The law reports – November 2014

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

September 2014 (5) South African Law Reports (pp 1 – 316); [2014] 3 All South African Law Reports August no 1 (pp 259 – 393); and no 2 (pp 394 – 526); 2014 (7) Butterworths Constitutional Law Reports July (pp 741 – 867)

 

Abbreviations:

CC: Constitutional Court

ECG: Eastern Cape Division, Grahamstown

FB: Free State Division, Bloemfontein

GJ: Gauteng Local Division, Johannesburg

GP: Gauteng Division, Pret­oria

SCA: Supreme Court of Appeal

WCC: Western Cape Division, Cape Town

Administration of estates

Cession of a right of the estate: The question posed to the court in Keyter NO v Van der Meulen and Another NNO 2014 (5) SA 215 (ECG) was whether an executor of a deceased estate may cede a right of the estate to a third party.

The salient facts concerned the fate of a flock of sheep. In terms of the will of one EWD Keevy, a usufruct was granted to his wife in respect of, inter alia, a flock of sheep. After she had taken possession of the sheep following the death of her husband, she entered into an agreement with NW Keevy in terms of which the sheep were leased to him. The agreement provided for the lease to terminate on her death and imposed an obligation on him to ‘re-deliver to the Administrators in Estate Late EWD Keevy livestock of equal number and value as received at the commencement of [the lease]’.

The wife died on 29 June 2003 and following the death of the first executor of the wife’s estate, Paterson (the second executor) was appointed as executor to the estate of the wife.

Paterson later ceded to Keyter ‘the right, title and interest the above-named estate has in and to’ the sheep. Keyter lodged an application that ownership in the sheep has been validly ceded to him.

The present application concerned a number of issues, only one of which will be discussed here, namely, whether the cession on which Keyter sues is valid and enforceable.

Plasket J held that there is authority for the proposition that an executor of a deceased estate may cede rights vested in the estate. In Elizabeth Nursing Home (Pty) Ltd v Cohen and Another 1966 (4) SA 506 (D) the court held that an executor has a great deal of freedom as to the mechanics of how he or she liquidates and distributes an estate. An executor is first required to reduce assets, including rights of action, into his or her possession. Having acquired possession of an asset, it is for the executor to decide whether to call for payment if it is a debt, or to realise it, or to distribute it among the beneficiaries.

The decision in the Elizabeth Nursing Home case is authority that an executor may cede a right that is vested in an estate. It is clear that an executor of a deceased estate may cede a right to an heir. If he or she can do that, there is no reason in principle why he or she cannot cede a right to a third party, as happened in the present case.

Keyter was accordingly entitled to the flock of sheep ceded to him by the executor.

Attorneys

Striking from roll: In Hepple and Others v Law Society of the Northern Provinces [2014] 3 All SA 408 (SCA) the respondent, the Law Society of the Northern Provinces (the law society), had brought an application for the removal of the first two appellants, Hepple and Earle, from the roll of attorneys. Section 22(1)(d) of the Attorneys Act 53 of 1979 (the Act) provides that an attorney may, on the application by the relevant law society, be struck off the roll or suspended from practice by the court if found not to be a fit and proper person to continue to practise as an attorney.

An investigation into the accounting and financial records of Hepple and Earle revealed a number of irregularities amounting to contraventions of certain provisions of the Act and the rules of the law society. These irregularities included –

  • substantial trust deficits in Hepple and Earle’s books of account;
  • misappropriation of trust funds;
  • failure to account to the law society for interest generated from the trust banking accounts as required by s 78(3) of the Act;
  • failure to keep copies of bank reconciliation statements; and
  • the manipulation of bank reconciliation statements to conceal trust deficits.

The GP ordered the removal of Hepple and Earle from the roll of attorneys.

