Archives: General Interests & News Flashes

So, you need to clear your name?

Imagine having default judgment (a Court ruling entered against party X, due to failure to defend a claim that was initiated by party Y) entered against your name as a result of a summons that you did not even receive. Imagine your application for credit being rejected as a result of a judgment against your name. Situations like these are unfortunately more common than one thinks. We have been dealing with a number of these cases lately, so we thought we would explain a little of the background to this and how to try and solve it.

Essentially, a default judgment is attached to your name when a Court makes a finding that you are liable for a debt, either if you do not defend the claim or during a case if you fail to act in accordance with the Court Rules. Credit bureaux then register these judgments and log it to your specific credit profile, in effect blacklisting you. South African law does however allow you to approach the Court and request that the judgment be removed. This is done by way of an application for Rescission of Judgment.

There are three grounds on which one may rescind a judgment in the Magistrates Court:

• If you have a defence to the claim that you did not raise (because, for example you did not receive the Summons). In these cases, you need to apply for the judgment to be rescinded within twenty (20) days of finding out about it;
• If the judgment debt has been paid within a reasonable time (of finding out about the judgment);
• If the judgment creditor (person/company who obtained the judgment) gives his/her consent to the rescission.

Less common is when judgment is obtained against you in the High Court. Unfortunately, in this case, only option 1 above will apply. The removal of a High Court judgment is not an automatic right even when you have settled the debt or the judgment creditor consented to such removal. If you do not bring an application to remove the judgment, it will appear on your credit profile for a mandatory period of five (5) years (as per the National Credit Act).

When a Court decides whether or not to grant a rescission it is likely to look at several factors including:

• Whether you applied for Rescission of Judgment within twenty (20) days of finding out about the judgment (and if not, whether there was an excuse for the delay);
• Whether you have paid the debt;
• Whether the judgment creditor (person/company who obtained the judgment) has consented to the rescission;
• Whether you were in wilful default i.e. you received the Summons but ignored it or whether you never received the Summons in the first place;
• Whether the judgment was granted by default (a ruling entered against party X, due to failure to defend a claim that was initiated by party Y) or after trial (in which case it will not be listed by the credit bureau).

It is imperative to understand that merely applying for Rescission of Judgment will not always result in it being granted. Should your rescission be granted, remember to inform the various credit bureaux in order for them to remove the judgment from your credit profile.

Storm Barry
Candidate Attorney
Miltons Matsemela
May 2019

The Law Society of South Africa (LSSA) recently published new Conveyancing Fees Guidelines which apply to instructions received as from 1 June 2019.

Click here to view the new schedule: Conveyancing Fees Guidelines 1 June 2019

“When the [property owners] chose to purchase property within the estate and become members of the Association, they agreed to be bound by its rules” (extract from judgment below)

Buying property in security estates and other community schemes comes with a range of benefits, but it’s important to be aware of all the rules and regulations you are agreeing to – our courts will almost always hold you to them!

For example, Home Owners Associations and Bodies Corporate will welcome a recent Supreme Court of Appeal decision upholding the rights of a golf estate to impose a 40km/h speed limit (and penalties for breaching it) on all homeowners, tenants and guests using estate roads.

We discuss the facts of the case (which involved speeding fines totalling R3,000 imposed on a homeowner’s daughter), its outcome, and the basis of the Court’s decision.

There are many advantages to buying in a security estate or other community scheme, including quality of life and increased potential for growth in your property’s value.

As a buyer just be aware that you will almost certainly be binding yourself to a set of rules and regulations imposed by the Homeowners Association (HOA) or Sectional Title Body Corporate. Check that you are happy with them before you sign anything! Our courts have regularly confirmed the general principle that you are bound by what you agree to, and a recent high-profile Supreme Court of Appeal (SCA) decision provides an interesting example.

HOAs and Bodies Corporate on the other hand will be particularly pleased with the outcome, the High Court having originally held that the speed limit rules imposed by the estate in question were an unlawful attempt to usurp State powers over public roads and therefore invalid.

