---

IN THE HIGH COURT OF SOUTH AFRICA

(GAUTENG DIVISION, JOHANNESBURG)

REPUBLIC OF SOUTH AFRICA

Date of hearing: 21 June 2017

Date of judgment: 30 June 2017

Case number 31466/2015

Not reportable

Not of interest to other judges

Revised.

In the matter between:

ANDERSON INSURANCE UNDERWRITING

MANAGERS (PTY) LTD                                                                                                First Applicant

PHOENIX BUSINESS SYSTEMS (PTY) LTD

TRADING AS PASERV                                                                                             Second Applicant

RAINIER KILIAN                                                                                                           Third Applicant

and

CONSTANTIA INSURANCE COMPANY LIMITED                                      First Respondent

REGISTRAR OF SHORT-TERM INSURANCE                                          Second Respondent

 

JUDGMENT

 

BRENNER, AJ:

1. On 22 June 2017, in this urgent application, after hearing comprehensive argument by all parties, I granted an order in terms of annexure “X” hereto.

2. These are the reasons for the order.

3. For convenience, the parties are referred to as follows: the first to third applicants, Anderson Insurance Underwriting Managers (Pty) Ltd as “Anderson”, Phoenix Business Systems (Pty) Ltd trading as Paserv as “Phoenix”, Rainier Kilian as “Kilian”, and the first respondent, Constantia Insurance Company Limited as “Constantia”. The second respondent, the Registrar of Short Term Insurance, did not oppose the relief and did not feature in the proceedings.

4. The purpose of the urgent interim relief sought by Anderson against Constantia was for, inter alia, a mandamus directing Constantia to preserve the underwriting management of short-term insurance over which it had assumed control from 1 November 2016, (“the business”), but which it had terminated on 17 May 2017, with no notice being given. Anderson based its relief in reliance on, inter alia, two agreements. The first agreement was styled the “Intellectual Property and Royalty Agreement” (“the IPRA”), and the second styled “Service Level Arrangement” (“the SLA”). Of which, more later.

5. An interdict was sought to prohibit Constantia from undermining the business by terminating intermediary/broker agreements, terminating policies with policyholders, relocating or migrating intermediaries and policies to any other of its divisions, and withdrawing letters of termination to intermediaries and policyholders.

6. Anderson sought an order for the submission of monthly reports on the financial performance of the business, coupled with an order to compel Constantia to continue to pay the monthly recurring expenses of the business estimated at R403 098,77, outlined in a list attached to the notice of motion. This amount was about half of the average monthly amount which Constantia had contributed to the business for the 7 month period from November 2016 to May 2017, which was R814 970,51.

7. The interim relief was to operate pending the outcome of litigation for the final resolution of the dispute between the parties, including claims for specific performance and damages, via an action or arbitration proceedings.

8. The following facts were uncontested: Anderson’s principal business was that of an underwriting manager, Kilian was, and is, the sole shareholder of Anderson and Phoenix, Kilian was, and is, the sole director of Phoenix, Kilian was, until 8 June 2015, the sole director of Anderson, and Kilian’s brother, Heinrich Kilian, became the sole director of Anderson from 8 June 2015. A supplementary affidavit deposed to by Kilian was handed up to court during argument to substantiate the above. No objection was raised by Constantia.

9. The application was initially launched by Anderson, on its own, on 5 June 2017, on a semi-urgent basis. On 13 June 2017, following the exchange of an opposing affidavit from Constantia on 9 June 2017 and a replying affidavit from Anderson, on 13 June 2017, Anderson brought an application to join Phoenix and Kilian as second and third applicants. The application was opposed. The joinder application succeeded for the reasons outlined below.

10. The gravamen of Constantia’s opposition to the relief was the following. It was argued that the application was not urgent and that any urgency was self-created. It had taken Anderson over 10 court days to launch the application.

