Landlord’s vs Municipalities’ obligations to obtain a court order prior to terminating electricity to premises.

Anva Properties CC // End Street Entertainment Enterprises CC

Anva Properties (The Applicant) sought an order authorizing it to terminate the electricity supply to a unit in a building situated in Cape Town. The matter was heard in the Western Cape High Court in April 2015. The Applicant is the owner of the building and the Respondent is one of the tenants who occupy it.

The Applicant pays the City of Cape Town for electricity and recovers the costs from the tenants. The Respondent has occupied the basement of the building from 2012 where is conducts business as a bar and nightclub.

The respondent used the electricity for air-conditioning, refrigeration and lighting, however he has not paid his electricity bill since September 2014, the bill is in arrears in excess of R 300 000.

The Respondent raised two defenses to the Application. Firstly, the Respondent contends that on the Applicants own showing from the filed papers, the Respondent was deregistered in 1998. This was long before it entered into a lease agreement with the Applicant in 2012. Secondly, the Applicant has no locus standi to claim payment because it ceded all its rights to Nedbank and does not have any right to recover any amount under the ceded debt.

Regards to the first defense of deregistration; The court held that no steps were taken to restore the registration of the End St Entertainment and even if there was steps taken, the Close Corporation Act read with the Companies act does not mean that all of the activities during the deregistration are automatically validated. Due to the fact that no valid lease agreement was entered into between the parties the Applicants claim based on that fact cannot succeed.

Then the court further looked at whether apart from the lease agreement did the Applicant make out a case for relief in the Founding Affidavit, the Applicant contended that if they did not pay the city for the electricity then the city would cut the electricity this would result in the other tenants being without electricity.

At the time the Applicant was actually subsidizing the Respondents business which the court could not allow to continue and the Applicant wants to mitigate his losses by terminating the power to the premises but this would be unfair to the other tenants.

The Applicant cannot simply terminate the electricity because that would be taking the law into his own hands, thus the court held that Applicant had in fact laid a good factual foundation for relief and ordered that the Applicant can employ an electrician to cut the supply to only that part of the premises and seal it off and the Respondents may not tamper with the seal. By granting this order the other tenants will still retain their electricity supply.

The court held that is was clear the Applicant did not know the Respondent was deregistered and this fact only came to light in the replying affidavit and because of this the court ordered that each party must pay their own costs.

In conclusion, a land lord requires a court order before terminating the electricity supply to a property.

Rademan // Moqhaka local municipality

This matter was heard in the Constitutional court in 2013. Ms Rademan did not pay her full account she paid only the electricity portion she did not pay the rest because she felt that the municipality provided a poor service. She was not the only one who did this many community members did the same thing. The municipality said if she failed to pay they would cut the electricity, and Ms Rademan failed to pay so the municipality cut the electricity.

Ms Rademan brought an application in the Magistrates court, to have the electricity restored, effectively a spoliation application. The Electricity Regulation Act states that if the account is in arrears it is grounds for terminating the electricity. The court held that the municipality was not justified in terminating her electricity because her account was not in arrears. The Mag court granted in Ms Rademan’s favor and ordered the electricity supply to her home be restored.

On appeal, the High Court held that the municipality did not require an order to terminate her supply of electricity if the resident owed the municipality money. It further stated that the fact that she was not in arrears did not preclude the municipality from cutting her electricity. The high court set aside the magistrates court decision and replaced it with an order dismissing Ms Rademans application.

On further appeal the Supreme Court of Appeal had two points of contention, namely that the municipality’s failure to obtain a court order equated to unlawful termination. Secondly that the municipality can only terminate electricity if certain grounds existed, one of them is arrear accounts.

Section 102 of the Municipal System Act 32 of 2000 states that a municipality may consolidate accounts. Consolidation means consolidate any separate accounts of persons liable for payments to the municipality. Due to the fact that if consolidated her account is in arrears, the municipality is justified in cutting the electricity. Therefore the SCA dismissed the appeal.

It is for this reason that the matter came before the Constitutional court. The Court granted the applicants leave to appeal in the interest of justice. This matter held a significant amount of public interest.

The Constitutional court noted that according to constitutional provision 156(2), a municipality may make bylaws for effective administration. Further, the Constitutional court noted that Section 102 of the Municipal Systems Act allows for consolidation of accounts. Section 25(1) of the municipalities by-laws states that a Municipality may restrict or disconnect the supply of water and electricity or discontinue any other service to any premises whenever a user of any service, fails to make payment on the due date or fails to make acceptable arrangements for the repayment of nay amount for services, rates or taxes.

It is for this reason that the court held that she failed to settle her account as she withheld payments for rates. Although she paid her electricity account when consolidated she was in arrears. Therefore she contravened the municipality’s conditions of payment, therefore the municipality was entitled to cut her electricity.

In conclusion, the municipality does not require a court order before terminating the electricity supply to a property.

