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[2008] ZASCA 89
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Afrisure CC and Another v Watson NO and Another (522/2007) [2008] ZASCA 89; [2009] 1 All SA 1 (SCA); 2009 (2) SA 127 (SCA) (11 September 2008)
Links to summary
THE SUPREME COURT OF
APPEAL
OF SOUTH AFRICA
Case number: 522/2007
In the matter between:
AFRISURE CC FIRST APPELLANT
ETTIENNE DE VILLIERS SECOND APPELLANT
and
BRIAN JAMES
WATSON NO FIRST RESPONDENT
PUBLISERVE HEALTHCARE SCHEME
(IN LIQUIDATION) SECOND
RESPONDENT
Neutral citation:
Afrisure
v Watson
(522/07)
[2008] ZASCA 89
(11 September 2008)
CORAM: MPATI P, BRAND, LEWIS, COMBRINCK
JJA
et
BORUCHOWITZ AJA
HEARD: 18 AUGUST 2008
DELIVERED: 11 SEPTEMBER 2008
CORRECTED:
SUMMARY
: Claim
against first appellant based on unjustified enrichment –
condictio ob turpem vel iniustam causam
– whether payments reclaimed were illegally made because they
were
in fraudem legis
– relaxation of
par delictum
rule
– whether counter-performance by defendant a defence where
payments reclaimed were illegally made – claim against
second
appellant for damages suffered through same illegal payments based on
breach of fiduciary duty as trustee.
ORDER
On appeal from
: High
Court, Cape Town
(Fourie J sitting as court of first instance.)
1 The appeals by both appellants are
dismissed.
2 The appellants are ordered, jointly and
severally, to pay the respondents' costs, including the costs
occasioned by the employment
of two counsel.
JUDGMENT
BRAND JA (Mpati P, Lewis JA, Combrinck JA
and Boruchowitz AJA concurring)
[1] Until 30 May 2001, the second
respondent, Publiserve Healthcare Scheme (in liquidation)
('Publiserve'), conducted business as
a medical scheme under the
Medical Schemes Act 131 of 1998
. On that date it was provisionally
wound up on application of its own board of trustees. After
confirmation of the provisional
order at a later date, the first
respondent, Mr Brian Watson ('Watson'), was appointed as the
liquidator of Publiserve. The first
appellant, Afrisure CC
('Afrisure'), is a close corporation. At all times relevant hereto,
it conducted business as an insurance
broker. Since a large part of
its business consisted of introducing prospective members to medical
schemes, it was an ‘accredited
broker’ under the
Medical
Schemes Act. Although
obviously a separate legal person, Afrisure was
in effect no more than the alter ego of its only member, Mr Ettienne
de Villiers
('De Villiers'), who is the second appellant in these
proceedings. As from 25 August 2000 De Villiers was also a member of
Publiserve's
board of trustees, a position from which he resigned on
28 May 2001, ie two days prior to the winding-up of the scheme.
[2] Over the period 26 October 2000 until
31 January 2001, Publiserve made five individual payments to Afrisure
in a total sum of
R5 454 636.50. After his appointment as
liquidator, Watson instituted action against Afrisure and De
Villiers, jointly
and severally, for repayment of that amount. I
shall soon return to the exact nature of, and the basis for these,
claims. Broadly
stated, however, the claim against Afrisure rested on
two grounds, pleaded in the alternative. The main claim was based on
unjustified
enrichment, founded on the allegations, firstly, that the
payments constituted contraventions of the
Medical Schemes Act read
with the regulations promulgated under that Act and, secondly,
because these payments were, in any event, made by mistake. The
alternative claim against Afrisure was for the lesser amount of
R3 759 114.50, representing the aggregate of those of
the
five payments that were made during the six months immediately
preceding Publiserve's winding-up, on the basis that they constituted
voidable preferences under
s 29
of the
Insolvency Act 24 of
1936
. The claim against De Villiers was again formulated on
alternative grounds. The main claim rested on the contention that De
Villiers
had breached his fiduciary duty as trustee of Publiserve by
causing or allowing the five payments to be made to Afrisure. The
alternative
claim against him was formulated with reference to the
provisions of s 424 of the Companies Act 61 of 1973, on the
premise
that De Villiers was knowingly party to the carrying on of
the business of Publiserve in a reckless manner, as contemplated by
that section.
[3] In the event, the court
a
quo
upheld the
appellants’ main claims against both Afrisure and De Villiers.
In consequence it granted judgment against them,
jointly and
severally, for payment of the amount of R5 454 636.50,
together with interest and costs. That judgment has
since been
reported as
Watson NO and another v Shaw NO
and others
2008 (1) SA 350
(C). The reason
why Mr Shaw was the first defendant in the court
a
quo
and how it
happened that he fell out of the picture, is explained in the
judgment of the court a quo (para 2). In like manner the
judgment
explains how it came about that, although evidence in the matter was
heard by Knoll J, it was eventually decided by Fourie
J, pursuant to
an agreement between the parties, because of the untimely death of
Knoll J before she was able to hand down her
judgment in the matter
(paras 2 and 3). The present appeal against the judgment of Fourie J
is with his leave.
ENRICHMENT CLAIM AGAINST AFRISURE
[4] I shall first deal with the main claim
against Afrisure, based on unjustified enrichment. In this court, as
in the court a quo
,
argument
for the respondents started with the proposition that ‘there is
a clear movement heralded by the Supreme Court of
Appeal, away from
the maintenance of a distinction between the various
condictiones
underlying the actions of unjustified enrichment in our law’.
Relying on
obiter dicta
by
Schutz JA in
McCarthy Retail Ltd v Short
Distance Carriers CC
2001 (3) SA 482
(SCA)
paras 8-10 and
First National Bank of Southern
Africa Ltd v Perry NO
2001 (3) SA 960
(SCA)
para 23, the court a quo
not
only acknowledged, but also expressed its support for this movement
(paras 7-10). In my view it would, however, be unwise to
enter into
that debate. This is clearly not the case to decide whether we should
grasp the nettle of a general enrichment action.
The respondents did
not rely on a general enrichment action or, for that matter, even on
an extension of any recognised
condictio
(cf
eg
Bowman, De Wet & Du Plessis NNO v
Fidelity Bank Ltd
1997 (2) SA 35
(A) at
40A-B). They sought to bring their claim within the framework of
either the
condictio ob turpem vel iniustam
causam
or the
condictio
indebiti.
Whether they have succeeded in
doing so is the question we have to decide.
THE
CONDICTIO OB
TURPEM VEL INIUSTAM CAUSAM
[5] The central requirement of the
condictio ob turpem vel iniustam causam,
is that the amount claimed must have been transferred pursuant to an
agreement that is void and unenforceable because it is illegal,
ie
because it is prohibited by law (see eg
FNB v
Perry NO (supra)
para 22; Daniël Visser
Unjustified Enrichment
(2008)
p 425). The main reason advanced by the respondents as to why the
payments they reclaim were illegally made, was that, on
a proper
analysis of the facts, all these payments constituted ‘broker's
commission’ and therefore contravened
s 65
of the
Medical
Schemes Act read
with reg 28 of the Regulations promulgated under the
Act. Alternatively they contended that, in as much as part of the
amounts
reclaimed may not have represented broker's commission, they
were ‘administration fees’ paid in contravention of s 58
of the same Act
LEGISLATIVE MATRIX
[6] The pertinent provisions of s 65
of the Act, as it stood at the relevant time, ie prior to amendments
since 2001, read
as follows:
'
Brokers
services and commission
(1) A medical scheme may
compensate any person in cash or otherwise, in accordance with its
rules, for the introduction or admission
of a member to that medical
scheme.
