BMW Financial Services (South Africa) (Pty) Ltd v Harding and Another (10570/2003) [2007] ZAWCHC 34; [2007] 4 All SA 716 (C) (15 June 2007)

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[2007] ZAWCHC 34
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BMW Financial Services (South Africa) (Pty) Ltd v Harding and Another (10570/2003) [2007] ZAWCHC 34; [2007] 4 All SA 716 (C) (15 June 2007)

Republic of South Africa
REPORTABLE
IN THE HIGH COURT OF SOUTH AFRICA
(CAPE OF GOOD HOPE PROVINCIAL
DIVISION)
CASE
No: 10570/2003
In
the matter between:
BMW
FINANCIAL SERVICES (SOUTH AFRICA) (PTY) LTD Plaintiff
and
1. SYGNA
ROMAY MYRTHLE HARDING First Defendant
2.
HENDRIK
PETRUS
HOUGH Second Defendant
_____________________________________________________________________
JUDGMENT
DELIVERED : 15 JUNE 2007
________________________________________________________________________
MOOSA,
J:
INTRODUCTION
Plaintiff instituted action against first defendant for the delivery
of the motor cycle, payment of damages and other ancillary
relief,
arising from an alleged breach of the Instalment Sales Agreement
(“Agreement”). First defendant opposed the action
and raised
two special pleas and a general plea. In the first special plea she
alleged that an oral agreement of compromise was
concluded between
plaintiff and herself, in terms of which she was relieved from
liability to make any further payments arising
from the Agreement.
In the second special plea, first defendant alleges that the
Agreement was void
ab initio
, by virtue of the fact that
plaintiff traded as an insurer, either on its own or in partnership
with Guardrisk Insurance Company
Limited (“Guardrisk”), in
violation of the
Short-Term Insurance Act, 53 of 1998
. The main
plea reiterated the defences raised in the special pleas, but in
addition raised the failure of plaintiff to comply
with certain
provisions of the Credit Agreement Act, No 75 of 1980. First
defendant also counterclaimed and raised essentially
the same issues
she raised in her special and general pleas and sought certain
relief arising therefrom.
JOINDER
At the commencement of the hearing, the court, by agreement between
the parties, ordered that Hendrik Petrus Hough (“Hough”)
be
joined as a second defendant in the claim in convention and as
second plaintiff in the claim in reconvention. After the joinder
of
Hough, first defendant, through her legal counsel, indicated that
she abides by the decision of the court and applied for her
to be
excused from any further attendance at the hearing of this matter.
As there was no objection from either plaintiff or second
defendant,
the court granted her application. She was accordingly excused from
further attendance.
AMENDMENT OF PLEADINGS
After evidence was led by both plaintiff and defendants, they
brought an application to amend their respective pleadings.
Plaintiff
sought to amend its particulars of claim by deleting its
claim for the delivery of the motor cycle and certain ancillary
relief
flowing therefrom and claiming instead, payment of the
balance of the purchase price amounting to R59 092, 25 together with
interest
thereon at the rate of 15,5% per annum from 5 December 2003
to date of payment and costs. Second defendant had no principle
objection
to plaintiff’s proposed amendment, but pointed out that
it introduced a new cause of action. However, in his heads of
argument,
he submitted that the amended claim had become prescribed
by effluction of time and accordingly there were no further
justiciable
issues for the court to adjudicate upon. Because of
the belated objection raised by second defendant to the proposed
amendment,
plaintiff was prepared to drop the application for
amendment.
Second defendant brought an application, on his and first
defendant’s behalf, to amend the first and second special pleas
and
the general plea. Second defendant claimed that he was acting
on behalf of first defendant by authority of a power of attorney.

There was no application to amend the counterclaim. Other than
certain formal amendments, the application essentially sought
to
introduce a new defence of estoppel. Mr
Stockwell
SC, who
with Mr
Bresler
, appeared for plaintiff, objected to certain
proposed amendments on the ground that it was excipiable.
It is a trite principle of our law that the primary object of
allowing an amendment is to obtain a proper ventilation of the
dispute
between the parties, not be bogged down by technicalities
and formalities and to determine the real issues between the parties

so that justice may be done.
Innes, CJ
in
Robinson v
Randfontein Estate G.M. Co Ltd
1925 AD 173
at 198 said the
following:
“
The object of pleading is to define the issues; and the
parties will be kept to their pleas where any departure would cause
prejudice
or would prevent full enquiry. But within these limits the
Court has a wide discretion. For pleadings are made for the Court
and
not the Court for pleadings. Where a party has had every
facility to place all the facts before the trial Court and the
investigation
into all the circumstances has been as thorough and as
patient as in this instance, there is no justification for
interference by
an appellate tribunal merely because the pleading of
the opponent has not been as explicit as it might have been.”
