The High Court in Pietermaritzburg has rejected an insurance broker’s defence that common law set-off entitled it to retain the commission owed to an independent contractor.
Philip Augustyn brought an application against TWK Agri Insurance (Pty) Ltd for commission totalling R269 632.60, which, he alleged, he had earned but not been paid. The total amount comprised two commissions of R29 660.64 each, plus a “harvest commission” of R210 311.32.
Augustyn and his wife sold their insurance brokerage in Ladysmith, northern KwaZulu-Natal, to TWK in February 2016. It was a condition precedent of the sale that Augustyn conclude an independent insurance marketer’s agreement with TWK. TWK terminated Augustyn’s services at the end of April 2023, in accordance with the provisions of the agreement.
The High Court found, on a balance of probabilities, that Augustyn had established his claim to the commission.
TWK’s main defence was set-off. It admitted that at one stage it was indebted to him, but that Augustyn, in turn, was indebted to it. By virtue of the automatic operation of set-off, TWK contended it was no longer indebted to him.
Five excluded fields
The alleged set-off arose from the exclusion of five soyabean fields from an insurance policy.
In October 2022, Augustyn brokered an insurance policy for hail damage on behalf of a Mr Fick, a farmer in the Ladysmith district. But five fields that the farmer had identified as requiring cover were erroneously not included in the policy.
A hailstorm struck, and the excluded fields, which were planted with soyabeans, were decimated. The insurance company declined to pay out anything in respect of the excluded fields. Fick claimed that the damage came to R626 380.53.
On discovering that the fields were not insured, the judgment said Fick sent an email to Augustyn stating, among other things: “Tot my skok en algehele verbystering verneem ek nou dat geen Sojaboon lande op Acton Valley verseker is nie […] Ek het wel die polisse geteken maar jou woord gevat dat alles volledig en in order is.” (To my shock and complete astonishment, I now learn that no soyabean fields on Acton Valley are insured […] I did sign the policies but took your word that everything was complete and in order.”
Augustyn forwarded Fick’s email to a number of TWK’s representatives by way of a covering email in which he stated: “Ek is ook baie teleur gesteld [sic] dat ek so n bona fide fout gemaak het.” (I am also very disappointed that I made such a bona fide mistake.)
According to the judgment, TWK decided without reference to, or consulting with, Augustyn to compensate Fick for his loss.
The damage to the excluded fields was at assessed at R406 390.07, which lower amount, it appears, Fick accepted.
TWK lodged an indemnity insurance claim with its insurer for R406 390.06 (one cent less than the amount it had agreed with Fick). The insurer agreed to settle the claim, but TWK had pay an excess of R250 000.
The insurer simply deducted the excess from the R406 390.06, resulting in a net payment to TWK of R156 390.06. (Despite the deduction, TWK paid Fick the full R406 390.07.)
TWK claimed that Augustyn was indebted to it for the excess. It also submitted that the R250 000 “is an amount fixed by the insurance contract, and in other words, a liquidated amount”. Therefore, it could be set-off against the amount that TWK admitted to owing Augustyn.
No mutual existing indebtedness
In his decision, Judge Rob Mossop found it was plain from the wording of the marketer’s agreement that Augustyn was not TWK’s employee but was an independent contractor.
The judge examined the key principles regarding a principal’s liability for the civil wrongs of an independent contractor, as established by case law. He concluded it is settled law that a principal is generally not liable for the civil wrongs of an independent contractor, except where the principal is personally at fault.
The fact that Augustyn was an independent contractor meant that TWK would first have to establish his indebtedness to it before it could be accepted that there was an existing mutual indebtedness between the parties to which set-off could be applied, Judge Mossop said.
Augustyn had not admitted his indebtedness to TWK. Although he appeared to have acknowledged that he made “a bona fide mistake”, he also contended that Fick reviewed and approved the insurance proposal that he had prepared before it was submitted to the insurance company. According to Augustyn, Fick’s conduct could possibly lead to a conclusion that he was responsible for his own misfortune or at least contributed to it.
TWK dismissed that proposition was “opportunistic” and “disingenuous”. “It may well ultimately be both of those things, but in my view, it is a defence that may not simply be dismissed as being frivolous, whatever the respondent may think of it,” Judge Mossop said.
The judge said, in his view, Augustyn had also not admitted that Fick’s loss was occasioned by his fault; he denied that his error was the cause of the farmer’s loss.
No contractual loss
TWK also claimed that the loss it allegedly suffered was contractual in nature. In support of this, it appeared to rely on the “best endeavours clause” in the marketer’s agreement.
This clause obliged Augustyn to use “his best endeavours properly to conduct, improve, extend, develop, promote, protect, and preserve the business interest, reputation, and goodwill of the company and carry out his duties in a proper, loyal, and efficient manner”.
The court disagreed with TWK’s contention. It said the clause had a general meaning prescribing how Augustyn should conduct himself, but it did not instruct him how to do his work. In fact, the clause could not do so, because an independent contractor himself determines how he performs his duties, not the employer.
“In my view, if a loss has been suffered by the respondent, it can only be delictual in nature and that loss will have to be determined by a court,” Judge Mossop said.
In conclusion, the judge found there was no mutual indebtedness existing between the parties, and there can be no set-off in the circumstances. TWK was accordingly not entitled by virtue of the operation of common law set-off to retain the commission due by it to Augustyn.
