The law reports

June 30th, 2015
x
Bookmark

May 2015 (1) South African Law Reports (pp 1 – 312); [2015] 2 All South African Law Reports April no 1 (pp 1 – 126); and no 2 (pp 127 – 250); 2015 (3) Butterworths Constitutional Law Reports – March (pp 243 – 376)

IMG_2306

Heinrich Schulze BLC LLB (UP) LLD (Unisa) is a professor of law at Unisa.

This column discusses judgments as and when they are published in the South African Law Reports, the All South African Law Reports and the South African Criminal Law Reports. Readers should note that some reported judgments may have been overruled or overturned on appeal or have an appeal pending against them: Readers should not rely on a judgment discussed here without checking on that possibility – Editor.

Abbreviations:
 
CC: Constitutional Court
ECP: Eastern Cape Local Division, Port Elizabeth
GJ: Gauteng Local Division, Johannesburg
GP: Gauteng Division, Pretoria
SCA: Supreme Court of Appeal
WCC: Western Cape Division, Cape Town

Attorneys
 
Actions against attorneys: In Fourie v Ronald Bobroff & Partners Incorporated [2015] 2 All SA 210 (GJ) Fourie, the plaintiff, was an erstwhile client of Ronald Bobroff Attorneys, the defendant. The plaintiff sued the defendant for damages allegedly suffered in her personal capacity and on behalf of her minor son, as a result of the alleged under-settlement on 1 August 2011 of her and her son’s claims against the Road Accident Fund (RAF). The plaintiff’s claim was based on the alleged negligent breach by the defendant of the mandate given to it to institute and pursue the claim against the RAF with the standard of diligence, care and skill, which could reasonably be expected of a practising attorney. Essentially, the plaintiff contended that the defendant should have pursued both a claim for loss of support and a claim for loss of earning potential as they were not mutually excluding.

The crisp question before the court was whether the defendant was negligent in assessing that the plaintiff was still able to work and that her income earning capacity was only diminished by 10%.

Weiner J held that the question whether the defendant acted negligently, involved ascertaining whether the defendant, in choosing to pursue the loss of support claim as opposed to the loss of earning capacity claim, acted negligently. That turned on the question whether the defendant’s assessment of the plaintiff’s ability to work was totally compromised. The court had to place itself in the defendant’s position in August 2011 and ascertain the plaintiff’s condition as assessed by the defendant-attorney at that time. If the court found that there had been negligence as described, the plaintiff had to prove damages, which required proof of the likelihood of success in the action and that the damages were within the contemplation of the parties when the contract was concluded.

In applying these legal principles to the facts, the court pointed out that an actuarial report established that the defendant had accepted a settlement significantly in excess of the actuarial assessment of the total value of plaintiff’s loss of support and loss of earnings claims. The defendant could, therefore, not be held to have been negligent in settling as it did. The same applied for the plaintiff’s claim for general damages. The plaintiff’s claim was thus dismissed with costs.

However, the court referred to the attorney and client bill of costs prepared by the defendant and held that the amount of hours and days charged for in the attorney and client bill were substantially higher than those reflected in the party and party bill of costs. The inference was inescapable that the attorney and client bill was manipulated in order to obtain a higher fee from the plaintiff. The court accordingly ordered that the matter be investigated by the provincial law society.

Company law

Intervention and postponement of winding-up: In Absa Bank Ltd v Africa’s Best Minerals 146 Ltd; In re: Sekhukhune NO v Absa Bank Ltd [2015] 2 All SA 8 (GJ) the facts were as follows: In September 2010 the applicant, ABSA, and the respondent, African Best Minerals Ltd (ABM), entered into a written loan agreement in terms of which ABSA advanced an amount of R 9,55 million to ABM. ABM had to repay the loan over a period of 83 months. One of the terms of the loan agreement was that, should ABM fail to make any monthly payment due, the full outstanding amount became due and payable. The loan agreement also contained the usual ‘no indulgence and full agreement’ clause in the agreement. ABM defaulted by failing to make payment as required. As a result, ABSA applied for a final winding-up order against ABM. The court was also asked to pronounce on the merits of an application by the Honourable King KK Sekhukhune (King Sekhukhune) who sought leave to intervene in the matter on a number of grounds, and an application by ABM for postponement, linked to the intervention application.

