September 7, 2021
Don’t Risk Consequential “Loss of Profits” Damages: Check Your Contracts and Insurance!
“Consequential Loss: This is loss not directly caused by the insured event, but is an indirect result of the event. This is loss or damage that was not foreseen by the insurer or the policyholder at the time the policy was taken out. Consequential loss is in many instances not covered and cover is dependent on the risk that the policy covers” (South African Insurance Association definition)
One of the risks you run in any business is being sued for losses you cause to someone else. Although normally your risk of legal liability is linked to the claimant proving some form of negligence on your part (i.e. the onus is on the claimant to prove your negligence), there are exceptions. To take one example (as seen in the case discussed below) a “carrier of goods for reward by land” has “absolute liability” to deliver goods undamaged; and thus the onus switches to the carrier to prove a lack of fault.
No matter who has to prove what there could be serious money at stake here, so taking upfront measures to protect yourself is prudent.
Protecting your business with insurance
Your first line of defence is of course always the practical one of minimising the actual risks of causing any form of harm or loss to any and all role-players – customers/clients, suppliers, employees etc. On the legal side, disclaimers and exclusion clauses are commonly used for the purpose but they have their limitations and should never be relied on as foolproof.
That is where taking out commercial (business) insurance can make sense – if all else fails, you can look to your insurer to cover you for whatever damages you may be found liable to pay.
Beware however – as a recent High Court judgment aptly illustrates, even with insurance you could find yourself up the creek without a paddle if you are found liable for “consequential damages”.
What are “consequential damages”?
Before we get into the details of this particular High Court case however, it’s important to know that several types of damages could be awarded against you –
- What are often called “general damages”, i.e. “those damages that flow naturally and generally from the kind of breach of contract in question and which the law presumes the parties contemplated as a probable result of the breach.” An electrician for example negligently frying a business customer’s distribution board is likely to be sued firstly for the cost of replacing it.
- What are often called “special”, “consequential” or “indirect” damages, i.e. “those damages that, although caused by the breach of contract are ordinarily in law regarded as too remote to be recoverable unless in the special circumstances attending the conclusion of the contract, the parties actually or presumptively contemplated that they would probably result from the breach.” To stick with the negligent electrician example above, the business might also sue for consequential loss such as the sales it lost because it had no electricity. The test then would be whether the electrician and the business had in mind that loss of sales would probably result from the distribution board’s failure.
Let’s see that distinction playing out in action…
Sued for R2.2m “loss of profits” and not covered by insurance
- A transport company (a “carrier”) agreed to move two valuable machines for a customer which intended to rent them out to the film industry.
- Both machines were substantially damaged in transit and the carrier was found to have breached the contract of carriage and to have caused the losses through negligence.
- The carrier claimed from its insurers to cover its liability (it had taken out “goods in transit” cover of R1m for each machine), and the insurer duly paid out a total of R1.7m for direct losses in the form of the repair of one machine and the replacement of the other.
- No problem for the carrier there; but it was a different story with the second part of the damages claim. This was for “loss of profits” suffered by the customer through being unable to rent out the machines whilst waiting for them to be repaired/replaced.
- The insurer refused to pay out this second part of the claim (R2,218,464) because it had agreed to cover only “actual” damage to the machines. The goods in transit policy specifically excluded “consequential financial loss as a result of any cause whatsoever”. That left the carrier fighting the customer without the safety net of insurance cover.
- The carrier argued that its liability to the customer was limited to the R1m goods in transit cover per machine. But to no avail, the Court holding that the contract of insurance was between the transport company and its insurers and therefore it did not prevent the customer from claiming damages for losses beyond those covered by the carrier’s insurance.
- Critically, the Court found on the facts that “This type of loss must have been contemplated and reasonably foreseen when the carriage contract was concluded by the parties” and that the customer’s loss of income followed logically from the fact that it could not hire out the machines.
- The end result – the transport company must pay, out of its own pocket, whatever consequential damages the customer can prove (presumably the customer will go for its original R2.2m claim).
Check your contracts, and your insurance cover!
The lesson here of course is to make sure that your contracts protect you from liability for “consequential damages” and the like, and/or to check that your insurance cover will protect you if you get sued for any liability beyond “general damages”. If there is an “exclusion” clause in the policy such as the one discussed above, you’re on your own!
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
© LawDotNews
July 2, 2021
Landlord Liable for a Tragic “Freak” Flood Drowning
“Nature has the ability to spring a surprise when least expected” (extract from the judgment below)
A recent High Court decision dealing with the tragic drowning of a toddler highlights once again the legal dangers faced by property owners who let out accommodation to the public.
This particular case related specifically to a Holiday Let on a guest farm and a natural disaster in the form of a flood, but of course any loss however caused could lead to your visitors/guests suing you.
