The law reports – May 2013

May 1st, 2013
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Heinrich Schulze BLC LLB (UP) LLD (Unisa) is a professor of law at Unisa.

March 2013 (2) The South African Law Reports (pp 1 – 324); [2013] 1 The All South African Law Reports February no 1 (pp 253 – 380) and no 2 (pp 381 – 510)

Abbreviations:

CC: Constitutional Court

GNP: North Gauteng High Co­urt, Pretoria

SCA: Supreme Court of Appeal

WCC: Western Cape High Court

Advocates

Application for striking off: In a matter that generated a fair amount of media attention, 12 advocate members of the Pretoria Society of Advocates were found guilty of unprofessional conduct by the Bar council of the society, on their own admissions. Their conduct consisted of double briefing and overreaching. Various sanctions were imposed on them by the Bar council, which also applied to the GNP for orders noting the disciplinary action taken. It also applied for the name of a thirteenth advocate member to be struck from the roll of advocates. The General Council of the Bar (GCB) intervened and sought orders striking the names of all the advocates involved from the roll.

In the court a quo six of the 13 advocates’ names were struck off the roll. The remaining seven advocates had further sanctions imposed on them by the court. The court also ordered the advocates to pay various amounts to the Road Accident Fund (the fund). The GCB appealed against the orders in respect of the advocates who were not struck from the roll, contending that they ought to have been. There was also a cross-appeal by the six advocates who were struck from the roll, who contended that it was not competent for the court to order them to make payments to the fund, and that they ought not to have been struck from the roll.

The appeal to the SCA has been reported as General Council of the Bar of South Africa v Geach and Others; Pillay and Other Related Matters v Pretoria Society of Advocates and Another; Bezuidenhout v Pretoria Society of Advocates 2013 (2) SA 52 (SCA); [2013] 1 All SA 393 (SCA).

The SCA, per Nugent JA, pointed out that the inquiry before the court fell to be conducted in two stages. The first inquiry was whether the court a quo misdirected its inquiry. Only if it did, would the court move to the second stage.

The misconduct alleged to have been committed by the advocates in this case related to matters involving claims against the fund. Suffice to mention that the court held that the advocates charged a fee as if they had been instructed to conduct a trial when, on their own versions, they knew this was not true.

Section 7(1)(d) of the Admission of Advocates Act 74 of 1964 allows a court to suspend any person from practising as an advocate or to order that his name be struck from the roll of advocates if the court is satisfied that he is not a fit and proper person to continue practising as an advocate.

There are three steps in the inquiry whether such action should be taken. First, the court must decide whether the alleged offending conduct has been established on a preponderance of probabilities (a factual inquiry). Second, it must consider whether the person concerned is not a fit and proper person to continue to practise. This involves weighing up the conduct complained of against the conduct expected of an advocate and, to this extent, is a value judgment. Third, the court must inquire whether, in all the circumstances, the person is to be removed from the roll of advocates or whether an order of suspension from practice would suffice.

Only the court a quo’s findings on the third stage were controversial. At the third stage of the inquiry, the sanction that should be imposed lies in the discretion of the court. The present appeal was directed solely to whether the court a quo properly exercised its discretion at this third stage.

The exercise of this discretion involved two inquiries. The first was to establish the material facts and the second to evaluate those facts towards the correct objective. Only if the court had incorrectly conducted the inquiries could the SCA interfere with its decision. After it had examined the record, the SCA held that it could not conclude that the court a quo had committed any misdirection in exercising its discretion in the inquiry.

As to the court a quo’s orders of repayment to the fund by those advocates struck from the roll, the SCA held that once the court had struck the advocates off the roll, the GCB’s disciplinary powers over them were exhausted. The orders in this regard were set aside.

Aside from this, both appeals were dismissed.

Attorneys

Duty of attorney to client: In Steyn NO v Ronald Bobroff & Partners 2013 (2) SA 311 (SCA); [2013] 1 All SA 471 (SCA) the appellant client had instructed the respondent law firm (the firm) on 17 March 2006 to institute a third party claim against the Road Accident Fund (the fund) on behalf of her minor son for damages resulting from injuries sustained in a motor vehicle collision that occurred on 28 August 2005.