Vally J held that a party that wishes to intervene must demonstrate an interest in the proceedings that is not just a mere financial interest. An application to intervene solely as a shareholder or solely as a creditor is insufficient. The intervener must demonstrate that he has a legal interest to protect and not just a financial interest in the matter. The legal interest must also be material enough to affect the outcome of the winding-up application. Those requirements were not met in the application to intervene, and the application was accordingly dismissed.

ABM’s application to postpone the matter was said to be to allow ABM to file an application for direct access to the Constitutional Court. No steps had yet been taken in that regard, and there was no explanation for that from ABM. The application for postponement was thus denied.

Regarding the winding-up application, the court noted that ABM was indebted to ABSA, had failed to pay the amount due and owing, and was commercially insolvent. The only remaining issue before the court was whether it should grant a winding-up order. Section 344(f) of the Companies Act 61 of 1973 (the Act) provides that a company may be wound-up if it is unable to pay its debts in terms of s 345 of the Act. Section 345 is a deeming provision. In terms of that provision, a company is deemed unable to pay its debts if a debt exceeding R 100 is due, the creditor has served a demand for payment and the company has for three weeks thereafter failed to meet the demand.

ABSA had made out a case for the relief it sought, and the court granted the winding-up order.

Contract law

Consensus: In Spenmac (Pty) Ltd v Tatrim CC 2015 (3) SA 46 (SCA); [2014] 2 All SA 549 (SCA) the appellant, Spenmac, was the owner of a unit in a sectional title scheme. Spenmac innocently misrepresented to the respondent, Tatrim, that the unit was one of only two in the scheme, and that the owner of the unit had a right to veto any subdivision of the other unit. The misrepresentation induced Tatrim to enter into an agreement to buy the unit. One of the provisions of the contract was an acknowledgement by Tatrim that it had not been induced by any representation to enter into the agreement; and that it waived any rights it might have acquired as a result of such a representation (the so-called ‘representation clause’).

Tatrim later became aware of the true position and it applied successfully to the ECP for a declaration that the agreement was void.

On appeal by Spenmac to the SCA, Mthiyane DP explained that at the heart of the dispute between the parties is whether a misrepresentation on the part of Spenmac’s representative, at the time of the conclusion of the agreement, resulted in a fundamental mistake.

The court held that the agreement had been void from the outset. Spenmac’s misrepresentation had induced Tatrim to make a material mistake about the nature of the unit, and consequently there had never been consensus as to the subject of the sale. Tatrim’s mistake was also reasonable. As for the ‘representation clause’, it, along with the rest of the agreement, had been void from the start. In this regard the court held as follows: ‘[T]he [misrepresentation] taints consent to the whole contract, including the exemption clause. All the terms of the contract together regulate the contract’s object, and it is difficult to see how the consent can but stand or fall as a whole. It seems impermissible to find a separate untainted consent to the exemption clause.’

The appeal was dismissed with costs.

Legality of acceleration clause: The facts in Combined Developers v Arun Holdings and Others 2015 (3) SA 215 (WCC) were as follows: The parties concluded a loan contract containing an acceleration clause in terms of which Combined Developers (CD) were entitled to claim payment of the entire debt forthwith if Arun Holdings defaulted and failed to correct the default within four days of receiving a written notification by CD.

Arun Holdings failed to make payment of an instalment of R 42 133 and was duly notified by CD by e-mail. Arun Holdings made payment within the period allowed, but failed to pay an additional amount of R 87 in default interest. The e-mail demand made no mention of the default interest.

