, including amounts paid for losses not themselves fraudulent. Masindi’s position, as reflected in the discussion of the earlier judgment, relied on distinguishing the various benefits that had accrued and been validly settled before the fraudulent submission.

The procedural history also included an earlier order by Ranchod J dated 2 October 2020, made at the time of a postponement, in which the issue of whether the costs of the postponement should be borne by Masindi or his erstwhile attorney (Mr Mtlatele) was reserved for determination at trial, coupled with directions relating to an explanatory affidavit and service. Discovery complained in the leave application that the later judgment did not determine that reserved costs issue.

3. Legal Issues

The central question for determination was whether Discovery had satisfied the statutory threshold for leave to appeal under section 17(1)(a) of the Superior Courts Act 10 of 2013, namely whether the contemplated appeal would have reasonable prospects of success or whether some other compelling reason justified an appeal being heard.

Within that overarching leave-to-appeal enquiry, the application raised issues directed at the correctness of the earlier judgment’s conclusions, including the following legal questions as framed by Discovery’s grounds: whether the court had erred in applying Lehmeckers Earthmoving and Excavators (Pty) Ltd v Incorporated and General Insurance to limit Discovery’s recovery to only the fraudulent portion of the payments; whether clause 5.13 permitted forfeiture of the entire claim (including honest components) and whether such forfeiture could operate retrospectively to the incident date; whether the court was correct to characterise enforcement of the clause, in the circumstances, as punitive and thus as a penalty implicating the Conventional Penalties Act; whether the earlier reasoning was inconsistent with Schoeman v Constantia Insurance in the context of a partly fraudulent claim; and whether the court ought to have made a determination on the reserved postponement costs issue involving the respondent’s erstwhile attorney.

In character, the leave application primarily concerned questions of law and the application of legal principles to largely common-cause features of the claim history (particularly the timing of payments and the later submission of fraudulent invoices), together with a discretionary aspect relating to costs.

4. Court’s Reasoning

The court approached the matter through the statutory framework governing leave to appeal. It reiterated that the threshold in section 17(1)(a) of the Superior Courts Act 10 of 2013 is elevated: leave may be granted only where the court is of the view that the appeal would have reasonable prospects of success. The court emphasised that the use of “would” indicates a measure of certainty that another court will differ, and that something more than a mere arguable case is required.

In applying that standard, the court referred to authority describing the necessary quality of prospects, including that the applicant must provide a sound, rational basis for concluding that there is a realistic chance of success on appeal, not merely an arguable or non-hopeless case. It also acknowledged that leave may be granted where there is some other compelling reason for an appeal to be heard, including the substantial importance of the case to the appellant or both parties, but noted that compelling reasons are assessed with reference to the facts of each case.

Turning to Discovery’s specific grounds, the court indicated that the earlier judgment had already considered the insurer’s arguments against the relevant authorities and principles, including the nature and effect of the forfeiture clause and the consequences of fraud. A key factual consideration carried through the evaluation was that, at the time of the fraudulent accommodation claim, the benefits relating to the credible losses had already accrued, had been validly claimed, and had been settled. On that footing, the earlier judgment’s approach—treating retrospective forfeiture affecting accrued and settled honest claims as punitive and therefore akin to a penalty—was regarded as grounded in the authorities and not shown, for leave purposes, to be clearly wrong.

The court rejected Discovery’s attempt to characterise the earlier reasoning as misconceived by reason of selective reliance on extracted passages (including passages discussed in the context of Lehmeckers and the quoted exposition from Halsbury’s Laws of England). The leave judgment recorded that the earlier judgment used those passages to outline general principles relevant to the nature and extent of forfeiture in the context of breach and to characterise the legal implications of forfeiting valid claims that had accrued before the breach.

On Discovery’s contention that the court could not reduce a penalty under the Conventional Penalties Act absent pleading and proof by Masindi that the penalty was excessive, the leave judgment maintained the position that the forfeiture sought to be enforced was, in substance, a penalty, and that the Conventional Penalties Act therefore applied in that context. The court treated that conclusion as part of the earlier judgment’s reasoning and did not accept, for purposes of leave, that it created reasonable prospects that another court would reach a different result.

As to the complaint about the reserved costs order involving the respondent’s erstwhile attorney, the court restated the principle that costs are in the discretion of the court, to be exercised judicially, and that a costs determination is not ordinarily challengeable in isolation without the court’s permission. It noted the factual circumstances raised about service of the set-down and the absence of any costs order against the attorney, but did not consider that this ground established reasonable prospects that another court would interfere with the outcome.

Ultimately, after considering the grounds advanced, the court concluded that there were no reasonable prospects that another court would come to a different conclusion.

5. Outcome and Relief

The application for leave to appeal was dismissed.

The dismissal was accompanied by an order that Discovery (as applicant for leave) was to pay the costs of the leave application.

Cases Cited

Stroud Riley & Co Ltd v Secretary for Inland Revenue 1974 (4) SA 534 (E)

The Mont Chevaux Trust v Goosen 2014 JDR 2325 (LCC)

MEC for Health, Eastern Cape v Mkhitha and Another (1221/2015) [2015] ZASCA 176 (25 November 2016)

Lehmeckers Earthmoving and Excavators (Pty) Ltd v Incorporated and General Insurance [1984] ZASCA 47; 1984 (3) SA 513 (A)

Schoeman v Constantia Insurance 2003 (6) SA 313 (SCA)

Kruger Bross & Wasserman v Ruskin 1918 AD 63

Legislation Cited

Superior Courts Act 10 of 2013 (section 17(1)(a))

Conventional Penalties Act (as referred to in the judgment)

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the applicant had not met the requirements for leave to appeal under section 17(1)(a) of the Superior Courts Act 10 of 2013, because it had not demonstrated that an appeal would have reasonable prospects of success, nor had it established some other compelling reason for an appeal to be heard. Accordingly, leave to appeal was refused and the application was dismissed with costs.

LEGAL PRINCIPLES

The judgment reaffirmed that an application for leave to appeal under section 17(1)(a) of the Superior Courts Act 10 of 2013 requires more than showing that the proposed appeal is arguable. The applicant must persuade the court on proper grounds that the appeal would have reasonable prospects of success, meaning there must be a sound and rational basis for concluding that another court will likely differ.

The judgment further reflected the principle that leave to appeal may also be granted where there is some other compelling reason for the appeal to be heard, including instances of conflicting judgments or where the matter is of substantial importance, although such compelling reasons are assessed with reference to the facts of each case.

In relation to costs, the judgment reiterated the established principle that costs orders lie within the discretion of the court, to be exercised judicially, and that such discretion is not ordinarily susceptible to challenge in isolation without the court’s permission.