SFG Insurance Company (Pvt) Ltd (In Liquidation) v Baobab Reinsurance (Pvt) Ltd & 2 Ors

### Preamble
1
HH 182-18
HC 2202/15
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SFG INSURANCE COMPANY (PVT) LT

(In Liquidation)

versus

BAOBAB REINSURANCE (PVT) LTD

and

TROPICAL REINSURANCE COMPANY LTD

and

GRAND REINSURANCE COMPANY (PVT) LTD

HIGH COURT OF ZIMBABWE

DUBE J

HARARE, 5 March 2018 & 28 March 2018

Application for amendment of a plea

W P Zhangazha, for the 1st, 2nd & 3rd applicants

K Kachambwa, for the respondent

DUBE J: This is an application for amendment of a plea brought in terms of Order 20  r 132 of the High Court  Rules, 1971. The applicants seek to amend their plea.

The brief background to this application is as follows. On 11 November 2011, the respondent issued a payment guarantee in favour of the Zimbabwe Farmers Union, [hereinafter referred to as ZFC], in terms of which it agreed to supply tobacco farmers who are members of the Zimbabwe Tobacco Farmers Union, (ZPTFU) with tobacco inputs on the understanding that if the farmers failed to repay ZFC, the respondent would guarantee payment of amounts owing as surety and co-principal debtor to the farmers. The respondent issued a facultative reinsurance master slip in terms of which it transferred the risk under the ZFC guarantee to the applicants who   accepted the facultative reinsurance master slip. The applicants agreed that in the event of the farmers failing to pay the ZFC and it demanded payment from the respondent, the applicants would pay the amounts demanded by ZFC. In the process of their business a concept paper was exchanged. Sometime in 2012, ZFC demanded payment from the respondent which in turn notified the applicants of the demand. The applicants have failed and neglected to pay the amount claimed.

The applicants defended the claim. They admitted to the reinsurance contract in their plea and deny liability on the following basis. The applicants claim that the Facultative Reinsurance Guarantee Agreement was subject to a written Memorandum of Agreement for the supply of inputs concluded between ZFC, the plaintiff and ZPTFU. Further, that it was also subject to the guarantee application forms passed by beneficiary farmers in favour of the plaintiff and ZPTFU, the performance of which terms and conditions by the parties, the plaintiff owed a duty of care and disclosure and duty of utmost good faith to the defendants. The defendants averred that the plaintiff omitted from its pleadings material disclosures regarding the full nature of the contractual relationship between the parties upon which basis the total risk underwritten was definable. The liability of the plaintiff is due to its own fault and upon the basis of the plaintiff’s breach of duty of legal care, disclosure and utmost good faith to the defendants in respect of all the respective material contractual agreements between the parties. The main issue referred to trial is who between the defendants and plaintiff breached the contract.

The applicants submitted in their opening remarks that there are key warranties and promises made by the respondent in the concept paper at the time of the underwriting, which affects both risk assessment and the premiums due. The respondent has breached these key warranties in a material manner which entitles the defendants to repudiate the insurance contract. The respondent had a duty of utmost good faith owed to all defendants to monitor and limit the risk, which duty they neglected to perform. They contend that the liability of the respondent to ZFC if any, is due to its own fault. This point was not pleaded. The trial commenced with the plaintiff calling its first witness. After his testimony, the applicants’ counsel filed a notice of amendment to its pleadings. The application was opposed by the respondent resulting in this application. The applicants seek the following amendment to their plea:

“4.	The plaintiff materially breached material warrants and promises it made to the defendants at the time of the underwriting of the reinsurance in issue which warranties and promises include the following:

That each farmer who was a debtor whose debt had been guaranteed by the plaintiff would have their debt secured through security ceded to the plaintiff for purposes of recovery through debt collection by the plaintiff.

That the plaintiff and evaluation system would be put in place to monitor and remedy deficiencies in the tobacco production line from the fields to the auction floor in order to minimise the risk.

That the plaintiff would facilitate the transportation of the tobacco through a reputable company from the fields to the auction floors to reduce shrinkages of the tobacco in the processes from the field to the auction floors.

That the plaintiff was to manage the booking of each farmer’s crop at the tobacco auction floors.

