The law reports – July 2014

July 1st, 2014
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Heinrich Schulze BLC LLB (UP) LLD (Unisa) is a professor of law at Unisa.

May 2014 (3) The South African Law Reports (pp 1 – 320); [2014] 2 The All South African Law Reports April no 1 (pp 1 – 126); and no 2 (pp 127 – 250)

Abbreviations:

CC: Constitutional Court

GNP: Gauteng North High Court, Pretoria

KZD: KwaZulu-Natal High Court, Durban

SCA: Supreme Court of Appeal

WCC: Western Cape High Court

Arbitration

Making award an order of court: In Prime Fund Managers (Pty) Ltd v Rowan Angel (Pty) Ltd and Another [2014] 2 All SA 227 (GNP) the applicant sought to have an arbitration award handed down by an arbitrator (the second respondent) made an order of court in terms of s 31(1) of the Arbitration Act 42 of 1965 (the Act).

The original dispute between the applicant and the first respondent, which was referred to arbitration, concerned the cancellation of an agreement between them. The primary issue referred for arbitration was whether the relevant notice of cancellation constituted a valid termination. The applicant sought a declaratory order that the contract had not been validly terminated. The arbitrator found that while the notice was not valid, the agreement was subsequently terminated with effect from 30 June 2008 by a notice of cancellation dated 28 March 2008.

The first respondent opposed the present application on a number of grounds, some of which will be referred to here. First, it contended that the application was premature as the matter had been referred to further arbitration which was pending; secondly, the award was not an award sounding in money and was unenforceable in its terms; and thirdly, the award could not be enforced as the applicant’s claim for payment had prescribed.

Murphy J pointed out that s 31(1) of the Act provides that an award may, on the application to a court of competent jurisdiction by any party to the reference after due notice to the other party or parties, be made an order of court. An award which has been made an order of court may be enforced in the same way as any judgment or order to the same effect.

The court dismissed the first respondent’s objection on the grounds that the application was premature and that the award was not final.

Secondly, the court held that there is no legal basis or principle supporting the respondent’s argument that the court should not make the award an order of court as ‘it does not sound in money’ – in the sense that payment is not ordered. The jurisdictional pre­-­conditions of s 31(1) of the Act require only the existence of an award, which is not defined in s 1 to exclude awards not sounding in money. In any event, the second arbitrator’s costs award against the respondent is one sounding in money (in the sense that payment is ordered) which can be enforced; but the applicant requires a court order to do so.

On the issue of prescription, the court held that the right to have an arbitration award made an order of court and to enforce it prescribes, in terms of s 11(d) of the Prescription Act 68 of 1969, three years after the award is made. The award was made on 15 February 2012. Hence, the right to enforce it would prescribe only in early 2015, unless the running of prescription was interrupted or delayed in terms of the Prescription Act, in which event the period would be longer. Prescription thus posed no obstacle to making the award an order of court.

The application was allowed with costs.

Cession

Pactum de non cedendo: The facts in Born Free Investments 364 (Pty) Ltd v FirstRand Bank Ltd [2014] 2 All SA 127 (SCA) were as follows. The respondent, FirstRand, lent money to two companies, who borrowed R 49,2 million and R 25,1 million respectively. They were later placed under liquidation. FirstRand’s claims were admitted by the liquidators, and it was a major creditor in each insolvent estate. The liquidators ceded the claims to the appellant, Born Free, which, as cessionary, sued FirstRand in the High Court. It alleged that FirstRand had repudiated the loan agreements which it had entered into with each of the two companies, causing the companies to suffer significant losses.

FirstRand denied the validity of the cession to Born Free on the basis that its contract with each of the two companies contained a pactum de non cedendo preventing the companies from ceding any of their rights under the agreement without FirstRand’s prior written consent.

The crisp question raised on appeal was whether the right, title and interest in and to the claims in question were capable of being ceded by the duly appointed liquidators of the two companies in view of the stipulation referred to above.

Born Free argued that the liquidators entered into each sale and cession in accordance with their duties in terms of the insolvency law and that the clause containing the pactum de non cedendo was in law inapplicable to and of no effect as against them because, so it argued, a pactum de non cedendo does not bind a liquidator who cedes a contractual right pursuant to his duties as liquidator.

