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[2019] ZASCA 188
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Magic Eye Trading 77 CC v Santam Limited (775/2018) [2019] ZASCA 188; 2022 (6) SA 120 (SCA) (10 December 2019)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 775/2018
In
the matter between:
MAGIC
EYE TRADING 77 CC t/a TITANIC TRUCKING
FIRST APPELLANT
PERUMAL
CHETTY
SECOND APPELLANT
and
SANTAM
LIMITED
FIRST RESPONDENT
IMPERIAL CARGO (PTY)
LTD
SECOND RESPONDENT
Neutral
citation:
Magic Eye Trading 77 CC v
Santam Limited
(775/2018)
[2019] ZASCA
188
(10 December 2019)
Coram:
Cachalia, Zondi and Nicholls JJA and
Gorven and Hughes AJJA
Heard:
4 November 2019
Delivered:
10 December 2019
Summary
:
Whether a contingent right to claim an indemnity had prescribed
– when prescription in respect of such claim starts
to run –
indemnity can only be against actual loss – a claim to be
indemnified becomes due only when the insured is
under a legal
liability to pay a fixed, determinate amount.
ORDER
On
appeal from:
Western Cape Division of
the High Court, Cape Town (Magona AJ sitting as court of first
instance):
1
The appeal is upheld with costs including
the costs of two counsel.
2
The order of the court a quo is set aside
and substituted with the following:
‘
(a)
The special plea of the third party is dismissed;
(b)
The third party is to pay the costs of the special plea including the
costs of two counsel, where so employed.’
JUDGMENT
Nicholls
JA (Cachalia and Zondi JJA and Gorven and Hughes AJJA concurring):
[1]
The issue in this appeal is whether an insured’s contingent
right to claim indemnification under an insurance policy is
capable
of becoming prescribed in terms of s 12(1) of the Prescription Act 68
of 1969 (the Act)
[1]
before
the liability of the insured, and its extent, is determined.
[2]
The appeal arises out of a delictual claim by Imperial Cargo Pty Ltd
(Imperial) claiming damages to its truck, when it was allegedly
forced off the road on 21 March 2009 by another truck. Imperial
alleged that Mr Perumal Chetty, the driver of the other truck was
acting within the course and scope of his employment with Magic Eye
Trading 77 CC t/a Titanic Trucking (Magic Eye), and was solely
responsible for the incident. In March or April 2011 Imperial issued
summons for R449 461.71 for damage to its truck against Magic
Eye as
first defendant and Mr Chetty as second defendant.
[3]
The two defendants denied all liability in their plea. After close of
pleadings they applied to join Santam Limited (Santam),
the
respondent in this matter, as a third party. The third party notice
was premised on an insurance policy issued by Santam in
favour of
Magic Eye and which included indemnity insurance against loss
suffered by Magic Eye by way of liability to third parties
as a
benefit under the policy. On 11 October 2016, and by consent between
the parties, the court made an order joining Santam and
separating
the issues between the two defendants and Santam from the main
action, in terms of Rule 33(4) of the Uniform Rules of
Court.
[4]
In the third party notice, the defendants claimed that, by virtue of
certain clauses in Sub-section B of the policy, Magic Eye
had a
contractual right to claim indemnity from Santam against any
liability to the injured party attributed to them. They sought
a
declaratory order to the effect that in the event of Imperial
succeeding against the defendants, Santam would be liable to
indemnify
them in such amount as they may be ordered to pay Imperial,
together with legal costs and expenses on an attorney and own client
scale. This would occur upon the granting of a judgment in favour of
Imperial. In response thereto Santam filed a special plea
that any
such claim had prescribed. The Western Cape Division of the High
Court (Magona AJ) upheld the special plea but granted
the defendants,
to whom I shall henceforth refer to as the appellants, leave to
appeal to this court.
[5]
Santam’s special plea of prescription alleged that upon the
occurrence of the defined event, alternatively when the appellants
became aware of the event, their right to a claim for indemnification
against any liability to Imperial became vested in the appellants.
Because the appellants, so continued the special plea, failed to
serve the notice of joinder on Santam within three years of that
date, any third party claim they may have had against Santam had
prescribed.