On appeal to the SCA against their removal, Mthiyane DP referred with approval to the earlier decision in Summerley v Law Society, Northern Provinces 2006 (5) SA 613 (SCA) in which the court explained (at 615B) that that the application of s 22(1)(d) of the Act involves a three-prong inquiry. The first inquiry is aimed at determining whether the law society has established the offending conduct on which it relies, on a balance of probabilities. The second question is whether, in the light of the misconduct established, Hepple and Earle are not fit and proper persons to continue to practise as attorneys. In terms of s 22(1)(d) the determination of the second issue requires an exercise of its discretion by the court. The third inquiry requires the court to decide, in the exercise of its discretion, whether the person who has been found not to be a fit and proper person to practise as an attorney deserves the ultimate penalty of being struck from the roll or whether an order of suspension from practice will suffice.

The proceedings in applications to strike the name of attorneys from the roll are not ordinary civil proceedings. They are proceedings of a disciplinary nature and are sui generis. Therefore, if allegations are made by the law society and underlying documents are provided that form the basis of the allegations, they cannot simply be denied and brushed aside by the attorney under investigation. The latter must respond meaningfully to them and furnish a proper explanation of the financial discrepancies as the failure to do so may count against him or her.

An examination of the evidence convinced the court that the irregularities in the trust accounts were not merely the result of accounting errors, but were the result of deliberate dishonesty. The offending conduct was found to have been established on a balance of probabilities.

On the second leg of the inquiry, the court could not fault the court a quo’s finding that Hepple and Earle were not fit to practise as attorneys at all.

In deciding the third question, regarding the sanction, the court held that before imposing the sanction of striking from the roll, a court should be satisfied that the lesser stricture of suspension from practice will not achieve the court’s supervisory powers over the conduct of attorneys. Where there is dishonesty, exceptional circumstances should exist before the court will order a suspension instead of a removal from the roll.

There were no exceptional circumstances in the present case and the appeal was accordingly dismissed with costs.

Cession

Effect of litis contestatio: The facts in Antonie v Noble Land (Pty) Ltd 2014 (5) SA 307 (GJ) were as follows. In an earlier application, the main application, the trustee of an insolvent estate launched an application against the respondent, Noble, for payment of an amount plus interests and costs allegedly owing to the insolvent estate in terms of a settlement agreement between the insolvent estate, Noble, the insolvent and two other parties. Noble was then granted an order for the provision of security for costs by the trustee. The effect was to stay the proceedings until the order was complied with. The main application is still pending.

The current application for substitution was launched on 19 April 2012. In terms of the present applicant, Antonie, applied for an order that she be substituted as the applicant in the proceedings instituted by the trustee on the ground that she and the trustee had concluded a written agreement under which the trustee ceded to Antonie all entitlement to the main claim against Noble. This cession agreement had been concluded after litis contestatio in the main application. Noble opposed the substitution because of the potential prejudice it might suffer if the substitution were granted without an additional costs order, particularly in regard to the costs already incurred in the various legal proceedings instituted prior to the present application.

In dealing with the present application, Claassen J pointed out that the substitution of a party to litigation by another is a procedural matter. The court held that cession of a claim after litis contestatio terminated the proceedings instituted by the cedent, and the substitution of the cessionary as the new plaintiff or applicant, had to be regarded as the institution of new proceedings. In the present case this would result in a bad debtor in respect of costs (the insolvent estate) being substituted by a potentially more creditworthy debtor (Antonie, assuming she was not insolvent). The substitution would hence benefit rather than prejudice Noble with regard to any future costs order granted in its favour. This benefit did not, however, apply to the pre-substitution costs incurred by Noble. Whichever way the matter was looked at, the hands of the court were tied while the security for costs order was in force: The court could not issue an order that was irreconcilable with the order of security for costs. There would be no further adjudication of the application while the security for costs order was still valid and enforceable.

Antonie’s application was thus dismissed with costs.

Company law

Business rescue: In Van Zyl v Engelbrecht NO 2014 (5) SA 312 (FB) the liquidator of a company, Engelbrecht, sued a director, Van Zyl, for the company’s debts. The director raised a special plea of prescription and applied for separation of the trial issues and payment of associated costs. A few days later an application to place the company under business rescue was made by an affected third party. Then more papers were filed in respect of the separation application, which was ultimately settled by agreement.

