The law reports – November 2012

November 1st, 2012
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Heinrich Schulze BLC LLB (UP) LLD (Unisa) is a professor of law at Unisa.

September 2012 (5) The South African Law Reports (pp 1 – 322); [2012] 3 The All South African Law Reports August no 1 (pp 245 – 366) and no 2 (pp 367 – 478)

Abbreviations:

CC: Constitutional Court

SCA: Supreme Court of Appeal

Arbitration

Setting aside award: In Enviroserv Waste Management (Pty) Ltd v Wasteman Group (Pty) Ltd and Others [2012] 3 All SA 386 (SCA) a dispute arose between shareholders of a company as to who was entitled to manage the company. In terms of the shareholders’ agreement, Enviroserv would be responsible for management functions in the company for a six-month period. However, Enviroserv remained in exclusive control of the day-to-day affairs of the company for more than eight years without objection from the other shareholder, Wasteman. In 2003, with the advent of new shareholders in Wasteman, this situation was questioned and the dispute giving rise to the present case arose.

Wasteman invoked the arbitration clause contained in the agreement. After the arbitrator issued an award, Wasteman sought rectification of the award on the ground that part of it did not accord with the relief claimed. The arbitrator amended the award to indicate that Enviroserv was not entitled to exclusively manage the business of the company ‘at the weighbridge or elsewhere’. This led to an appeal by Enviroserv. The second respondent, an arbitration appeal tribunal, set aside the arbitrator’s findings in respect of Enviroserv’s entitlement to exclusively manage the business of the company. In terms of s 33(1)(b) of the Arbitration Act 42 of 1965 (the Act), Wasteman applied to the High Court for the setting aside of the appeal award. The application was successful, with the High Court finding that the appeal tribunal had adopted an entirely new approach and had determined issues mero motu on a basis that had not been raised as part of the appeal. This finding led to the present appeal.

The SCA, per Heher JA, held that a court faced with an application under s 33(1)(b) of the Act, which requires it to construe an award, must at least be sure that it fully grasps the logic employed by the tribunal before it can contemplate setting aside the award. The arbitrator emphasised that his award in relation to the rejection of exclusive management by Enviroserv was intended to mean that after the lapse of the initial period without invocation of the review, Enviroserv’s right to exclusive management ipso facto came to an end. The appeal tribunal disagreed with this interpretation and set aside the award on this basis. In addressing the proper interpretation of the shareholders’ agreement, the appeal award made no reference to any tacit agreement that purportedly envisaged the termination of Enviroserv’s right to exclusive management after a certain period of time.

The court held that the tribunal, whether its conclusion and the reliance it placed on the tacit agreement was right or wrong, had committed no gross irregularity as contemplated in s 33(1)(b) of the Act. The award of the tribunal was therefore not reviewable on this ground. Accordingly, the tribunal did not, as the court a quo found, base its interpretation of the shareholders’ agreement on an unpleaded tacit agreement, constructed by the tribunal itself, and of which Wasteman had been afforded no notice in the proceedings. The court a quo should not have found that the tribunal committed any irregularity or had acted beyond its jurisdiction.

The appeal was upheld with costs.

Banking law

Set-off of money in bank account: In Standard Bank of South Africa v Echo Petroleum CC 2012 (5) SA 283 (SCA) the respondent, Echo, carried on business as a wholesale supplier of fuel, in particular of Sasol products. Sasol allowed only authorised contractors to purchase fuel directly from it. Echo was not so authorised and was therefore obliged to purchase fuel from Sky Petroleum (Sky), an authorised contractor.

Echo regularly deposited money into Sky’s bank account, the ‘602 account’, which Sky held with the appellant bank. It was intended that Sky would use the money to purchase fuel from Sasol. Sky also held a second bank account, the ‘253 account’, in terms of which it had an overdraft facility. Sky ran into financial difficulties and failed to repay its overdraft on the 253 account.

On 1 October 2008 Echo ordered fuel to the value of R 710 000 from Sky and transferred the money into the 602 account. Shortly after the amount was deposited, the bank stopped Sky’s access to the 602 account. The bank transferred the amount deposited by Echo to Sky’s 253 account in order to offset the debt resulting from the unpaid overdraft.

Echo claimed the amount from the bank, alleging that the money deposited into the 602 account was never meant to become the property of Sky (or the bank). Rather, the account was meant to be a conduit for Sky to pay Sasol for fuel Sky bought on behalf of Echo.