The client and the firm had entered into three written agreements, which gave the firm the mandate to investigate, process, lodge and prosecute the claim to finality. They also contained the fee arrangements between the parties. The firm lodged the claim with the fund on 27 February 2007 and, on receiving no response, issued and served summons on 12 December 2007. On 16 May 2008, after the pleadings had closed, the attorneys applied for a trial date. Subsequently, the matter was enrolled for trial on 1 February 2010. The trial date was allocated some months later. In October 2009, after the firm had notified the client about the trial date, she terminated the firm’s mandate and took her file to another firm of attorneys.

The client was successful at trial, but five days later sued the respondent firm for damages she allegedly suffered due to loss of interest she claimed could have accrued on the capital sum of R 2 560 099 if the firm had lodged her claim timeously; that is, 14 and a half months earlier. The client argued, inter alia, that it was an express, alternatively implied, term of the agreements between the parties that the firm would carry out its mandate with the due skill, care, diligence and professionalism expected of a specialist firm of attorneys who held themselves out to be experts and specialists in the field of personal injury claims and third party matters. She alleged that, in accepting the mandate, the attorneys tacitly undertook to prepare, formulate, collate, submit and prosecute her claim against the fund with due diligence and expedience and within a reasonable time.

Bosielo JA held that, as the client relied on the three written agreements with the firm, her claim was contractual and not delictual.

The primary issue to be decided on appeal was whether it could be said that the conduct of the firm involved, by delaying the finalisation of the claim by 14 and a half months, amounted to a failure to measure up to the conduct expected of a reasonable attorney acting with due care, skill and diligence. In the absence of clear evidence to prove what a reasonable attorney in the position of the firm, faced with a similar case under similar circumstances, would have done, the court was unable to conclude that the firm had failed to act with the necessary care, skill and diligence ordinarily expected from a reasonable attorney. Moreover, none of the agreements concluded and signed by the parties stipulated any specific time frames in which the firm was expected to finalise the claim. In argument, it was contended on behalf of the client that, in the circumstances, the delays were so unreasonable that it justified the inference of negligence on the part of the firm (res ipsa loquitur).

However, the court held that this was not a case of res ipsa loquitur. That expression comes into play only if the accident or occurrence would ordinarily not have happened unless there had been negligence.

The client failed to make out a case entitling her to the relief sought. The appeal was dismissed with costs.

Class action

Availability of class action: In Mukkadam and Others v Pioneer Food (Pty) Ltd and Others 2013 (2) SA 254 (SCA) the court considered the circumstances in which a so-called ‘opt in class action’ will be permissible.

The appellants were purveyors of bread. They purchased bread from one or other of the respondents (who were major producers), added their margins and distributed mainly to informal traders, through whom the bread reached consumers. For some time in the Western Cape, the respondents engaged in practices prohibited by the Competition Act 89 of 1998. Essentially, they engaged in coordinated fixing of prices, fixing of discounts that were given to distributors such as the appellants, and they agreed not to deal with one another’s distributors.

The appellants alleged that they, and about one hundred other distributors of bread in the Western Cape, suffered financial loss as a result of the prohibited conduct, particularly the fixing of discounts they would receive, and they wished to pursue claims for damages in a class action. They applied to the WCC to certify the institution of a class action on behalf of themselves and other affected distributors for recovery of their losses. The application was dismissed by the court a quo.

On appeal to the SCA, Nugent JA pointed out that in the earlier case of Children’s Resource Centre Trust and Others v Pioneer Food (Pty) Ltd and Others 2013 (2) SA 213 (SCA) he had joined with Wallis JA in recognising class actions as a permitted procedural device for pursuing claims, where the case calls for it, so as to permit those who are wronged to have access to a court.

In the Children’s Resource Centre Trust case the court listed the requirements for such a class action to be certified. The applicants for certification need to, inter alia, satisfy a court, where a novel cause of action is sought to be established, that the claim is at least legally tenable, albeit that the court is not called on to make a final determination as to the merits of the claim, and that a class action is the most appropriate means for the claims to be pursued. Failing that, the certification of a class action holds the potential to be only oppressive to the proposed defendants.

The class action the appellants wished to pursue in this case was one sometimes called an ‘opt in’ action; that is, the class to be represented in the action is confined to claimants who come forward and identify themselves as such. In the present case, this had to be done by written notification to the appellants’ attorney. Once the class is confined to claimants who choose positively to advance their claims, and are required to come forward for that purpose, there is no reason why they are not capable of doing so in their own names, and they do not need a representative to do so on their behalf.