And weather-related disasters – think storms, floods, wildfires and the like – will almost certainly increase in both frequency and intensity if climate change predictions hold true.
A “freak” flood and a tragic drowning
- It should have been an idyllic holiday on a riverbank. A family booked a week’s vacation in one of three chalets built by a farmer on the banks of a river. The family was particularly attracted by the fact that this was the closest chalet to the river, with a wooden balcony from which the children could fish.
- The family arrived in fair weather but a violent storm and heavy rains in the river’s catchment area led to overnight flooding when the river burst its banks. They awoke at midnight to flooded rooms, struggled to escape from the chalet and were unable to save their toddler, who was swept away and drowned in the flood (according to media reports at the time, he was torn from his father’s arms whilst his father and an older brother clung to a tree in the raging flood).
- The family sued the farmer as owner of the farm, chalet and guest house business. They also claimed against his wife, but this part of the claim failed as she was married to the farmer out of community of property, and had merely assisted him with bookings and administration.
- As regards the farmer as property owner, although he denied any element of “wrongfulness” (unlawfulness), the Court found that he had built the chalets in a dangerous area, known to experience occasional flooding, and therefore had a legal duty to ensure that they were safe for use by members of the public.
- The owner also denied any negligence. The flood, he said, was a “freak of nature” and not foreseeable, no such event having been experienced for over 40 years. He had built the chalet 6m above the normal river level and 2.8m over the high water mark pointed out to him by the previous owner.
- Expert evidence was that the year in question had seen a normal rainfall pattern and that the day in question experienced “high but not abnormal” rainfall. The chalet was built in the “dangerous area” of a 100-year flood line area with no escape route nor flood warning mechanism. Such floods, the expert said, could be expected once every 17-18 years.
- Critically, the Court found on the evidence that the possibility of heavy flooding was “foreseeable” and that the owner’s failure to take steps to protect chalet occupants rendered him liable.
- The owner also argued that the family had no right to sue because of disclaimer notices which he said were at the farm entrance warning visitors that they entered at their own risk. He also claimed to have taken reasonable steps to warn occupants of the danger of flooding. On its assessment of conflicting evidence however the Court found that even if there were warning and indemnity notices as claimed, the owner had not proved that they were brought to the family’s attention. In any event, said the Court, it would in this case be unjust and unfair to deny the family its claim.
- The owner is accordingly liable for whatever damages the family can prove.
Property owners – protect yourself!
- From a practical point of view you will want to pro-actively investigate any potential risks, manage them, warn your guests/tenants about them and make sure they know how to protect themselves should Mother Nature suddenly spring one of her nasty surprises.
- The legal side to all that of course is that you should always be able to show that you have taken reasonable steps to protect your guests from all foreseeable risks.
- Comply also with all building and safety regulations – not doing so immediately puts you in the wrong.
- Take advice on the use of indemnity/disclaimer/exemption notices on your website, all advertising materials, booking platforms etc, also on the premises themselves and in your contracts. Bear in mind that there are limits to their effectiveness particularly where the Consumer Protection Act or constitutional considerations apply.
- Insurance – make sure you are covered for any claims of this nature, and that you comply fully with any requirements imposed on you by the insurers.
Most important of all, take professional advice specific to your circumstances!
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
© LawDotNews
February 20, 2020
Can You Sue a Bad Investment Advisor? It depends…
“I always advise people never to give advice” (P. G. Wodehouse)
If you want to send shivers down the spine of any investor, mention “Steinhoff”, or “Sharemax”, or any one of the many other spectacular corporate collapses that have plagued both local and overseas investors in recent times.
Quite apart from the high-profile failures it’s been a hard few years for investors generally, and if your nest egg has taken a painful tumble recently you may well wonder whether you can sue your financial advisor for giving you bad advice.
The short answer, as several recent cases have highlighted, is “It depends…”.
Case 1: A R2.5m claim succeeds
- A widow, still reeling from her husband’s death and unversed in financial products, invested R2m in Sharemax on the advice of her trusted financial advisor, an authorised Financial Services Provider (FSP).
- She made it clear that she needed a safe, low risk investment and “that she could not risk losing even two cents as the money was earmarked for her son’s upbringing”.
- The advisor did not explain any other investment products and emphasized that “it was so good that he did not even want to introduce other financial instruments and/or investments to her.”
- Sharemax of course collapsed, and the investor duly sued the advisor for her R2m plus interest – a total of almost R2.5m by the time this case found its way through the High Court and an appeal to the Supreme Court of Appeal (SCA).
- The advisor was found liable on the basis of having been negligent “and even dishonest” and to have “failed to exercise the degree of skill, care and diligence which one is entitled to expect from a FSP”.
