THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

       Case No:  484/07

RAND MUTUAL ASSURANCE COMPANY LIMITED                         Appellant

and

ROAD ACCIDENT FUND 						        Respondent

Neutral citation: Rand Mutual Assurance Company Ltd v Road Accident Fund (484/2007) [2008] ZASCA 114 (25 SEPTEMBER 2008)

Coram:	HARMS ADP, SCOTT, JAFTA JJA, LEACH AND KGOMO AJJA

Heard:	12 SEPTEMBER 2008

Delivered:	25 SEPTEMBER 2008

Corrected:

Summary:	Insurance – subrogation – right of insurer to sue wrongdoer in own name – for Occupational Injuries and Diseases Act 130 of 1993 s 36(1).

ORDER

On appeal from: High Court, Pretoria (R D Claassen J sitting as court of first instance).
									  
1. The appeal is upheld with costs.
2. The order of the court below is substituted with the following:
(a) Judgment for the plaintiff in the sum of R 191 078,85 with 15,5% interest a tempore morae.
(b) The defendant is to pay the costs including the preparation fee of Dr du Plessis and Ms Vos.

JUDGMENT

									  
HARMS ADP (SCOTT, JAFTA JJA, LEACH AND KGOMO AJJA concurring)

[1]	The appellant, Rand Mutual Assurance Company Ltd, is an insurer. It is, for purposes of the Compensation for Occupational Injuries and Diseases Act 130 of 1993 (COIDA), a mutual association, which means that it is licensed to carry on the business of insuring employers against their liabilities under COIDA to employees (s 30(1)). In that capacity it insured a company (presumably Harmony Gold Mining Co Ltd). An employee of the insured, one Young, was injured in a motor vehicle accident, which was caused by the negligence of the driver of another vehicle, one Maziya. The accident arose out of and in the course of Young’s employment. Young was consequently entitled to the benefits provided for in COIDA (s 22(1)). Because of the insurance policy the appellant, and not the Director-General, was obliged to compensate Young in the sum of R191 078,85 as determined in accordance with COIDA by the Director-General. 

[2]	The respondent, the Road Accident Fund, is liable for the damages caused by Maziya’s negligent driving. The appellant sought to recover the compensation paid to Young from the respondent, relying on the provisions of s 36(1)(b) of COIDA, which provides in essence that if an occupational injury was caused in circumstances resulting in a third party (in this case the respondent) being liable for them, 

‘the Director-General or the employer by whom compensation is payable may institute action in a court of law against the third party for the recovery of compensation that he is obliged to pay in terms of this Act.’

[3]	The appellant is not an ‘employer’. Accordingly, it was not covered by the wording of the provision although it was a party by whom, in terms of COIDA, compensation was payable. This, said its counsel, was more than unfair because the appellant is entitled to be in the same position against third parties as are the Director-General or the employer ‘by whom compensation is payable’. He accordingly submitted that we should by some or other process of interpretation hold that the phrase ‘employer by whom compensation is payable’ includes a mutual association by whom compensation is payable. The argument was premised on the proposition that a mutual association would otherwise be without a right of recourse against a wrongdoer.  In support of this, counsel argued that the employer in casuwas not one by whom compensation was payable. Accordingly, he said, the employer had nothing which it could cede to the plaintiff and that subrogation does not apply. As I shall seek to show, since the premise is false, the conclusion is also false.

[4]	To understand the argument and my conclusion it is necessary to turn  to the repealed Workmen’s Compensation Act 30 of 1941, the precursor of COIDA. Under that Act, compensation had to be paid to any workman entitled thereto either (a) by the employer individually liable, or (b) by the commissioner (s 37). The term ‘employer individually liable’ was defined to mean an employer who was exempt from paying contributions to the accident fund (s 2). There were two types of employers individually liable, namely the state and certain other authorities and, secondly, employers who had, with the approval of the commissioner, obtained from a mutual association a policy of insurance for the full extent of their potential liability under the Act (s 70). Compensation was payable irrespective of the common-law liability of the employer (i e, irrespective of negligence) and the Act thereby increased the rights of the employee but, on the other hand, the right to compensation substituted all other remedies the workman may have had (s 7). The commissioner or ‘the employer by whom compensation [was] payable’ had a right of action against the third party for the recovery of the compensation they were obliged to pay (s 8(1)(b)). The Act was ambivalent about who had to pay compensation. In some instances it had to be either the commissioner or ‘the employer individually liable’ (e.g. s 40(2), s 46(2), s 48, s 90) while in other circumstances it was either the employer individually liable or the mutual association (s 63). However, the Act also said that the association, that had to insure employers, had ‘liabilities under this Act’ (s 95(5)).

