The law reports – April 2012

April 1st, 2012
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David Matlala BProc (University of the North) LLB (Wits) LLM (UCT) LLM (Harvard) HDip Tax Law (Wits) is an adjunct professor of law at the University of Fort Hare.

February 2012 (1) The South African Law Reports (pp 321 – 654); [2012] 1 The All South African Law Reports January no 1 (pp 1 – 119) and no 2 (pp 121 – 241)

Abbreviations:

CC: Constitutional Court

CCMA: Commission for Conciliation, Mediation and Arbitration

LAC: Labour Appeal Court

SCA: Supreme Court of Appeal

Attorneys

Suspension or removal from the roll: In Law Society of the Northern Provinces v Sonntag 2012 (1) SA 372 (SCA), after receiving complaints against the respondent attorney, Sonntag, the appellant law society initiated an investigation into the respondent’s practice. The investigation led to a disciplinary hearing where the respondent faced several charges of unprofessional, dishonourable or unworthy conduct. In essence, the charges were that the respondent used touts to secure work relating to personal injury claims, from which touts she ‘purchased claims’; that she shared an office with non-attorneys; and also shared fees on a 50:50 basis with a person who was not an attorney. In a newspaper advertisement, the respondent referred to the touts as part of an ‘indispensable winning team’. Having been found guilty at the disciplinary hearing, the appellant instituted High Court proceedings for removal of the name of the respondent from the roll of attorneys. The court, per Legodi J with Kruger AJ concurring, held that the appropriate sanction was to suspend the respondent from practice for one year, which suspension was suspended for three years on certain conditions, with no order as to costs. The appellant appealed to the SCA, seeking removal of the name of the respondent from the roll of attorneys and costs. The appeal was upheld with costs.

Malan JA (Harms AP, Lewis, Leach JJA and Plasket AJA concurring) held that the attorneys’ profession was an honourable one that demanded honesty and integrity from its members. In the instant case the various defences and the manner in which they were raised by the respondent could not be said to demonstrate complete honesty and integrity. Accordingly, the High Court misdirected itself by not considering those factors. All the charges faced by the respondent should have been considered together as they were all interlinked and showed serious misconduct. Touting had always been considered a serious form of misconduct that had to be eradicated. Also, the continued denial by the respondent of any misconduct revealed a lack of understanding of her own conduct. All this demonstrated that it could not be assumed that she would, after a period of suspension, be a fit and proper person to continue practising as an attorney. The only suitable sanction was removal of her name from the roll of attorneys as no exceptional circumstances had been shown to justify a lesser penalty.

Civil procedure

Rescission of judgment: Rule 34(1) of the Uniform Rules of Court provides that in any action in which a sum of money is claimed, either alone or with any other relief, the defendant may at any time unconditionally or without prejudice make a written offer to settle the plaintiff’s claim. Such offer is required to be signed either by the defendant himself or by his attorney if the latter has been authorised to do so in writing. In Van der Merwe v FirstRand Bank Ltd t/a Wesbank and Barloworld Equipment Finance 2012 (1) SA 480 (ECG), after negotiations with the respondent, the applicant’s attorney accepted an offer of settlement proposed by the respondent, FirstRand Bank. However, when doing so the applicant’s attorney did not have the applicant’s instructions, written or otherwise, to accept the offer of settlement. Unaware that the attorney had since withdrawn as his attorney of record, and therefore thinking that he was still represented, the applicant did not attend the trial. Judgment, based on the offer of settlement, was granted against the applicant, hence the present application for its rescission. Rescission of judgment was duly granted, the question of costs being reserved for determination by the trial court.

Makaula J held that offers of settlement and tenders to perform had to comply with the requirements of r 34(1). When an offer of settlement was made by the defendant to the plaintiff to pay a sum of money, that offer had to be in writing and signed personally by the defendant or by the defendant’s attorney if the latter had been authorised in writing to do so. The wording of r 34(1) was clear and unambiguous and spelled out the peremptoriness thereof. That meant that it was obligatory for the offer to be signed by the attorney only when he had been given written authority to do so by the defendant. Compliance with r 34(1) was not procedural in nature but required, as a matter of law, that an offer be signed by the defendant or his attorney on condition that he had been given written authority to do so.