11.Assuming that the joinder application was sustainable, which was denied, none of the applicants enjoyed locus standi for the relief sought. As a necessary corollary to this was the dispute that the IPRA and the SLA were valid and binding IRPA and SLA agreements and accorded the applicants legal rights against Constantia and which obliged Constantia to permit the restoration of the business, as contemplated by the relief sought. Constantia argued that Paserv (Pty) Ltd, and the company which Kilian wished to substitute for it, namely, Phoenix, were not parties to any of the agreements, and there was no stipulation alteri therein which either had accepted. There was no application for rectification to substitute Phoenix for Paserv. In any event, so it was argued, the parol evidence rule precluded the introduction of evidence concerning the context in which the agreements were concluded.

12. As part of the enquiry justifying interim relief, and in particular, concerning the balance of convenience, it was further argued that the business had run at a loss of millions of rands per month since its takeover in November 2016, and this loss was being suffered by Constantia. For the period from November 2016 to April 2017, Constantia had suffered a net underwriting loss of R3 521 726,00. The only month during which a net profit was made was in February 2017.

13. The technical services executive of Constantia, Dr Bradley Beira (“Beira”), complained that a due diligence report dated 27 September 2016, compiled by Constantia, had revealed a net underwriting loss of R13 797 202,45 for the period from November 2014 to August 2016. These losses were “suffered at the hands of Kilian who was responsible for the day to day control and management of the business”. The situation had become financially and reputationally intolerable and it could not be expected to continue to run a loss-making enterprise indefinitely.

14.The issues entailed an analysis of events prior to the takeover of the business on 1 November 2016, negotiations revolving around the alleged conclusion of two agreements, occurrences which succeeded this date, and events which culminated in the launch of the application.

15. Until Constantia agreed to take over the underwriting business mentioned below, Anderson was an underwriting manager for saXum Insurance Limited (“Saxum”). On or about 6 September 2016, the Financial Services Board (“the FSB”) notified Anderson that it could not place new business with Saxum due to the latter’s non-compliance with statutory provisions and regulations germane to the insurance industry. The FSB informed Anderson that it had to secure another carrier for the business previously managed by Saxum.

16. On 20 October 2016, Saxum was liquidated. Saxum was the underwriter for at least 13 049 short-term insurance policyholders who were serviced by no less than 116 insurance brokers or intermediaries. The short-term insurance covered risks relating to motor vehicles, vehicle fleets, householders’ and homeowners’ insurance. I refer to it below, interchangeably, as “Motor and Commercial Insurance”, “MCI”, “the division” or “the business”. According to Anderson, the business represented a yearly gross written premium of more than R144 million.

17.Anderson averred that it had a proprietary interest in the business, and that, as a consequence of Saxum’s liquidation, the business was transferred to Constantia with effect from 1 November 2016. It is common cause from the papers that the business was run by Constantia until Constantia terminated its involvement in same, with immediate effect from 17 May 2017. This summary termination precipitated the application for urgent interim relief.

18. On 27 September 2016, Gavin Horn (“Horn”), senior manager: corporate business channels at Constantia, apparently mandated by Robert Shaw, (“Shaw”), the then chief executive officer of Constantia, conducted a due diligence (or underwriting review) of the business which was the subject-matter of the proposed takeover. (Shaw retired in early January 2017).

19.The report was circulated to, inter alia, Messrs Shaw, von Widdern, Prinsloo, Bardsley, Rossouw and Nienaber. Horn noted that Anderson, (he refers to it as “AIUM”), used an IT system known as Profida for all underwriting and claims functions. His conclusion was inciteful:

“CONCLUSION

Whilst the Profida system provides a solid platform for the processing of Policies and the generation of Quotations, I remain concerned regarding AIUM’s inability to provide detailed reports as to the individual Loss Ratio per Intermediary portfolio.

Based on the above, I do not support the “take on” of the AIUM portfolio based on the current Procedures and Processes within AIUM.

However I do support the “take on” of the AIUM portfolio based on the following criteria:

· That AIUM be mandated to use our CIMS system.

· That all Underwriting Procedures and Processes be re-engineered in line with CICL standards.

· CICL manage all Claims Administration.

· An immediate Rating increase of no less than 45% is applied to the Portfolio.”

20.A further due diligence exercise was performed by compliance officer advocate Christiene Brummer of Constantia (“Brummer”) in a report dated 30 September 2016, which focused on compliance components. The report was circulated to the same parties as mentioned above. Brummer’s conclusions were:

“CONCLUSION

It is my view that AIUM is not deliberately in breach of Regulations. It could be because of a lack of knowledge. It is a matter of concern that there was no guidance from the external Compliance Officer, but it is possible to remedy the Compliance function.

