Cohabitation: The Perils and Pitfalls

The term “Cohabitation” or entering into a domestic partnership refers to the living arrangements of partners who are unmarried, who live together in one household in an emotionally intimate relationship which is intended to be permanent. People may live together for a number of reasons; it could be financial, where money saving is the motive; it could also be for convenience. Critically though, cohabitation, which is sometimes called a “de facto marriage” or “common law marriage”, is becoming more and more of a substitute for a conventional marriage.

 

Illustration

 

John and Jane have been living together for a few years. “Why get married when we are already in a normal, loving relationship? In any case, we are as good as married.” This illustration seems to show that in respect of costs and convenience, cohabitation is better than marriage. This is not necessarily true from a legal point of view.

 

A recent Case . . .

 

The Supreme Court of Appeal in McDonald v Young 2012 (3) SA 1 (SCA) ruled that those who live together, without a marriage and written contract cannot rely on the duties and rights of a married couple in the event of a dispute. While legally, cohabitants do not have the same rights as partners in a marriage or a civil union, the South African courts have on occasion come to the assistance of couples by deciding that an express or implied universal partnership exists between them.

 

Legal Position in South Africa

 

The legal position in South Africa in respect of cohabitation is that there is indeed no legislative protection available to parties in a cohabitant household. The Domestic Partnership Bill 2008 is still only in draft form. The abovementioned illustration of John and Jane has a fundamental caveat: persons living together do not have the same rights as married persons. Cohabitation is not recognized as a legal relationship in South African law. There is, therefore, no law that regulates the rights of parties in a cohabitation relationship. This is irrespective of the length of time a cohabitant couple has been living together.

 

Legislation

 

While marriage offers specific laws that will regulate the relationships, cohabitation offers none of the sort. Cohabitants are unable to rely on inheritance laws in terms of the Intestate Succession Act if a cohabitant dies without leaving a Will. Furthermore, they are unable to rely on the Maintenance of Surviving Spouses Act to secure maintenance on the death of a partner. In addition to this, South African banks do not allow for the opening of joint bank accounts.

 

 

Possible Remedies?

 

This however, does not mean that persons who choose not to get married are without remedy. There are options available to protect the rights of the cohabitants and determine the consequences if the relationship comes to a halt. In cases where the relationship breaks down and the parties had decided to pool their resources for the achievement of a common purpose, the court may award a share of the assets acquired during the relationship to each party if the existence of a universal partnership can be proved.[1] In such instance, certain requirements must be satisfied:

 

  • Each party must contribute to the enterprise of the household;
  • The partnership must benefit each party;
  • The aim of the partnership must be to make a profit and there must be a legitimate purpose.[2]

 

 

Conclusion – A Trend Beats the Caution?

 

Cohabitation in South Africa has become more common over the past 10 years and since then, the number of cohabitants increases by almost 100 per cent each year.

 

Cohabitating partners can also choose to have a cohabitation agreement executed in which their respective rights and obligations are stipulated. This allows for upfront discussion of concerns and issues and provides valuable certainty with regard to the consequences of the relationship. However, the document is not binding on third parties and if the relationship does not work out, a division of these joint households will often require expensive litigation, depending on how well the agreements have been drafted.

By Mokgatle R Mokgatle


[1] Ponelat v Schrepfer 2012 (1) SA 206 (SCA)

[2] Pezzuto v Dreyer and Others 1992 (3) SA 379 (A)

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New Bill Prohibiting Foreign Land Ownership In South Africa

Legislation

On 12 February 2015, while delivering his State of the Nation address, Jacob Zuma, the President of the Republic of South Africa declared that land ownership by foreigners will be prohibited. As it stands, just under 8% of land in South Africa is owned by foreigners. This piece of Legislation in its draft form, known as the Regulation of Land Holdings Bill will be submitted to Parliament during the course of 2015[1].

In addition, the Bill sets a ceiling of land ownership that restricts the amount of land that any individual — regardless of nationality — can own to 12,000 hectares. Here, if an individual owns land in excess of 12,000 hectares, the government will purchase and redistribute such land.

There is no White Paper yet on this legislation as the bill has not yet been sent to cabinet for approval and only after this step will there be a process of public consultation.

 

Remarks of South African President

South Africa tightened rules over foreign ownership of its agricultural land amidst concerns that it is losing control of its own food security, slashing the amount beyond which land purchases would require regulatory approval.

“Foreigners will not be allowed to own land in South Africa,” President Jacob Zuma stated. He said they would instead be eligible for long-term leases.

The Presidency said the new Bill will address the problem where highly valued agricultural land has instead been used for luxury and leisure facilities, while environmentally-sensitive land has also been inappropriately developed.

 

Limitation

Under the proposed Bill, “foreign nationals and juristic persons […] as well as juristic persons whose dominant shareholder or controller is a foreign controlled enterprise, entity or interest” will be prohibited from owning agricultural land land and instead only eligible to lease land for periods of between 30 to 50 years. Ownership of residential, commercial and industrial property is not restricted in the Bill.