(See also:
Shill v Milner
1937 AD 101
at 105;
Cross v Ferreira
1950 (3) SA 443
(C) at 447B-H;
Caxton Ltd
and Others v Reeva Forman (Pty) Ltd and Another
[1990] ZASCA 47
;
1990 (3) SA 547
(A) 565E-J.)
In my view, the evidence led at the trial sufficiently covers the
issues raised in the amendments proffered by both parties and
the
parties will not suffer any prejudice or an injustice if such
amendments are allowed. In the case of prescription, there are
sufficient evidence and facts placed before the court to determine
whether plaintiff’s amended claim is prescribed or not. In
the
case of estoppel, it is inextricably wound up with the main thrust
of first defendant’s defence namely, that the Agreement
is invalid
by virtue of the fact that plaintiff illegally traded and held
itself out as “BMW Insurance” jointly with Guardrisk.
In order
to adjudicate on the real issues between the parties so that justice
can be done, I am of the opinion that the amendments
of both parties
should be allowed and it is so ordered.
ISSUES
The case really turns on the defences raised and the claim in
re-convention instituted by first defendant. As the substantive
issues overlap between the pleas and the counterclaim, the court
will deal with the substantive issues
in seriatim
as follows:
(i) Prescription; (ii) Non-compliance with the provisions of the
Credit Agreement Act; (iii) The oral agreement
of compromise; and
(iv) Whether plaintiff traded as an insurer, either on its own or
in partnership with Gaurdrisk under the
name and style of “BMW
Insurance”.
PRESCRIPTION
The first substantive issue is the question of prescription. Second
defendant argued that should the court grant the particular
amendment of plaintiff, plaintiff’s claim would effectively be
prescribed. The amended claim of plaintiff against first defendant
was for payment of the sum of R59 092,25 together with interest
thereon from 5 December 2003 to date of payment. The parties
agreed that the balance owing by first defendant, in terms of the
Agreement, as at 5 December 2003 was R59 092,25. Second
defendant argued that the amount had become prescribed by effluction
of time and that effectively puts an end to plaintiff’s
claim. I
agree with second defendant that should first defendant succeed with
her plea of prescription, it would put paid to these
proceedings and
it would not be necessary to consider all the other defences raised
by first defendant. Although this matter was
not specifically
pleaded, it arose as result of the amendment granted by the court.
In my view there are sufficient facts before
the court to determine
the issue. I would therefore consider the defence as if it had been
pleaded by first defendant.
Section 11 of the Prescription Act, 68 of 1968, provides that a
debt, like that of first defendant, becomes prescribed after a
period of three years from the date on which the debt becomes due
and payable or becomes claimable by plaintiff. (
Deloitte
Haskins & Sells Consultants (Pty) Ltd v Bowthorpe Hellerman
Deutsch (Pty) Ltd
[1990] ZASCA 136
;
1991 (1) SA 525
(A) at 532H.) From a
procedural point of view, an amendment usually operates from the
time a pleading has been filed. However,
from the perspective of
substantive law, it only operates from the time the amendment has
been granted. Prescription is accordingly
interrupted in respect of
a new cause of action introduced by such amendment from the date
such amendment is granted. (See
LAWSA
, Volume 21, First
Re-issue, para 147 at page 67 and the authorities quoted there
under.) It is common cause that more than three
years have elapsed
from the date on which the full balance became due and payable, ie 5
December 2003 and when the amendment was
granted. The crucial
question which arises is: Did the issue of summons interrupt
prescription?
Second defendant submitted that the amendment introduced a new cause
of action, which has become prescribed. I will examine that
contention. Plaintiff’s cause of action is based on the breach of
the Agreement. In pursuance to clause 12.2 of the Agreement,
plaintiff’s attorneys addressed a letter, dated 5 December 2003,
to second defendant in terms of which plaintiff elected to
cancel
the Agreement with first defendant and claim the return of the motor
cycle and damages. Clause 2.2.2 provides:
“as pre-estimated
liquidation (sic) damages, the total amount of payables not yet
paid, whether same are due for payment or not,
less the value of the
goods as at date on which the Seller obtains possession of same…”
Clause 12.3 provides that:
“If the goods are not
recovered by the Seller for any reason whatsoever, the value shall
be deemed to be nil.”
the application for amendment which was
granted, plaintiff abandoned claims 1, 2, and 3 and sought to amend
the remaining claims.