After a disagreement ab­out an unrelated event, CD claimed payment of the full outstanding amount of R 7,6 million and execution on the security (cession of shares) provided by Arun Holdings.

Arun Holdings contended that the e-mail notification from CD did not constitute a demand as contemplated in the contract. It read as follows:

‘Please see below and attachment, we have not yet received payment. Will you please rectify it and if payment has already been made, forward proof payment of the same’ (own translation).

Davis J held that there is nothing inherently wrong with an acceleration clause which requires constitutional scrutiny. However, the interpretation and enforcement of contract clauses must not go against public policy, which must accord with the norms of the Constitution. The court pointed out that this was the legal position also in the pre-Constitutional era (see Sasfin (Pty) Ltd v Beukes 1989 (1) SA 1 (A)).

The court was at pains in emphasising that courts should be careful to invoke public policy, it does not mean that public policy has no role to play in this context. A creditor who implements a contract in a manner which is unconscionable, illegal or immoral will find that a court will refuse to give effect to such implementation even though the contract remains binding. In this regard the court referred with approval to the decision in Juglal NO and Another v Shoprite Checkers (Pty) Ltd t/a OK Franchise Division 2004 (5) SA 248 (SCA); [2004] 2 All SA 268 (SCA)).

The court reasoned that an objective standard to determine unconscionability can be found in the normative framework of the Constitution. Relying on the concept of ubuntu, there is a requirement in contract that parties should interact with each other in good faith. It concluded that implementation of the acceleration clause in this case is so startlingly draconian and unfair that this particular construction of the clause must be in breach of public policy.

The court accordingly dismissed the claim with costs. It based its decision on two grounds. First, the demand in the e-mail was ambiguous and not a proper demand as required in terms of the contract. The demand should under the circumstances at least have specified the amount claimed. Secondly, a strict enforcement of the acceleration clause under the circumstances would be against public policy.

Nature of on demand guarantee: In State Bank of India and Another v Denel Soc Limited and Others [2015] 2 All SA 152 (SCA) the court was asked to pronounce on the nature of ‘on demand guarantees’. In doing so it confirmed the position as laid down in a long line of earlier decisions, including those in Loomcraft Fabrics CC v Nedbank and Another 1996 (1) SA 812 (A); [1996] 1 All SA 51; Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd and Others 2010 (2) SA 86 (SCA); [2009] 4 All SA 322; and Guardrisk Insurance Company Ltd and Others v Kentz (Pty) Ltd [2014] 1 All SA 307 (SCA).

The salient facts were that the first respondent, Denel, and the third respondent, Union of India (UOI), concluded four written contracts in terms of which Denel undertook to supply the UOI with defence-related equipment. As security for the due performance of its contractual obligations, Denel was required to furnish one performance and seven warranty guarantees (the principal guarantees) to the UOI. Denel instructed the second respondent, ABSA, to attend to the issuing of the principal guarantees. ABSA instructed the appellants, the Indian banks, to issue the eight principal guarantees in favour of the UOI. In turn, ABSA issued eight counter-guarantees in favour of the Indian banks in consideration for the eight principal guarantees issued by the Indian banks.

When the UOI contended that Denel had breached its contractual obligations and called on the Indian banks to pay the amounts of the principal guarantees to it, the Indian banks duly complied and then called on ABSA to pay the corresponding amounts due in terms of the counter-guarantees. ABSA advised Denel that it intended making payment to the Indian banks of the amounts due in terms of the eight counter-guarantees and to recover the aggregate payments from Denel. Denel argued that the UOI was entitled to call up the principal guarantees. As a result, so Denel argued, ABSA was not lawfully bound to honour the counter-guarantees. It obtained an interim interdict restraining ABSA from making payment to the Indian banks on the counter-guarantees. The interim order was confirmed. The Indian banks appealed the decision to confirm the interim order.