 

Aims

The aim here is to address injustices of the past by allowing local empowerment and ownership. Furthermore, the new Bill aims to redress the problem of “land injustice of more than 300 years of colonialism and apartheid”[2]

According to the Presidency, the problems that this policy seeks to address include[3]:

1. The need to secure our limited land for food security and address the land injustice of more than 300 years of colonialism and apartheid.

45% of the population (23 million South Africans) live on or below the poverty line. 58% of these poverty stricken people live in    rural areas. Access to a land allotment for households and rural entrepreneurs and enterprises has shown to go a long way in addressing equity and poverty (two parts of the country’s “triple challenges”).

2. Furthermore, in many instances high value agricultural land has had its use changed to luxury and leisure uses and environmentally sensitive lands have also been inappropriately developed;

3. In some parts of the country escalations in prices have been experienced which have made land in these areas inaccessible to citizens;

4. The proposed policy makes provisions for exemptions to access lands in classified areas based on certain conditions, primarily developmental.

 

Initial Response

South African Property Owners Association (SAPOA) are of the opinion that such a Bill will reduce foreign investor confidence in South Africa. This means that there will be a knock-on effect on the South African economy.  General remarks also state that such land reforms will be negative as the policy is discriminatory and will most likely impede foreign direct investment and job creation.

Dr Andrew Golding, chief executive of the Pam Golding Property group, says every time this issue rears its head, it further serves to erode confidence in the country as an investment destination[4] – mainly as a consequence of issues of uncertainty.

 

What to Expect

If this Bill is passed, foreigners may only own land in a business capacity, if the dominant shareholder of an enterprise is controlled from abroad. Furthermore, the Right of First Refusal will apply in favour of another South African citizen in freehold or the State if the land is deemed strategic.

The Bill is not likely to have a retrospective effect so the consequence will either be a run on South African properties before the restrictions are implemented or a disinvestment by foreigners who feel that property prices will decline. The further development of this Legislation is sure to attract much interest and debate. Hildebrand Attorneys specialises in property law amongst others and we suggest you contact us should you require more information.

 

Disclaimer: Although Hildebrand Attorneys is committed to furnishing reliable and accurate information, this article is intended as a general reference guide only and does not constitute legal advice. Hildebrand Attorneys cannot take any responsibility for the accuracy or currency of the information and if you require particular information you are advised to consult with the article’s author or a qualified legal authority. This article may not be reproduced without the express written permission of the author and Hildebrand Attorneys accepts no responsibility for any loss or damage that may be occasioned as a result of the reliance by any person on the information contained herein

 

This article was written by Mokgatle R. Mokgatle, of Hildebrand Attorneys


[1] The Presidency, Publications & Documents, Pretoria

[2] Farrell. G, South African People, News & Views, 2015

[3] The Presidency, Publications & Documents, Pretoria

[4] Limiting foreign ownership of land in SA, Market News, 2015

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Why purchasers should not shy away from the costs of hiring an expert to inspect the property to be acquired

In the recent case of Banda v van der Spuy 2011 JDR 1272 (GSJ), the court was presented with an all too familiar set of facts pertaining to the acquisition of a residential property. The property had a thatch roof which had previously suffered a leak and at the time of concluding the sale agreement, the purchasers failed to conduct an inspection by an expert after noticing certain repair works and instead relied on a statement made by the sellers that they would ensure that the guarantee for the contract work done to the thatch roof in respect of the previous leak would be passed over to them. The sale agreement contained a voetstoots clause which protected the sellers from any claims for latent defects (save for instances where the sellers new of those defects) and after the transfer of the property when the next rain came, the leak resurfaced and the purchasers discovered to their horror that there were in fact structural problems with the thatch roof which required significant costs to remedy. In addition, they had never called for the guarantee and drink show have we given a one-liner from the previous contractor in terms of which the guarantee had already expired and excluded wind and rain damage.

The purchasers then tried to hold the sellers liable on the basis of their alleged knowledge of the defects, alternatively on the basis of their fraudulent/negligent misrepresentation that a guarantee with regard to the structural soundness of the thatch roof was in place and that the defects had been rectified, which allegedly induce them to enter into the contract.

The purchasers failed on both claims as they could not prove on a balance of probabilities that the sellers had knowledge of the defects at the time of concluding the sale agreement (here they relied on the previous contractor, proved to be an unreliable witness) nor that they suffered the damages claimed as a direct result of the fraudulent misrepresentation (the judge did find that fraudulent misrepresentation occurred) inasmuch as they had never called for the guarantee prior to transfer which guarantee did not cover structural work pertaining to the roof. The difficulties in succeeding with such a claim for summarised by the judge as follows:

it is a trite legal principle that absent proof of designed or active concealment of the defects, the voetstoots clause would exclude liability for any latent defects such as those that exist in the present case (see Van der Merwe v Meads, supra, and cases there cited, especially Knight v Trollip, Forsdick v Young and Glastenhouse (Pty) Limited v Inag). I have already found that the defendants as a probability were not aware that the thatch roof suffered from a fundamental structural defect relating to the pitch of the roof and therefore could not have known or foreseen that an inspection of the roof by an expert might lead to the disclosure of the latent defects. The defendants could not have made the misrepresentations relating to the guarantee with the intention of designedly or craftily concealing or preventing the plaintiffs from discovering the existence of the latent defects. The defendants are thus entitled to rely upon the voetstoots clause in order to resist the plaintiffs’ claims”.

