The law reports – January/February 2018

February 1st, 2018
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Heinrich Schulze BLC LLB (UP) LLD (Unisa) is a professor of law at Unisa.

November 2017 (6) South African Law Reports (pp 1 – 330); [2017] 3 All South African Law Reports October (pp 1 – 294); 2017 (9) Butterworths Constitutional Law Reports September (pp 1089 – 1224); 2017 (11) Butterworths Constitutional Law Reports November (pp 1357 – 1496)

This column discusses judgments as and when they are published in the South African Law Reports, the All South African Law Reports and the South African Criminal Law Reports. Readers should note that some reported judgments may have been overruled or overturned on appeal or have an appeal pending against them: Readers should not rely on a judgment discussed here without checking on that possibility – Editor.

Abbreviations 

CC: Constitutional Court

GJ: Gauteng Local Division, Johannesburg

GP: Gauteng Division, Pretoria

KZP: KwaZulu-Natal Division, Pietermaritzburg

SCA: Supreme Court of Appeal

WCC: Western Cape Division, Cape Town

Banking law

Function of Central Bank: The decision in South African Reserve Bank v Public Protector and Others 2017 (6) SA 198 (GP); [2017] 4 All SA 269 (GP) turned on a controversial report by the Public Protector (the PP) (Report 8 of 2017/18 (the Report)). Two issues were raised in the Report. The first issue was the finding and remedial recommended for government to recover ‘misappropriated public funds’ after the South African Reserve Bank (SARB) in 1985 extended a ‘lifeboat’ involving millions of rands to Bankorp (which has since been usurped by ABSA).

The second issue was the PP’s direction to the Portfolio Committee on Justice and Correctional Services to initiate a process that would result in the amendment of s 224 of the Constitution. In terms of this directive, s 224 must be amended to change the primary function of the SARB from ‘protecting the value of the [South African] currency’, to ‘promot[ing], [balance and sustaining] economic growth in the Republic’.

The application by the SARB was solely concerned with the second issue, namely the PP’s order to Parliament to amend s 224 of the Constitution (our discussion too, will be restricted to the second issue). The SARB sought urgent relief to set aside the PP’s order to amend s 224 of the Constitution.

Murphy J made the following findings: First, the PP’s direction to amend s 224 of the Constitution was illegal and ultra vires for the following reasons: The PP illegally broadened the scope of her investigation regarding the alleged ‘misappropriation of public funds’ to include an investigation into the primary function of the SARB and a directive to Parliament to amend the Constitution.

The PP’s order that the Constitution be amended to strip the SARB of its primary function of protecting the value of the currency fell outside the powers granted to the PP in terms of s 182(1)(a) of the Constitution, which empowers the PP to investigate improper conduct in state affairs or in the public administration. Because the Office of the PP derives its powers from the Constitution, the PP has no power to recommend that the Constitution be amended.

The PP’s recommended remedial action was set aside in terms of s 6(2)(a)(i) of the Promotion of Administrative Justice Act 3 of 2000 (PAJA), because she was not authorised by s 182(1) of the Constitution to make such an order.

Secondly, the PP’s direction to Parliament to amend s 224 of the Constitution was also irrational and unreasonable. Based on expert evidence adduced by the SARB, it is a generally accepted principle of economics that the primary function of central banks world-wide is to protect the value of the local currency.

The protection of a country’s currency has a close bearing to aspects such as the inflation rate and ensuring the competitiveness of South African goods and services in export markets. These aspects are crucial, also for the marginalised and the poor. The PP’s order to amend the Constitution would change all this and was both unscientific and irrational and thus also, for this reason, invalid.

Thirdly, the PP’s direction to amend s 224 of the Constitution was procedurally unfair and had to be set aside in terms of s 6(2)(c) of PAJA because she failed to honour an agreement with the SARB in terms of which she undertook to make her report available to it before making it public.

The PP’s order to Parliament to amend the Constitution was thus set aside with costs

 

Minister’s limitation of power to intervene in contractual relationship: The facts, which led to the application in Minister of Finance v Oakbay Investments (Pty) Ltd and Others; Oakbay Investments (Pty) Ltd and Others v The Director of the Financial Intelligence Centre [2017] 4 All SA 150 (GP) were as follows: A decision in December 2015 by the 15th to 18th respondents, which were the four main commercial banks (the banks) to close the bank accounts of the first 14 respondents of the Oakbay group of companies (Oakbay). The banks alleged that they did so in compliance with their obligations in terms of the Financial Intelligence Centre Act 38 of 2001.

Oakbay approached the Minister of Finance (the minister) to intervene and assist Oakbay in having its banking facilities restored on the basis that it was in the national interest that there would be no job losses in Oakbay if it became unbanked.

The minister obtained legal advice and resisted Oakbay’s request.

The minister then applied to the court for declaratory relief regarding his lack of powers in this regard. The first main application (the application for declaratory relief, which turned out to be the only relevant application for present purposes) was brought by the minister in the public interest, against the first respondent (Oakbay) and its associated entities (respondents two to 14).

Mlambo JP, Ledwaba DJP and Modiba J in a joint judgment held that the basis for the relief that the minister sought was s 21(1)(c) of the Superior Courts Act 10 of 2013. It deals with the aspect of persons over whom and matters in relation to which the High Court has jurisdiction.

It provides that a court has jurisdiction over all persons residing in or being in, and in relation to all causes arising within its area of jurisdiction, as well as all other matters, which it has the power in terms of its discretion to have jurisdiction over.

The court held that this involved a two-legged inquiry. First, the court must be satisfied that the applicant is a person interested in an existing, future or contingent right or obligation. Secondly, the court must then decide whether the case is a proper one for the exercise of its discretion.

The first stage of the inquiry relates to whether the minister is authorised or obliged by law to intervene in the dispute between Oakbay and the banks.

In answering the first stage of the inquiry the court held that state organs or officials, in this case the Minister of Finance, are only empowered to act to the extent that their powers are defined and conferred by the Constitution and/or by statute. Neither the Constitution nor any other statute empowers the minister to intervene in a private bank-client dispute.