Ponnan JA confirmed that a distinction must be drawn between a pactum de non cedendo, which prohibits the cession of an existing right, namely, one which pre-existed the conclusion of the pactum, on the one hand, and a pactum de non cedendo of a right which, by means of the pactum itself, was created ab initio as a non-transferable right, on the other hand. The question is, therefore, whether the rights which the liquidators had ceded to Born Free had been created ab initio as non-transferable rights. If they were, then it would follow that the cession in each instance was invalid and would thus be of no force or effect.

The court held that the clause which contains the pactum de non cedendo, was couched in fairly wide terms. The language could not have been clearer: ‘You shall neither cede any of your rights nor assign any of your obligations under this agreement without our prior written consent’.

On the plain and ordinary meaning of the words used, it was clear that it was the intention of the parties to the agreements, when they concluded them, to render all rights acquired by the two liquidated companies under those agreements non-transferable. Accordingly, the cession of the claims of the companies against FirstRand to Born Free by the liquidators of the companies, was invalid and of no force or effect.

The appeal was dismissed with costs.

Company law

Ability to pay debts: In Dippenaar NO and Others v Business Venture Investments No 134 (Pty) Ltd and Another [2014] 2 All SA 162 (WCC) the first respondent, BVI, was the owner of a frail care centre situated in an upmarket security lifestyle village. The applicants sought an order declaring that a resolution of BVI’s board of directors to commence business rescue proceedings and to place BVI under supervision, had lapsed and was a nullity. In the alternative, they sought the setting aside of the resolution on grounds set out under s 130(1)(a)(ii) and/or s 130(1)(a)(iii) of the Companies Act 71 of 2008 and an order placing BVI in provisional liquidation in the hands of the Master of the High Court. The applicants brought the application in their capacity, both as creditors of and affected parties in relation to BVI.

The crisp issue at stake was whether BVI was unable to pay its debts and whether it was, therefore, just and equitable to place it under final liquidation.

Boqwana J confirmed that the test to be applied in ascertaining whether a company is unable to pay its debts is whether it is commercially insolvent in the sense that it is unable to meet its day-to-day liabilities in the ordinary course of business. The court held that BVI had been able to demonstrate that it could meet its liabilities as they fell due, albeit those liabilities being paid on its behalf by its sole shareholder, and that it would remain buoyant after having met those obligations.

The court further reasoned that it would not serve the interests of the parties concerned to place BVI into final liquidation.

The application was accordingly dismissed.

Constitutional law

Warrantless searches: In Estate Agency Affairs Board v Auction Alliance (Pty) Ltd and Others 2014 (3) SA 106 (CC) the CC was asked to consider the constitutionality of s 32A of the Estate Agency Affairs Act 112 of 1976 (the EAAA) and s 45B of the Financial Intelligence Centre Act 38 of 2001 (FICA), which both provide for non-routine, warrantless searches.

Both s 32A of the EAAA and s 45B of FICA confer wide powers of warrantless search and seizure on regulatory bodies.

The applicant, the Estate Agency Affairs Board (the board), tried to use its statutory powers to search the business premises of the first respondent, Auction Alliance.

The court a quo held that both s 32A and 45B were unconstitutional and invalid.

All the parties to the present case agreed that the provisions were unconstitutional. However, a number of issues remained to be decided by the present court. First, should the declaration of invalidity be made retrospective? Secondly, should the declaration of invalidity be suspended, and if so, for how long? Thirdly, should there be a reading in to the existing wording of the two Acts under discussion?

Cameron J held that s 32A of the EAAA and s 45B of FICA are indeed unconstitutional and invalid.

However, the court pointed out that the declaration of invalidity is not retrospective. The declaration of invalidity was suspended for 24 months to afford the legislature an opportunity to cure the invalidity.

The order granted by the High Court, under which the board’s auditors retain a mirror image of the data on Auction Alliance’s computers, is extended for 30 days beyond the date of the CC’s order to enable the board to apply for a warrant in respect of the data under the statutory provisions as they apply during the period under suspension.

The court further recommended the ‘reading in’ of a number of provisions into s 32A and  s 45B in order to ensure that regulatory bodies supported by the EAAA and FICA are in the meantime allowed to exercise their search and seizure functions in a way that meets constitutional scrutiny.

