Heinrich Schulze BLC LLB (UP) LLD (Unisa) is a professor of law at Unisa.
January 2014 (1) The South African Law Reports (pp 1 – 321); [2013] 4 The All South African Law Reports December no 1 (pp 509 – 638); and no 2 (pp 639 – 732)
ABBREVIATIONS
EC: Electoral Court
ECM: Eastern Cape High Court, Mthatha
FB: Free State High Court, Bloemfontein
GNP: Gauteng North High Court, Pretoria
GSJ: Gauteng South High Court, Johannesburg
KZD: KwaZulu-Natal High Court, Durban
KZP: KwaZulu-Natal High Court, Pietermaritzburg
SCA: Supreme Court of Appeal
WCC: Western Cape High Court, Cape Town
Attorneys
Payment from trust account: In Capricorn Beach Home Owners Association v Potgieter t/a Nilands and Another 2014 (1) SA 46 (SCA) the first respondent (the attorney) erroneously transferred proceeds from a sale of property to Capricorn Beach Home Owners Association (the appellant) instead of to Capricorn Beach Joint Venture (the client). The appellant did not dispute that the payment was made erroneously, but refused to return the funds. The appellant claimed set-off of the amount transferred to its account against certain arrear moneys owed by the client to the appellant.
It was, inter alia, contended that, in transferring the proceeds, the attorney had acted as an agent of its client and that the appellant was therefore entitled to set the amount of the debt off against the payment transferred in error.
Mthiyane AP rejected the appellant’s claim to set-off. Set-off operates only where two persons reciprocally owed each other something in their own right. In the present matter the appellant and the attorney were not mutually indebted to each other. Further, in terms of decided authority, an attorney drawing on his or her trust account exercised his or her right to dispose of the amounts standing to the credit of that account, and did so as principal and not in a representative capacity.
Section 78(4) of the Attorneys Act 53 of 1979 obliges the attorney to keep proper accounting records, containing particulars and information of any money received, held or paid by him or her for or on account of any person. In this case the attorney was therefore under an obligation to account to his client concerning the proceeds of the sale, namely R 735 859, received from the purchaser in respect of the sale of the property.
This, therefore, put paid to the submission that the attorney was acting as an agent when, through his bookkeeper, he made the erroneous transfer of money to the appellant.
The appellant thus failed to show any justification for the retention of the money paid into its account by the attorney’s bookkeeper, and the attorney’s claim for the recovery of the erroneously transferred money, based on the condictio indebiti, was upheld with costs.
Champerty
Costs order against funder: In EP Property Projects (Pty) Ltd v Registrar of Deeds, Cape Town, and Another, and Four Related Applications 2014 (1) SA 141 (WCC) the facts were that one Marais was a losing party in arbitration proceedings involving the ownership of land. He concluded an agreement with his attorney (Naidoo) according to which Naidoo would fund review or appeal proceedings in return for part ownership of the property in the event of success in the envisaged litigation. Marais ceded his interest in the litigation to Naidoo so that those proceedings could be pursued by Naidoo in Marais’ name. Naidoo was joined as a party to the resulting proceedings, and the issue was whether she would, as funder of the proceedings, be liable for an adverse costs order.
In deciding the matter Louw J referred to foreign authorities, which held that the court’s discretion in respect of costs would not be exercised against ‘pure funders’ with no personal interest in the litigation. A ‘pure funder’ is someone who –
In such cases priority is usually given to the public interest in the funded party getting access to justice over that of the unsuccessful unfunded party recovering its costs. But if the non-party not merely funds the proceedings but also substantially controls or benefits from them, justice requires that, if the proceedings fail, the funder must pay the successful party’s costs.
The court was of the opinion that the position in our law should be that a non-party funder of litigation such as Naidoo should be potentially liable, at the discretion of the court, for an adverse costs order made against the nominal party.
In reaching its decision the court took heed of the following considerations. First, Naidoo was the ‘real party’ to the litigation. She was not merely a funder but had acquired a personal interest in the litigation, was in full control of it, and stood to acquire a share in the immovable property if the nominal party (Marais) was ultimately successful. Secondly, since Naidoo was not a mere commercial funder of litigation, the potential chilling effect of an adverse costs order on commercial third-party funding would not be a factor. Thirdly, in taking over the litigation Naidoo was associating herself with and funding the promotion and defence of conduct, which she knew to be fraudulent and mala fide.