Delict

Liability of state for wrongful acts committed by police officer on standby duty: In F v Minister of Safety and Security and Others 2012 (1) SA 536 (CC) the applicant, F, when she was 13, was assaulted and raped by V, a policeman who was on standby duty, which meant that he was off duty but was liable to be called any time if the need arose. F had accepted an offer of a lift home in the early hours of the morning by V, who was using an unmarked police vehicle. There were two other passengers in the car. Before leaving, F noticed that V was a policeman as his car had a police radio and along the way she saw police dockets containing the name and rank of V, who confirmed that he was a private detective, which she understood to mean a police officer. After dropping off the two passengers, V stopped the vehicle in a dark and isolated spot and, as she became suspicious of V’s motives, F escaped. She later returned to the road for assistance only to find that the car that stopped to help her was that of V. She reluctantly accepted his offer to take her home due to her ‘desperate situation’ and was then assaulted and raped. The High Court, per Bozalek J, held the respondent, the Minister, vicariously liable for the delict committed by V, which decision was reversed on appeal to the SCA (per Nugent JA, with Snyders and R Pillay AJJ concurring and Maya JA dissenting; Bosielo JA concurring with the dissenting judgment). There emphasis was placed on the fact that at the time of the commission of the delict V was off duty and his vehicle was not marked. On further appeal to the Constitutional Court, leave to appeal was granted, late filing of the appeal was condoned and the decision of the SCA set aside, with the applicant awarded costs. The court held that the Minister was vicariously liable for the wrongful act committed by V.

Delivering the main judgment, Mogoeng J (Froneman J delivering a concurring judgment, while Jafta J concurred in the dissenting judgment of Yacoob J) held that the Constitution assured the public that it was safe to place their trust in the police, which constitutional aspiration was undermined when that trust was breached. Whenever a vulnerable woman or girl placed her trust in a policeman on standby duty and that policeman abused that trust by raping her, he would be personally liable for damages arising from the rape. In addition, if his employment as a policeman secured the trust the vulnerable person placed in him, and if his employment facilitated the abuse of the trust, the state should be held vicariously liable for the delict. The victim’s understanding of the situation would be that she was being protected or assisted by a law enforcement agent, empowered and obliged by law to do so. Whether he was on or off duty would, in all likelihood, be immaterial to her. For her, he was a policeman employed to protect her and could therefore be trusted to uphold, and not contravene, the law. The state had a constitutional mandate to establish a credible and efficient police service on which the public ought to be able to rely for protection from, and for prevention of, crime. That should be a police service worthy of the trust of the public and one to which vulnerable members of the public ought to turn readily for protection in times of need.

  • See 2011 (Aug) DR 44.

Donations

Requirements: Section 5(1) of the General Law Amendment Act 50 of 1956 (the Act) provides that no executory contract of donation entered into after the commencement of the Act shall be valid unless the terms thereof are embodied in a written document signed by the donor or by a person acting on his written authority. These provisions were dealt with in Scholtz v Scholtz 2012 (1) SA 382 (WCC), where the defendant, Scholtz, made a donation of his half share of ownership in immovable property to the plaintiff. The property in question was encumbered by a mortgage bond but no mention of the bond was made in the deed of donation. When the plaintiff sought delivery of a half share of the property as per the agreement, a defence was raised that, as the deed of donation did not cover a material issue of the bond, the contract was incomplete and therefore invalid. The High Court dismissed the action with costs.

Le Grange J held that, in the context of donations of an executory nature, the words ‘the terms of the contract’ had to refer to all the essential terms. In the instant case the property donated was encumbered by a mortgage bond but no reference was made to the bond in the written contract. Since limited real rights in property could be donated, the need to define the extent of one’s ownership in the property became imperative. Failure to do so definitely fell short of the requirements as stipulated in s 5 of the Act. The rights of bondholders were an important consideration where a donation of an encumbered property was concerned as no transfer of immovable property could be registered unless the bond over the property was cancelled or the transferee was substituted for the transferor as debtor in respect of the bond. In this case that had not been done. As a result, the terms of the donation were not reduced to writing as required by law.

