THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case no: 534/2022

In the matter between:
DISCOVERY INSURE LIMITED
APPELLANT
and
TSHAMUNWE MASINDI
RESPONDENT

Neutral citation:
Discovery Insure Limited v Masindi (534/2022) [2023] ZASCA 101
(14 June 2023)
Coram:
PETSE AP and SALDULKER, MABINDLA-BOQWANA and
WEINER JJA, and MASIPA AJA

Heard:          10 May 2023

Delivered:
14 June 2023

Summary:
Insurance policy – interpretation of terms of policy providing for forfeiture of
benefits under policy – enforceability of such terms – whether a partly fraudulent and
partly genuine claim results in forfeiture of entire claim, retrospective from either date of

reported incident or actual incident date, entitling insurer to repayment of amounts already
paid arising from such incident.

ORDER

On appeal from: Gauteng Division of the High Court, Johannesburg (Khumalo J,
sitting as court of first instance):
The appeal is upheld with costs.
Paragraphs 1, 2 and 3 of the order of the high court are set aside and
substituted with the following:
‘1 Judgment is granted against the defendant in favour of the plaintiff for:
(a)
Payment of the sum of R1 594 980.12.
(b)
Interest on the aforesaid amount at the rate of 10.25% per annum
calculated from 8 June 2017 to date of final payment.’

JUDGMENT

Petse AP and Masipa AJA (Saldulker, Mabindla-Boqwana and Weiner JJA
concurring):

Introduction
[1] This appeal raises a crisp and interesting interpretation issue, namely whether
a partly fraudulent and partly genuine claim arising from the same incident results in
the forfeiture by the insured of the claim in its entirety. An allied issue, if the principal
question is answered in the affirmative, is this: Is the insurer, in that event, entitled to
repayment of the amounts already paid to the insured, in settlement of the insured's
claim, arising from the same incident, when it is subsequently discovered that part of
the claim was tainted by fraud?

[2] The appellant, Discovery Insure Limited (Discovery), says that both questions
must be answered in the affirmative. For his part, the respondent, Mr Tshamunwe
Masindi, says the answer to both questions is No. The answer to these questions
hinges on the interpretation of the terms of Discovery's insure plan policy contract (the

policy) that the respondent took out with Discovery during April 2016, with effect from
1 May 2016.

[3] On 14 December 2017 Discovery commenced the present proceedings in the
Gauteng Division of the High Court, Pretoria (the high court) against the respondent
in which Discovery sought repayment of the sum of R1 647 592.67 together with
ancillary relief and costs of suit. The respondent resisted the claim on various grounds.
In due course the action came on trial before Khumalo J. The learned Judge allowed
the claim in part and ordered the respondent to pay a sum of R675 000 to Discovery
together with interest thereon and costs of suit on the scale as between attorney and
client. With leave of the high court, Discovery now appeals against part of the judgment
to this Court.

Background facts
[4] The essential facts, which are largely common cause, are the following. As
already indicated above, the respondent took out the policy for specified insured risks,
described as a Discovery Insure Plan, to insure, inter alia, his dwelling in Pretoria and
household contents, against certain risks resulting in total loss or damage howsoever
caused. The policy provided, amongst other things, that if the risks insured against
eventuated, resulting in damage to his residence, rendering it unsuitable for human
habitation, Discovery would be obliged to compensate the respondent for the resultant
damage to the buildings and household contents, and, where applicable, to reimburse
the respondent for his out of pocket expenses incurred for what the policy described
as emergency accommodation.

[5] It is common cause that the policy further provided, amongst other things, that:
if any portion of a claim lodged with Discovery by the respondent is fraudulent,
Discovery would be entitled to cancel the policy with retrospective effect from the date
of the reported incident, or alternatively the actual date of the incident – whichever was
the earlier. Consequently, Discovery asserted that it had a right to reclaim all amounts
paid to the insured, ie the respondent in this instance, subsequent to the retrospective
cancellation date.

[6] On 11 November 2016, following the occurrence of the risk insured against, the
respondent submitted a single claim under the building section of the policy for losses
caused by storm damage to his residence. The claim was made up of two components.
The first represented costs of repairs to the respondent's residence and damage to
household contents. The second was for emergency accommodation. Consequently,
at various times between 7 December 2016 and 25 May 2017, Discovery paid to the
respondent the aggregate amount of R1 594 980.12 in settlement of both components
of the claim. We pause here to mention that the sum of R675 000 represented the
amount claimed in respect of emergency accommodation. This was the portion of the
claim tainted by fraud. This is not in dispute. The sum of R972 597.67 was paid by
Discovery to the respondent in settlement of the damage to the respondent's residence
and household contents component. This component of the claim, it is common cause,
was untainted by fraud and therefore legitimate.

