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PHILLIPUS PETRUS NICOLAAS COETZEE Appellant
and
CORAM: NIENABER, MARAIS, SCHUTZ, NAVSA and MTHIYANE JJA
HEARD: 21 May 2002
DELIVERED: 2 September 2002
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MARAIS JA:
[1] I have had the benefit of reading the judgment of my brother Schutz. I am unable to share his view that the appeal should fail. I agree that Coetzee had no greater rights against the Fund than Botha had under the policy but, in my view, that has little, if any, relevance to the resolution of the issue which arises in this case.
[2] That issue is confined to the costs which were ordered to be paid by the Fund as an unsuccessful litigant in an action which Coetzee was obliged to pursue because of the Fund’s wrongful refusal to pay even the R1 million which it was liable to pay in terms of the policy. The Fund claims to be entitled to have those costs included in the maximum amount of R1 million to which Botha was entitled in terms of the policy.
[3] As I see the position these costs are not costs with which the policy deals. They are extraneous to it. The costs with which the policy deals are costs incurred by Botha in defending a claim made against him and costs ordered to be paid by him in the event of the claim succeeding. Whatever the position may be regarding these costs and the applicability of the limitation provision to them as between Botha and the Fund, once insolvency supervenes and the Fund is called upon by Coetzee to pay by virtue of s 156, its position is no different to that of any other litigant. If it is liable, it must pay what the policy obliges it to pay. If it considers it is not and contests the entire claim but does so unsuccessfully, it will be mulcted in costs.
[4] In the present case the position is that no costs have been ordered to be paid by Botha and any costs which may have been incurred by Botha prior to the Fund being substituted as the defendant are not in issue. The costs which the Fund have been ordered to pay are Coetzee’s costs. Those costs were incurred by Coetzee because the Fund, instead of accepting that Botha was liable to Coetzee and that by virtue of s 156 it was liable to Coetzee to the extent of the limitation of liability in the policy, elected to resist Coetzee’s claim against it entirely, thus compelling him to seek relief from the court. He succeeded in establishing that the Fund was indeed liable to him and, in conformity with the practice of the courts in South Africa for more than a century, the Fund was ordered to pay his costs. They were not costs contractually recoverable by Botha under the policy. They were neither Botha’s own costs of defending Coetzee’s claim nor were they costs awarded to Coetzee in an action against Botha. No question of indemnification under the policy for any such costs arises. The limitation of liability in the policy cannot and does not apply to them. They stand outside the policy.
[5] An insurer faced with a claim under s 156 is in no better position than anyone else faced with a claim. It is its right to resist the claim if it so chooses but it must take the ordinary consequences of having to pay the costs of the ensuing lawsuit if its resistance is not well-founded. If it is well-founded the claimant will have to pay its costs. There is no “free ride” for either the third party claimant who fails in establishing liability or the insurer who fails in resisting liability. In a s 156 situation the insurer is in the fullest sense of the term dominus litis in so far as the decision whether or not to resist the third party’s claim is concerned.1 The insured’s wishes are legally irrelevant to the insurer’s undoubted right under s 156 to raise whatever defence it thinks fit against the third party’s claim. In my view, neither this policy nor s 156 immunised the Fund from the potential liability for costs of the ensuing litigation. I think that this is so is shown by a consideration of this hypothetical case.
[6] Coetzee sues Botha and obtains judgment against him for R1 million and costs. Botha is sequestrated before payment. Coetzee then sues the Fund for R1 million and these costs. The Fund resists the entire claim on the ground that, as against Botha, it was not liable under the policy. It fails in that defence. Whether it is then ordered to pay only R1 million or both R1 million and the costs which were ordered to be paid by Botha, the fact remains that, at best, Coetzee’s claim was justified; at worst, his claim was a plus petitio; the Fund’s rejection of the entire claim was not justified, and Coetzee had to resort to litigation to obtain what s 156 intended him to have. To deprive Coetzee of the costs of establishing that the Fund was indeed liable to him would undermine the manifest purpose of s 156 and diminish the sum which would have been payable to him had the Fund accepted that it was liable and paid him on demand. Whether that sum should have been R1 million or R1 million plus the costs of the action against Botha I need not decide on the view I take of the matter; whatever the sum it would have been diminished by the refusal of the Fund to pay what it should have paid when demand was made. That cannot have been the intention of the legislature in enacting s 156 and it is the interpretation of that provision which is ultimately relevant when considering questions of costs arising from its invocation by a third party.
[7] In the hypothetical example posed, if the Fund had not disputed liability entirely but had confined itself to resisting the claim for payment of the costs which Botha had been ordered to pay and succeeded in its resistance, the result would of course be different. Coetzee would have gone to court to recover money to which he was not entitled. He would obviously have to pay the Fund’s costs.
[8] To my mind, it matters not what the ground is upon which the Fund chooses to resist Coetzee’s claim. If it relies upon an alleged failure by Botha to comply with a condition precedent to liability set by the policy but fails in the defence it cannot be doubted that it would be liable for Coetzee’s costs of establishing that it is indeed liable under the policy. If it relies upon an argument that the conduct of the insured of which Coetzee complains is not conduct of a kind covered by the indemnity provided by the policy and the court holds that it is covered, it would be equally liable to pay those costs. If it concedes that conduct of the kind complained of is covered by the policy but denies that such conduct occurred and the court finds that it did indeed occur, I can see no reason why the result should be any different.
[9] To take another hypothetical case: if Botha became obliged to sue the Fund because it refused to indemnify him in the sum of R1 million for which he was liable to Coetzee and Botha succeeded with costs, it could not be argued successfully that those costs were part of Botha’s liability to Coetzee arising out of the happening of the event insured against and that they were therefore included in the R1 million limit. The liability to pay those costs arose out of the unmeritorious resistance by the Fund of a claim under the policy. The effect of s 156 is to allow Coetzee to exercise Botha’s rights against the Fund. If the Fund resists payment it is of no consequence whether the reason why it does so is what it believes to be a lack of merit in Coetzee’s claim against Botha or the supposed existence of one or other contractual defence available against Botha. In both instances the liability to pay Coetzee’s costs is not attributable to any liability of Botha arising from the happening of the event insured against. It is solely attributable to the Fund’s intransigence in refusing to pay what it should have paid to Coetzee. In effect, Coetzee is enforcing Botha’s right to be indemnified under the policy. Botha would have been entitled to his costs if he had had to do so; so should Coetzee be.
[10] I would allow the appeal with costs. As this is a minority judgment there is no point in my formulating the orders which should have been made in the Court a quo.
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R M MARAIS
JUDGE OF APPEAL
1 CF Nairn South East Lancashire Insurance Co 1930 SC 606 at 614, 615 and 617.
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.RTF of original document