Financial institutions

Placing financial institution under curatorship: Section 5(1) of the Financial Institutions (Protection of Funds) Act 28 of 2001 provides that the registrar of financial institutions may, on good cause shown, apply to the High Court for the appointment of a curator to take control of and manage the whole or any part of the business of a financial institution. Such application was made in Executive Officer, Financial Services Board v Dynamic Wealth Ltd and Others 2012 (1) SA 453 (SCA), where the appellant, the executive officer of the Financial Services Board, in his capacity as the registrar, applied for the appointment of curators to take control of and manage the business of the respondents, the Dynamic Wealth group of companies, being financial institutions. In so doing, the appellant relied exclusively on an adverse report of investigators he had appointed to investigate the affairs of the group. The report indicated that the group had breached regulatory statutes by, for example, conducting business without a licence, administering investments without adequate identification of the interests of the investors, having no proper control by means of regular audits, and restructuring a portfolio without consultation with investors. In addition, the funds were at risk in certain respects. The High Court, per De Vos AJ, dismissed the application on a technical ground, namely that as the report and annexures were not attached to the notice of motion and accompanying affidavits, but were prepared as a separate bundle of documents, they were not properly before the court.

The SCA upheld the appeal with costs, holding that the approach of the High Court was to place form over substance. The documents in question, which had been provided to the respondents and the court, were held to have been properly placed in evidence and thus should not have been excluded. Wallis JA (Harms AP, Van Heerden, Malan JJA and Petse AJA concurring) held that the approach was that the registrar had to satisfy the court that there was good cause to appoint a curator. The court had to decide whether curatorship was required in order to assess identified problems in the business of the financial institution. It decided this in the light of the interests of actual or potential investors in the financial institution or investors who had entrusted or might entrust the management of their investments to it. The court had to determine whether appointing a curator would address those problems and have beneficial consequences for investors. Ultimately, what would constitute good cause in any particular case would depend on the facts of each case. Lack of honesty or capacity on the part of the financial institution and those responsible for managing its affairs would ordinarily justify the appointment of curators. The inability or unwillingness of the institution to comply with regulatory requirements applicable to protect funds was also a sufficient reason for appointing a curator. Provided that the court was satisfied that the registrar’s concerns were legitimate and that the appointment of a curator would assist in resolving those concerns, it would ordinarily be appropriate to grant the order.    

Income tax

Expenditure incurred in production of income: Section 22(2A)(a) of the Income Tax Act 58 of 1962 (the Act) provides that where a person carries on any construction, building, engineering or other trade in the course of which improvements are effected by him to fixed property owned by another person, any such improvements and any materials delivered by him to such fixed property that are no longer owned by him shall, until the contract under which such improvements are effected has been completed, be deemed to be trading stock held by him and not disposed of. For present purposes, reference should also be made to s 11(1)(bA) of the Act, which allows to be deducted from the income of a taxpayer any interest, including related finance charges, that is not otherwise allowable as a deduction under the Act but which has actually been incurred by the taxpayer on any loan, advance or credit used by him for the acquisition, installation, erection or construction of any machinery, plant, building or any improvements to a building to be used by him for the purposes of his trade, such deduction being allowable in the year of assessment during which such machinery, plant, building or improvements is or are brought into use for these purposes. These provisions were dealt with in Commissioner, South African Revenue Service v South African Custodial Services (Pty) Ltd 2012 (1) SA 522 (SCA), where the respondent, South African Custodial Services (SACS), had a contract with the Department of Correctional Services to design, construct, finance and operate a prison for the latter. As provided for in the contract, the respondent entered into a sub-contract with a third party, CGM, to do the work. To finance the project the respondent raised loans on which it paid interest and other finance charges. The respondent sought to deduct from its gross income the value of the materials and equipment used to design, construct and operate the prison as trading stock held but not disposed of. It also sought to deduct interest and finance charges incurred in respect of the loans. The Tax Court, per Claassen J, allowed the deductions. An appeal against that decision was upheld in part with costs by the SCA. The court referred the matter back to the commissioner for determination of the amount of deduction to be made.