The parties are, effectively, at variance on whether or not the action between them is a step in the liquidation proceedings so as to bring it within the parameters of the provisions of s 131(6) of the Companies Act 71 of 2008 Act (the Act). The applicant contends that the respondent is liable for the costs of the application for separation of issues, while the latter, on his part, maintains that he cannot be saddled with such costs because his position as a liquidator was suspended when the business rescue application was launched.

Since liquidation proceedings are – in terms of s 131(6) of the Act – suspended by an application for business rescue, the question was whether the liquidator’s action against the director qualified as a step in the liquidation proceedings. The liquidator argued that he could not under s 131(6) be held liable for costs incurred after the business rescue application. The director argued that s 136(1) did not suspend proceedings, such as the liquidator’s action against him, that were for the benefit of the company.

Lekale J held that the liquidator’s action was a claim for the recovery of a debt due to the company and therefore qualified as a step in the liquidation process that was hit by s 131(6). Suspension of the liquidation proceedings entailed the suspension of the office of the liquidator. The director’s contention, that claims for the company were exempt from s 131(6) because they stood to benefit the company and, as such, served to resuscitate it, was without merit because the legislature would have said as much. Therefore, steps taken by the liquidator after a business rescue application are futile and of no legal consequence. But the court held that such steps may nevertheless be ratified by the liquidator himself at the end of the suspension period as contemplated by s 131(6)(a) and (b) of the Act, or possibly by the appointed business rescue practitioner where liquidation proceedings were converted into business rescue proceedings.

In the light of the above the costs in the separation application had to stand over for determination at a later stage pending finalisation of the business rescue application.

 

Oppressive conduct: In Visser Sitrus (Pty) Ltd v Goede Hoop Sitrus (Pty) Ltd and Others 2014 (5) SA 179 (WCC) the court was asked to consider what constitutes oppressive conduct by directors of a company.

The crisp facts were that the applicant, Visser Sitrus, sought to transfer its shares in Goede Hoop Sitrus (Pty) Ltd (Goede Hoop) to Mouton Sitrus. However Goede Hoop’s board refused to approve the transfer. Visser Sitrus applied to the High Court for an order amending Goede Hoop’s Memorandum of Incorporation (MOI) insofar as it dealt with transfers of shares. The clauses in question provided that a shareholder required the approval of the board in order to transfer shares and that the board could decline to register a transfer without giving any reasons. Visser Sitrus further sought changes obliging the board to give reasons for its decisions.

In dealing with Visser Sitrus’ application, Rogers J held that a MOI could quite validly permit a board to not give reasons for refusing to transfer shares.

Visser Sitrus also sought an order compelling Goede Hoop to register the transfer of shares in terms of s 163 of the Companies Act 71 of 2008 (the Act). Section 163 allows a shareholder to apply to a court for relief if an act of the company has had a result that is unfairly prejudicial to it. It allows the court, in determining the application, to make any order it considers fit. Section 76 provides, inter alia, that a director must act in good faith and for a proper purpose and in the best interests of the company. Visser Sitrus based its s 163 claim on the alleged breach by Goede Hoop’s directors of their fiduciary duties in terms of s 76 of the Act.

Next, the court addressed the following questions. First, if directors exercise a power given to them by the company constitution, and meet the standard of conduct in s 76, can a shareholder prejudiced by the decision complain that it unfairly prejudices him? The court held that the circumstances would have to be exceptional for a decision taken in accordance with s 76 to cause unfair prejudice in terms of s 163.

Secondly, the court considered the question whether Goede Hoop’s directors complied with their fiduciary duties in terms of s 76? The court held that the question regarding the duty to act in the best interests of the company is not a strict objective test. What was required was that the directors had to take reasonably diligent steps to become informed about the matter; that they subjectively believe their decision to be in the best interests of the company; and that their belief should have a rational basis as required in terms on s 76(4) of the Act.

The court held that the directors had indeed acted in the best interests of the company by refusing to register the transfer of shares they –

  • had been sufficiently informed;
  • had subjectively believed the decision was in the best interests of the company; and
  • had acted rationally.

They had also acted for a proper purpose. The actual purpose of refusing transfer had been to prevent Mouton Sitrus increasing its shareholding, where this was believed to be against the best interests of the company. This actual purpose echoed the intended purpose of the provision.

