Umzali Civils (Pty) Ltd v Etana Insurance Company Ltd and Others (2079/2014) [2015] ZAECPEHC 43 (2 June 2015)

IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE LOCAL DIVISION, PORT ELIZABETH

CASE NO: 2079/2014

DATE: 02 JUNE 2015

In the matter between

UMZALI CIVILS (PTY) LTD............................................................................................PLAINTIFF

(Registration Number 2006/021691/07

And

ETANA INSURANCE COMPANY LTD................................................................1ST DEFENDANT

(Registration Number 201/009647/06

HOLLARD INSURANCE LTD..............................................................................2ND DEFENDANT

(Registration Number 1952/003004/06

MARSH SA (PTY) LTD...........................................................................................3RD DEFENDANT

(Registration Number 1999/000348/07

NELSON MANDELA BAY METROPOLITAN...................................................4TH DEFENDANT

MUNICIPALITY

JUDGMENT

DATE HEARD: 30/04/2015

DATE DELIVERED: 02/06/2015

ROBERSON J:-

[1] The plaintiff has applied for an amendment to its particulars of claim. The fourth defendant (the Municipality) opposed the application on the grounds that the amendment will render the particulars of claim excipiable. The action has been withdrawn

against the first, second and third defendants.

[2] The particulars of claim have some history. It appears not to be in dispute that the plaintiff and the Municipality concluded an agreement in terms of which the plaintiff was to perform certain construction work. One of the terms of the agreement relating to insurance read as follows:

“Notwithstanding the provisions contained in the General Conditions of Contract

regarding insurance, and without limiting the obligations, liabilities and responsibilities of the Contractor in any way whatsoever and on the understanding that the Contractor is not relieved from his obligations towards the Employer regarding the provision (by the Contractor) of any other insurances, the Employer shall effect and maintain for the duration of the Contract until the expiry of the Defects Liability Period, including initial transit to the Contract site

Contract Works Insurance (including SASRIA Insurance) and Public Liability (Third Party) Insurance both in the joint names of the Employer and the Contractor (including all subcontractors), and those on whose behalf the Employer has authority to arrange insurance. The Contractor shall pay for all deductibles incurred as a result of claims made under the Contract.”

[3] In its particulars of claim the plaintiff pleaded the agreement, the obligation on the part of the Municipality to effect insurance, that the first and second defendants had insured the plaintiff and the Municipality[1], and that the plaintiff paid the premiums on the insurance policy. A copy of the policy referred to and a schedule to the policy were annexed to the particulars of claim. The policy was issued by the first defendant and the schedule reflected that the insured was the Municipality. The plaintiff alleged that it had suffered damage to the works caused by rainfall during September and November 2011, and the costs of remedial work were R507 987.00 and R1 112 149.69 respectively. It was further alleged that the first and second defendants had repudiated the claims in respect of the damage. The first and second defendants were accordingly in breach of the insurance contract. The plaintiff claimed payment of the fair and reasonable costs of the remedial work from the first, second and fourth defendants. No relief was sought against the third defendant, which carries on business as an insurance broker.

[4] The alleged written repudiation was annexed to the particulars of claim. It was a letter to the plaintiff from loss adjusters

acting for the first defendant. In the letter the writer stated that three of four previous claims for storm damage to the works had been quantified, agreed and paid. The writer then dealt with the claim for damage which occurred during November 2011 and adjusted the claim from R1 112 149.69 to R173 622.82. A tender to settle in that amount was attached.

[5] The first and second defendants excepted to the particulars of claim, on the basis that the plaintiff was not cited or nominated as an insured in the policy on which it relied and accordingly there was no privity of contract between the plaintiff and the first and second defendants, and no contractual cause of action. The Municipality excepted to the particulars of claim on the basis that no breach of the agreement between it and the plaintiff was alleged. Ex facie the policy documents annexed to the particulars of claim, the plaintiff was not a party to the policy. No breach of the policy by the Municipality was alleged, and accordingly the particulars of claim did not support a claim against the Municipality whether in contract or otherwise.

[6] The plaintiff delivered a notice of intention to amend its particulars of claim, and simultaneously withdrew the action against

the first, second and third defendants. The amendment sought to be effected included the allegations that the insurance claims had been repudiated and annexed the same letter from the loss adjusters. The particulars of claim now contained allegations that during November 2014 the Municipality’s insurance company indicated that the plaintiff was not co-insured or not insured at all and that the Municipality was therefore in breach of the agreement between it and the plaintiff in that it had failed to effect and maintain insurance cover in the joint names of the plaintiff and the Municipality for the duration of the contract. Contractual damages were accordingly claimed. The Municipality objected to this amendment, which was not pursued.