In answering the second leg of the s 21(1)(c) inquiry, the court referred with approval to the decision in Bredenkamp and Others v Standard Bank of South Africa Ltd 2010 (4) SA 468 (SCA) in which the court held that the bank-client relationship is contractual in nature. The bank may terminate the relationship at its discretion, on reasonable notice to the client, provided the reasons for terminating the account do not violate public policy or constitutional values.

The court refused to grant the declaratory relief sought by the minister on the basis that it would serve no purpose. Oakbay conceded both in its papers and in argument to the legal position that the minister sought confirmed by way of a declaratory order.

The application by the minister was, therefore, clearly unnecessary in the circumstances of this case.

Finally, the court held that the circumstances mentioned in the second leg of the s 21(1)(c) inquiry do not warrant that the court exercises its discretion to grant the declaratory relief by pronouncing itself on an undisputed legal question, which has previously been confirmed in judgments.

The application for declaratory relief was dismissed with costs.

Class action: Prior certification required

Requirements for certificate: The decision in National Union of Metalworkers of South Africa v Oosthuizen and Others 2017 (6) 272 (GJ) turned on a technical aspect regarding the time of application for a certificate when instituting a class action.

The applicant, National Union of Metal Workers of South Africa (NUMSA), applied for leave, as a class representative, to continue as a class action – a pending action – which it had already instituted. This raised the issue of the timing of an application in a class action for a certificate. The crisp question was whether a party seeking to represent as class must apply to court for authority to act as class representative before summons is issued.

Van der Linde J referred with approval to the decision in Children’s Resource Centre Trust and Others v Pioneer Food (Pty) Ltd and Others 2013 (2) SA 213 (SCA) in which the court held that a prospective class representative ought first to apply to court for class certification before they would have the right to litigate on behalf of a class. In that case the SCA also concluded that a number of substantive requirements would generally have to be met in class certification applications. It was in regard to the latter finding – not the timing of the application – that the CC in Mukaddam v Pioneer Foods (Pty) Ltd and Others 2013 (5) SA 89 (CC) held that the ‘substantive requirements [for a class action certificate]’ should only be considered as factors that assist in determining whether the interests of justice require certification. But on the requirement that the application should precede the summons, the CC clearly approved the approach laid down in Children’s Resource Centre.

Even assuming that ex post facto certification in the interests of justice were permissible, the circumstances of the case did not justify the relaxation of the requirement of prior certification on that basis. Therefore, prior class certification was required, and the already pending action could not now be certified ex post facto as a class action.

The application for class action certification was, therefore, dismissed with costs.

Constitutional law

Transferability of municipal debts: The decision in Jordaan v City of Tshwane Metropolitan Municipality 2017 (6) SA 287 (CC); 2017 (11) BCLR 1370 (CC) combined a number of cases in which the constitutionality of s 118(3) of the Local Government: Municipal Systems Act 32 of 2000 (the Systems Act) was at stake. Section 118(3) provides that ‘an amount due for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties is a charge upon the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property’.

The central issue in dispute was whether the provision permits a municipality to claim debts, which a predecessor in title incurred, from a new owner of the property and whether such an interpretation of the section can survive constitutional muster.

The applicants were all relatively new owners who complained that the municipalities suspended municipal services or refused to conclude the consumer services agreement for services with them until the historical debts relating to the property had been cleared.

The municipalities argued that they relied on their by-laws and debt collection policies to justify their refusal to open consumer agreements until historical debts had been settled, even though they invoked s 118(3) to refuse new owners municipal services.

In BOE Bank v City of Tshwane Metropolitan Municipality 2005 (4) SA 336 (SCA) the court held that s 118(3) operated independently from the embargo provision in s 118(1) and, therefore, was not limited to the current owner, could be transferred and was also not restricted to the debts of the previous two years, but can go back 30 years.

Cameron J held that for a proper interpretation of s 118(3) one must consider the origins of the phrase ‘charge upon the property’ in South Africa. History shows that two distinct mechanisms were imported into statute law to help municipalities in collecting debts due to them. The first one is the embargo on the transfer of property with unpaid debts. The second mechanism was added to give municipalities a preferent claim in the debt-collecting process. Based on the history of the predecessors of s 118(3), the charge and embargo did not survive the transfer of the property.

Before the enactment of s 118(3) historical debts were never imposed on new owners. If the interpretation that the municipalities propose should stand, it would be a radical departure from the legal landscape.

It is important to understand what ‘charge upon a property’ and limited real rights of security in property for indebtedness mean in terms of the common law. In the common law ‘charge upon the property’ means that the debt may be recovered by execution on the property, and that municipal debts that have not prescribed, are secured by the property and that the property may be sold in execution and the proceeds used to pay the debts.

An enactment that makes a debt a ‘charge’ on the property does not necessarily make the charge transmissible. The claim cannot be enforced against the successor in title. The benefit of it being a charge against the property is that municipalities can immediately execute on the property, subject to an order of court, without a long debt collection enforcement procedure.

The fact that the Systems Act does not require some form of note on the register of deeds also indicates that the charge does bind third parties, and is only applicable to the current owner and not successors in title.

On a proper interpretation of s 118, the charge does not survive transfer and cannot be enforced against the subsequent owner. The municipality’s duties to provide services to the communities are important and dependent on the proper collection of fees. However, historical debts only exist because municipalities do not recover them effectively, even if they have all the mechanisms to do so. Municipalities do not have to rely solely on s 118(3) for this. Enforcement can and should take place before transfer. Importantly, so the court reasoned, an interpretation that finds that the charge is not transferable does not impede municipalities from collecting debts from the previous owner.

The interpretation of s 118(3) proposed by the municipalities would also be a deprivation of the property of the new owner. This deprivation could be fairly severe because it could bar an owner from transferring property until the debts incurred by the previous owner have been cleared. The fact that there is no connection between the historical debt and the current owner would make the deprivation arbitrary, and unconstitutional.

Section 118(3) was declared unconstitutional to the extent that it provided for the transferability of the debt.

