South Africa: The Sting In Long Tail Disease – A Warning For Directors

On 4 April this year, not very far from the site where gold was first discovered in South Africa, Judge EJ Francis, in an unreported judgment, dismissed a technical challenge by Anglogold Ashanti Limited ("Anglogold") against a claim by a former mine-worker in silicosis related litigation.

The judgment, in very general terms, underlines the court's willingness to take an overbroad approach to the manner in which these types of cases are pleaded, but is particularly significant to the D&O market because, although only Anglogold is cited as defendant, there may well have been scope for the claimant to also name Anglogold's directors, in their personal capacities, as co-defendants.

Background

In this action, the claimant alleges that over the course of a ten year period where he was employed at the Vaal Reefs Mine (the "mine"), Anglogold flouted its obligations under safety legislation governing the operation of mines in South Africa, and in particular failed to:

The claimant alleges that, as a consequence of these breaches, he contracted silicosis and that Anglogold is liable for the resulting damage suffered. Anglogold's failed technical challenge, which centred on the claimant's failure to outline the precise detail about how the breaches are alleged to have taken place over the ten year period, means that the claim is now free to proceed. In turn, as this was merely a test case, it is now a distinct possibility that tens of thousands of other claimants, who until now have been lurking in the shadows, will step out into the light, claims against Anglogold and other mining companies in hand. There is little doubt that, in doing so, they will be bolstered by the contemplation of class actions as envisaged by the South African Companies Act 71 of 2008. Whilst the jurisprudence in this area is relatively rudimentary at present, there is, in principle, no statutory bar preventing these claimants from launching proceedings as a group of affected parties (Mankayi v AngloGold Ashanti Ltd (2011)).

Should they do so, it is possible that not only the mining companies, but also their directors, will be in the firing line.

D&O claims

The Mine Health and Safety Act 29 of 1996 (the "1996 Act") requires the Chief Executive Officer of a mining company to ensure the discharge of a company's duties under safety legislation – penalties, fines and imprisonment can follow for those directors, officers or managers guilty of a failure to maintain a safe working environment. Moreover, the 1996 Act also created the office of the Chief Inspector of Mines, who is authorised to conduct official inquiries into, broadly, any "cause for concern on health or safety grounds". The Chief Inspector may require preventative or remedial action, and can apply punitive enforcement measures (up to removal of a mining licence) in appropriate circumstances. Relying on this statutory framework, there are, therefore, grounds upon which personal claims against relevant directors and officers could be founded.

Directors, of course, are free to procure D&O cover in respect of claims brought against them in their personal capacity. Indeed, given the significant growth of the plaintiff's bar in South Africa in the last ten years, and the additional complexities brought about by international lawyers attempting to shift disease litigation to jurisdictions which tend to award larger sums for general damages, it would not be unreasonable to suggest that such cover, combined with proper risk mitigation strategies, is now critical for directors & officers in this area.

Whilst such policies typically exclude cover for silicosis and related occupational disease litigation, they may respond to claims of the kind set out above (failure to discharge statutory obligations) and may also provide indemnity against the cost of litigation (assuming the policy has been extended to include legal defence costs). D&O insurers should therefore be aware of the potential for claimants afflicted with silicosis-type diseases to directly pursue directors and officers for breaches of, amongst others, the 1996 Act, and consider whether their policies would cover such claims, notwithstanding the applicable exclusions

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.