It effectively claimed payment of the agreed
amount of R59 092,25 owing as at 5 December 2003 as pre-estimated
liquidated damages,
together with interest thereon at the rate of
15,5% per annum calculated from 5 December 2003.
In my view the cause of action has
remained unchanged. What the amendment has effectively brought
about, is a change in the quantification
of the damages and not a
new cause of action. Initially, in such quantification, plaintiff
sought to bring in the value of the
motor cycle. The evidence is
that the motor cycle is presently disassembled and probably regarded
as a wreck with no or little
commercial value. First defendant has
failed to deliver the motor cycle to plaintiff. In the
circumstances, plaintiff has abandoned
its claim for the return of
the motor cycle and clause 12.3 accordingly applies in that the
value of such vehicle is deemed to
be nil. The original relief
contained in prayer 4 reads as follows:
“An order directing
defendant to pay to plaintiff the difference between R66 964,68 and
the market value of the motor cycle at
the date of delivery thereof
to plaintiff.”
The substituted prayer reads as follows:
“The
defendant be ordered to make payment to the plaintiff in the amount
of R59 092,25.”
substituted claim is founded on the same
cause of action as the original claim and, in my view, the service
of the summons interrupted
the running of prescription in terms of
Section 15 of the Prescription Act. (See:
LAWSA
,
supra
,
para 147 at page 67 and the authorities quoted there under.)
I now turn to consider whether the interest as contained in prayer 5
which was amended to prayer 2, has become prescribed or not.
The
original prayer read:
“Interest at the rate of 17% (AS PER
AGREEMENT) as at date of cancellation to date of final payment.”
Whereas the amended prayer reads:
”The Defendant be ordered
to pay interest to the Plaintiff on the aforesaid amount of R59
092,25 at 15,5% per annum calculated
from 5 December 2003 to date of
payment.”
Such interest is based on
mora
interest
ex
lege
and not
mora ex contractu
. The rate of 17% applied
ex contractu
and not
ex lege
. The
mora
interest
was determined
ex lege
at 15,5%. The object of the amendment
was to bring the rate of the
mora
in line with the rate
permissible by law. The
mora
interest was claimed from 5
December 2003. In my view, the prescription in respect of interest
was also interrupted by the service
of the summons.
Without expressing an opinion on the correctness of the principle
enunciated in
Sanlam v Rainbow Diamonds (Edms) Bpk
1982 (4) SA
633
(C) 641D-643G, namely, that the claim for
mora
interest
had a different cause of action to the claim for the capital, it is
clear that the facts of that case are distinguishable
from the facts
of this case. In this case
mora
interest was claimed in the
summons, whereas in the
Sanlam
the claim for
mora
interest
was introduced for the first time in the amendment that was granted.
Grosskopf, J
(as he then was)
that the judicial
interruption of prescription in respect of capital did not
ipso
facto
extend to the claim for
mora
interest. In the
circumstances I conclude that, on the facts of this case, the
defence of prescription is not tenable in respect
of both the claim
for capital and interest as there has been judicial interruption of
prescription.
THE NON-COMPLIANCE WITH THE PROVISIONS OF THE CREDIT AGREEMENT ACT
First defendant pleaded that she did not receive the Section 11
notice as required by the Credit Agreement Act. The undisputed
evidence is that they were sent by prepaid registered post to the
domicilium citandi et executandi
as reflected in the
Agreement. Clause 15.1 of the agreement provides that first
defendant chooses as her
domicilium: “the address on the face
of this agreement”.
Clause 15.2 provides that any notice sent
by registered post to the purchaser’s
domicilium
shall be
deemed to have been received. In the absence of a rebuttal, it is
presumed that first defendant received the notice.
First defendant
failed to rebut the presumption as she elected not to testify.
Second defendant alleged that plaintiff did not correctly record the
address of first defendant as the words
“Dover 05”
were
omitted. First defendant did not pick up the omission as she was
not furnished with a copy of the Agreement as required by
the Credit
Agreement Act. First defendant did not testify and in the
circumstances these allegations constitute hearsay. However,
during
cross examination by second defendant, Mr Berry testified that the
application for credit was electronically completed on-line
by first
defendant. Any error or omission would therefore be solely
attributable to first defendant who failed to accurately enter
her
address when completing the electronic credit application form.
During argument second defendant objected to the evidence
as being
hearsay. This evidence was elicited under cross-examination by him
and after the witness was specifically requested by
him to inspect
the records of the dealership to ascertain how the application for
credit was completed. He can hardly be heard
to complain.