It will take a lot of time and effort by me to assist AIUM with its Compliance and get everything in order. It must be noted that I do not (sic) have a lot of other Compliance obligations currently and it will have an impact on my current workload.

I am going to need assistance or guidance on how to prioritise my current workload to accommodate this particular project.”

21.On 30 September 2016, Shaw sent an email to Kilian at Anderson, recording discussions about the proposed takeover. Shaw mentioned Kilian’s having advised him of 3 000 policies which were loss-making and which should be cancelled. Shaw mentioned that the balance of 15 000 policies would require an increase in premium of around 20%. He indicated that he still wanted to see a calculation on the impact of claims in relation to “the Net Risk Premium that will be available.”

22. On 3 October 2016, another email emanated from Shaw to Kilian regarding the necessity for the execution of intermediary agreements before the business was taken on by Constantia. He recorded that all such agreements should be signed by the affected brokers (he mentioned 100 in number) before 1 November 2016. He asked for a full list of the intermediaries, and their financial service provider numbers, to facilitate the drawing of 100 agreements. (Shaw retired in early 2017).

23. On 25 October 2016, Gavin Horn (“Horn”), senior manager: corporate business channels at Constantia, sent Kilian an email to state that Constantia would not accept business via an intermediary who had not signed an agreement, nor could it debit clients until the intermediary had confirmed that the policyholder had agreed to the debit order with the premium increase.

24. It was an uncontested fact that the transfer of the business to Constantia took place and that this was effective from 1 November 2016. Consistently with this, intermediary agreements were drawn by Constantia and duly signed between Constantia and the various brokers. Kilian attached a copy of one of such agreements concluded by Constantia with Constellation Financial Services (Pty) Ltd and signed on 24 November 2016. Kilian attached a policy transfer document dated 25 October 2016 in which, on an Anderson letterhead, MIB Insurance Brokers confirmed the “policy migration” to “CICL” (Constantia), of 386 clients, with a 20% increase in premiums and debit order authorisations from 1 November 2016 onwards.

25.On 2 December 2016, a meeting took place between, inter alia, Constantia’s new chief executive officer, Volker von Widdern (“von Widdern”) and Kilian. Various items were identified in the minutes for action and these included finalising the “CICL/MCI Agreement”, obtaining rating engines from actuaries, and various matters relating to the business.

26.In early December 2016, Constantia, through its employee Mathys Prinsloo (“Prinsloo”), sent Kilian two written agreements drawn by or on behalf of Constantia. The first agreement was the IPRA and the second was the SLA. Kilian gave the agreements to his attorney, Ernie van der Vyver (van der Vyver”), to review. Van der Vyver made some amendments and the amended versions were despatched to Prinsloo. Kilian averred that these versions were approved by Prinsloo of Constantia. In early January 2017, Kilian said that he signed the IPRA and SLA and emailed copies to Prinsloo. They met afterwards when Prinsloo told him that he would still need to send the agreements to von Widdern for approval.

27. On Kilian’s version, between 31 January 2017 and 13 February 2017, Constantia sent the agreements to Kilian again. He alleged that he signed both of them and delivered the originals to Prinsloo on 24 February 2017. In March 2017, Kilian asked for copies of the agreements as signed by Constantia. The technical services executive of Constantia, Beira, then informed Kilian that some small changes had to be made whereafter the agreements as signed by Constantia would be sent to Kilian by Constantia’s compliance officer, Nadia Kreft Rossouw (“Rossouw”). The changes were not identified. Rossouw reverted to Kilian on 19 April 2017 to provide him with the signed SLA but mentioned that the IPRA was still being reviewed. Yet again, the details of the review were not disclosed.

28. Another meeting took place on 1 March 2017, concerning the business, and was attended by Kilian and Messrs Martin Nienaber and Barnaby Bardsley of Constantia. Subjects under discussion included, inter alia, new products, rate increases, staff and costs including Vat, and taxable income of the division.