Plasket AJA (Brand, Maya, Cachalia and Mhlantla JJA concurring) held that the respondent did not provide materials or the equipment that was built into the prison, and never owned these at any stage. Instead, the sub-contractor, CGM, did. That being the case, the respondent did not fall within the parameters of s 22(2A). The respondent never carried on any construction, building, engineering or other trade in the course of which improvements were effected by it to the fixed property of the state. As it did not effect any improvements and did not deliver materials to the state’s fixed property, it never held any trading stock for the purposes of the section that could be deemed to be trading stock that was held and not disposed of by it. If anything, it was CGM that was entitled to a deduction in terms of s 22(2A) because its activities fell squarely within the terms of the section and corresponded with the purpose thereof. On the other hand, interest incurred was deductible in terms of s 11(1)(bA) as it had been incurred by the respondent on its loans from the banks to pay CGM for the construction of the prison. The various finance charges were deductible in terms of s 11(1)(bA) because of their close connection to obtaining the loans and because they were in the furtherance of the respondent’s project; they therefore qualified as ‘related finance charges’ for the purposes of the section.

Labour law

Dismissal of exception generally not appealable: In Charlton v Parliament of the Republic of South Africa 2012 (1) SA 472 (SCA) the appellant, Charlton, was the chief financial officer of the respondent, parliament, until his dismissal in January 2006. After his dismissal, which was preceded by a disciplinary inquiry, the appellant took the matter to the Labour Court, alleging in the main that his dismissal was automatically unfair as it was based on his making of a protected disclosure as envisaged in the Protected Disclosures Act 26 of 2000 (PDA). The respondent raised a number of exceptions to the appellant’s statement of claim contending that his dismissal was not automatically unfair and should accordingly not have been brought to the Labour Court but rather to the CCMA. The Labour Court, per Ngcamu AJ, dismissed the exceptions but granted leave to appeal to the LAC, which upheld the appeal (per Patel JA with Wagley ADJP and Tlaletsi AJA concurring). In a further appeal, the SCA upheld with costs the appellant’s appeal against the LAC decision.

Van Heerden JA (Brand, Maya, Mhlantla JJA and Meer AJA concurring) held that the LAC failed to appreciate that it was established law that the dismissal of an exception was generally not appealable, except in very limited circumstances. That was so as the order was not final in effect – there being nothing to prevent the aggrieved party from raising and arguing the same issue at the trial. The qualification to that general principle related to exceptions going to jurisdiction of the court, appeals against dismissal of which were allowed. The reason was fairly obvious in that if the court lacked jurisdiction it could not legitimately adjudicate the exception. It followed that leave to appeal against the dismissal of the exceptions should not have been given by the Labour Court and the LAC should simply have struck the respondent’s appeal from the roll.

 

Transfer of a business as a going concern: Section 197(1)(b) of the Labour Relations Act 66 of 1995 (LRA) provides that ‘transfer’ means the transfer of a business by one employer (the old employer) to another employer (the new employer) as a going concern. Subsection (2) provides that if a transfer of a business takes place, unless otherwise agreed, the new employer is automatically substituted in the place of the old employer in respect of all contracts of employment, rights and obligations in existence immediately before the date of transfer. In Aviation Union of South Africa and Another v South African Airways (Pty) Ltd and Others 2012 (1) SA 321 (CC) the issue was whether there was a transfer of a business as a going concern ‘by’ the old employer to the new employer. Briefly, the facts were that in the year 2000 the respondent, South African Airways (SAA), entered into an agreement with LGM in terms of which part of the business of SAA concerned with facilities management operations was transferred to LGM for a period of ten years, after which the agreement could be extended for another five years but eventually the operations were to be returned to SAA or transferred to a party nominated by it. It also provided that SAA had a right to cancel the agreement if there was a material change of ownership of LGM. Such material change of ownership having taken place, SAA cancelled the agreement with the result that the business was to return to it. The applicant trade union, Aviation Union of South Africa (AUSA), sought assurance from SAA that the affected workers would be transferred to SAA when the cancellation took effect and received a response that SAA was not obliged to do so. As a result, AUSA, later joined by the other trade unions, applied to the Labour Court for declaratory and interdictory relief aimed at ensuring that the workers would not lose their jobs consequent to the cancellation coming into effect. The application was dismissed, an appeal against which decision was upheld by the LAC (per Davis JA with Zondi JP, Leeuw JJA concurring). Its decision was in turn reversed by the SCA (per Lewis JA and Ebrahim AJA. Mpati P and Mhlantla JA concurring). As a result, the applicant applied to the CC for leave to appeal against the decision of the SCA. Such leave was granted and the appeal upheld with costs.