Accordingly, so the court reasoned the standards set in s 76 had been met and the refusal to approve the transfer was lawful.

The court thus held that the refusal was not unfairly prejudicial to Visser Sitrus and the application was refused with costs.

Contract law

Interference with contractual relationship: The facts in Minister of Safety and Security (now Minister of Police) v Scott and Another [2014] 3 All SA 306 (SCA) were as follows. In 2005, the first respondent, Scott and the second respondent, Scottco, sued the appellant, the Minister, for damages arising from the alleged unlawful arrest and detention of Scott. Suffice it to mention here that Scott was arrested by the police after he and his friends assaulted someone outside a pub. Scott was a professional hunter and a registered undertaker of big game hunting enterprises in South Africa. His arrest meant that Scott was unable to take an American group for a planned hunting trip at his ranch. The failure of the hunting trip further led to the American magazine that carried advertisements for Scott’s business advising him that it was terminating its agreement with him. In terms thereof, the magazine would no longer run his advertisements, and would also no longer bring its own clients to his ranch as planned.

The High Court awarded Scott R 75 000 for general damages in respect of the unlawful arrest and detention and R 577 610 being wasted advertisement costs. The Minister appealed against the award of loss of contractual income and profits awarded to the second respondent and the amount of R 75 000 awarded to Scott.

Although the Scott case concerned a number of issues, the present discussion will be restricted to the possible interference with Scott’s contractual relationship with the magazine.

On appeal, Theron JA noted that the court a quo had not considered whether a claim for pure economic loss could be sustained in the circumstances of the Scott case. The present court held it was common cause that the claim for loss of income and profits was a claim for pure economic loss. Accepting that such a claim could only be brought by way of an Aquilian action, the respondents were constrained to concede that in that respect the particulars of claim were technically lacking. No exception having been filed, the appropriate inquiry was whether, despite the deficiency in the pleadings, and having regard to the evidence, the Minister should be held liable for the loss suffered by the second respondent.

The court first dealt with the legal position in respect of claims based on an interference with a contractual relationship. The general rule in our law is that only the intentional interference with the contractual relationship of another constitutes an independent delictual cause of action. In the present case, the police had no knowledge of the contract between the second respondent and the visiting American hunting group. There could therefore not be any intentional interference in the contractual relationship. On that basis alone, the second respondent’s claim had to fail. Even if that was not true, then the second respondent was found not to be able to establish the delictual requirements of wrongfulness and causation. The court concluded that the damages claimed by the second respondent were too remote to be recoverable.

The appropriateness of the damages awarded to Scott was the next issue considered on appeal. The assessment of general damages is a matter within the discretion of the trial court and depends on the unique circumstances of each particular case. An appeal court is generally reluctant to interfere with the award of the trial court but will do so where there has been an irregularity or misdirection. Where the appeal court is of the opinion that no sound basis exists for the award made by the trial court or where there is a striking disparity between the award made by the trial court and the award, which the appeal court considers ought to have been made. A comparative study with other cases revealed that the award made by the High Court was grossly excessive.

The court held that an award of R 30 000 for general damages was more appropriate, and upheld the appeal.

Delict

Misrepresentation: The dispute in Sanlam Capital Markets (Pty) Ltd v Mettle Manco (Pty) Ltd and Others [2014] 3 All SA 454 (GJ) turned on a circuitous transaction concerning the buying and selling of financial instruments based on debts. The plaintiff, Sanlam, engaged in the transactions by virtue of certain representations made to it by the defendants. It began with the first respondent, Mettle, calling on the plaintiff with a proposal, which invited Sanlam and one other institution to participate in a debt securitisation scheme as the senior funders of such a scheme. In presenting the proposal, Mettle made certain representations (the representations), the crux of which was that all the defendants had been involved with and intimately knowledgeable of the business, history, management, personnel, financial position, accounts and structuring of another commercial entity, MfP Logistics.

Sanlam claimed that the defendants owed it a duty of care not to make the representations to it unless the representations were correct in all material respects. The crux of Sanlam’s case was that the defendants breached such duty by not ensuring that the representations were at all material times correct. The consequence of the defendants’ breach, so Sanlam alleged, was that significant losses were incurred by the various associated companies of MfP Logistics.