The Minister [of
Health] may prescribe the amount of the compensation which, the
category of persons to whom, the conditions upon
which, and any
other circumstances under which, a medical scheme may compensate any
person in terms of subsection 1.’
The provisions of Reg 28 relied upon, read
as follows:
'(1) A medical scheme must not
compensate any person in terms of s 65 for acting as a broker
unless such person –
has been
accredited by the Council [for Medical Schemes] to act as a broker
or apprentice broker;
. . .
enters
into a prior written agreement with the medical scheme concerned,
and the nature and compensation payable to such person
must be fully
disclosed in the financial statements of the medical scheme
concerned;
.
. .
complies with the
code of ethics for appropriate behaviour provided for in the
accreditation requirements;
A maximum amount payable in a
given year in respect of the performance of services relating to
the introduction of a member
to a medical scheme by any number of
brokers shall not exceed 3% plus value added tax (VAT) of the
contributions payable in
respect of members introduced by such
broker during that year.'
[7] Section
58, which deals with the administration of the medical scheme,
inter
alia
provides (in terms of subsec 1) that
'no person shall administer a medical scheme as an intermediary
unless the Council has,
in a particular case or in general, granted
accreditation to such a person.'
[8] To complete the legislative matrix,
there is
s 66
of the
Medical Schemes Act which
deals with
‘offences and penalties’. Under this rubric
s 66(1)(a)
then declares that 'any person who contravenes any provision of this
Act [which, by definition, includes the Regulations] or fails
to
comply therewith . . . shall . . . be guilty of an offence'.
Specifically with reference to broker's commission, s 66(1)(f)
(which has since been deleted from the Act by s 27(a) of Act 55 of
2001) declared that 'any person who . . . compensates or causes
to be
compensated, any person for the introduction or admission of a member
other than in terms of section 65 or the consenting
to keep a member
in a medical scheme shall . . . be guilty of an offence. Section
66(1) further provides that, upon conviction
of an offence under the
section the offender will be liable ‘to a fine or to
imprisonment for a period not exceeding five
years or both a fine and
imprisonment.'
[9] Against this legislative background,
the central theme advanced by the respondents as to why the payment
of the amounts they
reclaim was illegal and, in fact, constituted a
criminal offence under s 66(1) of the Act, can be summarised thus:
In as much as these payments represented
‘broker's commission’, they were made in contravention
of s 65 and reg
28, firstly, because no prior written agreement
for payment of commission had been concluded between Publiserve and
Afrisure
and, secondly, because these payments, in aggregate,
exceeded the three per cent restriction imposed by the Minister in
terms
of reg 28(2).
On the supposition that part of these
payments represented compensation for administrative services they
were made in contravention
of s 58 of the Act, because
Publiserve was not an accredited administrator.
BACKGROUND FACTS
[10] The exact nature of the contentions
relied upon by the respondents as well as the various defences that
were raised by the
appellants, will best be understood in the light
of the factual background that follows. Cooperation between
Publiserve and Afrisure
started during July 2000. At the time,
Publiserve was troubled by financial difficulties. It was registered
as a medical scheme
in 1995 to provide for the needs of the Public
and Allied Workers Union ('PAWUSA'). Though PAWUSA had about 20 000
members,
only 3 000 of them became members of Publiserve, which
by all accounts was not enough for a viable medical scheme.
Publiserve's
board of trustees were members of PAWUSA who were not
properly qualified to control the affairs of the medical scheme. The
scheme
had no offices and it employed no staff, apart from its
‘principal officer’, required by the
Medical Schemes Act.
For
its administration it was entirely dependent on an accredited
administrator, Metropolitan Health (Pty) Ltd, commonly referred to
as
Methealth, with whom it entered into a formal administration
agreement. In terms of the agreement Methealth took responsibility
for the registration of members, the collection of their
contributions, the payment of their claims, the establishment and
maintenance
of financial records, the preparation of financial
statements, the provision of the board of trustees with actuarial,
statistical
and other advice, and so forth.
[11] During 1997, Publiserve suffered a
financial setback from which it never recovered. Because of an
operational loss it had experienced
during that year, it became
technically and commercially insolvent. Though disputed by the
respondents at the trial, it can at
this stage be accepted with
confidence that the position of insolvency, which arose during 1997,
was one from which Publiserve
never recovered until it was wound-up
in May 2001. At the time of its liquidation, so Watson testified, its
liabilities exceeded
its assets by about R11m.
[12] Publiserve's precarious financial
position attracted the special attention of the Council for Medical
Schemes. It also led
to the dismissal of its then principal officer
and the appointment of Mr J J N du Preez ('Du Preez') to that
position towards the
end of 1998. Shortly prior to his appointment,
Du Preez had retired as chief executive officer of another, fairly
large, medical
scheme after having been involved in the same field
since about 1980. At the time of Du Preez’s appointment the
Council for
Medical Schemes, through its registrar, insisted on a
business plan that made provision for the financial recovery of
Publiserve.
One of Du Preez’s first assignments on his
appointment was to prepare such a plan.
[13] The business plan prepared by Du Preez
and presented to the registrar of Medical Schemes towards the end of
1999, predicted
that Publiserve could recover from insolvency by
mid-2000. But according to the plan, this favourable outcome was
pertinently made
subject to certain preconditions. One of them is of
relevance: that a marketing campaign be launched successfully so as
to increase
the membership of Publiserve from about 3 000 to
about 6 200.
[14] It appears that the Council for
Medical Schemes was not particularly optimistic about the prospect
that an increase in the
Publiserve membership of more than double
could be attained. In consequence, it expressed its scepticism about
the feasibility
of the whole business plan. Undoubtedly Publiserve's
board of trustees must therefore have breathed a collective sigh of
relief
when, at their meeting of 24 March 2000, the Methealth
representative, Mr A J Delport, informed them – as minuted –
‘about advanced negotiations with a large brokerage who
expressed interest in Metropolitan Health to accommodate their client
base of more than 9 000 members'. Not surprisingly, the
trustees, immediately after receiving this news, according to the
same minutes, ‘mandated the Principal Officer to negotiate with
the brokerage re potential Publiserve membership'.
[15] It is common cause that the 'large
brokerage' referred to by Delport was De Villiers in the form of his
alter ego, Afrisure.
Turning to the background of De Villiers, it
appears that he started out his business career as a life insurance
broker. During
about 1993, so he testified, he identified a market
for selling medical aid to civil servants in rural areas, especially
in the
former homelands of the Mpumalanga province. As appears from
the evidence, different options are provided for by medical schemes,
offering differentiated contribution rates, or different benefit
scales, or both. At the time, so De Villiers testified, he approached
a medical scheme known as Visimed with an option best suited for his
niche market, which became known as the Afrisure option. According
to
De Villiers, he then proceeded to market this option, eg by making
presentations in remote rural areas. Moreover, he said, he
provided
his clients with after sales service, for example, by assisting them
in their registration as members, in lodging their
benefit claims and
in dealing with their queries of various kinds. His efforts proved to
be successful. Eventually, about 6 000
of Visimed's members were
clients of Afrisure.