An opt in class action – one where the class to be represented is confined to claimants who come forward and identify themselves – will be permitted only in exceptional circumstances. However, nothing exceptional was shown in the present case.

The claim for certification of a class action was unsuccessful and the appeal was dismissed.

In view of the novelty of the claim, and its close association with the Children’s Resource Centre Trust case, in which the main points were in any event argued on behalf of the respondents, the court deemed it just that each party pay its own costs.

Company law

Section 424 of the 1973 Companies Act: In Fourie v FirstRand Bank Limited and Another [2013] 1 All SA 291 (SCA) the appellant, Fourie, was an accountant employed by an auditor, Du Preez.

The first respondent, FirstRand, was a financial institution, which sued Fourie and Du Preez for payment of R 10 million, plus interest and costs. Du Preez later committed suicide and the second respondent was appointed as the executor of his deceased estate and was substituted as a party to the action in his stead.

FirstRand’s action against Fou­rie arose from financial statements prepared by him on behalf of a business that was subsequently found to be insolvent. Based on the statements submitted by Fourie, FirstRand advanced R 10 million to the insolvent business.

FirstRand’s action was ba­sed on s 424 of the Companies Act 61 of 1973 (the Act); alternatively, on the basis of the actio legis aquiliae.

As against Du Preez, FirstRand claimed that he was liable in delict for the same amount, jointly and severally with Fourie, on the basis that he was vicariously responsible for the wrongdoing of the latter.

The court a quo found in favour of FirstRand on the basis of the main claim in terms of s 424. The delictual claim against the executor was, however, dismissed with costs.

On appeal to the SCA, Brand JA pointed out that s 424 of the Act provides for a declaration by a court that any person who was knowingly a party to the carrying on of any business recklessly or with fraudulent intent should be personally responsible for all or any of the debts or other liabilities of the company.

The financial statements prepared by Fourie constituted fraudulent misrepresentations, which induced FirstRand to lend money to the insolvent business. Fourie’s attempts to argue that FirstRand’s employees should have been ‘more careful’ were rejected.

A further argument raised by Fourie was that s 424 of the Act requires a causal link between the fraudulent or reckless conduct of the company’s business and its inability to pay. However, earlier case law confirmed the general principle that s 424 does not require proof of a causal link between the relevant co­nduct and the company’s inability to pay the debt. Besides, in this matter the link between the fraudulent statements and the debt could ‘not be denied’.

The appeal was accordingly dismissed with costs.

Contract law

Acceptance of tender bid: The facts in Command Protection Services (Gauteng) (Pty) Ltd t/a Maxi Security v South African Post Office Ltd 2013 (2) SA 133 (SCA); [2013] 1 All SA 266 (SCA) were as follows. The appellant, Maxi, sued the respondent, the post office, in the High Court, claiming damages allegedly suffered as a result of the latter’s repudiation of an agreement between the parties.

The appellant’s case was that in July 2003 the parties concluded a written agreement in terms of which Maxi undertook to provide guarding services for the post office in three regions. In January 2004 the post office wrote a letter to the appellant that constituted a repudiation of that agreement, which repudiation was accepted by Maxi. As a result of the post office’s breach of the contract, Maxi suffered damages in the sum of about R 14 million.

The post office denied that the agreement relied on by Maxi ever came into existence. It argued that, although the post office had informed Maxi that it had been awarded the tender to provide security services, the contract between them was never finalised. The court a quo decided in favour of the post office.

The critical issue on appeal was whether the letter of acceptance sent by the post office to Maxi constituted an unconditional acceptance of Maxi’s offer as contained in its tender.

The SCA, per Brand JA, held that the letter of acceptance contained a stipulation that rendered Maxi’s appointment ‘subject to’ the successful finalisation and signing of a formal contract. Parties in such circumstances often reach agreement by tender (or offer) and acceptance while there are some outstanding issues that require further negotiation and agreement. Case law recognises that in these situations there are two possibilities. The first is that the agreement reached by the acceptance of the offer lacked animus contrahendi because it was conditional on consensus being reached, after further negotiation, on the outstanding issues. In that event, the law will recognise no contractual relationship, unless and until the outstanding issues have been settled by agreement. The second possibility is that the parties intended that the acceptance of the offer would give rise to a binding contract and the outstanding issues would merely be left for later negotiation. In this event, if the parties failed to reach agreement on the outstanding issues, the original contract would prevail.

