Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group (Pty) Ltd and Another (312/2002) [2003] ZASCA 107; [2003] 4 All SA 317 (SCA) (29 September 2003)

About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2003
>>
[2003] ZASCA 107
|

|

Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group (Pty) Ltd and Another (312/2002) [2003] ZASCA 107; [2003] 4 All SA 317 (SCA); 2004 (2) SA 1 (SCA) (29 September 2003)

THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
CASE
NO: 312/2002
Reportable
In the matter
between
LAPPEMAN DIAMOND
CUTTING WORKS (PTY)
LTD

APPELLANT
AND
MIB GROUP (PTY)
LTD FIRST
RESPONDENT
GLENRAND MIB LTD
SECOND RESPONDENT
CORAM
:
HOWIE P, BRAND, LEWIS, HEHER JJA, VAN HEERDEN AJA
HEARD:
19
AUGUST 2003
DELIVERED
:
29 SEPTEMBER 2003
Summary:
Extent of specialist insurance broker’s duty to advise insured of
implications of promissory warranty or obligation:
when claim arose
and whether prescribed.
JUDGMENT
LEWIS
JA
[1] The principal issue
in this appeal is the nature and extent of a specialist insurance
broker’s duty to his client to draw to
the attention of the client,
and to explain, the existence and implications of an onerous term in
an insurance policy. A subsidiary
issue is whether, should a breach
of the duty be found to have occurred, prescription has run against
the appellant.
[2] The appellant carries
on the business of diamond cutting and polishing in Randburg,
Gauteng, and in the erstwhile Pietersburg
(now Polokwane). Roger
Lappeman, the managing director and a shareholder of the appellant,
is the principal protagonist in the litigation
against the
respondents, insurance brokers. The respondents have by agreement
assumed joint and several liability for any order made
against the
first respondent, and the second respondent plays no role in the
determination of the issues before this Court. I shall
refer, thus,
only to the first respondent (‘the MIB Group’).
[3] The litigation
commenced with an action against the underwriter and the MIB Group
for payment of a claim by the appellant for
the loss of diamonds.
The action against the MIB Group was, however, withdrawn during the
course of the proceedings. The action
against the underwriters was
dismissed by Plewman J in November 1993. The appellant then
instituted action against the MIB Group
for two payments of US $2 751
936 and $9 851 467 respectively (the amounts claimed initially from
the underwriter), alleging that
these sums were the damages sustained
by it as a result of the MIB Group’s breach of contract,
alternatively, negligent performance
of a duty. Its case was pleaded
in the form of a main claim with various alternatives. Only the main
claim is relevant here and,
for convenience, when I refer to the
claim I mean the main claim.
[4] This is both an
appeal and a cross-appeal against the decision of the majority of a
full bench in the Johannesburg High Court
(the cross appeal lies
against the finding that the claim had not prescribed). Both appeals
lie with the special leave of this Court.
The history of the
action
[5] When the trial (in
the Johannesburg High Court, before Joffe J) commenced at the
beginning of 1997 various aspects of the
lis
had already been
separated for determination in terms of rule 33(4). A further ruling
under rule 33(4) was made at the outset of
the trial that the MIB
Group’s liability under the claim be determined, but that its
quantification would be dealt with subsequently.
After the
appellant’s first witness, its attorney, had given evidence it was
further ruled that the question whether the claim
had prescribed
should be determined first. A subsequent amendment to the appellant’s
further particulars made the last ruling nugatory,
and in the result
the trial on the merits proceeded.
[6] A number of further
amendments, occasioning postponements, were granted such that the
trial resumed only towards the end of 1998.
It is not necessary to
traverse the evolution of the particulars of claim and the defences.
The claim ultimately adjudicated is the
following. In July 1988,
Lappeman, representing the appellant, and Mr Alec Holmes,
representing the MIB Group, entered into a contract
in terms of
which, inter alia, the MIB Group would act as the appellant’s
insurance broker and would procure insurance from underwriters.
In
doing so, the MIB Group would act with reasonable care and skill
‘such as could be expected of a professional insurance broker’.
Further, the MIB Group undertook to familiarise itself with the
nature and the scope of the appellant’s business, which included
ascertaining whether the appellant was able to fulfil the
requirements of an underwriter in terms of a policy. The MIB Group
was
obliged to ‘draw the attention of the plaintiff [the appellant]
to any promissory warranties . . . applying to the policies’.
