December 31, 2019

SOEs, entities controlled by provincial government and local municipalities to face claims in 2020

The state of SOEs, entities controlled by provincial government and local municipalities in South Africa provide all the ingredients for a perfect litigation storm.

December 2019 will in South Africa be remembered as the month when the struggling national carrier South African Airways was placed in voluntary business rescue by its board of directors following pressure by the trade union Solidarity to place it with a court application in business rescue. December 2019 will also be remembered for load shedding (controlled electrical supply interruptions) implemented by the cash strapped embattled Eskom, the national power utility. According to economists, load shedding can in fact in 2020 cause an economic recession if not carefully managed.

Public sentiment is that these high impact events are symptoms of mismanagement of state owned enterprises (SOEs) over many years. It is further believed that government has either run out of money to continue to fund inefficient SOEs, or has taken a principle decision to clean up inefficient SOEs. Mismanagement causes inefficiency and lack of service delivery. The public has had enough of inefficient service delivery and irregular expenditure of public funds by SOEs.

Our prediction is that the public will in 2020 voice their frustration by turning to the courts to hold SOEs, entities controlled by provincial government and local municipalities accountable. Lack of service delivery may lead to general public liability claims (for example, damages caused by badly maintained roads, pollution caused by non-compliance with environmental regulations by Eskom etc.). Various professional consultants are involved in the SOE supply chain and are implicated in the inefficiencies. Professional consultants may also from a professional indemnity perspective be in the litigation firing line (for example, liability of professional consultants on infrastructure projects). The writing is on the wall for directors and officers as well, and there will be legal action against directors and officers to hold them personally liable for mismanagement and irregular expenditure.

Our prediction is that the general state of SOEs, entities controlled by provincial government and local municipalities in South Africa provide all the ingredients for a perfect litigation storm with elements of general public liability, professional indemnity and liability of directors and officers, fuelled by public anger because it is time for civil society and the private sector to hold those entities accountable. This may in turn have an impact on the insurance industry insofar as the insurance industry is exposed to liabilities of those entities and their professional consultants. Various liability exclusions under policies may be applicable which will limit potential liability of insurers – only time will tell.

Read the rest of our insurance predictions here.