[5]	It is difficult to conceptualise the liability of the employer towards the employee which could be insured against. This is because even an uninsured employer or one who had failed to pay contributions to the commissioner had no potential liability towards the employee under the Act. An employer who had failed to pay the required contributions may have had to pay a penalty but even then no common-law or statutory liability towards the employee arose (s 72).

[6]	These inconsistencies were not only carried over to COIDA but were in a sense exacerbated. This is because COIDA distinguishes between employers individually liable (consisting of government organs) on the one hand and, on the other, employers who have obtained from a mutual association a policy of insurance for ‘the full extent of their potential liability’ (s 84(1)). Liability is no longer attached to an employer as in the 1941 Act; instead it is attached to either the Director General (who replaced the Commissioner), the employer individually liable or the mutual association (s 29, 61, 62). The employer is also not liable to the employee unless the liability arises under COIDA (s 35).

[7]	However, COIDA provides (as mentioned) for ‘insurance of employers against their liabilities to employees in terms of this Act’ by a mutual association (s 30(1) and (2)). This implies that employers do have a liability under COIDA although the nature and extent of their liability is not spelled out. The implication is that the liability is borne by either the Director-General or the mutual association. (The position of the employer individually liable as currently defined does not require consideration.) Although the employee is the only person entitled to benefit under the insurance policy (he, and only he, receives compensation) the legal effect of all this is that the employer is insured against this transient claim of the employee. 

[8]	Reverting to s 36(1)(b): it provides, as mentioned, that either the Director-General or the employer by whom compensation is payable may institute action against a third party for the recovery of compensation. The emphasised words would obviously include an employer individually liable but they go wider. They also include an insured employer. But they do not include a mutual association. This means that although the insured employer does not pay, he is entitled to recover, obviously on behalf of the insurer.

 [9]	I accordingly agree with the respondent’s counsel who argued that an employer who obtains a policy of insurance for the full extent of its liability under  COIDA is exempted from paying assessments to the Director-General; that a mutual association is nothing other than an insurer; and that once the mutual association has indemnified the employer by paying compensation in full to the employee, the association may exercise the right of recourse against a third party by either obtaining a cession from the employer or by bringing a subrogated claim for recovery under s 36(1)(b).

[10]	The insured’s indemnity claim has been paid in full. The insured employer was accordingly entitled to recover from the respondent, not only by virtue of s 36(1)(b), but also under ordinary legal principles. However, the employer did not seek to recover; the appellant did not obtain a cession; and the appellant did not sue in the name of the insured but in its own name. This, and only this, non-compliance with the subrogation doctrine was, according to the respondent, fatal to the appellant’s claim, and the court below agreed. 

[11]	During argument the question was raised whether the rule that the insurer must sue in the name of the insured forms part of our law and, if so, whether it could be justified. The answer requires a consideration of the history of the reception of the English law of subrogation, the nature of the rule that a subrogated claim must be brought in the name of the insured, and a reflection of whether the rule requires adaptation or amendment. 

[12]	Lord Hoffman once said that ‘the subject of subrogation is bedevilled by problems of terminology and classification which are calculated to cause confusion.’ Bearing that in mind, it is useful to commence the discussion with the following extract from the chapter in Lawsa on insurance: 

‘In its literal sense the word “subrogation” means the substitution of one party for another as creditor. In the context of insurance, however, the word is used in a metaphorical sense. Subrogation as a doctrine of insurance law embraces a set of rules providing for the reimbursement of an insurer which has indemnified its insured under a contract of indemnity insurance. The gist of the doctrine is the insurer’s personal right of recourse against its insured, in terms of which it is entitled to reimburse itself out of the proceeds of any claims that the insured may have against third parties in respect of the loss.’

The authors also mention (at para 374) that the doctrine as part of insurance law was established only during the 18thCentury and that it was imported into South African law through Ackerman v Loubser1918 OPD 31.

[13]	The plaintiff in Ackerman v Loubserwas an insured who had been fully paid by the insurer and who sought to recover the loss from the defendant on behalf of the insurer. The defence was that since the plaintiff’s loss had been made good by the insurer the plaintiff had no further claim against the defendant. In rejecting the argument the court referred to the English law of subrogation (as set out in the preceding paragraph) and applied it to the case before it. The court also mentioned that in English law, should the insured refuse to litigate, the court would allow the insurer to do so ‘in the name of the insured whether the latter likes it or not’ (at 34).

[14]	What is easily overlooked is that when Ackerman v Loubserwas decided the law of insurance applicable in the Orange Free State was English law. The General Law Amendment Ordinance 5 of 1902 (ORC) had introduced the law applicable in the Cape Colony. The General Law Amendment Act 8 of 1879 (Cape), in turn, had introduced the English law of insurance and replaced the Roman Dutch law in the Cape Colony. In other words, the court in Ackerman v Loubserwas bound to apply the English law of insurance and it did not purport to infuse our law with English law principles.
 