[7] The critical
provision in the policy taken out by the appellant, and on which the
underwriters had relied in avoiding the claims
made by the appellant,
was clause (b) of the ‘Specific Conditions’ which reads:
‘
It is understood and agreed that
the Assured shall keep detailed records of all sales, purchases and
other transactions and that such
records shall be available for
inspection by the Underwriters or their representatives in case of a
claim being made under this Insurance
Certificate.’
The underwriters were
held not liable to the appellant when sued because it had not kept
the records required. Plewman J found that
clause (b) constituted a
promissory warranty and that it had been breached.
[8] The basis of the
appellant’s claim is that the representatives of the MIB Group,
over the period when the appellant was insured,
had not told Lappeman
about the existence of this provision; had not familiarised
themselves with the appellant’s business which
was such that not
every record of a transaction was kept; had not explained to him the
implications of failure to keep records, and
was therefore in breach
of its duties as listed above. Consequently, it was alleged, the
appellant did not keep records strictly
in compliance with the
requirements of clause (b) with the result that the underwriter
avoided, or cancelled, the policy, alternatively
refused to indemnify
the appellant, because of non-compliance. The appellant was
accordingly not able to recover the losses suffered
by it.
[9] Joffe J in the trial
court found that the MIB Group was not liable for any breach of duty
to the appellant, and that in any event
its claim had prescribed. He
granted leave to appeal to a full bench of the High Court,
Johannesburg on the issue of prescription
and this Court granted
leave also to appeal against the decision that there was no breach of
a duty. Malan J, with whom Blieden J
concurred, found that there had
been no breach on the part of the MIB Group, and that the claim had
to fail. Cloete J dissented,
holding that there had been a breach of
a duty by the MIB Group in failing sufficiently to enquire about the
appellant’s manner
of doing business and record-keeping. I shall
return to the respective findings in the full court later in the
judgment. That court
unanimously held, however, that the appellant’s
claim had not prescribed.
The evidence
[10] The insurance claims
made by the appellant were in respect of diamonds stolen from its
premises in Pietersburg in the 1989/1990
insurance period. These were
all diamonds of low grade. Lappeman contended, and this was not
contested, that the records in respect
of the diamonds stolen had
been properly maintained. He conceded, though, that he did not keep
records of all transactions done by
the appellant.
[11] This was so,
Lappeman claimed, because the diamond trade is one with a tradition
of confidentiality. Deals are done informally,
and records are not
retained. A contract for the sale of a diamond may take place on a
handshake, or may be recorded on a slip of
paper that is subsequently
discarded or destroyed. Such transactions are referred to as being
‘off-the-book’. The reason for
non-retention of records is
primarily to protect the identity of the purchaser. The tradition
arose in Europe where trading in diamonds
was done by people who
bought and sold confidentially, particularly preceding and during the
Second World War, when diamonds were
sold, or handed for safekeeping,
to dealers who would keep the stones and return them to the owners
in due course.
[12] The evidence for the
appellant of Mr Noel Newton, also a diamond cutter with considerable
experience in the diamond trade, was
that off-the-book transactions
are common throughout the world. If one did not understand that
off-the-book transactions were customary
in the trade one should not
be in it: one could not survive in the trade if ignorant of the
custom, he said.
[13] Lappeman and Newton
testified that the practice of entering into off-the-book
transactions was not illegal. The purpose was not
to avoid paying
tax, for example. A record would be kept of the transaction but not
of the identity of the purchaser. Another transaction
often not
recorded was the swapping of rough stones for smooth. It was not
denied, however, that certain transactions undertaken
by diamond
dealers were indeed illegal: ‘schlepping’ of diamonds abroad
(that is, smuggling them out of South Africa to avoid
the application
of exchange control regulations) was also common in the industry.
Lappeman denied participating in such activities.
(A representative
of the MIB Group, Mr Alec Holmes, to whose evidence I shall return,
testified that on the way to a meeting with
the underwriters in
London, Lappeman had confessed to him that he indulged in schlepping.
Lappeman denied this.)
[14] The essence of the
appellant’s case was that the representatives of the MIB Group, as
experts in the field of diamond insurance,
would have known of the
practice of doing off-the-book transactions. Accordingly they should
have drawn Lappeman’s attention to
clause (b) and alerted him to
the fact that he would be in breach of a promissory warranty, and
would lose indemnity, should he not
keep full records of all
transactions. Lappeman denied that he had been aware of the existence
of the clause before his dispute with
the underwriters commenced.