29.The agreements attached to the founding affidavit reveal the following. The IPRA in Kilian’s possession is not signed at all. The SLA was signed by Kilian on 28 February 2017, and by Beira on 19 April 2017.

30. The IPRA cites two contracting parties, namely, Constantia, which it defines as “CICL”, and an entity called “Paserv (Pty) Ltd”, defined as “the Licensor”, (“Paserv”), with the registration number marked as “XXXXX”.

31.The wording of the IPRA caters for the policies underwritten by Constantia, to be administered in connection with the use of the intellectual property rights defined as “the business identity and the know-how of Paserv, including risk rating methodology”.

32.The business is defined as the business conducted by the division contemplated in the SLA, consisting of all the products together with underlying assets and liabilities, all reinsurance contracts and all employees employed in the division.

33.The document caters for the use by Constantia of intellectual property in the conduct of the business transferred by Anderson to Paserv, and the payment of a royalty fee therefor. Annexure “A” to the IPRA mentions the royalty fee as being payable in terms of the formula set out in “the Divisional Agreement”. It is plain from the facts that the Divisional Agreement was in fact the SLA.

34.The operative clauses of the IPRA for purposes of the issues in casu are quoted below:

“3. Introduction

3.1 The management and shareholders of Anderson previously carried on an underwriting manager business for certain short-term insurers and built up considerable goodwill and business reputation, systems and expertise, which was subsequently transferred to the Licensor.

3.2 The Licensor has agreed to allow its Intellectual Property to be associated with the Products underwritten by CICL and to allow CICL to use the Licensor’s Intellectual Property to promote and sell, monitor and maintain those Products.

3.3 CICL wishes to benefit from the use of the Licensor’s Intellectual property and is prepared to pay the Licensor a royalty fee for the use of its Intellectual Property without which the Business would not be successful……..

4. Rights to Intellectual Property

The Licensor grants to CICL an exclusive right to use the Intellectual Property in connection with the business of underwriting the Products for the duration of this Agreement, subject to the terms and conditions of this Agreement.”

15. Cancellation

15.1 Each party shall be entitled to cancel this Agreement for convenience and without cause by way of 3 (three) months written notice to the other party.”

35. The SLA, signed by both parties, cites them as Constantia or CICL, on the one hand, and “Motor and Commercial Insurance, a division of CICL (the Division)”, on the other. The purpose of this document is to articulate service levels in the operation by Constantia of its ”separate business unit” for short-term policies for “Personal Lines Motor, Householders, Homeowners, Fleet commercial”.

36.The operative clauses of the SLA for purposes of the issues in casu are quoted below:

“8 Period

8.2 This agreement shall automatically terminate upon the termination of the Intellectual Property and Royalty Agreement concluded between CICL and the Division on 90 days notice…..

13 Income and expenses

13.1 CICL will attribute to the Division all income received by CICL as a result of the activities performed by the Division in relation to the products including a share of the investment income proportionate to the amount of the income of the Division available for investment and will set off against the income a reasonable amount for the expenses relating to the business of the Division in order to determine a notional net profit for the Division……

13.4 Surpluses as defined as Profit in Clause 14 hereafter shall be paid to PASERV (Pty) Ltd.

16 Control and management remains with CICL

The control and management of CICL including the Division remains in the hands of the board of directors of CICL and the executive team of CICL.”

37. Another meeting occurred on 7 April 2017, attended by von Widdern and Gavin Horn (“Horn”) of Constantia, and Kilian. The purpose was to discuss the five year forecast for the business. Kilian averred that he started to become suspicious because it became apparent to him that Constantia wished to migrate the business of “B-Sure” from MCI to another division. (In his affidavits, Kilian also mentions his concerns about the migration of a portion of the business to Vap-Sure, another division within Constantia). Constantia also gave Kilian concern about its stated intention to increase its margin of 7% on gross written premiums to 12%, with the potential of encroaching on the net profits of the business.

38. On 20 April 2017, Kilian queried the calculations in the gross income statement for the division, provided by Constantia on 18 April 2017. In his email to Horn, he attached a copy of clause 14 of the SLA to substantiate his query. The query was not resolved.

