“PIE recognises that in appropriate circumstances the right to full exercise of ownership must give way, in the interest of justice and equity, to the right of vulnerable persons to a home.” (Extract from judgment below)

“Unlawful occupiers” of land have strong rights under our Constitution and other laws, and most property owners and landlords understand the need to tread carefully whenever the issue of eviction arises. They are required to comply fully with the provisions of PIE (the “Prevention of Illegal Eviction and Unlawful Occupation of Land Act”) – certainly achievable but never to be taken lightly. Bear in mind that a court order is required before eviction, with additional restrictions applying during the pandemic lockdowns.

A recent Supreme Court of Appeal (SCA) decision shows just how energetically our courts will enforce those occupier rights, even when the strict letter of the law appears to be 100% in favour of the landowner.

The 84 year old grandmother who can live on in her childhood home

• A landowner bought on a liquidation auction a piece of land and a house occupied by an 84 year old widow and her disabled son.
• The widow had lived in the house since she was 11 years old, her father being employed by the farm owner at the time. She in due course married another farm employee and lived on in the house with him. Widowed, she was reassured by verbal undertakings from previous owners that she had a lifelong right to live on in the house.
• But when the new purchaser of the property (by now no longer farmland but an urban sub-division of the original farm) she was unable to produce any written agreement confirming her life right to occupation.
• The new owner then gave the widow and her son notice to vacate and when they refused to leave, he obtained an eviction order from the magistrate’s court.
• After a 12 year trek through the courts, the SCA finally confirmed the setting-aside of the eviction order, and the importance of this to landowners lies in the fact that the owner here had jumped through all the hoops required by PIE –
  
  • The verbal “lifelong right of occupation” granted by previous landowners was not enforceable against subsequent buyers,
  • The landowner had removed his consent to the occupants’ right of occupation, thereby terminating it,
  • The occupants were therefore “unlawful occupiers”,
  • The landowner had offered them suitable alternative accommodation. 

A Court’s discretion to refuse eviction – the “just and equitable” test

• Our courts always retain a discretion to refuse eviction from residential property and “must be satisfied that the eviction is just and equitable”.
• The SCA held that in all the circumstances and facts of this particular case, eviction would not be just and equitable. Major factors were clearly the widow’s advanced age, her 73 year history of living in the house, her disabled son, and her reliance on verbal assurances from previous owners that she had a lifelong right of occupation (which she clearly if mistakenly believed would be enforceable against new owners).
• Had the land still been farmland the widow would have enjoyed the protection given to farmworkers by ESTA (the “Extension of Security of Tenure of Land Act”) and although the land had now changed to urban land, “her status as a vulnerable person, even in the context of PIE, has essentially remained unchanged.”
• Commenting that “No case in which an order of eviction from a residence is sought can ignore the visceral reality of what is sought, namely the ejectment of a person from their home in vindication of a superior right to property. Nor can the legal process by which the order is obtained be divorced from our fraught history of eviction and ejectment of vulnerable persons from their homes”, the Court held in all the circumstances that this was a case in which considerations of justice and equity “outweighed protection of the exercise of the right to property that an entitlement to an order of ejectment provides.”   
• This despite the landowner’s offer to give the widow alternative accommodation in the form of ownership of a unit in a secure residential complex, an offer she turned down because “She was accustomed to life in the house she presently occupied and enjoyed not only the freedom and space it afforded her but also the environment around it.”  
• The offer of alternative accommodation, although made in good faith by the landowner, did not tilt the scales in favour of eviction because “This was not a case in which the reasonableness or otherwise of an unlawful occupier’s refusal to vacate was a central issue … The true issue concerned the dignity of an elderly and vulnerable woman and a person with disabilities in the circumstances of the first respondent and her son. To hold that these weighty considerations are to give way merely because an alternative abode is offered would negate the first respondent’s dignity rather than protect it.”

The lesson for landowners and landlords

The significance of the landowner’s defeat here is perhaps best summarised in the Court’s own words (emphasis supplied): “PIE recognises that in appropriate circumstances the right to full exercise of ownership must give way, in the interest of justice and equity, to the right of vulnerable persons to a home.”