[7] When evidence of the fraud came to light, following investigations undertaken
by Discovery, Discovery notified the respondent that it was exercising its right, as it
was entitled in terms of the policy, to cancel the policy with retrospective effect from
the date of the incident, ie 10 November 2016, that had triggered the claim. In addition,
Discovery claimed repayment of the full amount it had already paid out to the
respondent between 7 December 2016 to 25 May 2017. As already mentioned, the
respondent failed to repay the amount reclaimed, prompting Discovery to institute the
action mentioned in paragraph 3 above against the respondent.

[8] As already indicated above, the respondent resisted the claim on various
grounds. In particular, the respondent asserted that nowhere does the policy contain
an express provision to the effect that on the retrospective termination of the policy,
the insured would be liable to repay all the benefits already paid by the insurer before
termination including benefits relating to claims not tainted by fraud. We pause here
to mention that it was, however, not in dispute that on the occurrence of any of the
events stipulated in clause 5.13 of the policy plan, Discovery would acquire a right to
cancel the policy retrospectively at its sole discretion. Following a trial, the high court
was satisfied that part of the claim lodged by the respondent was fraudulent.

[9] In the event, and contrary to what Discovery had asserted, the high court held
that Discovery was not entitled to repayment of the full amount claimed. Rather, the
high court held, Discovery was entitled to repayment of only that portion of the claim
that was tainted by the undisputed fraud. The underlying reasoning of the high court
was, in essence, predicated on two bases. First, the high court held that the insured
had acquired accrued rights to the payment of the genuine portion of his claim, and
that those rights remained intact, unaffected by the subsequent fraud. Secondly, it held
that the policy clause that provided for forfeiture of claims tainted by fraud was, for all
intents and purposes, a penalty clause, in terms of the Conventional Penalties Act (the
Act).1 Thus, the high court concluded, its enforcement would – to the extent that to do
so would enable Discovery to recoup even the amount paid in settlement of the
genuine portion of the insurance claim – result in disproportionate prejudice to the
respondent. Consequently, the high court declined to enforce the clause.

[10] In this regard, it bears mentioning that in coming to this conclusion, the high
court heavily relied on the decision of this Court in Lehmbecker's Earthmoving and
Excavators (Pty) Ltd. v Incorporate General Insurances Ltd.2 There, this Court held
that the words 'all benefits under this policy shall be forfeited' upon the making of a
fraudulent claim were clearly capable of bearing the meaning that, as from the time
that a fraudulent claim was made, the insured should have no further benefit or claim
under the policy, and, therefore, valid claims already accrued and those already paid
out to the insured, remain intact and unaffected by subsequent, unrelated fraudulent
claims. In Lehmbecker's Earthmoving this Court, in essence, held that the comparable
clause there under consideration could not be said to have unequivocally provided for
forfeiture of valid claims which had already accrued prior to the fraudulent claim.3 We
shall revert to this aspect later.

Issues
[11] There are three cardinal issues that fall to be determined in this appeal. They
are:

1 The Conventional Penalties Act 15 of 1962.
2 Lehmbecker's Earthmoving and Excavators (Pty) Ltd. v Incorporate General Insurances Ltd 1984 (3)
SA 513 (A) (Lehmbecker's Earthmoving).
3 Ibid at 522A-D.

(a)
First, the interpretation of clause 5.13 read with clause 5.5 of the Plan Guide –
which is the schedule to the policy – and the Agreement of Loss, which is an integral
part of the Plan Guide. More pertinently, the appeal raises the question whether these
clauses, properly construed, entitle Discovery to repayment of all amounts paid to the
respondent subsequent to the insured event, when the insured, ie the respondent, with
full knowledge of his misrepresentation, submitted a partly fraudulent claim;
(b)
Secondly, whether the doctrine of accrued rights finds application in the context
of the facts of this case, and if so, whether the relevant clauses, which are central to
this appeal, operate to disgorge the compensation already paid to the respondent in
respect of the genuine portion of his claim;
(c)
Thirdly, whether the high court was correct in its characterisation of the relevant
clauses of the Plan Guide, ie clauses 5.13 and 5.5, as constituting penalty clauses,
thereby justifying the high court's refusal to enforce the clauses in question.
We pause here to mention that insofar as the third issue is concerned, neither party
had raised it before the high court. Nor did the high court afford the parties the
opportunity to address the issue. We shall revert to this aspect later.