39. Kilian’s nervousness culminated in his decision to consult with attorney Otto Krause (“Krause”). On 2 May 2017, Krause wrote a letter to Constantia, acting for “Paserv (Pty) Ltd” and “Motor and Commercial Insurance”, in which he called for signature of the IPRA. The letter records various complaints relating to the way Constantia was running the Division, causing operational and financial performance issues. The complaints included the prohibition against staff amending policies, the software not being operational, new business being compromised by competition from other divisions within Constantia, the failure to promote the proper launch of the Division, the Division being expected to carry its own expenses when the SLA provided that Constantia remained liable for overheads, and it was for this reason that an underwriting management fee of 15% had been agreed, and finally, Constantia ignoring advice and guidance from employees in the Division.

40. In a reply from Constantia, dated 4 May 2017, it indicated that it reserved its rights and would respond in due course. There was no substantive response to Krause’s letter.

41. A meeting took place on 10 May 2017, and was attended by Messrs Beira, Nienaber, Bardsley, Rossouw, Kilian and his secretary, Samantha Zwarts (“Zwarts”). The minutes of this meeting refer to its purpose being to discuss the relationship and for CICL and MCI to independently value the business with a view to achieving a mutually agreed termination of the SLA. The parties agreed to meet a week later.

42. On 17 May 2017, the meeting was attended by the same parties. At this meeting, Beira handed over two letters of the same date, addressed to Kilian of “Motor & Commercial Insurance, a Division of Constantia”. In the first letter, Constantia adopted the stance that the IPRA was “void given the significant inconsistencies in the agreement and lack of clarity.” It took the position that this stance could be “effective immediately”.

43.The second letter dealt with the SLA, which Constantia confirmed as having been concluded. It purported, however, to terminate the SLA, again with immediate effect. Three grounds were raised, namely:

a. there had been no compliance with FAIS under clause 4 because there were no staff who were key individuals in the Division to monitor the business;

b. the Division was carrying on business as an intermediary without qualified representatives, in breach of clause 6;

c. the Division had breached clause 7 as it lacked the competence and integrity to perform outsourced functions.

44. On 18 May 2017, a series of emails issued by Constantia notified intermediaries of the cancellation of their agreements with Constantia, on 30 days’ notice, effective from 1 July 2017. On 1 June 2017, it issued notices to policyholders that their policies would terminate from 1 July 2017. In both notices, it mentioned the termination of Constantia’s relationship with its MCI Division.

45. On 19 May 2017, Krause, on behalf of Anderson, sent an urgent demand to Constantia, to furnish a written undertaking by close of business on 22 May 2017, that it would withdraw its cancellation of the SLA, comply with its obligations thereunder and take steps to maintain the integrity of the business. Failing this, Krause noted that interdictory relief would be sought, coupled with a punitive order for costs. In a reply of the same day, von Widdern of Constantia reserved its rights, and declined to withdraw the termination of the SLA.

46.I turn to an analysis of the facts in the light of the issues raised.

47.Two weeks after 19 May 2017, the application was launched on a semi-urgent basis. The application was relatively complex both in law and in fact, and required a detailed chronology of events. The urgency resided in the conduct of Constantia in prejudicing the applicants’ interests in the continuation of the business and in the diversion of business which should have remained in the MCI division to other divisions controlled by it.

48.Constantia had refused to provide any undertaking as demanded by Krause. Having due regard to the complexity of the matter, coupled with the actual and potential harm caused to the applicants and innocent third parties by Constantia’s precipitate conduct, I considered the application to satisfy the requirements for semi-urgency.

49.I refer to the joinder application. The issues relating to the joinder of Phoenix and Kilian overlapped with the issues concerning the locus standi of Anderson, Phoenix and Kilian, and the validity of the IPRA and SLA.

50.Both the IPRA and the SLA were drawn by Constantia. The business which migrated to Constantia was initially the business of Anderson. The IPRA was drawn as an agreement between “Paserv (Pty) Ltd” and Constantia. It was signed by Kilian on behalf of “Paserv (Pty) Ltd”. It mentioned Anderson and confirmed that Anderson had transferred the business and its associated intellectual property to “Paserv (Pty) Ltd”.