[16] In January 1998 De Villiers moved the
Afrisure option and all its clients from Visimed to another medical
scheme, Meddent.
As in the case of Visimed, Afrisure received
broker's commission for introducing its clients to their new scheme.
Apart from what
was termed ‘broker’s commission’,
Meddent paid Afrisure an additional amount of R50 per month for every
client
while that client remained a member of the scheme. The
relationship between Meddent and Afrisure lasted for about two years.
Over
this period, the Afrisure client base increased to more than
8 000 members. The reason why De Villiers caused the Afrisure
clients to leave Meddent is a matter of some dispute. According to
Meddent it was because the Afrisure option had caused it to
suffer a
considerable financial loss during 1999 and a further loss of
R4,6 million during the first three months of 2000.
[17] De Villiers took the position that
Meddent's calculations were wrong, but his attempts to bring the
Meddent board round to
his view were unsuccessful. In consequence,
Meddent insisted on a 57 per cent increase in the contributions of
Afrisure’s
clients as from 1 May 2000. As a result, De Villiers
decided to rekindle his earlier negotiations with Delport for the
takeover
of the Afrisure option by Methealth. This is how it came
about that Delport could inform the Publiserve board, at its meeting
of
24 March 2000, as we know from the minutes of that meeting, that a
large brokerage was looking for a medical scheme to accommodate
its
client base of 'more than 9 000'. As we also know from the same
minute, the Publiserve board mandated its principal officer,
Du
Preez, to negotiate with this broker with a view to acquire its large
number of clients for the financially limping Publiserve.
It appears
to be common cause that, during the negotiations that followed, Du
Preez was never informed of the allegations by Meddent
that the
Afrisure option had caused it to suffer a severe financial loss
during the immediately preceding 15 months.
[18] The negotiations between De Villiers,
Du Preez, and various officials of Methealth that followed led De
Villiers to prepare
a written proposal on behalf of Afrisure, dated
27 April 2000, which was presented to the Publiserve board at its
meeting on the
following day. As will become apparent, this written
proposal, read with the minutes of the board meeting of 28 April
2000, were
destined to play a central role in the present litigation.
The material part of the proposal reads as follows:
'Afrisure
members
The management of
Afrisure have agreed in principle to move the Afrisure members to the
Publiserve Healthcare Scheme, administered
by Methealth subject to
the following conditions and requirements.
An option to be registered
under the Publiserve scheme for the current Afrisure members and
future members.
Marketing rights for this
option are owned by Afrisure CC and any broker wishing to market
this product must contract to Afrisure
CC . . .
The marketing fee to be R225
per member plus VAT payable within 30 days after receipt of first
contribution.
An ongoing service fee to be
paid to Afrisure CC of R100 plus VAT per month per member after
receipt of first contribution for
as long as the member remains a
member of the option. This applies to existing members as well. See
Annexure A for details.
A placement fee of R250 per
member plus VAT be paid after 90 days of inception to Afrisure CC
on the placement of the members
with Publiserve.
. . .
14. 1 That Afrisure
members are offered one seat on the Publiserve board of trustees for
the period up to the 2001 AGM.’
[19] According to the minutes of the
meeting of 28 April 2000, the Publiserve board of trustees took the
following decision with
reference to this proposal:
'
Afrisure
proposal
.
. . The proposal was discussed in detail and approved in principle
subject to the following:
[Then follow three qualifications] . . .
The
Principal Officer was mandated by the Trustees to negotiate draft
agreements on behalf of the Board of Trustees which are to
be
submitted for final approval and signing to the Board of Trustees.'
[20] With reference to the contents of the
proposal, it was understood by all concerned that the R250 ‘placement
fee’,
referred to in para 5, constituted a broker’s
commission pertaining to existing clients of Afrisure that were to
become members
of Publiserve, while the R225 in para 3 would be the
broker’s commission levied for new clients that were introduced
as members
to the Afrisure option at a later stage. As to these
amounts it was common cause that the R250 represented three per cent
of every
member's annual contribution, which is the maximum rate of
broker's commission prescribed by reg 28(2), while the R225 would, of
course, be slightly less than that maximum. The ongoing fee of R100
per member per month for existing and new members, proposed
in para
4, attracted a number of labels during the course of the trial, such
as a 'co-administration fee', a 'recurring fee', a
‘service
fee’ and an 'ongoing service fee'. Finally, by way of
illuminating the proposal, 'annexure A' referred to
in para 4,
contained a list of the services that Afrisure undertook to render in
return for this ongoing fee.
[21] The three qualifications to Afrisure's
proposal that appear from the minutes of the board meeting of 28
April 2000 were soon
thereafter acceded to by De Villiers on behalf
of Afrisure. Subsequent to that, everybody concerned accepted that
they had an agreement.
But Du Preez, who was deputed to reduce this
agreement to writing, did not get round to doing so. De Villiers
became concerned.
At a management meeting on 8 August 2000 where both
he and Du Preez were present, De Villiers expressed his concern.
According
to the minutes of the meeting it was then agreed that Du
Preez would provide De Villiers with a signed copy of the minutes of
Publiserve's
board meeting of 28 April 2000, where the Afrisure
proposal was accepted in principle, and that these signed minutes
would 'serve
as a contract for the time being'. It is common cause
that De Villiers later received a signed copy of the minutes from Du
Preez.
[22] From July 2000, Afrisure's clients
started moving over to Publiserve. In the end, about 6 750
Afrisure clients joined
the move. For introducing them, Afrisure
received the total sum of R1 881 028 from Publiserve in the
form of 'marketing
fees' and 'placement fees' pursuant to paras 3 and
5 of the 27 April 2000 proposal. In addition, it received the balance
of the
amount of R5 454 636.50 claimed by the respondents,
ie R3 573 608.50, in the form of 'service fees' or
'recurring
fees' in terms of para 4 of the proposal. Pursuant to para
14.1 of the proposal, De Villiers became a member of the Publiserve
board on 25 August 2000. On 28 May 2001, ie two days prior to the
liquidation of Publiserve, De Villiers resigned as a trustee.
At the
same time he again moved all Afrisure’s clients to another
medical scheme from whom Afrisure again received payment
of broker’s
commission.
[23] With reference to the amount of
R1 881 028, which by all accounts constituted broker's
commission, the main dispute
considered by the court a quo resulted
from the respondents’ contention that these payments were both
illegal and unenforceable
because they were not made pursuant to a
written agreement between Publiserve and Afrisure. In answer, the
appellants essentially
relied on the agreement between De Villiers
and Du Preez at the management meeting of 8 August 2000, that a
signed copy of the
minutes of the 28 April 2000 meeting of the
Publiserve board would ‘serve as a contract for the time
being’. Eventually
the court a quo decided this issue against
the appellants (paras 25-28). But before considering the correctness
of that conclusion,
I find it appropriate first to deal with an issue
of a more fundamental nature in that its outcome will have a more
far-reaching
effect on the end result in this appeal.