 

We therefore urge clients to consider the relatively minor costs of obtaining expert advice when negotiating a sale agreement and to seek the advice of an attorney when formulating the relevant clauses in the sale agreement providing for an inspection by an expert to verify certain facts regard to the property.

 

Disclaimer: Although Hildebrand Attorneys is committed to furnishing reliable and accurate information, this article is intended as a general reference guide only and does not constitute legal advice. Hildebrand Attorneys cannot take any responsibility for the accuracy or currency of the information and if you require particular information you are advised to consult with the article’s author or a qualified legal authority. This article may not be reproduced without the express written permission of the author and Hildebrand Attorneys accept no responsibility for any loss or damage that may be occasioned as a result of the reliance by any person on the information contained herein

 

 

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Security for costs when instituting proceedings in a South African court

In terms of South African common law, a plaintiff who is not resident within the court’s jurisdiction (a “peregrinus”) may be required in the case of a foreign plaintiff, to furnish security for the costs of the local defendant or respondent in opposing the proceedings (also in respect of claims in reconvention or counter-application). This rule is aimed at protecting the South African party from having to recover costs orders it may be granted in the proceedings against the foreign plaintiff abroad. A foreign natural person is generally not required to furnish security were such person has unencumbered immovable property within South Africa.

 

Factors such as hardship to the peregrinus and its financial ability to provide security, the particular circumstances of the case and considerations of equity and fairness to both parties are taken into account by a court in exercising its discretion whether to grant an order for security.

 

Similarly, an insolvent (where the action is vexatious or reckless) or any other person (where the action is considered vexatious) and Close Corporations (in terms of Section 8 of the Close Corporations Act if it appears that there is reason to believe that the corporation or, if it is being wound up, the liquidator thereof, will be unable to pay the costs of the defendant or respondent, or the defendant or respondent in reconvention, if the latter is successful in its defence) can be called upon to furnish security.

 

With regard to South African companies, the position was previously regulated in section 13 of the Companies Act of 1973, which was similar to the current position in respect of close corporations. The new Companies Act of 2008 does, however, not include a similar provision. This issue recently came under the spotlight in the case of Siemens Telecommunications (Pty) Ltd v Datagenics (Pty) Ltd 2013 (1) SA 65 (GNP) where it was held that in the absence of a provision in the Companies Act regulating the provision of security, the common law must be resorted to. According to this judgment, South African companies cannot be called upon to furnish security merely on the basis of their financial position.  This case criticised the decision in Haitas and Others v Port Wild Props 12 (Pty) Ltd 2011 (5) SA 562 (GSJ) where it was held that Section 173 of the Constitution enabled the court in terms of the court’s inherent power to regulate its own processes). The Judge remarked that extending the common law grounds on which security for costs can be granted was equal to creating substantive law and not merely regulating the court’s own processes. The development of the common law pertaining to security for costs was not discussed in the aforesaid case and should preferably be left to the legislature.

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Conducting disciplinary enquiries – when do you not need to counsel an employee for poor work performance and what knowledge can the chairperson have of the dispute prior to the enquiry?

In a recent case [now reported as Boss Logistics v Phopi and Others 2012 (3) SA 409 (LC)], an employer challenged the finding of the CCMA, which held that the employee was unfairly dismissed both procedurally and substantively. The CCMA found that the employee, who was dismissed within his first month at the new company, should have been properly performance managed and given training where necessary and that the chairperson, who had received an e-mail prior to the enquiry detailing the employer’s complaints against the employee, should not have chaired the meeting.

In a review application to the Labour Appeal Court, the ruling of the CCMA was reversed and the court made some important remarks in its judgement on the aspect of poor work performance and the role of a chairperson:

  • Where an employee misrepresents his level of competence, skills and experience, he or she cannot reap the benefit thereof when it comes to poor work performance. An employee cannot demand training and performance counselling or other assistance, if he was placed into a position based on a misrepresentation of his skills and experience.
  • The standard of performance required, depends amongst others “upon the nature of the job and the complexity of, the volume or ambit of the work that had to be mastered, the nature and complexity of the employer’s operations, the qualifications and experience of the employee, the level of stress which is inherent in the position, the extent to which the employee is required to exercise his/her own initiative and the extent of the training or induction that may be required”.
  • The courts will not second-guess the time period which is reasonable to evaluate employees’ performance, except where there are indications that the employer “acted in bad faith or in a manner which was otherwise unfair to the employee”.
  • The “measure of instruction, counselling and guidance which an employer has to provide in order to enable an employee to meet the required standard of performance, is dependent on the level of seniority of the employee, his or her qualifications and experience”.
  • Different standards will apply to a manager or senior employee whose knowledge and experience qualify him or her to judge whether he or she is meeting the employer’s performance requirements. The employer in those cases is not required to draw the employee’s attention to the required standards and explore options how to remedy the situation by means of for example further training.
  • With regard to a chairperson, it is desirable for the chairperson not to have any knowledge of the matter prior to the disciplinary enquiry. If, however there are no grounds creating an apprehension that the chairperson was biased (in the Boss Logistics case, the employee only raised this matter at the CCMA for the first time and not at the disciplinary enquiry), having been influenced by the employer, then the mere sight of an e-mail detailing the employers intentions to have the employee dismissed and the complaints levelled against the employee, is not sufficient to render the disciplinary enquiry procedurally unfair.