The court held that the term ‘subject to’ in the letter of acceptance was generally understood in the contractual context to introduce some or other condition. It further held that the post office’s communication to Maxi did not constitute an unconditional acceptance of the tender; but that it was intended by the post office and accepted by Maxi as a counter-offer. The agreement Maxi relied on never came into existence.

The appeal was thus dismissed with costs.

Delict

Factual causation: Lee v Mi­nister for Correctional Services 2013 (2) SA 144 (CC) concerned an application for leave to appeal against a decision of the SCA (Minister of Correctional Services v Lee 2012 (3) SA 617 (SCA)) overturning a decision of the WCC (Lee v Minister of Correctional Services 2011 (6) SA 564 (WCC)).

The High Court declared the respondent, the Minister, liable for delictual damages suffered by the applicant, Lee, as a result of contracting tuberculosis (TB) while in detention at maximum security prison Pollsmoor Prison. Having rejected Lee’s claim on a narrow factual point on the application of the test for causation, the SCA upheld the Minister’s appeal and absolved her from liability.

Primarily, the case concerned whether Lee’s detention and the systemic failure to take preventative and precautionary measures by correctional services’ authorities caused Lee’s TB. The complaint was that the unlawful detention and specific omissions violated Lee’s rights to freedom and security of the person and to be detained under conditions consistent with human dignity, as well as to be provided with adequate accommodation, nutrition and medical treatment at state expense.

The question was whether the causation aspect of the common law test for delictual liability was established and, if not, whether the development of the common law was necessary to prevent an unjust outcome.

The CC, per Nkabinde J, held that existing law did not require, as an inflexible rule, the use of ‘the substitution of notional, hypothetical lawful conduct for unlawful conduct in the application of the “but-for test” for factual causation’. There was thus nothing in South African law that prevented approaching the question of causation simply by asking whether the factual conditions of Lee’s incarceration were a more probable cause of his TB than would have been the case had he not been incarcerated in those conditions.

The crisp question was whether causation was established on a balance of probabilities on the facts of each case. It would be enough to satisfy probable factual causation where the evidence established that Lee had found himself in the kind of situation where the risk of contagion (with TB) would have been reduced by the prison authorities’ proper, systemic measures. In the circumstances, there was a probable chain of causation between the negligent omissions by the responsible authorities and Lee’s infection.

There was no requirement that Lee had to adduce further evidence to prove, on a balance of probabilities, what the lawful, non-negligent conduct of the Minister should have been. All that was required was ‘the substitution of a hypothetical course of lawful conduct and the posing of the question as to whether, upon such a hypothesis, [Lee’s] loss would have ensued or not’.

Leave to appeal was accordingly granted and Lee’s appeal was upheld.

Interest

Tempore morae: In Crookes Brothers Ltd v Regional Land Claims Commission, Mpumalanga, and Others 2013 (2) SA 259 (SCA) the third respondent, the government of the Republic of South Africa, as represented by the first and second respondents, purcha­sed land destined for land restitution. The appellant, the seller of the land, applied to the High Court for the respondents to be ordered to furnish the seller with a written undertaking for payment of the purchase price within seven days of being called on to do so; and to pay interest in respect of the delay in transfer and the commensurate delay in payment of the purchase price.

Before the application was heard, the purchaser furnished the undertaking and transfer was effected. However, the application proceeded in respect of the unresolved issue of the interest claimed. The High Court, in dismissing the application, reasoned that interest was not the proper measure for damages, but that the seller would have to prove his damages by demonstrating the overall financial loss occasioned by the delay. That is, by also taking into account the benefits of its remaining in occupation of the land during the period of default.

On appeal, the SCA held that it was true that mora interest was a species of damages and, while there were circumstances in which ‘the interest-bearing potentialities’ of money played a part in the computation of damages, here the liability to pay interest fell into the category described in Union Government v Jackson and Others 1956 (2) SA 398 (A) as ‘a consequential or accessory or ancillary obligation … automatically attaching to some principal obligation by operation of law’.

