Afrisure CC and Another v Watson NO and Another

• Jurisdiction: South Africa
• Judge: Mpati P, Brand JA, Lewis JA, Combrinck JA and Boruchowitz AJA
• Judgment Date: 11 September 2008
• Citation: 2009 (2) SA 127 (SCA)
• Docket Number: 522/2007
• Hearing Date: 18 August 2008
• Counsel: JJ Reynecke SC (with WG la Grange) for the appellants. J Newdigate SC (with E Fagan) for the respondents.
• Court: Supreme Court of Appeal

Brand JA:

D [1] Until 30 May 2001 the second respondent, Publiserve Healthcare Scheme (in liquidation) (Publiserve), conducted business as a medical scheme under the Medical Schemes Act 131 of 1998. On that date it was provisionally wound up on application of its own board of trustees. After confirmation of the provisional order at a later date, the first respondent, E Mr Brian Watson (Watson), was appointed as the liquidator of Publiserve. The first appellant, Afrisure CC (Afrisure), is a close corporation. At all times relevant hereto, it conducted business as an insurance broker. Since a large part of its business consisted of introducing prospective members to medical schemes, it was an 'accredited broker' F under the Medical Schemes Act. Although obviously a separate legal person, Afrisure was in effect no more than the alter ego of its only member, Mr Etienne de Villiers (De Villiers), who is the second appellant in these proceedings. As from 25 August 2000 De Villiers was also a member of Publiserve's board of trustees, a position from which he resigned on 28 May 2001, ie two days prior to the winding-up of the G scheme.

[2] Over the period 26 October 2000 until 31 January 2001 Publiserve made five individual payments to Afrisure in a total sum of R5 454 636,50. After his appointment as liquidator Watson instituted action against Afrisure and De Villiers, jointly and severally, for repayment H of that amount. I shall soon return to the exact nature of, and the basis for, these claims. Broadly stated, however, the claim against Afrisure rested on two grounds, pleaded in the alternative. The main claim was based on unjustified enrichment, founded on the allegations, firstly, that the payments constituted contraventions of the Medical I Schemes Act read with the regulations promulgated under that Act and, secondly, because these payments were, in any event, made by mistake. The alternative claim against Afrisure was for the lesser amount of R3 759 114,50, representing the aggregate of those of the five payments that were made during the six months immediately preceding Publiserve's winding-up, on the basis that they constituted voidable preferences J under s 29 of the Insolvency Act 24 of 1936. The claim against De

Brand JA

Villiers was again formulated on alternative grounds. The main claim A rested on the contention that De Villiers had breached his fiduciary duty as trustee of Publiserve by causing or allowing the five payments to be made to Afrisure. The alternative claim against him was formulated with reference to the provisions of s 424 of the Companies Act 61 of 1973, on the premise that De Villiers was knowingly party to the carrying-on of the B business of Publiserve in a reckless manner, as contemplated by that section.

[3] In the event, the court a quo upheld the appellants' main claims against both Afrisure and De Villiers. In consequence it granted judgment against them, jointly and severally, for payment of the amount of C R5 454 636,50, together with interest and costs. That judgment has since been reported as Watson NO and Another v Shaw NO and Others 2008 (1) SA 350 (C). The reason why Mr Shaw was the first defendant in the court a quo and how it happened that he fell out of the picture, is explained in the judgment of the court a quo (para 2). In like manner the judgment explains how it came about that, although evidence in the D matter was heard by Knoll J, it was eventually decided by Fourie J, pursuant to an agreement between the parties, because of the untimely death of Knoll J before she was able to hand down her judgment in the matter (paras 2 and 3). The present appeal against the judgment of Fourie J is with his leave.

Enrichment claim against Afrisure E

[4] I shall first deal with the main claim against Afrisure, based on unjustified enrichment. In this court, as in the court a quo, argument for the respondents started with the proposition that 'there is a clear F movement heralded by the Supreme Court of Appeal away from the maintenance of a distinction between the various condictiones underlying the actions of unjustified enrichment in our law'. Relying on obiter dicta by Schutz JA in McCarthy Retail Ltd v Shortdistance Carriers CC 2001 (3) SA 482 (SCA) ([2001] 3 All SA 236) paras 8 - 10 and First National Bank of Southern Africa Ltd v Perry NO and Others G 2001 (3) SA 960 (SCA) ([2001] 3 All SA 331) para 23, the court a quo not only acknowledged, but also expressed its support for this movement (paras 7 - 10). In my view it would however be unwise to enter into that debate. This is clearly not the case to decide whether we should grasp the nettle of a general enrichment H action. The respondents did not rely on a general enrichment action or, for that matter, even on an extension of any recognised condictio (cf eg Bowman, De Wet and Du Plessis NNO and Others v Fidelity Bank Ltd 1997 (2) SA 35 (A) ([1997] 1 All SA 317) at 40A - B). They sought to bring their claim within the framework of either the condictio ob turpem vel iniustam causam or the condictio indebiti. Whether they have succeeded in doing so is the question we have to decide. I

