Case Number  :  252 / 2001

REPORTABLE

IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

In the matter between

ASHTON INSURANCE BROKERS CC
t/a WALMER INSURANCE BROKERS                                    First Appellant
MICHELLE DENISE RIDDLE                                               Second Appellant

and

INDEPENDENT MUNICIPAL AND
ALLIED TRADE UNION                                                                Respondent

Composition of the Court :
Smalberger  ADP,  Olivier  JA and
Lewis  AJA

Date of hearing :
13 May 2002

Date of delivery :
23 May 2002

SUMMARY

Trade union insurance scheme  -  broker  -  fiduciary relationship.

______________________________________________________________

J U D G M E N T
______________________________________________________________

OLIVIER  JA

OLIVIER  JA

[1] The central dispute between the parties to this appeal relates
to the nature and terms of the contractual relationship between
them.
[2] The first appellant ("Walmer") is a firm of insurance brokers.
The second appellant ("Riddle") is its sole member and
representative.   The respondent ("Imatu") is a trade union, which
represents the employees of the Nelson Mandela Metropolitan
Municipality, previously the Port Elizabeth Municipality.
[3] Imatu has a membership of approximately 1000 municipal
employees.   Although its prime function is to represent its
members in labour relations matters, it also offers them a short
term group insurance scheme.   The scheme was arranged some

thirty years ago by Imatu.   Many of its members, some of them
now pensioners, have joined the scheme.   At first the insurer was
Shield Insurance Company.   Later Allianz Insurance Company
took its place.
[4] The administration of the scheme posed certain problems.
In 1989 Riddle, who was then employed by Shield as an
underwriting and claims clerk, recognised that there was an
opportunity to earn an income, by offering a range of
administrative services in respect of the scheme both to Imatu, its
members and Allianz.   She made an offer to Imatu.   In February
1989 her firm, Walmer, was appointed in writing " ... as in-house
broker for the short term scheme with Allianz with effect from 1
April 1989."   She resigned from Shield.
[5] Thereafter, a long and mutually beneficial relationship
developed between the parties.   Walmer and Riddle moved into a

part of Imatu's offices, for which Walmer paid a monthly rental.   It
also shared some of the office expenses of Imatu, such as
telephone costs.
[6] The working arrangement between Walmer (as represented
by Riddle) and Imatu was as follows.   Walmer canvassed the
members of Imatu (a list being furnished by the latter) to join the
scheme.   On a monthly basis Walmer sent a list of all the
members utilising the scheme to Imatu.   Imatu had an
arrangement with the City Treasurer's Department to deduct the
premiums from the salaries of the insured employees and pay
same over to Imatu.   Imatu then handed such premiums over to
Walmer, after deducting the commission to which it, Imatu, was
entitled, viz 8% (plus VAT) on all premiums received, plus R4,00
(plus VAT) per member per month as administration fee.   In
respect of Sasria insurance, Imatu was further entitled to a fee of

2,5% (plus VAT) on the applicable Sasria premiums.   It was
further agreed that should the loss ratio of the scheme not exceed
65% in any period of insurance, Imatu would receive 60% of the
bonus paid by the insurer.   It emerged that for the financial years
1998, 1999 and 2000, the total premium income amounted to R3
525 728, R3 413 598 and R3 606 156 respectively.   The income
received  by  Imatu  amounted  to  R299 960, R321 404 and R346
416 for the said years respectively.
[7] Although the papers do not establish the income derived by
Walmer from this arrangement, it could not have been negligible,
having regard to the premium incomes mentioned above.
[8] Unfortunately, the happy cohabitation was disturbed during
February 2001.   Walmer blames Imatu for the unhappiness.
Riddle stated in an affidavit that at that time, Imatu approached her
for a renewal of the contract, and presented a written document for

her signature.   She was unhappy with the proposed terms,
requiring, for the first time, that upon termination of the contractual
relationship, Walmer would have to furnish Imatu with the list of the
members belonging to the scheme.   The draft agreement also
required her to sign a two year restraint from being involved with
any of Imatu's members upon termination of such agreement.
This was also a new proposed term.   Riddle states that she found
the proposed two new terms unacceptable.   In a letter by its
attorney, dated 21 February 2001, Walmer accuses Imatu of acting
in "a high-handed and aggressive manner".
[9] Riddle persisted in refusing to agree to the two new
proposed terms.   On 27 February 2001 the attorneys for Imatu
addressed a letter to the attorneys for Walmer and Riddle stating,
inter alia, that the two new proposed terms were not negotiable,
and

"Under the circumstances this letter thus serves as a notice to
your client that its appointment as Brokers of the Scheme is not
renewed and thus terminates on the 1st April 2001."