Finally, because Naidoo took over the funding of the litigation in total, it was unnecessary for the court to consider whether a funder’s exposure to liability for an adverse costs order in respect of litigation funded by him or her should be limited to the extent of his or her funding of (investment in) the litigationt.
The court accordingly held that Naidoo should be held jointly and severally liable for any adverse costs order granted against Marais.
Company law
Business rescue plan: In DH Brothers Industries (Pty) Ltd v Gribnitz NO and Others 2014 (1) SA 103 (KZP) the applicant applied to set aside a board of directors’ resolution to commence business rescue proceedings. This raised an anomaly between ss 130(1)(a) and 130(5)(a) of the Companies Act 71 of 2008. Under the former an affected person may apply to set aside a resolution on three grounds; under the latter a court may set aside a resolution on those three grounds, as well as a fourth ground, namely that it is just and equitable to do so.
In identifying the just-and-equitable ground as a fourth ground, Gorven J reasoned that, despite the need to interpret a statute using the plain words, the distinction between s 130(1)(a) and s 130(5)(a) clearly arises from a drafting error. In this regard it was held in Hatch v Koopoomal 1936 AD 190 that ‘[a court is] entitled … to interpret [a legislative provision] as to remove [any] absurdity or repugnance and give effect to the intention of the Legislature.’ The only sensible meaning that avoids the absurdity that would otherwise result is to construe the just-and-equitable basis as an additional ground to the three listed in s 130(1)(a). This can therefore be relied on as a fourth ground or cause of action for relief in an application brought under that section.
The court accordingly held that s 130(1)(a) has to be read to include the just-and-equitable ground.
Applied to the facts of the present case as to whether it was just and equitable to set aside the resolution, the court pointed out that this entailed evaluating all the evidence, including the business rescue plan. This, in turn, raised further questions.
The first was the consequence of not publishing the plan in the allotted time set by s 150(5). The court held that this terminated the business rescue proceedings. The second question was how creditors could extend the time. The court held that a meeting had to be convened and a vote taken to do so.
A third question concerned the nature of the ‘binding offer’ that an affected person could make for the voting interests of opponents of the plan. This was provided for in s 153(1)(b)(ii). The court held that a ‘binding offer’ was one that could not be withdrawn by the offeror and that could be accepted or rejected by an opponent of the plan.
The court set aside the purported resolution and granted a provisional liquidation order.
Winding-up: The decision in Knipe and Others v Kameelhoek (Pty) Ltd and Another 2014 (1) SA 52 (FB) concerned an application for the final winding-up of two farm-owning companies.
The application was originally brought by Mrs Knipe, who was at that stage the companies’ sole director, and her daughter Carol. Three of Carol’s four siblings (the trio) were opposed to the granting of final relief and filed answering affidavits to this effect. A fifth child, who was fighting his own battle, applied to intervene in the present proceedings.
All five of Mrs Knipe’s children were shareholders in the companies, but the division of shareholding was in dispute. Mrs Knipe was eventually removed as director and replaced by the trio. The result was that the matter was approached on the basis that only Carol had locus standi in the present proceedings.
The present litigation was the result of a family feud over the farms and consequently also over control of the companies. In short, the feud was between Mrs Knipe and Carol against the trio. It appeared from the evidence that the trio had made open tenders on behalf of the companies for the purchase of Carol’s shares.
The court was asked to decide whether the companies, which were solvent, should nevertheless be wound up under the just-and-equitable provision of s 81(1)(d) of the Companies Act 71 of 2008 (the 2008 Act), or whether the option of relief under the oppressive-conduct provisions in s 163 of the 2008 Act would be preferable.
Daffue J held that the following legal principles were relevant: A solvent company would be wound up on just-and-equitable grounds under s 81(1)(d) for the same reasons as an insolvent company under s 344(h) of the Companies Act 91 of 1973 (the 1973 Act). These reasons included deadlock in the management of the company’s affairs, and oppression, both of which were relevant in the Knipe case.