Whilst the case is good news to employers, it also highlights that it is imperative to give the employee as little scope as possible to challenge disciplinary actions. In the instant case, the employer had to challenge the CCMA decision, most probably at considerable cost.  The manner in which labour law is applied by the different forums can also very considerable, as the present case shows. Employers, especially smaller employers with fewer managerial staff who could act as chairpersons in a disciplinary enquiry, should be careful when deciding upon the person to chair the disciplinary enquiry and should ensure that the person is not appraised of the facts prior to the disciplinary enquiry. It may be in the best interest of the company to appoint an outsider, such as an attorney or labour consultant to act as the chairperson in those instances and the costs thereby incurred will in most instances be far less than conducting a matter in the CCMA and thereafter in the labour courts.

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The Promotion of Access to Information Act and its impact on private bodies

In terms of section 32 of the Constitution of South Africa, every person is to be afforded the right to access to information held by the State and also by any person which he or she requires in order to enforce or protect rights which that person has:

  1. Everyone has the right of access to ­

a) any information held by the state; and

b) any information that is held by another person and that is required for the exercise or protection of any rights.

2. National legislation must be enacted to give effect to this right, and may provide for reasonable measures to alleviate the administrative and financial burden on the state.

Since the Constitution does not only apply vertically, i.e. regulating the relationship between the State and its subjects, but also horizontally, i.e. regulating the relationships between private persons, the South African legislature had to enact legislation that provides for both categories of rights. This was achieved with the Promotion of Access to Information Act 2 of 2000 (“the Act”), which prescribed how access to information held by public bodies and private bodies must be obtained and sets out the procedure for addressing a request for access to information and for challenging any decision made in response to such request.

Objective of the Act

The Act tries to promote a culture of transparency and accountability, as opposed to the culture of secrecy and unresponsiveness which prevailed during the apartheid era and facilitated the abuse of power and consequent human rights violations. The Act acknowledges that not only vis a vis the State but also in the relationships between private parties, an imbalance of power can lead to the development of such a culture and accordingly also requires private bodies to comply with the terms of the Act.

The Act also required that a guide how to exercise the right to access to information be compiled by the South African Human Rights Commission (“SAHRC”) so that each South African is able to understand how the Act works and how to go about requesting information. This guide has since been published in all 11 languages and is available from the SAHRC’s website, www.sahrc.org.za.

Definition of private bodies

In order to assist private bodies in complying with the terms of the Act, its applicability to private bodies was suspended until 31 December 2011. From then onwards, each private body, where a private body is defined as:

(a) a natural person who carries or has carried on any trade, business or profession, but only in such capacity;

(b)   a partnership which carries or has carried on any trade, business or profession;

(c)    a former or existing juristic person,

but excludes a public body

must compile and register a manual about how and to whom a request for access must be submitted in compliance with section 51 of the Act. There is a voluntary disclosure provision in the act in terms of which are private body may notify the Minister of categories of documents which are automatically available without having to comply with the procedures of the Act. Whether private bodies will in fact make use of this provision seems doubtful in view of the compliance costs associated with the identification of the records and possible disputes regarding the classification of a specific record in practice . A request for information has to be processed within 30 days of receipt [in certain circumstances this period can be extended].

Private bodies have to comply with the provisions of the act with regard to manuals until 31 December 2011 (unless this deadline is further extended – such extension is currently being considered – or the private body is not yet 6 months old). The significance of the Act and its wide scope seem to have been underestimated by many and it will have to be seen whether the Human Rights Commission, which is tasked with enforcing the terms of the act and havin to report to parliament regarding the amount of requests received by public bodies and any court applications brought in connection therewith, will be able to fulfil its mandate. To date no fines or penalties have been imposed against any public or private body it would appear from the SAHRC’s website.

The head of the private body will be the person responsible for the compliance with the Act:

Type of entity Natural person (sole trader) Partnership Juristic entity
Head The natural person (Proprietor) or person authorised by natural person Any partner or person authorised by partnership CEO or equivalent, or person authorised by that officer, or acting CEO or equivalent, if applicable

Limitations on applicability

The Act applies to all information whether in existence before or after the commencement of the Act but does not apply to a record of:

  • Cabinet and its committees;
  • the judicial functions of courts, special tribunals, investigating units and judicial officers of such courts or tribunals ;
  • an individual member of Parliament or of a provincial legislature in that capacity.