Even if I am wrong in finding, in the first instance, that first
defendant had failed to rebut the presumption that she had received
the Section 11 notice and, in the second instance, in admitting
hearsay evidence, first defendant is faced with the further problem
regarding the provisions of Section 11. Section 11 provides that a
court will not order the return of the subject-matter of the
sale in
the absence of the credit-grantor having given the credit-receiver
notice as contemplated in the Section. By reason of
the fact that
plaintiff, in its amendment to the pleading, abandoned its claim for
the return of the motor cycle, the matter
has become a non
issue. In the circumstances there is no substance in this defence.
ORAL AGREEMENT OF COMPROMISE
First defendant alleges in her first special plea that an oral
agreement was concluded between plaintiff and herself in terms of
which plaintiff acknowledged: (i) that it had
dispossessed her of the motor cycle;
(ii) that such conduct amounted to an unlawful repudiation of the
instalment sale agreement;
(iii)
that it would arrange for payment to her of the sum of R43
278,18 in respect of an insurance claim;
(iv)
that she would receive possession of the damaged motor cycle
and
that the parties would have no further claims against each other.
In pursuance to such oral agreement, first defendant
alleges that plaintiff duly performed and, in the circumstances,
first defendant is absolved from the obligation of making any further
payments in terms of the Agreement. It is further alleged
by first
defendant in her plea that, on 2 February 2006, she sold the damaged
motor cycle to second defendant and no longer has any
interest
therein. Plaintiff denies all these allegations
Mr
Stockwell
contended on behalf of plaintiff that the
provisions of clause 17.3 effectively put an end to the first
special plea. The clause
reads as follows:
“This agreement
may not be amended, cancelled or novated except and only to the
extent that such amendment, cancellation or novation
is reduced to
writing and signed by both parties…”
Hough contended that
as plaintiff allegedly repudiated the Agreement and first defendant
accepted such repudiation, no agreement
was in place and the
provision could, therefore, not apply post
ex facto
. Without
going into the merits of those submissions, I will assume in favour
of first defendant that any subsequent agreement between
the parties
is not governed by the terms of the Agreement and therefore the
alleged compromised agreement need not be in writing.
On such basis
I will proceed to consider whether or not an oral agreement of
compromise was concluded between plaintiff, represented
by Mr Les
Welch, and first defendant, represented by second defendant.
It is common cause that the cycle was involved in a collision and a
claim was submitted by first defendant to Guardrisk. Guardrisk
regarded the cycle to be beyond economical repair. It agreed to pay
out the insurance proceeds by settling the indebtedness of
first
defendant to plaintiff, deducting the excess owing by first
defendant and paying the balance to her. The salvage would be
sold
to Bob’s Motor Spares for the credit of Guardrisk. First
defendant was not to be found for such an arrangement, but made
a
counter proposal through second defendant in terms of which the
repair costs of the cycle would be paid to first defendant and
she
would undertake to effect the necessary repairs. This counter
proposal is contained in a letter dated 25 September 2003, addressed
by second defendant to Glenrand the agents of Guardrisk.
However, on 14 October 2003, second
defendant addressed a letter to plaintiff in which he informed
plaintiff that first defendant
regards the disposal of the motor
cycle to Bob’s Auto Spares as a repudiation of the agreement. She
accepts the repudiation
and demands refund of all monies paid by her
in terms of the contract,
“in addition to the insurance claim
of R43 278,18”.
the intervention of Mr Welch, Guardrisk
revisited the claim and agreed to the proposal of second defendant
as set out in his letter
to Glenrand. In pursuance thereto the
insurer submitted an indemnity form and an agreement of loss form
for signature by first
defendant. On 16 October 2003, first
defendant duly signed these forms and returned them to the insurer.
On 22 October 2003 payment
of the insurance claim was effected to
first defendant. This conduct on the part of first defendant was
inconcistent with the
conduct of second and/or first defendant in
accepting the alleged repudiation of the Agreement.
Mr Welch in his testimony denied that such an oral agreement was
concluded between him and second defendant. He said he had no
authority to conclude such an agreement on behalf of plaintiff. He
was an operations manager in charge of insurance matters.
Mr Welch
made a good impression on the court as a witness. He was open,
honest and reliable. He was readily prepared to make concessions
that appeared favourable to first defendant’s case. His evidence
is furthermore consistent with the objective facts and the
inherent
probabilities. First defendant did not testify, although second
defendant indicated that she will be called to testify.
Second
defendant testified to the effect that an oral agreement, as alleged
by first defendant in her first special plea, was
concluded between
him, acting on behalf of first defendant and Mr Welch, acting on
behalf of plaintiff. Second defendant was a
pathetic witness. He
was argumentative and evasive. His version not only flies in the
face of logic, but also does not make commercial
sense. His version
is so inherently improbable that I am led to believe that it is not
only an afterthought, but a fabrication
and a figment of his
imagination. It is accordingly rejected.
