PUBLIC POLICY AND THE IMPECUNIOUS INSURED
February 1, 2019

The Western Cape High Court handed down judgment on 14 February 2019 in the matter of Watson & Another v Renasa Insurance Co Limited.


The judgment dealt in part with the application of what has come to be known as the Reinstatement Value Conditions (“RVC”) clause, a common clause in many contemporary indemnity insurance policies (most notably, the Multimark III policy wording). This clause should not be confused with the Insurer’s right to reinstate (usually found in the general conditions to the policy) which affords the insurer the right to elect to either reinstate the property or effect payment in lieu thereof.


The RVC clause affords the insured the election to be paid the cost of reinstating or repairing the damaged property with new property rather than accepting an indemnity payment calculated as being what it would have cost the insured to purchase similar used property immediately before the damage. The reinstatement value is often substantially higher than the indemnity value however, the RVC clause has a number of provisos including, the proviso that the work of reinstatement or repair “…must be commenced and carried out with reasonable dispatch, otherwise no payment, beyond the amount which would have been payable if these reinstatement value conditions had not been incorporated herein, shall be made” as well as the proviso that “until expenditure has been incurred by the insured in replacing and reinstating the property, the company shall not be liable for any payment in excess of the amount which would have been payable if these conditions had not been incorporated herein”.


In the Watson matter, the argument arose before the Court that these provisos envisage that expensive print finishing machinery and premises needed to be secured by Mr Watson and monies expended thereon before he would be entitled to rely on the RVC clause. It was argued on behalf of Mr Watson, that he did not have the financial wherewithal, as a result of the delay caused by the insurer to do so and that it could not be expected of an impecunious insured to have to do so, without any undertaking from the insurer that payment would be forthcoming.


The Court stated “Clauses of this nature can give rise to difficulty and are open to potential abuse by an insurer who is less than bona fide. If no payment is made by an insurer at all, it places an impecunious (or relatively impecunious) claimant at a severe disadvantage when compared to similarly-placed insured parties, who are possessed of greater means. Such an impecunious insured would be required not merely to evidence a sincere intention to replace or reinstate the destroyed or damaged property, but would further be required to do so, absent any firm commitment by the insurer that it accepts liability for the resultant costs”.


Following the judgment in Grand Central Airport (Pty) Ltd v AIG South Africa Ltd the Court found that, in the context of the insurers argument that it should be the person that manages the insured’s reinstatement by being entitled to determine payment once and if compliance by the insured with the RVC clause has, in it’s view, taken place, the Court said “To interpret these words as sanctioning the defendant’s conduct is a bridge too far. To my mind, it would offend against the legal convictions of the community to find that, in the present case, the defendant insurer should nonetheless be permitted to effectively slash the extent of its payment liability after having withheld the performance of its own indemnity payment obligation under the policy”.


Andrew Ginsberg of Assheton-Smith Ginsberg Inc., Mr Watson’s attorneys stated that “this judgment should serve as a word of caution to insurers when the RVC clause is invoked by relatively impecunious insureds. If there is no argument as to liability, this judgment seems to be precedent that, at the very least, the indemnity value should be paid which will give the insured the necessary capital to commence reinstatement”. 