The court a quo held that the bank knew or should have known that the deposits Echo had made into Sky’s 602 account were intended for Sky to purchase fuel on behalf of Echo. The money in Sky’s 602 account was thus never meant for the credit of Sky. It ordered the bank to pay Echo R 710 000 plus interest.

On appeal, the SCA held that the true basis of the relationship between Echo and Sky was that of a contract of sale. Pursuant to its contractual obligation towards Sky, Echo transferred the purchase price for the fuel (R 710 000) to Sky’s 602 account.

As soon as the deposited amount was credited to its name, Sky became entitled to use the funds. Sky was therefore entitled to the benefit of the credit. When Sky was unable to procure delivery of the fuel, Echo obtained a claim against Sky for breach of contract. However, Echo’s claim did not include a vindicatory right to the contractual consideration that Echo had paid into Sky’s account.

The SCA, per Heher JA, held that Echo did not prove that the bank had knowledge of the modus operandi of Sky’s business with Echo. Even if the bank had been informed of the modus operandi, it was not bound to subordinate its interests to those of Sky in the absence of an agreement between them.

The appeal was accordingly upheld with costs.

Company law

Derivative action: Previously, in terms of the common law, the shareholders of a company possessed the right to bring an action on behalf of the company for wrongs done to the company. This was known as the common law derivative action.

Section 165(1) of the Companies Act 71 of 2008 (the Act) introduced a new regime that completely replaced the shareholders’ common law derivative action with a broader statutory action. Section 165(2) provides that certain persons ‘may serve a demand upon a company to commence or continue legal proceedings, or take related steps, to protect the legal interests of the company…’. Section 165(5) provides that a person who has made such a demand ‘may apply to a court for leave to bring or continue proceedings in the name and on behalf of the company, and the court may grant leave only if –

(b) the court is satisfied that –

(i) the applicant is acting in good faith

….; and

(iii) it is in the best interests of the company that the applicant be granted leave to commence the proposed proceedings or continue the proceedings, as the case may be.’

In Mouritzen v Greystones Enterprises (Pty) Ltd and Another [2012] 3 All SA 343 (KZD); 2012 (5) SA 74 (KZD) the court was asked to consider the application and parameters of the provisions contained in s 165 of the Act. The applicant, who was a director of the first respondent company, sought leave under s 165(5) to institute an action in the name of the company against the second respondent (his co-director) for an order directing the latter to render full account of expenditure on his company credit card and payment of whatever sum was found to be due to the applicant. It appeared from the evidence that –

  • the applicant was the trustee of the majority shareholder in the company;
  • there was a history of personal acrimony between the applicant and the second respondent;
  • the applicant had tendered to make available his company credit card records for inspection by the second respondent; and
  • the applicant had posted a letter by ordinary mail to the company’s postal address, which was intended to serve as a demand under s 165(2).

The second respondent argued that this did not constitute proper service as the letter was not served at the company’s registered office or principal place of business. On the merits, the second respondent argued that the applicant was not acting in good faith because of the animosity between them.

Ndlovu J held that the service of a demand as intended in s 165(2) is clearly an essential precondition to the institution of an application under s 165(5). It was thus obligatory for a prospective applicant to comply with the service requirement before proceeding in terms of s 165(5). Any legally recognised manner of service would suffice for the purposes of s 165(2) and it was not necessary for the demand to be delivered to the company’s registered office or principal place of business.

As to the merits of the application, the court held that the ‘good faith’ requirement meant that the applicant had to show good conscience and sincere belief in the existence of reasonable prospects of success in the proposed litigation. Proof of personal animosity between the parties, although relevant, was not per se conclusive. The applicant’s offer to make his credit card account available for inspection was indicative of the required good faith and this would overlap with the ‘best interests of company’ requirement since an application driven by an ulterior motive would generally not be in the best interests of the company. The applicant was, both in his capacity as director and representative of the majority shareholder in the company, entitled to call for an investigation into suspected irregularities or abuse of the company’s assets.

The court concluded that, in the circumstances of the matter, an order under s 165(5) would be the most effective and expeditious way to resolve the matter in the best interests of the company.

The applicant was accordingly granted leave to institute action in the name of the company. Costs stood over for determination after the main proceedings.

 

Security for costs by close corporation: In Joytech SA (Pty) Ltd and Others v Tetraful 1060 CC 2012 (5) SA 215 (ECP) the respondent (as plaintiff) instituted an action against the applicants (as defendants). The plaintiff sought the payment of R 2,1 million plus interest, as well as attorney and own client costs. The plaintiff based its claim on the allegation that the defendants had either stolen, misappropriated or fraudulently removed money totalling that amount from the business of the plaintiff.