Before buying property, check for any occupiers, “lawful” or not, and make sure that you can evict them if you need to. As a landlord, ensure that your lease is watertight, and your legal rights protected. There is no substitute for full and specific professional assistance!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

“Retirement is for people who don’t like their jobs” (Paul McCartney)

Many employees reaching “retirement age” (often set at 60 or 65) are not ready to retire. Perhaps they need to carry on earning an income, often they are fit and healthy and want to remain engaged and productive. Increasingly, both factors are at play.

Regardless, the concepts of an aging workforce and “65 is the new 50” are here to stay, and employers and employees alike need to tackle the changing realities that come with them.

Agree a retirement date upfront!

Firstly, do not as an employer make the mistake of not specifying an agreed retirement age in your contracts of employment. Without such a clause you run the risk of being found guilty of “age discrimination” if in due course you force an unwilling employee to retire. As that is a class of “automatically unfair” dismissal, you are likely to pay dearly for your mistake.

Let’s consider however a recent case where an agreed retirement age was in place, but it came and went unnoticed (or perhaps noticed but ignored) …

The engineer who carried on as usual after 65

• An engineer’s 1985 written contract of employment provided that his employment would terminate at the end of the month when he reached the age of 65 unless the parties agreed otherwise in writing. It also had a standard “no-variation-except-in-writing” clause.
• He turned 65 in 2013 but continued working as normal, uninterruptedly, until he accepted a voluntary retrenchment in 2017. He had shortly before retrenchment been offered a two-year fixed-term contract which provided that he would not receive “any discharge or severance benefits” upon its termination – wisely, as it turned out, he had rejected that offer.
• When the business thereafter offered all employees a voluntary retrenchment package of one week’s compensation for every year of service, the engineer accepted. So far so good, but the problem arose at payout time. He was offered only 4 weeks’ compensation and was told that he had officially retired at 65 so only his post-retirement pay was taken into account in calculating his severance package.
• The employee was having none of that and demanded a recalculation based on his service since 1985. He took the dispute to the CCMA (Commission for Conciliation, Mediation and Arbitration), claiming for 29 weeks as the balance due after he had accepted the 4 weeks as part payment only. The CCMA awarded him the full amount (R1,010,625) and the Labour Appeal Court in due course confirmed the award.

Learning from the employer’s R1m lesson

The Court based its decision on its conclusion that although the 1985 employment contract had terminated when the employee had turned 65, he had carried on working “seamlessly” thereafter.

In terms of the Basic Conditions of Employment Act, length of service must take into account previous employment with the same employer if the break between the periods of employment is less than one year. In this case, said the Court, there was no break at all and the engineer’s “employment with the respondent was ‘continuous’, in the true sense of that term.”

The employer’s mistake seems therefore to have been that it had done nothing when its employee approached the agreed retirement age. The reason for it doing nothing is unclear, but one wonders how many employers ever bother to diarise all retirement dates with a note to take action before they arrive.

Regardless, through its lack of action the employer effectively landed itself with an open-ended contract of employment (i.e. with no agreed retirement or termination date). If it had been more alert it could perhaps have simply said “remember you retire soon, enjoy your retirement” – that would not have been a retrenchment, and no severance pay would have been payable. Perhaps it could then have safely offered the employee a new fixed-term contract for a specified period (a “clean break” would have been essential i.e. no untaken leave or the like carried forward from the original contract). Perhaps it could even have structured an agreement to extend the contract on terms that would have made it unnecessary to give the employee a retrenchment package at all. Every case will be different and there are grey areas in the applicable law, so specific professional advice is essential here.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

“Consequential Loss: This is loss not directly caused by the insured event, but is an indirect result of the event. This is loss or damage that was not foreseen by the insurer or the policyholder at the time the policy was taken out. Consequential loss is in many instances not covered and cover is dependent on the risk that the policy covers” (South African Insurance Association definition)

One of the risks you run in any business is being sued for losses you cause to someone else. Although normally your risk of legal liability is linked to the claimant proving some form of negligence on your part (i.e. the onus is on the claimant to prove your negligence), there are exceptions. To take one example (as seen in the case discussed below) a “carrier of goods for reward by land” has “absolute liability” to deliver goods undamaged; and thus the onus switches to the carrier to prove a lack of fault.