[24] This
fundamental issue arises from the respondents’ further
contention – which was in fact its main contention
– that
the recurring fee of R100 per member per month received by Afrisure,
which in aggregate amounted to R3 573 608.50,
was not ‘a
service fee’, as proclaimed in para 4 of the Afrisure proposal,
but that it served a dual purpose. In the
first place, so the
respondents contended, it constituted additional broker’s
commission. In this respect the reason for
the disguise as a ‘service
fee’ was in order to evade or circumvent the limitation of
three per cent of members’
annual contributions, imposed on
broker’s commission by reg 28(2). The second purpose of the
so-called ‘service fee’,
according to the respondents,
was to serve as an incentive to prevent Afrisure from moving its
clients to another scheme. According
to the respondents, the
camouflage of a ‘service fee’ in this instance was
necessary to conceal a criminal offence
under
s 66(1)(f)
of the
Medical Schemes Act, namely
, the payment of compensation to ‘any
person for consenting to keep a member in a medical scheme’.
What these contentions
by the respondents amounted to, in short, was
that the way in which Afrisure’s remuneration was formulated
and eventually
agreed upon, was aimed at evading the provisions of
the law, a manoeuvre which is
in fraudem legis.
[25] These contentions were supported by
the direct evidence of Du Preez. According to his testimony, the R100
recurring fee was
indeed made to serve the twofold purpose of an
additional broker's commission and as an incentive to deter Afrisure
from moving
its clients to another scheme. De Villiers, on the other
hand, insisted that the R100 fee constituted compensation for
additional
services rendered by Afrisure over and above its
obligations as a broker and that it was therefore genuinely and
accurately described
as a ‘service fee’. In corroboration
of his version, De Villiers referred to the lengthy list of
obligations that Afrisure
undertook to perform towards its clients in
terms of its agreement with Publiserve, as appears from annexure A to
its written proposal
of 27 April 2000. What is more, so De Villiers
pointed out, these obligations had indeed been performed by Afrisure
towards its
clients as long as they remained members of Publiserve.
[26] The flaw in the picture presented by
De Villiers is, in my view, that on a proper analysis of annexure A,
most – if not
all –the obligations listed therein would
in any event be part of Afrisure's duties as a broker. Fundamental to
De Villiers's
denial that this is so was his thesis that, in
principle, once a broker had successfully introduced a client to a
medical scheme,
he or she has no further obligations, qua broker, to
either the client or the scheme. Departing from this premise, his
proposition
was that every obligation referred to in annexure A which
came after the introduction of the client to the scheme, should be
classified
as an additional service for which Afrisure was entitled
to additional remuneration, over and above the three per cent
brokerage.
It seems to me, however, that the underlying thesis is
unsustainable because it is at variance with the Brokers’ Code
of
Conduct issued by the Council for Medical Services, to which
Afrisure was bound to subscribe by reg 28(1)(m). Under the heading
'Minimum Service Levels' the Code
inter alia
states:
'The minimum level
of services to be provided by a broker in exchange for the fee
permitted in terms of the regulations to the
Medical Schemes Act [ie
the brokerage allowed by
regulation 28]
. . . shall be as follows:
. . .
The broker shall at all times
facilitate the relationship between his or her client and the
medical scheme to which the broker
has referred the client and
shall:
(a) make all
reasonable efforts to resolve any problem which the client
experiences with his/her/its dealings with the medical scheme
promptly and efficiently to the best of the broker's ability;
. . .
(c) make him or
herself available to attend at least one meeting per year, at the
request of the client, between the client and
representative of the
medical scheme or its administrators . . . .’
[27] On my reading of the Broker’s
Code of Conduct, it leaves no doubt, firstly, that the duties of a
broker towards his clients
and the scheme do not terminate upon the
introduction of the member to the scheme and, secondly, that the
broker’s remuneration
for these surviving duties is included in
the commission of three per cent maximum that he or she receives.
Moreover, in the unlikely
event that some of the services undertaken
and rendered by Afrisure to its clients did in fact exceed the
minimum level of obligations
required from it as a broker, sight
should not be lost of the fact that it was in the interest of
Afrisure itself to keep its client
base satisfied. In this regard De
Villiers conceded that, in his perception, Afrisure had something
akin to a proprietary interest
in its client base, which it could
inter alia transfer from one medical scheme to the other and, for
which transfer it could, of
course, demand broker's commission on
each occasion. In short, the fact that Afrisure had reason to be a
good broker did not take
its services out of the ambit of brokerage.
For these reasons it follows that unlike the court
a
quo
(para 43), I am
left unpersuaded that the ‘additional services’ argument
relied upon by De Villiers, supports the appellants'
case.
[28] In any event, the ‘additional
services’ argument should not, in my view, be seen in
isolation. De Villiers's fervent
denial that the ‘service fees’
were a sham, is reminiscent of the Parisian cripple suspected of
being a German spy
in disguise, about whom Davis J said the following
in
Lawson and Kirk v South African Discount
and Acceptance Corporation (Pty) Ltd
1938 CPD
273
at 282:
'[T]hat
he [ie the Parisian cripple] habitually speaks French and limps on
two sticks matters not at all: that he was once heard
speaking fluent
German and was seen to run may well be conclusive.'
[29] As I see it, an evaluation of De
Villiers's evidence on this aspect reveals a number of instances
where the proverbial Parisian
spy slipped up. One of these was his
inability to explain the stark contrast between the amount of R100
per member per month received
by Afrisure for the additional services
– if any – it had rendered, apart from its obligation as
a broker, and the
R58 per member per month levied by Methealth for
conducting, what was, in essence, the whole of Publiserve’s
business. It
will be remembered that the services rendered by
Methealth included the collection of contributions, the assessment
and processing
of claims, the preparation of monthly and annual
financial statements, the performance of actuarial assessments, etc,
while the
additional services rendered by Afrisure are difficult to
discover. Another anomaly De Villiers was unable to explain was why
Afrisure
demanded R100 from Publiserve for performing a service which
was less than what it did for Meddent, from whom it levied only R50
per member per month.
[30] A further intriguing aspect of De
Villiers’s evidence was that he could give no account
whatsoever of how the amount
of R100 was calculated and arrived at.
If the amount genuinely constituted remuneration for services
rendered, I think one would
have found some reference, eg, to the
costs of these services and the anticipated profit in the calculation
of the amount. But
De Villiers could give no such explanation.
Eventually he fell back on the argument that the determination of the
amount of R100
resulted from a proposal made by Afrisure to which
Publiserve agreed without demur. Normally the willingness on the part
of the
Publiserve board to pay the additional R100 per month would,
of course, be an indication that the board regarded the services
offered
by Afrisure as representing value for money. The flaw in the
argument lies, however, in the fact that at the time the Publiserve
board was desperate to meet the demands of Afrisure, because they saw
the financial salvation of the scheme in the prospect of
the large
number of new members that Afrisure was offering. In my view, the
objective facts therefore support Du Preez’s
version, namely,
that the Publiserve board was prepared to pay the R100 per month
demanded by Afrisure, not because they were interested
in the alleged
additional services offered by Afrisure, or because they thought that
the R100 represented fair value for money,
but in order to procure
and retain the large number of prospective members.
[31] But
the most prominent slip-up by the proverbial Parisian cripple, I
think, was the statement by De Villiers at the meeting
of the
Publiserve board of trustees which was held on 25 April 2001, ie
shortly prior to the liquidation of the scheme. According
to the
minutes of the meeting, the context of the statement was that the
board had been confronted at that meeting with a formal
notification
by the auditors of Publiserve of their misgivings that the scheme was
recklessly trading in insolvent circumstances,
coupled with an
invitation to the board to dispel that fear. The response suggested
to the meeting, was based on a rescue plan
proposed by a firm of
actuaries, Fifth Quadrant. Part of the rescue plan was the proposal
of a drastic reduction in ongoing payments
to brokers which, in the
view of the actuaries, were bleeding Publiserve dry. Someone present
at the meeting then expressed the
concern that, unless the brokers
could be persuaded to ‘buy into’ the rescue plan,
Publiserve would lose its members.