The court a quo had thus misconceived the inquiry. The courts have accepted that a party deprived of the use of his capital for a period of time had suffered a loss and, in the normal course of events, such a party would be compensated for his loss by an award of mora interest. Accordingly, the respondents were, on an application of common law principles, in mora and an obligation to pay interest to the appellant on the purchase price had accrued.

The court further pointed out that the gist of the respondents’ case was that they were somehow excused from performing their contractual obligations because of a lack of funds. The conduct of the respondents’ officials was ‘disquieting’ and led to the public purse being much poorer, since, while the purchase price remained unpaid, interest accrued at R 84 931 per day. To this had to be added the costs of ‘ill advised’ and, in the context of the emotionally charged constitutional imperative of land redistribution, ‘morally unconscionable’ litigation.

The appeal was accordingly allowed with costs.

National Credit Act

Forfeiture of property and rights: The central issue in National Credit Regulator v Opperman and Others 2013 (2) SA 1 (CC) was whether s 89(5)(c) of the National Credit Act 34 of 2005 (NCA) was consistent with the right not to be arbitrarily deprived of property in s 25(1) of the Constitution.

Section 89(5) of the NCA provides:

‘If a credit agreement is unlawful in terms of this section … a court must order that –

(a)     the credit agreement is void as from the date the agreement was entered into;

(b)     the credit provider must refund to the consumer any money paid by the consumer under that agreement to the credit provider, with interest calculated –

(i)      at the rate set out in that agreement; and

(ii)     for the period from the date on which the consumer paid the money to the credit provider, until the date the money is refunded to the consumer; and

(c)     all the purported rights of the credit provider under that credit agreement to recover any money paid or goods delivered to, or on behalf of, the consumer in terms of that agreement are either –

(i)      cancelled, unless the court concludes that doing so in the circumstances would unjustly enrich the consumer; or

(ii)     forfeit to the state, if the court concludes that cancelling those rights in the circumstances would unjustly enrich the consumer.’

The first respondent, Op­perman, was a Namibian farmer. In 2009 he lent a friend, Boonzaaier, R 7 million for property development. They concluded three written loan agreements. Opperman was not registered as a credit provider at the time of providing the loan, as required by the NCA. He was not in the business of providing credit, was unaware of the requirement to register and had no intention of violating the NCA.

The court a quo found that s 89(5)(c) was unconstitutional because it denied an unregistered credit provider the right to restitution of money lent, without affording a court the discretion to consider whether restitution would be just and equitable.

The National Credit Regulator appealed against the declaration of constitutional invalidity. Opperman opposed the appeal and requested the CC to confirm the order of the court a quo.

In the CC, the questions to be answered were:

  • What is the correct interpretation of s 89(5)(c)?
  • Does s 89(5)(c) deal with property for the purposes of s 25(1)?
  • Does the provision amount to arbitrary deprivation of property?
  • Does it contain a constitutionally permissible limitation of the right protected in s 25(1)?
  • Depending on the above, what is the appropriate remedy?

The CC, per Van der Westhuizen J, held that the most plausible meaning of s 89(5)(c) was the one provided by the court a quo. The High Court interpreted the provision to mean that the rights of the credit provider to recover any money paid must either be cancelled, unless the court concludes that doing so would unjustly enrich the consumer, or forfeited to the state if the court concludes that cancelling those rights in the circumstances would unjustly enrich the consumer. These were the only two possibilities. The section thus deprived a credit provider of the right to claim restitution, based on unjustified enrichment, of money paid to a consumer in terms of an unlawful agreement.

In the circumstances of the case, the recognition of such a restitutionary right as property under s 25(1) was ‘logical and realistic’, and the deprivation thereof arbitrary since sufficient reasons had not been given for it.

Section 89(5)(c) did not provide an acceptable limitation (in terms of s 36(1) of the Constitution) of the right not to be deprived of property arbitrarily. It was inconsistent with s 25(1) of the Constitution and thus invalid. The court, however, made it clear that the order of invalidity would have no effect on cases already finalised.

The appeal was dismissed with costs.