Case 2: An R11m claim fails
- A UK couple temporarily in South African sought a local financial advisor’s advice on how best to invest some “spare cash”.
- They ended up putting GBP 565,000 and R700,000 (about R11m in all) into investment products offered by UK based investment companies. The companies failed and the investments were rendered worthless.
- The investors successfully sued the advisor in the High Court for R11m in damages, but on appeal to the SCA their claim was dismissed.
- The investors, said the Court, had failed on the evidence to “identify what a reasonably skilled financial service provider would know about products in the market place; what due diligence they would have done before making a presentation to a prospective client and what sources of information they would have consulted.” They had failed to prove that any negligence on the advisor’s part in “making a presentation without adequate knowledge of the proposed investments, resulted in advice materially different from that which a reasonably competent advisor would have given.” (Emphasis supplied).
- End result – the investors lose their R11m and face a (doubtless substantial) legal bill.
Case 3: A R5m claim fails
To the High Court now for some insight into the range of factors that a court is likely to take into account in deciding liability –
- This was another Sharemax investment, this time for R5m.
- The difference was that this investor was found to have been an astute and wealthy businessman who managed his own share portfolio and went into the investment understanding the risks and “with his eyes open” after taking independent advice.
- Claim dismissed.
The bottom line, and some advice for investors
Let’s start off with this thought – unless you are fully qualified to make your own investment decisions, seeking help from a financial advisor is a no-brainer. A trained and certified professional advisor brings elements of insight, knowledge and objectivity that you can never match on your own.
Just be sure that your chosen advisor is the right advisor for you and is both competent and trustworthy. As a first step check for FSCA (Financial Sector Conduct Authority) authorisation (and a list of products the advisor is approved to provide) here.
If worst comes to worst and you feel that your advisor has let you down and should refund you, the bottom line (in a nutshell) is that to successfully sue you will have to prove that you suffered loss in consequence of following your advisor’s negligent advice.
The million dollar question (literally perhaps) is of course – how do you establish that necessary element of negligence? Whilst it will never be easy, and whilst each case will be treated on its own merits, the SCA (in the R11m case above) usefully held that an advisor’s legal duties are mirrored in the FAIS (Financial Advisory and Intermediary Services) Act and its Codes of Conduct. So perhaps start off by proving a breach of the General Code of Conduct’s provision that “an authorised financial service provider ‘must at all times render financial services honestly, fairly, with due skill, care diligence and in the interests of clients and the integrity of the financial services industry‘.”
There’s also the FAIS Ombud option
You may not need to go to court to recover your losses, in that the “FAIS Ombud” (Ombudsman for Financial Services Providers) has the power to resolve complaints against FSPs. It can award “fair compensation for the financial prejudice or damage suffered” up to its jurisdictional limit of R800,000. In at least two Sharemax complaints, compensation orders have been issued, but many more have been dismissed.
Ask your lawyer which route is best for you.
And last but not least, some advice for financial advisors
Make sure that all your documentation protects you from liability as much as possible, that you have insurance cover in place in case you are sued (in the R2.5m case mentioned above, the insurers were ordered to indemnify the advisor against the claim), and that you comply strictly with FAIS and its Codes.
© LawDotNews
June 5, 2019
Accidentally Paid the Wrong Person? Lessons From a R862k Banking App Error
“There’s no such thing as a free lunch” (Economist Milton Friedman)In these days of online banking and electronic payment, it’s not uncommon to find out to your horror that you have made a payment to someone in error, either to the wrong recipient or in an incorrect amount. If that happens to you and the recipient refuses to pay you back, what can you do about it? The other side of the coin of course is whether the recipient of an unexplained and unexpected bank account credit can safely go ahead and spend the windfall (the answer in a nutshell is very strong “no” – if there are indeed any free lunches in the world, this is unlikely to be one of them!). A recent High Court judgment sets out the requirements for a claim based on “unjustified enrichment”.
A banking app duplicates payments of R861,940
- A couple were the happy beneficiaries of a malfunction in their bank’s “remote banking” app.
- In effect they received duplicate transfers into their two accounts totalling R861,940
- The bank duly sued them for return of the money on the basis that they had been “unjustifiably enriched” at its expense.
- Initially the couple denied that any duplication had taken place, but at trial they dropped their denial, claiming instead to have repaid the bank in cash.
- The husband’s story was that he had paid a bank employee, since deceased, who had put the cash into a safe “in case a claim was made”. He was unable to say how much money had been handed over, he could not give dates, and no receipts were requested or given. Nevertheless his evidence was accepted by the trial court and the bank’s claim failed.
- However on appeal to a “full bench” (a “full court” of three High Court judges, sometimes more), the husband’s version was rejected as “inherently improbable”, and the couple was ordered to repay the bank together with interest and legal costs.
What must you prove?