No matter who has to prove what there could be serious money at stake here, so taking upfront measures to protect yourself is prudent.  

Protecting your business with insurance

Your first line of defence is of course always the practical one of minimising the actual risks of causing any form of harm or loss to any and all role-players – customers/clients, suppliers, employees etc. On the legal side, disclaimers and exclusion clauses are commonly used for the purpose but they have their limitations and should never be relied on as foolproof.

That is where taking out commercial (business) insurance can make sense – if all else fails, you can look to your insurer to cover you for whatever damages you may be found liable to pay.

Beware however – as a recent High Court judgment aptly illustrates, even with insurance you could find yourself up the creek without a paddle if you are found liable for “consequential damages”.

What are “consequential damages”?

Before we get into the details of this particular High Court case however, it’s important to know that several types of damages could be awarded against you –

1. What are often called “general damages”, i.e. “those damages that flow naturally and generally from the kind of breach of contract in question and which the law presumes the parties contemplated as a probable result of the breach.” An electrician for example negligently frying a business customer’s distribution board is likely to be sued firstly for the cost of replacing it.
   
2. What are often called “special”, “consequential” or “indirect” damages, i.e. “those damages that, although caused by the breach of contract are ordinarily in law regarded as too remote to be recoverable unless in the special circumstances attending the conclusion of the contract, the parties actually or presumptively contemplated that they would probably result from the breach.” To stick with the negligent electrician example above, the business might also sue for consequential loss such as the sales it lost because it had no electricity. The test then would be whether the electrician and the business had in mind that loss of sales would probably result from the distribution board’s failure.

Let’s see that distinction playing out in action…

Sued for R2.2m “loss of profits” and not covered by insurance  

• A transport company (a “carrier”) agreed to move two valuable machines for a customer which intended to rent them out to the film industry.
  
• Both machines were substantially damaged in transit and the carrier was found to have breached the contract of carriage and to have caused the losses through negligence.
  
• The carrier claimed from its insurers to cover its liability (it had taken out “goods in transit” cover of R1m for each machine), and the insurer duly paid out a total of R1.7m for direct losses in the form of the repair of one machine and the replacement of the other.
• No problem for the carrier there; but it was a different story with the second part of the damages claim. This was for “loss of profits” suffered by the customer through being unable to rent out the machines whilst waiting for them to be repaired/replaced.
• The insurer refused to pay out this second part of the claim (R2,218,464) because it had agreed to cover only “actual” damage to the machines. The goods in transit policy specifically excluded “consequential financial loss as a result of any cause whatsoever”. That left the carrier fighting the customer without the safety net of insurance cover.
• The carrier argued that its liability to the customer was limited to the R1m goods in transit cover per machine. But to no avail, the Court holding that the contract of insurance was between the transport company and its insurers and therefore it did not prevent the customer from claiming damages for losses beyond those covered by the carrier’s insurance.
• Critically, the Court found on the facts that “This type of loss must have been contemplated and reasonably foreseen when the carriage contract was concluded by the parties” and that the customer’s loss of income followed logically from the fact that it could not hire out the machines.
• The end result – the transport company must pay, out of its own pocket, whatever consequential damages the customer can prove (presumably the customer will go for its original R2.2m claim).

Check your contracts, and your insurance cover!

The lesson here of course is to make sure that your contracts protect you from liability for “consequential damages” and the like, and/or to check that your insurance cover will protect you if you get sued for any liability beyond “general damages”. If there is an “exclusion” clause in the policy such as the one discussed above, you’re on your own!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

The COVID-19 pandemic has closed many doors, but it has also levelled many playing fields and opened up a slew of new business opportunities. If you are one of the many budding entrepreneurs out there looking to start up your own business (perhaps by choice, perhaps after a business closure), you may wonder where and how to go about it.