The court distinguished between warrantless routine inspections on the one hand, and warrantless ‘non-routine’ (or ‘targeted’) inspections, on the other. A ‘targeted’ inspection is based on a particular suspicion of wrongdoing.

The court drew an important distinction between the following two scenarios. First, statutory provisions that provide for warrantless routine inspections generally meet constitutional muster and are valid. Conversely, statutory provisions which provide for warrantless targeted inspections are unconstitutional and invalid.

In reaching its decision the court referred with approval to the earlier decision in Gaertner and Others v Minister of Finance and Others 2014 (1) SA 442 (CC) in which the CC invalidated provisions of the Customs and Excise Act 91 of 1964 which provided, inter alia, for warrantless searches of any premises at any time.

The declaration of invalidity of s 32A of the EAAA and s 45B of FICA made in the High Court was confirmed, but the terms of the High Court order were varied.

Contingency fees

Validity: The decision in Ronald Bobroff & Partners Inc v De La Guerre 2014 (3) SA 134 (CC) concerned the constitutionality of the Contingency Fees Act 66 of 1997 (the Act).  The High Court dismissed Bobroff’s application in which it sought a declaration of unconstitutionality of the Act.

Bobroff’s application to the CC for leave to appeal was dismissed. The CC held that it was the wisdom, not the rationality, of the legislature’s distinction – regulating contingency fee agreements, but not champertous agreements – that was questioned. It held that courts cannot venture beyond rationality into reasonableness under the guise of rationality review, and dismissed Bobroff’s application with costs. (For a more detailed discussion of the Bobroff case, see 2014 (May) DR 52.)

Insolvency law

Rehabilitation: In Vengadesan NO v Shaik and Others 2014 (3) SA 14 (KZD) the applicant, in his capacity as trustee of the insolvent estate of the late Ayob Shaik (the deceased) sought an order for the eviction of the first and second respondents (who were family members of the deceased) from certain immovable property that formed part of the estate of the deceased.

The present application turned on the question whether the applicant had the necessary locus standi in iudicio to bring the application because, so the respondents argued, the deceased would have been rehabilitated by effluxion of time on 14 July 2011, had he not died during January 2010.

Jeffrey AJ held that only an insolvent may be rehabilitated – a deceased insolvent’s estate may not be. If an insolvent dies before ten years have passed from the sequestration of his estate, this bars his rehabilitation. In this regard the court relied on the provisions contained in ss 124, 127A and 129 of the Insolvency Act 24 of 1936.

The application order for eviction of the respondents was granted with costs.

National Credit Act

Section 129 notice: The decision in Kubyana v Standard Bank 2014 (3) SA 56 (CC) is of importance to both credit providers and consumers. In Kubyana the CC explained its earlier decision in Sebola v Standard Bank 2012 (5) SA 142 (CC).

Both Kubyana and Sebola dealt with the interpretation and application of s 129 of the National Credit Act 34 of 2005 (the NCA). At the heart of the controversy surrounding s 129 is the question what exactly is required before one can say that a s 129 notice has been properly delivered by a credit provider to a consumer.

In Kubyana the court held that if a consumer has elected to receive notices by way of registered mail, he must respond to notifications from the Post Office requesting him to collect registered items unless, in the circumstances, a reasonable person would not have responded. A consumer will not be allowed to neglect to collect a notification from the Post Office to collect a registered item and then claim that the s 129 notice has not been delivered to him. (For a more detailed discussion of the Kubyana case, see 2014 (June) DR 38.)

 

Debt review: In Ferris and Another v FirstRand Bank Ltd 2014 (3) SA 39 (CC) the appellants, Ferris, borrowed money from the respondent, FirstRand, to buy a home. This loan was secured by a mortgage bond over the property. Ferris fell into arrears with their loan repayments and applied to be declared over-indebted under s 86 of the National Credit Act 34 of 2005 (the NCA). The bank rejected the debt-restructuring proposals made by the debt counsellor but made no counter-proposal. The bank purported to terminate the debt review, but the s 86(10) notice was not properly delivered to Ferris, rendering it ineffective.

The magistrate’s court made a debt-restructuring order on the basis sought by Ferris, including the debt owed to the bank. Ferris defaulted on the terms of the order and the bank instituted proceedings against Ferris to reclaim the money and have the property declared specially executable.