[32] According
to the minutes of the meeting, the discussion thereupon proceeded as
follows:
'It
was noted that if the Publiserve membership figure drops below 6 000
members, the Scheme will be shut down. Mr De Villiers
reasoned that
he would not, from a broker's point of view, buy into the Fifth
Quadrant report and conditions stipulated therein.
Mr De Villiers is
of the opinion that a 3% commission payable to the brokers is not
acceptable, that the brokers will move their
members, and that this
will result in liquidation of the Scheme. He admitted that this is
not an easy problem to address, but that
membership will be lost with
a commission recommendation of only 3%.'
[33] In my view, the reported statement by
De Villiers is capable of only one realistic and sensible
interpretation, namely, that
unless Publiserve was prepared to
continue their payment of
broker’s
commission in excess of three per cent,
Afrisure would move its clients to another medical scheme. As a
matter of language and logic, this corroborates Du Preez’s
evidence that at the time, Publiserve was paying broker’s
commission in excess of the three per cent of members’
contributions
imposed by statute, as an incentive to Afrisure not to
remove its clients. The attempt by De Villiers during
cross-examination
to interpret his recorded comments as a reference
to ‘service fees’ did him no credit. The comments simply
do not support
that meaning. Moreover, that interpretation proved to
be in direct conflict with De Villiers’s testimony at an
earlier insolvency
enquiry.
[34] Hence follows the inevitable
conclusion, in my view, that the amount of R3 573 608.50
described as a 'service fee'
or 'co-administration fee' was in
reality a broker's fee in disguise. This leads to the equally
inevitable conclusion that the
agreement supporting these payments
was illegal. The court a quo also arrived at the conclusion that this
agreement was illegal,
(paras 42-48), but for a different reason,
namely that it was an agreement to pay ‘administration’
fees to a non-accredited
administrator. I do not agree. In my view
the agreement was illegal because it was
in
fraudum legis
and because it imposed an
obligation on Publiserve to pay broker’s commission in excess
of the limit imposed by reg 28(2).
[35] The next question is this: how does
this finding of an agreement
in fraudem legis
impact on the balance of the amount claimed –
ie R1 881 028 – which, by all accounts, was genuinely
paid as
broker’s commission within the bounds of the three per
cent statutory limitation? Otherwise stated: can Afrisure insist that
we reject the bad and nonetheless retain the good in the agreement
underlying both payments? The answer, I think, depends on whether
the
illegal part of the agreement can be severed so as to leave the
remainder, which may in itself be unobjectionable, enforceable.
The
‘fundamental and governing principle’ with regard to
severability, so Smalberger JA accepted in
Sasfin
(Pty) Ltd v Beukes
1989 (1) SA 1
(A) at 16A,
is ‘to have regard to the probable intention of the parties as
it appears in, or can be inferred from, the terms
of the contract as
a whole’.
[36] Counsel for the appellants contended
that, on the application of that test to the agreement under
consideration, the good can
indeed be severed from the bad in that
the agreement itself drew a clear distinction between Publiserve’s
obligation to pay
an excess brokerage under the guise of service fees
– which was found to be bad – and its obligation to pay
brokerage
of three per cent – which is good. The problem is,
however, that I have already found that that very expression of
divisibility
was a sham. The proper approach, in my view, is to ask
whether in all the circumstances De Villiers would have been prepared
to
enter into the agreement on behalf of Afrisure if its broker’s
commission was limited to – the good part – ie
three per
cent. On the probabilities, I think the answer to this question can
only be a resounding ‘no’. But we do
not even have to
resort to the probabilities. At the meeting of the Publiserve board,
held on 25 April 2001, De Villiers gave a
direct answer to the
question posed when he said ‘that a three per cent commission
payable to brokers would not be acceptable’.
It follows that,
in my view, Publiserve’s obligations under the agreement are
not severable and that the payment of R1 881 028
was
illegal too.
[37] The court a quo also concluded that
the payment of R1 881 028 was illegal, but again for
different reasons, namely,
that there was no prior written agreement
– as required by reg 28(1)(d) – in existence at the time
(paras 25-28). In
this court, the appellants’ answer to that
finding was, in essence, based on the contention that, even if the
agreement giving
rise to the payment of R1 881 028 was
illegal for non-compliance with reg 28(2), such non-compliance did
not render the
agreement invalid and unenforceable. In support of
this contention, they relied on the well-settled principle that,
although an
agreement in contravention of a statutory provision is
usually invalid and unenforceable, it is not necessarily so, unless,
of
course, the statute contains an express declaration to that
effect. Absent such express declaration, the question in every case
is whether, on a proper interpretation of the statutory provision
concerned, the legislature can be said to have intended that
an
agreement prohibited by the provision should be visited with
invalidity or whether, perhaps, it was intended that a criminal
sanction would suffice (see eg
Eastern Cape
Provincial Government v Contractprops 25 (Pty) Ltd
2001
(4) SA 142
(SCA) para 4;
Geue v Van der Lith
[2003] ZASCA 118
;
2004 (3) SA 333
(SCA) para 18).
[38] But since I have found the whole
agreement to pay broker’s commission illegal because it was
concluded
in fraudem legis
,
it is not necessary to embark upon the rather
intricate enquiry whether, on a proper interpretation, reg 28(1)(d)
renders a contravening
agreement both illegal and unenforceable or
only illegal and punishable by criminal sanction. I did not
understand appellants’
counsel to contend that even an
agreement found to be
in fraudem legis
could notionally be valid and enforceable. In any event, I do not
think such contention could ever be sustained. After all, as
Lord
Diplock so aptly stated in
United City
Merchants (Investments) Ltd v Royal Bank of Canada
[1982]
2 All ER 720
(HL) 725h:
‘ “
[F]raud unravels all.” The courts
will not allow their process to be used by a dishonest person to
carry out a fraud.’
THE
PAR DELICTUM
RULE
[39] This leads me to consider the
appellants’ reliance on the rule of our law, that the
condictio
ob turpem vel iniustam causam
can in
principle only be successfully instituted by a plaintiff whose own
conduct was free from turpitude, ie who did not act dishonourably
(see eg Daniël Visser
op
cit
443; J C Sonnekus
Ongegronde
Verryking in die Suid-Afrikaanse Reg
(2007)
139)
. This rule is expressed in the maxim taken
from Roman and Roman Dutch Law:
in pari
delicto potior est conditio defendentis
and
thus became known as the
par delictum
rule.
The principle underlying the
par delictum
rule
is that, because the law should discourage illegality, it would be
contrary to public policy to render assistance to those
who defy the
law. Prior to the judgment in
Jajbhay v Cassim
1939 AD 537
, the
par delictum
rule
found strict and consistent application in our courts (see eg
Brandt
v Bergstedt
1917 CPD 344).
But in
Jajbhay
this court – while affirming the
considerations of public policy underlying the rule – decided
that it should be relaxed,
as Stratford CJ put it (at 544), in those
instances where 'public policy should properly take into account the
doing of simple
justice between man and man'. Since then the
principles enunciated in
Jajbhay
have
been considered and applied in many cases (see eg the decisions of
this court in
Visser v Rousseau & andere
NNO
1990 (1) 139 (A) and
Klokow
v Sullivan
2006 (1) SA 259
(SCA)). No
definite criteria have, however, been laid down to decide whether the
rule should be relaxed or not. The reason, I think,
is plain. The
issue of relaxation may arise in such an infinite variety of
circumstances that it would be unwise for the courts
to shackle their
own discretion by predetermined rules or even guidelines as to when
relaxation of the
par delictum
rule
will be allowed.