[12] It is convenient at this stage to set out the two clauses which are central to the
outcome of this appeal. These are clauses 5.13 and 5.5 of the Plan Guide. Clause
5.13, which is headed 'Fraud, misrepresentation and inaccurate information', reads as
follows:
'All benefits in terms of this Plan in respect of any claim will be lost and this plan may be voided
or cancelled at our discretion:

Where there is a misrepresentation, non-disclosure, misdescription by you or anyone
acting on your behalf; or

If false or incomplete information is supplied for any fact and/or circumstance in
connection with an application for cover or in connection with a claim in terms of this Plan
by you or anyone acting on your behalf; or

If any claim or part thereof under this Plan is in any way fraudulent, or if fraudulent means
or devices are used by you or any acting on your behalf to get any benefit under this Plan
is occasioned by your intentional conduct or any person acting on your behalf or with your
involvement;

If any fraudulent information and/or document whether created by you or any other party
is provided to us by you or anyone acting on your behalf or with your involvement in
support of any claim under this Plan and whether or not the claim is itself fraudulent.


If the size of any claim is inflated by you or anyone acting on your behalf or with your
involvement, for any reason whatsoever, and whether the claim itself is fraudulent.
Where any benefit under this Plan is forfeited in circumstances set out in this section, we will
have the right to cancel your Plan retrospective to the reported incident date or actual incident
date, whichever is the earliest.'

[13] Clause 5.5, which is headed 'Breach of conditions requiring your assistance',
reads as follows:
'We reserve the right to cancel your Plan and claim repayment from you for any amounts we
have paid in settlement of your claim if you breach or fail to comply with our procedure and
the rules set out in this Plan Guide.'

[14] It bears mentioning that our courts have on numerous occasions in the past
pertinently observed that fraudulent insurance claims are not a rare phenomenon.
Regrettably, such claims appear to be rising unabated. In order to protect themselves
against fraudulent claims, insurers 'as masters of their own policies'4 have now
resorted to incorporating in their policy contracts appropriate clauses designed to
protect themselves against such claims. Such clauses, as a general rule, provide for
forfeiture of the benefits that the insured would ordinarily derive from the policy in the
absence of fraud or misrepresentation of the true facts. This then raises the question
whether clauses 5.5 and 5.13 of the Plan Guide quoted above go far enough to
achieve this purpose.

[15] In the high court, as in this Court, the fate of the litigation hinged on the meaning
and import of clauses 5.5 and 5.13 of the Plan Guide. Thus, it is necessary to say
something about the proper approach to interpretation of documents, whether
statutes, or contracts, or other documents. This approach was restated and clarified
in the oft-cited decision of this Court in Natal Joint Municipal Pension Fund v Endumeni
Municipality 5 in which Wallis JA, writing for the unanimous court, put it thus:
'Interpretation is the process of attributing meaning to the words used in a document, be it
legislation, some other statutory instrument, or contract, having regard to the context provided

4 Schoeman v Constantia Insurance Co Ltd [2003] ZASCA 48; [2003] 2 All SA 642 (SCA) para 24
(Schoeman).
5 Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] 2 All SA 262 (SCA); 2012 (4) SA
593 (SCA) (Endumeni).

by reading the particular provision or provisions in the light of the document as a whole and
the circumstances attendant upon its coming into existence. Whatever the nature of the
document, consideration must be given to the language used in the light of the ordinary rules
of grammar and syntax; the context in which the provision appears; the apparent purpose to
which it is directed and the material known to those responsible for its production...A sensible
meaning is to be preferred to one that leads to insensible or unbusinesslike results or
undermines the apparent purpose of the document.'6

[16] The learned Judge of Appeal continued:
'In resolving the problem the apparent purpose of the provision and the context in which it
occurs will be important guides to the correct interpretation. An interpretation will not be given
that leads to impractical, unbusinesslike or oppressive consequences or that will stultify the
broader operation of the legislation or contract under consideration.'7

