Condictio indebiti under scrutiny

14 Jun 2016

In April 2016, Gildenhuys Malatji’s Commercial Litigation and Public Law Department went on trial in the Pretoria High Court representing the defendant in an action based on the condictio indebiti. The facts are, in short, that during 2007 the plaintiff engaged with the defendant. The engagement related to the defendant rendering services to the plaintiff through designing and negotiating discounted baskets of services with healthcare providers. The special rates with medical practitioners negotiated by the defendant would be passed on to the plaintiff’s members, creating cost savings for the scheme. The plaintiff made payments to the defendant from 2007 to 2009 – a period of two-and-a-half years. In 2009, the plaintiff stopped making payments to the defendant. Then, in 2011, the plaintiff issued summons against the defendant, claiming repayment of the monies paid for services that were allegedly never rendered. In order to succeed with the claim for unjustified enrichment based on the condictio indebiti, the plaintiff had to prove the elements existed for the condictio indebiti, namely:

• The defendant had to be enriched;
• The plaintiff had to be impoverished;
• The defendant’s enrichment must have been at the expense of the plaintiff (causality);
• The payments had to be made in error (without legal cause); and
• The error had to be excusable.

The defendant conceded that there was no valid contract in place between the parties and that the payments were made indebiti. The undisputed facts of the case were that the plaintiff had made payments for a period of two-and-a-half years. There was also evidence from the plaintiff’s witnesses that the plaintiff’s personnel attended various meetings with the defendant to implement the defendant’s services. The evidence by the plaintiff’s witnesses were also that the services rendered by the defendant secured discounts for the plaintiff’s members with medical service providers contracted by defendant, and that the scheme enjoyed the benefit of the savings on medical services.

One of the defendant’s contentions was that the plaintiff had not succeeded in proving that the element of “excusable error” was an essential element of the condictio indebiti. The defendant closed its case without calling any witnesses.

In answer to the defendant’s contention that, based on the plaintiff’s own evidence, the payments were not made in “excusable error”, the plaintiff during argument raised the issue of the court being charged with developing the common law to remove the requirement for “excusable error” from the essential elements of the condictio indebiti in terms of section 39(2) of the Constitution.

The plaintiff argued that this requirement of the common law ought not to be applied against the plaintiff, because the requirement does not apply to payments made on behalf of others, and the requirement constitutes an unreasonable and unjustifiable limitation of the plaintiff’s right not to be arbitrarily deprived of its property in terms of section 25(1) of the Constitution. The plaintiff asked the court to therefore develop the common law in terms of section 39(2) of the Constitution by removing the requirement that the mistake must be excusable.

The defendant argued that in South African law, this requirement had only been relaxed where executors had made undue payments. On analysis, the rationale underlying the relaxation of the rule in this regard is that an executor acting in a representative capacity for the benefit of others should not suffer for his mistake. This rationale is clearly predicated on the undesirability of holding an executor liable to the heir/legatee as a result of his mistake. Put simply, if the excusability rule is not relaxed, the executor will suffer for his mistake because he will be liable to the heir/legatee who had been underpaid. Similar considerations did not arise in the current matter. The members/ beneficiaries under the medical scheme will not have a claim against the scheme, and this is thus not a case in which the scheme will suffer at the hands of members/beneficiaries because of the mistaken payments made.

Also, as a matter of legal policy, there can be no good reason for the board of trustees not bearing the consequences of their gross dereliction of duty under the Medical Schemes Act and the scheme rules. In law, the delinquent board of trustees’ members and principal officer ought to be liable to the scheme itself to make good the loss caused to the scheme. Furthermore, a medical scheme effecting payment to managed healthcare providers, or for any other service rendered, does not act in a representative capacity at all. Such payments are made by the scheme on behalf of the scheme itself and the mere fact that a medical scheme is, in terms of the Medical Schemes Act, to be conducted for the benefit of its members does not place it in the category of the exception above. Neither does the fact that the board of trustees has certain duties towards the beneficiaries of a medical scheme. It is further important to note that the statutory board of trustees, under the Medical Schemes Act and acting in accordance with the registered scheme rules, does so as a governing body and an organ of the medical scheme. In this regard, the board of trustees does not act in a representative capacity, such as when an executor acts in an ex lege representative capacity on behalf of a deceased estate. In the case of the board of trustees under the Medical Schemes Act and the scheme rules, there is no agency. The board of trustees functions as an organ in the same way as a board of directors acts as the governing body and an organ of a company.

The defendant also argued that the Constitutional challenge, with reference to Section 25, was simply not competent because it was not pleaded at all, and it is accordingly not open to the plaintiff to raise an argument relating to the extension of – or amendment to – the common law in this regard.

Judgment on whether the common law will be developed in terms of section 39 of the Constitution to alter the requirements of the condictio indebiti is awaited.

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)