Fourie AJA confirmed the trite principle that banks should honour the obligations they have assumed in terms of guarantees issued by them.

An ‘“on demand” guarantee’ such as the principal and counter-guarantees in the present case is not unlike an irrevocable letter of credit. A guarantee establishes a contractual obligation on the part of the guarantor to pay the beneficiary on the occurrence of a specified event. Both ‘first demand’ and ‘counter’ guarantees, such as those present here, are independent of the underlying contract, which gives rise to the guarantee. Therefore, regardless of a dispute between the parties to the underlying contract, the guarantee must be paid on demand. The only exception to this rule, is where there is fraud on the part of the beneficiary. The party alleging fraud has to establish it clearly on a balance of probabilities.

A bank issuing an on demand guarantee is only obliged to pay where a demand meets the terms of the guarantee. Thus, the beneficiary in the case of an on demand guarantee should comply with the requirements stipulated in the guarantee.

Examining each of the guarantees in this case, the court found that save for one of the ABSA counter-guarantees, the court correctly held that the requirements were met for the granting of prohibitory interdictory relief to Denel.

Because of this finding by the court, it was unnecessary for it to pronounce on the alleged fraud of the Indian banks.

The appeal was upheld solely in respect of the single ABSA counter-guarantee referred to above.
Repudiation: In B Braun Medical (Pty) Ltd v Ambasaam CC 2015 (3) SA 22 (SCA) the court was asked to pronounce whether a demand for performance, linked to a right of cancellation of the contract in the event of non-adherence to the demand, constitutes breach of contract in the form of repudiation.

At the heart of the dispute, between the appellant, Braun, and the respondent, Ambasaam, were two letters of demand written by Braun’s attorney to Ambasaam dated, 9 March 2011 and 14 March 2011 respectively. The letter dated 9 March 2011 concluded ‘our client shall proceed to cancel the [contract of carriage] without further notice to Ambasaam CC and to claim damages from Ambasaam, in the event that Ambasaam does not timeously adhere to the aforementioned demands’.

The sole issue for determination in the appeal was whether this demand for performance by Braun directed to Ambasaam, constituted a repudiation by the former of its obligations in terms of a contract of carriage, which entitled Ambasaam to cancel the agreement and claim damages from Braun. The GP held that Braun had repudiated the agreement, which Ambasaam had subsequently validly cancelled.

Swain JA held that contractual repudiation depends on perception, not intention, and a reasonable person would not understand a demand for performance to be an indication of repudiation.
The interpretation of a contract is a matter for the court and not for witnesses, and extraneous evidence must, to the extent that it is admissible, be used as conservatively as possible.

The court thus held that Braun’s demand for performance did not constitute a repudiation of the contract. The appeal was thus allowed with costs.

Conveyancing

Agent of seller: In Stupel & Berman Inc v Rodel Financial Services (Pty) Ltd 2015 (3) SA 36 (SCA) the appellant, Stupel, was instructed to act as conveyancer in the registration and transfer of certain immovable property. The property was sold by one Amber Falcon Properties 3 (Pty) Ltd (Amber). While awaiting transfer of the property, Amber obtained bridging finance from the respondent, Rodel, in terms of two discounting agreements (the agreements). In terms of the agreements Stupel was appointed as conveyancer and Amber undertook not to withdraw Stupel’s mandate to act as such.

Both agreements contained a section entitled ‘Undertaking by Conveyancer’, which was signed by Stupel. In terms of the undertaking Stupel commited itself ‘irrevocably’ to pay the nett proceeds of the sale of the property to Rodel on transfer of the property. After Amber received the money it had borrowed from Rodel in terms of the agreements, it instructed Stupel to withdraw the undertakings provided to Rodel. Stupel obliged with Amber’s instruction. Rodel cancelled the discounting agreements and proceeded to claim the proceeds from the sale from Stupel.