Although it had been in the policy from inception, he had not read
it, and had not ever been told about
it. He had not been questioned
about his record-keeping systems. He had no recollection of ever
meeting the representative of the
MIB Group who had first placed the
insurance with the underwriters, nor of any discussion with
subsequent representatives about the
existence or implications of
clause (b).
[15] The various
representatives of the MIB Group denied the truth of Lappeman’s
allegations. All claimed to have drawn his attention
to the clause.
And none was aware of the practice in the diamond trade of not
keeping records.
[16] Insurance had first
been sought by the appellant when he started his business in Randburg
in 1982. Lappeman had been advised
by the Diamond Club that the
specialist insurance broker in the diamond industry was Stewart
Wrightson, represented then by Mr Graham
Sanders, the head of the
specie department (bullion and diamonds) of the brokerage at that
stage. (The MIB Group effectively stands
in the place now of Stewart
Wrightson: the brokerage has undergone a number of changes in name
and ownership from 1983 to date.)
[17] Although Lappeman
had testified, as I have said, that he had no recollection of any
meeting with Sanders, the documentary evidence
makes it clear that a
special specie contract was negotiated with the underwriters through
Sanders, and was concluded in 1984. Sanders
testified that the policy
was a particularly simple one, offered only to select clients. It was
developed to provide cover for De
Beers sight holders. Almost all
sight holders were insured through Stewart Wrightson. The policy
offered what was termed ‘cradle
to grave’ protection: it covered
the stock of the insured from the time of acquisition until he was no
longer responsible for it.
The client had but a few obligations to
meet. These included ensuring the security of the premises and the
stock, and the keeping
of records.
[18] Records of all
transactions had to be kept in terms of clause (b). The keeping of
records was of the essence of the policy. Sanders,
and the broker who
took over from him, Mr Ian Martin,
both testified that they
had discussed the clause with Lappeman, Sanders on inception of the
policy and Martin in June 1985 when the
policy was renewed.
[19] Sanders claimed to
have traversed every aspect of the policy with Lappeman on the
inception of the policy. He had not kept notes
recording that he had
done so, but it was his practice to go through the policy with every
client, he said, and he had met specifically
with Lappeman for that
purpose. He had read the clause to Lappeman. He did not recall
whether Lappeman had a copy of the policy in
front of him at the
time. He had not dealt with the question of off-the-book transactions
because he was unaware of the alleged practice
of diamond dealers in
this regard. Sanders did not, however, recall having asked Lappeman
anything specific about the way in which
the appellant carried on
business. He had assumed that, when he read clause (b) to Lappeman,
it was understood that full records
of all transactions had to be
kept by the appellant.
[20] Martin, too,
testified that he had met with Lappeman to go through the policy on
its renewal in 1985. He had taken a questionnaire
with him for his
own reference. He said that he had asked Lappeman specifically about
whether he kept detailed records of all sales,
purchases and other
transactions. He had not indicated on the questionnaire that he had
gone through clause (b) with Lappeman, but
said that he had in fact
done so. Furthermore, Martin testified, he had obtained a copy of the
Diamonds Act 56 of 1986, which requires
strict record-keeping, and
had sent a copy of the Act to the brokers in London, who would have
forwarded it to the underwriters.
[21] The third
representative of the MIB Group who gave evidence, Mr Alec Holmes,
joined the group in May 1987, and worked for a while
in the specie
division with Martin, from whom he took over as head of the
department some six months later. Martin had taken Holmes
through the
files of every client, including that of the appellant. When the
appellant’s policy was due for renewal in mid-1988,
Holmes said, he
had gone through its file, and then set up a meeting with Lappeman.
[22] At the meeting
Holmes had asked about the business, the security arrangements, and
record-keeping, in particular whether there
had been any changes in
this regard. He and Lappeman had walked through the Randburg premises
together, and Holmes had been shown
the record-keeping offices. He
was satisfied, he said, that the appellant fulfilled the
record-keeping requirement of clause (b).
On the two successive
occasions when the policy was renewed (in 1990 and 1991) Holmes said
he had asked about the record-keeping
of the appellant.
[23] In July of 1989 the
appellant discussed a potential claim with Holmes for some R800 000.