The Act also does not apply to records which are [1] required for civil or criminal proceedings, [2] which have commenced at the relevant time, and [3] where there is other law governing the production or access to such records, such as for example during the discovery stage of a litigation (exchange of documents relevant to the issues to be canvassed at the civil proceedings).

Exceptions when to refuse access

The private body must (in certain circumstances may) refuse to grant access to the relevant records if:

  • the records have been lost or cannot be found, which facts have to be confirmed by affidavit;
  • the records have been provided by a health practitioner in his/her capacity as such and the disclosure to the requester of such records may cause serious mental or physical harm for such person [in the opinion of a health practitioner nominated by the requester or his/her guardian and consulted by the head] without first consulting with such health practitioner or the requester is under the age of 16 or incapable of managing his/her own affairs;
  • the record contains personal information, which is not already publicly available, about a third party, including a deceased individual, who has not consented to its disclosure (expressly or by consenting at the time prior to furnishing the information to the private body that the private body could make the information publicly available) and if it would be unreasonable to disclose same, unless
    • the information relates to the mental and/or physical health or well-being of a minor person or person incapable of managing his/her own affairs under the care of the requester and if it is in the best interest of that person for the record to be disclosed;
    • the information relates to certain aspects of the the employment history of the individual concerned pertaining to his position or functions;
    • the requester is the next of kin of the deceased or the representative of such next of kin;
  • the record contains trade secrets of a third party or financial, commercial, scientific or technical information other than trade secrets, the disclosure of which would be likely to cause harm to the commercial or financial interests of that third party or information supplied in confidence which would put that third party at a disadvantage contractually or in negotiations or in commercial competition, unless:
    • the third party concerned has consented;
    • the information is about the results of environmental or product testing (excluding preliminary testing or investigations), the disclosure of which would reveal a serious public safety or environmental risk;
  • the record contains the above information regarding the commercial or financial interests of the private body itself or is a computer program defined in section 1(1) of the Copyright Act owned by the private body, unless the information is about the results of environmental or product testing (excluding preliminary testing or investigations), the disclosure of which would reveal a serious public safety or environmental risk;
  • the disclosure would give rise to an action for breach of a duty of confidence contractually owed to the third party;
  • the disclosure would reasonably be expected to endanger the life or physical safety of an individual or prejudice or impair the security of a building, structure or system, such as a computer or communication system, or a transport mode or other property or plan, procedure or method such as the witness protection scheme or the safety of the public;
  • the record is privileged from production in legal proceedings, unless the privilege has been waived by the relevant person;
  • the information relates to research conducted by a third party, the disclosure of which would put the third party, the person conducting the research or the subject matter of the research at a serious disadvantage;
  • the information relates to the serious disadvantage referred to above in connection with the disclosure of information about research conducted by the private body itself.

Notwithstanding the above exceptions, a record must be disclosed if disclosure of the record would reveal evidence of:

  • a substantial contravention of, or failure to comply with, the law; or
  • imminent and serious public safety or environmental risk; and

the public interest in the disclosure of the record clearly outweighs the harm contemplated in the provision in question.

From the above, it is clear that a private body must be careful when furnishing a requester with information and the provisions of the Act need to be studied in detail. A simple example of a request for a reference may trigger the operation of the above clauses and it will be advisable to ensure that the employment contracts of employees provide for the employer to furnish such references.

Notice to third parties and application to court by aggrieved persons

The Act prescribes how third parties have to be informed of a request in order to make representations. Notice of the request must be given to the third party within 21 days of receipt thereof and the representations or consent has to be given within 21 days thereafter. Within 30 days of informing all relevant third parties, the head of the private body must make a decision regarding the access request giving due regard to the representations received. The decision can only be implemented after the expiry of a further 30 days to allow the third parties or the requester, as the case may be, to bring an application to court to challenge the decision to grant or refuse access. Such application has to be made within a further 30 days.

Fees

The fees with regard to compliance with a request in terms of the Act have been prescribed in the Regulations to the Act and range from R 0.75 per printed A4 page to R 70.00 for each compact disc (all amounts exclusive of VAT). An administrative processing fee of R 50.00 per request is also allowed and a deposit can be demanded should the estimated amount of time involved in searching for the records exceed six hours. The private body can insist on payment of the request fees in advance (1/3 thereof) and demand a deposit regarding the fees for searching for and preparing the records (if these are likely to exceed six hours) but the person requesting access to information may apply to court against the imposition of such deposit or advance payment of the request fees. No request fees or fees in respect of the time to seach for the records are chargeable if the requester seeks record containing personal information concerning himself.