The court a quo held that Rodel was in the position of an adjectus solitionus causa (adjectus), and as a result, Amber could not withdraw its instruction to Stupel to pay Rodel. Stupel was ordered to pay the proceeds to Rodel.

On appeal Brand JA pointed out that an adjectus is an entity, other than the creditor, to whom, by agreement between the debtor and the creditor, the debtor is entitled to pay what is due to the creditor and so discharge the creditor’s obligations to the adjectus.

The court held that Rodel could not be regarded as an adjectus because the undertaking relied on by Rodel was not part of a tripartite agreement involving the debtor, creditor and adjectus. The undertaking by Stupel was a ‘stand-alone’ agreement between it and Rodel; and secondly, Stupel was never in the position of a debtor, nor was Amber in the position of Stupel’s creditor.

In terms of the agreement between Amber and Stupel, the latter, as agent, had to do two things:

  • transfer the property to the purchaser; and
  • pay the nett proceeds to Rodel.

If Rodel was truly an adjectus, it would have no claim against Stupel at all. Because Stupel gave the undertakings to Rodel in its capacity as an agent, on the instructions of his principal (Amber), the law of agency provided that, as a general rule, those instructions could be terminated. The fact that the instructions were described as ‘irrevocable’ in the undertaking by Stupel, did not detract from the general principle. Amber could thus withdraw Stupel’s mandate and Stupel had no option but to act on Amber’s instructions. Because Rodel cancelled the agreements, it left Amber free of its contractual undertaking towards Rodel not to terminate Stupel’s mandate.

The law of agency provides for an exception to the general rule that instructions given to an agent can be terminated by the principal. The exception to the general rule is where the authority of the agent to act on behalf of the principal can be ‘coupled with an interest’. In terms of this exception, the interest to be protected by irrevocability, must be that of the agent (Stupel), as opposed to that of the third party or adjectus (Rodel).

The court mentioned in passing that the correct remedy for money-lenders who find themselves in Rodel’s shoes, is to keep the money-lending agreement intact and rather seek an interdict against the principal (Amber), joining the agent (Stupel) as an interested party, to prevent the agent from giving effect to the termination of the mandate by the principal.

Finally, the court held that whether or not Amber was acting in breach of its obligation in terms of the discounting agreements, to which Stupel was not a party, is of no consequence. The appeal was allowed with costs.

  • See 38.

Insolvency

Notification of insolvent’s employees: In Stratford and Others v Investec Bank 2015 (3) SA 1 (CC); 2015 (3) BCLR 358 (CC) the facts were as follows: The appellants were a married couple and had three domestic employees. The couple’s joint estate was placed in final sequestration despite the objection of the employees that they had not been properly notified of the application for provisional sequestration.

In 2002 the Insolvency Act 24 of 1936 (the Act) was amended by the insertion of s 9(4A), which requires a petition for sequestration to be ‘furnished’ to the debtor’s employees. The copy must be put on any notice board accessible to employees inside the debtor’s premises or otherwise affixed to the front gate or front door of the premises from which the debtor conducted any business at the time.

The candidate attorney serving the initial application in the present case had asked the employers whether they had any domestic employees. They said they had a domestic worker, but they did not mention the gardener and handyman they employed. A copy of the application was left on the kitchen table for the domestic worker.

In 2012, on the day after the provisional order in this matter was granted, the SCA held in another matter (Gungudoo & Another v Hannover Reinsurance Group Africa (Pty) Ltd & Another 2012 (6) SA 537 (SCA)) that s 9(4A) applied only in respect of an insolvent’s business employees and that domestic employees did not have to be notified. This interpretation relied, among other things, on the reference to the business premises of the debtor.

In addition to raising an appeal on the merits of the final order, the appellants argued that the restrictive interpretation by the SCA in Gungudoo of the word ‘employees’ in s 9(4A) rendered the provision unconstitutional for discriminating against domestic employees, infringing their rights to dignity, fair labour practices and access to courts. The court also had to indicate whether notification was peremptory or not. The sequestration order was handed down in the WCC. The SCA refused leave to appeal.