Speeding fines in a golf estate

• A large golf estate (comprising some 890 freehold and sectional title properties with extensive common areas and facilities) is serviced by a network of roads and pathways. It has imposed a speed limit of 40km/h on its roads, with penalties for speeding.
• A property owner was fined R3,000 for his daughter’s repeated speeding contraventions, but he refused to pay, and the dispute has since then been grinding its way through the courts.
• The High Court originally held the speed limit rule to be invalid on the grounds that the estate’s roads were “public roads”.
• But the SCA overturned this ruling, holding that the estate is a “private township” and its roads are (and were from inception) “private roads”. The “general public” has no right to access the estate’s roads, admission being restricted by electrified perimeter fencing and strict control at gated access points to owners, tenants, employees, guests, invitees and other “duly authorised persons”.
• Even if the roads had been “public”, said the Court, owners had voluntarily agreed to bind themselves contractually to use the estate’s roads subject to the conduct rules. And because invitees are only allowed into the estate with the owner’s prior consent, the rule making the owner responsible for any breach by them of the rules is valid.
• Moreover, the estate’s imposition of a speed limit is not unreasonable, especially given the presence of children, pedestrians and animals (wild and domestic) in the estate.

The end result – the estate’s speed limit is valid, it is entitled to impose penalties for breaches, and the owner must pay his daughter’s speeding fines together with some (no doubt substantial) legal costs.

“Animosity and difference of opinion are not sufficient to have a trustee removed from office and/or for the majority of trustees to unilaterally force another to vacate his/her office…” (Extract from judgment below)

What happens when a trust’s trustees fall out and go to war with each other? If a polite request to the minority trustee to resign bears no fruit, can the majority forcibly remove him or her? And if so, must they have good reason to do so?

First question of course is what the founding trust deed provides for such a situation, but a recent High Court decision lays additional ground rules for trustees that anyone involved in a trust (in any capacity) should know about.

The case saw a mother facing off against three professionals (two auditors and an attorney) and the latter’s attempt to replace the mother with another trustee ran into troubled waters.

When family infighting impacts a family trust, an early casualty is often the relationship between the appointed trustees and beneficiaries, and/or between the trustees themselves.

And if that results in irreconcilable differences and conflict between the trustees, the only answer may be for one or more of the trustees to be replaced. First prize of course will always be to achieve this with a voluntary resignation – but what happens if a trustee refuses to resign? Can the majority forcibly remove him/her?

A recent High Court decision dealt with just that question.

3 professionals v the beneficiary’s mother

• A “valuable property” in Knysna is owned by a trust created for the benefit of a couple’s daughter (11 years old at the time, now 30). There are four trustees appointed by the Master of the High Court (“the Master”) issuing “letters of authority” to two auditors and an attorney (“the professionals”), and to the beneficiary’s mother. The father farms the property through a company and a close corporation. Although no family feud is specifically mentioned in the judgment, it seems clear that the father is in one camp, and the mother and daughter in the other.
• The trust deed contained this clause – “The office of a TRUSTEE shall be vacated if …. the majority of TRUSTEES request a TRUSTEE to resign.”
• The trustees fell out in a dispute over the father’s loan account, with the professionals proposing that the trust should pay the father interest on his loan, and the mother objecting on the basis that payment of interest had never been agreed to.
• This was discussed in a telephonic trustees’ meeting, and resulted in the professionals writing to the mother to say she was removed as trustee for three reasons – “1) all items discussed were either rejected or opposed; 2) she made false allegations against the applicants and 3) she admitted that she did not have sufficient knowledge to fulfil her duties as trustee”. The Master then pointed out to the professionals that they could not resolve to remove the mother, only to request her to resign. They did so in a second letter to the mother.
• The mother refused to resign and the professionals asked the High Court to order that the mother “has lost her office as trustee”. Their attitude was that they were acting in terms of the trust deed, no reasons for the decision had to be given, and the Master had no option but to issue new letters of authority.
• The clause itself might seem pretty clear, the professionals clearly believed that they were acting entirely within their mandate and they presumably commenced their litigation with high hopes of success. But it was not to be…
• The Court, for the reasons we discuss below, held for the mother, who accordingly remains a trustee.

