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[2002] ZASCA 49
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Ashton Insurance Brokers CC t/a/ Walmer Insurance Brokers and Another v Independent Municipal and Allied Trade Union (252/2001) [2002] ZASCA 49; [2002] 3 All SA 175 (A) (23 May 2002)
Case Number : 252 / 2001
REPORTABLE
IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
In the matter between
ASHTON
INSURANCE BROKERS CC
t/a
WALMER INSURANCE BROKERS First
Appellant
MICHELLE DENISE RIDDLE
Second Appellant
and
INDEPENDENT MUNICIPAL AND
ALLIED TRADE UNION
Respondent
Composition of the Court
:
Smalberger ADP, Olivier JA and Lewis AJA
Date of hearing
:
13
May 2002
Date of delivery
:
23
May 2002
SUMMARY
Trade union insurance scheme - broker - fiduciary
relationship.
______________________________________________________________
J U D G M E N T
______________________________________________________________
OLIVIER JA
OLIVIER JA
[1]
The central dispute between the parties to
this appeal relates to the nature and terms of the contractual
relationship between them.
[2]
The first appellant ("Walmer") is a
firm of insurance brokers. The second appellant ("Riddle")
is its sole
member and representative. The respondent ("Imatu")
is a trade union, which represents the employees of the Nelson
Mandela
Metropolitan Municipality, previously the Port Elizabeth
Municipality.
[3]
Imatu has a membership of approximately 1000
municipal employees. Although its prime function is to represent
its members in labour
relations matters, it also offers them a short
term group insurance scheme. The scheme was arranged some thirty
years ago by Imatu.
Many of its members, some of them now
pensioners, have joined the scheme. At first the insurer was Shield
Insurance Company.
Later Allianz Insurance Company took its place.
[4]
The administration of the scheme posed
certain problems. In 1989 Riddle, who was then employed by Shield
as an underwriting and
claims clerk, recognised that there was an
opportunity to earn an income, by offering a range of administrative
services in respect
of the scheme both to Imatu, its members and
Allianz. She made an offer to Imatu. In February 1989 her firm,
Walmer, was appointed
in writing " ... as in-house broker for
the short term scheme with Allianz with effect from 1 April 1989."
She resigned
from Shield.
[5]
Thereafter, a long and mutually beneficial
relationship developed between the parties. Walmer and Riddle moved
into a part of Imatu's
offices, for which Walmer paid a monthly
rental. It also shared some of the office expenses of Imatu, such
as telephone costs.
[6]
The working arrangement between Walmer (as
represented by Riddle) and Imatu was as follows. Walmer canvassed
the members of Imatu
(a list being furnished by the latter) to join
the scheme. On a monthly basis Walmer sent a list of all the
members utilising the
scheme to Imatu. Imatu had an arrangement
with the City Treasurer's Department to deduct the premiums from the
salaries of the
insured employees and pay same over to Imatu. Imatu
then handed such premiums over to Walmer, after deducting the
commission to
which it, Imatu, was entitled,
viz
8% (plus VAT)
on all premiums received, plus R4,00 (plus VAT) per member per month
as administration fee. In respect of Sasria
insurance, Imatu was
further entitled to a fee of 2,5% (plus VAT) on the applicable Sasria
premiums. It was further agreed that
should the loss ratio of the
scheme not exceed 65% in any period of insurance, Imatu would receive
60% of the bonus paid by the insurer.
It emerged that for the
financial years 1998, 1999 and 2000, the total premium income
amounted to R3 525 728, R3 413 598 and R3
606 156 respectively. The
income received by Imatu amounted to R299 960, R321 404 and
R346 416 for the said years respectively.
[7]
Although the papers do not establish the
income derived by Walmer from this arrangement, it could not have
been negligible, having
regard to the premium incomes mentioned
above.
[8]
Unfortunately, the happy cohabitation
was disturbed during February 2001. Walmer blames Imatu for the
unhappiness. Riddle stated
in an affidavit that at that time, Imatu
approached her for a renewal of the contract, and presented a written
document for her signature.
She was unhappy with the proposed
terms, requiring, for the first time, that upon termination of the
contractual relationship,
Walmer would have to furnish Imatu with the
list of the members belonging to the scheme. The draft agreement
also required her
to sign a two year restraint from being involved
with any of Imatu's members upon termination of such agreement.
This was also
a new proposed term. Riddle states that she found the
proposed two new terms unacceptable. In a letter by its attorney,
dated
21 February 2001, Walmer accuses Imatu of acting in "a
high-handed and aggressive manner".