On appeal to the CC, Leeuw AJ held that s 9(4A) of the Act must be interpreted in conformity with the Constitution. This means that in cases of doubt, a reasonable interpretation that promotes the spirit, purport and objectives of the Bill of Rights must be preferred. The decision in Gungudoo did not deal with the constitutional arguments raised in the Stratford case.

The court further held that despite the indicators relied on by the SCA in Gungudoo, the word ‘employees’ in s 9(4A) is indeed capable of including non-business employees. In this regard the court reasoned that the link between work and the right to dignity is well established. Notification serves to alert employees to the financial difficulties of their employer. It enables them to seek alternative employment and could avoid the situation where they turn up for work only to find that their services have been suspended and they will not be paid.

An inclusive interpretation of ‘employees’ in the notification provision will thus better promote the objectives of the Bill of Rights. In view of the finding that domestic employees are indeed included in s 9(4A), the challenge to the constitutional validity of this provision falls away.

As to the question whether compliance with s 9(4A) is peremptory or not, the court held that it is significant that it does not require a notice to be ‘served’ on employees, but rather that it be ‘furnished’ to them. This means that the notice must be made available in a manner reasonably likely to make it accessible to employees. The effort made by the candidate attorney in this matter was sufficient to meet this standard.

The insolvent debtor may not oppose a sequestration order by relying on a failure to inform his or her employees, as that would be a technical defence invoked to avoid or postpone sequestration. In some exceptional circumstances a provisional order may be granted on an urgent basis despite non-compliance with s 9(4A), for example to avoid the concealment of assets.

The court confirmed that the declaration of the meaning of ‘employees’ as including domestic employees does not have retrospective effect, except in relation to matters where domestic employees were not notified and a provisional order has been made.

Finally, it held that a copy of the application must be furnished to domestic employees before a final order can be granted. In the light of the potential impeachable transactions listed by the bank, it was clear that sequestration would be to the advantage of the couple’s creditors. Hence the CC refrained from interfering with the High Court’s final sequestration order.

Insurance

Misrepresentation: In Visser v 1 Life Direct Insurance Ltd 2015 (3) SA 69 (SCA) the appellant, the beneficiary, took out life insurance cover on the life of one of her employees, the employee. The beneficiary lent money to the employee to start her own business. Fourteen months after the policy was issued the employee died from unnatural causes. The respondent, the insurer, rejected the beneficiary’s claim in terms of the policy. It argued that the employee had misrepresented and failed to disclose to the insurer certain details of her pre-existing medical condition, which materially affected the assessment of the risk.

Section 59(1) of the Long-term Insurance Act 52 of 1998 provides that an insurer may avoid liability on the ground of misrepresentation. That is, a representation that was not true or amounted to non-disclosure of information, ‘if [it were] … likely to have materially affected the assessment of the risk under the policy concerned at the time of its issue’.

The insurer relied on two sources of evidence in proving the misrepresentation/non-disclosure by the employee. First, the transcript of a telephone conversation between the insurer and the employee during which the latter was asked certain questions relating to her state of health. Secondly, records of the hospital that the employee visited that contain details of the employee’s medical complaints. The court a quo held in favour of the insurer.

On appeal, Swain JA, held that the insurer bears the onus of proving that the employee had misrepresented to it that she had never had any episodes of anxiety or stress, and that she had never received medical advice or treatment for fainting and chest pains. The admissibility of the telephonic conversation and hospital records must be distinguished from the evidential status of their contents. The records are admissible.

However, because the doctor who conducted the interview with the employee at the hospital was not called to testify about the correctness of the hospital records, the evidential value and status of these records had not been proved.

Only once the correctness of these records was proved, could the further issues of misrepresentation or non-disclosure by the employee arise. The expert witness on behalf of the beneficiary testified that the hospital records were incomplete and that one had to speculate concerning the causes of the symptoms of the employee.