51.Kilian explained that “Paserv (Pty) Ltd” was a misdescription in name. Kilian admitted that, at the date he signed the agreements, Paserv (Pty) Ltd did not exist. The error arose because he had intended to use an existing company, registered in 2012, namely, Phoenix Business Systems (Pty) Ltd, whose name he intended to change to “Paserv (Pty) Ltd”. Kilian is a layperson and not a lawyer and, on the inherent probabilities, he would not have appreciated the niceties of registering the name change before signing the IPRA. Even his own attorney and Constantia did not appreciate the mistake. In essence, it was a iustus error.

52.If it were found in due course that this misdescription was not excusable, then, arguably, the claims of and against Phoenix would redound back to Anderson. In the result, Anderson retained a residual potential interest in the case against Constantia.

53.Kilian was the sole shareholder of both Anderson and Phoenix, and his brother, Heinrich, was a director of Phoenix. Heinrich made no issue of the transfer of the business from Anderson to Phoeinix to Constantia, (and indeed was employed in the new Division). No basis was laid by Constantia to assail the validity of the transfer of the above rights.

54.The SLA was signed between Constantia and its division, Motor and Commercial Insurance. Beira signed for Constantia and Kilian signed for Motor and Commercial Insurance. The agreement was indeed between Constantia and itself, being its own division. It is an established principle of our law that an entity cannot enter into a binding contract with itself. This fact is, however, one component in the overall factual matrix traversed more fully below.

55.At all material times hereto, Kilian was a key employee in the running of the MCI division within Constantia. The two parties whom Anderson applied to join to the proceedings were Kilian, personally, and the company which Kilian averred he had intended to intercede as the Licensor under the IPRA, namely, Phoenix.

56.Both had a direct and substantial interest in the outcome of the application. Phoenix had an interest as the party entitled to payment of the royalty under the IPRA and to the surplus under the SLA. Kilian had a direct interest as a key employee in the division, which he was assisting to manage. All applicants could or would be affected by the judgment of this Court.

57.The joinder was arguably one of necessity and failing this, at worst, one of convenience. Vide Judicial Service Commission v Cape Bar Council 2013 (1) SA 170 SCA at p176H-I.

58. I accordingly granted the joinder application, with costs on the party and party scale. For the reasons outlined above, I was satisfied that the three applicants, as joined together in the application, individually had sufficient legal standing to seek the relief as framed in the notice of motion. Ultimately, they had locus standi to secure the further relief which I eventually granted in the exercise of my discretion.

59. I turn to the question as to whether enforceable contractual rights and obligations arose between any one or more or all of the applicants and Constantia.

60. I refer to the case of Novartis South Africa (Pty) Ltd v Maphil Trading (Pty) Ltd 2016(1) SA 518 (SCA) at p525 paragraph 27, my emphasis included:

“..This court has consistently held, for many decades, that the interpretative process is one of ascertaining the intention of the parties – what they meant to achieve. And in doing that, the court must consider all the circumstances surrounding the contract to determine what their intention was in concluding it. KPMG, in the passage cited, explains that parol evidence is inadmissible to modify, vary or add to the written terms of the agreement, and that it is the role of the court, and not witnesses, to interpret a document. It adds, importantly, that there is no real distinction between background circumstances and surrounding circumstances, and that a court should always consider the factual matrix in which the contract is concluded – the context – to determine the parties’ intention.”

61. The court in Novartis at paragraph 30 considered the passage in Society of Lloyd’s v Robinson (1999) 1 All ER (Comm) at 545, 551 to be useful:

“Loyalty to the text of a commercial contract, instrument or document read in its contextual setting is the paramount principle of interpretation. But in the process of interpreting the meaning of the language of a commercial document the court ought generally to favour a commercially sensible construction. The reason for this is that a commercial construction is likely to give effect to the intention of the parties. Words ought therefore to be interpreted in the way in which the reasonable person would construe them. And the reasonable commercial person can safely be assumed to be unimpressed with technical interpretations and undue emphasis on niceties of language.”

62. At paragraph 31 of Novartis, the dictum of Lord Wright in Hillas & Co v Arcos Ltd [1932] UKHL 2; 147 LTR 503 at 514 is cited:

“Businessmen often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defects.”