[10] Shortly after the writing of the said letter, a further conflict
erupted between the parties.   Imatu came into possession of
evidence which, it alleges, proved that Walmer, represented by
Riddle, was canvassing the members of the Imatu scheme to
cancel their membership of that scheme and to join another
scheme, and also to terminate the arrangement whereby Imatu
collected the premiums and paid them over to Walmer.   Imatu also
alleged that Riddle had secured the co-operation of a number of its
members, particularly employees within the Treasury Department
of the Municipality, to assist her to implement the new scheme.
Imatu was unable to ascertain exactly how many members had
joined the new scheme nor was it able to ascertain the extent of
the unlawful activities of Walmer and Riddle.

[11] The events alluded to above gave rise to two applications in
the South Eastern Cape Local Division of the High Court.   The first
application numbered 487/01 was launched on 1 March 2001.
The applicant was Walmer and the respondent Imatu.   In its
prayers, Walmer requested :
"2
That a declarator be issued that the Respondent is bound
by the agreement it concluded with the Applicant for the
appointment of the Applicant as preferred broker for
members of the Respondent until 31 October 2001 and
that thereafter the agreement is subject to six months
notice by either party;

That the Respondent be interdicted and prohibited from
appointing any other broker performing any of the
functions currently performed by the Applicant in respect
of the Respondent's members until the expiry of the
agreement referred to in 2 above;"

[12] In the second application, numbered 489/01, launched in the
same court also on 1 March 2001, the applicant was Imatu, the
first respondent was Walmer and the second respondent Riddle.

In its prayers Imatu sought a temporary interdict against both
respondents to show cause why they should not be
"1
Inderdicted
and
restrained
from
approaching
any
members of the Applicant's group short term insurance
scheme ("the scheme") to terminate their membership of
the scheme or switch to another insurance scheme and
from utilising any information relating to the scheme for
the purpose of promoting any other insurance scheme.

Directed to deliver up to the Applicant all insurance
policies, schedules to insurance policies and claims
histories in respect of the scheme and participants
therein, as well as all copies of such information, in
whatever form, in the possession of the Respondents.

Directed:
3.1
to render to the Applicant within 30 days a full
account, supported by vouchers, all premiums
received, all claims made and all claims paid under
the scheme for the years ended 31st March 1999,
31st March 2000 and 31st March 2001;  and

3.2
to debate the said account;  and

3.3
to pay to the Applicant any amounts found to be
due to the Applicant."

[13] Both applications were opposed and voluminous affidavits
and annexures were filed.   The applications were argued together.
Jones J, within a commendably short time, on 13 March 2001,

delivered judgment in both cases.   The learned judge granted a
final interdict in case no 489/01, ie, the application by Imatu.   He
interdicted Walmer and Riddle from approaching any members of
the Imatu group short term insurance scheme to terminate their
membership of the scheme or to use any information relating to the
scheme for the purpose of promoting any other insurance scheme.
He also ordered them to deliver to Imatu all documents in their
possession relating to the scheme, to render a full account to
Imatu, to attend a debate of the said account, to pay over any
amounts found to be due to Imatu, and to pay the costs of the
application.
[14] The application by Walmer in case no 487/01 was dismissed
with costs.
[15] On 20 March 2001 the learned judge refused leave to appeal
in respect of both applications.   This Court, however, granted

leave to Walmer and Riddle to appeal against the orders made in
case no 489/01, ie the application brought by Imatu for an interdict
against Walmer and Riddle.
[16] In case no 487/01 ie the application launched by Walmer, a
further dispute developed in respect of the date on which the
agreement between itself and Imatu would come to an end.
Walmer's case was that the agreement would last at least until 31
October 2001, and that thereafter it would be subject to six months
notice by either party.   Imatu's case was that the agreement came
to an end on 1 April 2001.   Walmer's application was refused, and
no leave to appeal against such refusal was granted.   It follows
that the present appeal must proceed on the basis that the
agreement between Walmer as represented by Riddle on the one
hand and Imatu on the other came to an end on 1 April 2001.