Finally, the SCA held that the court a quo erred in finding that ‘it is not in dispute that the illnesses [of the employee] are noted, correctly, in the hospital records’. The insurer therefore failed to discharge the onus of proving the trust and accuracy of the contents of the hospital records and the appeal was upheld with costs.

In a separate concurring judgment, Willis JA, agreed that the issue of materiality did not arise but considered that it nevertheless had to be dealt with, to give the unsuccessful litigant who failed for lack of evidence an indication of what it might have been expected to prove.

Non-disclosure: The facts in Regent Insurance Co Ltd v King’s Property Development (Pty) Ltd t/a King’s Prop 2015 (3) SA 85 (SCA); [2015] 2 All SA 137 (SCA) were as follows: On 16 March 2010 the parties concluded a contract of insurance in respect of which the appellant, the insurer, insured the premises of the respondent, the insured, against certain risks, which included fire damage. The insured premises burnt down in May 2010. The insured claimed the cost of repairs and payment in respect of rental income lost, from the insurer. The insurer rejected the claim, alleging a material non-disclosure by the insured when applying for insurance cover in respect of the premises. The non-disclosure, so the insurer reasoned, lay in failing to advise the insurer that the premises was occupied by a tenant who manufactured truck and trailer bodies using fibre glass and resin. Both are highly flammable materials. This constituted a risk that the insurer argued it would not have undertaken had it known of the nature of the business. The fire was caused by employees of the tenant in the course of manufacturing.

The High Court found that the insurer was liable to pay the sum claimed on the basis that it was estopped from relying on the defence of non-disclosure. It reasoned that, when the insurance broker for the insured had procured the insurance cover, he had asked the insurer to do an urgent survey of the premises. The High Court held that the insured had been misled into believing that the survey had been done, and had accordingly paid the premiums on the assumption that the insurance covered the premises.

The relevant issues on appeal were the following –

  • what was in fact disclosed by the insured to the insurer about the premises;
  • whether the insurer established a material non-disclosure in terms of s 53(1) of the Short-Term Insurance Act 53 of 1998, which induced it to enter into the contract; and
  • if there was a material non-disclosure, whether the insured established either estoppel or waiver of reliance by the insurer on non-disclosures.

Lewis JA held that at common law, an insured, when requesting insurance cover, must make a full and complete disclosure of all matters material to the insurer’s assessment of the risk. Failure to do so will entitle the insurer to reject a claim under a policy and to treat it as void. Legislation has been enacted, however, to preclude insurers from relying on trivial misrepresentations and non-disclosures to avoid liability under an insurance contract.

The test in respect of both misrepresentations and non-disclosures is an objective one. The question is thus whether the reasonable person would have considered the fact not disclosed as relevant to the risk and its assessment by an insurer. The onus rests on the insurer to prove materiality. The insurer must prove that the non-disclosure or representation induced it to conclude the contract. Thus, the insurer must show that the representation or non-disclosure caused it to issue the policy and assume the risk. Once materiality has been proved it would be difficult for the insured to overcome the hurdle of showing no causation. The test for inducement is subjective.

In considering whether there was a failure to disclose the nature of the risk in the present case, the court held that the presence of the tenant in the building, and the fact that it occupied a substantial portion of the building, made a material difference to the risk. The reasonable person would have regarded that fact as material and disclosed it to the insurer. The request for the survey did not relieve the insured of the duty to make a full disclosure as to the use of the premises.

The insurer was thus entitled to reject the claim. The appeal was upheld with costs.

Other cases

Apart from the cases and topics that were discussed above, the material under review also contained cases dealing with administrative law, civil procedure, company law, constitutional law, criminal law, disciplinary bodies, intellectual property, land, local authorities, marriage, medical aids, parent responsibilities, practice, prescription, shipping and wild animals.

 

This article was first published in De Rebus in 2015 (July) DR 44.