Disclaimer: Although Hildebrand Attorneys is committed to furnishing reliable and accurate information, this article is intended as a general reference guide only and does not constitute legal advice. Hildebrand Attorneys cannot take any responsibility for the accuracy or currency of the information and if you require particular information you are advised to consult with the article’s author or a qualified legal authority. This article may not be reproduced without the express written permission of the author and Hildebrand Attorneys accepts no responsibility for any loss or damage that may be occasioned as a result of the reliance by any person on the information contained herein

 

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Purchasers beware when acquiring a business without advertising the sale

When a natural or juristic person sells assets comprising a business or a substantial part of that person’s business, Section 34 of the Insolvency Act renders such sale void as against any creditor of that person if the sale is not advertised as prescribed in such section in the Government Gazette and 2 English and Afrikaans newspapers.

In practice, especially when transactions need to take place quickly, the parties often elect not to advertise the sale in terms of the Insolvency Act and instead accept warranties regarding possible claims against the Seller. The recent Supreme Court of Appeal case of Gainsford NO and 2 others v Tiffski Property Investments and 5 others [Gavin Cecil Gainsford NO v Tiffski Property Investments (Pty) Ltd (874/2010) [2011] ZASCA 187 (30 September 2011)] highlights the dangers of concluding a transaction in this manner.

Briefly in that case, the Seller sold a property with improvements, from which a ski resort was conducted. After the registration of transfer but within six months of the sale of the property, the Seller was liquidated and the liquidators then decided to set aside the sale as void for non-compliance with Section 34 of the Insolvency Act. At the time, a mortgage bond had already been registered over the property by an international bank, which tried in vain to oppose the liquidators’ application.

The High Court dismissed the application by the liquidators to declare the sale void but an appeal to the Supreme Court of Appeal upheld the liquidators’ contentions that:

  • the sale was not in the ordinary course of business;
  • the seller was indeed a trader as defined in the Insolvency Act;
  • the sale took place within six months of the Seller becoming insolvent;
  • the provisions of the Insolvency Act could not be qualified by any constitutional protection which the bank contended it enjoyed pursuant to the registration of the bond over the property.

Even the mortgage bonds registered by the bank over the property were held to be void, the bank having been involved in the negotiations pursuant to which the sale agreement was concluded.

The only remedy, which a purchaser would normally have in these circumstances, is to pay the creditor and then, via the liquidators, to try and recover from the former directors of the Seller who have misappropriated funds. Where the Seller is insolvent, however, this recovery will be a long process. The liquidator, once appointed, would have to investigate the circumstances of the insolvency and then institute proceedings against former directors. Should the company not have enough funds to finance the litigation and necessary enquiries, the purchaser and any other interested creditor of the insolvent would have to make funds available before these proceedings can even be instituted.

The case of Tiffski Property Investment should therefore be a lesson to those who think that compliance with Section 34 of the Insolvency Act is not worth the effort.

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The new Consumer Protection Act: An Overview (Part 3)

This is the last part of the series on the Consumer Protection Act, covering in particular sections 48 to 79.

 

Contract terms

The CPA contains wide-ranging prescriptions aimed at eliminating unfair, unreasonable or unjust contract provisions and ensuring that special notice is given to the consumer in respect of various terms which may appear to be unusual or disadvantageous to the consumer. Sections 48 and 49 of the CPA will prevent suppliers from limiting their liability or obtaining indemnification against claims from the consumer. While these restrictions even the playing fields, it may ultimately lead to increased transaction costs for the consumer since the supplier will have to factor in higher provisions for possible returns and insurance costs when determining its prices. The supplier may also not include anything in its standard terms and conditions which purports to limit or circumvent the applicability of the CPA.

Right to demand quality

Another prominent feature of the CPA is the protection of the consumer’s right to demand quality services and goods contained. The supplier must be careful to listen to the consumer’s individual requirements and the purpose for which the consumer intends to use the goods or services before concluding the sale and should ensure that such special considerations are recorded since they form a basis on which the consumer may return the goods in question. Included in such goods are also second-hand goods and the supplier of such goods will need to ensure that a proper inspection of such goods is done prior to selling same. The CPA in effect extends the common-law implied warranty against defects to importers, distributors and retailers and provides for the consumer to return any goods within six months after delivery, without penalty and at the supplier’s risk and expense. The supplier must then either, at the direction of the consumer, repair or replace the goods or refund (to the consumer) the purchase price. Section 57 provides the consumer with a warranty on any repaired part for a period of at least three months after the date of installation, ordinary wear and tear excluded.

Disposal of waste

Where the goods or any part thereof are prohibited from being put into the normal waste collection, the supplier of goods must accept return of those goods or parts thereof.

Product liability

The producer, importer, distributor or retailer of any goods is liable for any harm caused wholly or in part as a consequence of supplying any unsafe good or goods with defects or hazards or insufficient instructions, unless the unsafe product characteristic, failure, defect or hazard:

  • is wholly attributable to compliance with any public regulation;
  • did not exist in the relevant good at the time of its supply;
  • (in the case of a retailer or distributor) could not have been expected to have been discovered;
  • is wholly attributable to compliance with instructions provided by the person who supplied the goods;
  • can no longer be pursued due to prescription.