[6]
Santam conceded that the incident took place within the protected
period under the insurance policy, and that it constituted
a defined
event under Sub-section B of the ‘Motor section’ of the
policy, which provides:
‘
Any
accident caused by or through or in connection with any vehicle
described in the schedule or in connection with the loading
and/or
unloading of such a vehicle in respect of which the insured and/or
any passenger becomes legally liable to pay all sums
including
claimants costs and expenses in respect of
(i)
death or bodily injury to any person, but
excluding death or bodily injury to any person in the employ of the
insured arising from
and in the course and scope of such employment
or being a member of the same household as the insured;
(ii)
damage to property other than the property
belonging to the insured or held in trust by or in the custody or
control of the insured
or being conveyed by, loaded onto or unloaded
from such a vehicle.’
[7]
Three possible dates were pleaded as being the date when the claim
fell due and consequently the date upon which the period
of
prescription commenced. Santam pleaded that it was immaterial which
of the dates one chose because all of them fell outside
the three
year period laid down in s 11 of the Act. The dates were:
(i)
21 March 2009, the date when the incident
took place, being the defined event in terms of the policy document
Sub-section B, Liability
to Third Parties;
(ii)
21 April 2011, when Magic Eye gave written
notice to Santam, in accordance with clause 6 of the General
Exceptions, Conditions and
Provisions of the insurance policy, of the
particulars of the defined event and Imperial’s claim as set
out in the summons;
(iii)
12 January 2012, the date when Santam
repudiated the claim on the basis that Magic Eye did not adhere to
policy conditions regarding
the submission of documents and requests
for information within the specified time to Santam.
[8]
In their replication to the special plea the appellants averred that
prescription commences to run only after they have paid
the claim
against them or are at least liable to do so in a determined amount.
The word ‘claim’ in the policy, they
added, refers to a
claim for indemnification made by the insured and not to a claim made
by a third party in respect of which an
insured is entitled to claim
against the insurer for indemnification under the policy. The latter
kind of claim, they continued,
must be for a fixed amount and cannot
exist until such liability, and the extent thereof, has been
determined by agreement or legal
process.
[9]
The court a quo upheld the special plea, albeit reluctantly. Relying
on this Court’s judgment in
Truck
and General Insurance Co Ltd v Verulam Fuel Distributors CC
,
[2]
it
held that liability of the insurer to the insured arises as soon as
the insured suffers the loss. The insured’s cause of
action
arose when all the events had occurred, which gave rise to the
liability towards the third party, even if the amount had
not been
quantified. The court a quo found that when Santam repudiated the
claim for indemnification, on 12 January 2012, this
gave rise to a
right to approach the court for a declaratory order. As the
appellants only did so in September 2016, more than
three years
later, their claim had already prescribed.
[10]
In determining when the appellants’ claim for indemnification
prescribes, one is faced with what, at first blush, appear
to be two
diametrically opposed decisions emanating from this court. These are
Truck
and General
on which the respondent relies and
Pereira
v Marine and Trade Insurance Co Ltd
,
[3]
on
which the appellants rely
.
Essentially the question to be asked and answered in this appeal is
whether
Truck
and General
overrules the long-standing legal principles enunciated in
Pereira.
[11]
The appellants, relying on
Pereira
,
contend that their right to approach the court for a declaratory
order could not prescribe prior to their liability to Imperial,
as
well as the quantum thereof, being finally determined either by
agreement or by a court order. It is only at that point that
Magic
Eye has a claim against Santam to indemnify it against the loss
suffered by way of its liability to Imperial. Until then
the
potential claim is not ‘a debt’ within the meaning of the
Act and therefore prescription cannot have commenced
to run against a
claim for indemnification, still less an action for a declaration
concerning the right to be indemnified.
[12]
Pereira
has an impressive pedigree. As early as 1930, Watermeyer J, in
Le
Voy v New Zealand
Insurance
Co Ltd
,
[4]
found
that the phrase ‘to pay all sums which the insured shall be
legally liable to pay’ in the context of a claim for
indemnification meant that the amount of damages had to have been
established. An indemnity claim as contemplated by the insurance
policy was one ‘which could be sued for at once, and not a
claim in respect of which action cannot be taken.’ Until
then
there was no ‘claim’ in existence. This decision was made
before courts were given the discretion to grant a declaratory
order.
Le
Voy
was followed by
Boshoff
v South British Insurance Co. Ltd
[5]
by
which time the discretionary grant of a declaratory order was
competent. Clayden J found that an insured is only entitled to
indemnity against loss or damage for which he becomes legally liable.