The court referred in passing to the fact that, because the present companies were solvent, their winding-up had to be considered in accordance with the provisions of s 81(1)(d) of the 2008 Act, and not in accordance with s 344(h) of the 1973 Act. It further pointed out that the approach in considering whether it is just and equitable to wind up a company in terms of the 2008 Act is in essence not any different to what it is (or was) in accordance with the 1973 Act, which still applies to the winding-up of companies that are not solvent. The legal basis for winding-up remains the same. In this regard it referred with approval to Budge and Others NNO v Midnight Storm Investments 256 (Pty) Ltd and Another 2012 (2) SA 28 (GSJ) (at paras 5 – 12). The only possible change in attitude is that there is a greater emphasis in the 2008 Act on the rescuing of companies, than in terms of the 1973 Act.
The companies in the present case, being domestic companies (or quasi-partnerships), would be liquidated if there were a complete breakdown of mutual trust and confidence between members.
Although an applicant relying on the just-and-equitable ground for the winding-up of a company had to come to court with clean hands, this requirement had to be weighed against the rights of minority members alleging oppressive or prejudicial conduct by the majority.
The court’s powers of protection under s 163 of the 2008 Act were wide, but any alleged unfairness to minority members would vanish if they were offered a fair price for their shares. An otherwise acceptable offer could be refused if it were not genuine.
What the court ultimately had to decide was whether Carol had proved that it was just and equitable that the companies be finally wound up under s 81(1)(d) of the Act. The following factors, inter alia, showed that she had:
The court accordingly ordered that the two companies be wound up.
Winding-up: In Pinfold and Others v Edge to Edge Global Investments Ltd 2014 (1) SA 206 (KZD) the shareholders of a company applied for the winding-up of the company. They alleged that the directors of the company acted fraudulently, illegally and misapplied the assets of the company, and failed to account to the shareholders.
Section 81(1)(e) of the Companies Act 71 of 2008 (the Act) provides that a court may order a solvent company to be wound up if:
‘a shareholder has applied, with leave of the court, for an order to wind up the company on the grounds that –
(i) The directors, prescribed officers or other persons in control of the company are acting in a manner that is fraudulent or otherwise illegal; or
(ii) The company’s assets are being misapplied or wasted.’
Steyn J held that s 81(1)(e) of the Act gives a court a broad discretion to grant leave to a shareholder to apply for the winding-up of a solvent company. An applicant bears the onus of placing sufficient evidence before the court of the jurisdictional facts listed in s 81(1)(e) of the Act, and the standard of proof required is prima facie proof.
After the court considered all the allegations by the shareholders and the responses of the directors of the company, it was satisfied that in a number of instances misrepresentations were made to the shareholders and that there was a real likelihood that the investors (ie, shareholders) relied on these misrepresentations when they invested in the company.
If the circumstances of this case are taken into account, it is likely that these misrepresentations could have caused prejudice to those acting on them. The court accordingly held that the applicants had shown that they were entitled to an order in terms of s 81(1)(e) of the Act.
Credit agreements
Right of access to credit records: In Nkume v Transunion Credit Bureau (Pty) Ltd and Another 2014 (1) SA 134 (ECM) the facts were that the applicant entered into an agreement with the second respondent in terms of which the second respondent would supply goods to the applicant, which would be paid for by the applicant. Some goods were then supplied by the second respondent to the applicant in terms of the agreement. The second respondent later instituted legal proceedings against the applicant for the recovery of moneys due and owing in respect of goods supplied by it to the applicant.
A default judgment against the applicant and in favour of the second respondent was granted. It is this judgment by default that was later submitted to the first respondent who recorded it in its records. The applicant got to know of this default judgment against him when he applied for a credit facility with the African Bank Ltd.
The applicant later successfully applied for the rescission of the default judgment. After the default judgment was rescinded the applicant communicated with the first respondent (the credit bureau) to expunge the information about the default judgment from its records, but the first respondent did not do so timeously. As a result the applicant had to launch this application.
After the present application was lodged but before it was heard, the credit bureau expunged the information about the default judgment from its records. Although the court’s decision primarily turned on an order for costs of the application, the court made an instructive comment regarding the correct interpretation of s 72 of the National Credit Act 34 of 2005 (the NCA).