[7] The plaintiff delivered a further notice of intention to amend, and again the Municipality objected. The proposed amendment is the subject of this application and it is sought to amend the particulars of claim in their entirety. The proposed amendment again pleads the agreement to perform construction work and the Municipality’s obligation to effect insurance in the joint names of the parties. Following this allegation the same policy documents are referred to and annexed, and it is alleged that the plaintiff paid the premiums. The following allegation is made:

“In the event that the Defendant fails to effect and maintain the said insurance cover, it will be liable for the damages suffered by the Plaintiff in the equivalent sum as the Plaintiff would otherwise have been insured for.”

[8] Under the heading “The Damages” the damage to the works caused by rainfall and the remedial costs are again pleaded. Under the heading “Defendant’s breach” the following is alleged:

“9. The Defendant materially breached the agreement by failing to effect and/or maintain insurance cover for the contract works for the duration of the contract in the joint names of the Plaintiff and the Defendant, or at all.

10. It was within the contemplation of the parties when the agreement was concluded that the Plaintiff may suffer the said damages in the event that the Defendant does not effect and maintain insurance cover for the contract works for the duration of the contract in the joint names of the Plaintiff and the Defendant, alternatively the said damages will the equivalent sum that the Plaintiff would otherwise have been insured for, alternatively the damages flow naturally from the Defendant’s breach.”

[9] The costs of the remedial work, totalling R1 620 136.69 are accordingly claimed from the Municipality.

[10] The Municipality’s notice of objection stated that the proposed amended particulars of claim are excipiable in that they do not disclose a cause of action, are vague and embarrassing, and are not bona fide. The objection specifically stated that paragraphs 9 and 10 of the proposed amended particulars of claim are predicated on an alleged

breach by the Municipality of its obligation to effect and maintain insurance cover. These paragraphs are, so it was stated, irreconcilable with and contradicted by the incorporation of the policy in the proposed amended particulars of claim, which means, as I understand the objection, that a policy was in fact effected and maintained. The notice of objection further stated that in its previous notice of intention to amend the plaintiff referred to claims submitted by it and repudiated in part by the insurers. The allegations in paragraphs 9 and 10 were therefore, to the plaintiff’s knowledge, unsustainable.

[11] The allegations made in the existing particulars of claim and the need to amend were explained in the plaintiff’s founding and replying affidavits, deposed to by the plaintiff’s attorney, Mr Stephan van der Meer. He explained that the plaintiff’s

claim was initially premised on the first and second defendants’ refusal to pay the plaintiff’s insurance claim. When it became apparent from the exceptions which were delivered that the plaintiff was not an insured in terms of the policy pleaded, he wrote to the first and second defendants’ attorneys pointing out that although it appeared from the policy document that the Municipality was the insured, claims had been paid to the plaintiff under that policy. However it now appeared that the Municipality might be in breach of its obligation to effect insurance in the joint names of the plaintiff and the Municipality. The plaintiff was therefore confused about the correct position and requested the full insurance policy, so that the plaintiff could ascertain which defendant was liable to the plaintiff. The first and second defendants’ attorneys responded by advising that they would not assist the plaintiff in formulating its claim against their clients and made certain proposals about the hearing of their exception.

[12] The plaintiff’s attorney also wrote to the Municipality’s attorneys along the same lines and requested the full insurance policy. In response the Municipality’s attorneys stated, with a reservation of rights, that they did not intend to deal at that stage fully with the contents of the plaintiff’s attorney’s letter and that the annexure to the particulars of claim appeared to be a full copy of the insurance policy requested.

[13] The plaintiff’s attorney wrote again to the Municipality’s attorneys advising that the plaintiff intended amending its particulars of claim in order to overcome the issues raised in the Municipality’s exception. The Municipality’s

attorneys were asked to confirm if the plaintiff was insured or not, and if it was insured, requested a copy of the policy. Before a reply was received the first and second defendants’ attorneys informed the plaintiff’s attorney that their clients held no policies for the plaintiff. The Municipality’s attorneys subsequently replied to the plaintiff’s attorney and stated that the merits of the matter had been dealt with in the pleadings, that their client would not litigate by correspondence, and that it would plead to a properly pleaded claim. This was a strange answer, especially in the light of the ground of exception that the plaintiff was not a party to the policy which the plaintiff pleaded. The Municipality’s attorneys had stated in earlier correspondence that the policy pleaded and annexed to the particulars of claim appeared to be a full copy of the policy and it was apparent from the schedule that the insured was the Municipality. It is difficult to understand why the Municipality would avoid answering the question of whether or not the plaintiff was insured, especially when it was the Municipality’s contractual obligation to effect insurance in the joint names of the parties.