PROCEEDINGS IN SOUTH AFRICA LEAD TO PROCEEDINGS IN THE NETHERLANDS

February 19, 2024
Client Background: Client Profile: Our Client, a Dutch Shipbuilder and his companies, owns and manages a shipyard as the second generation of the family that started the shipyard. The shipyard is one of the oldest shipyards in the Netherlands. The business, situated in Sliedrecht in the southwest of Holland, began as a small shipyard offering general repairs and maintenance services to various shipping companies and has expanded to a large shipyard over 90 years with two floating docks and offering in addition to repairs and maintenance, conversion, construction, and design of new parts for ships. Challenges Faced: In mid-2009, 12 barges, a pontoon and two halves of floating dock that the Dutch Shipbuilder and his companies had ordered the construction of in China, were stranded at JacobsBaai on the West Coast of South Africa and were lost. This loss arose from the tugboat operator and owner’s negligence in towing these items from China to Rotterdam. The Dutch Shipbuilder had arranged financing from his bank for the purchase of these items. His bank assisted him with the negotiation of the contracts for the construction, the arrangement of insurance, as well as the final arrangements for the towing of the constructed items from China to Rotterdam, representing themselves as experts in doing so. The Dutch Shipbuilder completely trusted his bank with whom he had a relationship for numerous years. Given the bank’s failure to inter alia put proper insurance in place, a settlement agreement was then concluded between the Dutch Shipbuilder and his companies, and his bank, following the calamity, in which the bank agreed to assist him in pursuing an action in South Africa against the tug-boat operator and owner to recover the loss. The key component of the items constructed was the two halves of a floating dock, which was destined to be moored and operated in Sliedrecht Holland to expand the operations of the shipyard, which was fully supported by the local, regional and state authorities. Action was instituted against the tugboat operator and owner for damages in an amount of €42 million, which included a claim for loss of profits suffered from the loss of the two halves of the floating dock. By the beginning of 2015, some 6 years later, the attorneys who had been appointed by the Dutch Shipbuilder had not progressed the action to a point where it was ready to go to trial. ASG was approached by the Dutch Shipbuilder to take over the case from the existing attorneys. ASG took over the case in May 2015, and the action was settled in September 2016. The Problem: Legal Issues: What did not form part of the settlement was the loss of profit claim in respect of the two halves of the floating dock as the bank refused to assist the Dutch Shipbuilder in providing evidence that he had applied for finance to order a replacement of the two halves of the floating dock to mitigate his loss. However, the Dutch Shipbuilder had indeed done so and, as such, the bank’s refusal to assist him breached its obligation to do so in terms of the settlement agreement and its duty of care as banker to its customer in terms of the Dutch laws. In 2017, on advice from ASG the Dutch Shipbuilder agreed to pursue his bank for damages arising from their breach of the settlement agreement in the Dutch Courts. ASG was instructed to formulate the claim and work with Dutch advocates to do so. The amount claimed from the bankers was €10,609,527 alternatively, €6,293,046. The Dutch Shipbuilder’s bankers raised a counterclaim of €2.75 million plus interest and costs claiming that it was entitled to be paid this amount in terms of the settlement agreement it had concluded with the Dutch Shipbuilder and his companies. In 2018, the Dutch Shipbuilder and his companies were ordered to pay €2.75 million plus interest and costs in terms of judgments of the Central Netherland District Court Utrecht. Impact: The many years of legal proceedings in South Africa, without support from the bank who had undertaken to provide the financial support for the proceedings, had taken a major toll on the Dutch Shipbuilder both financially and personally. The Dutch Shipbuilder, now diagnosed with cancer, and his wife who had supported much of his legal costs financially, were determined that ASG should appeal the judgment to preserve what little relief to their financial loss the settlement in the tugboat operator case in South Africa had brought. Our Approach: Strategic Analysis: ASG knew that to win an appeal, they would need one of the senior employees of the bank to confirm that there was an agreement by the bank to fund the litigation in South Africa to recover the cost and loss of income incurred by the shipyard from the tugboat owner. Solution: Through thorough investigation and unearthing vital correspondence, it was discovered that a former senior employee of the bank that had been approached previously to provide a witness statement, was willing to do so, as the Dutch shipbuilder had in fact approached him to seek financing to procure a replacement floating dock. He had been prepared to provide a witness statement previously, but had been forbidden by the bank to do so. Execution: Legal Actions Taken: Subsequently in 2018 notification was given of an appeal being raised. This was followed by witness hearings in November 2019 and in January 2020. The evidence given by witnesses at the witness hearings provided vital evidence to establish that the bank had indeed prevented evidence being provided with regard to the assistance for the Dutch shipbuilder in the South African proceedings, and that the bank had also lied to the court in Utrecht.  Pleadings were then filed in the appeal to deal with the merits of the appeal and not the quantum of the claim. Results Achieved: At the hearing, the judges of appeal expressed their disapproval of the way in which the bank had conducted itself and suggested the parties attempt to reach a settlement. A settlement agreement was concluded in terms of which the bank agreed to waive its claim against the Dutch Shipbuilder and his companies in full and final settlement. Sadly, the Dutch Shipbuilder had passed away before the outcome of the appeal. May he rest in peace as he was much loved by all who came across him.