Limitation of lender’s right to charge service fees: The facts in National Credit Regulator v Standard Bank of South Africa Limited [2013] 1 All SA 335 (SCA) were as follows. The respondent bank’s business included granting home loans to customers. Before the National Credit Act 34 of 2005 (NCA) came into operation, the Usury Act 73 of 1968 regulated the fees the bank could charge for the administration of loans. When the NCA came into operation it introduced an upper limit on service fees that might be charged on home loans.  The bank argued that the limit imposed on administration fees under the Usury Act did not survive the transition to the NCA so far as extant home loans were concerned, with the result that administration fees on those loans ceased to be regulated. The appellant, the National Credit Regulator (the regulator), applied to the High Court for an order restraining the bank from charging administration fees on those loans in excess of the maximum amount set under the Usury Act, alternatively declaring the bank to be entitled to no more than that amount. The regulator’s application was dismissed.

The SCA, per Nugent JA, pointed out that under the NCA a credit agreement, such as a home loan, must not require payment by the borrower of any money or other consideration except, among others, a service fee, which must not exceed the prescribed amount relative to the principal debt.

‘Service fee’ is defined to mean ‘a fee that may be charged periodically by a credit provider in connection with the routine administration cost of maintaining a credit agreement’.

Given the general spirit of consumer protection of the NCA, it would be highly unlikely that the Act envisaged the termination of the regulation of such fees on existing loans. Further, the court noted that the transitional provisions in sch 3 to the NCA made it clear that the drafter was ‘well aware that the regulation of existing agreements required to be provided for’.

The appeal was accordingly upheld with costs. The court ordered that the bank could not charge an administration fee on housing loans that existed at the time the NCA came into operation that was in excess of the fee provided for in terms of the Usury Act, unless and until that fee is amended under the powers conferred by s 105(1) of the NCA.

Suretyship

Effect of marital status on validity of suretyship: The facts in Strydom v Engen Petroleum Ltd 2013 (2) SA 187 (SCA) were as follows. The appellant, Strydom, who was married in community of pro­perty, had executed an unlimited deed of suretyship in favour of the respondent, Engen, for the debts incurred by Soutpansberg Petroleum (Pty) Ltd (Soutpansberg), of which he was a director.

When Soutpansberg was subsequently liquidated and Engen, invoking the suretyship, sought to recover from Strydom, the latter, inter alia, raised the defence that since his wife had not consented to signing the deed of suretyship, the deed was invalid by virtue of s 15(2)(h) of the Matrimonial Property Act 88 of 1984 (the Act). The High Court rejected this argument and granted Engen’s application for judgment against Strydom based on the suretyship.

Strydom appealed to the SCA. A further issue that arose was whether Mrs Strydom was a necessary party to the litigation, such that her non-joinder would non-suit Engen.

The relevant part of s 15(2)(h) provides that a spouse who is married in community of property ‘shall not without the written consent of the other spouse … bind himself as surety’.

However, s 15(6) of the Act provides that the prohibition contained in s 15(2)(h) does not apply where the spouse who signs the suretyship did so in the ordinary course of his profession, trade or business.

Wallis JA, in a majority judgment, pointed out that whether a deed of suretyship was executed in the ordinary course of business is a question of fact. Further, it was for the person who relied on the protection afforded by s 15(2) to show that he had not bound himself in the ordinary course of his business. Where, as in the present case, the business was carried on through a company, the question to be answered was whether the surety’s involvement in that business was his business and whether the execution of the suretyship was in the ordinary course of the surety’s business, not the business of the company.

Strydom worked at the very core of Soutpansberg’s business. His activities in relation to Soutpansberg, of which he was appointed director, clearly constituted his business, with the result that he was unable to show that he was entitled to the protection afforded by s 15(2).

As to whether Mrs Strydom should be joined, the question was whether she had a direct and substantial – and not merely financial – interest in the suretyship and its validity. Her interest, which existed only by virtue of the fact that she was married to Strydom, was clearly of the latter sort: Although the execution of the suretyship by her husband was a potential source of financial prejudice to her, she was not party to it and had in fact been opposed to its execution.

It was thus unnecessary to join her as a party to the present proceedings and the appeal was dismissed with costs.

Other cases

Apart from the cases referred to above, the material under review also contained cases dealing with administrative law, education, motor vehicle accidents, practice, revenue, and the winding-up of companies.

This article was first published in De Rebus in 2013 (May) DR 44.