Bizly’s “Start a business: How to get going fast, the lean start-up way” here shares some ideas for “action planning using rapid, feedback loops to get the business off the ground quickly and with minimal risk.”  Answer 6 preliminary questions, complete a one-page business plan, and prepare for launch!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

Employee looting and/or violence can take place during strike action or it can occur during non-workplace incidents such as the recent looting and public disorder sprees. In both cases employers need to take action, but with care.

Addressing firstly the “strike” scenario, employees have strongly entrenched rights when it comes to taking industrial action. But strikers who indulge in, or associate themselves with, any form of violence or intimidation can expect little sympathy from our courts.

Two Labour Appeal Court decisions illustrate –

Dismissed for associating with a crowd assault

“Within a labour law context the requisite intention exists where it is proved that an employee intended that misconduct would result or must have foreseen the possibility that it would occur and yet, despite this, actively associated himself or herself reckless as to whether such misconduct would ensue” (extract from the judgment below)

First up is the case of 148 workers dismissed for misconduct during a strike.

• When the employer’s Human Resources Manager left his office to engage with the strikers they surrounded and seriously assaulted him. He was pushed out of a glass window, had rocks thrown at him and was punched and kicked while he lay on the ground. He feared for his life and was left with injuries to his face, arm, and body. Video footage showed striking employees celebrating and chanting after the assault was over.
• At a disciplinary hearing 12 employees were found to have participated directly in the assault, and the others were found to have participated by association and thus to have acted with “common purpose”. All were summarily dismissed.
• The Labour Court confirmed all 148 dismissals. 41 of the employees appealed to the Labour Appeal Court on the grounds that common purpose in the assault had not been proved because there was no evidence that they had been on the scene of the assault, nor that they had been aware of the assault, had intended to make common cause with it, or that they had performed an act of association with it. 
• Quoting from the Constitutional Court that “it was unnecessary to place each employee on the scene to prove common purpose which can be established by inferential reasoning having regard to the conduct of the workers before, during and after the incident of violence” and commenting that “…the inference drawn that all employees were involved in or associated themselves with the assault became the most probable and plausible”, the Court held that the 41 had been present at the scene and had associated themselves with the actions of the group before, during or after the misconduct. The Court accordingly confirmed the dismissals.

Dismissed for carrying sticks, piping, and a sjambok in a picket line

“The constitutionally protected right to strike does not encompass a right to carry dangerous weapons on a picket line which, by their nature, not only expose others to the very real risk of injury, but also serve to threaten and intimidate” (extract from the judgment below)

The second case saw a group of employees dismissed after taking part in a national strike which turned violent.

• Three of the employees each carried a stick while picketing with a group of other strikers, another carried a length of PVC pipe and the fifth carried both a stick and a sjambok. Others in the crowd carried a golf club and an axe respectively. At least two people sustained severe injuries during the course of the strike.
• The employees were charged with “brandishing or wielding of dangerous weapons during [the] strike” and following disciplinary hearings they were dismissed. 
• When the matter eventually came before the Labour Appeal Court, it upheld the dismissals, finding that the strikers were aware of a workplace picketing rule barring weapons of any kind being “carried or wielded” by picketers and that they “knew or could reasonably have been expected to have known that disciplinary action could result if the picketing rules were breached.”  
• The end result is yet another warning to employees that whilst their right to strike is strongly protected by constitutional principles, strikes and picketing become unlawful if they are not peaceful, non-violent, and free of dangerous weapons.

What about off-duty employees who took part in the recent public looting?

Published images and videos of the recent orgy of public looting and destruction show criminal behaviour so blatant and shameless that many of the perpetrators will no doubt be readily identifiable by their employers.

You may feel justified in proceeding immediately against any of your employees so implicated, even though they happened to be off-duty and nowhere near your workplace at the time. After all, who wants a looter or arsonist working for them?