The consumer’s recourse

The consumer may not be penalised by the supplier should the former exercise any rights in terms of the CPA and the consumer has various options of raising disputes, such as with the consumer tribunal, the consumer court, the applicable ombud with jurisdiction, an industry ombud, an alternative dispute resolution agent and with the consumer commission. Certain of the aforementioned institutions can in turn refer complaints to each other and provisions are even made for special damages in some instances. The CPA also allows for accredited consumer protection groups to protect the interests of the consumer or to intervene in a matter before any forum contemplated in the CPA. How these institutions will interpret the CPA and give effect to its provisions still has to be seen and the attorney profession is eagerly awaiting the first precedents in order to give guidance with regard to the conduct of the proceedings and the applicable standards which Consumers can expect and suppliers need to guarantee.

Business names

A supplier’s choice of business name is limited to the person’s full name as recorded in an identity document or such name as may have been registered in terms of a public regulation or has been filed with the Registrar of Companies. Any non-compliance with this section could lead to a compliance notice being issued against the business at the instance of the tribunal. Non-compliance with such notice may result in an administrative fine being levied or a referral to the National Prosecution Authority.

Disclaimer: Although Hildebrand Attorneys is committed to furnishing reliable and accurate information, this article is intended as a general reference guide only and does not constitute legal advice. Hildebrand Attorneys cannot take any responsibility for the accuracy or currency of the information and if you require particular information you are advised to consult with the article’s author or a qualified legal authority. This article may not be reproduced without the express written permission of the author and Hildebrand Attorneys accepts no responsibility for any loss or damage that may be occasioned as a result of the reliance by any person on the information contained herein

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The new Consumer Protection Act: An Overview (Part 2)

This is part 2 of the series on the new consumer protection act and deals primarily with sections 20 to 47.

 

Unsolicited goods

The CPA also deals with unsolicited goods and services (caution: any excess goods supplied other than the quantity specifically agreed upon also fall under this category). The consumer must, however, not frustrate or prevent the supplier from recovering the goods and the consumer will only be liable in respect of any intentional interference with the goods and, if applicable, any costs incurred by the supplier due to such conduct by the consumer. The CPA states that the unsolicited goods pass to the person lawfully holding the goods, subject only to the rights of any uninvolved third-party which may have a valid claim to those goods. Unfortunately, the CPA does not provide a timeframe for when the consumer becomes the owner of the unsolicited goods but this section should serve as a warning to any supplier not to distribute any unsolicited goods.

 

Prices, product description and marketing

Suppliers also need to be careful when advertising prices to ensure that these are correct since they may otherwise be bound by an incorrect price unless the latter contains an inadvertent and obvious error.

The CPA further deals with product labelling and imposes obligations on retailers not to offer to supply, display or supplying particular goods if the retailer knows or reasonably could determine or has reason to suspect that the trade description applied to those goods is likely to mislead the consumer. This section together with a section dealing with general standards for marketing may have significant consequences for suppliers of products with questionable health benefits. It may therefore no longer be permissible to advertise a benefit of a product or service which in fact cannot be backed up by evidence. The CPA aims to discourage false, misleading or deceptive representations by word or conduct, made to the consumer concerning a fact material to the consumer, which render the supplier liable to a penalty or even an administrative fine of up to         R 1,000,000 or 10% of the annual turnover during the preceding financial year, whichever is the lesser.

Disclosure by intermediaries

The CPA imposes obligations on “intermediaries” (persons or entities who/which are not the direct providers of the goods and services but use others to provide such goods and services under their own name, such as for example insurance brokers) to disclose prescribed information regarding any service to be performed by a third-party or any goods or property belonging to a third party. Such prescribed information, for example relates to commission to be earned by the intermediary and personal information of the intermediary. Intermediaries are also required to keep records of such prescribed information.

Specific transactions

The CPA has specific sections dealing with catalogue marketing, trade promotions and customer loyalty programs, work from home schemes, referral selling, franchises, pyramid schemes, auctions (limited to inter alia the advertisements and procedures to be followed), lay-bys, prepaid certificates and gift vouchers and prepaid services such as periodic membership fees or amounts paid in advance for services to be rendered more than 25 business days after payment is made.

Overselling and overbooking

With regard to overselling and overbooking, the CPA requires interest to be paid in addition to a full refund and compensation for costs directly incidental to the supplier’s breach of the contract, unless the supplier can offer to supply or procure another person to supply the consumer with comparable goods or services or the inability to supply results from factors which are beyond the supplier’s control. This section will be of particular relevance for airlines one can imagine.