63. At paragraph 35 of the same judgment:

“….But, as I have said, the issue here is not what the parties intended their contract to mean, but whether they intended to bind themselves contractually. That inevitably requires an examination of the factual matrix – all the facts proven that show what their intention was in respect of entering into a contract: the contemporaneous documents, their conduct in negotiating and communicating with each other, and, importantly, the steps taken to implement the contract.”

64. Finally, it is a trite principle of our law that the parties’ subsequent conduct may be probative of their common intention at the time they made the contract. Vide Telecordia Technologies Inc v Telkom SA Ltd [2006] ZASCA 112; 2007 (3) SA 266 SCA at paragraph 91.

65.Current jurisprudence on whether an actionable contract was concluded between parties indicates that context is a paramount determinant.

66.A conspectus of the undisputed factual matrix in casu revealed that the parties intended that the IPRA and SLA would constitute legally binding agreements.

67.The IPRA refers to the SLA and the SLA refers to the IPRA. The SLA provides that it will automatically lapse on termination of the IPRA. This is proof simpliciter that the agreements were intended to form part of an integral whole, neither having any efficacy without the other.

68.The factual context was evidenced by, inter alia:

a. the preparation of two due diligence reports by Constantia in September 2016 concerning the proposed takeover of the underwriting business following the demise of Saxum;

b. the subject-matter of the correspondence between Anderson and Constantia which preceded 1 November 2016, concerning the conditions attached to the takeover at hand;

c. the preparation by Constantia of the IPRA and SLA, coupled with its signature of the SLA, which in turn referred to the IPRA, coupled with its failure to explain the precise nature of the revisions which it allegedly required to make to the IPRA;

d. the incontrovertible fact that, at the behest of Anderson, and/or Kilian, Constantia assumed control of the short-term insurance underwriting business previously handled by Saxum, which included 13 049 short-term insurance policyholders who were serviced by no less than 116 insurance brokers or intermediaries;

e. the incontrovertible fact that this state of affairs continued from 1 November 2016 until about 17 May 2017 when the termination letters were sent by Constantia;

f. the subject-matter of various meetings between the parties, (there were at least five), at which the takeover was regarded as a fait accompli, and at which discussions focused on the curtailment of alleged expenses and losses in the division.

69. The stance taken on 17 May 2017 that the IPRA was void was, in my view, expedient, and motivated by Constantia’s displeasure with the losses which the division was sustaining. These losses were allegedly “suffered at the hands of Kilian who was responsible for the day to day control and management of the business”.

70.And yet Constantia materially contradicted itself. Beira averred in Constantia’s opposing affidavit that, assuming Kilian was correct in asserting that Constantia had assumed control and management of the business: “it hardly lies in the mouth of Kilian to complain about the manner in which CICL is currently managing the business.”

71.The stance was taken by Constantia that it could summarily terminate the SLA, for reasons of non-compliance with compliance issues. Yet these issues were of its own making and not matters for which the applicants could be held accountable. Moreover, there was no basis for immediate termination based on issues of the nature complained of. A seven day breach letter should have been given, to enable MCI to remedy the complaint to the extent that this was practically possible.

72.It should be noted that, prior to the takeover of the business, Constantia conducted two due diligence reports, in both of which reports mention was made of areas where losses could be curtailed and addressed and recommendations given for remedial steps to be taken. On its own version, it knew it was inheriting a business which had made a loss of an amount of over R13 million from November 2014 to August 2016. There is no indication in the papers as to whether and if so to what extent it implemented the recommendations. Whatever the case, Constantia went into the relationship with its eyes open.

73.In arguing for an interim mandamus and interdict against Constantia, pendente lite, Counsel for the applicants mentioned the case of Edrei Investments 9 (Pty) Ltd (in liquidation) v Dis-Chem Pharamacies (Pty) Ltd 2012 (2) SA 553 (ECP) (“the Dis-Chem case”). Dis-Chem was one of two anchor tenants in a shopping centre. It concluded a five year lease with Edrei. After trading at a loss for some time, Dis-Chem asked Edrei for a 50% discount on its rent, failing which, it threatened to cease trading.