But whilst our laws may well entitle you to take action against some or all of such employees, that will generally be so only when their provable criminality is in some way linked to, and relevant to, their employment. The law in this regard is unfortunately too complex, and too full of grey areas, for any advice beyond the general observation that you should certainly consider immediate disciplinary action, with the strong caution that specific professional advice is essential beforehand.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

“When a crime is imminent and foreseen it is expected of the law enforcement agency to take appropriate action. The duty of the police to provide assistance arises from their mandate to carry out law and order” (extract from judgment below)

Can you sue the police if they fail to protect you during unrest and violence? It’s an important question not just for employers dealing with strike violence. In the aftermath of the massive damage caused by the recent public unrest and looting, the case we now discuss will no doubt find application far beyond the labour relations field.

Strike violence – damages for a vandalised farm and an assaulted employee

• A large fruit farm was subjected to a month-long strike “characterised by violence through various acts of intimidation, assaults, malicious damage to property, vandalism, theft, road blockades and various acts of looting.”
• Ahead of the strike, SAPS (the South African Police Services) had been informed of the looming strike and of suspicions that “there is a great likelihood that the strike is likely to be violent.” 
• What followed was a litany of violent action by a large crowd of strikers – stonings, petrol-bombings, arson, assaults, intimidation, brandishing of knobkerries, threats of murder, looting, and destruction of property. 251 strikers were dismissed after disciplinary hearings, an event which itself led to more violence.
• The farm and a non-striking worker stabbed by strikers sued SAPS in the High Court for damages. Although many of the facts were disputed in evidence, the Court found that the employer had made numerous pleas to SAPS, based some 15 km away, for assistance. During one police response, said the employer, it was informed that the police had no capacity to assist, whilst on many other occasions the police failed to respond at all.  
• A Labour Court interdict and contempt of court order were allegedly not enforced, and whilst various criminal charges were laid during the course of the strike, few arrests took place (four of them only when police themselves were stoned).  
• On the basis of the evidence before it and its analysis of the duty of the police to provide assistance when a crime is imminent, the Court ordered the Minister of Police and the National and Provincial Commissioners of Police to pay “proven or agreed damages” arising from the strike “as a result of their wrongful and negligent conduct.” 
• Critical to the outcome was the Court’s findings that “The police had a legal duty to act positively to prevent harm to the Plaintiffs. The legal convictions of the community required of the police to act more swiftly to prevent harm to the Plaintiffs. The legal convictions of the community incorporate constitutional values and norms and in our constitutional democracy it cannot be acceptable of the police to sit idle when they should have reasonably foreseen that the strike will turn violent. When a crime is imminent and foreseen it is expected of the law enforcement agency to take appropriate action. The duty of the police to provide assistance arises from their mandate to carry out law and order.”  
• Factually, the Court found that “The police had the capacity to patrol the area and conduct continuous monitoring which they failed to do. Their failure to respond to various pleas for assistance was not only negligent but wrongful” and “the conduct of the police viewed against the legal and public policy considerations, constitutional norms and values was unacceptable and accordingly unlawful.”

Will these principles apply to unrest and looting claims generally?

Of course the recent public unrest, destruction of property and looting were on a totally different scale and took place in a very different context to the facts before the Court in the case above.

At time of writing, media reports suggest that a general failure by security services to foresee and forestall the violence may have rendered them largely incapable of reacting effectively to whatever pleas for help they may have received. In contrast, in the case above the Court seems to have accepted that the police had the resources to react effectively but failed to do so. So although the general principles laid out above will no doubt assist in any attempt to hold the police liable for looting and other losses, time alone will tell whether victims will actually be able to prove any degree of police liability, either generally or in specific instances.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

“In common law, everyone is in general permitted to use their property for any purpose they choose, provided that the use of the property should not intrude unreasonably on the use and enjoyment by the neighbours of their properties” (extract from the “gym case” below) 

Consider this unhappy scenario – you buy your dream home (or perhaps new business premises), only to find that you are afflicted with the noisiest and most unreasonable neighbours you have ever encountered. A friendly approach to them produces no result. Can you get a court order to stop the noise?

Let’s address that question with reference to two recent court cases, but first –

What must you prove?