[9]
Riddle persisted in refusing to agree to the
two new proposed terms. On 27 February 2001 the attorneys for Imatu
addressed a letter
to the attorneys for Walmer and Riddle stating,
inter alia
, that the two new proposed terms were not
negotiable, and
"Under the circumstances this letter thus serves as a notice to
your client that its appointment as Brokers of the Scheme is
not
renewed and thus terminates on the 1
st
April 2001."
[10]
Shortly after the writing of the said
letter, a further conflict erupted between the parties. Imatu came
into possession of evidence
which, it alleges, proved that Walmer,
represented by Riddle, was canvassing the members of the Imatu scheme
to cancel their membership
of that scheme and to join another scheme,
and also to terminate the arrangement whereby Imatu collected the
premiums and paid them
over to Walmer. Imatu also alleged that
Riddle had secured the co-operation of a number of its members,
particularly employees
within the Treasury Department of the
Municipality, to assist her to implement the new scheme. Imatu was
unable to ascertain exactly
how many members had joined the new
scheme nor was it able to ascertain the extent of the unlawful
activities of Walmer and Riddle.
[11]
The events alluded to above gave rise to two
applications in the South Eastern Cape Local Division of the High
Court. The first
application numbered 487/01 was launched on 1
March 2001. The applicant was Walmer and the respondent Imatu. In
its prayers,
Walmer requested :
"2 That a declarator be issued that the Respondent is bound by
the agreement it concluded with the Applicant for the appointment
of
the Applicant as preferred broker for members of the Respondent until
31 October 2001 and that thereafter the agreement is subject
to six
months notice by either party;
3 That the Respondent be interdicted and prohibited from appointing
any other broker performing any of the functions currently performed
by the Applicant in respect of the Respondent's members until the
expiry of the agreement referred to in 2 above;"
[12]
In the second application, numbered 489/01,
launched in the same court also on 1 March 2001, the applicant was
Imatu, the first respondent
was Walmer and the second respondent
Riddle. In its prayers Imatu sought a temporary interdict against
both respondents to show
cause why they should not be
"1 Inderdicted and restrained from approaching any members of
the Applicant's group short term insurance scheme ("the scheme")
to terminate their membership of the scheme or switch to another
insurance scheme and from utilising any information relating to
the
scheme for the purpose of promoting any other insurance scheme.
2 Directed to deliver up to the Applicant all insurance policies,
schedules to insurance policies and claims histories in respect
of
the scheme and participants therein, as well as all copies of such
information, in whatever form, in the possession of the Respondents.
3 Directed:
3.1 to render to the Applicant within 30 days a full account,
supported by vouchers, all premiums received, all claims made and all
claims paid under the scheme for the years ended 31
st
March 1999, 31
st
March 2000 and 31
st
March
2001; and
3.2 to debate the said account; and
3.3 to pay to the Applicant any amounts found to be due to the
Applicant."
[13]
Both applications were opposed and
voluminous affidavits and annexures were filed. The applications
were argued together. Jones
J, within a commendably short time, on
13 March 2001, delivered judgment in both cases. The learned judge
granted a final interdict
in case no 489/01,
ie
, the
application by Imatu. He interdicted Walmer and Riddle from
approaching any members of the Imatu group short term insurance
scheme to terminate their membership of the scheme or to use any
information relating to the scheme for the purpose of promoting
any
other insurance scheme. He also ordered them to deliver to Imatu
all documents in their possession relating to the scheme,
to render a
full account to Imatu, to attend a debate of the said account, to pay
over any amounts found to be due to Imatu, and
to pay the costs of
the application.
[14]
The application by Walmer in case no 487/01
was dismissed with costs.
[15]
On 20 March 2001 the learned judge refused
leave to appeal in respect of both applications. This Court,
however, granted leave
to Walmer and Riddle to appeal against the
orders made in case no 489/01,
ie
the application brought by
Imatu for an interdict against Walmer and Riddle.
[16]
In case no 487/01
ie
the application
launched by Walmer, a further dispute developed in respect of the
date on which the agreement between itself and
Imatu would come to an
end. Walmer's case was that the agreement would last at least until
31 October 2001, and that thereafter
it would be subject to six
months notice by either party. Imatu's case was that the agreement
came to an end on 1 April 2001.
Walmer's application was refused,
and no leave to appeal against such refusal was granted. It follows
that the present appeal
must proceed on the basis that the agreement
between Walmer as represented by Riddle on the one hand and Imatu on
the other came
to an end on 1 April 2001.
[17]
What remains to be decided is whether the
learned judge
a quo
was correct in granting Imatu a permanent
interdict operative against Walmer and Riddle
" ... from approaching any members of the Applicant's group
short term insurance scheme to terminate their membership of the
scheme or switch to another insurance scheme and from utilising any
information relating to the scheme for the purpose of promoting
any
other insurance scheme"
after the termination of the contract between them.