[17] What remains to be decided is whether the learned judge a
quo was correct in granting Imatu a permanent interdict operative
against Walmer and Riddle
" ... from approaching any members of the Applicant's group
short term insurance scheme to terminate their membership  of
the scheme or switch to another insurance scheme and from
utilising any information relating to the scheme for the purpose
of promoting any other insurance scheme"

after the termination of the contract between them.
[18] In argument before the court a quo and also in this Court
some time was spent on debating whether Walmer could be
described as an agent or a broker.   In the context of this case, that
debate is futile.   The labels as such do not provide an answer to
the question to be answered.   That answer can be found only by
interpreting the contract between the parties in its contextual
setting, having regard to its genesis and purpose.   The
fundamental question is whether the contract, thus interpreted,

gave rise to the creation of a protectable interest, such as claimed
by Imatu, which would endure beyond the date of termination of
the contract.
[19] In the court a quo the learned judge held that the contract
created a fiduciary relationship between the parties giving rise to
the rights as claimed by Imatu.   He formulated his judgment on
this point as follows
"In short, the union appointed and employed the broker to do all
things normally done by an insurance broker in the management
and administration of a group insurance scheme.   The scheme
was the union's scheme, specially arranged for it and offered by
it to its members for their benefit.   The broker is subject to
dismissal by the union.   The result is that the broker acts on
behalf of the union in arranging insurance contracts with an
approved insurer on behalf of the union's members.   The union
could itself have done all things done on its behalf by the broker.
Although the union is not an insured under the scheme, the
union has direct input into each individual contract between the
insurer and union members.   The union appoints the insurer
each year.   It agrees on the premiums to be paid on behalf of
members.   It agrees to any changes to the terms and benefits of
the group policy on behalf of members.   I have no doubt that
when it appointed the broker, it appointed it as its agent to do
these things on its behalf.

It follows from the above that certain fiduciary duties flow from
the contract between the union and the broker.   The broker is to
an extent given exclusivity.   The union cannot oblige its
members to join the scheme through the agency of the broker,
but in my view it is obliged not to appoint another broker as a
competitor and it is not at liberty to influence its members to
channel their short term insurance business of the kind covered
by the scheme to another broker.   In my view, this involves
reciprocal duties by the broker.   The broker cannot bring
outsiders who are not members of the union into the group
scheme.   It cannot abuse its brokerage by giving other persons
the privileges and benefits of a scheme specially arranged for
the benefit of union members and made possible by the union's
collective bargaining power, without first obtaining the union's
consent.   Similarly, it cannot persuade union members to join
some other group insurance scheme, thereby undermining the
scheme which it has been appointed to administer and promote.
This is especially so because it and the union are locked into a
mutually beneficial financial arrangement arising out of the
administration of the scheme.   The amount of the shared
income derived from the monthly commission paid by the insurer
on the monthly premiums is dependent on the numbers of
members who join the scheme.   Even more importantly, the
amount of income derived from the profit sharing arrangement is
directly related to the number of insured persons who join the
scheme.   Indeed, the members of the scheme would not be
available to the broker were it not appointed by the union to act
as broker.   In these circumstances I fail to see how I can come
to any conclusion other than that the broker is bound by the
ordinary rules of agency not to allow its interests to conflict with
or take precedence over the interests of the union."

[20] It seems to me that the conclusion reached by the learned
judge a quo is solidly based on general legal principles, logic and
equity.   The position is simply that Walmer and Riddle were
appointed as the exclusive broker to Imatu's existing group short
term insurance scheme in 1989.   Long before that date, Imatu had
created the scheme for the benefit of its members.   It offered the
scheme to its members as one of the benefits of membership, and
it undertook the responsibility of administering the scheme.
Walmer was given entry to a lucrative, captive audience of
participants, and it obtained its information relating to the union
members exclusively from Imatu.   For practical purposes it was
Walmer's only business.   In return, it had to share the revenue
and profits generated by the scheme with Imatu.   It is
inconceivable that Walmer would be at liberty to make off with the
scheme by taking the individual participants out of it or taking the

information about the identities and insurance needs of the
participants away from Imatu, which had furnished both the
opportunity and the information, and utilise it for its sole benefit to
the detriment of Imatu.
[21] In my view, a fiduciary relationship came into being between
Walmer and Riddle on the one hand and Imatu on the other.   This
gave rise, as a matter of law, to an obligation to respect the
confidentiality of the information given to them by Imatu, and not to
use it to the detriment of Imatu, nor to attempt to entice its
members to join an insurance scheme not approved by Imatu.
(See Meter Systems Holdings Ltd v Venter and Another 1993 (1)
SA 409 (W) at 426 E - 430 H.)
[22] It follows logically that the duty, described above, endures
past the termination of the contract itself.
[23] In the result, Jones J rightly granted Imatu's application.

The appeal is dismissed with costs.

....................................
P J J  OLIVIER

CONCURRING :

Smalberger  ADP
Lewis  AJA