Disclaimer: Although Hildebrand Attorneys is committed to furnishing reliable and accurate information, this article is intended as a general reference guide only and does not constitute legal advice. Hildebrand Attorneys cannot take any responsibility for the accuracy or currency of the information and if you require particular information you are advised to consult with the article’s author or a qualified legal authority. This article may not be reproduced without the express written permission of the author and Hildebrand Attorneys accepts no responsibility for any loss or damage that may be occasioned as a result of the reliance by any person on the information contained herein

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An Overview of the new Consumer Protection Act

The Act

The Consumer Protection Act (“CPA”) came into effect on 1 April 2011 and consists of 122 sections (amounting to 93 pages, including schedules) together with the Regulations to the CPA containing a further 44 sections (amounting to 85 pages, including annexures). The CPA is probably one of the most important pieces of legislation recently enacted and changes the playing fields between consumers and suppliers considerably. Yet, the legislation is cumbersome and not “consumer-friendly” when attempting to familiarise oneself with the provisions. The CPA will profoundly change the content and format of a supplier’s terms and conditions and all suppliers are strongly advised to ensure that their standard terms and conditions comply with the CPA.

This is a series of articles on the Consumer Protection Act, covering the CPA more or less in accordance with the sequence of the relevant sections. The first article will deal primarily with Sections 1 – 19.

Application of the Act

The CPA applies to most transactions performed in the ordinary course of business (therefore, transactions that are for example excluded would be a private sale of a motor vehicle or used household goods) where the goods and services are offered for a consideration (monetary or in return for labour, although not in an employment context, barter, other goods or services, coupons or loyalty credits or any other value given and accepted in exchange for the goods or services).

The CPA does not apply to inter alia the following transactions:

  • where the consumer is a juristic person with a turnover or asset value of more than R 2,000,000.00 per year;
  • where the State is the supplier;
  • where the provision of goods and services has been exempted by the Minister of Trade and Industry;
  • where the transaction is a credit agreement which falls under the National Credit Act (although the CPA still applies to the goods or services that are subject to the credit agreement);
  • where the goods and services are subject to an employment relationship or are governed by a collective agreement.

 The CPA will only apply to insurance contracts as from 1 October 2012.

Discriminatory and unsolicited marketing

The CPA protects the consumer against discriminatory marketing and unwanted direct marketing. For example, the consumer can enter his details in a registry, serving as a pre-emptive block either generally or for specific purposes against any communication that is primarily for the purpose of direct marketing. This registry has, however, not yet been established.

Cancellation of Fixed term contracts and penalties

Fixed term contracts, such as for example cellphone contracts, can now in be cancelled by giving the supplier 20 business days’ notice in writing (or other recorded manner or form). The supplier is entitled to impose a reasonable cancellation penalty although it appears that the reasonableness of such penalty will have to be in line with the CPA (it has to be seen how this provision will be interpreted by the consumer tribunal but guidance may be available from how the CPA deals with charges which a supplier may impose on the return of goods before the consumer is refunded with the purchase price). This cancellation option does not, however, apply to transactions between juristic persons regardless of their annual turnover or asset value. The fixed term contracts should generally be no more than two years as set out in the Regulations to the CPA.

Repairs

Repairs above Rand 1.00, where the service provider has or takes possession of the consumer’s property for purposes of effecting the repairs or where the consumer specifically requests an estimate before any services or goods are supplied, must be pre-authorised by the consumer. The consumer needs to be informed of an estimate, unless the consumer in writing or in another recorded manner declines to receive an estimate or pre-authorises any charges subject to a maximum amount and the charge does not exceed that maximum. No costs for the preparation of an estimate can be charged, unless the price of such estimate has been disclosed to and approved by the consumer. Should the costs for such goods or services exceed the estimate, such additional charges will only be recovered if the consumer was informed of the additional estimated charges and the consumer has authorised the supplier to continue with the repairs.

Cooling off period and cancellation of advance bookings and orders

In the case where goods are directly marketed to the consumer, a cooling off period of five business days applies without the supplier being able to charge a reasonable penalty. The cancellation option also applies to advance bookings or orders but the supplier may impose a reasonable cancellation charge. Such charge would have to be reasonable with reference to the nature of the goods or services reserved the length of the notice of cancellation and the potential of finding an alternative consumer and any applicable general practice of the relevant industry.

Examination of goods and delivery dates and times

The consumer is also entitled to examine the goods upon delivery to the extent possible and if the location, date or time of the delivery of the goods or performance of any service differ from what has been agreed with the consumer, the consumer may either accept delivery, require delivery to be performed in terms of the agreed framework or cancel the agreement without penalty (this section is, however, not applicable to franchise agreements). Suppliers are cautioned to ensure that any changes in the proposed date, time and place of delivery are confirmed in writing with the consumer and that in the case of delays experienced, such delays are communicated timeously and that new timeframes are agreed upon.

The risk in the goods also only pass to the consumer once the latter has accepted delivery.

Disclaimer: Although Hildebrand Attorneys is committed to furnishing reliable and accurate information, this article is intended as a general reference guide only and does not constitute legal advice. Hildebrand Attorneys cannot take any responsibility for the accuracy or currency of the information and if you require particular information you are advised to consult with the article’s author or a qualified legal authority. This article may not be reproduced without the express written permission of the author and Hildebrand Attorneys accepts no responsibility for any loss or damage that may be occasioned as a result of the reliance by any person on the information contained herein

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