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The Jurisdiction Affliction: Submission to jurisdiction in South Africa

Fasken
Reading Time 6 minute read
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The Supreme Court of Appeal (“SCA”) recently handed down a judgment which determined, among other issues, the jurisdiction of the court in a dispute involving two foreign parties. We consider the judgment in Ingosstrakh v Global Aviation Investments (Pty) Ltd and Others (934/2019) [2021] ZASCA 69 delivered on 4 June 2021 and its effect on insurers.

Insurance of the aircraft

In 2012 an insurance policy was concluded between Global Aviation Investments (“Global”) and the insurer, Ingosstrakh. In terms of the policy, Ingosstrakh indemnified Global against all risks of loss or damage to an aircraft for the agreed sum of US$2 500 000. The policy stated that if the cost of repair of damage caused to the aircraft exceeds 75% of the insured value of the aircraft, Global would be entitled to regard the aircraft as a constructive total loss (“CTL”). In the event of a CTL, Ingosstrakh would be obliged to pay Global the full insured value of US$2 500 000.

A month after conclusion of the policy, the pilot of the insured aircraft received a cockpit warning of a landing gear anomaly prior to take-off from OR Tambo International Airport. Both engines of the aircraft consumed foreign matter at full power and this caused severe damage to the aircraft. The damage constituted a risk insured in terms of the policy.

Ingosstrakh was notified of the incident and a claim of US$2 500 000 was lodged by Global. Ingosstrakh refused to pay Global on the basis that the aircraft was not a CTL. Global challenged this rejection through a series of court processes culminating in the appeal to the SCA.

Summary of historical litigation leading to the SCA

  • Global’s 2014 Application: In August 2014, Global launched an application against Ingosstrakh for a declaratory order that Ingosstrakh was liable to indemnify it under the policy for the sum of US$2 500 000. The Court found that material disputes of fact existed and dismissed the application.
  • Global’s 2015 Action: In September 2015, Global served summons at Ingosstrakh’s address cited in the insurance policy. Ingosstrakh served a notice of intention to defend the action but failed to deliver its plea. In response, Global served a notice of bar on Ingosstrakh.
  • Ingosstrakh’s Application: One day prior to the date upon which Ingosstrakh was required to deliver its plea, Ingosstrakh served an application on Global, seeking an order uplifting the notice of bar, among other orders. Ingosstrakh’s application was dismissed.
  • Global’s 2015 Action: In September 2016, Global applied for default judgment against Ingosstrakh. Ingosstrakh opposed the application and lodged a counter-application. In its counter-application, Ingosstrakh sought an order uplifting the notice of bar.

The court a quo in the 2015 Action found that it was “unfair procedure” for Global to seek default judgment so long after the notice of intention to defend was lodged. It also dismissed Ingosstrakh’s counter-application for upliftment of bar as it “lacked basis” and was “misplaced”. The parties appealed the dismissal of their respective applications.

Several issues were considered by the SCA in its judgment, three of which will be examined:

  1. Could the SCA uplift the bar on Ingosstrakh?
  2. Did a South African court have jurisdiction over the dispute?
  3. Did the repair costs of the aircraft exceed the 75% threshold to constitute a CTL?

Raising the (notice of) bar

In brief: Ingosstrakh was barred from filing a plea. On 10 November 2015, one day before it was required to file its plea, Ingosstrakh launched an application to uplift the bar. Its application was dismissed, which order of court Ingosstrakh did not appeal.

As Ingosstrakh did not appeal the order, the SCA declared that the issue was res judicata, i.e. the issue had been adjudicated by a competent court and therefore cannot be pursued further by the same parties. A competent court dismissed Ingosstrakh’s application to uplift the bar. Accordingly, the court’s decision stands. In any event, the SCA concluded that Ingosstrakh failed to show good cause for lifting of the bar.

Submission to jurisdiction

The SCA considered whether Ingosstrakh’s special plea of jurisdiction, contained in its draft plea, constituted a bona fide defence to Global’s claim.

Ingosstrakh’s special plea was based on the following facts: Both it and Global were foreign parties (“peregrini”). The insurance policy provides that it is governed by the laws of the insured’s country of domicile and each party is to submit to the exclusive jurisdiction of the courts of the insured’s country of domicile in any dispute arising from the policy.

Ingosstrakh claimed that the court a quo did not have jurisdiction to determine the dispute. Global’s defence was that Ingosstrakh had submitted to the court’s jurisdiction.

The case of Veneta Mineraria SPA v Carolina Collieries (Pty) Ltd (in liquidation) 1987 (4) SA 883 (A) is authoritative: submission to jurisdiction of foreign peregrini is insufficient to confer jurisdiction on a court. Rather, submission as well as one or more traditional grounds of jurisdiction must also be present to confer jurisdiction on a court. A ground of jurisdiction is a link between the court and the subject matter of the litigation.

On the issue of whether Ingosstrakh submitted to the jurisdiction of the court a quo, the SCA found that its selection of a South African service address in the insurance policy and its initiation of application proceedings in South Africa were sufficient to prove Ingosstrakh’s submission to jurisdiction in the court a quo.

The SCA acknowledged commentary whereby submission alone was sufficient for a court to assume jurisdiction. However, the court did not have to determine whether submission to jurisdiction alone is permitted in South Africa as a basis to confer jurisdiction in the present matter because the fact that the insurance policy was concluded in Johannesburg constituted a traditional basis to confer jurisdiction.

As the Court found that Ingosstrakh had submitted to the jurisdiction of the court a quo and in addition to submission, the insurance policy was concluded within its jurisdiction, the court a quo enjoyed jurisdiction to hear the matter. Ingosstrakh’s defence of lack of jurisdiction failed.

The 75% CTL Threshold

Having dismissed Ingosstrakh’s appeal to have the bar uplifted and the matter dismissed based on jurisdictional issues, the Court turned to Global’s claim. In considering whether the aircraft repair costs exceed the 75% threshold to constitute a CTL, the Court examined the aircraft damage.

Global’s quotation well exceeded the 75% threshold, providing the cost of repairs for both engines. Ingosstrakh’s quotation was below the 75% threshold and related to the repairs required for one engine only. The Court took direction from the South African Civil Aviation Association (“SACAA”), which indicated that both engines needed repair to return to airworthiness. The Court deferred to the authority of SACAA, finding that both engines required repair and that in consequence, the CTL threshold would be exceeded.

The Court dismissed Ingosstrakh’s appeal and upheld Global’s appeal, granting default judgment against Ingosstrakh for the sum of US$2 500 000.

Final Comments

In its judgment, the SCA reiterates the importance of adhering to court procedure and upholding established principles related to jurisdiction.

According to the Court, Ingosstrakh showed “inexcusable default” and was criticised for its “supine attitude”. Parties are warned against non-compliance with the rules of court and attempts at using dilatory conduct in order to create protracted litigation. Global’s conduct also showed that a notice of bar can withstand the test of time – Global applied for default judgment a year after barring Ingosstrakh from filing a plea.

The Court also confirmed the South African position related to jurisdiction: if a foreign peregrinus submits to jurisdiction and in addition, a traditional ground of jurisdiction exists, jurisdiction is established. The SCA also raised an important point of law to be determined in the future: is submission to jurisdiction alone sufficient to establish jurisdiction in South Africa?

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