An insured can only become legally liable to pay once a sum
is fixed
against him by a court or by agreement. Until then no claim for
indemnification can arise.
[13]
In
Pereira
, an insurance company repudiated liability in a
claim for indemnification in terms of a motor vehicle insurance
policy on several
grounds, including that the insured had not issued
summons within three months of the repudiation, as was required in
terms of
the policy. The insured maintained that there could be no
repudiation unless there had been a demand for indemnity in a fixed
amount
and no claim for indemnity until the liability to the third
party had been determined in a fixed amount. The court upheld the
insured’s
contention. From past cases, Corbett JA, in
Pereira
,
distilled three propositions:
‘
(1)
The words “any claim”, appearing in the opening portion
of the condition reading “In the event of the company
disclaiming liability in respect of any of the claim… ”,
refer to a claim for indemnification by the
insured
in terms of the policy and do not include claims by third parties
upon the insured in respect of which the insured is entitled
to claim
indemnification under the policy.
(2)
That such claim for indemnification must be for a fixed or specific
amount and that, therefore, where the claim arises from
the insurer’s
undertaking to indemnify the insured against liability incurred to a
third party . . . no claim can exist until
such liability has been
determined, either by agreement or legal process.
(3)
That the disclaimer by the insurer, from which the period of three
months allowed for the institution of action commences to
run, must
follow on a claim by the insured of the character described in (1)
and (2) above. The condition does not admit of a general
disclaimer
of future claims at a stage when a precise claim in a fixed amount
has not, and cannot, be made by the insured.’
[6]
[14]
This approach was followed in a number of subsequent cases. In
Shraga
v Chalk
,
[7]
Didcott
J, drawing support from
Pereira
and
Boshoff
,
held that the cause of action in respect of a contractual indemnity
was not complete until the plaintiff had made payment, ‘or
at
least until he committed himself firmly to doing so’
[8]
,
and claimed reimbursement. In that matter the plaintiff was sued by a
bank for an overdraft on an account for which he had stood
surety.
The defendant had undertaken to indemnify him against any such claim.
The court found that it was only when the plaintiff
paid the bank, or
at least committed himself to doing so, that his cause of action
against the defendant became complete. Describing
it as a situation
analogous to a policy of insurance indemnifying the insured person
against liability incurred towards a third
party, Didcott J found
that a claim for indemnification did not fall due until the amount
was judicially determined or fixed by
agreement. Therefore, he held,
the plaintiff’s claim had not been extinguished by prescription
which commenced running only
when payment was made to the bank. So,
too, in
Cape
Town Municipality v Allianz Insurance Co Ltd
,
[9]
where
Howie J confirmed that in respect of liability insurance, the
insurer’s debt is due when the extent of his loss is known.
He
becomes liable to pay only once the amount has been judicially
determined or fixed by agreement. This court, more recently,
in
Metcash
Trading Ltd v Credit Guarantee Ins Corp of Africa Ltd
,
[10]
citing
Pereira
with approval, held that ‘any claim’ referred to a claim
for indemnification by the insured in terms of the policy,
and that
such claim must be for a fixed or specific amount.
[15]
The principle emerging from this line of cases is clear. A claim to
be indemnified against liability to a third party only
arises once
liability, in a fixed amount, has been established. The corollary,
which applies to the present matter, is found in
the third
proposition set out in
Pereira
:
‘
That
the disclaimer by the insurer, from which the period of three months
allowed for the institution of action commences to run,
must follow
on a claim by the insured of the character described in (1) and (2)
above. The condition does not admit of a general
disclaimer of future
claims at a stage when a precise claim in a fixed amount has not, and
cannot, be made by the insured.’
[11]
This
line of authority is firmly established.
[16]
Truck and General
had
an unusual set of facts. The respondent was a distributor and
transporter of fuel. Trucks belonging to the respondent caused
a fuel
spillage on two separate occasions. It was part of the respondent’s
pleaded case that it had an obligation under the
National
Environmental Management Act 107 of 1998 (the Environmental Act) to
clean up any spillage and minimise the effects of
the incident as
soon as was ‘reasonably practicable’. In both instances,
the respondent undertook clean-up measures
and then claimed the sums
that it was legally liable to pay in respect thereof, from its
insurer, the appellant. The high court
granted a separation of the
question of liability from quantum in terms of Rule 33(4). By
oversight of the trial court, judgment
had been granted in the
specified amounts. It was agreed on appeal that this should be
amended even if the appeal failed.