[18]
In argument before the court
a quo
and also in this Court some time was spent on debating whether Walmer
could be described as an agent or a broker. In the context
of this
case, that debate is futile. The labels as such do not provide an
answer to the question to be answered. That answer
can be found
only by interpreting the contract between the parties in its
contextual setting, having regard to its genesis and purpose.
The
fundamental question is whether the contract, thus interpreted, gave
rise to the creation of a protectable interest, such as
claimed by
Imatu, which would endure beyond the date of termination of the
contract.
[19]
In the court
a quo
the learned judge
held that the contract created a fiduciary relationship between the
parties giving rise to the rights as claimed
by Imatu. He
formulated his judgment on this point as follows
"In short, the union appointed and employed the broker to do all
things normally done by an insurance broker in the management
and
administration of a group insurance scheme. The scheme was the
union's scheme, specially arranged for it and offered by it
to its
members for their benefit. The broker is subject to dismissal by
the union. The result is that the broker acts on behalf
of the
union in arranging insurance contracts with an approved insurer on
behalf of the union's members. The union could itself
have done all
things done on its behalf by the broker. Although the union is not
an insured under the scheme, the union has direct
input into each
individual contract between the insurer and union members. The
union appoints the insurer each year. It agrees
on the premiums to
be paid on behalf of members. It agrees to any changes to the terms
and benefits of the group policy on behalf
of members. I have no
doubt that when it appointed the broker, it appointed it as its agent
to do these things on its behalf.
It follows from the above that certain fiduciary duties flow from the
contract between the union and the broker. The broker is
to an
extent given exclusivity. The union cannot oblige its members to
join the scheme through the agency of the broker, but in
my view it
is obliged not to appoint another broker as a competitor and it is
not at liberty to influence its members to channel
their short term
insurance business of the kind covered by the scheme to another
broker. In my view, this involves reciprocal duties
by the broker.
The broker cannot bring outsiders who are not members of the union
into the group scheme. It cannot abuse its
brokerage by giving
other persons the privileges and benefits of a scheme specially
arranged for the benefit of union members and
made possible by the
union's collective bargaining power, without first obtaining the
union's consent. Similarly, it cannot persuade
union members to
join some other group insurance scheme, thereby undermining the
scheme which it has been appointed to administer
and promote. This
is especially so because it and the union are locked into a mutually
beneficial financial arrangement arising
out of the administration of
the scheme. The amount of the shared income derived from the
monthly commission paid by the insurer
on the monthly premiums is
dependent on the numbers of members who join the scheme. Even more
importantly, the amount of income
derived from the profit sharing
arrangement is directly related to the number of insured persons who
join the scheme. Indeed, the
members of the scheme would not be
available to the broker were it not appointed by the union to act as
broker. In these circumstances
I fail to see how I can come to any
conclusion other than that the broker is bound by the ordinary rules
of agency not to allow its
interests to conflict with or take
precedence over the interests of the union."
[20]
It seems to me that the conclusion reached
by the learned judge
a quo
is solidly based on general legal
principles, logic and equity. The position is simply that Walmer
and Riddle were appointed as
the exclusive broker to Imatu's existing
group short term insurance scheme in 1989. Long before that date,
Imatu had created the
scheme for the benefit of its members. It
offered the scheme to its members as one of the benefits of
membership, and it undertook
the responsibility of administering the
scheme. Walmer was given entry to a lucrative, captive audience of
participants, and it
obtained its information relating to the union
members exclusively from Imatu. For practical purposes it was
Walmer's only business.
In return, it had to share the revenue and
profits generated by the scheme with Imatu. It is inconceivable
that Walmer would
be at liberty to make off with the scheme by taking
the individual participants out of it or taking the information about
the identities
and insurance needs of the participants away from
Imatu, which had furnished both the opportunity and the information,
and utilise
it for its sole benefit to the detriment of Imatu.
[21]
In my view, a fiduciary relationship came
into being between Walmer and Riddle on the one hand and Imatu on the
other. This gave
rise, as a matter of law, to an obligation to
respect the confidentiality of the information given to them by
Imatu, and not to use
it to the detriment of Imatu, nor to attempt to
entice its members to join an insurance scheme not approved by Imatu.
(See
Meter Systems Holdings Ltd v Venter and Another
1993
(1) SA 409
(W) at 426 E - 430 H.)
[22]
It follows logically that the duty,
described above, endures past the termination of the contract itself.
[23]
In the result, Jones J rightly granted
Imatu's application.
The appeal is dismissed with costs.
....................................
P J J OLIVIER
CONCURRING :
Smalberger ADP
Lewis AJA