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The insurance industry faces a new problem: The rule of law

03 June 2013 Robert W Vivian, University of the Witwatersrand

The insurance industry must heed the two fundamentally different approaches adopted by the High Court and the Supreme Court of Appeal on the controversial but well-known Rivonia Primary School case, says Robert Vivian, since these approaches will have a ripple effect on how the insurance industry will be judged in the future.

The introduction of programmes like "treat your customers fairly” raises the question in law about what fair means. Fairness, like beauty, is in the eye of the beholder. The original principle of "treat your customer lawfully”, on the other hand, had a clear meaning. The question was whether you acted within the law or not. "Lawfully” could be objectively
determined.

However, "fairly” cannot. In future the insurance industry will find itself being judged in terms of legally meaningless and subjective concepts like fairness. This article examines two recent, highly publicised cases to illustrate the difference.

Bad laws destroy good law

Rule by fairness, which is subjective, did not suddenly arrive. It has been approaching for a long time. I previously argued that norms can be divided into two categories: laws and ethics.

Ethics is bad law. In the history of money, Gresham’s Law assures us that bad money drives out good money. The history of law illustrates that bad law drives out good law. And so good law is being destroyed by bad law. The law of fairness is bad law. It is subjective. Once bad law becomes part of the legal system, it is difficult to know which law is good and which is bad. Much like counterfeit money, it is hard to tell the difference in practice.

In good law decisions are made in terms of the law. Bad law decisions are made by discretion. Thus the distinction is the rule by law or the rule by discretion. Rule by fairness is rule by discretion. It is subjective.

The two cases under examination are the High Court and the Supreme Court of Appeal judgments in the much publicised Rivionia Primary School case.

Facts of the Rivonia case

The law applicable in this case is the South African Schools Act 84 of 1996.

Section 5A of the Act allows the Minister of Education to prescribe minimum standards and uniform norms, as well as standards for the capacity of a school in respect of the number of learners a school can admit.

Section 5A(2)(b) sets out the factors to be taken into consideration. Section 5A(3) instructs governing bodies to comply with these norms when setting their admissions policies, and in terms of section 5A(4) schools have to review their policies to ensure they comply with the norms set by the minister.

As the Supreme Court of Appeals noted, "it [is] clear beyond doubt that the admission policy contemplated by the Act includes the capacity of the school.”

In terms of section 5(5) the admissions policy, which includes determining the capacity of the school, is the responsibility of the school governing body. In the Rivonia case, the governing body determined the school’s capacity to be 770 pupils with 120 grade 1 pupils.

The admissions policy was accepted by the department on 4 March 2010. Registration for the 2011 year opened on 13 July 2010. The mother of the child at the centre of the dispute handed in her application form on 21 July. This application was the 140th handed in, placing the child’s application for grade 1 at 140.

On 26 October the mother was advised that the application was unsuccessful. Her child was at that stage 20th on the waiting list. On 4 November the mother contacted the school to request reasons for the unsuccessful application, which were provided. Her child was then at
number 14 on the waiting list.

On 5 November the mother lodged an appeal with the Member of the Executive Council (MEC) for Education. The mother then enrolled her child at another private school, and when term started on 12 January 2011, the child started school at the private school.

Late in January 2011, the MEC considered the mother’s appeal, but declined to deal with it, forwarding it to the Head of the Department, Boy Ngobeni. On 2 February, well after term had started, Ngobeni informed Rivonia Primary that it had not reached its capacity. He instructed the school to admit the child.

At that point the school had offered positions to 124 pupils, with the additional four positions offered to cater for the event that some pubils do not take up the offer.

The mother removed her child from the private school that she was attending, and on 7 February arrived at Rivonia Primary to have the child admitted to the school.

The principal asked the mother to remove her child, pending resolution of the matter. The next day two officials and a security guard arrived at school and physically deposited the child behind a desk, which had been set-up that morning for a child who had attention and learning disabilities.These are the salient facts which were before the courts.

The application of rule by law

The Supreme Court of Appeal (SCA) dealt with the case in terms of what I have called the rule by law. The school had operated strictly according to the law, in terms of which the school governing body, as mandated by law, had determined to be the capacity of the school.

It had deposited a copy of its admissions policy, including the capacity calculation, with the department. Its admissions procedures had also been strictly in terms of the law.

The SCA came to the only conclusion the law would admit: "It is declared that the instruction given to the principal of the Rivonia Primary School to admit the learner contrary to the school’s admission policy, and the placing of the learner in the school, were unlawful.”

Rule by discretion

The High Court had come to a completely different conclusion. The reason for the vast difference is the approach to the law. The court interpreted the clear law subjectively, in terms of factors that can give the law any meaning that the adjudicator wishes it to have.

The High Court started, not with the law applicable in this case, but rather the Constitution: the right to education (par 17).

It is difficult to see what this has to do with the case under consideration. The child in dispute had been admitted to, and was attending a private school. The mother took the child out of one school to have the child forcibly deposited in another.

Interestingly, the High Court did not take this fact into consideration or even list it, even though it appears in the Supreme Court of Appeal judgment. There is thus no evidence to suggest the child was being denied an education. So the right to education plays factually no part in the case.

Next the High Court resorted to "promoting the spirit, purport and objects of the Bill of Rights”. Like fairness, these things have no clearly defined meanings. In any event, the child was getting a private school education.

And then highlighting the point I am making, the court argued that it has "no discretion” but to promote the spirit of the Bill of Rights. However, the Bill of Rights has no discernible meaning. It is solely a matter of discretion.

Discretion, not law

In short, all courts are now duty bound to apply discretion and not the law. The destruction of the rule of law becomes complete. In future, all courts will eventually be promoting constitutional values, and not the law, again something that has no objective meaning.

The court moved from the right to education to the right to equality. As with the right to education, it is difficult to see what this has to do with this specific case.

Assume for a moment that Rivonia Primary offers the very best education in the world. Forcibly depositing a child in that school does not promote equality. It promotes inequality.

The lesson should be clear: when the rule of law is replaced by general abstract concepts, like "the spirit” or "the values” of something, then any answer becomes possible and the actual words of the law become meaningless. Hence the vastly different conclusions arrived by the High Court, compared to the SCA.

This is what is going to happen with the word "fairness” when it comes to the concept of treating customers fairly. The insurance industry is set to encounter the arbitrary rule by the regulator: promoting the spirit of fairness and not any law at all.

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