[17]
The question for determination by the court was whether the appellant
was legally liable to make payment under the policy.
The appellant
argued that for liability to be established, an organ of state must
first have given directions to the respondent
to act, or have itself
taken the measures and have submitted an account in terms of the
Environmental Act. The court held that,
to suggest that an insured in
the plaintiff’s position should not act in terms of his or her
statutory obligations in terms
of the Environmental Act and itself
contain or minimise the damage to state property, would lead to
absurdity.
[18]
In reaching this conclusion, Mpati DP was not referred to the above
line of cases. Neither did he refer to them. He was referred
instead
to the UK case of
Post
Office v Norwich Union Fire Insurance Society Ltd
.
[12]
In
that matter, a Post Office cable had been damaged by an insured
entity. That entity became insolvent but held public liability
insurance. The Post Office sued the insurance company directly. Lord
Denning MR, dealing initially with when the insured would
acquire a
right to be indemnified by the insurance company, stated that:
‘
[T]he
insured only acquires a right to sue for money when his liability to
the injured person has been established so as to give
rise to a right
of indemnity. His liability to the injured person must be ascertained
and determined to exist, either by judgment
of the court or by an
award in arbitration or by agreement. Until that is done, the right
to indemnity does not exist.’
[13]
Dealing
with the claim of the Post Office against the insurance company, he
said:
‘
The
correct procedure is for the injured person to sue the wrongdoer, and
having got judgment against the wrongdoer, then make his
claim
against the insurance company. This attempt to sue the insurance
company direct (before liability is established) is not
correct’.
[14]
[19]
Mpati DP, in criticising what has been referred to as the narrow
approach of the Post Office rule, said that its strict application
to
the facts of that case would result in an absurdity.
[15]
It
should be borne in mind that there a fixed sum had been sued for and
the issues separated. All that was before the court at that
point was
the liability of the appellant to indemnify the respondent for its
loss arising from its admitted liability under the
Environmental Act
to clean up and contain the spills. It may not have been strictly
necessary to decide whether the Post Office
rule was too narrow.
However, Mpati DP made it clear that the finding in that matter was
fact specific.
[16]
This
court dismissed the appeal and amended the order of the high court to
one declaring the appellant liable to compensate the
respondent for
such loss as it was able to prove it had suffered as a result of
damage to property from the spills.
[20]
The facts in the present matter are entirely distinguishable from
those of
Truck and General
.
Not only has the amount of damages not been fixed, but the incident
itself is disputed, as is the extent of the appellants’
liability, if any. Prescription was not an issue in
Truck
and General
and it was accordingly
unnecessary to decide when the claim arose. As indicated, no mention
whatsoever was made of
Pereira
in
Truck and General.
It
certainly did not purport to explicitly overrule
Pereira.
Nor had it impliedly done so. It seems unlikely that this was an
oversight. It is more probable that the court deliberately omitted
reference to it because it was simply not applicable to the
particular facts of that case. The claim we are dealing with in the
instant matter is for a declaration of rights in respect of a
contingent claim. Liability is dependent on the outcome of an
uncertain
future event, namely a finding by a court holding the
appellants liable to Imperial in a specified amount. It is no more
than a
contingent claim at this stage.
[21]
It must be borne in mind that there is a fundamental distinction
between a claim and a contingent claim. This was recognised
by
Wessels JA in
Reinecke
v Incorporated General Insurance
.
[17]
In
that case, as in the present one, after repudiation of liability by
the insurer, Reinecke sought a declaratory order that the
insurer
would be liable to indemnify him for all amounts which he may be
legally liable to pay in respect of a motor vehicle collision.
This
was before any liability of the insured to the claimants had been
established. A special plea was raised by the insurer that
the
application was premature as there was still uncertainty whether
Reinecke would require indemnification. The court said that
at the
time proceedings were instituted by him ‘his interest did not
relate to any ultimate right to claim, but to the existence
of a
contingent right to claim under the policy upon the future occurrence
of certain specified events, namely a legal liability
to compensate
his passengers in a quantified amount.’
