A South African insurer considering underwriting a South African or other African risk – where the policy and any disputes are governed by English law (or another foreign jurisdiction) – would be wise to catch up on legal precedent, particularly when it comes to conflicting prescription periods.
Donald Dinnie, director at Norton Rose Fulbright, recently revisited a 2006 Supreme Court of Appeal (SCA) judgment that remains highly relevant today. In a post on the firm’s website, Dinnie examines Society of Lloyd’s v Price; Society of Lloyd’s v Lee.
This case addresses extinctive prescription (when a legal claim expires due to the passage of time) and the conflict of laws between South Africa and England.
Key issues include:
- Which law applies to prescription? Should South African law (lex fori, the law of the court hearing the case) or English law (lex causae, the law governing the original dispute) apply?
- Can a South African court enforce an English judgment? Did the English court have the necessary international jurisdiction for its decision to be recognised in South Africa?
- Does enforcing the English judgment conflict with South African public policy? Would recognising it contradict fundamental principles of South African law?
The case examines whether South African courts should apply their own prescription rules or defer to English law. It also considers whether recognising the English judgment aligns with South African legal principles.
Under South African law, prescription is generally three years. Under English law prescription is generally six years.
The dispute
In June 2003, Lloyd’s initiated separate claims against Owen Price and John Lee to enforce default judgments it had obtained in the High Court of Justice in London – one in 1997 for Lee and the other in 1997 for Price. These judgments, which accrued 8% annual interest under the English Judgments Act, related to the payment of the “Equitas premium” – a cost stemming from “unusual financial circumstances” in the 1980s.
The defendants, Price and Lee, were among many new members who joined Lloyd’s as underwriters, only to face significant losses because of asbestos-related claims in the United States.
By 1993, Lloyd’s feared collapsing because of the mounting litigation, leading to the introduction of a “reconstruction and renewal” (R&R) plan. This plan offered a settlement for claims from underwriting years up to 1992, but even those who rejected it, such as Price and Lee, were required to reinsure with Equitas and pay the premiums.
To enforce this, Lloyd’s used its statutory powers to create by-laws, including the 1986 General Undertaking, which required members to comply with the laws and directives of Lloyd’s. Lloyd’s argued that these agreements bound members – including those who rejected the settlement – to the Equitas contract, and the company appointed a substitute agent, AUA9, to manage pre-1992 liabilities. AUA9 was also authorised to accept legal documents on behalf of members who did not accept the settlement.
Despite several members challenging these legal steps, two English courts upheld the validity of the default judgments, making them final and unappealable.
These default judgments were obtained more than three years, but less than six years, before the provisional sentence summonses were served on the defendants in this country. If English law would be held to govern the issue of prescription, as contended by Lloyd’s, the claims on the judgments would not have become statutorily limited (prescribed).
When the case reached the High Court in Pretoria, Price and Lee raised three defences: the expiration of claims under South African law, a lack of international jurisdiction for the English court, and a claim that enforcing the judgments went against public policy.
The High Court ruled in Price and Lee’s favour on the ground that the claims had become prescribed. This led Lloyd’s to file an appeal.
The gap problem
The SCA addressed the issue of which legal system –English or South African law of prescription – applied, following the approach set out in Lourens v van Hohne (1993).
Dinnie explains that the court underscored the need to determine which legal system had the closest and most real connection to the dispute, taking a flexible and sensible approach.
“The selection of the most appropriate legal system must take into account policy considerations and international harmony or uniformity of decisions, as well as the policies underlying the relevant legal rule,” Dinnie says.
He further notes, “Considerations of international uniformity of decisions suggest that claims that are alive and enforceable in terms of the law of the country under which the claims arose should, as a general rule, also be alive and enforceable in South Africa.”
In this case, the court acknowledged that English law governed the creation, operation, interpretation, and enforcement of the rights of the parties involved.
“The court reached the conclusion that on considerations of policy, international harmony of decisions, justice and convenience, the dilemma of the gap in the case should be resolved by dealing with the issue of prescription in terms of the relevant limitation provisions of the law chosen (lex causa), the English law,” Dinnie explains.
Because the proceedings were served on the defendant within six years after the default judgments were issued in the English court, the claims had not prescribed, and the defence of prescription failed.
Dinnie clarifies: “In circumstances where the policy is written, issued, and to be performed in South Africa, litigation will, absent a dispute resolution clause which says otherwise, be conducted in the High Court in South Africa. But our conflict of laws regarding prescription and the Price judgment means that litigation in South Africa would have to be dealt with in terms of English law, and a six-year, not a three-year, prescription period applies.”
He further explained that this applies unless the policy specifically states a three-year time limit.
“These consequences could have insurance reserving and cost implications in dealing with the longer tail of any claims under the policy (which, on the facts, may be more than three years), where the dispute has a closer connection with the foreign legal system,” he says.