There is no basis in law or fact that could justify a conclusion
that plaintiff repudiated the Agreement. I am strengthened in
such
conclusion by the fact, firstly, that despite the acceptance of the
alleged repudiation of the Agreement, first defendant
accepts the
proceeds of the insurance claim that has been settled at the behest
of second defendant. Secondly, the removal of
the cycle in terms of
the salvage agreement emanated from the contract of insurance and
not from the Agreement. Thirdly, the
objective evidence does not
support defendants’ version. In my view, no oral Agreement of
compromise came into being and the
first special plea is accordingly
dismissed.
WHETHER PLAINTIFF TRADES AS AN INSURER EITHER ON ITS OWN OR IN
PARTNERSHIP WITH GUARDRISK UNDER THE NAME AND STYLE OF “BMW
INSURANCE”
The main thrust of first defendant’s defence is based on the
premise that plaintiff traded as an insurer and/or traded in
partnership
or joint venture with Guardrisk under the name and style
of “BMW Insurance” without plaintiff or the said partnership or
joint
venture being registered as insurer in terms of the
Short-term
Insurance Act, 53 of 1998
. By virtue of such contravention, first
defendant contends that both the Agreement and the insurance
contract are vitiated and
accordingly null and void and against
“public policy”
. In support of that contention, she
claims firstly, that the Agreement and the insurance contract are
not severable and secondly,
that plaintiff is estopped from denying
that it trades as “BMW Insurance”. In the circumstances she
submits that she is entitled
to restitution and that the parties be
restored to their status
ante quo
. Plaintiff denies first
defendant’s allegations and submits that
“BMW Insurance”
is an insurance product underwritten by Guardrisk in terms of the
Short-term Insurance Act. The
product is specifically designed by
Guardrisk for the customers of plaintiff. Plaintiff acquired a
specific class of shares in
Guardrisk, which regulates its financial
and administrative interest in the scheme. I will deal with the
preliminary issues of
severability and estoppel before dealing with
the main issue of plaintiff acting as an insurer.
SEVERABILITY
In my view there is no merit in the contention that the Agreement
and the insurance contract are not severable. The objective
evidence is that the Agreement was concluded between plaintiff and
first defendant and the insurance contract was concluded between
Guardrisk and first defendant. The evidence of Mr Welch is that the
principal business of plaintiff is to provide financial services
to
the BMW dealership and the procuring of insurance cover for the
vehicles in question is but incidental thereto. Although the
insurance contract was taken out pursuant to the instalment sale
agreement, the two contracts are separate and distinct from each
other, affects different parties and have different considerations.
The question of severability is misconstrued and, on the facts,
does
not arise in law.
ESTOPPEL
With regard to the second issue of estoppel as pleaded in the
amended second special plea, it is common cause that, pursuant to
the Agreement, first defendant completed the application for
insurance. It was submitted to Glenrand MIB who administered the
scheme of insurance on behalf of Guardrisk. Glenrand MIB issued the
policy on behalf of Guardrisk. First defendant accepted the
terms
and conditions of the policy issued by Guardrisk and acknowledged
receipt of the statutory notice issued in pursuance to
the
Short-term Insurance Act. In
terms of such notice, she was
furnished with information,
inter alia
, concerning Glenrand
MIB, Guardrisk and the Short-term Insurance Ombudsman and Registrar.
No representation was made to first
defendant that plaintiff was
trading as “BMW Insurance”. First defendant could therefore not
have acted to her prejudice.
In any case, Guardrisk which issued
the insurance contract met its obligations to first defendant in
terms thereof and she suffered
no financial loss or prejudice. I am
of the opinion that defendants have failed to prove the requirements
of estoppel. The
plea of estoppel is therefore rejected.
WHETHER
“BMW INSURANCE” IS A TRADING NAME OR A PRODUCT
Before turning to deal with the question of whether plaintiff trades
as an insurer, I have to determine whether “BMW Insurance”
is a
trading name as alleged by defendant or a product as alleged by
plaintiff. Mr Welch testified that “BMW Insurance” was
an
insurance product underwritten by Guardrisk and administered on its
behalf by Glenrand MIB. The insurance product is marketed
by the
BMW dealership. The customer is under no obligation to take the
insurance product marketed by the dealership. This was
confirmed by
Mr Berry who, as a representative of the dealership, had arranged
both the finance and insurance on behalf of first
defendant. Mr
Berry testified that First defendant was at no time coerced or
forced to take up insurance with Guardrisk by subscribing
to the BMW
insurance product. This evidence of Mr Berry was not challenged
under cross-examination by second defendant.