That only one tobacco auction floor being Boka Tobacco auction floor would be used to increase the relevant tobacco’s priority on the floor.

That the plaintiff would access a report of all farmers’ uploaded stop orders to ensure that farmers’ details were captured accurately.

5.	The plaintiff breached these warranties and promises by failing to fulfil any one of them for their intended purposes of reducing the risk and exposure of the defendants and this breach entitles the defendants to repudiate the reinsurance contract.’’

The applicants submitted as follows. The reason why they seek an amendment at this late stage is because the matter was dealt with by a different legal practitioner at plea stage who failed to raise the defence now sought to be introduced. The applicants seek an amendment in order that it may canvas the real controversy between parties. The proposed paragraphs arise from warranties and promises contained in a concept paper attached to the defendants’ bundle of documents. The promises were that the respondent would mentor and evaluate the process of production of tobacco by the contracted farmers. The respondent promised to facilitate transport of the crop, use the Boka Tobacco Auction Floors and that it would get reports of stop orders uploaded before commencement of the selling season.	The concept paper is relevant to the determination of who is in breach. They contended that the concept paper is part of the Facultative Reinsurance Guarantee Agreement and that the respondent’s witness admitted that the respondent authored the concept paper. The amendment of the plea will facilitate that justice be done and will assist the court in interpreting the relationship between the parties. The applicants are prepared to pay the wasted costs arising from the amendment being granted. The respondent will be able to answer to the plea and the respondent’s witness can be recalled to deal with issues arising from the plea. It is only the court that will be prejudiced because of the delays in finalising this case.

In response, the respondent took issue with the fact that the application seeks to introduce a new defence after evidence has already been led from a key witness. The issue of promises and warranties made in the concept paper was not dealt with in the plea and is not before the court as they do not arise from the pleadings. It is part of the defendant’s bundle of documents and is not yet before the court. The respondent submitted as follows. There is no explanation why the defences sought to be raised were not initially pleaded. In the absence of an explanation, the court is unable to assess how reasonable the explanation is. The applicants have always had this concept paper from November 2011 and have been aware of the said warranties and promises at the time of filing its plea. The applicants have chosen to seek an amendment after a key witness has testified and introduce a new defence. The applicants cannot be allowed to plead their case as they go. The respondent is going to suffer prejudice because the concept paper was done more than 7 years ago. The plaintiff will not be able to search and produce the evidence to counter the issues being raised. The respondent went into liquidation on 20 October 2013, some five years ago. The respondent vacated the building that it was leasing and all its necessary and relevant information was placed in storage and the rest was destroyed. The server they were using is being leased out and the respondent has no access to it. The respondent no longer has any access to the information. If the plaintiff was still functional it would still be having access to its records and look to such information to see what happened after the email.  There is serious prejudice that will be caused by the introduction of a new defence that falls squarely on the concept paper.

The concept paper was sent to the applicants under cover of an email. The import of the email is that the applicants were required to review the concept paper and call the writer back.  The email was not before the court and was only produced at the commencement of trial. One would have expected the complete trail of emails after this email to have been discovered. The applicants are selectively choosing emails from its records. The court will still require knowing what took place following the email. The respondent omitted to gather information on the defence sought to be introduced because it was not necessary to do so at that time.

Order 20 Rule 132 (3) reads as follows,

“132. Court may allow amendment of pleading

Subject to rules 134 and 151, failing consent by all parties, the court or a judge may, at any stage of the proceedings, allow either party to alter or amend his pleadings, in such manner and on such terms as may be just, and all such amendments shall be made as may be necessary for the purpose of determining the real question in controversy between the parties.”

In Copper Trading Co Pvt  Ltd v City of  Bulawayo 1997 ZLR (1) P134 at 144, the court held that whether or not an amendment should be granted is an exercise of discretion and that amendments should be necessary for purposes of determining the real question in controversy. In the case of UDC Ltd v Shamva Flora (Pvt) Ltd 2000 (2) RLR 210 the court dealt with factors to be considered by a court in exercising its discretion on whether or not to grant an application for amendment. The case lists requirements for this type of application. There must be an explanation as to why the defence was not initially pleaded. The second issue is that of prejudice. The prejudice likely to be suffered should be capable of being cured by an order of costs. The case of Bowman Plant Services (Pvt) Ltd v Sycon Africa (Pvt) Ltd HH 160/2003 the court dealt with the question of prejudice with regards the evidence. The court remarked that one of the reasons why a party should identify the real issues at plea stage is so that the other party is afforded an evidence gathering stage.