[17] There are also decisions that have emphasised that the process of
interpretation is a unitary exercise, not a mechanical consideration of the text, context
and purpose of the instrument under consideration.8 Most recently, the essence of
what the interpretative exercise entails was explained by Unterhalter AJA in Capitec
Bank Holdings Limited and Another v Coral Lagoon Investments 194 (Pty) Ltd and
Others 9 thus:
'It is the language used, understood in the context in which it is used, and having regard to the
purpose of the provision that constitutes the unitary exercise of interpretation. I would only add
that the triad of text, context and purpose should not be used in a mechanical fashion. It is the
relationship between the words used, the concepts expressed by those words and the place
of the contested provision within the scheme of the agreement (or instrument) as a whole that
constitutes the enterprise by recourse to which a coherent and salient interpretation is
determined.'10

6 Ibid para 18.
7 Ibid para 26.
8 See, for example, in this regard: Chisuse and Others v Director-General, Department of Home Affairs
and Another [2020] ZACC 20; 2020 (10) BCLR 1173 (CC); 2020 (6) SA 14 (CC) para 52; University of
Johannesburg v Auckland Park Theological Seminary and Another [2021] ZACC 13; 2021 (8) BCLR
807 (CC); 2021 (6) SA 1 (CC) para 65.
9 Capitec Bank Holdings Limited and Another v Coral Lagoon Investments 194 (Pty) Ltd and Others
[2021] ZASCA 99; [2021] 3 All SA 647 (SCA); 2022 (1) SA 100 (SCA).
10 Ibid para 25.

[18] It is against this backdrop, and bearing in mind the principles of interpretation
discussed above, that we now turn to the merits of the case.

[19] In the high court the fate of the litigation hinged on the question whether clauses
5.13 and 5.5, on their proper interpretation, had the effect of depriving the respondent
of 'accrued rights'. We have put the words 'accrued rights' in inverted commas for
reasons that will become apparent later. As the high court saw it, the question was
whether the respondent was liable to refund the moneys already paid to him by
Discovery, in settlement of his claim for loss and emergency accommodation, even in
respect of items that were not tainted by fraud, before the cancellation of the policy.
The high court accepted that the respondent was not entitled to any benefits under the
policy after the cancellation of the policy. Therefore, the high court, in the view it took
of the matter, proceeded to consider whether Discovery was, on the evidence
presented, entitled to re-imbursement of the amounts already paid in respect of the
genuine portion of the claim prior to cancellation of the policy. In this regard, the high
court appeared to have taken the view that the termination of the policy took place
after payment in settlement of the claim had already been made to the respondent.
Hence, its decision against Discovery on this score.

[20] Relying on two decisions of this Court in Lehmbecker's Earthmoving11 and
Schoeman12 the high court found, in the first place, that the cancellation clause upon
which Discovery relied did not affect the respondent's genuine claims. Secondly, the
high court held that the relevant clauses did not affect rights that had already accrued
to the respondent. In the third place, the high court opined that clauses 5.13 and 5.5,
in any event, amounted to penalty clauses and therefore fell foul of the provisions of
the Act. Thus, the high court concluded that clauses 5.13 and 5.5 were, by virtue of
being penalty clauses, not enforceable. We consider all three bases that were the
pillars on which the edifice of the high court's reasoning rested, in turn, below.

[21] By way of prelude it is apposite at this juncture to say the following. As a general
rule insured persons are under a duty to act in good faith in their dealings with insurers.

11 Footnote 1 above at 522E-F.
12 Schoeman para 24.

And that, ordinarily, a wilful lodgement of a false claim by the insured constitutes a
breach of that duty of good faith which entitles the insurer to terminate the policy. That
eventuality would then relieve the insurer, in the absence of an express term to the
contrary, of liability under the policy from the time of termination of the policy. The
effect of this would be that rights and obligations that had accrued before termination
would remain unaffected by the termination.13

[22] But as we now know, in this case Discovery seeks more than what has been
stated in the preceding paragraph. Pinning its faith on clauses 5.13 and 5.5, Discovery
requires of this Court to ascribe a meaning to clause 5.13 that recognises the right to
terminate the policy with retrospective effect from the date, not of the discovery of the
respondent's fraud, but from the date on which the incident that gave rise to the claim
occurred, namely 10 November 2016. If Discovery's contention is upheld it would
result in the respondent also forfeiting entitlement to all the amounts already paid to
him between 5 December 2016 and 26 April 2017. This then raises the question
whether, in the context of the facts of this case, this is legally and contractually tenable.
In this regard clauses 5.13 and 5.5 take the centre stage.