[14] The Municipality’s answering affidavit was deposed to by its municipal manager, Mr Mpilo Mbambisa. He avoided stating

directly whether or not insurance had been effected in the joint names of the parties. The furthest he went in this regard was to say:

“Whilst it may be that the policy was not taken out in the joint names of the Plaintiff and the Municipality, on the Plaintiff’s own version nothing turns on this failure.”

[15] Mbambisa stated further that it was common cause that insurance cover was in place and referred to the policy documents annexed to the proposed amended particulars of claim. He also referred to the letter from the loss adjusters and stated that it was clear from that letter that the claim was repudiated in part because of its merits, and not because there was no insurance cover. He went on to state that insofar as the alleged breach on the part of the Municipality was a failure to effect a policy in the joint names of the parties, there was no causal link between such breach and the damages claimed.

[16] The plaintiff’s confusion was understandable. Claims had been paid to it under the policy pleaded, but when summons was issued, the first and second defendants excepted on the basis that the policy document disclosed that the plaintiff was not a party to the insurance contract. So did the Municipality. The correct position regarding insurance was within the knowledge of the Municipality because it was the party obliged to take out the cover in the parties’ joint names. However it was not at all forthcoming in enlightening the understandably confused plaintiff who had to cast around to find out the true position. It is also strange that having taken the point in its exception that the plaintiff was not a party to the policy, it should object to the amendment on the ground that the incorporation of that same policy in the particulars of claim meant that a policy had been effected and maintained.

[17] I now consider whether or not the proposed amended particulars of claim are excipiable. A court should refuse an amendment if it would result in an excipiable pleading ((De Klerk and Another v Du Plessis and Others 1995 (2) SA 40 (T) at 43I-44A). The approach to deciding an exception was set out in Dilworth v Reichard [2002] 4 All SA 677 (W) at 681i – 682a as follows:

“It is trite that the proper approach to be adopted by the court, is to adjudicate the validity or otherwise of the exception on the basis of the facts alleged by the plaintiff being regarded as correct. The court must look at the pleading excepted to, as it stands. No facts outside those stated in the pleading can be brought into contention and no reference may be made to any other documents. In order to succeed, the excipient has the duty to persuade the court that upon every interpretation which the pleading in question can reasonably bear, no cause of action is disclosed.”

[18] It was submitted on behalf of the Municipality that the prior history of the matter was relevant for the purpose of considering whether or not the application to amend is bona fide. The prior history as reflected in the existing particulars of claim revealed that there was a policy, albeit not in the parties’ joint names, and that claims were submitted and paid. The allegation that there was no policy at all was therefore unsustainable. I do not believe that the application is not bona fide in the sense that the plaintiff is suggesting that no policy at all existed. The words “or at all” in paragraph 9 of the proposed amended particulars of claim can be read as relating to a policy in the joint names, or as alleging that the plaintiff was not insured at all. It is that breach on which the plaintiff now seeks to rely. The plaintiff fully explained why it framed the existing particulars of claim in the form it did and was met with an exception that it was not a party to the policy on which it sought to rely at that stage, and which, according to the Municipality’s attorneys, was the policy requested by the plaintiff’s attorney in his letter. I remain of the view that I am restricted to the proposed amended particulars of claim in deciding whether or not they are excipiable.

[19] I am not of the view that the incorporation of the policy in the pleadings contradicts the allegations of a breach of the agreement

between the parties. The policy and schedule are attached to the particulars of claim and reflect that the policy was not in the joint names of the parties. This aspect could have been more clearly pleaded by adding an allegation that according to the policy only the Municipality was the insured. However, if one reads the allegation regarding the Municipality’s obligation to effect insurance in the parties’ joint names, together with the policy, there is no real contradiction between that allegation and the allegation that the Municipality failed to effect insurance in the parties’ joint names.

[20] The Municipality’s further argument was that a causal link between the failure to effect insurance in the parties’ joint names and the plaintiff’s loss was not alleged. This submission was however made on the basis that the identity of the insured appears to have played no part in the first and second defendants’ repudiation of the claims. In other words, as I understand the argument, the failure to effect insurance in the joint names played no part in the loss, because the claims were not rejected because the plaintiff was not insured. Without the allegation of such causal link, so it was submitted, the Municipality was not able to plead. However there is no reference in the proposed amended particulars of claim to prior submission of claims, payment thereof, and partial repudiation. The causal link between the alleged breach and the loss is covered, in my view, by the allegation that in the event of the Municipality failing to effect insurance in the joint names, it would be liable for such loss for which the plaintiff would have been insured (see para [7] above). The plaintiff went on to set out its loss and alleged the breach. The prior payment of claims and partial repudiation are more properly matters for evidence.

[21] In my view therefore a reasonable interpretation of the proposed amended particulars of claim discloses a cause of action.