Contract law

Scope of a cancellation clause: The facts in GPC Developments CC and Others v Uys and Another [2017] 4 All SA 14 (WCC) were as follows: The first appellant, GPC, as owner of certain immovable property occupied by the first respondent, Uys, sought the eviction of Uys and all those occupying under him, from the property. The dismissal of its application led to the present appeal.

Suffice it to mention here that in July 2012 GPC and Uys concluded a written deed of sale in terms whereof GPC sold certain immovable property to Uys. Uys was to procure finance to pay the purchase price but in the interim was allowed to occupy the property. At some later stage they added an addendum to the contract. Both the main agreement and the addendum contained a cancellation clause (lex commissoria).

Failure by Uys to comply with his contractual obligations led to the eviction application being brought. The application was based on the allegation that the occupation of the property had become unlawful in light of the purported lawful cancellation of the sale by GPC. The application for eviction was dismissed by the court a quo.

On appeal against the dismissal of the eviction application, the only issue before the present court was the question whether Uys unlawfully occupied the property on the relevant date.

Gamble J held that where a contract specifies a procedure for cancellation, that procedure must be followed or a purported cancellation will be ineffective. The court a quo found that in the absence of a tender to repay the purchase price, the cancellation was a nullity.

The court pointed out that the term lex commissoria has acquired a somewhat flexible meaning in our law of contract. The phrase denotes, primarily, a term which permits a contracting party to resile from an agreement on the ground of delay, but it has also acquired a wider and more general meaning, to wit, a stipulation conferring the right to cancel an agreement on the basis of any recognised form of breach. Such a term may include a right on the part of the creditor to claim forfeiture of amounts already received, but it is not limited to that right.

Clause 10 (in the main agreement) constituted a classic lex commissoria. It afforded GPC the right to cancel in the event of default on the part of Uys after the latter had been given notice to remedy within 10 days and had failed to do so. In such event, GPC could claim, inter alia, forfeiture of the amounts already paid to them by the purchaser.

However, clause 10 was not the only lex commissoria available to the parties as clause 3 (in the addendum) fell into the same category. At the time the addendum was concluded, GPC had a right to rely on clause 10 at that stage and resile from the contract. But that did not happen. On the contrary, the parties took positive steps to keep the agreement alive by concluding the addendum. Clause 3 thereof had its own election breach provisions as regards notice and included a term, which was the complete antithesis of a forfeiture clause – an obligation on GPC to repay the purchase price paid in defined circumstances. Thus, on the breach by Uys, GPC made an election to pursue a particular remedy, and so were bound by the contractual terms implicit in that choice. Having opted to invoke the lex commissoria incorporated in clause 3, GPC was bound to observe the cancellation requirements of that clause, which required a tender to repay the purchase price paid, and did not permit a claim for forfeiture.

The court a quo was correct in finding that the cancellation was not lawful, and the appeal had to be dismissed.

Local authorities

Unauthorised structure encroaching on public street: The application in Escherich and Another v De Waal and Others 2017 (6) SA 257 (WCC) concerned a dispute between adjoining landowners regarding whether a road on one such property has been unlawfully blocked off and diverted and, secondly, whether certain structures erected on that road without planning approval had to be demolished.

The first and second applicants and the first respondent owned neighboring plots in an estate. A public road (the road) passed through the estate, giving access to the first applicant’s property (portion 29) before proceeding through the first respondent’s property (portion 20) and continuing, through other land, to the second applicant’s property (portion 28), giving access to it.

The first respondent, without any building plans being approved, erected two structures on the road, completely obstructing it. He also built a gate across the road where it entered his property. The effect was that, without his consent, no one could use the road from the point where it entered his property.

Apart from the loss of physical access to portion 28 previously provided by the road, the applicants complained that the location of the diversion road meant that their rights to privacy were impaired. The applicants brought an application in the High Court to restore access to the road, seeking an order directing the first respondent to demolish the structures erected, clear the road of other obstructions, and remove the gate.

The first respondent, in turn, argued that the road was not a public road and that nothing thus prevented him from erecting the gates and structures.

The first respondent further denied the locus standi of the applicants. He argued that, in terms of s 21 of the National Building Regulations and Building Standards Act 103 of 1977 and s 127(1) of the Divisional Councils Ordinance 18 of 1976, respectively, only a local authority (with jurisdiction) had locus standi to approach a court to seek the demolition of unauthorised structures, or the removal of an encroachment on a public road.

The court was thus asked, first, to decide the legal status of the road and, secondly, whether the first respondent was entitled to obstruct it by erecting a gate and structures on it.

Based on the evidence of the Surveyor-General, Bozalek J held that the road was indeed a public road. In terms of s 121 of the Ordinance, the ownership of the road accordingly vested in the relevant local authority. It followed that the first respondent had no right to unilaterally close or obstruct the road. The fact that he had established a diversion road and offered to register servitudes of way was irrelevant in the present dispute.

The court confirmed that in terms of the common law the applicants had locus standi to pursue the relief they sought. This finding by the court was based on the applicants’ general interest in ensuring the system of public streets on the estate was maintained and not unilaterally changed (except by lawful procedures), as well as their direct interest in the encroachment due to its impact on their rights.

The first respondent was accordingly ordered to restore access to the road by demolishing the structures so that it might be used as a road again. He was further ordered to pay the applicants’ cost of suit.

Medical schemes

Legal nature of relationship between a medical scheme and its members: The appeal in Genesis Medical Scheme v Registrar of Medical Schemes 2017 (6) SA 1 (CC); 2017 (9) BCLR 1164 (CC) concerned the legal nature of the relationship between a medical scheme and its members.

The crisp facts in Genesis were that the Registrar of Medical Schemes rejected the Genesis Medical Scheme’s (Genesis) annual statements because Genesis had listed the funds it had allocated to their members’ personal medical savings accounts (PMSA) as an asset on their statements.

In Registrar of Medical Schemes v Ledwaba NO (GP) (unreported case no 18545/06, 30-1-2007) (Du Plessis) (Omnihealth) the court held that a medical scheme was the trustee of all the funds it held, including the PMSA funds. A PMSA is a portion of the contributions the scheme receives from those members who select benefit options that include savings accounts. The court in Omnihealth thus held that the PMSA funds constituted trust property under the Financial Institutions (Protection of Funds) Act 28 of 2001 (the FIA).