The parties' contentions
[23] The submissions advanced on behalf of Discovery may, for convenience, be
shortly summarised as follows:
(i)
clause 5.13 explicitly provides that lodgement of a fraudulent claim by the

insured results in the benefits under the policy being forfeited if the insurer

elects to cancel the policy;
(ii)
the forfeiture of benefits under the policy entailed that the insured would not

only lose the right to claim insurance benefits under the policy but would also

lose the right to retain the proceeds if the benefits have already been paid out;
(iii)
having regard to the fact that termination of the policy would be retrospective

from the date on which the incident which gave rise to the claim arose, (ie

10 November 2016), the insurer is entitled to reclaim the full amount if part of

the claim was tainted by fraud.

13 See, for example, in this regard: Nash v Golden Dumps (Pty) Ltd [1985] ZASCA 6; [1985] 2 All SA
161 (A) at 22D-I; Thomas Construction (Pty) Ltd. (in Liquidation) v Grafton Furnitue Manufacturers (Pty)
Ltd 1988 (2) SA 546 (AD) at 563J-564D.

[24] In support of its contentions in relation to (i) and (ii) in the preceding paragraph,
Discovery called into aid Santam Bpk v Potgieter.14 In Santam it was held that the fact
that the insured forfeited all the benefits under the policy with retrospective effect
meant, as its corollary, that the insurer was entitled to the repayment of all the amounts
previously paid to the insured pursuant to the latter's claim.

[25] We have earlier noted that forfeiture clauses of the kind like the ones under
consideration in this case are now a common feature in insurance contracts.15 And the
rationale for such clauses was explained in Schoeman.16 As a general rule such
clauses are viewed as valid and therefore enforceable.17 As Lehmbecker's
Earthmoving tells us, they are designed to protect the insurer against fraudulent claims
and, in the words of Miller JA, to 'discourage attempts to gain undue advantage [by
the insured] by lodging falsely inflated claims'.18 Thus, if unbeknown to the insurer, the
insured submits a fraudulent claim which is then paid out, the former would be entitled
to recover the full amount paid out to the latter.19

[26] On behalf of the respondent it was accepted that the issues raised in this case
fall to be determined with reference to clause 5.13 of the Plan Guide. Furthermore,
counsel for the respondent readily acknowledged without question that, insofar as the
fraudulent component of the respondent's claim is concerned, the respondent is liable
to pay back the ill-gotten gains because he was not entitled thereto in accordance with
the ordinary principles of our law.

[27] However, to the extent that Discovery invokes clause 5.13 of the policy to seek
repayment of the untainted component of the claim, the respondent contended that
this particular clause does not provide such a remedy. Counsel for the respondent laid
great stress in his heads of argument upon the fact that clause 5.13 'does not contain
an express provision that determines that on the retrospective termination of the policy
the defendant becomes liable for the repayment of any or all benefits paid by

14 Santam Bpk v Potgieter 1997 (3) SA 415 (O) (Santam).
15 See, for example, Lehmbecker's at 519B-E.
16 Schoeman para 25.
17 Lehmbecker's Earthmoving at 520F-G.
18 Ibid at 520F-G.
19 See generally, for example, Santam at 423E; E.R Hardy Ivamy General Principles of Insurance Law
6ed at 114 para 176.

[Discovery] in respect of claims not tainted by fraud'. Much was also made of the fact
that the 'express wording of clause 5.13 is not wide enough to allow an interpretation
of this clause to include a repayment of claims not tainted by fraud'.

[28] According to the respondent, Discovery might well have had a point if it had
incorporated an express clause 'as [insurers are] masters of their policies' entitling it
to validly reject a partly fraudulent claim and thereby obliging the insured to repay even
the portion of the claim not tainted by fraud. On its terms, so the argument went, clause
5.13 does not permit the importation of a tacit term to this effect. It was then argued,
with reference to Lehmbecker's Earthmoving and Schoeman, that Discovery's reliance
on clause 5.13, in particular, was misplaced.