COSTS

[22] In Hart v Broadacres Investments Ltd 1978 (2) SA 47 (N) at 51D-H Hefer J (as he then was) said the following:

“Naturally, as has often been stated, the grant of an amendment is an indulgence to the party requiring it, which entails that he is generally liable for all the costs occasioned by or wasted as a result of the amendment. These costs have sometimes been held to include "the costs of such opposition as is in the circumstances reasonable and not vexatious or frivolous"

(per VAN WINSEN AJ (as he then was) in Myers v Abramson 1951 (3) SA 438 (C) at 455. See also Kruger v Pizzicanella and Another 1966 (1) SA 450 (C) at 457 (wrongly referred to in my earlier judgment as Kruger v Commissioner for Inland Revenue); Cilliers Law of Costs 36.) In other cases, however, the costs of unsuccessful opposition were not so included and the unsuccessful objector was ordered to pay the costs occasioned by his opposition even though it was not considered unreasonable or vexatious or frivolous. (See eg Wahlen v Gramowsky 1924 SWA at 52; Moolman v Estate Moolman 1927 CPD 27 at 29.) It seems to me, when it comes to deciding in any particular case whether the party to whom an indulgence is granted is to pay the costs of opposition, that the recognition of a single criterion for liability (such as the reasonableness of the

opposition) tends to hamper the exercise of the unfettered judicial discretion which a court has in its awards of costs. The exercise of that discretion is, after all, essentially a matter of fairness to both sides (Gelb v Hawkins 1960 (3) SA 687 (A) at 694; Ward v Sulzer 1973 (3) SA 701 (A) at 706), and a criterion which may be useful in one case may in other cases not have the desired fair effect.”

And in Cganga v AA Mutual Insurance Association Ltd 1979 (3) SA 320 (E) Eksteen J (as he then was) said the following with regard to costs awards in applications for an amendment:

“Each case in my view must depend on its own merits and the discretion of the Court to make an order which is fair in all the circumstances

must remain unfettered.”

[23] In the present matter the plaintiff fully explained why it initially framed its claim as it did. Faced with two exceptions on the ground that it was not a party to the policy pleaded it had to amend its particulars. In my view this background tempers somewhat the usual consideration that an applicant for an amendment is seeking an indulgence. The plaintiff’s confusion regarding whether it was insured or not was openly communicated to the Municipality which did little to clear up such confusion, even though it had taken the point by way of exception that the plaintiff was not a party to the policy. The ground of opposition that the allegations in the proposed amendment were contradictory was also in my view a flimsy one. The Municipality knew that the policy did not include the plaintiff as an insured. It could therefore not have been misled into thinking that the plaintiff was alleging a particular position in relation to insurance which was contrary to the breach it alleged. Its dilemma had been foreshadowed in correspondence. Lastly, the issue of whether or not the amended particulars of claim were excipiable was decided in the plaintiff’s favour. The objection to the amendment in Hart v Broadacres Investments Ltd (supra) was also on the ground that the proposed amended particulars of claim would be excipiable. Hefer J allowed the amendment. Further in his judgment at 52A-B, after stating that the respondent had raised a point of law unsuccessfully, he said:

“Had it been raised by way of exception, the exception (assuming, as I must for present purposes, that my decision as to the validity of the Ordinance is correct) would have been dismissed and the respondent ordered to pay the costs thereof, and it should not be permitted the respondent to employ the fact that the applicant had to seek the Court's indulgence as a convenient avenue of escape from liability for costs, the applicant having been compelled to do so by respondent's refusal to allow the amendment to be effected in terms of Rule 28 (3) and (5) (Bedford v Uys 1971 (1) SA 549 (C) at 554) in order to plead what appears to be a perfectly good cause of action.”

[24] Bearing in mind the above dicta and having regard to the various factors which I have mentioned, I am of the view that it would not be fair to the plaintiff to order it to pay all the costs of the application and that the Municipality should bear the costs of opposition to the application.

[25] ORDER

[25.1] The plaintiff is granted leave to amend its particulars of claim in accordance with the draft particulars of claim annexed to the founding affidavit.

[25.2] The plaintiff is to pay the costs of the amendment occasioned prior to the opposition to the application for the amendment. The fourth defendant is to pay the costs occasioned by the opposition to the application for amendment.

J M ROBERSON

JUDGE OF THE HIGH COURT

Appearances:

For the Plaintiff: Adv J P Steenkamp,

Instructed by Stephan van der Meer Attorneys, c/o Greyvensteins

Incorporated, Port Elizabeth

For the Fourth Defendant: Adv R G Buchanan SC,

Instructed by Gray Moodliar Attorneys, Port Elizabeth

[1] It was alleged that during December 2013 the first defendant’s liability in respect of its short term insurance business was substituted by that of the second defendant.