After the action had been launched, the plaintiff delivered a notice in terms of r 47(1) of the Uniform Rules of Court requiring the defendant to provide security for the costs of the action pursuant to the provisions of s 8 of the Close Corporations Act 69 of 1984 (the Act). The defendant notified the plaintiff of its intention to oppose the request for security.

Lopes J held that the correct approach to an application for security for costs in terms of s 8 of the Act is that each case must be decided in the light of all relevant circumstances. The court referred with approval to Giddey NO v JC Barnard and Partners 2007 (5) SA 525 (CC) in which it was held that ‘a court needs to be apprised of all the relevant information’ in order to ‘balance the potential injustice to a plaintiff … prevented from pursuing a legitimate claim as a result of an order requiring it to pay security for costs … against the potential injustice to a defendant who successfully defends the claim … (having) to pay all its own costs’.

In the present case the defendant did not rely on any suggestion that it would be unable to continue the litigation should an order for security be made. The main issue that fell to be considered was whether the plaintiff had demonstrated that the defendant close corporation would be unable to pay any costs order that might have been awarded against it.

The court held that the continued failure by the defendant close corporation to pay an earlier costs order in litigation between the parties was at least a prima facie indication that it would be unable to pay a costs order awarded against it (as plaintiff) in the main action.

The court concluded that the defendant close corporation should have provided security for costs.

 

Winding-up of close corporation: In HBT Construction and Plant Hire CC v Uniplant Hire CC 2012 (5) SA 197 (FB) the applicant lodged an urgent application for the liquidation of the respondent close corporation on the basis that the latter was unable to pay its debts. In order to reach its decision, the court considered the provisions relating to the winding-up of a company under the Companies Act 71 of 2008 (the 2008 Act).

Zietsman AJ noted that although the application was lodged in terms of the 2008 Act, chapter XIV of the Companies Act 61 of 1973 (the 1973 Act) was still to be applied in accordance with item 9 of sch 5 of the 2008 Act.

The court listed a number of important principles in dealing with the liquidation of companies (and close corporations) in terms of the 2008 Act. Firstly, although s 345 of the 1973 Act is still in place in so far as a solvent or insolvent company is concerned, s 344 only applies in the case of an insolvent company.

Secondly, in order to liquidate after the 2008 Act came into operation, an applicant should prove that the company is also insolvent, notwithstanding the deeming provisions of an inability to pay debtors as contemplated in s 345 of the 1973 Act. The reason for this approach is that s 344 of the 1973 Act provided for the grounds on which a company could be wound-up.

Thirdly, whereas the 1973 Act now applies only in cases of insolvent companies, such grounds for liquidation as taken up in s 344 are not available in cases of solvent companies.

Fourthly, the only grounds for liquidation of a solvent company are those provided for in part G of chapter 2 of the 2008 Act.

Fifthly, when a creditor of a company applies for liquidation, the only grounds for liquidation of a solvent company will be those referred to in s 81(1)(c) of the 2008 Act. The grounds on which a court can grant a liquidation order will differ depending on whether a company is solvent or insolvent.

Finally, the only mutual ground on which a court can grant a liquidation order presently is the ground that it is just and equitable to do so. The same principles will apply in the case of a liquidation of a close corporation, as s 68 of the Close Corporations Act 69 of 1984 was repealed by item 7(3) of sch 3 of the 2008 Act. Therefore, an application for the liquidation of a close corporation can only succeed if there is proof that the close corporation is insolvent or that it is just and equitable that the close corporation be liquidated.

In the present case, the close corporation had bona fide disputed its indebtedness towards the applicant.

The application for liquidation of the close corporation was therefore dismissed with costs.

Contract law

Implied terms: In GC Property Developers CC v Watt [2012] 3 All SA 426 (GSJ) the applicant purchaser and the respondent seller concluded a deed of sale in terms of which the purchaser bought land from the seller with a view to establishing a townhouse and sectional title unit development.

The purchaser paid a deposit of R 1,2 million and the balance of R 1,875 million was payable on the transfer of five townhouses; alternatively, 12 sectional title units to the seller. On transfer of such townhouses or sectional title units to the seller and/or her nominee(s), the purchaser would procure title to the property and be discharged from its obligations to the seller.

However, there was a dispute between the parties as to the correct interpretation of the deed of sale. The purchaser contended that the value of the townhouses and/or sectional title units to be erected was the determinant of the payment of the balance of R 1 875 000 and not the number of townhouses and/or sectional title units in and of themselves, whereas the seller argued that the agreement expressly provided for the transfer of five townhouses or 12 sectional title units to her or her nominee(s) in lieu of the balance of the purchase price, regardless of the cost thereof, and not the delivery of sectional title units up to the value of R 1 875 000.

