It happens not infrequently that a South African insurer, in agreeing to insure a South African, or other African risk, provides that the policy and disputes arising under the policy are subject to the laws of England (or another jurisdiction).

That might have unlooked for and unappreciated consequences in respect of prescription of any claim.

Under South African law, prescription is generally three years.  Under English law prescription is generally six years. 

In Society of Lloyd’s v Price in re : Society of Lloyd’s v Lee 2006 5 SA 393 (SCA) the South African Supreme Court of Appeal dealt with the gap problem which arose in considering whether the English or South African law of prescription applied and followed the approach in Lourens v van Hohne 1993 2 SA 104 (UW).  The court said it  was required to determine in a flexible and sensible manner which legal system has the closest and most real connection to the dispute before it. 

The selection of the most appropriate legal system must take into account policy considerations and international harmony or uniformity of decisions, as well as the policies underlining the relevant legal rule.  Considerations of international uniformity of decisions suggest that claims that are alive and enforceable in terms of the law of the country under which the claims arose should, as a general rule, also be alive and enforceable in South Africa. 

Lloyd’s was seeking to enforce two English court judgments in South Africa and issued summonses more than three years but less than six years after the English judgments were delivered.

On the facts of the case, the court took into account that English law governed the creation, operation, interpretation and enforcement of the rights of the parties.  The court reached the conclusion that on considerations of policy, international harmony of decisions, justice and convenience, the dilemma of the gap in the case should be resolved by dealing with the issue of prescription in terms of the relevant limitation provisions of the law chosen (lex causa), the English law. 

Because the particular proceedings were served on the defendant within six years after the relevant default judgments were obtained in the English court, the claims on the judgments had not prescribed and the defence of prescription which had been raised failed. 

In the circumstances where the policy is written, issued and to be performed in South Africa litigation will, absent a dispute resolution clause which says otherwise, be by way of litigation of the High Court in South Africa. But our conflict of laws regarding prescription and the Price judgment means that the litigation in South Africa would have to be dealt with in terms of English law, and a six year and not a three year prescription period applies. 

That is absent a clear and express provision in the policy providing for a contractual time-bar of three years.

These consequences could have insurance reserving and cost implications in dealing with the longer tail of any claims under the policy (which on the facts may be more than three years), where the dispute has a closer connection with the foreign legal system.