The law reports – July 2019

July 1st, 2019
x
Bookmark

May 2019 (3) South African Law Reports (pp 1 – 339); [2019] 2 All South African Law Reports April (pp 1 – 305)

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:

GP: Gauteng Division, Pretoria

LCC: Land Claims Court

SCA: Supreme Court of Appeal

WCC: Western Cape Division, Cape Town

Company law

Business rescue proceedings: The appeal in Louis Pasteur Holdings (Pty) Ltd and Others v Absa Bank Ltd and Others 2019 (3) SA 97 (SCA) arose from a failure by the GP to determine an agreed on separated issue in limine in two related applications and counter-applications. The court a quo, after a delay in adjudicating the separate issue, went on not to decide that issue, but determined the merits of the principal dispute, without affording an opportunity to the parties to present argument thereon. Suffice it to mention here that the underlying dispute concerned a breach of loan agreements concluded between the respondent lender (Absa) and the appellant borrowers and sureties for the money so borrowed from Absa. A detailed discussion of the facts falls outside the scope of the present discussion. The court a quo had granted the following orders, namely –

  • finally liquidating a pair of relating companies;
  • setting aside a resolution placing one of them in business rescue; and
  • dismissing applications to intervene.

On appeal to the SCA, the appellants sought the setting aside of the orders for failure on the High Court’s part to determine a separate issue; and further, that the matter be remitted to the High Court.

Swain JA held that the SCA should decide the following separated issue, firstly, whether the companies’ business rescue practitioner could use property of one of them (rental income), in which Absa had a security interest, without Absa’s consent; and secondly, if Absa withheld consent, whether the business rescue practitioner could nonetheless use it. The court pointed out that s 134(3) of the Companies Act 71 of 2008 provides, inter alia, that a company in business rescue may dispose of property in which a third party has a security interest if –

(i)   the third-party consents; or

(ii)  the proceeds would discharge the secured debt; and

(iii) the company promptly pays over proceeds equivalent to the debt.

The court accordingly answered issues (i) and (ii) above in the negative. As to (ii), it held that there would not be prompt paying over of proceeds, which would discharge the debt. (The practitioner proposed periodic payments from the rental income which would only eventually discharge the debt.) The answers were supportive of the High Court’s final liquidation order.

Further, so the court reasoned, in application proceedings, circumspection was to be exercised in separating issues for preliminary determination.

The appeals were accordingly dismissed with costs.

Contract law – lease

Notice in terms of the Rental Housing Act: In Luanga v Perthpark Properties Ltd 2019 (3) SA 214 (WCC) the court confirmed that the notice period under the Rental Housing Act 50 of 1999 must run from the beginning to the end of the month and not randomly.

This case concerned an appeal against an eviction order. It deals with the interpretation of s 5(5) of the Rental Housing Act, which states that on the expiration of a lease, the tenant stays on in the property on the same terms and conditions, except that ‘at least one month’s written notice must be given of the intention by either party to terminate the lease’. The crisp question concerned the meaning of ‘one month’ in the present case.

Luanga was ordered to vacate certain residential property owned by Perthpark. On 19 July 2016 the lessees were informed that their leases would not be renewed. Luanga remained on the premises after 28 February 2017. Perthpark informed Luanga on 4 May 2017 that the lease was immediately cancelled and that they had to vacate the property by 5 June 2017.

Luanga did not vacate the property, and an application for eviction was made and granted in September 2017. On appeal of the order, Luanga argued that, first, the notice of termination of a monthly lease must run concurrently with the period of the lease and expires at the end of a month; and secondly, there was not sufficient information in the court to conduct an inquiry for purposes of s 4(6) and (7) of the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998 (PIE).

As for the first point, if the lease was not validly terminated, that would mean that the eviction fails because the occupier is not an unlawful occupant for purposes of PIE. The landlord bears the onus of proving the lawful termination of the lease.

Davis AJ held that the one-month notice is written in peremptory language in the Rental Housing Act and, therefore, must be properly complied with.

Section 5(5) of the Rental Housing Act speaks of one calendar month. In common law the meaning of ‘month’ in indefinite period contracts of lease runs from the beginning of each month, and as such the notice must be given at the end of the month, to terminate the contract at the end of the next month.