Mr Schoeman, the managing director of Guardrisk, testified that the
customer is at liberty to take out his own insurance with his
own
broker or his own insurance company and it often happens that the
representative of the dealership refers the application for
insurance to another insurance company of his choice or that of the
customer. He denied that plaintiff trades under the name and
style
of
“BMW Insurance”
. Despite repeated questioning and
badgering by second defendant, Mr Schoeman was consistent in his
evidence. When referred to
various documents where the wording “BMW
Insurance” appeared, he was adamant that it was an insurance
product underwritten
by Guardrisk and not that plaintiff was trading
under the name and style of “BMW Insurance”. I have no reason
to doubt his
testimony or disbelieve him. The evidence of second
defendant to the contrary is without merit and is not consistent
with the
probabilities. I have earlier made a credibility finding
in respect of second defendant. I therefore conclude that
“BMW
Insurance”
is a product which is underwritten by Guardrisk and
administered by Glenrand MIB and that it is not a trading name.
THE TRUE NATURE OF THE RELATIONSHIP BETWEEN GUARDRISK AND
PLAINTIFF
I now turn to examine the final issue namely, whether plaintiff
trades in partnership or joint venture with Guardrisk. It is common
cause that an agreement was concluded between plaintiff and
Guardrisk in terms of which plaintiff acquired shares of a
particular
class known as “cell captive – A23” and which
regulated the special relationship between plaintiff and Guardrisk.
The Registrar
of Short-term Insurance imposed certain conditions,
when registering the “cell captive” shareholders of Guardrisk.
These conditions
are,
inter alia
, that the insured shall be
issued with a Guardrisk policy, that the risk shall be carried by
Guardrisk and such risk shall not
be limited to the funds available
in the particular “cell-captive” and benefits shall not be
withheld due to the non-performance
of the re-insurers or the
“cell-captive” shareholders. Guardrisk remains ultimately
liable to outside third parties, ie the
insured in the event of the
cell having insufficient funds to meet its claims. This liability
arises from Conditions 3.1 and 3.2
of the Certificate of
Registration which was imposed by the Registrar of Short-term
Insurance
Mr Schoeman who was previously employed by the Financial Services
Board as its Head: Short-term Insurance, testified that Guardrisk
offers, to corporate clients, a structure that is commonly known as
“cell-captive”. Such structure comprises a special class
of
ordinary shares in Guardrisk, designated as “A ordinary shares”.
Any corporate client wishing to make use of the “cell-captive”
structure can then acquire a particular number and class of “A
ordinary shares”. A distinctive number of the particular class
of
“A ordinary shares” are issued to each corporate client.
Such structure allows Guardrisk to issue insurance policies to
customers of larger corporate clients, with a large and secure

customer base. Such insurance policies are client specific and
carry the name of such companies’ better known brand or brands,
such as “BMW Insurance” for example. Such structure also permits
the larger corporate clients to involve themselves in the
field of
insurance by entitling them to have a say in the administration of
the “cell-captive” and deriving a financial benefit
from the
“cell-captive” in the form of a dividend.
Mr Schoeman testified further that Glenrand MIB was appointed by
Guardrisk to administer the BMW cell-captive structure. Glenrand
issued “BMW Insurance” policies, collected the premiums, and
processed the payment of claims on behalf of Guardrisk. All
premiums received were deposited into one central Guardrisk bank
account. The premiums would be credited to the respective
“cell-captive”
from which the income has been generated. All
necessary expenses in respect thereof are debited against such
account and the balance
would be available to meet the claims in
respect of that particular “cell-captive”. Any shortfall,
whether in the form of
solvency ratio stipulated for by the
Short-term Insurance Act, or
in terms of the claims, must firstly be
made good by the corporate client or, failing which, by Guardrisk.
Any dividend is declared
by Guardrisk and subject to the
profitability of the particular cell. Guardrisk does not share in
the profits generated by the
cell, but derives an income from
administering the “cell-captive” and carrying the risk.
The question that needs to be answered is, firstly, whether the
special relationship between plaintiff and Gruardrisk, in terms
of
the cell-captive shareholding, constitutes a partnership or a joint
venture as alleged by first defendant and secondly, whether
it falls
foul of the provisions of the
Short-term Insurance Act. It
is
common cause that the vehicle used by the parties to achieve the
results is not in the form of a partnership or a joint venture.