[29] The contentions advanced by counsel for the respondent relying on
Lehmbecker's Earthmoving and Schoeman render it necessary to analyse those
decisions to determine whether they support those contentions in the context of the
facts of this case. As we see it, those cases are materially distinguishable on their
facts from the facts of this case. The relevant clause under consideration in
Lehmbecker's Earthmoving reads as follows:'... if any claim be in any respect
fraudulent ..."all benefit under this policy shall be forfeited".' It was not in dispute in
Lehmbecker's Earthmoving that the insured had submitted a fraudulent claim in
relation to an incident different to the one in respect of which the insured had submitted
a genuine claim. The question then arose as to whether the fact that the insured had
lodged a fraudulent claim under the same policy, albeit arising from a different incident,
had the effect of depriving the insured of his entitlement to compensation for the
genuine claim. This Court recognised that the answer to this question depended on
whether the relevant clause providing for forfeiture went far enough to support the
contentions of the insurer. This Court acknowledged that the clause there under
consideration was designed to 'lend protection to the insurer against fraudulent claims
and to discourage attempts to gain undue advantage by lodging falsely inflated
claims'.20 After analysing various judgments here and abroad, Miller JA, whilst
accepting that the language of the clause was undoubtedly wide, nevertheless opined
that 'in the absence of clear and entirely unambiguous provision therefor in the

20 Lehmbecker's Earthmoving at 520F-G.

contract' the clause he considered in that case did not affect rights 'which had accrued
and became due and payable prior to the subsequent breach causing the premature
termination of the policy...'.21

[30] The next decision to be mentioned and heavily relied upon by the respondent
is Schoeman. There, this Court had to consider whether it could as a matter of principle
import penalty principles of English law to address the question whether the insured
could be absolved of liability in circumstances where the insured had inflated the
amount of her claim. In declining this invitation, this Court held that there would be no
justification for doing so.

[31] Writing for the unanimous court, Marais JA said the following:
'The implications of that judgment upon a case where there is only one incident giving rise to
a claim and that claim is partly, but not wholly, fraudulent are not entirely clear. By parity of
reasoning it can be argued that the right to claim the indemnity accrued before the making of
the partly fraudulent claim and that the subsequent fraud cannot preclude the insured from
claiming what was truly due under the policy. Such an argument could not succeed in the face
of an express clause such as there was in Lehmbecker’s case for it would render the clause
entirely nugatory. But where there is no such clause it is difficult to see why the reasoning
based upon the accrual of the liability to indemnify prior to the fraud should not lead to the
same conclusion.'22
Emboldened by the last sentence of what Marais JA said in the above quoted passage,
counsel for the respondent argued that in the present case clause 5.13 does not go
far enough so as to encompass genuine claims to absolve the insurer of liability to
indemnify the insured in respect of rights that had already accrued prior to the fraud
that led to the retrospective termination of the policy by the insurer. In this case, it will
be recalled that the total proceeds of the genuine component of the respondent's claim
in respect of the damage to his residence and household contents amounted to
R972 592.67. It is this amount that the respondent asserted is not recoverable by
Discovery because it had not only already accrued but also paid out to him at the time
when Discovery terminated the policy.

21 Ibid at 522E-F.
22 Para 20.

[32] Counsel's argument is plainly unsustainable. The answer to it is to be found in
clause 5.13 itself. In our view the clause is clear and unambiguous. Thus, effect must
be given to it. In addition, to construe clause 5.13 as the respondent would have it,
would subvert the well-established tenets of interpretation of documents. What is
more, the underlying purpose that clause 5.13 was designed to serve, namely to
protect Discovery against fraudulent claims and 'discourage attempts [by insured
persons] to gain undue advantage by lodging falsely inflated claims' would be
undermined. As Wallis JA pertinently observed in Commissioner for the South African
Revenue Service v United Manganese of Kalahari (Pty) Ltd '...context is as important
in construing statutes as it is in construing contracts or other documents...'23 And, more
than a decade previously in Bato Star Fishing (Pty) Ltd v Minister of Environmental
Affairs & Others,24 the Constitutional Court made plain that 'the emerging trend in the
interpretation of documents is to have regard to the context in which the words occur,
even where the words to be construed are clear and unambiguous'.25 (Emphasis
added.)

[33] What is more, the respondent's contentions to the contrary conveniently ignore
what Marais JA said in Schoeman that:
'When there is added to that the fact that insurance companies are masters of their own
policies in the sense that they are free to unilaterally devise them, the insured has no say in
the process, and that it is a simple matter to include an appropriate clause to protect the insurer
against fraudulent claims by providing for forfeiture...'26
Consequently, in incorporating clause 5.13 in the policy in issue here, Discovery did
precisely what Marais JA had in mind when he made the remarks just quoted above.
And we can conceive of no cogent reasons why full effect should not be given to this
clause.