To get a “final interdict” (in this instance a court order compelling the offenders to put an end to the noise) you have to prove three things –

1. “A clear right”,
   
2. “An injury actually committed or reasonably apprehended”, and
   
3. “The absence of similar protection by any other ordinary remedy” (in other words, you must show that you have no adequate alternative remedy available to you – an important aspect, as we shall see below).

In the suburbs: The pastor v the puppy daycare home business

 “…the courts apply a reasonableness standard, which entails a balancing of the mutual and reciprocal rights and obligations of neighbours” (extract from the judgment below)

The scene in this first case is a suburban residential area in Cape Town’s Northern Suburbs.

• A pastor, needing “a peaceful environment to write, research, study and counsel his congregants”, applied to the High Court for an interdict against his neighbours. The problem was their home business in the form of a puppy daycare centre, operating in their garden and offering supervision, structured playtime, potty training, basic training, socialisation and so on for up to 17 dogs at a time. 
• The complaint centered on barking on the property, triggering “a cacophony of barking from all the dogs in the neighbourhood” – starting at 6.30 am (Monday to Saturday) until 6 pm. This, said the pastor, was “disturbing and disruptive to the peaceful enjoyment of his property and to his daily activities”, plus it had seriously affected the value of his property. 
• Before buying the property he had viewed it over a weekend when there was no noise, and, because it was important to him, had specifically asked the previous owner about whether there was a barking problem in the neighbourhood.
• After fruitless discussions with the neighbours, he reported them to the municipal authorities (the City of Cape Town), lodging complaints for almost 4 years, resulting only in the issue of a compliance notice which the City failed to enforce, and a failed attempt at prosecution.
• In the High Court the complainant’s attack relied not only on common law “nuisance law” but also on alleged contraventions of the Western Cape Noise Control Regulations (all local authorities have power to make such regulations in terms of National Regulations), the City’s Development Management Scheme (with its restrictions on home business activities) and Animal By-Laws.
• The puppy daycare business raised a series of defences to these lines of attack, and disputed many of the complainant’s factual allegations, but in the end result the Court ordered the business to stop operating immediately. The business activity, said the Court, was “abnormal use” of a residential property, and “While such noise may be bearable in a busy City, where there is a lot of activity, such as large volumes of traffic, the constant movement of people and crowds and noise created by businesses, it would definitely disturb the peace and serenity of a quiet neighbourhood where such noises are not expected, and to which the applicant is entitled.” (Emphasis supplied).

In the city: the multi-storey building and the noisy gym

 “…What constitutes reasonable usage in any given case is dependent on various factors, including the general character of the area in question – persons living and working in an urban area would, for example, reasonably be expected, in general, to be more forbearing about a higher level of noise intrusion into their lives than neighbours living in a rural housing estate” (extract from the case below)

We move now to the second case, also in Cape Town but this time in the City Centre.

• The owners of a property in a multi-storey building in the centre of Cape Town (a married couple living there and an attorney running a law practice in it) approached the High Court for an interdict against the neighbouring gym on the grounds of a substantial noise nuisance. The married couple’s bedroom window is just over a metre away from the window and balcony of the gym.
• The gym’s premises are zoned for commercial use, and there was no dispute that the area was subject to “substantial traffic noise”, but the complaints centered on allegations that the gym produced “loud techno/dance music with a strong beat” and microphone-amplified voice instructions to attendees at gym classes – at times ranging from 6 am to 6.45 pm.
• Many of the facts of the matter were, as is common in such bitterly fought matters, in dispute, and ultimately the Court declined to grant the interdict partially on the grounds of unresolved disputes of fact. Clearly the fact that the area was subject to considerable levels of “inner-city noise” anyway played a part, but the deciding factor seems to have been the Court’s finding that the complainants had declined the neighbour’s offer to follow the processes of the local Noise Control Regulations, which the Court held to provide an “adequate alternative remedy”.
• Moral of this story – don’t expect too much peace and quiet in a city centre, and exhaust all alternative remedies before asking for an interdict!

Property buyers – do your “noise risk” homework upfront!