An investigation followed and a report
was made which was sent to
London. The report made adverse comments about the appellant’s
record-keeping. A meeting was held with
Lappeman who insisted that
his record-keeping system was good. And subsequently a further
meeting was held at which a presentation
of the computer systems of
the appellant was made to Holmes and to Mr Tim Davidson, a director
of the appellant, and also a member
of the Jewellery Council and the
Master Diamond Cutters Association. Holmes was then satisfied about
the record-keeping of the appellant.
Yet a further presentation was
made in Pietersburg when the broker from London and a potential
underwriter were present.
[24] Holmes therefore had
no reason to question Lappeman’s assertions that he kept full
records as required by the policy. Moreover,
a claim was made in
respect of the theft of diamonds by a former employee of the
appellant in early 1990. All records were checked
before the claim
was settled.
[25] It was only when the
appellant made the claims presently in dispute that its
record-keeping practice was questioned. It was then
that Lappeman
refused to give to the underwriters’ attorneys records of certain
transactions unless an undertaking were given that
these would not be
disclosed.
[26] By March 1991 the
claim had not been settled. Holmes was told, he said, that the policy
was to be cancelled and the claim rejected
because of the appellant’s
failure to comply with clause (b). The version of the MIB Group is
that the cancellation and rejection
were communicated on 4 March. The
dates when rejection of the claim and cancellation of the policy took
place are crucial to the
question whether the claim had prescribed,
and I shall deal with them separately.
[27] On 6 March 1991 a
letter written by the attorney for the underwriters, Mr Kapelus, was
sent to the appellant. It read:
‘
We write to inform you that the
underwriters reject the whole of your client’s claim on the ground
that your client has failed to
prove that it has sustained any loss
which is the subject of indemnity under any of our clients’
relevant insurance contracts.
Our clients furthermore reserve all
their rights in respect of any breach or breaches by your client of
the terms and conditions of
the insurance contracts and further
arising from any non-disclosure of material facts or
misrepresentations in respect of the cover
or at inception of any
relevant renewal.’
[28] The day before the
letter was sent a meeting had been held between Mr Frank Garrett and
Holmes of the MIB Group, and Lappeman.
The meeting was recorded on a
videotape. The meeting is relevant primarily to the issue of
prescription. But the transcription of
the videotape shows also that
Lappeman disclosed to Garrett and Holmes at the meeting that the
appellant
kept what he termed
‘confidential’ stock as well as ‘official’ stock, and that he
was not willing to go through an entire
sight with the underwriters
unless he was given an undertaking of confidentiality. Holmes did not
express any surprise at Lappeman’s
disclosure in this regard. It
was accepted, it appears, that the losses incurred were all in
respect of ‘official stock’.
The evidence of the
experts on a specialist broker’s duty
[29] Two experts gave
evidence on the duties of an insurance broker working with members of
the diamond trade. The expert called by
the appellant, Mr Donald
Gallimore, testified that when the appellant first took out the
policy the representative of the MIB Group,
then Sanders, had a clear
duty to draw the appellant’s attention to the existence of the
obligations imposed on it, including that
embodied in clause (b).
Sanders should also have explained the meaning of the provision to
Lappeman. He drew a distinction, however,
between the broker’s duty
when a policy was first taken out and that when it was renewed. The
provision was identical from inception
to termination. Thus in
Gallimore’s view, each time the policy was renewed the broker had a
duty only to establish whether there
were any changes in the
appellant’s business practices.
[30] Gallimore accepted
that if Sanders had indeed explained clause (b) to Lappeman then the
MIB Group’s obligation to the appellant
would have been discharged;
and that similarly, if Martin and especially Holmes, had questioned
Lappeman on changes in respect of
record-keeping or business
practice, then there would have been no breach of any duty imposed on
the MIB Group. It was Gallimore’s
view that a broker is dependent
on the client to inform him of any peculiar aspect of his business.
In this case, the failure of
the appellant to maintain his diamond
register accurately was significant and the MIB Group should have
been told about it.
[31] The MIB Group’s
expert witness, Mr John Hollinrake, agreed with the views expressed
by Gallimore. He too expressed the opinion
that it is the insured who
must provide information to the broker, who offers insurance on the
information provided. The broker does
not control the insured’s
business: he is entitled to rely on the truth of the information
provided by the insured.