In this regard Dukada J held that s 72 gives to consumers the right to access and challenge credit records and information. In terms of reg 19 of the regulations promulgated in terms of the NCA, the credit provider must give the consumer concerned notice of its intention to submit adverse information concerning the consumer to the credit bureau. The use of the word ‘must’ in reg 19(4) makes that requirement peremptory. Where the credit provider flouts such peremptory legal provision, its conduct is unlawful.
This view is reinforced by court decisions that the NCA was consciously constructed and designed for the protection of consumers. The court correctly pointed out that if the credit provider does not provide the consumer with this information in terms of reg 19(4), how can the consumer challenge the adverse credit information prior to its submission to the credit bureau? This interpretation is in line with earlier case law dealing with the same aspect.
The respondents were accordingly ordered to pay the costs of the application jointly and severally on a party-and-party scale.
Elections
Duties of Electoral Commission: The decision in Johnson and Others v Electoral Commission and Others 2014 (1) SA 71 (EC) concerned the recent by-election in the Tlokwe Municipality that enjoyed a high level of media attention. The matter was heard in the EC. The crisp decision of the court was that the Electoral Commission not only has a duty to ensure that the applicable statutory requirements are met, but also to assist prospective applicants to ensure that they comply with these requirements.
The facts were as follows: The applicants were prospective independent candidates in the by-election. They sought an order postponing the election on the ground that the Electoral Commission had erroneously rejected their nominations. It appeared that at least some of the candidates had visited an Electoral Commission official named Makodi (the second respondent) at the Electoral Commission’s offices so that he could check that their nominations met statutory requirements.
As it turned out, they did not, but Makodi never told the candidates, or did so only when it was already too late to correct the error. The applicants had failed to submit a list of the names of 50 supporting voters registered to vote in their wards, as required by s 17 of the Local Government: Municipal Electoral Act 27 of 2000. The result of this was that the applicants’ nominations were rejected.
Wepener J (Mthiyane AP and Moshidi J concurring) held that the Electoral Commission had a constitutional duty to facilitate participation in elections, not only by voters, but also by candidates. It therefore had a duty not merely to check the validity of nomination documents after the fact, but also to assist prospective candidates to ensure that they would not be disqualified from taking part in the election on purely technical grounds.
Had Makodi made good on his undertaking to check the documents and advised the applicants timeously of the non-compliance, as he was duty-bound to do, their nominations would not have been rejected. The candidates were severely prejudiced by Makodi’s failure to properly assist them, and their disqualification would compromise the free and fair character of the election.
The application for the postponement of the election was accordingly granted and the second to sixth applicants were allowed to register as candidates in their respective wards in the postponed by-election.
International law
Private international law: The decision in Antares International Ltd and Another v Louw Coetzee & Malan Inc and Another 2014 (1) SA 172 (WCC) concerned a company that was incorporated in Guernsey, but which was later deregistered and dissolved. In its dissolved state the company applied to the High Court for an order interdicting a firm of attorneys from removing a pair of helicopters from certain premises. The helicopters had been the company’s property immediately before its deregistration. In issue was whether the dissolved company could litigate at all; and secondly, whether it had a right in the helicopters that could justify grantingthe interdict.
As to the first question, the court answered in the affirmative. It pointed out there is authority that a South African company deregistered under s 73 of the Companies Act 61 of 1973 ceased to exist for all purposes and thus could not obtain or be subject to any court order. However, it further pointed out that in the present case it dealt with a Guernsey company and that the law governing the company’s incorporation (ie, Guernsey law) was decisive of the issue.
Under Guernsey law a dissolved company could institute interlocutory proceedings in order to protect its interests in a pending legal proceeding, pending its restoration to the register.
The second issue at stake was whether the company had a right justifying the grant of an interdict. This raised further questions. The first was which legal system ought to be used to decide the ownership of the helicopters.
The court held that the matter concerned the devolution of the assets of a dissolved company, which was an incident of the law governing its incorporation and dissolution. Under private international law, matters of incorporation and dissolution were governed by the company’s lex domicilii, and that ought to apply to the devolution of its assets.
This approach is also in line with recent Australian case law where it was held that relevant New Zealand company legislation should be applied in deciding whether a claim that a deregistered New Zealand company held against an Australian company had been extinguished, or whether it vested in the Crown (as was found to be the case) by virtue of the New Zealand statute.