The
structure devised was to create a special class of ordinary shares
with special rights and obligations set out in the agreement
between
plaintiff and Guardrisk and reinforced by conditions of registration
imposed by the Registrar of Short-term Insurance.
In the work
Commentary On The Companies Act
by Blackman MS
et all
,
Juta & Co, Vol 1,
op cit
5-174,
inter alia
, the
following is said about special classes of shares:
“
A company has almost unlimited freedom to create the capital
structure it desires, and in so doing to structure the rights of each
of its various classes of shares in an almost infinite possible
variety of ways. The nature and extent of class rights is thus
primarily
a question of the construction of the memorandum or
articles or the terms of issue, as the case may be.”
Smalberger, JA
in
Cape Pacific Ltd v Lubner Controlling
Investment (Pty) Ltd
and Others
[1995] ZASCA 53
;
1995 (4) SA 790
(A) at
803H said that courts should not lightly disregard a company’s
separate corporate personality, but should try to give
effect to it
and uphold it:
“
To do otherwise would negate or undermine the policy and
principles that underpin the concept of separate corporate
personality and
the legal considerations that attach to it. But
where fraud, dishonesty or other improper conduct (and I confine
myself to such
situations) is found to be present, other
considerations will come into play. The need to preserve the
separate corporate identity
would in such circumstances have to be
balanced against policy considerations which arise in favour of
piercing the corporate veil.”
(See also
Shipping Corporation of India Ltd v Evdoman
Corporation
[1993] ZASCA 167
;
1994 (1) SA 550
(A) at 566.)
What constitutes a partnership has been set out authoritatively by
Smalberger, JA
in
Pezzutto v Dreyer and Others
[1992] ZASCA 46
;
1992
(3) SA 379
(A) at 389I-390E as follows:
“
For a partnership to come about there must be an agreement to
that effect between the contracting parties. In determining whether
or not an agreement creates a partnership, a court will have regard,
inter alia
, to the substance of the agreement,
the circumstances in which it was made and the subsequent conduct of
the parties. …
Where
Pothier
’s four requirements are found to be
present the Court will find a partnership established ‘unless such
a conclusion is negatived
by a contrary intention disclosed on a
correct construction of the agreement between the parties’…”
It is perfectly legitimate for parties to arrange their affairs in
such a way to escape the prohibition imposed by statute provided
it
is not
infraudem legis.
Innes, CJ
in
Dadoo Ltd
and Others v Krugersdorp Municipal Council
1920 AD 538
at 548,
held:
“
Parties may genuinely arrange their transactions so as to
remain outside the prohibition imposed by Statute. Such arrangements
in
the nature of things are perfectly legitimate.”
Guardrisk created a special class of shares known as A23 with
special rights and issued such shares exclusively to plaintiff
subject
to certain terms and conditions. A share certificate in
terms of the Companies Act was issued by Guardrisk. The pro-forma
cell-captive
shareholders’ agreement was approved and registered
with the Registrar of Short-term Insurance attached to the Financial
Services
Board. At the instance of second defendant, the Financial
Services Board investigated the arrangement between Guardrisk and
BMW
South Africa (Pty) Ltd, in terms of the shareholders agreement
and found it to be acceptable.
The defendants challenged the validity of the shareholders
agreement. Such challenge must be considered in the light of the
principles
set out in
Sasfin (Pty) Ltd v Beukes
1989 (1) SA 1
(A) at 7

-9G. After examining
various authorities,
Smalberger, JA
concluded:
“
No Court should therefore shrink from the duty of declaring a
contract contrary to public policy when the occasion so demands. The
power to declare contracts contrary to public policy should, however,
be exercised sparingly and only in the clearest of cases, less
uncertainty as to the validity of contracts result from an arbitrary
and indiscriminate use of the power. One must be careful not
to
conclude that a contract is contrary to public policy merely because
its terms (or some of them) offend one’s individual sense
of
propriety and fairness.”
The fact that some of the terms of the shareholders
agreement may offend the defendants’ sense of propriety and
fairness,
is not sufficient ground to have it declared against public
policy and therefore unenforceable. In the absence of proof to the
contrary,
the court will assume that the shareholders agreement
correctly reflects the true intention of the parties.
Solomon, JA
in
Zandberg v Van Zyl
1910 (AD) 310 at 314 observed as
follows:
…
prima facie
, however, we must assume that the
nature of transaction is such as it purports to be and the onus is on
him who asserts that it is
something different, to prove that fact.”