Which leads us to a general note of caution to anyone about to buy a property – prevention being as ever a lot better than cure, investigate and understand the potential for “noisy neighbours” disrupting your peace and quiet before putting in your offer.

For example, the pastor in the puppy case took at face value the seller’s reassurances about excessive barking in the neighbourhood – he could perhaps have saved himself 5 years of stress and trouble had he been a bit more cynical and returned to the neighbourhood at various times during the week just to check.

And bear in mind that what may be considered a totally unreasonable noise level in one context could be considered quite acceptable in another. As the Court in the gym case put it: “…the applicants cannot expect the quiet serenity of the suburbs while living in the inner-city, which comprises a mix of commercial and residential properties, and particularly having purchased a property that is immediately adjacent to a commercially-zoned property.” (Emphasis supplied).

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews

“Creditors have better memories than debtors” (Benjamin Franklin)

In these hard times of pandemic and economically destructive unrest, an unfortunate number of businesses face collapse, and many will opt for the “first aid for companies” option of business rescue.   

Creditors coming out of that process with a shortfall (only the luckiest creditors are likely to emerge with full settlement) will naturally look to any personal suretyships they hold to cover that shortfall.

A recent SCA (Supreme Court of Appeal) decision has brought welcome clarity to the question of whether – and in what circumstances – such personal suretyships will survive the business rescue process.

Both directors and creditors need to understand the outcome, and to act accordingly.

Sued for R6m, a CEO’s defence crumbles

• A company CEO (Chief Executive Officer) signed a personal suretyship in favour of a creditor supplying the company with petroleum products.  
• When the company fell upon hard times it was placed into business rescue. Eventually a business rescue plan was adopted, the rescue process was terminated, and the creditor sued the CEO for the shortfall on its claim of just over R6m.   
• The CEO’s main defence was that his liability as surety was an “accessory obligation” – in other words, if the creditor’s claim against the principal debtor (the company) fell away, he should be released from his liability as surety.  
• But, held the Court, although a principal debtor’s discharge from liability does indeed ordinarily release the surety, our law allows the creditor and the surety to agree otherwise.   
• And the suretyship agreement in this case did just that. It contained “unobjectionable” and “standard” terms which included a specific agreement by the surety that he would remain liable even if the creditor “compounded with” the company by accepting a reduced amount in settlement of its claim. Nor was there any mention in the business rescue plan of its effect on creditor claims against sureties (it could, for example, have provided specifically for sureties to remain on the hook, or to be released). But the deciding factor remained that the wording of the suretyship was such that the creditor did not abandon its claim against the surety by supporting the business rescue plan.  
• Bottom line – the CEO goes down over R6m, and the creditor has another shot at emerging unscathed from the mess.

Heed these lessons from the judgment!

The SCA in its judgment undertook a comprehensive interpretation of the terms of the deed of suretyship, of the business rescue plan, and of the relevant legislation. Although the detail will be of more interest to lawyers and academics than it will be to the average director or creditor, it did bring welcome clarity to an issue of great practical importance, and the valuable lessons therein should be heeded –

Directors: As always, think twice before signing any personal suretyship, and if you absolutely have no alternative, at least understand fully what you are letting yourself in for both legally and practically. Equally, ensure that the business rescue plan lets you fully off the hook as regards any possible personal liability; you may be advised to go further and have a separate release agreement with any creditor/s holding your surety. Although not directly relevant to this article, think also of managing any risk of personal liability beyond suretyship, such as allegations of reckless trading and the like.

Creditors: You on the other hand should always try for watertight and upfront suretyships from directors and others with attachable assets (again not directly relevant to this article, but also take whatever security you can over company assets such as debtors, fixed property etc). And when it comes to the business rescue plan, make sure that it leaves your claim against sureties unaffected.

Upfront professional advice and assistance is a real no-brainer here!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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“Creativity is the key to success” (Abdul Kalam)

It’s hard to think of a successful entrepreneur who isn’t at heart creative. Creativity comes with the territory, and anything you can do to increase it has got to be good for your bottom line.