Ambiguity, showing good cause, and ubuntu

The Court’s reasons for its decision contain some important principles that anyone involved in a trust would do well to take note of (with some thoughts on how to deal with each issue in brackets) –

• The trust’s removal clause, held the Court, was ambiguous when it provided that a request (involving a choice) for resignation shall (peremptory – no choice) lead to vacation of office. The clause, said the Court, “must be interpreted to read that there must be good cause for such a request and that the trustee shall vacate his/her office only in the event of an acceptance of the request”. (Make sure the trust deed is clear and unambiguous).
• Secondly, an implied term should be read into the clause requiring good cause to be shown – to allow trustees to remove another without producing reasons “would be against public policy and the principles of ubuntu, reasonableness and fairness”. (Make sure you can show fairness and good cause for decisions).
• Thirdly, the professionals had failed to prove any justification for their action. They could not rely on the clause without giving reasons for their decision and proving that they took their decision “based on the discretion of a good person acting reasonably”. (Make sure you can justify your actions as reasonable).
• Fourthly, the resolution to request the mother’s resignation “should have been taken on a properly constituted trustees’ meeting and upon proper notice of their intention”. Instead, they took decisions “secretly and without notifying [the mother] in advance. They also “failed to give proper notice in compliance with the provisions of the Trust Act.” (Comply with all procedural formalities).
• Finally, said the Court, there was no deadlock between the trustees – “Decisions in the interests of the trust and trust beneficiary can be taken by the majority of trustees during a properly convened meeting on condition that sufficient notice of all matters to be considered is given. It is not necessary to remove the first respondent in order to conduct the business of the trust in a lawful manner.” (Be sure that removal is actually necessary).

“It is the duty of an employee when rendering his or her services always to act exclusively in the interest of the employer … an employee is not entitled to use his or her employment relationship with the employer without the employer’s permission to make a profit or earn commission for his or her own account” (Extracts from judgment below)

Employers, ever mindful of the comprehensive legal rights and protections provided to employees by our labour laws, need to know that on the other side of the coin they too have rights, and that our courts will come to their aid where employee misconduct causes them loss.

We discuss your employees’ obligations to you in the context of a recent High Court case involving a trustee employee who, over a four year period, ran a R33m scheme to enrich himself at his employer’s expense.

The Court set out what you must prove to force an employee to “disgorge” secret profits, and in order to claim damages. Read on for the details…

Employees have very strong rights in our law, but employers also have effective remedies when employees “go rogue”.

A recent case, in which an employee was ordered to repay his employer R33m in “secret profits” including R9m in damages, provides a good example.

Diverted sales opportunities and secret profits

• A manufacturer employed a “Key Accounts Manager” as its agent in dealing with customers. He was trusted with an “almost unlimited discretion” and minimal management oversight to act in his employer’s interests.
• His employer sued him in the High Court on allegations that he breached both his employment contract and his duty to his employer, firstly by selling product to customers at below-minimum prices, and secondly by selling through his own companies to secretly profit thereby.
• The employee’s denials of wrongdoing cut no ice with the Court, which held that he “was clearly under a general obligation to do his best for his employer and to conduct the plaintiff’s business in good faith and for its benefit” but “was in breach of his fundamental obligation of loyalty and good faith which he owed to … his employer”.
• The secret profits claim. Ordering the employee to “disgorge” his secret profits of R33,291,599.24 (less any “amounts paid in making such profits” which the employee is able to prove), the Court held that the employer had proved the three elements needed to succeed in such a claim –
  • The employee owed it a “fiduciary obligation” (a duty to act honestly and in utmost good faith),
  • In breach of that obligation he placed himself in a position where his duty and his personal interest were in conflict, and
  • He made a secret profit out of corporate opportunities belonging to the employer.
• The damages claim was for losses on product sold to customers at prices well below the employer’s base price “in order to further [the employee’s] secret profit-making activities.” Finding that but for the employee’s wrongdoing the customers would have bought product at no less than the base price, the Court awarded the employer R9,407,651.05 in damages (to be allocated, when paid, to the R33m claim).

Rubbing salt in…

To really rub salt into the employee’s wounds, he was ordered to pay costs, and the bill will be a big one, including –

• Costs on the punitive “attorney and client” scale, an appropriate order said the Court “given the secret and unlawful nature of the scheme which the defendant ran for four years at the expense of his employer”,
• The cost of audio visual equipment used in the trial, and
• The (no doubt substantial) travel and subsistence costs of both the employer’s legal team and its six witnesses, all of whom travelled from Gauteng to Cape Town for the trial.