Kaboko Mining Limited v Van Heerden (No 3)

Kaboko Mining Limited brought an action against its former directors and officers, seeking compensation for breaches of statutory, fiduciary, and common law duties. The defendants sought a declaration that they were not liable to indemnify the plaintiff for any losses it may suffer in the proceeding. The defendants argued that any loss suffered by the plaintiff arose out of its insolvency, and that an Insolvency Exclusion in the directors' and officers' liability insurance policy precluded indemnification. The court had to determine whether the Insolvency Exclusion applied to deprive the defendants of indemnification by the insurer, AIG. The court considered the wording of the exclusion and its purpose, as well as the commercial purpose of the insurance policy.

The court found that the Insolvency Exclusion did not apply to deprive the defendants of indemnification for the losses claimed by the plaintiff, except for the costs and disbursements of the external controllers, which were attributable to the plaintiff's insolvency. The court held that the relevant loss was not the loss of the plaintiff's opportunity to exploit a valuable commercial opportunity, but rather the loss suffered by the plaintiff as a result of the defendants' breaches of duty. The court noted that the directors' and officers' insurance policy was designed to protect directors and officers from liability for breaches of duty, and that the exclusion should not be interpreted to defeat the commercial purpose of the policy. The court also rejected the defendants' argument that the Statutory Demand and the failure to meet that demand established the actual insolvency of the plaintiff, and that such insolvency led directly to the claimed costs of receivership and administration in insolvency.

The court ordered that the answer to the preliminary question was "No", that the defendants pay the plaintiff's costs of the application, and that a consent minute as to directions be filed within 21 days, failing which a case management hearing be fixed for 10.00 am on 7 February 2019.