[34] In sum, when the respondent purported to submit his claim on 11 November
2016 there was no longer an extant insurance policy because it had already been
terminated with retrospective effect from 10 November 2016 – the date of the incident

23 Commissioner for the South African Revenue Service v United Manganese of Kalahari (Pty) Ltd
[2020] ZASCA 16; 2020 (4) SA 428 (SCA) para 17.
24 Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs & Others 2004 (4) SA 490 (CC).
25 Ibid para 90.
26 Schoeman para 24.

– pursuant to clause 5.13. Therefore, to ascribe to clause 5.13 the meaning for which
the respondent contended would, as Marais JA put it in Schoeman, 'render the clause
entirely nugatory'.27

[35] It remains briefly to deal with the final argument advanced on behalf of the
respondent. It is this. The forfeiture clause (ie clause 5.13) is to all intents and
purposes a penalty clause which is, for that reason, not enforceable. It is not necessary
to delve into this aspect. It suffices merely to point out that neither party raised this
issue in their pleadings. Nor was it canvassed at the trial. It emerged for the first time
in the judgment of the high court. The parties were at no stage alerted to it. It bears
repeating that this Court has more than once cautioned against Judges straying
outside of the facts presented to the court by the litigants. In Fischer and Another v
Ramahlele and Others28 this Court said the following on this score:
'Turning then to the nature of civil litigation in our adversarial system it is for the parties, either
in the pleadings or affidavits, which serve the function of both pleadings and evidence, to set
out and define the nature of their dispute and it is for the court to adjudicate upon those issues.
That is so even where the dispute involves an issue pertaining to the basic human rights
guaranteed by our Constitution, for ‘it is impermissible for a party to rely on a constitutional
complaint that was not pleaded’. There are cases where the parties may expand those issues
by the way in which they conduct the proceedings. There may also be instances where the
court may mero motu raise a question of law that emerges fully from the evidence and is
necessary for the decision of the case. That is subject to the proviso that no prejudice will be
caused to any party by its being decided. Beyond that it is for the parties to identify the dispute
and for the court to determine that dispute and that dispute alone.

It is not for the court to raise new issues not traversed in the pleadings or affidavits, however
interesting or important they may seem to it, and to insist that the parties deal with them. The
parties may have their own reasons for not raising those issues. A court may sometimes
suggest a line of argument or an approach to a case that has not previously occurred to the
parties. However, it is then for the parties to determine whether they wish to adopt the new
point. They may choose not to do so because of its implications for the further conduct of the
proceedings, such as an adjournment or the need to amend pleadings or call additional

27 Schoeman para 20.
28 Fischer and Another v Ramahlele and Others [2014] 3 All SA 395 (SCA) (Fischer). See also:
Advertising Regulatory Board NPC and Others v Bliss Brands (Pty) Ltd [2022] ZASCA 51; [2022] 2 All
SA 607 (SCA); 2022 (4) SA 57 (SCA) paras 9-10.

evidence. They may feel that their case is sufficiently strong as it stands to require no
supplementation. They may simply wish the issues already identified to be determined
because they are relevant to future matters and the relationship between the parties. That is
for them to decide and not the court. If they wish to stand by the issues they have formulated,
the court may not raise new ones or compel them to deal with matters other than those they
have formulated in the pleadings or affidavits.'29 [Citations omitted.]

[36] For all the aforegoing reasons, we do not agree with the interpretation of clause
5.13 favoured by the high court. As already stated, its interpretation entirely overlooked
the fact that clause 5.13 explicitly provides that upon breach of its terms, Discovery
would be entitled to terminate the policy with retrospective effect from the date of the
incident giving rise to the claim, ie 10 November 2016. Bearing in mind this crucial
consideration, we are driven to the conclusion that when the respondent lodged the
claim on 11 November 2016, he had already forfeited all the benefits under the policy.
Simply put, once the policy was terminated on 10 November 2016 there was no policy
in extant under which the respondent could claim any of the benefits that would
otherwise have been available to him had the policy not been terminated a day earlier.
Concomitantly, Discovery was under no obligation to pay out any moneys to the
respondent on 5 December 2016 onwards because the policy had, on 10 November
2016, already terminated.