Ferris opposed the claim and the bank claimed summary judgment. Although the summary judgment was initially resisted, it was not properly prosecuted and default judgment was granted against Ferris.

Ferris applied for a rescission of the default judgment. The application was refused, as was Ferris’ application for leave to appeal against that decision. Their petition to the SCA was also turned down, whereupon Ferris applied to the CC for leave to appeal.

Ferris claimed that the bank was not entitled to enforce the agreement, even if breached for a number of reasons, inter alia:

  • The debt review was not terminated properly because the s 129 notice was not properly delivered.
  • Ferris substantially complied with the restructuring order.
  • The bank was not entitled to non-compliance in replication.

The court granted condonation on the basis that it was in the interest of justice to have legal certainty as to when a credit provider is entitled to enforce a credit agreement that is subject to a restructuring order and has been breached.

The court decided the application for leave to appeal on the substantive question whether there was a reasonable prospect of success.

Moseneke ACJ held that there was no mistake in the order made by the High Court. Ferris had breached the restructuring order, which entitled the bank to enforce the agreement without further notice (ss 88(3)(b)(ii) and 129(2)).

The argument that the debt review was not terminated is irrelevant because the bank is entitled to rely on the breach of the restructuring order.

The argument that Ferris ‘substantially complied’ with the order was also not tenable in fact or in law because, firstly, Ferris had paid only R 1 000 instead of the R 9 000 required in terms of the order; and secondly, it is doubtful whether the doctrine of substantial compliance to statutory requirements would apply to contracts or restructuring orders.

In regard to the replication, the bank based its initial claim on the termination of the debt review process, to which Ferris responded with the assertion that the notice was defective. Under those circumstances the bank was entitled to raise the breach in replication.

The court concluded that Ferris had failed to show that the default judgment was given in error under r 42(1)(a) or to show good cause by showing that they had a bona fide defence. Ferris failed to raise any substantive defence to the claim under r 31 or under common law.

The application for leave to appeal was accordingly refused.

 

Debt counsellor: The decision in Bornman v National Credit Regulator [2014] 2 All SA 14 (SCA) concerned the cancellation of a debt counsellor’s registration in terms of the National Credit Act 34 of 2005 (the NCA).

The NCA introduced a new legislative regime to afford consumers who are over-committed a ‘second-chance’ by being declared over-indebted and rescheduling their commitments. The NCA created the concept of a debt counsellor and established the National Consumer Tribunal (the tribunal).

The crisp facts in Bornman were that the tribunal conducted a hearing into the conduct of Bornman, an attorney who was registered in terms of the NCA as a debt counsellor. At the end of the hearing, Bornman was found to have contravened a number of his conditions of registration, as well as various provisions of the NCA and its regulations. His registration as a debt counsellor was cancelled in terms of s 150(g) of the NCA. He was ordered to refund to all of his past and current clients, or consumers, all amounts taken from his trust account as collection commission, or retainer, or legal fees, or under any other description as well as any other charge not provided for in terms of the fee guidelines.

Bornman appealed against the decision of the tribunal to the High Court. Both his appeal and his application for leave to appeal to the SCA were dismissed but leave to appeal was subsequently granted by the SCA.

Malan JA pointed out that s 86 of the NCA, read with reg 24, prescribes the procedure to be followed when a consumer applies for debt review. On applying to be declared over-indebted, a consumer must provide the debt counsellor with the information set out in reg 24(1)(b). The duties of the debt counsellor are then to deliver a completed Form 17.1 to all credit providers and the credit bureau within five days. He must verify the information provided by the consumer and must determine, within 30 days, whether the consumer appears over-indebted. Once a determination is made, the debt counsellor must submit Form 17.2 to all affected credit providers and the credit bureau.

Bornman deviated from the procedure required by s 86, using an expedited process. His actions constituted a contravention of s 86 and reg 24. The tribunal was, therefore, correct in declaring that Bornman had breached his conditions of registration and also contravened ss 86(6), (7) and (8) of the NCA. Bornman’s conduct was prohibited by the NCA.