[15]	The next case that dealt with the issue was Teper v McGees Motors (Pty) Ltd  (1) SA 738 (C). It, too, was bound to apply English law being a Cape case. However, the law in Transvaal and Natal remained Roman Dutch, something not considered in Schoonwinkel v Galatides1974 (4) SA 388 (T) when it adopted the principle of subrogation as set out in Ackerman v Loubser.Importantly, neither case held that the insurer may not sue in his own name.

[16]	The Cape and Orange Free State laws were repealed by s 1 of the Pre-Union Statute Revision Act 43 of 1977 –
	
‘with the result that the English law (as it existed in 1879) concerning fire, life and marine insurance is no longer binding authority in the Cape Province or in the Orange Free State Province. . . . Hence, the South African law of insurance is governed mainly by Roman-Dutch law as our common law.’

The effect of this repeal is that, subject to statutory law, our courts are entitled to look at other legal systems in developing our law of insurance and that we are not bound to follow English law and precedent.

[17]	Nevertheless, this court, with reference to the Ackerman v Loubser  and Teper, held that –

‘an insurer under a contract of indemnity insurance who has satisfied the claim of the insured is entitled to be placed in the insured’s position in respect of all rights and remedies against other parties which are vested in the insured in relation to the subject matter of the insurance. This is by virtue of the doctrine of subrogation which is part of our common law.’

What this court had in mind in Commercial Union the three rules of the lex mercatoria(and not only of the English law of insurance): that the wrongdoer is not entitled to benefit from the fact that the person wronged was insured; that the insured may not be enriched at the expense of the insurer by receiving both the insurance indemnity and damages from the wrongdoer; and that the insurer replaces the insured, i.e., the insured is subrogated by the insurer, which entitles the insurer to claim the loss from the wrongdoer. 

[18]	In English law ‘the doctrine of subrogation in insurance rests upon the common intention of the parties and gives effect to the principle of indemnity embodied in the contract.’ In our law it would be a case of implied terms (but in the sense of naturalia of the contract as opposed to tacit terms) of the contract of insurance.

[19]	Significantly,  in formulating the doctrine of subrogation, this court has not as yet held that the insurer is not entitled to sue in its own name. Different laws deal with this aspect differently. The English common law, as has been said, requires the insurer to sue in the name of the insured. This requirement gives rise to a number of procedural anomalies. American law apparently adopts a different approach: although it is accepted that in strict law the action ought to be brought in the name of the insured, the insurer institutes the litigation in its own name to protect litigants from harassment and to avoid confusion over the identity of the real plaintiff. This appears to be similar to the position in Continental law.

[20]	These differences may be due to legislative activities and, especially as far as Continental law is concerned, to the fact that the effect of subrogation may differ from one legal system to another. It may amount to  something akin to cession of the claim against the wrongdoer ex legeor it may simply mean that although the claim against the wrongdoer still vests in the insured, the insurer has certain procedural rights against both the insured and the wrongdoer. Locally, there is an academic debate about the correct approach to the substantive aspect but this is not the case to decide the matter. For present purposes I shall assume that a transfer ex lege akin to cession does not take place. That does not, however, mean that the procedural rule that the insurer has to sue in the name of the insured is in accordance with the general principles of our law.

[21]	In Freudmann-Cohen v Long Tran

This court is reluctant to interfere with settled legal principles, even when they have their origin in an incorrect interpretation of the law because members of the public may have arranged their affairs on the assumption that they were settled. Communis error facit ius. Consequently, t

[25]	I therefore hold that the plaintiff was not non-suited by litigating in its own name, particularly where there is no discernible prejudice to the respondent. It may be noted that the respondent did not file an exception to the claim and raised the point only at the trial. Consequently, the appeal has to succeed and the appellant is entitled to judgment. 

[26]	 The following order is made:

	1. The appeal is upheld with costs.
	2. The order of the court below is substituted with the following:
	(a) Judgment for the plaintiff in the sum of R 191 078,85 with 15,5% 	interest a tempore morae.
	(b) The defendant is to pay the costs, including the preparation fee of 	Dr du Plessis and Ms Vos.

_________________________
L T C HARMS
ACTING DEPUTY PRESIDENT

APPEARANCES:

For Appellant:	J J Wessels SC

			Instructed by:
			Van Velden Duffey, Pretoria
			Lovius Block Attorneys, Bloemfontein

For Respondent:	B P Geach SC

			Instructed by:
			Maponya Incorporated, Pretoria
			Honey Attorneys, Bloemfontein