In the Genesis case the High Court held that a medical scheme was the rightful holder of all the funds it holds, including funds which it had allocated to PMSAs. The High Court thus rejected the reasoning in Omnihealth.

The SCA in Genesis rejected the reasoning of the High Court and confirmed the decision in Omnihealth.

On appeal to the CC, Cameron J held that from the definition of the ‘business of a medical scheme’ in the Medical Schemes Act 131 of 1998 (the MSA) it is clear that the parties in terms of a medical scheme, that is, the scheme and its members, are in a contractual relationship: The scheme undertakes a liability in return for payment of a premium or contribution.

The relation between a medical scheme and its members is commercial, not fiduciary.

A trust relationship must be deliberately constituted. It cannot arise unintentionally. A trust can come into existence only by way of testamentary disposition, by statute, or by contract between living persons.

Neither the MSA, nor the FIA imposes a trust relationship on a medical scheme. The scheme receives a member’s premium or contribution in respect of the liability it undertakes to provide a service in return for the premium it receives. The scheme thus receives its members’ contributions for or on behalf of its own business and not as trustee on behalf of the members. The funds thus enter the medical scheme’s bank account without being impressed by a trust or fiduciary relationship.

This principle applies to both the premiums which medical schemes receive, and the funds which the scheme allocates to a PMSA. The medical scheme, and not its members, is the rights holder of the PMSA funds. As a result, and in terms of s 26(1)(c)(ii) of the MSA, a medical scheme may keep the interest accruing in PMSAs in its bank account.

The appeal was thus allowed with costs.

Suretyship

Defences by sureties: The crisp facts in Nedbank Ltd v Zevoli 2008 (Pty) Ltd and Others 2017 (6) SA 318 (KZP) were as follows: Nedbank made a loan to Zevoli (the principal debtor) and the three defendants stood surety for the loan. The sureties bound themselves as sureties and co-principal debtors for due performance of all Zevoli’s obligations. Zevoli breached the terms of the loan agreement.

Zevoli then voluntarily resolved to commence business rescue proceedings. Nedbank sued the sureties for an amount of some R 14,8 million, being the outstanding amount of the loan. The sureties unsuccessfully raised both substantive and technical defences. I will deal only with the substantive defences. The court granted summary judgment against the sureties.

Madondo DJP dealt as follows with the substantive defences:

  • First defence – business rescue proceedings: Nedbank is precluded to proceed against Zevoli (the principal debtor) in terms of s 133 of the Companies Act 71 of 2008. The court referred to Investec Bank Ltd v Bruyns 2012 (5) SA 430 (WCC) and held that it is clear that this is a defence that is available to the principal debtor only and not to the sureties (personal defence).
  • Second defence – the waiver breach: It was contended that one of the sureties entered into an agreement with Nedbank in terms of which the arrears of the principal debtor’s account were paid together with the next instalment. By concluding such an agreement and accepting payment, the bank waived its right to rely on the principal debtor’s breach of the loan agreement.

In terms of the suretyships the bank was entitled, without affecting its rights under the agreement, to ‘make any other arrangements with the [principal] debtor and any other surety for the discharge of any obligations owing under the facilities as it may deem fit.’ Here no waiver occurred.

  • Third defence – no letter of demand: The sureties claimed that the bank did not send a letter of demand to the principal debtor to remedy its breach before the bank issued summons. The failure to give notice offended the requirement of good faith. In terms of the contract the bank was not required to give such notice. In the absence of an allegation of extortion, oppression or fraud a court may not simply interfere with a contract between parties dealing at arm’s length on the mere allegation of a breach of good faith.
  • Fourth defence – conduct prejudicing the sureties: The bank afforded the principal debtor the opportunity to sell certain properties. This indulgence prejudiced the sureties and as a consequence the bank released them as sureties. It was agreed between the bank and the sureties that the bank would be entitled to grant the principal debtor extensions of times for payment or to make any other arrangements with the principal debtor.
  • Fifth defence – no opportunity to remedy: The bank was obliged to call on the sureties to remedy the principal debtor’s breach and the failure to do so released the sureties. The court held that there is nothing in the suretyships or in law which obliged the bank to call on the sureties to remedy the principal debtor’s default.
  • Sixth defence – additional affidavits not allowed: The bank proffered an additional affidavit in support of their claim and this was against the rules of the court. The additional affidavit simply sought to clarify the amount outstanding because some payments were made subsequent to the issue of summons and was, therefore, permissible.
  • Seventh defence – faulty certificate of balance: The contract provided that the outstanding amount could be proved by means of a ‘certificate of balance’. The amount stated in the certificate differed from the amount stated in the summons. The suretyship contract precluded the sureties from challenging the certificate of balance and the bank offered an adequate explanation for the discrepancy.

The claim succeeded with costs.

Wills and trusts

Application to amend trust deed: The facts in Harper and Others v Crawford NO and Others [2017] 4 All SA 30 (WCC) were as follows: In 1953, a trust deed was executed by Louis John Druiff (the donor). The income and capital beneficiaries of the trust were the donor’s four children (one of whom was the first applicant) and any of their children. The first applicant was the only surviving child of the donor. Accordingly, her one-fourth share of the capital of the trust and its income therefrom remained to be distributed on her death in terms of the trust deed. She had no biological children, but in 1955 and 1957, had lawfully adopted the second and third applicants respectively. The remaining children of the donor (the first applicant’s siblings) had biological children.

The applicants sought an order declaring that the words ‘children’, ‘descendants’, ‘issue’ and ‘legal descendants’ used in the trust deed included the second and third applicants. Put differently, the aim of the application was to amend the trust deed so that it did not discriminate against the second and third applicants on the basis that they were not the biological descendants of the donor.

The three grounds for the application were found to all be based on the equality provisions of s 9 of the Constitution.