By Nicole Naidoo

The Didcott-principle: aiming for fair insurance dispute outcomes

In the past insurance companies have been known to follow the provisions of insurance policies to the very letter, regardless of the circumstances or consequences. In the new consumer centred era this has changed and have the courts also contributed by setting some principles.

To place the significance of the Didcott-principle in perspective, regard must be have to the basics first. In South African insurance law there is a duty of the insured to disclose all risk relating to his or her insurance cover to enable the insurer to determine whether it is willing to undertake such a risk and provide their client with the requested insurance cover. If an insurer feels that the risks involved are too great it may deny the client any coverage, or the insurer may increase the client’s monthly premium to balance the acceptance of great risk. Should it later transpire that the client failed to disclose certain facts that were material to the insurer’s investigation into whether or not it is willing to provide insurance coverage to the client, insurers may, and have done so regularly in the past, cancel the insurance agreement and refuse coverage as a result of a material breach of such an agreement.

The issue of which facts are considered to be material enough to allow insurers to cancel an insurance agreement was considered in Mutual and Federal Insurance Co Limited v Oudtshoorn Municipality 1985 (1) SA 419 (A) in which matter the court determined that one must ask whether a reasonable person, an average Joe, would think the information is material or important enough that it should be brought to the attention of the insurer for the insurer to adequately assess the risk it is considering to undertake on behalf of their client.

However, to decide which facts are material enough to disclose to insurers is not always clear or easy. In long term insurance or so-called life insurance disputes involving complex and often novel diseases or disabilities it is not always easy or clear which symptoms are actually related to a specific disease or disability and when exactly the first symptom that could have pointed to this disease or disability appeared. For example, in case number CR231 adjudicated by the Ombudsman for Long Term Insurance the insured client had experience abdominal problems since September 2005, and kept silent about numerous consultations he had with doctors over the years in his life insurance questionnaire. The client was eventually diagnosed with stomach cancer within a month after applying for life cover and died on 21 March 2006. The insurer refused life coverage based on non-disclosure of material facts (the numerous doctors’ consultations) and did the ombudsman found that the symptoms and consultations were of such a nature that a reasonable person would have disclosed it to an insurer as it would have affected the insurer’s ability to assess damages. Another example is case number CR153 in which a client instituted a disability claim with his insurer based on his inability to continue with his profession as strategic planner due to Parkinson’s disease. The insurer refused the requested claim on the basis that the client never disclosed previous visits to a neurologist after the client started to experience problems with his back and neck and had tremors in his hand. According to the client he was completely unaware that he suffered from early Parkinson’s disease and because back and neck pathology were excluded from his disability insurance policy he did not think it necessary to inform his insurer. Under these circumstances the ombudsman found that the client innocently non-disclosed his medical condition and that he has indeed not been aware of the fact that he already suffered from early Parkinson’s disease, and although silence about a visit to a specialist doctor would normally constitute material non-disclosure, the ombudsman instructed the insurer to make an ex gratia payment under these circumstances y offering the client a third of his coverage.

To allow for and appreciate the difficulty in diagnosing certain diseases or disabilities the courts have slowly but surely adopted a less letter-of-the-contract approach to insurance cases. In Pillay v SA National Life Assurance Co Ltd 1991 1 SA 363 (D) judge Didcott suggested that:

where an insurer had been misled but it would in any event have entered into the contract albeit on different terms, it was not entitled to rescind the contract but had to be satisfied with a lesser remedy. The purpose of such a remedy would be to make good the loss suffered as a result of the misrepresentation. The insurer could for instance deduct from the claim the additional premiums it would have charged had it known the true facts. Another possibility would be for the insurer to keep the premiums as it was but to reduce the sum insured. Or to add to the contract an appropriate exclusion on which the parties would have agreed.

In short, this suggestion became known as “The Didcott-principle” – a principle that in essence expect from the insurer to be creative and innovative with the structuring of premiums and payments to their clients.

This principle found further backing in the consumer protection framework created by the Financial Services Board (FSB) as published in their Treating Customers Fairly policy, specifically aimed at the financial services industry such as the insurance industry. Amongst other this policy advocate: the fair treatment of customers which must be central to any corporate culture; the meeting of the needs of identified consumer groups such as the diseased or disabled; the provision of clear information about insurance policies for instance; the ensurance that advice is suitable and takes account of a client’s circumstances and that clients should not face unreasonable post-sale barriers such as when clients want to claim in respect of their insurance policies.

Although opposition to the above has been experienced in other courts (Sherwin Jerrier v Outsurance Insurance Company Limited 2013 JDR 0562 (KZP)) the reaction of the financial sector clearly indicated that it is still committed to the fair treatment of their customers.

The unexpected health (and other) challenges life often throws one’s way should therefore be met with extraordinary legal solutions and is it a relief that our courts appreciate these difficulties and are willing to accommodate people as best it can.

by Marietjie Botes