The lex domicilii here was the law of Guernsey under which the property and rights of a company vested as bona vacantia in the English Crown on the company’s deregistration and dissolution. Accordingly the Crown was the owner of the helicopters, at least until the company was restored to the register and revested with its assets.
This raised the question whether a party like the company, which could not demonstrate an extant right in property, could nonetheless apply for an interdict to preserve it. The court held that such a party could apply for an interdict, if it could make out a prima facie case that it would receive relief in the future from which a right in the property would flow.
In the present case the company failed to make out a prima facie case that it would receive such relief and the court accordingly dismissed the application. The parties were ordered to each pay its own costs.
Lease
Effect of cession of mortgage bond: The facts in Pangbourne Properties Ltd and Another v Your Life (Pty) Ltd and Another [2013] 4 All SA 719 (GSJ) were that the first plaintiff (the lessor) and first defendant (the lessee) entered into a lease agreement. The second defendant (the surety), signed a suretyship for the obligations of the lessee to the lessor.
In terms of a mortgage bond passed over the leased premises prior to the conclusion of the lease agreement, the lessor had ceded to the bank all its rights arising out of the lease agreement.
When the lessee failed to pay the agreed rental, the lessor elected to cancel the agreement. The lessee did not vacate the premises until about four months later. It became obliged to pay the lessor arrear rental and damages, including for the period of holding over and the unexpired period of the lease. The lessor (and the subsequent owner of the property) sued the lessee and the surety for payment.
The lessee had become insolvent and the action proceeded only against the surety for the lessee’s obligations to the lessor. The salient issue before the court was whether or not both the lessor and the new owner of the property had a cause of action against the lessee and surety and whether those causes of action had arisen prior to institution of action.
Lamont J held that on cancellation of the lease a single claim arises for the arrear rental and damages. The lessor is required to sue for all its damages in one cause of action. Thus, on the breach of the lease by the lessee and the cancellation thereof, the lessor became entitled to claim the arrear rental and damages.
The consequence of the cession from the lessor to the bank was that the right to sue did not vest in the lessor at the time the action was instituted by the lessor. The bond was cancelled when the property was transferred to the new owner of the property. At that moment, the rights ceded to the bank became vested in the lessor and remained with the lessor until transfer of the property to the new owner. The new owner also ceded its rights to the bank as set out above. The consequence of that cession was that the rights to sue did not vest in the new owner of the property at the time of its joinder to the action.
The court identified which entity was the lessee’s landlord at each particular time in respect of the claim due by the lessee to its landlord. It held that after the lessor had sold the property to the new owner, it (the original owner and lessor) had no rights to enforce against the lessee.
The court accordingly held that the new owner was entitled to recover the debt from the surety.
Practice directives
KZN High Court: Readers practising law in KwaZulu-Natal must take cognisance of three new practice directives that were issued by the KwaZulu-Natal Division of the High Court of South Africa.
The first of these directives provides that where a petition to the Judge President for leave to appeal in terms of s 309C of the Criminal Procedure Act 51 of 1977 has been refused, the unsuccessful petitioner(s) desiring to appeal against such refusal to the SCA is required to obtain leave to do so. The application for leave to appeal must be delivered to the registrar within 21 days after refusal of the petition (see Practice Directive 33 [2013] 4 All SA 730 (KZD)).
The second practice directive deals with the preparation of court papers and provides, inter alia, that in all matters the document(s) must be printed on one side of white A4-sized paper with a weight not less than 80g/m2. It must further be printed using a uniform regular 12-point font (ie, not in italics) in Arial or Times Roman or Times New Roman in double line-spacing.
Documents must be appropriately bound by staple or other suitable device (paper clips are not suitable devices) at the top left-hand corner (see Practice Directive 34 [2013] 4 All SA 731 (KZD)).
The third practice directive confirms that the Superior Courts Act 10 of 2013 was promulgated on 12 August 2013. It came into operation on 23 August 2012. In terms of this statute a single High Court has been constituted for the entire country, thereby necessitating a change to all court documents. For example, in Pietermaritzburg all court processes, etcetera, must be headed: ‘In the High Court of South Africa. KwaZulu-Natal Division, Pietermaritzburg’ (see Practice Directive 35 [2013] 4 All SA 732 (KZD)).