The necessity to amend pleadings ordinarily results from careless or unintended omissions to raise certain defences or other mistakes made in pleadings. Rule 132 allows a party to make an application to amend its pleadings at any stage of the proceedings, with the leave of a court. The rule does not have a time limit within which amendments to pleadings should be brought. It permits amendments to pleadings to be brought before or during a trial. The rule is fairly flexible and proposes a liberal approach to amendments. The purpose of r 132 is to enable a court seized with a matter to determine the real issue and all points of controversy between the parties. The approach is that the court should always endeavour to do so where the amendment does not result in prejudice to the other side. The rule permits an amendment to be granted when it is in the interests of justice to grant the amendment. An applicant who seeks to amend his plea during a trial is required to explain why the issues sought to be introduced were not raised at the plea stage and before the trial commenced. The requirement for a satisfactory explanation assists the court to weed out frivolous applications and avoid unnecessary delays in the trial.

An amendment is not there simply for the asking. The party seeking an amendment has to justify the amendment. It must be shown that the other party is not going to suffer prejudice stemming from the amendment which cannot be cured by an award of costs in its favour. Where an allegation of prejudice is made, prejudice will be inferred unless there is satisfactory evidence to the contrary. The onus to prove prejudice shifts onto the person who alleges it. Whether there is likely to be any prejudice to be suffered by the other party as a result of the amendment depends on the circumstances of each particular case. The court must scrutinise the allegation of prejudice to determine whether the likelihood of prejudice exists or is real. An application for amendment may be turned down where the opposing party may not be able to rebut the defence sought to be introduced and where substantial prejudice will occur to it.

Each application is determined on its own merits. The amendment sought to be introduced  must be brought on the same set of general facts pleaded. An amendment will not be permitted where it seeks to introduce a new and distinct cause of action. The amendment sought to be made must be relevant to the defence sought to be introduced. A court dealing with an amendment need not go into the merits of the matter it is seized with. Its focus should be on the need for the amendment. The court may allow such an application on such terms as it deems fit. The court may deny an amendment to pleadings where it is convinced that the application was made in bad faith, made to delay proceedings or where the amendment will lead to prejudice to the opposing party which cannot be cured by a cost order or other suitable order such as an order for postponement. The court seized with an application for amendment of pleadings has a broad discretion to grant or refuse an application for amendment.  The courts adopt a very liberal approach.

The general approach is that amendments to pleadings ought to be allowed so that the courts are able to ventilate and determine the real dispute between the parties, provided that the amendment does not cause prejudice to the other party which cannot be compensated by costs or an order for postponement. The same approach has been followed in England and South Africa. The case of Savings and Investment Bank Ltd (in Liquidation) v Fincken [2003] EWCA Civ 1630 is an example where this approach was adopted in England. There has been a paradigm shift, with a new approach to late amendments having developed in England; See an article by Aileen Mc Erlean titled Late Amendments – A new Approach, 2015. In this article, the author examines number cases where the new approach has been adopted.

The following cases show the new approach of the English courts to amendments. In  Andrew Brown and Ors v Innovatorone Plc  & Ors [2012] EWHC 3221 (Comm ), [2012] the court considered a late  application  for amendment of pleadings. The court  emphasized that parties to litigation have a legitimate expectation that trial dates will be met and not be  delayed without good reason. At 14 of its judgment, the court  listed factors to be considered in an application for amendment  as follows,

“1. 	The history as regards the amendment and the explanation as to why it is being made late.