The Rental Housing Act, not explicitly amending the common law, should therefore, be interpreted in light of the common law. This means that the termination must happen at the end of a month, to end at the next month. This is in line with the Constitutional values that affords protection of both the landlord and tenant and serves to create legal certainty.

Since the notice was not properly given in terms of the mandatory provisions of the Rental Housing Act, it is void ab initio. Luango is, therefore, still a lawful tenant in terms of PIE.

The second point is, therefore, only obiter, but the court reiterated that the duty in terms of PIE rests on all parties. This means that if Luango’s attorneys had relevant information that could aid the court in coming to a decision about the eviction, that they have a duty to share it.

Delict

Attack by dog at public facility: The facts in Carelse v City of Cape Town (Eksteen and Another as third parties) [2019] 2 All SA 125 (WCC) were as follows: In December 2013, at the Harmony Day Camp, Strand (the Park) operated by the defendant (the City), the plaintiff (Carelse) was swimming in one of the swimming pools of the public facility, when she was attacked by a dog. Carelse sued the City for damages. She averred that the incident was caused wrongfully and negligently by the City’s employees by, inter alia, failing to ensure that no dogs were allowed on the premises.

While disputing liability, the City claimed a contribution from the first and second third parties (the owner and the person in control of the dog, respectively) in the event of it being held liable.

The parties agreed that the issue of liability had to be adjudicated first, and the question of quantum would stand over for later determination, if necessary.

Vos AJ listed a number of issues that fell to be decided, only two of which merit our attention here, namely whether –

  • the City acted in a wrongful and negligent manner; and
  • the third-party owner of the dog was liable to make a contribution to the City.

In determining whether the City acted in a wrongful manner, the court noted that on the day of the incident, the City owed a legal duty to Carelse to ensure her safety at the park. It was common cause that the Park was operated, managed and controlled by the City’s employees, and that it had three entrances for access by visitors. However, only the main entrance was access-controlled in order to prevent alcohol, drugs, firearms and dogs from being brought into the park. It was irrational and ineffectual to manage, supervise and conduct strict access control at only one entrance, while conducting no supervision or access control at the other entrances. The City could have put up signboards at the other entrances, warning visitors not to bring dogs onto the premises, or placed officials at those entrances to control access. It did not do so. The City knew that visitors and dogs entered the park through the two unmanned entrance areas but took no reasonable steps to prevent that. It, therefore, breached its legal duty and acted wrongfully. Further, in failing to take steps to prevent the risk of dog attacks, the City acted negligently.

The City’s claims against the third-party owner of the dog were then addressed. The claim against the owner of the dog was based on the actio de pauperie. The action lies against the owner in respect of harm (pauperies) done by domesticated animals acting from inward excitement (sponte feritate commota). In those circumstances, the animal is said to act contra naturam sui generis in that its behaviour is not considered typical of a well-behaved animal of its kind. Based on that principle, the court concluded that the first third party was liable to make a contribution to the City for 50% of any damages that the plaintiff might prove.

The City was thus liable for such damages as Carelse may prove. The owner of the dog is liable to contribute 50% of the proven damages, to the City. The City was ordered to pay Carelse’s costs while the owner of the dog is liable to pay the costs of the City only involving the third-party notice proceedings against him on an undefended basis.

 

Liability for an omission – causation: The appeal in Western Cape Department of Social Development v Barley and Others 2019 (3) SA 235 (SCA) arose from the death of a five-month-old baby girl, Ava Barley (Ava), at a day care (early child development facility (the facility)). As a result of Ava’s death, her parents (the Barleys), instituted a claim against the operator of the facility, the third respondent (Moore) for her wrongful causing of Ava’s death. Ava rolled off a bed and became stuck between the bed and pedestal and asphyxiated. They also claimed damages from the appellant (the department) for psychiatric damages to themselves stemming from Ava’s death. The latter claim was based on the department’s omission to perform a regulatory function in respect of the facility, namely the processing of Moore’s application to register it.

The court a quo allowed both claims.