The good news is that you can train yourself to maximise your creativity. First off take “The Divergent Association Task” here – it measures your creativity in under 4 minutes. Then move on to HuffPost’s 5 Creativity-building tips in “Yes, You Can Train Yourself to Be More Creative. Here’s How” here.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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“There is never a wrong time to buy the right home” (Anon)    

You find the house of your dreams, agree on the price and get ready to put pen to paper. The house is in the name of a company, and you are offered a choice – either buy the house out of the company or take over the company (which owns the house and nothing else) by buying the shares and thus avoid the delay and cost of a normal property transfer and registration in the Deeds Office.

What should you do?There are a host of both practical and legal factors to consider before deciding. Holding property in a company can come with significant advantages, but there can also be major disadvantages, so professional advice specific to your own circumstances is a no-brainer here.

Some of the many factors you should consider are –

• Tax and estate planning considerations. These are complex and no two cases will be identical, but consider the higher capital gains tax rates payable by companies (and the annual exclusion and “primary residence exclusion” of R2m for individuals), the differential income tax rates, possible VAT considerations, your own estate planning circumstances (including the estate duty angle) and the like.
• Asset protection. Particularly if you run your own business or are in a profession at significant risk of litigation, it may be important to you to protect your major assets (like your house) from possible attack by creditors. Any assets held in your own name will be a natural target if you run into financial problems, whilst those held in another entity like a company or trust will generally be much harder to attack. Complicated multi-level structures such as having a trust owning your company’s shares have generally fallen out of favour for a variety of reasons, but you may still be advised to consider one in your particular situation.
• Joint ownership. Joint ownership of property comes with its own set of risks and issues, and depending on your needs you might be advised to address them with a company/shareholder structure.
• Costs and simplicity. Running a company comes with extra costs (accounting/auditing, statutory costs etc), formalities and responsibilities, getting a bond in your own name is likely to be a simpler process than taking it in a company, and so on.
• The hidden risks. When you buy a company’s shares you get the company as it is, with all its assets and liabilities. If the seller is in any way unreliable, you could find yourself losing the house to an undisclosed company liability that suddenly crawls out of the woodwork. Suretyships are a particular danger here – there is no central register of suretyships you can refer to, and it is common for groups of companies and other entities in particular to sign cross-suretyships without necessarily keeping a record of them all. These are risks that can be largely managed with proper advice and due diligence, but a residual whiff of doubt is inevitable.
• Other factors. There will be many other aspects to consider, depending on your circumstances and needs, and on the company in question.

Transfer duty – you pay it either way!

As a buyer you can never lose sight of all the costs you will incur in buying a house, and the “big one” is normally transfer duty. It’s essentially a government tax, payable by you as buyer (unless the property sale is subject to VAT), and it can be a lot of money.

Do not however fall into the old (and surprisingly still-common) trap of thinking that by buying the company you avoid paying transfer duty. That was indeed a commonly used loophole in decades past and it is still sometimes referred to. But in reality that all changed many years ago, and (subject to what is said below) you should budget to pay transfer duty as set out in this table –

Source: SARS “Budget Tax Guide 2021”

So for example if you buy a house for R3m you will pay R146k in transfer duty. Or R916k on a R10m house. Finding a way to avoid or reduce such a cost is an attractive proposition, and indeed until 2002 it was a common way for buyers and sellers to save transfer duty and to instead pay only ¼% “Securities Transfer Tax” – a huge saving.

That loophole closed however many years ago – on 13 December 2002 to be precise – and since then the sale of shares in a “residential property company” (a company with over 50% of its asset value in residential property) attracts transfer duty on the “fair value” of the property. No savings there!

What about “buying” a property-owning trust?

Similarly, before 2002 a common transfer duty avoidance strategy was to hold property in a trust, then to “sell” the trust to a purchaser by substituting him/her as a beneficiary of that trust. That loophole was also closed in respect of beneficiaries holding “contingent interests” in the property – the situation here is a bit more complicated than it is with companies as there are various types of trust you could be dealing with, so specialist advice is essential.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© LawDotNews