The requirements for an unjustified enrichment claim are –- The recipient has in fact been enriched by receiving the money (it needn’t be money, it could for example be an asset of some sort)
- You have been “impoverished” by the transfer
- The recipient’s enrichment was at your expense
- The enrichment was legally unjustified.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
© LawDotNews
April 12, 2019
Your Dog, Cat or Cow (Even Your Bees) Could Cost You Millions
“Ignorance is
BlissDangerous” (Internet meme)
Our law will generally hold you liable for damages only if someone else can prove that you caused them loss/damage/injury through your “fault” (intent or negligence). That seems fair and logical – if it’s your fault, you pay.
If however the loss was caused by your animal/s, you are in a much more dangerous position – you can be sued on a “no fault” or “strict liability” basis. And that’s a sobering prospect. It means that bad behaviour by Maxie the Mongrel, Skollie the Cat, Daisy the Cow, or even (per an old 1926 case) your “domesticated” swarm of bees, could leave you with a bill for millions without your being in any way careless or at fault.
Ignorance of that risk is very definitely dangerous rather than bliss.
A recent High Court case illustrates.
R2.3m claimed by a dog attack victim
- The claimant was walking down a public street, minding his own business and with every right to be where he was, when three large “Pitbull type” dogs attacked him, viciously and without provocation.
- He was very seriously bitten and ultimately had his left arm amputated at the shoulder. He escaped more serious injury or even death only through the courage of a passer-by who fought the dogs off (and was himself attacked for his trouble).
- The victim claimed R2,341m in damages from the dogs’ owner.
- The dogs had no history of biting or attacking people and were treated as house dogs. They had the run of the owner’s house and garden/yard, which was walled and fenced off from the street. Access to the street was via a gate which was (said the dogs’ owner) normally kept locked, and was on the day in question double-padlocked.
- An intruder, claimed the owner, had in his and his family’s absence broken the gate open and left it open – giving the dogs access to the street and to their victim.
Liability and the law
- The victim was unable to prove that the dogs’ owner rather than an intruder had left the gate open, so had failed to show that the owner had been negligent in any way.
- But, held the Court, the owner was still accountable on the basis of an old Roman law – the “pauperian action” or actio de pauperie – which makes you strictly liable for the consequences of your domesticated animal’s behaviour. The thinking behind this ancient law incidentally was that “an animal (being devoid of reasoning) is incapable of committing a legal wrong” and there have been suggestions that it be scrapped in our modern law. But as of now it is still very much enforced by our courts, and you remain at risk.
- Pauperian liability is a complicated subject (involving much Latin and learned judicial interpretation of ancient laws) and you will need specific legal advice if you find yourself on either side of a claim. But in a nutshell you are liable only if your domesticated animal (different rules apply to wild animals) acted from “inward excitement or vice” and against its natural behaviour.
- You do also have several defences available to you, such as the victim contributing to his/her loss through their own actions (provoking an attack or trespassing for example) or – the defence raised in this case – where the loss results from the negligence of another person. Again, a complicated subject needing specific legal advice, but out of interest let’s have a look at how the Court in this case dealt with the particular defence raised.
- The defence in question is available if you can prove that a third party had control of the animal but negligently failed to exercise that control properly. The dog owner in this case asked the Court to extend that defence to cover his situation where the intruder had no control over the dogs, but negligently gave them the opportunity to attack the victim.
- The Court refused, holding that the defence only applies where the third party has control of the animal. The dog owner must therefore pay the victim whatever level of damages he can prove. So – bottom line – you are liable even when the fault lies with someone else, and even when you are completely without fault, unless that other person had control of the animal at the time.
Protect yourself!
First step obviously is to reduce the risks your animals pose to others. Then check that your insurance will cover you if you are sued. Disclaimers of liability need careful wording to afford any hope of protection.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
© LawDotNews
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April 12, 2019
Small Claims Courts – From 1 April You Can Sue For Up To R20,000
The monetary jurisdiction of Small Claims Courts has been increased from R15,000 to R20,000 from 1 April 2019.
Not all claims can be pursued in a Small Claims Court –
- Claims over R20,000 must be pursued in the ordinary courts (you can if you like reduce a larger claim to the R20k to avoid having to do that).
- Only individuals can sue in a Small Claims Court, i.e. not companies, close corporations etc.
- The State and local authorities can only be sued in the ordinary courts. Other than those exclusions, you can sue anyone including companies and the like.
- Certain types of claim (such as divorce matters, some damages claims, interdicts, will disputes etc) must also go to the ordinary courts.
Even if your claim qualifies for the Small Claims Court, think of asking your lawyer for guidance on whether it is your best course of action. Sometimes even seemingly minor claims can have wide ramifications, and there is no substitute for professional advice!
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
© LawDotNews