On appeal, Dambuza JA held that the department’s omission was not wrongful. The relevant factors and the regulatory framework pointed away from such a conclusion. Breach of a statutory duty, such as that on which the claim against the department was founded, is not per se wrongful for the purposes of determining delictual liability. It is merely a relevant factor in the determination of wrongfulness.

The court further held that the omission was not a cause of Ava’s death and the Barleys’ resultant psychiatric injuries. The contention that a visit by the department’s officials would have caused Moore to observe a safer sleep routine for Ava, found no support in the evidence.

The appeal was accordingly upheld, and the court a quo’s order replaced with the following order: Moore was liable for the Barleys’ damages as a result of the wrongful death of Ava; and the Barleys’ claims against the department be dismissed.

  • See law reports ‘Delict’ 2017 (Dec) DR 44 for WCC judgment.

Insurance law

Purpose of a reinstatement value conditions clause: The facts in Watson and Another v Renasa Insurance Company Limited [2019] 2 All SA 280 (WCC) were as follows: Watson (the insured) insured his factory and machinery with Renasa Insurance (the insurer). The factory and machinery were destroyed in a fire. The insurance policy contained a reinstatement clause in terms of which the insured was entitled to the replacement value of the damaged property. This is known as a so-called reinstatement value conditions clause (RVC clause).

The application of the RVC clause was subject to the following condition: ‘The “work of replacement or reinstatement” [by the insured] must be commenced and carried out with reasonable dispatch, otherwise no payment beyond the indemnity value will be paid’.

It is trite that the insurer had delayed payment while investigating the cause of the fire. Eight years after the property had been damaged, the insurer still had to reject or accept the claim.

In an earlier trial, on the merits of the claim, and in particular the insurer’s defence that the insured deliberately set fire to the property, the court had found in favour of the insured. On appeal to the SCA the insurer’s appeal was rejected with costs.

The present litigation dealt with the quantum of the insured’s claim. The insurer’s defence was that following the fire, the insured had not incurred any expenditure or commenced reinstatement. As a result, so the insurer argued, it was not liable to pay in terms of the insurance policy. The insured, in turn argued that despite his best efforts to reinstate, he was unable to do so.

Cloete J, after hearing the evidence of both parties regarding the insured’s strategy following the fire, held that the insured immediately started taking steps to get the factory back on its feet. He incurred some R 900 000 in expenses over a period of seven months, including retaining all his employees, repairing the electricity and alarm, and obtaining quotations for replacement machinery within days of the fire.

The court further confirmed that the insured continued to engage with the insurer, trying to extract an answer on the question whether his claim would be accepted or rejected. After the SCA’s decision on the merits of the claim, the insured attempted to revive his business, but without a formal acceptance of his claim by the insurer, the insured failed to obtain the necessary funding from a bank.

The court held that there remained little else that the insured could further do to demonstrate his desire and intention to recommence the business.

The insurer has failed to pay, or tendered to pay, what it regards as its uncontested liability in respect of the indemnity value of the machinery destroyed by the fire.

Payment of the indemnity value of the insured machinery provides the very mechanism that is available to an insurer in terms of a reinstatement clause in the policy to ensure compliance by the insured with the requirements of the RVC clause.

The insurer was ordered to pay the insured the sum of R 17,9 million for reinstatement as at the date of the fire, plus interest at the rate of 15,5%.

Land law

Statutory protection of tenure: The facts in Oranje and Others v Rouxlandia Investments (Pty) Ltd 2019 (3) SA 108 (SCA) were as follows: The first appellant (Oranje) is a 51-year-old farm worker. He, his wife and their two adult children reside on the farm Kaaimansgat (the farm), which is owned by the first respondent (Rouxlandia). Oranje was born on the farm and has lived there most of his life. Oranje suffered serious injuries while driving a tractor in the course and scope of his employment. There was a dispute as to whether Oranje’s negligence was the cause of the accident, but nothing turns on this. Both Oranje and his wife were later, declared medically unfit to work.