[40] But the keystone to the
par
delictum
defence is that the plaintiff has
rendered performance dishonourably or with turpitude. Absent
turpitude on the part of the plaintiff,
the
par
delictum
defence is simply not available.
Where payment, even though illegal, was not dishonourable, the
plaintiff must succeed (see eg J
C Sonnekus
op
cit
134; ‘Enrichment’ 9
LAWSA
(2ed) para 215). In order to meet this
threshold requirement, the appellants relied on the admission by
Publiserve's principal officer,
Du Preez, that, to his knowledge the
agreement underlying the payments reclaimed had specifically been
couched in a way that would
evade the prohibitions of the law; ie
in
fraudem legis.
In response, various answers
were raised on behalf of the respondents. First amongst these was the
contention that dishonourable
conduct on the part of Du Preez cannot
be held against the real plaintiff, Watson, in his capacity as
liquidator of Publiserve.
[41] I am, however, not persuaded by this
answer. To my way of thinking, it would be in conflict with the
general rule accepted
in matters of insolvency, that the liquidator
cannot acquire rights greater than the insolvent entity ever had (see
eg
Peterson and Another NNO v Claassen
[2005] ZAWCHC 44
;
2006
(5) SA 191
(C) para 37; cf also
Minister of
Finance v Gore NO
2007 (1) SA 111
(SCA) para
14). Moreover, though this issue was not raised nor pertinently
decided in
Visser v Rousseau (supra)
,
the respondents’ contention would be contrary to the whole
tenor of this court's judgment in that case (eg at 153E-154D).
As I
see it, the nub of the decision in the
Visser
case was that the
par delictum
defence
could in principle be raised against the liquidators of a company
where, on the facts of that case, the dishonourable conduct
at issue
was clearly not attributable to the liquidators themselves, but to
the former director of the company. In support of their
argument, the
respondents sought to rely on the rather terse statement by Kuper J
in
De Klerk NO v Mahomed
1957
(1) SA 416
(T) at 429E-F, which can be understood to mean that,
although the
par delictum
defence might have been available against the insolvent in that case,
it could not be raised against her trustee, because the trustee
could
not be said to be party to an illegal agreement. If that is the true
meaning of the statement, it would lend support to the
respondents’
argument. But, for the reasons I have given, I would be unable to
agree with a statement to that effect.
[42] The respondents’ further answer
to the
par delictum
defence
was that dishonourable conduct on the part of Du Preez cannot be
attributed to Publiserve, because the directing mind of
Publiserve,
in law, resided with its board of trustees and not with Du Preez.
Again I cannot agree with this answer. The relevant
legal principles,
I think, are those stated by Trollip J in
Connock's
(SA) Motor Co Ltd v Sentraal Westelike Koöperatiewe Maatskappy
Bpk
1964 (2) SA 47
(T) at 53G-H. According to
this statement, knowledge of facts that will be imputed to a company
‘would, therefore, include
the knowledge of any of its agents
or servants possessed and acquired by him in the course of his
employment under such circumstances
and being of such a nature that
it was his duty to communicate it to the proper authority in the
company (
Barberton Town Council v Ocean
Accident & Guarantee Corporation Ltd
1945
TPD 306)'.
Departing from this premise, I have no doubt that Du Preez
was under a duty to tell Publiserve’s board that the agreement
they had entered into with Afrisure constituted an attempt to evade
the relevant statutory provisions and was therefore illegal.
Moreover, on my reading of the minutes of the board meetings, I gain
the clear impression that Du Preez did in fact convey this
information to the trustees.
[43] Lastly, the respondents argued that,
in any event, the appellants had failed to make out a case of
dishonourable conduct on
the part of Du Preez. In support of this
argument they relied on the evidence of Du Preez that the payments
were made in good faith,
which evidence, so they pointed out, was
never challenged at the trial. The court a quo seems to have been
persuaded by this argument
(para 30). But, though the factual
foundation of the argument cannot be faulted, I am unable to share
the court a quo’s conclusion.
Du Preez did indeed testify that
the payments were made in good faith. Likewise it is true that this
evidence remained uncontested
by the appellants. Nonetheless I find
it unacceptable that Du Preez could have made these payments in good
faith despite his knowledge
that the underlying agreement was
deliberately aimed at evading the law. As to the appellants' failure
to dispute Du Preez’s
assertion of good faith, sight should not
be lost of the fact that such dispute would fly in the face of what
was central to the
appellants' whole case, namely, that as a fact,
none of the payments under consideration were illegal. What Du Preez
meant by ‘good
faith’, I think, is that although he knew
that the payments were illegal, he thought they were for the greater
good of Publiserve.
Thus understood, these payments were nonetheless
dishonourable, because, in law, the honourable end obviously did not
justify the
illegal means.
[44] Hence it must, in my view, be accepted
in sum that:
Du Preez's knowledge, that the agreement
giving rise to the payment to Afrisure was made in contravention of
statutory provisions
and formulated in a way so as to hide this
contravention, must be attributed to Publiserve.
In consequence, it must be accepted that
these payments were made by Publiserve with knowledge that they were
in fraudem legis,
and
that Publiserve must therefore be regarded as having acted
dishonourably and with turpitude when it made the payments it now
reclaims.
[45] By the same token it is clear that
Afrisure, as represented by De Villiers, acted with at least equal
turpitude when it demanded
and accepted the illegal payments. De
Villiers was an experienced broker with expert knowledge in the
sphere of medical schemes.
And, while Du Preez was obviously
motivated by what he – mistakenly – thought to be in the
best interest of Publiserve,
De Villiers was driven by sheer avarice.
In the circumstances, the appellants’ counsel, rightly in my
view, did not contend
for the absence of any turpitude on the part of
their clients. Nor did they contend that we should embark upon a
weighing up of
the parties’ respective moral turpitude, even if
this were to be permissible (cf
Visser v
Rousseau supra
at 153D-E). Their argument was
that in the circumstances of this case the decisive considerations
are to be found in the following
statement by Stratford CJ in
Jajhbay
v Cassim
(at 544):
'.
. . [O]ne might say, speaking generally, that restitution will be
granted in cases where the illegal contract has not been
substantially
carried out, and not in those cases where the contract
has been substantially performed. But such a rule, though affording
us some
guidance, must be subordinated to the overriding
consideration of public policy (which I repeat does not disregard the
claims of
justice between man and man).’
[46] I do not believe anyone can disagree
with the concept that in a case where both parties have performed
their reciprocal obligations
under an illegal contract, simple
justice between man and man will usually dictate that, in order to
avoid an undue benefit to
the plaintiff, both parties should retain
whatever they received. This must particularly be so in a situation
where the defendant's
performance, received by the plaintiff,
consisted of a
factum
that
can no longer be returned or where such performance would, in any
event, upon restoration, be of no value to the defendant.