Dlodlo J held as follows: First, the principle that the courts will refuse to give effect to a testator’s directions, which are contrary to public policy is a well-recognised common-law ground. The right to equality is a core value of our Constitution. The enactment of the Promotion of Equality and Prevention of Unfair Discrimination Act 4 of 2000 is indicative of public policy and the community’s legal convictions. The current statutory position of adopted children is indicative of the legislature’s aim to place adopted children on the same footing as biological children. The Children’s Act 38 of 2005 presently regulates the rights of children, including that of adopted children. The legislature, by introducing s 242(3) of the Children’s Act (which equalises adoptive children with natural children) has been mindful of the constitutional imperative placed on it. However, because of its interpretation of the word ‘descendant’ (see below) the provision contained in s 242(3) did not assist the applicants.

Secondly, the applicants argued that if the terms of the trust deed were interpreted only to include the donor’s biological descendants, the exclusion of the second and third applicants would amount to unfair discrimination falling foul of s 9(4) of the Constitution.

The court held that in interpreting a trust deed, the point of departure is the grammatical or ordinary meaning of the words used. Those words must be read within the context of the trust deed as a whole. Having regard to the accepted meaning of the words ‘descendant’, ‘progeny’ and ‘issue’, the court held that the trust deed under discussion had the effect that only the biological descendants of the donor’s children were capital beneficiaries of the trust. That was the clear intention of the donor.

Thirdly, the court dealt with the issue of freedom of testation. Section 25 of the Constitution protects a person’s right to dispose of their assets as they wish on their death. Inroads into freedom of testation are not made lightly. Such discrimination as might exist in this case, was found not to be unfair. Courts have no competency to vary the provisions of the donor’s trust deed just as they would have no power or authority to change any testator’s will. Effect should always be given to the wishes of the testator.

The application was, accordingly, dismissed with costs.

Other cases

Apart from the cases and topics that were discussed or referred to above, the material under review also contained cases dealing with: Administrative law, attorneys, civil procedure, criminal procedure, electricity, fideicommissum, freedom of religion, hate speech, privilege, procurement, tax and unlawful arrest.

This article was first published in De Rebus in 2018 (Jan/Feb) DR 36.


 

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

December 2017 (6) South African Law Reports (pp 331 – 650); November [2017] 4 All South African Law Reports (pp 295 – 604); 2017 (6) Butterworths Constitutional Law Reports – June (pp 675 – 814); 2017 (10) Butterworths Constitutional Law Reports – October (pp 1225 – 1356) 

This column discusses judgments as and when they are published in the South African Law Reports, the All South African Law Reports and the South African Criminal Law Reports. Readers should note that some reported judgments may have been overruled or overturned on appeal or have an appeal pending against them: Readers should not rely on a judgment discussed here without checking on that possibility – Editor.

 

Abbreviations

CC: Constitutional Court

GJ: Gauteng Local Division, Johannesburg

GP: Gauteng Division, Pretoria

SCA: Supreme Court of Appeal

WCC: Western Cape Division, Cape Town

Civil procedure

Effect of making a settlement agreement an order of court: The facts in the case of Big Five Duty Free (Pty) Ltd v Airports Company South Africa Ltd and Others [2017] 4 All SA 295 (SCA) were that in 2009 the first respondent, the Airports Company South Africa (ACSA), awarded a tender contract to the appellant Big Five, entitling it to operate duty-free shops in three of its international airports. A competitor, the second respondent, Flemingo, was aggrieved by the award of the tender and approached the GP for relief in the form of urgent interdict precluding ACSA from implementing the lease as per the tender award and also for a review and setting aside of the award. Both remedies were granted by Phatudi J who held that the tender award was unlawful as it took into account irrelevant considerations and was not transparent or fair. The appellant took the matter on appeal to the Full Court, where ACSA did not take part in the proceedings but opted to abide the decision of the court. However, after hearing and before delivery of judgment, the appellant and Flemingo reached a settlement agreement, which was made an order of the Full Court. In terms of the settlement agreement Flemingo abandoned judgment granted in its favour by Phatudi J, withdrew review application proceedings and ACSA was free to implement the award of its tender to the applicant.

Thereafter, a dispute arose about the interpretation of the settlement agreement. ACSA took the view that it was not bound by the agreement as it was not a party to it and could as a result start the tender process afresh. To resolve the problem the appellant approached the High Court for an order declaring that ACSA was bound by the settlement agreement and had to sign the anticipated lease agreement within 30 days of the granting of the enforcement order. Hughes J dismissed the application, holding that the order of Phatudi J, being a ‘public remedy’, could not be set aside by private parties. Moreover, she held that she was not bound by the settlement agreement before the Full Court as it was wrong, as well as ‘at odds with the Constitution, the law and public policy’.

An appeal to the SCA against the order of Hughes J was upheld with costs. Lewis JA (Ponnan, Mathopo JJA, Lamont and Mbatha AJJA concurring) held that the court making the agreement an order of court did not enter into the merits of the litigation. The court had to do no more than satisfy itself that the agreement related to the litigation between the parties and that it was not contrary to policy or law. The agreement had to be construed in the light of the circumstances attendant on it, being the factual matrix or context. The purpose of the withdrawal of review proceedings and abandonment of the order of Phatudi J, coupled with the settlement agreement, was to set aside that order. The argument that the Full Court did not, independently of the parties, intend to set aside the order of Phatudi J could not be accepted.

The court held further that it was not necessary to determine whether Hughes J was entitled to decide that the Full Court had erred in making the settlement agreement an order of court. It was not open to Hughes J to do so as she was bound by the doctrine of res judicata and her finding in relation to the doctrine of precedent was misplaced.

Fundamental rights

Deprivation of property and right to practise a trade, occupation or profession: The Diamonds Act 56 of 1986 (the Act) was amended on 1 July 2007 with the introduction of s 20A, which provides that: ‘No licensee may be assisted by a non-licensee or holder of a permit … during viewing, purchasing or selling of unpolished diamonds at any place where unpolished diamonds are offered for sale in terms of this Act, except at a diamond exchange and export centre [DEEC]’. Before the amendment unlicensed persons were actively involved in the viewing, purchasing or selling of unpolished diamonds, something which created room for illegal activities in the unpolished diamond trade.