Oranje thus qualified as an occupier in terms of the Extension of Security of Tenure Act 62 of 1997 (ESTA). Oranje’s residence in the home on the farm was dependant on his employment as a farm manager, and when he ceased to be one, Rouxlandia asked him to relocate to other accommodation on the farm. Rouxlandia successfully applied to the LCC compelling Oranje to move to other accommodation on the farm. Oranje appealed to the SCA.

Nicholls AJA held that an occupier could resist relocation where the proposed alternative accommodation was such that it would impair his dignity. Suitable alternative accommodation is defined in s 1 of ESTA as ‘alternative accommodation which is safe and overall not less favourable than the occupiers’ previous situation’. In the present case Oranje’s new house was not a manager’s house, but a smaller five-roomed house. It had been newly painted and had running water, a flush toilet and an inside bathroom. The criteria for suitability had been fulfilled.

Oranje’s entitlement to the particular house that he wished to occupy was contractually linked to his employment as a manager, which had now ended due to his ill health. Neither his long-term security of tenure, nor his continued residency on the farm was threatened.

The appeal was dismissed. No order as to costs was sought by either party.

Practice – civil procedure

Effect if summons not signed by Registrar: The decision in Motloung and Another v Sheriff, Pretoria East 2019 (3) SA 228 (GP) concerned an action for damages arising out of an alleged failure of the defendant (the Sheriff) to serve summons, which had been issued by the plaintiffs against the Road Accident Fund. The plaintiffs further argued that the failure to serve the summons resulted in their (ie, the plaintiffs’) claim becoming prescribed in terms of the Prescription Act 68 of 1969.

The Sheriff raised a special plea that because the summons was not signed by the Registrar, the summons was a nullity and, as such, the Sheriff was in law neither required nor permitted to serve same. The Sheriff further pleaded that the summons which constituted a nullity would not have interrupted prescription and that it could not be said that the failure to serve a nullity had caused the plaintiffs any loss.

Baqwa J held that r 17(3) of the Uniform Rules of Court requires both a signature of the Registrar and that the Registrar should issue the summons. Absent one or two of the signature or the issuance, the summons is visited with nullity.

From a number of earlier decisions, it is clear that if the summons is a nullity for lack of signature by the Registrar, the service of a nullity would not constitute an action and by necessary inference, would not result in the suspension of prescription.

The court accordingly ordered that the Sheriff’s special plea is upheld, and the plaintiffs’ action is dismissed with costs.

Procedural law

Locus standi of a minister to lodge an ex parte application for the winding-up of a company: The decision in Recycling and Economic Development Initiative of South Africa v Minister of Environmental Affairs and a related matter [2019] 2 All SA 1 (SCA) concerned three main legal issues:

  • The first touched on the requirements for a valid ex parte
  • The second concerns the ‘just and equitable principle’ of winding-up a company.
  • The third issue was whether the minister had locus standi to institute these proceedings in the public interest in terms of s 157(1)(d) of the Companies Act 71 of 2008 (the Act).

For space consideration the present discussion will be restricted to the third issue only.

Two solvent companies were placed under final liquidation at the instance of the Minister of Water and Environmental Affairs. The said companies were the appellants in the two appeals before SCA. The appellant in the first appeal was a company (Redisa) responsible for the implementation of a waste tyre recycling scheme. On 29 November 2012, the minister approved an industry waste tyre management plan that Redisa had conceptualised and submitted to her under the National Environmental Management: Waste Act 59 of 2008. The plan operated indefinitely, subject to a review conducted every five years. The first was in November 2017. Redisa contracted the appellant in the second appeal (KT) to manage the implementation of the plan. Although approving the above and commending the plan, the minister shortly thereafter sought and obtained an ex parte urgent provisional winding-up order; first against Redisa and then against KT, on the same basis. Final winding-up orders were granted against both entities, on just and equitable grounds. The appellants applied for leave to appeal against the judgment and orders on several grounds. The court a quo granted leave to appeal to the SCA only on the ground that the court a quo had erred in conferring standing on the minister, purportedly in terms of s 157(1)(d) of the Act, to wind up the two solvent companies.