In the light of the principles set out above and on a proper
construction of the cell-captive shareholders agreement between
Guardrisk
and plaintiff, I am satisfied that the intention was at
all times that the special arrangement between them shall be
governed in
terms of the shareholders agreement as regulated by the
Companies Act and not in terms of a partnership agreement. Even if
all
the “essentiala” of a partnership are present, the existence
of a partnership may be
“negatived by the contrary intention
disclosed on the proper construction of the agreement between the
parties”.
The contrary intention is clearly manifested in the
“cell-captive” shareholders agreement. The fact that Guardrisk
may have
used the terminology of “partnering” in their
promotional material is of no consequence to the true relationship
between the
parties. Guardrisk was entitled, in terms of the
Companies Act, to create the capital structure which established the
specific
class of ordinary shares with special rights and
obligations attached thereto. It was further entitled to conclude
the Shareholders
Agreement with plaintiff. Such Agreement, in my
view, is not contrary to public policy as alleged by the defendants.
The parties
had the contractual freedom to arrange their affairs in
such a way that they were not hit by the prohibition of the
Short-term Insurance Act.
I
therefore conclude that the
cell-captive shareholders agreement between Guardrisk and plaintiff
does not fall foul of the provisions
of the Companies Act, or the
Short-term Insurance Act. There
is accordingly no substance in
first defendant’s second special plea, main plea and her
conditional claim in reconvention that
the insurance contract or the
instalment sale agreement or the shareholders agreement is unlawful.
COSTS
The final issue that falls to be considered is the question of
costs. The general rule is that the successful litigant is entitled
to its costs. In this matter first defendant, at the commencement
of the trial, decided to abide by the decision of the court
and was
excused from further attendance at the hearing. Despite the fact
that first defendant decided to abide the decision of
the court,
second defendant persisted unrelentlessly with first defendant’s
defence. It was clear that his principal objective
was to ensure
that first defendant avoids payment of the balance owing in terms of
the Agreement. Although second defendant indicated
that first
defendant will testify, it appears that she refused to do so and not
to perjure herself. Adv
Stockwell
SC asked the court to
award costs on an attorney and own client scale to show the court’s
disapproval of the manner in which
second defendant not only
conducted the proceedings, but also launched an unjustified and
unwarranted attack on plaintiff and Guardrisk.
I am at pains to
distinguish between
“attorney and client scale”
and
“attorney and own client scale”
. Be that as it may.
Marais JA
in
Williams v Harris
[1998] ZASCA 51
;
1998 (3) SA 970
(SCA)
at 973D said:
“…
[he] who chooses to ride a tiger will find it difficult to
dismount unscathed. Much the same can be said of…”
In my view this applies equally to second defendant who
not only of his own volition got engrossed in these proceedings,
but
also decided to embroider and pursue defences which had very little
prospect of success. The first defendant can also not escape
the
consequences of second defendant’s conduct because he was acting in
terms of a power of attorney given by her to him.
During the course of the trial certain wasted costs were reserved
for later determination. It would be fitting to determine such
costs also at this stage. An appropriate order, in my view, for
such costs would be that they be costs in the cause. As far as
the
costs, as a whole, are concerned, I think, an appropriate order
would be that first and second defendants be ordered to pay
the
costs on an attorney and client scale, jointly and severally, the
one paying the other to be absolved, subject to the proviso
that the
assets and/or the estate of second defendant first be excussed
before execution is levied against the assets and/or estate
of first
defendant. The latter course of action is directed to express the
court’s disapproval of the conduct of second defendant
in these
proceedings. The matters raised by the defendants were of
sufficient importance and complexity to justify the employment
of
two counsel by plaintiff and I will therefore make allowances for
such eventuality.
ORDER
In the premises an order is made in the following terms:
First defendant is ordered to make payment to plaintiff in the
amount of R59 092,25 (fifty nine thousand and ninety two rand
and
twenty five cents);
First defendant is ordered to pay interest to plaintiff on the
aforesaid amount at the rate of 15,5% (fifteen and a half per
cent) per annum calculated from 5 December 2003 to date of payment;
First defendant’s claim in reconvention is dismissed;
Wasted costs shall be costs in the cause; and
First and second defendants are ordered to pay plaintiff’s costs
on an attorney and client scale and such costs to include
the costs
of the principal action and the claim in reconvention together with
the costs consequent upon the employment of two
counsel. It is
further ordered that first and second defendants shall be jointly
and severally liable for the payment of the
costs, the one paying
the other to be absolved, subject to the condition that the assets
and/or the estate of second defendant
first be excussed before
execution is levied against the assets and/or estate of first
defendant.
…………………………….
E MOOSA
BMW Financial Services (SA) (Pty) Ltd v Harding &
Hough Cont/…