[37] Accordingly, we consider that Discovery was entitled to a refund of all the
moneys previously paid out by it to the respondent and, thus, to the relief it sought in
the high court. In these circumstances the appeal should, therefore, succeed. There
was no issue in relation to costs, which must therefore follow the result.

Order
[38] In the result, the following order is made:
The appeal is upheld with costs.
Paragraphs 1, 2 and 3 of the order of the high court are set aside and
substituted with the following:
‘1 Judgment is granted against the defendant in favour of the plaintiff for:
(a)
Payment of the sum of R1 594 980.12.

29 Ibid paras 13-14.

(b)
Interest on the aforesaid amount at the rate of 10.25% per annum
calculated from 8 June 2017 to date of final payment.’

____________________
X M PETSE
ACTING PRESIDENT OF
THE SUPREME COURT OF APPEAL

__________________________
M B S MASIPA
ACTING JUDGE OF APPEAL

APPEARANCES

For appellant:

L M Spiller
Instructed by:

Keith Sutcliffe & Associates Incorporated,

Randburg
Hendre Conradie Inc (Rossouws Attorneys),
Bloemfontein

For respondent:

N C Louw

(heads of argument prepared by V Vergano)
Instructed by:

Warrener de Agrela and Associates,

Edenvale

Honey Attorneys, Bloemfontein
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
14 June 2023
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not form
part of the judgments of the Supreme Court of Appeal
Discovery Insure Limited v Masindi (534/2022) [2023] ZASCA 101 (14 June 2023)

Today, the Supreme Court of Appeal (SCA) upheld with costs an appeal against the judgment of the
Gauteng Division of the High Court, Johannesburg (the high court).

The issue before the SCA was whether Discovery Limited (Discovery) was entitled to terminate the
insurance policy with retrospective effect from the date of the occurrence of the incident giving rise to
the claim, and reclaim the monies paid to Mr Masindi pursuant to a partially fraudulent claim.

Mr Masindi took insurance with Discovery during May 2016 in terms of which he insured, amongst
others, his residential property located in Pretoria and household contents. The policy covered repairs
to the insured residence and made provision for alternate emergency accommodation in the event the
insured property was damaged and, as a result became uninhabitable. The material terms of the policy
were that if any claim or part thereof was fraudulent Discovery would have the absolute right to cancel
the policy retrospectively from the date of the reporting of the incident or the actual date of the incident,
in which event the insured would forfeit all the benefits under the policy from the date of cancellation.

On 11 November 2016, an incident occurred which caused damage to the insured property and rendered
the residence uninhabitable as also loss of household contents. Mr Masindi claimed for the repairs to
his insured residence, compensation for damages to the household contents and reimbursement for the
emergency accommodation expenses. Unbeknown that part of the claim was fraudulent, Discovery paid
the claim in full. Subsequently, it was discovered that part of the claim relating to emergency
accommodation was fraudulent. Consequently, Discovery cancelled the policy retrospectively from
11 November 2016 and reclaimed the full amount it had paid out by way of compensation to
Mr Masindi. The high court held that Discovery was only entitled to the portion of the claim that was
not tainted by fraud. It deemed the fraud clause in the policy to be akin to a penalty clause which the
high court found to be disproportionate to the prejudice suffered by Discovery as a result of the fraud,
and consequently declined to enforce it.

Concerning the merits of the appeal, the SCA considered three issues, namely: (i) the correct
interpretation of the fraud clause; (ii) the application of the doctrine of accrued rights; and (iii) the
characterisation by the high court of the fraud clause as a penalty under the Conventional Penalties Act
and the consequent refusal to enforce it. The SCA accepted, as trite, that insurance companies have the
right to incorporate comprehensive forfeiture clauses in their policies and where such clauses are
included and are similar to the one upon which Discovery relied, then the insurer would be entitled to

reclaim the full amount paid in settlement of the claim that subsequently turned out to be partly genuine
and partly fraudulent.

On the facts of the case, the SCA held that the doctrine of accrued rights found no application since
there could be no rights accrued, as the forfeiture clause applied with retrospective effect from the date
of the incident giving rise to the claim. Regarding the Conventional Penalties Act, it was held that this
was not the issue before the high court as it had not been raised by the parties. The SCA also reiterated,
with reference to judicial authority, that courts were not permitted to stray outside the issues raised by
the litigants themselves. Hence, the appeal was upheld and the order of the high court set aside.

~~~~ends~~~~