Sale of land
Voetstoots clause: In Haviside v Heydricks and Another 2014 (1) SA 235 (KZP) the appellant (the seller) sold certain immovable property to the respondents (the buyers). After transfer of the property the buyers discovered that there was an illegal structure, a garage, on the property for which no plans had been submitted and for which no approval had been given. The buyers instituted action in a magistrates’ court for payment of a sum –
The seller relied on a voetstoots clause in the deed of sale. During the ensuing trial the seller testified that –
The magistrate’s court held that the seller’s failure to tell the buyers that the garage was an illegal structure constituted non-disclosure tantamount to a misrepresentation inducing purchase and that she (ie, the seller) was barred from relying on the voetstoots clause.
On appeal Stretch AJ (Chili AJ concurring) held that the absence of statutory authorisation for the garage constituted a latent defect to which the voetstoots clause applied
The purpose of a voetstoots clause was to exempt the seller from liability for defects of which he or she was unaware, and, where the seller’s statutory non-compliance concerned latent defects in the property, as was the case in the present matter, the seller ought to be entitled to invoke the exemption.
There was nothing before the court to suggest that the seller was aware that building regulations had not been complied with. Although the court a quo had erred in not addressing the issue whether the non-disclosure was fraudulent or otherwise, it would, had it addressed this question, have been constrained to conclude that fraud was not proved.
The seller was accordingly protected by the voetstoots clause and the appeal was upheld with costs.
Trusts
Duties of outsiders and trustees when dealing with trusts: In Investec Bank Ltd v Adriaanse and Others NNO 2014 (1) SA 84 (GNP) the court was asked to consider the duties of third parties when dealing with a trust.
The facts were as follows. The plaintiff (Investec) issued summons against the defendants (the trustees) in their capacity as trustees of the Kudu Trust in which it sought payment of the sum of R 13 111 286,23 plus interest. The action was based on a suretyship executed by Kudu Trust (the trust) in favour of Investec, in respect of the indebtedness of Scarlet Ibis Investments to Investec, which arose out of a loan granted by Investec to Scarlet Ibis Investments.
The trustees, in turn, argued that the trust was not competent to execute the suretyship, as it fell outside the powers of the trust to do so. Further, even if it did fall within the powers of the trust to execute the suretyship, it was not executed with the consent and the authority of all the trustees and, on account of that, the suretyship was invalid and unenforceable.
For purposes of the present discussion, I will focus on only one of the issues in dispute, namely to what extent an outsider (such as Investec) that deals with a trust, has a duty to act to the advantage of the trust and the beneficiaries. In this regard the trustees argued that Investec was duty-bound to interrogate the transaction with greater diligence to satisfy itself that it would enure for the benefit of the trust and beneficiaries.
Kollapen J held that, in determining the scope of the role that is expected from an outsider in dealing with a trust, one must – on the one hand – ensure that outsiders by their actions are seen to be observing the provisions of the trust deed and that they should not act in flagrant violation of the trust deed. In this regard the court referred to the decision in Nieuwoudt and Another NNO v Vrystaat Mielies (Edms) Bpk 2004 (3) SA 486 (SCA) in which it was cautioned that ‘this case should consequently serve as a warning to everyone who deals with a trust to be careful’ (at para 24).
Conversely, so the court in the Adriaanse case reasoned, it is trite that trustees have the primary responsibility to act in accordance with the dictates of the trust deed and one should guard against the unintended consequence of developing a quantitatively higher standard of diligence and care on the part of outsiders dealing with a trust, than on the part of the trustees themselves. While outsiders have an interest in self-protection, the primary responsibility for compliance with formalities, and for ensuring that contracts lie within the authority conferred by the trust deed, lies with the trustees. It is thus the primary responsibility of the trust to satisfy itself that a contract that it intends concluding is for the benefit of the trust and its beneficiaries.
The trustees were accordingly ordered to pay Investec the sum of R 13 111 286,23 jointly and severally with the principal debtor, plus interest and costs on the scale as between attorney and client.
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, commissions of inquiry, conveyancing, costs, discovery and inspection, engineering and construction, insolvency, practice, sale of land and trade unions.
This article was first published in De Rebus in 2014 (March) DR 33.