The majority of a sharply divided CC, per Yacoob J (Ngcobo CJ, Cameron, Froneman, Khampepe and Van der Westhuizen JJ concurring, while Moseneke DCJ, Mogoeng, Mthiyane and Nkabinde JJ concurred in the dissenting judgment of Jafta J), held that the cancellation of the agreement between SAA and LGM obliged LGM to transfer a business as a going concern within the meaning of s 197(1) and (2) of the LRA. The court held that when a business was transferred successfully from one entity to another:

  • In transfer one by A to B, A was the old employer and B the new employer.
  • In transfer two by B to C, B was no longer the new employer but the old one, and C became the new employer.
  • If transfer two was by B back to A, B would be the old employer and A, who had been the old employer in the first transfer, would become the new employer in the second transfer.

The true inquiry was whether there had been a transfer of a business as a going concern by the old employer to the new employer. To answer that inquiry it was necessary to examine the agreement in issue to determine whether the rights and obligations it created provided for the transfer of a business as a going concern by a transferor, the old employer, to a transferee, the new employer. If the assets necessary to operate the business remained with LGM, then the business would not have been transferred. If they did not remain with LGM, but went back to SAA or to another service provider, then there was a transfer of business. In the instant case the answer was clearly that the assets would not be kept by LGM, which was indeed obliged to assist SAA in transferring certain services to SAA or to a third party. But the agreement went further: LGM was also obliged to provide SAA with reasonable access to the services, assets and inventory of LGM. LGM became obliged to sell all fixed assets and inventory dedicated only to providing the services in terms of the agreement back to SAA and to transfer or assign all third-party contracts to SAA. Moreover, cancellation of the agreement would necessarily mean that LGM would no longer be entitled to the use of the property and to the accompanying leases. Accordingly, it would be impossible for LGM to continue to conduct the business on cancellation of the agreement. In the circumstances, the cancellation clause of the agreement contemplated a transfer of the business as a going concern. The agreement contemplated a transfer by LGM to SAA or to an interim service provider. It required a transfer by a transferor, the old employer, to the transferee, the new employer.

  • See 2011 (Apr) DR 35, 2010 (Oct) DR 38 and 2009 (March) DR 46.

Local government

Termination of services to property due to arrears: Section 102(1) of the Local Government: Municipal Systems Act 32 of 2000 provides that a municipality may consolidate any separate accounts of persons liable for payment to the municipality, credit a payment by such person against any account of that person and implement any of the debt collection and credit control measures provided for in the Act in relation to any arrears on any of the accounts of such person. In terms of subs (2), subs (1) does not apply where there is a dispute between the municipality and the person liable for payment concerning any specific amount claimed by the municipality from that person. The application of the subsection was dealt with in Body Corporate Croftdene Mall v Ethekwini Municipality [2012] 1 All SA 1 (SCA), where the appellant body corporate was the owner of immovable property that had two accounts with the respondent municipality, Ethekwini Municipality (Durban Municipality). One account relating to water, electricity and refuse removal was held in the name of the appellant while the other account, relating to municipal rates, was held in the name of the developer, Croftas Company, which eventually went into liquidation. The respondent consolidated both accounts, at which stage each was in arrears. The appellant requested on several occasions that the arrears be written off, which requests were declined. After the respondent disconnected water and electricity supply to the property, the appellant launched an urgent interdict to bar the disconnection because of an alleged dispute between the parties that fell within the ambit of s 102(2), especially the power of the respondent to consolidate the accounts. Finding that there was no evidence to substantiate the allegations made, the High Court (per Hughes-Madondo AJ) dismissed the application, hence the appeal to the SCA, which appeal was dismissed with costs.