Alternatively, Sanlam claimed that the second, third and fourth defendants contravened s 76(3) of the Companies Act 71 of 2008 (the 2008 Companies Act) by acting recklessly, alternatively negligently, in their capacities as directors of MfP Finance.

The defendants raised a number of exceptions against the particulars of claim, only two of which will be discussed here: First, the issue of unlawfulness, and secondly, the issue of the liability of the defendants on the basis of their alleged contravention of various sections of the 2008 Companies Act.

Vally J pointed out that the defendants excepted to the particulars on the basis that even though the negligent misstatements imputed to them were the cause of the plaintiff concluding a contract to its detriment, the representations were not wrongful. The court confirmed that the particulars in a delictual claim must contain an allegation of wrongfulness as well as the facts relied on to support such allegation. As Sanlam relied on case authority that was confirmed by the present court as good in law, the exceptions in this regard were dismissed.

The remaining exception was directed at Sanlam’s alternative argument based on the 2008 Companies Act as referred to above. The court found that Sanlam was entitled to find its alternative action on the provisions of s 218(2) read in conjunction with s 76 and the various other sections of the 2008 Companies Act identified in the particulars. The remaining exception was thus also dismissed.

Estoppel

Plea of res judicata: In Prinsloo NO and Others v Goldex 15 (Pty) Ltd and Another 2014 (5) SA 297 (SCA) a trust sold a farm to Goldex. Goldex later purported to cancel the sale on the basis of an alleged fraudulent misrepresentation prior to the sale by the trust’s representative, one Prinsloo. The trust then applied to a court to compel Goldex to perform. Goldex in its answering affidavit set out the details of the misrepresentation. The court’s finding was that Prinsloo had made the fraudulent misrepresentation and it dismissed the trust’s application. The trust’s application for leave to appeal was dismissed by the court of first instance, and subsequently also by the SCA.

Sometime later Goldex and one Scheepers brought an action against the trust and Prinsloo in his personal capacity. It was for delictual damages suffered as a result of Prinsloo’s fraudulent misrepresentation while representing the trust. Goldex and Scheepers alleged that Prinsloo had made the fraudulent misrepresentation. The trust and Prinsloo denied this allegation. Goldex and Scheepers replicated that, given the motion court’s finding of fraudulent misrepresentation, the exceptio rei judicata estopped the trust and Prinsloo from denying the allegation. The court upheld Goldex and Scheepers’ contention.

On appeal to the SCA Brand JA held that the requirements of res judicata were that the cause of action, relief and parties be the same in the earlier and later proceedings. However, the requirements of same cause and same relief could be dispensed with where the same issue had been finally decided in the previous proceeding – the form of res judicata known as issue estoppel. A plea of issue estoppel could only be permitted though if it would not cause unfairness in the later proceeding.

In the present case the relief claimed differed in the application and the action. However, the issue decided in the application – whether Prinsloo had made a fraudulent misrepresentation – was the same as in the action, as were the parties (at least insofar as the trust was concerned). However, the court held that even though the requirements of issue estoppel were present, it would be unfair to uphold the plea and to bind the trust to the motion court’s finding. This was because the motion court had failed to properly investigate the allegation of fraud before coming to the conclusion of its existence, and because the trust had had no opportunity to challenge the finding in an appeal.

The appeal was accordingly upheld and the plea of res judicata dismissed.

Pension Funds

Interpretation of Rules: In LA Health Medical Scheme v Horn and Others [2014] 3 All SA 421 (SCA) the appellant, LA Health, operated a medical aid scheme for local authorities in the Western Cape. The respondents, the members, were former employees who, by virtue of their employment with LA Health, were members of the Cape Joint Retirement Fund (the fund). In 2005, in terms of the provisions of s 197(2)(a) of the Labour Relations Act 66 of 1995, the members were automatically transferred to another company, Discovery. They contended that they thereby became entitled to redundancy or retrenchment benefits under the rules of the fund. The present appeal arose from the upholding of the members’ claim by the High Court, and on appeal also by the Full Court.