In South African Diamond Producers Organisation v Minister of Minerals and Energy and Others 2017 (6) SA 331 (CC); 2017 (10) BCLR 1303 (CC), the applicant, the South African Diamond Producers Organisation, a voluntary association acting in the interest of its members, producers and dealers in diamonds, obtained a court order from the GP, per Van der Westhuizen AJ declaring s 20A inconsistent with the Constitution and, therefore, invalid. The High Court held that the section violated s 25 of the Constitution, which prohibits deprivation of property except in terms of a law of general application and also that it violated s 22 of the Constitution dealing with the freedom to exercise any trade, occupation or profession. The present application was for confirmation of the order of invalidity of the section as required by s 172(2)(a) of the Constitution. The applicant also cross-appealed against the High Court costs order, seeking the costs of three instead of two counsel. The confirmation application was dismissed with no order as to costs. Also dismissed was the cross-appeal against the High Court costs order.

Reading a unanimous decision of the CC, Khampepe J held that there was no deprivation of property, the applicant’s members suffered no loss while there was no restriction on its members to join the trade of unpolished diamond trade or continue therein. There could be deprivation only where interference with another’s rights in property was substantial, meaning that the intrusion had to be so extensive that it had a legally relevant impact on the affected rights. On the facts before the court it was not possible to quantify the loss that the applicant’s members had suffered as a direct result of s 20A. The alleged 30% drop in the price of diamonds as a result of the section in fact referred to lost commission opportunity rather than the fair market value of the diamonds. The limitation imposed by the section did not constitute a substantial interference with licensees’ rights of ownership in their diamonds while there was no deprivation of property. Diamond producers and dealers had not been deprived of property in their diamonds. There was accordingly no infringement of s 25(1).

A law prohibiting certain persons from entering into a specific trade or providing that certain persons would no longer continue to practise that trade would limit the choice element of s 22 as there would be a legal barrier to choice. Section 20A did not limit applicant’s members to choose their trade, profession or occupation. Not only did the section not impose a formal legal barrier to choosing to practise the trade of diamond dealer or producer but no case had been made out that the section presented an effective bar to choosing to practise those trades. All that the section did was to prohibit licensees from being assisted by unlicensed persons when viewing, purchasing or selling unpolished diamonds, except at a DEEC. Producers and dealers were still able to obtain assistance if they so wished but that had to be rendered by a licensed person (outside a DEEC) or, if they specifically sought the assistance of a person who was not so licensed, that assistance could be rendered only at a DEEC. That could not, without more, render trading as a diamond producer or dealer so unprofitable as to obviate choice.

Gender

Alteration of gender of a married person: In KOS and Others v Minister of Home Affairs and Others 2017 (6) SA 588 (WCC); [2017] 4 All SA 468 (WCC), the six applicants were three couples married in terms of the Marriage Act 25 of 1961 (the Marriage Act). Three of the applicants, namely, KOS, GNC and WJV were husbands who, sometime after their respective marriages, underwent surgical and/or medical treatment to alter their sexual characteristics from those of a male to those of a female, after which they applied for an altered birth certificate to reflect their new gender and appearance in terms of the Alteration of Sex Description and Sex Status Act 49 of 2003 (the Alteration Act). The altered birth certificate was required to apply for a new identity document, driver’s licence, passport and also operate a banking account so as to correctly reflect their new gender and appearance, including their altered feminine forenames in order to avoid the inconvenience and embarrassment, which they were going through on an almost daily basis. In the case of KOS and GNC the Department of Home Affairs, represented by the second respondent Director-General, effectively denied them the altered birth certificates on the ground that the computer system did not allow a change of their gender from male to female as they were married in terms of the Marriage Act, which because of the common law definition of a marriage as a union between a man and woman, did not allow same-sex marriage. The Department accordingly recommended that the parties should divorce and marry afresh in terms of the Civil Union Act 17 of 2006 (the Civil Union Act). However, as there was no irretrievable breakdown of marriage relationship between them and their spouses, a decree of divorce was not possible. In the case of WJV an altered birth certificate was granted, but unknown to him that only took place after his marriage in terms of the Marriage Act was deleted from the records and a new marriage, concluded in terms of the Civil Union Act, was registered.

The applicants approached the High Court for a number of orders, the main ones being that in the case of KOS and GNC, the conduct of the respondent in refusing to issue them with altered birth certificates was inconsistent with the Constitution and unlawful. In the case of WJV he sought a declaration that the deletion of his marriage from the respondent’s records was unlawful. The orders sought were granted with costs. The second respondent was ordered to process the altered birth certificates of KOS and GNC within 30 days of the granting of the order, such certificates not to refer to their marital status in terms of either the Marriage Act of the Civil Union Act. In the case of WJV the second respondent was ordered to reinstate the deleted marriage within 30 days of the granting of the court order.

Binns-Ward J held that the manner in which applications by transgender spouses were treated manifested a regrettable lack of compliance by the respondent with its constitutional obligations in a number of respects. The Marriage Act did not contain anything prohibiting a party to a marriage duly solemnised in terms of the formula prescribed in terms of s 30(1) thereof from undergoing a sex-change or obtaining an altered birth certificate in terms of the Alteration Act. There was nothing in the Marriage Act that prohibited amendment of records to take account of subsequent name and/or gender details of persons whose marriages were duly solemnised under the Marriage Act. The minister could not rely on any shortcomings in the regulatory record-keeping mechanisms of the Marriage Act to deny transgendered persons their substantive rights under the Alteration Act or to frustrate the substantive requirements of the Identification Act 68 of 1997. Both the Marriage Act and the Civil Union Act treated marriage as ‘a union of two persons, to the exclusion, while it lasts, of all others’. There was no parallel system of civil marriage, but only a parallel system for the solemnisation of marriages, one in terms of the Marriage Act and the other in terms of the Civil Union Act.

Government procurement

Locus standi to set aside the award of a tender to a competitor: The facts in the case of Areva NP Incorporated in France v Eskom Holding Soc Ltd and Others 2017 (6) SA 621 (CC); 2017 (6) BCLR 675 (CC) were that after tender bids had been invited by the first respondent, Eskom Holdings Soc Ltd (Eskom), a state owned corporation and, therefore, an organ of state, for the replacement of steam generators at Koeberg Nuclear Power Station in the Western Cape. Two competitors emerged, namely, the applicant Areva and the second respondent Westinghouse Electric Belgium Société Anonyme (WEBSA). The tender, valued at an approximate R 5 billion, was awarded to Areva. As a result the second respondent instituted High Court proceedings to set aside the tender and have it awarded to it.