The findings of the
trial court on credibility and fact
[32] Joffe J considered
Lappeman to have been a poor witness. His contention that clause (b)
had not ever been drawn to his attention
was not only in conflict
with the evidence of the three representatives of the MIB Group who
had dealt with him over the period when
the policy was in force: it
was also inconsistent with his initial failure to confront Holmes or
anyone else in the MIB Group about
their failure to draw the clause
to his attention. He was, said the learned judge, a ‘skilled and
consummate businessman’ who
was determined to pursue his claim. Yet
he had not contended at the outset, when the underwriters rejected
the claim, that he was
ignorant of his duty to keep full records. And
when the claims in issue were initially made against the
underwriters, he had refused
to allow them to go through a full sight
unless an undertaking of confidentiality was made. Lappeman’s
evidence was thus inconsistent
with his conduct, and improbable.
[33] On the other hand
the trial court considered that both Sanders and Martin were reliable
and credible witnesses. Holmes’ evidence
was less satisfactory, but
the court accepted that for the 1989/1990 renewal Holmes had
satisfied himself that the appellant’s
business practices had not
changed; and that for the 1990/1991 renewal the issue of
record-keeping had again been raised, in particular
because of the
consideration of the loss-adjuster’s report in respect of the loss
suffered in the previous year. The court thus
found that the MIB
Group had at all material times advised Lappeman of the appellant’s
duty to keep records of all transactions.
Should the MIB Group
representatives have done more than apprise Lappeman of the
record-keeping obligation ?
[34] The majority of the
full court, affirming the decision of the trial court, considered
that it was sufficient for the brokers
to have drawn Lappeman’s
attention to the record-keeping requirement on the inception of the
policy, and to have satisfied themselves
on each renewal that the
appellant’s business practices had not changed. Once the appellant
had been advised of the obligation
to keep full records of all
transactions, and had assured Sanders that he would comply with the
requirement, the duty of the MIB
Group
was discharged. Although
the MIB Group had undoubtedly professed to have specialized skill and
experience in the diamond insurance
business, it could not have been
expected to question Lappeman about the appellant’s business
practices. To require more of them,
in particular that they ask about
off-the-book transactions, the majority held, would be to expect too
‘high or perfectionist a
standard’.
[35] Cloete J, in the
minority judgment, took a different view. Off- the-book transactions
– in the sense of confidential transactions
rather than illegal
ones – were common in the diamond trade. Records are routinely
destroyed. Any broker with specialist knowledge,
as the MIB Group
professed to have, ought to have known that clause (b) would be a
problem if records were destroyed. The learned
judge relied in this
regard on
Durr v ABSA Bank Ltd & another
1997 (3) SA 448
(SCA) at 460F-464E where Schutz JA held that a specialist broker must
demonstrate greater skill and knowledge than the ordinary broker,
just as the specialist doctor must show greater skill than a general
practitioner (
Van Wyk v Lewis
1924 AD 438
at 444).
[36] The nature of an
insurance broker’s duty to the insured is expressed in
Lenaerts
v JSN Motors (Pty) Ltd & another
2001 (4) SA 1100
(W) where
Potgieter AJ, after traversing several English authorities in this
regard, said (at 1109H-J):
‘
I consider that in our law, as in
English law, the duty to exercise reasonable care and skill in
appropriate cases extends to the
duty to take reasonable steps to
elicit and convey material information both from and to the insured.
This includes information about
terms of the policy which, if
contravened, might leave the insured without cover. It is part and
parcel of the broker’s general
duty to use reasonable care to see
that the insured is covered.’
[37] The English cases
particularly relied upon in
Lenaerts
, and adduced as authority
in this case by both parties, are
McNealy v The Pennine Insurance
Co Ltd, West Lanc. Insurance Brokers Ltd and Carnell
[1978] 2
Lloyd’s Rep 18 (CA) and
Harvest Trucking Co Ltd v P B Davis t/a
P B Davis Insurance Services
[1991] 2 Lloyd’s Rep 638 (QB). In
the latter, Judge Diamond said (at 643):
‘
The ordinary function of the
insurance broker or other intermediary is to receive instructions
from his principal as to the nature
of the risk or risks and the rate
or rates of premium at which he wishes to insure, to communicate the
material facts to the potential
insurers and to obtain insurance for
his principal in accordance with his principal’s instructions and
on the best terms available.