Maya JA (Cloete, Heher, Cachalia JJA and Plasket AJA concurring) held that a municipality’s prerogative to consolidate a ratepayer’s accounts where appropriate and to unilaterally cut off the supply of electricity or water services if the amount reflected in such account for rates was not paid was ‘abundantly clear’ from the section. In terms of the respondent’s credit control and debt collection policy, a customer who disputed a municipal account had to make a written representation to the respondent’s chief financial officer stating the reasons therefor and the relevant facts. This the appellant did not do, but instead merely made an objection in general terms. The appellant was required to furnish facts that would adequately enable the respondent to ascertain the disputed item or items and the basis for the objection thereto. If an item was properly identified and a dispute properly raised, debt collection and credit control measures could not be implemented in regard to that item because of the provisions of subs (2). But the measures could still be implemented in regard to the balance in arrears as well as in respect of the entire amount if an item was not properly identified and a dispute in relation thereto was not properly raised. In the instant case, the background facts established beyond doubt that the appellant, over a long period, did not challenge the debt reconciliation relating to its rates arrears furnished to it by the respondent nor did it deny its liability for such arrears. In all its communications with the respondent, even after the property’s services had been terminated, the appellant merely sought to have the arrears written off and no more. No dispute therefore existed between the parties as contemplated by s 102(2) of the Act.

Trusts

Piercing of trust veneer: In Rees and Others v Harris and Others 2012 (1) SA 583 (GSJ), after allegations of fraud were made against the first appellant, Rees, he left the country. The first respondent, Harris, complaining that he was a victim of fraud by Rees, to whom he had lent and advanced money that was never repaid, sought and was granted an order attaching Rees’ banking accounts and other assets, being shareholdings and loan accounts, the latter two belonging to a trust of which Rees and his wife were trustees. It was alleged that Rees had misused the trust, which he allegedly controlled, as his alter ego. The issue before the court was whether, apart from Rees’ banking accounts, the assets belonging to the trust could be considered to be his assets and thus also be attached. The High Court granted an attachment order founding or confirming jurisdiction over Rees in respect of both his assets and those of the trust.

The full court dismissed with costs the appeal against the attachment of the first appellant’s assets and upheld the appeal against attachment of the trust assets. Saldulker J (Mayat J concurring) held that it was clear law that an applicant seeking attachment of a debtor’s property ad fundandam jurisdictionem or alternatively ad confirmandam jurisdictionem had to satisfy the court, on a balance of probabilities, that the property to be attached belonged to the debtor. The onus was on the applicant to do so. In the instant case that onus had been discharged in relation to the first appellant’s assets but not in relation to those belonging to him in his capacity as trustee of the trust. There were no primary facts to justify the inference that the assets of the trust belonged to the first appellant in his personal capacity or that he had been in de facto control of the trust while his co-trustee was supine or was merely there to do the bidding of her appointer. Nor were there any primary facts put forward to show the use or abuse of the trust by the first appellant as his alter ego.

The court added obiter that in appropriate circumstances the veneer of a trust could be pierced in the same way as the corporate veil of a company. Consequently, where the trustees of a trust clearly did not treat the trust as a separate entity, and where there were special circumstances to show that there had been an abuse of the trust entity by a trustee, the veneer would be pierced. It followed that if a legitimately established trust was used or misused in an improper fashion by its trustees to perpetrate deceit and/or fraud, the natural person behind the trust veneer had to be held personally liable. In circumstances where it was demonstrated that a trustee who had de facto control of the trust assets effectively acquired and owned assets for his own benefit, such assets could in appropriate circumstances be considered to be those of the trustee.

Other cases

Apart from the cases and topics referred to above, the material under review also contained cases dealing with appointment of National Director of Public Prosecutions, arbitrator’s finding of fact not being admissible as proof in later civil proceedings, authority of trustee to act on behalf of body corporate, concurrent delictual and contractual claims, conduct of health professionals, corruption, defamation, extradition, fairness of tender process, joinder of parties, jurisdiction of magistrate’s court, just and equitable winding-up ground, lease agreements, liability for wrongful imprisonment, motor vehicle accidents, negligence, stay of prosecution, prevention of organised crime, raising point on appeal not covered in leave to appeal, town planning and zoning scheme, variation of trust instrument and whether a parastatal is an organ of state.

This article was first published in De Rebus in 2012 (April) DR 46.