Bornman was supposed to act in the best interests of the consumers whom he had counselled. One of the conditions of his registration as a debt counsellor required him to charge or recover fees only as provided for in the NCA and regulations, and not to receive fees, commission or any other remuneration where such income might compromise his independence as a debt counsellor. However, 10% of the monthly payments made by consumers was deducted and paid into Bornman’s trust account as a collection fee. In accepting the collection fee, Bornman had acted in clear contravention of his conditions of registration.

The court confirmed the tribunal’s order that Bornman had to repay all amounts deducted as collection commission, or retainer, or legal fees.

The appeal was accordingly dismissed with costs.

Prescription

Extinctive prescription: The facts in Malcolm v Premier, Western Cape Government 2014 (3) SA 177 (SCA) were as follows. In 1993, when the plaintiff, Malcolm, was six-years-old, he was diagnosed with stage 1 Hodgkin’s Lymphoma. He was admitted to the Red Cross Children’s Hospital in Cape Town for treatment. He alleged that while he was in hospital undergoing treatment there was an outbreak of Hepatitis B at the hospital and in October 1994 he was diagnosed with that disease. He ascribed his infection with Hepatitis B to negligence on the part of the hospital and its staff and sought to recover damages from the provincial government (the defendant) under whose auspices the hospital operated.

As Malcolm was a minor at the time of the expiry of the prescriptive period, completion of prescription was delayed in terms of ss 13(1)(a) and (i) of the Prescription Act 68 of 1969, the relevant portion of which provides that: ‘If … the creditor is a minor … or … (i) the relevant period of prescription would, but for the provisions of this subsection, be completed before or on, or within one year after, the day on which the relevant impediment referred to in paragraph (a) … has ceased to exist, the period of prescription shall not be completed before a year has elapsed after the day referred to in paragraph (i).’

Malcolm’s claim was met with a special plea of prescription, which the court a quo upheld.

On appeal Wallis JA pointed out that the issue in the present case arose from a change in the law relating to the age of majority that occurred after Malcolm became infected with Hepatitis B. At that time the age of majority was 21 years in terms of s 1 of the Age of Majority Act 57 of 1972. However, the age of majority was altered to 18 years by way of s 17 of the Children’s Act 38 of 2005, which came into operation on 1 July 2007. On that day and by operation of law Malcolm attained his majority. The defendant contended that accordingly the impediment of minority referred to in s 13(1)(a) of the Prescription Act ceased to exist on that date, leaving Malcolm with one year in which to institute the action. The result of his not having done so was said to be that his claim prescribed one year later, on 30 June 2008.

The word ‘minor’ in s 13(1)(a) of the Prescription Act means a person under the age of 18. The meaning applies only to claims arising after 1 July 2007.

The Children’s Act too does not address this issue. This silence points in favour of the change in the law operating only in cases arising after the change occurred.

The appeal was accordingly allowed with costs.

Renaming of courts

New names and SALR’s abbreviations: Consequent upon the commencement of the Superior Courts Act 10 of 2013, which created a single High Court with various divisions (see ss 6 and 50), a directive regarding the renaming of these divisions has been published (GN 148 in GG37390 of 28 February 2014). The editors of the South African Law Reports have adopted the following abbreviations to designate the renamed courts.

The names below are the official names from 23 August 2013. Except where indicated otherwise the English and Afrikaans abbreviations are the same.

  • ECG: Eastern Cape Division, Grahamstown.
  • ECB: Eastern Cape Local Division, Bhisho.
  • ECM: Eastern Cape Local Division, Mthatha.
  • ECP: Eastern Cape Local Division, Port Elizabeth.
  • FB: Free State Division, Bloemfontein.
  • GP: Gauteng Division, Pretoria.
  • GJ: Gauteng Local Division, Johannesburg.
  • KZP: KwaZulu-Natal Division,Pietermaritzburg.
  • KZD: KwaZulu-Natal Local Division, Durban.
  • LP: Limpopo Division, Polo­kwane.
  • LT: Limpopo Local Division, Thohoyandou.
  • MN: Mpumalanga Division, Nelspruit.
  • NCK: Northern Cape Division, Kimberley.
  • NWM: North West Division, Mahikeng.
  • WCC: Western Cape Division, Cape Town.

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, banking, children, civil procedure, company law, constitutional practice, consumer law, contract, criminal law, customary law, delict, evidence, execution, intellectual property and  revenue.

This article was first published in De Rebus in 2014 (July) DR 36.