The liability of an insurance agent to
his employer for negligence is comparable to that of any agent. He is
bound to exercise reasonable
care in the duties which he has
undertaken. In no case does the law require an extraordinary degree
of skill on the part of the agent
but only such a reasonable and
ordinary degree as a person of average capacity and ordinary ability
in his situation and profession
might fairly be expected to exert.
The precise extent of the insurance
intermediary’s duties must depend in the last resort on the
circumstances of the particular
case, including the particular
instructions which he has received from his client. . . . It is
normally not a part of the broker’s
. . . duty to construe or
interpret the policy to his client, but this again is not of course a
universal rule. . . . [I]f the
only insurance which the intermediary
is able to obtain contains unusual, limiting or exempting provisions
which, if they are not
brought to the notice of the assured, may
result in a policy not conforming to the client’s reasonable and
known requirements,
the duty falling on the agent, namely to exercise
reasonable care in the duties which he has undertaken, may in those
circumstances
entail that the intermediary should bring the existence
of the limiting or exempting provisions to the express notice of the
client,
discuss the nature of the problem with him and take
reasonable steps either to obtain alternative insurance, if any is
available,
or
alternatively to advise the client as to the best
way of acting so that his business procedures conform to any
requirements laid down
by the policy
’ (my emphasis).
[38] In
McNealy
,
where the policy excluded liability where the insured was a part-time
musician, and the broker had failed to establish whether the
insured
was such (the insured had indicated on the policy that he was a
repairer of property) the court held that the broker was
guilty of a
breach of his duty in failing to draw the exclusion to the attention
of the insured. Lord Denning MR held that the broker
ought to have
asked the insured, when the latter said he worked as a property
repairer, if he was also a part-time musician in view
of the peculiar
exclusion. However,
McNealy
does not assist the appellant in
this case since there the broker had failed to advise the insured of
the existence of the exclusion.
[39] The MIB Group, as a
specialist brokerage, should have had knowledge of the practice in
the diamond business of off-the-book transactions,
Cloete J found.
Thus, he held, it was not sufficient for Sanders, Martin and Holmes
to have drawn the attention of Lappeman to clause
(b), or on renewal
to have established whether the appellant’s business practices had
changed: they should have gone further. They
should have asked ‘
“Do you enter into off the book transactions?” In the context of
the diamond trade, the question cried
out to be asked both at
inception and renewal.’
[40] That is the crux of
the difference between the majority and minority judgments of the
full court. And, of course, the appellant
now contends that in the
light of the well-known practice of doing off-the-book transactions,
the MIB Group representatives should
expressly have asked Lappeman
whether the appellant did off-the-book transactions and warned him of
the consequences of doing so.
[41] There are in my view
two problems with the contention. The one is fact-bound. It was not
established that any of Sanders, Martin
or Holmes was aware of the
practice of not keeping full records of all transactions. Although
Newton had testified that one could
not survive in the trade without
knowledge of the practice, the MIB Group representatives denied
knowledge and their evidence was
accepted. And even if they had some
knowledge of off-the-book transactions, what precisely did that mean?
There was certainly no
clarity in this regard. Newton’s evidence
related largely to confidential transactions where the anonymity of
the purchaser of
diamonds was preserved. Lappeman’s evidence, on
the other hand, referred also to other transactions in respect of
which full records
were not kept, such as the swapping of rough
diamonds for smooth, and the illegal export of diamonds. There was no
evidence that
the MIB Group was, or should have been, aware that a
diamond dealer would invariably participate in such practices.
[42] It is true that
Garrett, at the meeting held (and videotaped) on 5 March 1991, did
not seem surprised at Lappeman’s disclosure
that the appellant had
‘confidential stock’. But one cannot infer from that that he, or
any representative of the MIB Group,
had knowledge of precisely what
this meant, or of other off-the-book transactions.
[43] The second
difficulty with the appellant’s argument relates to a broker’s
duty in principle. Even if the representatives
of the MIB Group had
had knowledge of the practice in the diamond trade, was it then
incumbent on them to have asked Lappeman whether
the appellant did
off-the-book transactions? I consider not. The authorities on which
the appellant relies, and the evidence of the
experts on insurance
broking, suggest that once the insured is apprised of the duty to
keep full records of all transactions, there
is no need for the
broker to go further and ask whether the insured does in fact keep
records. In the
Harvest Trucking
case (above), for example, it
is not suggested that a specialist broker has a duty to make
enquiries about the business of the insured
once the insured has been
fully informed of his obligations under the insurance contract.