REPRESENTING JOINT CURATORS OF A PENSION FUND IN THE GAUTENG HIGH COURT

February 19, 2024
Client Background: Client Profile: Our client, a senior attorney who is very experienced in curatorship of Pension Funds and the various acts that impact the administration of pension funds, was appointed as the provisional curator of a pension fund in December 2010. The Fund was placed in provisional curatorship following an investigation by the Financial Services Board given irregularities in the conduct of the business and affairs of the Fund by its trustees and improper use of the Fund’s monies. The provisional order, granted on 21 December 2010, provided for the former trustees of the Fund to pay the costs of the curatorship, and appointed a provisional curator to administer and investigate the affairs of the Fund. Challenges Faced: After the provisional order was granted, the former trustees of the Fund resigned, and newly appointed trustees brought a counter application to seek the removal of the provisional curator on the basis that he was conflicted. They, however, did not oppose the necessity of the Fund being placed under curatorship, and nominated persons not experienced in pension fund administration to be appointed as curators of the Fund. During the proceedings, it was found by the High Court that the newly appointed trustees had brought the counter-application at the behest of the former Chairman of the Fund that had always controlled the affairs of the Fund prior to it being placed into provisional curatorship. The High Court in Johannesburg granted an order placing the fund into final curatorship, confirming the final appointment of the provisional curator as the curator (our client), and confirming that the former trustees of the Fund were obliged to pay the costs of the curatorship. The Problem: This judgement was then taken on appeal to the Supreme Court of Appeal where the final appointment of the curator was hotly contested. At the hearing, the parties agreed to an order that two curators be appointed together with the original curator appointed by the High Court, and that all issues of costs were referred to determination by the High Court afresh. The above process took some seven years at substantial cost to the Fund and its members. Our Approach: Even though the Financial Services Board was the applicant in the original application to place the Fund into curatorship, it had not taken steps to set the matter down in the High Court for the issue of costs to be determined as per the order of the Supreme Court of Appeal. These included the curatorship costs already awarded by the High Court, but which had been referred for determination by the High Court afresh by the Supreme Court of Appeal. On advice from ASG, the curators of the Fund instructed ASG to set down a determination of the costs in the High Court in 2021, including the curatorship costs, which at that stage was some R45 million. Execution: The Judge allocated to the matter raised at the first hearing the question whether the issue of costs was not to be determined by the Supreme Court of Appeal. The Supreme Court of Appeal then subsequently stated the obvious - that it had referred the issue of costs to the High Court to determine the same afresh. Rather unfortunately, thereafter, the Judge postponed the matter and called for a report from the curators on the costs. Despite having postponed the hearing yet again, the Judge subsequently in the further hearing, confirmed his error in requesting such a report from the curators which was not at all relevant to the determination of the matter. On 19 May 2023 the High Court confirmed that the former trustees of the Fund are obliged to pay all the costs of the curatorship, which at the time of the final hearing amounts to in excess of R60 million, primarily arising from extensive litigation that has arisen at the hand of the former Chairman of the board of trustees of the Fund, who plundered the Fund for his own benefit prior to the Fund being placed in curatorship. The judgment of the High Court is currently the subject matter of applications for leave to appeal which have not yet been heard.
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