[18]
This
court held that the insurance policy gave rise to a contractual
obligation between the parties, contingent upon the happening
of some
future uncertain event. A distinction was drawn between ‘a
claim’, a ‘right to claim’ and a ‘contingent
right to a claim’ which Wessels JA described as ‘distinct
legal concepts’. The claim in that matter was a contingent
one.
It was held that the court had jurisdiction to grant a declaratory
order to determine any existing, future or contingent right
or
obligation, even if the person seeking it cannot claim any relief
consequential upon the declaration until the amount is determined.
Importantly, no issue of prescription arose in
Reinecke
.
It would simply make no sense for a right to approach a court for a
declaration concerning a contingent claim to prescribe before
a claim
to be indemnified had been arisen.
[22]
In addition the granting of a declarator is discretionary. This means
that there is always a possibility that a court may,
in its
discretion, refuse to grant a declaration of rights. This is
particularly so in light of the uncertainty regarding the incident
itself, as in the present matter. If the court refuses to grant a
declarator in respect of a contingent right, namely the claim
for
indemnification, the logical consequence of Santam’s argument
is that the claim would have prescribed following the effluxion
of
the prescription period. That is absurd. This is precisely because
the claim for indemnity can only arise once there has been
a fixed
and quantifiable loss.
[23]
To conclude, a claim for indemnification insurance under an insurance
contract can only arise when liability to the third party
in a
certain amount has been established. The debt, for purposes of
prescription, therefore, becomes due when the insured is under
a
legal liability to pay a fixed and determinate sum of money. Until
then a ‘claim’ for indemnification under the policy
does
not exist, it is only a contingent claim. Magic Eye’s right to
approach the court for a declaration concerning the obligation
of
Santam to indemnify it in the event of Imperial establishing
liability has thus not prescribed, in fact prescription has not
even
begun to run. Santam’s special plea ought to have been
dismissed. The appeal must accordingly succeed.
[24]
In the result, I make the following order:
1 The appeal is upheld
with costs including the costs of two counsel.
2 The order of the court
a quo is set aside and substituted with the following:
‘
(a)
The special plea of the third party is dismissed;
(b) The third party is to
pay the costs of the special plea, including the costs of two
counsel, where so employed.’
_________________
C Heaton Nicholls
Judge of Appeal
APPEARANCES:
For
the Appellant: I C Bremridge SC (with him R M G Fitzgerald)
Instructed
by: Andre Du Toit, Cape Town
Honey
Attorneys, Bloemfontein
For
the Respondent: J-H Roux SC (with him P Nel)
Instructed
by: Kellerman Hendricks Inc, Bellville
Webbers
Attorneys, Bloemfontein
[1]
Section
12(1) provides that–
‘
Subject
to the provisions of subsections (2), (3), and (4),
prescription shall commence to run as soon as the debt is
due.’
[2]
Truck
and General Insurance Co Ltd v Verulam Fuel Distributors CC
[2006]
ZASCA 85;
2007
(2) SA 26 (SCA).
[3]
Pereira
v Marine and Trade Insurance Co Ltd
1975
(4) SA 745
(A).
[4]
Le
Voy v New Zealand Insurance Co Ltd
1930
CPD 427
at 431.
[5]
Boshoff
v South British Insurance Co Ltd
1951
(3) SA 481
(T) at 487.
[6]
Pereira
at
757H-758C.
His emphasis.
[7]
Shraga
v Chalk
1994 (3) SA 145 (N).
[8]
Shraga
at 155 C-D.
[9]
Cape
Town Municipality v Allianz Insurance Co Ltd
1990
(1) SA 311
(C) at 321.
[10]
Metcash
Trading Ltd v Credit Guarantee Ins Corp of Africa Ltd
2004 (5) SA 520
(SCA) para 16.
[11]
Pereira
at 758A-C.
[12]
Post
Office v Norwich Union Fire Insurance Society Ltd
[1967]
2 QB 363; [1967] 1 All ER 577 (CA).
[13]
Id
a
t
373-4.
[14]
Id
at 375.
[15]
For
a detailed discussion on the narrow approach v the wider approach
espoused in
Truck
and General
see
Lawsa
2 ed vol 12(2) and JP van Niekerk
Annual
Survey of South African Law
(2007) Issue 1 at 578-588.
[16]
Truck
and General
para
20.
[17]
Reinecke
v Incorporated General Insurance
1974
(2) SA 84 (A).
[18]
Reinecke
at
99 G-H