[47] But, of real relevance in this
instance, in my view, is the exception to the general rule that
appears at the end of the Chief
Justice’s statement referred
to, namely that it ‘must be subordinated to the overriding
consideration of public policy’.
In my view the statutory
provisions that have been contravened by the payments at issue were
aimed at the protection of the members
of the medical scheme. Strict
application of the
par delictum
rule
in these circumstances will deprive them of that statutory
protection. Thus understood, public policy, in my view, dictates
in
this case that the
par delictum
rule
be relaxed in favour of the respondents.
THE WILKEN AND KOHLER DEFENCE
[48] Based on the fact that Afrisure has
rendered full performance of its obligations in terms of its
agreement with Publiserve,
the appellants also sought to rely on a
‘rule’ that has its origin in an
obiter
dictum
by Innes J in
Wilken
v Kohler
1913 AD 134.
In
Wilken
Innes J was dealing with performance under sales of land that were
invalid for want of compliance with a statute requiring the
contract
to be in writing. In the course of his judgment he then stated (at
144),
obiter
, as it
turned out, that:
‘
It by no
means follows that because a court cannot enforce a contract which
the law says shall have no force, it would therefore
be bound to
upset the result of such a contract which the parties had carried
through in accordance with its terms. Suppose, for
example, an . . .
[oral] agreement of sale of fixed property . . ., a payment of the
purchase price and due transfer of the land.
Neither party would be
able to upset the concluded transaction on the mere ground that . . .
it was in reality an agreement to
sell, invalid and unenforceable in
law, but which both seller and purchaser proposed to carry out.’
[49] This
obiter
statement had been criticised by academic authors as a departure from
the accepted approach to enrichment liability (see eg De
Vos
Verrykingsaanspreeklikheid in die
Suid-Afrikaanse Reg
(3 ed) 189; De Wet &
Van Wyk
Die Suid-Afrikaanse Kontraktereg en
Handelsreg
(5 ed) Vol 1 326).
Nonetheless it was referred to with apparent approval by this court
in
Wilkens NO v Bester
[1997] ZASCA 9
;
1997
(3) SA 347
(SCA) at 362F and endorsed by the legislature,
specifically with reference to contracts for the sale of land, in
s 28(2)
of the
Alienation of Land Act 68 of 1981
. But, outside
the sphere of cases concerning the sale of land, the debate whether
the rule in
Wilken v Kohler
represents
good law, continues (see eg Visser
op cit
468; Eiselen en Pienaar,
Unjustified
enrichment – A Casebook,
2ed at 157).
[50] The court a quo dismissed the defence
relying on the rule in
Wilken v Kohler
(in
paras 53-55 of its judgment) essentially on the basis that it had
been rejected by a full bench of the Cape High Court in
CD
Development Co (East Rand) (Pty) Ltd v Novick
1979
(2) SA 546
(C) at 550F-553G which, of course, was binding on the
court a quo. I find it unnecessary, however, to enter into the debate
concerning
the validity of the
Wilken v Kohler
rule outside the realm of the
condictio
ob turpem vel iniustam causam
, with which we
are concerned. I say that because it is clear to me that the rule can
never apply where the performance was not
only rendered in terms of
an agreement that was void, but was in fact prohibited by law. This
is so, because, as explained by Rumpff
J in
MCC
Bazaar v Harris & Jones (Pty) Ltd
1954
(3) SA 158
(T) at 162F, the law cannot preserve a transfer which it
has prohibited. Stated somewhat differently: those who support the
rule
in
Wilken v Kohler
find justification for its existence in the consideration that where
both parties have performed in accordance with the provisions
of an
agreement, albeit unenforceable, the purpose of the transaction has
been achieved and that there is therefore no reason to
interfere with
the existing state of affairs (see eg Helen Scott,
Unjust
Enrichment by Transfer in South African Law: Unjust Factors or
Absence of Legal Ground?
(Doctoral thesis)
Oxford 2005 296
et seq
;
J C Sonnekus ‘
Is die Ongegronde van
Afgesproke Prestasie Steeds Verryking?’
2008
TSAR
605
at
611-613). The ‘achieved purpose’ analysis consideration
cannot apply, however, where the purpose of the transaction
is
prohibited by law (see eg Visser
op cit
415
note 1; Reinhard Zimmermann and Jacques du Plessis
‘Basic
Features of the German Law of Unjustified Enrichment’
[1994] RLR 14 at 19). The fact of performance by the defendant may
have a significant role to play in deciding whether or not to
relax
the
par delictum
rule,
as appears from my earlier discussion under that heading. To that
extent, performance by the defendant cannot be said to be
irrelevant
in the context of the
condictio ob turpem vel
iniustam causam
. What I do say, however, is
that such performance cannot be a complete answer to a claim based on
that
condictio
.
CLAIM AGAINST AFRISURE – MATTERS OUTSTANDING
[51] The court a quo found that the
respondents’ claim against Afrisure could also succeed on the
basis of the
condictio indebiti
(paras 35-41 and 49). But on the factual findings I have made, there
is no room for reliance on that
condictio.
The
essential element of the
condictio indebiti
lies in the absence of
causa.
Here I found that there was a
causa
,
albeit illegal (see eg
FNB v Perry (supra)
at
para 22). All that therefore remains under the rubric of the
respondents’ enrichment claim against Afrisure, is to point
out
that the other defences raised by the appellants in the court a quo,
such as non-enrichment on the part of Afrisure (paras
58-61) and
non-impoverishment on the part of Publiserve (para 61) were not
persisted in on appeal.
[52] In the circumstances, the only one of
these defences which requires some comment, without elaboration and
solely to avoid future
confusion, is the defence of non-enrichment.
With regard to this defence reference is made by the court a quo
(para 59) to a statement
by De Villiers that the total expenses
incurred by Afrisure in relation to the payments received from
Publiserve amounted to R3 667 528.37.
It is clear, in my
view, that had this statement been substantiated by reliable evidence
it would indeed have established a
pro tanto
non-enrichment defence. But the simple fact is that there was no such
evidence. On the contrary, such evidence as was presented
indicated
that the expenses incurred by Afrisure as a result of its agreement
with Publiserve did not even come close to the amount
stated. Once
payment on the basis of an illegal
causa
had
been established, the onus was on Afrisure to prove either that it
was not enriched or that it was enriched only as to part
of what had
been received (see eg
African Diamond
Exporters (Pty) Ltd v Barclays Bank International Ltd
1978
(3) SA 699
(A) at 713H-
in fine
).
Since Afrisure had clearly failed to discharge this onus, the defence
of non-enrichment was rightly not persisted in on appeal.
[53] Lastly, a special defence had been
raised by both the appellants. I find it convenient to deal with that
defence at the end
of this judgment. Save for the outcome of that
defence, it follows from what I have said that, in my view,
Afrisure’s appeal
cannot succeed.
THE CLAIM AGAINST DE VILLIERS
[54] This brings me to the respondents’
claim for damages against De Villiers, based on an alleged breach of
his fiduciary
duties as a trustee of Publiserve. Claims of this
nature have been described as
sui generis,
in that they are based neither in contract nor in delict. They find
application primarily with reference to the relationship between
directors and their companies (see eg
Robinson
v Randfontein Estates Gold Mining Co Ltd
1921
AD 168
at 242;
Cohen NO v Segal
1970 (3) SA 702
(W) at 706B-F;
Du Plessis v
Phelps
1995 (4) SA 165
(C) at 171). But no
reason has been suggested, and I can think of none, why De Villiers
would owe Publiserve a lesser fiduciary
duty than a director would
owe to his or her company.