2. 	The prejudice which will be caused to the applicant if the amendment is refused.

3. 	The prejudice which will be caused to the opposing party if the amendment is allowed.

4. 	Whether the text of the amendment is satisfactory in terms of clarity and particularity.”

Another case in point is  Swain –Mason and Ors v Mills and   Reeve LLP [2011] EWCA 14.In this case, the court held that the fact of a late amendment may be a good  enough ground  for the court to refuse an amendment and there was a heavy burden on the party seeking an amendment to justify the amendment. The court also emphasized that if the amendment sought would put the parties on an unequal footing or make preparations for trial so burdensome as to put the trial date at risk then the amendment may be considered ‘very late’ and the court should be less inclined to grant applications for amendments brought very late. The court held that the likelihood of prejudice to the amending party which may translate to it being unable able to advance its amended case was said to be a relevant factor .The court stressed the need for the party seeking an amendment to explain why the application is being made at such a late stage especially where the application is not prompted by a recent disclosure or new evidence. The court held that the extent to which the amending party was the author of its own misfortune was important. The court held as follows

“to the extent that the [amending party] will suffer prejudice by the refusal of this amendment, which I accept is a clear possibility , it seems to me clear  also that it  is  very substantially the author of that prejudice. The reality is that nothing has changed since the original incident and it appears that nothing has been discovered now which could not have been discovered three years ago.”

See also Hague Plant limited v Hague & Ors [2014] EWCA 1609.

In Worldwide Corporation Ltd V GTP Ltd & Anor [1998] WL1120764, the court raised concerns regarding payment of costs as compensation where an opponent was being ‘mucked around’’ at the last moment. Another case in point is Bourke and Anor v Favre and Anor [2015] EWHC 227 (Ch) where the court refused an amendment  some months before trial for  want of particularity reasoning that a new claim would  put the defendant under great pressure in preparing for trial whilst there was no pressure on the amending party who had already prepared its evidence. Having analysed the concerns raised by the judges in these cases, Aileen Mc Erlean concluded that the traditional approach is no longer correct.

Nearer home, in the South African case of Randa v Radopile Projects CC (2012) (6) SA 128 (GSJ).The court remarked as follows,

“It has long been my conviction that the commencement of a trial is the fulcrum upon which the court’s stance in respect of applications for amendments to pleadings should be balanced. The further away the parties are from the commencement of the trial, the easier it should be for a litigant to obtain an amendment and , conversely ,the deeper the parties are into trial and the nearer they may be to obtaining judgment, the more difficult it ought to be.”

The approach followed in this case accords with developments in England. The court adopted a strict approach to very late amendments and focused more on procedural prejudice.

The approach recognises that any application for amendment that is made after the closure of pleadings can only be classified as late. The new approach to amendments is more conservative than the approach we currently take. The approach takes into account all the circumstances of the application. It places more emphasis on the conduct of the amending party who has the burden to justify the amendment. The onus is on the party seeking the amendment to show good and sufficient reason for the late amendment. The applicant must explain why the amendment is being made at such a late stage and explain the late amendment. The new focus is on determining whether or not to allow an amendment is  based on  procedural  prejudice rather than considering whether  any prejudice to the other party can be cured by an award of costs. The prejudice likely to be suffered is looked at from both angles and the focus is no longer on the prejudice likely to be suffered by the opponent alone. The nature of the amendment sought to be introduced and the sufficiency of the amendment is also a subject of consideration. Where the amendment will have the effect of putting the parties on an unequal footing or make preparations for trial burdensome on the other party as to put the trial date at risk, then the amendment will be refused as being very late. The new approach weeds out very late amendments.

The approach calls for a more holistic approach to amendments which is more balanced and is preferable. To do or not to do is the question. The question is whether we want to adopt a more conservative approach to late amendments which guarantees a more balanced approach to amendments to pleadings or maintain the status quo. The effect of such a development is a new mind-set for the court.  If the approach is found favourable, there may be need for legal reform through changing our rules to reflect the new scope of the discretion of the court in deciding applications for late amendments of pleadings.