In terms of s 11 of the Sectional Titles Act 95 of 1986, an application to the Deeds Registrar for the opening of a sectional title register must inter alia be accompanied by the mortgagee’s consent to the opening of a sectional title register if the property is subject to a mortgage bond. Further, s 22(2) of the Act requires the mortgagee to consent to the cancellation of the bond or the release of the sections from the bond. The purchaser alleged that the seller was unreasonably refusing to grant consent as the mortgagee in terms of the mortgage bond over the property. An order was therefore sought compelling the mortgagee to provide consent. Mokgoatlheng J noted the purchaser’s submission that at the time the contract was concluded, the parties contemplated that the mortgagee would readily consent to the opening of a sectional title register. The purchaser thus argued that an implied term had to be inferred from the contract that payment of the balance of the purchase price could be paid by a reasonable tender.

The court rejected this argument. An implied term is a term presumed by law and is normally imported into a contract to give it business efficacy for its execution. The importation of an implied term to the effect that the balance of the purchase price may be paid by tender could not pass muster because such interpretation was in conflict with the terms of the agreement. It could never have been contemplated by the parties when they concluded the deed of sale that tenders would be offered by the purchaser as payment of the balance of the purchase price. The express terms deliberately excluded the possibility of importing such an implied term.

The court further held that, as the matter was pending before another court, granting the application would be an abuse of the court’s process.

 

Lack of consensus in contract: The issue to be decided in Absa Bank Ltd v Trzebiatowsky and Others 2012 (5) SA 134 (ECP) was whether directors of three companies, who had signed deeds of surety in favour of a bank in their personal capacities in order to obtain financial assistance from a bank for a business venture, could escape liability on the basis that they did not understand the nature of the documents they had signed.

The second defendant submitted that the parties were not ad idem when certain suretyship agreements were concluded and, in the absence of her knowledge as to the content of the agreements, the deeds of suretyship were not binding on her. Her defence was thus one of iustus error.

Revelas J held that, in order to succeed with the defence of iustus error, the second defendant had to show that she was misled as to the nature of the deeds of suretyship. Alternatively, she had to show that she was misled as to the terms they contained or by some act or omission on the part of the plaintiff’s representative, provided there was a duty on him to inform her of the consequences of signing the personal sureties. Such duty would have arisen only where the document departed from prior representations as to the nature or contents thereof. In the present matter there was no basis to find, as was the case in Brink v Humphries 2005 (2) SA 419 (SCA), that the document in question was ‘a trap for the unwary and that the appellant was justifiably misled by it’. Applying the principles in the relevant case law, the plaintiff’s representative was not under any duty to alert the second defendant to the risks involved in signing the surety agreements.

The court further held that the maxim caveat subscriptor (‘let the signatory of a document be on his guard’) found application when the maxim of praesumptio hominis was applied; that is, those signing a document had the intention to enter into the transaction contained in it. The surety was burdened with the onus of convincing the court that she had not intended to enter into the contract. This principle, that a person who signs a contract is taken to be bound by the ordinary meaning and effect of the words that appear over his signature, is still regarded as valid. In this regard, the court referred with approval to the earlier decisions in George v Fairmead (Pty) Ltd 1958 (2) SA 465 (A) at 470B – E and the Brink case at 421G – I, where it was held that the principle remains a sound one.

The second defendant’s defence of iustus error was overridden by the maxim caveat subscriptor.

Judgment with costs was granted in favour of the plaintiff.

Landlord and tenant

Rights of tenant: The facts in Hyprop Investment Ltd v Sophia’s Restaurant CC and Another 2012 (5) SA 220 (GSJ) were as follows. The applicant landlord was the owner of commercial property leased to the first respondent tenant. The second respondent was a surety for the obligations of the tenant. The validity and enforceability of the lease was beyond argument. The landlord sought summary judgment for arrear rental and the ejectment of the tenant from the property after the landlord cancelled the lease agreement due to non-payment of rental. It was common cause that the tenant was in substantial arrears with rental payments.

The defence raised was that the tenant was entitled to a remission of rental by virtue of the fact that it did not have full use and enjoyment (commodus usus) of the premises due to renovations and/or alterations that the landlord intended to embark on. However, the lease agreement specifically included a term providing for the landlord’s right to do renovations without remission of rent.