[55] Central to the dispute with regard to
this claim was the allegation by the respondents that De Villiers had
breached his fiduciary
duty when he caused, or allowed Publiserve to
make, the five payments to Afrisure in the total amount of
R5 454 636,50.
In response to this allegation, De Villiers
did not deny that he was a trustee of Publiserve at the time of these
payments. Nor
could he deny that he allowed these payments to be
made, in the sense that he did nothing to prevent them while it was
in his power
to do so. He did deny, however, that this constituted a
breach of his fiduciary duty as trustee.
[56] The content of the fiduciary duty owed
by the director of a company – and thus also by De Villiers as
trustee –
is succinctly summarised by Prof M S Blackman under
four headings, as appears from the following statement (‘Companies’
4(2)
LAWSA
para 116):
‘
Directors
may not: (a) exceed their powers; (b) exercise their powers for an
improper or collateral purpose; (c) fetter their discretion;
or (d)
place themselves in a position in which their personal interests
conflict, or may possibly conflict, with their duties to
the
company.’
[57] In considering the claim against
Afrisure I have already made the following findings of fact:
(a) In terms of the proposal made by De
Villiers on behalf of Afrisure, which was accepted by Publiserve, the
remuneration payable
to Afrisure was specifically formulated with a
view to evade the limitation imposed on broker’s commission by
the regulations
under the
Medical Schemes Act.
(b
) De Villiers, who was an experienced
broker and an expert in the field of medical schemes, was essentially
the architect of this
agreement
in fraudem
legis
.
[58] These findings, in my view, inevitably
lead to the conclusion that De Villiers acted in breach of his duty
towards Publiserve
when he allowed the five payments of R5 454 636,50
in aggregate to be made to his alter ego, Afrisure. In fact, I view
this conclusion to be so self-evident that it matters not which of
the four facets of the fiduciary duty distilled by Prof Blackman
is
used as the starting point of the enquiry. So it can be said that De
Villiers: (a) exceeded his powers as a trustee by allowing
Publiserve
to make illegal payments; (b) exercised his permissive powers to
allow payment for an improper purpose, ie in order
to obtain a
personal advantage; (c) failed to exercise an independent discretion
as trustee against his personal interest; (d)
placed himself in a
position where his personal interest to receive payment was in
conflict with his duty as a trustee to prevent
an illegal payment.
[59] Equally self-evident, in my view, is
the fact that if De Villiers had taken steps to prevent these
payments to Afrisure, they
would not have been made. I therefore
agree with the court a quo’s conclusion (para 78) that a clear
causal link had been
established between De Villiers’s breach
of his fiduciary duty and Publiserve’s loss, represented by the
five payments
that were illegally made.
SPECIAL DEFENCE RAISED BY BOTH APPELLANTS
[60] The special defence which was taken up
by both appellants as a last resort in this court, was based on a
guarantee for R10m
obtained by Watson from Methealth after the
liquidation of Publiserve. Broadly stated, the following background
to this guarantee
appears from the evidence of Watson. As liquidator
Watson believed that Publiserve could have a potential claim based on
maladministration
against Methealth, which would include a claim for
improper and unauthorised payments of brokers’ fees to Afrisure
and another.
He intended to investigate this potential claim during
an enquiry under the
Insolvency Act. At
the commencement of the
enquiry he was, however, approached by the senior management of
Methealth who were concerned, so Watson
suspected, about the bad
publicity that Methealth might receive from the proceedings, which
were held in public. In consequence,
negotiations between Watson and
the management of Methealth ensued. The end result of these
negotiations was the R10m guarantee.
In terms of the guarantee
Methealth undertook, without any admission of liability, to be
responsible for the shortfall in Publiserve’s
liquidated assets
to meet the proved claims against it, as reflected in the liquidation
and distribution account, to a maximum
of R10m. At the time of the
trial, Watson’s estimate was that this shortfall would amount
to about R11m, including over R7m
in members’ claims. But at
that stage, so Watson testified, Methealth had made no payment
whatsoever under the guarantee.
[61] With reference to the guarantee, the
argument advanced by the appellants was, in essence, the following:
the claims which Publiserve
raises against the appellants are also
claims which it would potentially have against Methealth, since each
of the payments to
Afrisure relied upon was made with the knowledge
and consent of Methealth as administrator of the scheme. By providing
the R10m
guarantee, so the argument went, Methealth had indemnified
Publiserve from any loss it might have sustained as a result of these
payments and in consequence Publiserve has suffered no actual loss.
[62] This argument is unsustainable. In my
view it has already been answered by this court in
Minister
van Veiligheid en Sekuriteit v Japmoco BK h/a Status Motors
2002
(5) SA 649
(SCA) paras 18-25. What the answer amounts to is this. In
so far as Methealth was not a proved wrongdoer against Publiserve and
the guarantee may have been given, not to avoid any existing
liability, but in order to protect the reputation of Methealth, any
payment under the guarantee would be regarded as
res
inter alios acta
(see eg
Japmoco
para 24;
Santam
Versekeringsmaatskappy Bpk v Byleveldt
1973
(2) SA 146
(A) 150D). In the event, such payments would in law not be
deductible from the amount owing by the appellants. But even if
Methealth
could be regarded as a joint wrongdoer against Publiserve
and therefore liable
in solidum
with the appellants, the guarantee in itself would still not entitle
the appellants to any credit. It is true that Methealth’s
obligation under the guarantee constitutes an asset in the Publiserve
estate. Nonetheless, that asset, unaccompanied by actual
payment,
cannot, as a matter of principle, be taken into account in
determining the liability of the appellants. Only actual payments
would perform this function (see eg
Japmoco
para 21). The underlying reason for this
principle appears from the following statement by Scott JA in
Nedcor
Bank Ltd t/a Nedbank v Lloyd-Grey Lithographers (Pty) Ltd
2000
(4) SA 915
(SCA) at 921E-G:
'Assuming the bank
and the thief to have been jointly and severally liable, the
plaintiff would have been entitled to sue either
wrongdoer for the
full amount. . . . [I]f for the purpose of determining the
plaintiff's loss his right of recovery against the
other wrongdoer
had to be taken into account, it would follow that, if both had
financial means, each when sued could point to
the plaintiff's right
to recover from the other so that the plaintiff could recover from
neither. Quite clearly, once it is accepted
that the full amount is
recoverable from any one wrongdoer, the plaintiff's right to sue any
other wrongdoer must be disregarded
when determining his loss.'
[63] For these reasons I hold that:
(1) The appeals by both appellants are
dismissed.
(2) The appellants are ordered, jointly and
severally, to pay the respondents' costs, including the costs
occasioned by the employment
of two counsel.
………………
..
F D J BRAND
JUDGE OF APPEAL
APPEARANCES:
FOR APPELLANT: J J REYNEKE SC
W G LA GRANGE
FOR RESPONDENT: J NEWDIGATE SC
E FAGAN
ATTORNEYS:
FOR APPELLANT: BLAKE BESTER INC
JOHANNESBURG
FOR RESPONDENT: WEBBER WENTZEL
BOWENS
CAPE TOWN
CORRESPONDENTS:
FOR APPELLANT: NAUDES
BLOEMFONTEIN
FOR RESPONDENT MATSEPE INC
BLOEMFONTEIN