The GJ per Carelse J held that the applicant had locus standi to seek relief but dismissed the application on the merits. An appeal against that order was upheld by the SCA per Lewis JA (Ponnan, Theron, Petse and Mathopo JJA concurring). A further appeal to the CC was upheld with costs, which were limited to those of two and not three counsel as sought in the cross-appeal.

Reading the majority judgment Zondo J (Moseneke DCJ dissenting, with whom Bosielo AJ concurred) held that the second respondent WEBSA did not have locus standi to seek an order setting aside the award of the tender to the applicant Areva and have the tender awarded to it. That was so as the tender that was submitted to the first respondent Eskom was not one coming from WEBSA but a different and separate company, namely, Westinghouse USA. Although WEBSA averred that it was a bidder, which lost the tender to Areva, it had been shown by attached documentation that the bid had been submitted by it on behalf of Westinghouse USA and not in its own right. That being the case the statement by WEBSA that it had submitted a bid in respect of the tender and lost to Areva had to be rejected. The statement that it made the bid in its own right was plainly wrong.

WEBSA and Westinghouse USA were two separate legal entities and each one of them bore its own separate rights and incurred its own separate obligations. When each one of the two separate entities acted in its own right, no obligations or rights attached to the other simply by virtue of the fact that they both belonged to the same group of companies. Just because company A belonged to the same group of companies as company B did not give any one of them locus standi to institute court proceedings in its own right in a matter that only directly affected the other company. Therefore, if company A submitted a bid for a certain tender and lost to company C, company B could not institute review proceedings in its own right to set aside the award and seek an order that the tender be awarded to it just because it belonged to the same group of companies.

It followed, therefore, that WEBSA did not have locus standi to institute review proceedings in its own right to have the award of the tender to Areva set aside. It would have been entitled to do so as an agent of Westinghouse USA but did not do so.

Income tax

Retrospective operation of an amendment and deprivation of property: The facts in Pienaar Brothers (Pty) Ltd v Commissioner for the South African Revenue Service and Another 2017 (6) SA 435 (GP); [2017] 4 All SA 175 (GP), were that in March 2007 a certain company, Serurubele Trading (ST), entered into an amalgamation agreement with Pienaar Brothers (Pty) Ltd (PB), in terms of which, ST acquired all the assets of PB. Two months later and on 3 May 2007 ST declared a dividend of R 29 500 000 out of its ‘share premium account’. Subsequently the ST company changed its name to Pienaar Brothers (Pty) Ltd, a company whose assets it had taken over. In terms of the law of the time that dividend distribution was tax free, the assumption being that when income was of a revenue nature in the hands of the transferor company, such as PB, it would always retain that nature in the hands of the transferee company, ST in this case, and would accordingly be taxable in due course. However, the authorities learned the hard way and came to realise that the nature of the income could change from revenue to capital, and thereby become tax free, in the hands of the transferee, as happened in this case when what was originally taxable income became a tax free dividend distributed out of ‘share premium account’.

To deal with the problem of tax avoidance the law was amended in August 2007 when s 34(2) of the Taxation Laws Amendment Act 8 of 2007 (the Amendment Act) was passed to make a dividend distributed out of ‘share premium account’ taxable. The amendment was made to apply retrospectively to 21 February 2007, the date on which in his budget speech the Minister of Finance made an announcement of the intention to make – among others – share premium account dividend taxable.

Aggrieved by taxation of a dividend, which at the time of its declaration was tax free, PB approached the High Court for an order declaring that s 34(2) of the Amendment Act was inconsistent with the Constitution and, therefore, invalid because of its retrospective operation. In the alternative, the applicant sought an order declaring that the Income Tax Act 58 of 1962 did not apply to the dividend and that taxation thereof was impermissible deprivation of property. The application was dismissed with no order as to costs as the case involved important constitutional issues.

Fabricius J held that the amendment was clear, its purpose was rational and further that it applied to all transactions including completed ones. A precise warning of retrospective operative amendment did not have to be given in each and every case nor was there a need for a warning, of whatever ambit, to be given in all cases. A proper approach was to decide the legality of retrospective amendments on a case-by-case basis, having regard to the various considerations. The Constitution itself did not prohibit retrospective legislation in civil law (ie, outside criminal law sphere). It followed, therefore, that there was nothing in the Constitution that prohibited Parliament from passing retrospective legislation.

The fact that a law created a civil liability did not in itself deprive the taxpayer of property unlawfully. If it were otherwise, every tax, levy, fee, fine and administrative charge would constitute deprivation of property for the purposes of s 25(1) of the Constitution. It could not, therefore, be argued that all taxes involved a deprivation of property. A state could not exist without taxes and they were not penalties. Neither could taxes, without qualification, be regarded as unjust deprivation of property use.

Prescription

Prescription of claim to re-transfer property to seller if conditions of sale not met: In Bondev Midrand (Pty) Ltd v Puling and Another and a Similar Case 2017 (6) SA 373 (SCA), two similar cases, one against Mr and Mrs Puling and the other against Ramokgopa, were heard together. In both cases the appellant, Bondev Midrand, was a property developer, which developed a security estate known as Midstream Estate. One piece of land was sold to the respondents Mr and Mrs Puling while another was sold to Ramokgopa, both on similar terms. In each case the title deed had a clause containing a provision to the effect that a residential dwelling would be erected on the property within 18 months of the transfer of the property to the buyer. The second clause provided that should the buyer or successor in title fail to erect a dwelling as required the seller had a right, but was not obliged, to claim re-transfer of the property against repayment of the purchase price free of interest. In the case of Ramokgopa the dwelling was to have been erected by May 2008 while in the case of the Pulings that was by March 2007. As no dwellings were erected the appellant instituted proceedings for re-transfer of the properties to it in early 2014, which was long after the expiration of a period of three years since the cause of action arose, namely failure to erect the dwellings.