Turning to the facts of this case, the court has considered that the amendment is not prompted by a recent disclosure or new evidence. The history of the amendment and the explanation for the lateness of the application for amendment is very pertinent in applications for amendment of pleadings.as it enables the court to balance the interests of the parties. The explanation for the delay must be reasonable. The applicants attribute the failure to include this aspect of their defence in their plea to the legal practitioner who represented the applicants at plea stage. Mr Zhangazha does not tell the court when he took over the matter and the earliest he could have brought the application for amendment. Mr Zhangazha ought to have brought the amendment the moment he realised the shortcoming with the applicants’ plea. This matter was initially set down for trial for 19 February 2018 and further postponed to the 26 February 2018 for trial. No application for amendment was made during this interval. Mr Zhangazha has not said why he did not make the application before the trial commenced and during this interval. The applicants have been tardy in their approach to this matter. The application has certainly been very late and the lateness of the application has not been adequately explained and no good reason has been given for the failure to bring the amendment on time.

The application for amendment itself has caused delays in this matter. The applicants knew well in advance that they required to supplement their case. It was quite apparent in the applicants’ opening address that they were introducing a new dimension to their defence. They did not make an application for amendment immediately they became aware of the need to do so, deciding instead to test the evidence of the respondent’s key witness first. I am not persuaded that the applicants are bona fide. I do not find the explanation for the failure to introduce the new aspect of the defence reasonable.

The respondent’s position is that it may not be able to respond to the new defence as it has no access to its information. I agree that there is need on the part of the applicants what other correspondence there was after the email forwarding the concept paper was exchanged. The concept paper was clearly the beginning of discussions. There is need for the respondent to seek other communication after that to enable it to respond to the new defence. The respondent has not been able to identify the emails or other documents that it may wish to use to counter the amendment. The respondent did not discover any correspondence relating to the concept paper as the concept paper was not relevant to the determination of the dispute between the parties at that stage. It is important to follow the trail of discussions after the concept paper was exchanged. Evidence of correspondence around the concept paper is therefore pertinent for the resolution of this dispute. The court cannot allow an amendment to a plea during a trial and brought very late for that matter, where it is clear to it that the respondent will not be in a position to gather evidence in response to the amendment sought. If the amendment is allowed, the respondent will in fact not be afforded an evidence gathering stage, because that evidence is simply not available. The applicants cannot be allowed to raise an amendment at this late trial stage and not care that the other side may not have available to it information to enable it to rebut the defence sought to be introduced. The applicants ought to be finding suggestions to map the way forward. It has not suggested that it exchange information or other communication with the respondent. It cannot have its cake and eat it. The dispute between the parties ought to have been properly identified at plea stage. This way, the respondent would have been afforded an opportunity to put gather evidence.

The court has in the exercise of its discretion decided not to grant the amendments sought. If the amendment is allowed, the respondent will suffer prejudice. An amendment at this late stage is likely to put the parties on an unequal footing as the respondent may not be able to rebut the issues raised by the amendment sought. Should the court allow the amendment, the amendment will certainly make preparations for trial burdensome for the respondent. The prejudice that is likely to ensue to the respondent resulting from the amendment is procedural and quite substantive. It is not curable by a costs order. A postponement will not assist the respondent as the information required is not available.

I have also considered that the amendment will necessitate the recalling of the respondent’s key witness who has already given his testimony and has been cross examined on it. There may also be need to call other witnesses who were initially not required to testify. The amendment is very late. The respondent had a legitimate expectation that trial dates would be met and not be delayed by the introduction of amendments. The court accepts that the applicant is likely to suffer prejudice if the amendment is refused in that it will not be able to advance its amended case. The prejudice is borne out of the applicants’ own conduct. The applicants are the authors of their own misfortune. The applicants ought to have brought the amendment earlier on. The amendment being ‘very late ‘and cannot be endorsed.

The amendment sought will not have the effect of equipping the court to ventilate all the issues between the parties. The respondent will not be able to gather the information required to use in its response to the amendment sought and respond to the points raised. If the application is granted, the respondent will suffer extreme prejudice resulting from this amendment which is not curable by an award of costs against the applicants. A postponement of the matter will not assist the respondent. I have in the exercise of my discretion decided to disallow the application.

Accordingly, the application for amendment of the applicant’s plea fails. In the result, it is ordered as follows;

The application for amendment of a plea is dismissed with costs.

Chinogwenya & Zhangazha, applicant’s legal practitioners

Dube, Manikai & Hwacha, respondent’s legal practitioners