At stake was the question whether, on being transferred to the employ of Discovery, the members were entitled to the benefits provided for in the fund’s rules. In terms of the rule in question, if the members’ claims were valid, LA Health would be obliged to pay those claims. LA Health contended that the benefit was only available to employees who could show that their contracts of employment provided for that benefit and the members’ contracts of employment did not do so.

On appeal Wallis JA identified the crux of the present matter as the proper interpretation of the fund’s rules. Such interpretation involved a consideration of the language of the rule in question, read in the light of its context, apparent purpose and the factual background against which it came into existence.

LA Health relied on the introductory words of the rule, which read, ‘The members’ conditions of service provide for an additional redundancy/retrenchment benefit to be paid by the local authority’ (the court’s emphasis). LA Health contended that the effect of those words was to refer to the conditions of employment of the claimants in accordance with the definition of ‘service’ in the rules and, as the conditions of service of the members did not make provision for the payment of the redundancy benefits, a necessary pre-condition to their entitlement to the benefits was absent. The members submitted that the reference in the introductory words to an additional benefit referred to a redundancy or retrenchment benefit payable by the local authority in terms of an obligation falling outside the ambit of the rules of the fund and not to any part of the benefit embodied in the rule itself.

To resolve the opposing contentions of the parties, the court examined the genesis of the rule. It established that the benefits in question were ones that local authority employers agreed to provide to their employees. That led to the question of whether the fund rule in question applied to employers, such as LA Health. The court questioned whether the context of the rule required the application of the extended meaning of ‘local authority’ to include LA Health as a local authority bound by the obligations under the rule. It answered that question in the negative.

When the rule was viewed in context, the references to the ‘local authority’ could only be construed as references to local authorities properly so called and not to other employer members of the fund falling within the extended definition of that term. That being so the rule did not apply to LA Health and its employees and the members were not entitled when transferred to Discovery to claim a redundancy or retrenchment benefit under the rule.

The appeal was, accordingly, upheld with costs.

Spoliation

Mandament van spolie: In Ngqukumba v Minister of Safety and Security and Others 2014 (5) SA 112 (CC); Ngqukumba v Minister of Safety and Security and Others 2014 (7) BCLR 788 (CC) the court was asked to interpret and apply s 68(6)(b) of the National Road Traffic Act 93 of 1996 (the Act). Section 68(6)(b) of the Act prohibits possession ‘without lawful cause’ of a motor vehicle of which the engine or chassis number has been falsified or mutilated. Further, s 89(1) of the Act provides that it is an offence to contravene or not to comply with any ‘direction, condition, demand, determination, requirement, term or request’ under the Act. The SCA had held that these provisions of the Act precluded an order in spoliation proceedings for the restoration of possession of such motor vehicle when, as in the present case, it was unlawfully seized by the police.

On appeal to the CC per Madlanga J held that the SCA’s finding that possession of a tampered vehicle would always be unlawful was wrong. That is an erroneous premise because possession of a tampered vehicle will be unlawful only if it is ‘without lawful cause’.

The court held that it was possible to have a ‘legal cause’ for the possession of a tampered-with vehicle. Sections 68(6)(b) and 89(1) of the Traffic Act must as far as possible be read in a manner that is harmonious with the mandament van spolie. This is in accordance with the principle that, to the extent possible, statutes must be read in conformity with the common law.

In the present case N’s possession of the vehicle pursuant to its return in terms of a court order would be unlawful only if it were established that he did not have lawful cause to possess it. However, an inquiry into the facts surrounding N’s possession could not be held in spoliation proceedings because that would be inquiring into the merits of the lawfulness of N’s possession. Those merits are irrelevant in proceedings for a spoliation order: The despoiler must restore possession before all else.

The court ordered the police to restore possession. The appeal was accordingly 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, appeals, civil procedure, contract law, criminal law, criminal procedure, elections, gambling, housing, immigration, jurisdiction, labour law, land, local authorities, motor-vehicle accidents, prescription, revenue, spoliation and winding-up of companies.

This article was first published in De Rebus in 2014 (Nov) DR 32.