[44] A broker does not,
and cannot be expected to, control the business of the insured. Even
the specialist broker’s duty does not
encompass a duty to ensure
that the insured complies with his obligations under the policy. He
is not the insured’s keeper. His
duty, as a specialist broker, is
discharged when he has done everything reasonably necessary to draw
the attention of the insured
to obligations imposed by the policy. It
is the insured’s responsibility to ensure compliance.
[45] Once it is accepted
– as it is – that the MIB Group representatives did advise
Lappeman of his obligations there cannot be
room for arguing that
Lappeman, an astute businessman, needed to be asked whether the
appellant complied with the obligation to keep
full records. It was
the appellant’s responsibility alone to ensure compliance. I
consider therefore that the MIB Group did not
breach any duty to the
appellant. For that reason alone this appeal must fail. However, the
MIB Group cross-appealed against the
full court’s finding that the
appellant’s claim had not prescribed. It is thus necessary to deal
with the issue of prescription,
albeit briefly.
Prescription
[46] The critical
questions relating to prescription of the alleged claim are when the
debt had become due, and when the appellant
had knowledge of the
identity of the debtor and the facts from which the debt arose, or
should reasonably have been expected to have
such knowledge:
s 12
of
the
Prescription Act 68 of 1969
. The trial court held that the
appellant had become aware of the basis of its claim – the
rejection of the insurance claims because
of failure to comply with
clause (b) – on 6 March 1991, if not before. The court found,
accordingly, that the appellant’s claim
had prescribed since more
than three years had elapsed between the time when the underwriter’s
attorney’s letter of 6 March 1991
had been sent to the appellant
and the issue of summons.
[47] The full court
found, however, that the appellant’s claims had not been formally
rejected before 6 March 1991, when the underwriter’s
attorney had
written to the appellant, and that even then, the letter stated that
the reason for the rejection was failure to prove
loss rather than
failure to keep records. The claim had thus not prescribed.
[48] On appeal to this
Court the MIB Group argued that the appellant had known for some time
before 6 March 1991 that the claims were
rejected because of failure
to comply with clause (b). There is indeed some evidence that the MIB
Group and the appellant were aware
that the failure to keep records
was in issue before the letter formally advising of rejection was
sent. It is not necessary to traverse
this evidence, however.
Whatever the MIB Group might have been told by the underwriters, and
in turn communicated to the appellant,
prior to 6 March the appellant
had not been formally advised that the claims were to be rejected or
that the policies were to be
cancelled. The potential rejection for
want of compliance with clause (b) does not create a debt. Nor does
discussion about the reasons
for repudiation. Until the claims were
formally refused,
on the basis that the appellant had failed to
keep full records of all transactions
, the debt of the MIB Group
would not have arisen.
[49] The letter of 6
March was the first formal notification of repudiation of the
appellant’s claims. Even in that letter, the
basis for the
repudiation (which is what would have given rise to an action against
the MIB Group for breach of a duty) is not said
to be the failure to
keep records, but failure to prove the loss.
[50] The first paragraph
of the letter, set out earlier in the judgment, states expressly that
the underwriters have rejected the
appellant’s claim ‘on the
ground that your client has failed to prove that it has sustained any
loss which is the subject of
indemnity under any of our client’s
relevant insurance contracts’. Although the second paragraph states
that the underwriters
reserve their rights in respect of any breach
of the insurance contract by the appellant, this does not amount to a
rejection of
the claim on that basis. Indeed, the first paragraph
clearly shows that the reason for rejection is another ground. Thus
on 6 March
1991 the appellant did not know that it had a claim
against the MIB Group.
[51] I consider thus that
the court
a quo
correctly found that the appellant did not
know, nor ought reasonably to have known, of the MIB Group’s
alleged breach of duty
more than three years before it instituted
action. If there had been a claim, it would not have prescribed. The
cross appeal thus
fails.
Order
1 The appeal is dismissed
with costs, including those attendant on the employment of two
counsel.
2 The cross appeal is
dismissed with costs.
C H LEWIS
JUDGE OF APPEAL
CONCUR
HOWIE P
BRAND JA
HEHER JA
VAN HEERDEN AJA