The main issue that Cachalia JA had to decide, was whether the minister was properly held to have standing to institute these proceedings in the public interest in terms of s 157(1)(d) of the Act. It had important consequences for the winding-up of solvent companies. Section 157(1)(d) entitles a creditor to apply to court to wind up a company on the ground that it is just and equitable to do so, and s 81(1)(d)(iii) of the Act permits the company, a director or a shareholder to apply for the winding-up on the same basis. The minister was neither a creditor, nor a director or shareholder of Redisa or of KT, and did not purport to represent their interests or step into their shoes. She had no standing to wind up a company in the interests of any of those persons or for the companies themselves. Consequently, the minister argued that a public-interest litigant with standing in terms of s 157(1)(d) is entitled to rely on any of the substantive grounds for liquidating a solvent company set out in s 81(1) of the Act. An earlier decision that granted the minister the right to seek provisional orders clearly did not consider any of the criteria relevant to the determination of whether the applications were genuinely in the public interest. The minister had alternative remedies available to her under the Act to address her concerns and made out no case for resorting to the drastic remedy of a winding-up without having considered the extensive alternative remedies. It was also not in the public interest for the minister to be allowed to seek Redisa’s liquidation because the company was an organ of state and s 40 of the Intergovernmental Relations Framework Act 13 of 2005 became applicable. Thus, the minister as a representative of the national government, had a duty to avoid legal proceedings against Redisa by attempting to settle the dispute first through recourse to other remedies before resorting to litigation.

The appeal was upheld with costs by the majority of the court.

Tax law

Deductions for future expenditure: In Commissioner, South African Revenue Services v Big G Restaurants (Pty) Ltd 2019 (3) SA 90 (SCA) the court considered the scope of s 24C of the Income Tax Act 58 of 1962 (the Act).

The facts were as follows: The respondent (Big G Restaurants (Big G)) is a franchisee that operates Spur and Panarottis restaurants in terms of various franchise agreements with the Spur Group (Pty) Ltd. In terms of the agreements, Big G pays the Spur Group a monthly franchise fee. Big G is also obligated to refurnish and upgrade its restaurants from time to time in accordance with the Spur Group requirements. For this reason, Big G claimed a deduction, from gross income, in accordance with s 24C of the Act in respect of future expenditure (refurbishments) on contract (the franchise agreement).

The appellant (the Commissioner) denied the deduction. The Cape Town Tax Court ruled that the income from operating the franchise business were amounts received or accrued in terms of the franchise agreement as envisaged by s 24C. It further ruled that the cost of refurbishment was incurred in performance of the obligations under the franchise agreement.

On appeal, the Commissioner argued that the income against which the future expenditure may be deducted as envisaged in s 24C must be income and obligations deriving from the same contract.

Schippers JA pointed out that s 24C of the Act provides for a two-stage test. First, it must be determined if income was received by or has accrued to the taxpayer in terms of an agreement. Secondly, the agreement in terms of which income was received by or has accrued to the taxpayer must put an obligation on the taxpayer to incur future expenditure.

The argument by Big G that the words ‘in terms of’ in s 24C must be given a wide interpretation namely that Big G’s income was earned ‘pursuant to’ or ‘in accordance’ with the franchise agreement, is not sound. The phrase ‘obligations under such contract’ obviously means under the same contract.

According to the explanatory memorandum, the purpose of s 24C is to address situations where a contract, typically a construction contract, provides for an advance payment to enable the recipient to finance the performance of its obligations under the contract (eg, to purchase materials). It is clear that the deduction for future expenditure envisaged in terms of s 24C requires that the income and the obligation must originate from one and the same contract.

Big G does not receive any advance payment in terms of the franchise agreements. Any such payment would in anyway go against the nature of a franchise agreement. The franchise agreement is not a source of income. Instead, it enables Big G to exploit the branding of Spur and Panarottis to provide food to its customers. The income derives from the selling of food and not from the franchise agreement.

The appeal was thus upheld 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, civil procedure, company law, competition law, constitutional law, criminal law, discovery and inspections, evidence, immigration, insolvency and business rescue, international agreements, local authorities, magistrates’ courts, mining and minerals and practice.

Heinrich Schulze BLC LLB (UP) LLD (Unisa) is a professor of law at Unisa.

This article was first published in De Rebus in 2019 (July) DR 16.