South African court emphasises need for procedural compliance

Out-Law Analysis | 02 Sep 2021 | 10:19 am | 2 min. read

A recent decision by South Africa’s Supreme Court of Appeal (SCA) underscores the need for parties to play by court rules unless clear and compelling extenuating circumstances for procedural lapses apply.

The SCA upheld the High Court’s finding that condonation of a late plea filing by Ingosstrakh, a Russian insurer, ought not to be granted. Ingosstrakh could not therefore submit a substantive defence, and the court granted default judgment in favour of the insured, Global Aviation Investment (Pty) Ltd (Global).

The case is a salutary lesson that the court does not look favourably on procedural non-compliance without good cause. The absence of a reasonable explanation for a failure to timeously deliver a plea, coupled with perceived ‘mala fides’ (bad faith) conduct, can have disastrous consequences.

The dispute arose from a written insurance policy concluded between Ingosstrakh, as the insurer, and Global, as the insured. Global owned an aircraft which was insured by Ingosstrakh for US$2,500,000. The policy provided that, in the event the cost of repair to damage caused to the aircraft exceeded 75% of its insured value, Global would be entitled to regard the aircraft as ‘constructive total loss’ (CTL) and Ingosstrakh would be obliged to pay Global the full insured value.

The aircraft was severely damaged in an engine-related incident, causing Global to declare a CTL under the terms of the policy. However, Ingosstrakh refused to indemnify Global. Global then began court action against Ingosstrakh seeking an order for indemnification.

Before serving its summons on Ingosstrakh, Global obtained an order authorising service of its summons on Steve Slatter Insurance Brokers (Pty) Ltd (Slatter), as required by the policy. Global issued its summons to Slatter, in response to which Ingosstrakh served its notice of intention to defend, but it then failed to deliver its plea within the court-mandated timeframe of 20 days from delivery of notice of intention to defend. Ingosstrakh was therefore barred under rule 26 of the South African court rules, the Uniform Rules of Court, from delivering its plea.

Global then applied for default judgment against Ingosstrakh, which Ingosstrakh opposed. The insurer also filed a counterclaim in which it sought condonation of the filing of its late plea. The High Court in Johannesburg dismissed both Global’s application for default judgment and Ingosstrakh’s counterapplication.

Both parties subsequently appealed to the SCA.

Lack of ‘good cause’

Rule 27 of the Uniform Rules of Court deals with extensions of time, removal of bar and condonation of late pleas. Under this rule, the court may condone non-compliance with the rules where “good cause” is shown by the party seeking condonation.

The South African courts have previously considered what is required to demonstrate whether good cause has been shown. Relevant factors include whether a reasonable and acceptable explanation for the default has been demonstrated; whether the party seeking condonation is acting in good faith; and whether there is a bona fide defence with some prospect of success.

The SCA found that Ingosstrakh did not have a reasonable explanation for why a plea was not filed within the prescribed time. Ingosstrakh had initially elected to do nothing to seek condonation, but instead launched an application to set aside Global’s summons. In doing so, the court found that Ingosstrakh took a procedural risk.

In addition, Ingosstrakh had two opportunities to appeal and file its plea, which it did not do. Instead, Ingosstrakh had waited until Global applied for default judgment before seeking condonation. This, in the view of the SCA, was an inexcusable default, and Ingosstrakh had failed to provide a proper explanation for its conduct. Its motive for bringing the application was also questioned, and the SCA upheld the High Court’s finding that its application was “misconceived”, “vexatious” and “an abuse of process”.

In dismissing Ingosstrakh’s appeal, the court also noted that its application and counterclaim were both for the same substantive relief – that is, the lifting of the notice of bar. Putting a “new label” on the relief sought did not change the true nature of that relief. As Ingosstrakh’s application to lift the notice of bar was dismissed, the doctrine of ‘res judicata’ would be infringed by a claim for condonation by way of a counterclaim, which would essentially yield the same result.

Co-written by Kim Phillips of Pinsent Masons