74.Edrei successfully applied to court for an order for an interim interdict to prevent Dis-Chem from vacating the premises pending final determination of an action for specific performance. The Dis-Chem case is distinguishable from the facts in casu in one material respect. There was no evidence in the Dis-Chem case that the lease contained a three month termination clause permitting termination for no cause during the course of the lease.

75. Considering Constantia’s patently obvious attitude towards termination, it was therefore necessary to have regard to the three month exit clause in the IPRA in considering whether to grant interim relief pendente lite.

76.Given the protracted nature of litigation and arbitration, I was mindful of the fact that the period for the prosecution of an action or arbitration to finality would probably exceed the three month notice period which either party could give to the other to terminate the continuation of the underwriting business by Constantia.

77.During argument by Counsel for Constantia, a tender was made, without admission of liability, along the following lines: that Constantia would reinstate the business for a three month period retrospectively to 17 May 2017, until 17 August 2017. It tendered to comply with the obligations under the IPRA and the SLA until 17 August 2017. It proposed that costs should be costs in the cause of the anticipated action or arbitration. It fell short of being reasonable for the reasons outlined in this judgment.

78.In granting the relief to which I was predisposed, I was constrained to ensure that the applicants were not accorded more legal rights than they had in the first place. Constantia had made it plain that it desired to divest itself of the business.

79.I found that the IPRA and SLA were legally enforceable agreements. I could not penalise Constantia for its error in taking the stance that the IPRA was void and that the SLA terminable without notice, by granting an interim interdict compelling it to retain the business indefinitely and potentially well beyond the three month exit period which it had the right to invoke.

80.Constantia nevertheless remained accountable for its unlawful termination of both agreements, which occurred without notice, and without its invoking the breach clauses as it was legally obliged to do. The mechanism by which it could be held responsible was through the grant of final relief for a defined period of time, namely, the three month period afforded to either party to terminate the agreements, without cause.

81.The appropriate relief was the immediate restoration of the status quo ante to ensure the preservation of the business for a defined period of time reasonable enough to permit either the transfer of the business to a third party or the acquisition thereof by Constantia under clause 16.2 of the IPRA.

82.This relief would benefit not only the parties but other stakeholders. It would potentially minimise the disruption, inconvenience and potential financial prejudice to intermediaries and their clients, the policyholders, caused by a summary termination of the agreements. Cancellation of the intermediary agreements and policies on the short notice given to them by Constantia carried with it the risk of insufficient time to place their business elsewhere.

83.Constantia showed a cavalier disregard for and commercially insensible attitude towards its obligations vis a vis the applicants, the brokers and the policyholders connected with the business. It ignored an extracurial attempt to resolve matters when called upon by Krause to furnish an undertaking. There was warrant for a punitive award of costs against it, the applicants having been substantially successful.

84.The requirements for final relief were all present: the existence of a clear right, harm already committed and more harm reasonably apprehended, and the absence of any other satisfactory remedy.

85.The applicants had proved that they had contractual rights in and to the continuation of the business. These included, inter alia, the potential residual rights of Anderson if the transfer from Paserv (Pty) Ltd was found to be invalid, the contractual rights of Phoenix if it were found that Phoenix was the correct party to the IPRA, and had enforceable rights under the SLA, and the rights of Kilian, who was an employee of the division.

86.Harm had already been caused by the precipitate actions of Constantia in unlawfully cancelling broker agreements and policies, and for this reason alone, further imminent harm was reasonably apprehended.

87.No viable alternative remedy was available to the applicants since a damages claim was potentially difficult to prove, and the saving of the business was the more constructive and less costly option, carrying with it the possibility of its transfer to a third party, on reasonable notice.

88. On the grounds stated above, the order marked “X” was accordingly granted.

 

___________________________________

T BRENNER

ACTING JUDGE OF THE HIGH COURT OF SOUTH AFRICA

GAUTENG DIVISION, JOHANNESBURG

30 June 2017

 

Appearances

Counsel for Applicants: Adv CB Garvey

Instructed by: Otto Krause Inc Attorneys

Counsel for First Respondent: Adv AL Roeloffze

Instructed by: Hooker Attorneys

---