The GP dismissed the appellant’s claim in both instances. The appeal that followed was also dismissed with costs by the SCA. Leach JA (Tshiqi, Seriti JJA, Tsoka and Ploos van Amstel AJJA concurring) held that the condition in the deed of transfer had two clauses. The first clause obliged the transferee or his successors in title to erect a dwelling on the property within a period of 18 months. The second clause provided that in the event of a dwelling not being erected within that period, the appellant would be entitled, but not obliged, to have the property re-transferred to it against return of the purchase price.

The first clause reflected an intention to bind not only the transferee but also his successors in title. Moreover, the requirement that a dwelling be erected on the property resulted in encumbrance on the exercise of the owner’s right of ownership of the land. Accordingly, the first clause gave rise to a real right. On the other hand, the right of the appellant to claim re-transfer of the property against repayment of the original purchase price as set out in the second clause did not amount to such an encumbrance. It was a right which could only be enforced by a particular person, the appellant, against a determined individual and did not bind third parties. Not only was that the hallmark of a personal right, but it was a right which the appellant could exercise at its sole discretion. If that clause had been standing alone, it would not have carved out a portion of the respondent’s dominium and would therefore be regarded as creating a personal right.

Section 63(1) of the Deeds Registries Act 47 of 1937 provided that no condition in a deed purporting to create or embody any personal right would be capable of registration. Although only real rights and not personal rights should be registered against a title deed, the fact that a personal right became registered did not, by itself, convert that right into a real right. The appellant accepted that if its right to claim re-transfer of the immovable property were to be regarded as a personal right, not only would prescription have begun to run on the date by when the title deed reflected a dwelling had to be erected, but that the appellant’s claim in each case had prescribed before proceedings were commenced.

Wills

Freedom of testation trumps right to equality: Very briefly a fideicommissum is a testamentary provision in terms of which a fiduciary heir (fideicommissary beneficiary) is allowed to possess, use and enjoy the property but is not permitted to dispose of it. The purpose of the arrangement is to keep the property within the family until a later stage. In King and Others NNO v De Jager and Others 2017 (6) SA 527 (WCC); [2017]  All SA 57 (WCC), a joint will executed in the year 1902 created fideicommissa over several properties, including commercial farms in Oudtshoorn in the Western Cape. The properties were bequeathed to the testators’ children, both male and female. However, clause 7 of the will limited second and third generation fideicommissary beneficiaries to grandsons and great grandsons only, to the exclusion of granddaughters and great granddaughters. Moreover, at the termination of fideicommissa after the third generation of great grandsons, only their male descendants would inherit the properties free of fideicommissa.

The first applicant, one King, an executor in the deceased estate, together with other co-executors, sought an order amending the will so that all the descendants of the testators, both male and female, could inherit. The attitude of the executors was that by discriminating against female descendants the will was against public policy and contrary to equality provisions of the Constitution.

The application was dismissed with no order as to costs. Bozalek J held that freedom of testation, according to which testators were free to dispose of their assets in a will in any manner they saw fit, was a basic principle of the law of succession. The principle of freedom of testation was, however, not completely unrestricted since the law allowed for limitations based on social and economic considerations some statutory, others founded in common law principles. One such restriction was that courts would not give effect to testamentary provisions if they offended against public policy.

The general principle was that courts would not authorise the variation of the provisions of a will, which were capable of being carried out and were not contrary to law or public policy, save in exceptional circumstances or under statutory authority. That was so no matter how capricious, unreasonable, unfair, inconvenient or even absurd the provisions could be. It was important to note that the instant case was not one of a testamentary trust, let alone one with a public character and an indefinite life, containing provisions which discriminated against one or more sectors of society as was the case in other matters. It was rather a case of disherison of certain descendants.

The constitutionally protected right to property included a right to freedom of testation, with qualification that this was not absolute. Testation was a field where the courts proceeded from the starting point that a testator had maximum freedom to dispose of their property on their death as they saw fit, subject to the existing rules set out in case law or any statutory constraints.

The present matter could be seen as involving a choice between the lesser of two evils, namely, perpetuating gender discrimination or undue interference with the right to freedom of testation. While the terms of the fideicommissa discriminated against the testators’ female descendants simply on the ground of their gender, allowing the right to equality to trump the right to freedom of testation in the present case, although superficially equitable, would produce an arbitrary result. At the same time it would present a broad incursion into a vital corollary of the right to property, a fundamental constitutional right.

Even if it was assumed in favour of the female descendant of the testators that they notionally had a right to be treated equally with the male descendants in the exercise by the testators of their freedom of testation, the limitation on the female descendants’ right to equality in the form of discrimination against them effected by clause 7 of the will was reasonable and justifiable, particularly given the importance accorded to the right to freedom of testation. Furthermore, the disputed provisions of the clause were not contrary to public policy. The general public would not regard the testators’ decision to impose the fideicommissary condition discriminating against female descendants as so unreasonable and offensive that the provisions should be considered as offending against public policy.

Other cases

Apart from the cases and material dealt with or referred to above the material under review also contained cases dealing with: Access to information held by a private body, application for a visa or permit by an asylum seeker, common purpose in the commission of crime, condonation for late submission of review application, demolition of building, derivative action under Companies Act 71 of 2008, exhaustion of internal remedies before approaching court, full and reasonable explanation to explain delay for institution of review application, invalidity of an elective conference of a political party, lack of jurisdiction of Advertising Standards Authority over non-members, permanent stay of prosecution as a result of unreasonable delay, power of Minister of Finance to legislate amendments to customs tariffs, prevention of organised crime, private funding of political parties to be disclosed, rape of complainant with mental difficulties, remittal of arbitral award to arbitrator, requirements for leave to appeal, review of municipality’s approval of rezoning of residential property, sale of fuelling station site licence, sequestration of estates of two or more individuals in a single application not being permissible, surviving spouse including husband and wife in monogamous and polygynous Muslim marriage, tariff for supply of bulk water by municipality and validity of official act until it is set aside by court order.

 This article was first published in De Rebus in 2018 (Jan/Feb) DR 41.

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