Wepener J held that a landlord’s liability to a tenant for reduced beneficial use of leased premises in the event of renovation could be excluded by agreement. In the present case the common law obligation to give the tenant commodus usus of the premises was indeed limited and excluded by agreement between the parties.

The tenant’s reliance on the common law principle was therefore dismissed and summary judgment was granted.

National Credit Act

Section 129 notice: Section 129 of the National Credit Act 34 of 2005 (the Act) requires that before instituting action, a credit provider must send a notice of default to the debtor. In a long line of earlier decisions the courts attempted to interpret the parameters and content of s 129. These decisions gave rise to different approaches in different provincial divisions. Matters were brought to a head in the recent decision in Sebola and Another v Standard Bank 2012 (5) SA 142 (CC). The CC ruled that before instituting action a credit provider must provide proof to a court that a s 129 notice of default –

  • has been dispatched to the consumer’s registered address; and
  • the notice has reached the appropriate post office for delivery to the consumer.

The facts in this matter were that the appellants, Mr and Mrs Sebola, had defaulted on a mortgage loan agreement with Standard Bank. The bank sent the appellants a notice of default in terms of s 129 by registered post. The notice was diverted to the wrong post office by the postal services and the appellants did not receive it.

The bank issued summons and obtained default judgment. The appelants only became aware of the judgment when the writ of attachment was served on them. They applied for rescission of the judgment, but the court dismissed the application.

They then appealed to the full court, which dismissed the appeal. The full court relied on Rossouw and Another v FirstRand Bank Ltd 2010 (6) SA 439 (SCA), in which it was held that dispatch of the notice by the credit provider to the chosen address was sufficient to comply with s 129(1).

The appellants applied for leave to appeal to the CC, arguing that the court in the Rossouw matter had failed to apply constitutional principles of interpretation.

In a majority judgment by the CC, Cameron J held that when interpreting the Act, courts must have regard to its purposes. One of the means by which the legislation expressly provides for its purposes to be pursued is through ‘consensual resolution of disputes arising from credit agreements’.

The notice requirement in s 129 should be read with s 130. Firstly, it is impossible to establish what a credit provider is obliged and permitted to do without reading both provisions. Secondly, both sections require that notice be given, but do so in very different ways. Thirdly, while s 129 focuses on the consumer to whom the credit provider must furnish notice, and to whose ‘notice’ the information must come, s 130 tells the notice provider what must be done to fulfil the requirements of s 129, namely to ‘deliver’ a notice as contemplated in s 129(1).

No means of direct proof lies in the reach of a credit provider that wishes to enforce an agreement. It is for this reason that s 130 imposes on the credit provider the obligation to ‘deliver’ the notice.

Although the Act does not provide a clear definition of ‘deliver’, it requires a credit provider seeking to enforce a credit agreement to aver and prove that the notice was delivered to the consumer. Where the credit provider posts the notice, proof of registered dispatch to the address of the consumer, together with proof that the notice reached the appropriate post office for delivery to the consumer, will in the absence of a contrary indication constitute sufficient proof of delivery.

Since proof of actual delivery to a specified address is not practicable, dispatch to a registered address must be required for delivery under s 130.

In practical terms, the credit provider must obtain a post-dispatch ‘track and trace’ printout from the website of the South African Post Office.

Finally, the court pointed out that non-compliance with s 129 is not fatal, but merely delays proceedings.

The appeal was upheld with costs.

Note: Judgment in the Sebola case was handed down on 7 June 2012. In two subsequent cases the question of what constitutes ‘delivery’ for purposes of s 129 again arose for discussion. The first post-Sebola case was that of Nedbank Ltd v Binneman and Thirteen Similar Cases 2012 (5) SA 569 (WCC) (judgment was handed down on 21 June 2012). In the second of these cases, ABSA Bank Ltd v Mkhize and Another and Two Similar Cases 2012 (5) SA 574 (KZD) (judgment was handed down on 6 July 2012), the court held that proof that a registered letter has reached the correct post office is insufficient to prove delivery to a consumer of a s 129 notice if there is evidence that the consumer did not collect the notice. Thus, registered post may not be the most reliable method to prove delivery of a s 129 notice. Credit providers must provide reliable evidence that the notice probably came to the consumer’s attention.

Other cases

Apart from the cases and topics referred to above, the material under review also contained cases dealing with actions against the state, administrative law, civil procedure, criminal law, constitutional law, donation, execution, expropriation, fictitious fulfilment of contracts, intellectual property, jurisdiction, labour law, land reform, mines and minerals, practice, prescription, tax, trusts, vicarious liability and wills.

This article was first published in De Rebus in 2012 (Nov) DR 47.