The condictio ob turpem vel iniustam causam

[5] The central requirement of the condictio ob turpem vel iniustam causam is that the amount claimed must have been transferred pursuant to an agreement that is void and unenforceable because it is illegal, ie because J

Brand JA

A it is prohibited by law (see eg FNB v Perry NO (supra) para 22; Daniël Visser Unjustified Enrichment (2008) at 425). The main reason advanced by the respondents as to why the payments they reclaim were illegally made, was that, on a proper analysis of the facts, all these payments constituted 'broker's commission' and therefore contravened s 65 of the B Medical Schemes Act read with reg 28 of the Regulations promulgated under the Act. Alternatively they contended that, inasmuch as part of the amounts reclaimed may not have represented broker's commission, they were 'administration fees' paid in contravention of s 58 of the same Act.

The legislative matrix

C [6] The pertinent provisions of s 65 of the Act, as it stood at the relevant time, ie prior to amendments since 2001, read as follows:

65 Brokers services and commission

(1) A medical scheme may compensate any person in cash or otherwise, in accordance with its rules, for the introduction or admission D of a member to that medical scheme.

(2) The Minister [of Health] may prescribe the amount of the compensation which, the category of persons to whom, the conditions upon which, and any other circumstances under which, a medical scheme may compensate any person in terms of subsection 1.

E The provisions of reg 28 relied upon, read as follows:

(1) A medical scheme must not compensate any person in terms of s 65 for acting as a broker unless such person -

. . .

(a)

has been accredited by the Council [for Medical Schemes] to act as a broker or apprentice broker;

. . .

(d)

F enters into a prior written agreement with the medical scheme concerned, and the nature and compensation payable to such person must be fully disclosed in the financial statements of the medical scheme concerned;

. . .

(m)

complies with the code of ethics for appropriate behaviour G provided for in the accreditation requirements.

A maximum amount payable in a given year in respect of the performance of services relating to the introduction of a member to a medical scheme by any number of brokers shall not exceed 3% plus value added tax (VAT) of the contributions payable in respect of members introduced by such broker during that year.

H [7] Section 58, which deals with the administration of the medical scheme, inter alia provides (in terms of ss (1)) that 'no person shall administer a medical scheme as an intermediary unless the Council has, in a particular case or in general, granted accreditation to such a person'.

[8] To complete the legislative matrix, there is s 66 of the Medical I Schemes Act which deals with 'offences and penalties'. Under this rubric s 66(1)(a) then declares that 'any person who contravenes any provision of this Act [which, by definition, includes the Regulations] or fails to comply therewith . . . shall . . . be guilty of an offence'. Specifically with reference to broker's commission, s 66(1)(f) (which has since been deleted from the Act by s 27(a) of Act 55 of 2001) J declared that 'any

Brand JA

person who . . . compensates or causes to be compensated, any person A for the introduction or admission of a member other than in terms of section 65 or the consenting to keep a member in a medical scheme shall . . . be guilty of an offence'. Section 66(1) further provides that, upon conviction of an offence under the section the offender will be liable 'to a fine or to imprisonment for a period not exceeding five years or both B a fine and imprisonment'.

[9] Against this legislative background, the central theme advanced by the respondents as to why the payment of the amounts they reclaim was illegal and, in fact, constituted a criminal offence under s 66(1) of the Act, can be summarised thus: C

(a)

Inasmuch as these payments represented 'broker's commission', they were made in contravention of s 65 and reg 28, firstly, because no prior written agreement for payment of commission had been concluded between Publiserve and Afrisure and, secondly, because these payments, in aggregate, exceeded the 3 % restriction imposed D by the Minister in terms of reg 28(2).

(b)

On the supposition that part of these payments represented compensation for administrative services they were made in contravention of s 58 of the Act, because Publiserve was not an accredited administrator. E

Background facts

[10] The exact nature of the contentions...