Cluver Markotter welcomes its latest appointees

CM_nuwe_aanstelling

F.l.t.r. Marnes de Wet, Sherine Roberts, Retha Oosthuizen, Marike Koen, Brendon Hess and Herna Beviss-Challinor

Cluver Markotter Incorporated made several new appointments this year and is excited to share it with our clients, friends and colleagues.

Marike Koen and Brendon Hess were appointed as directors. Marike (BA LLB) and Brendon (B. Comm. LLB) studied at Stellenbosch University. Their careers at Cluver Markotter commenced as candidate attorneys in 2012 and 2011 respectively. Marike and Brendon practises in the firm’s Litigation Department. Brendon’s practice focuses on commercial litigation, which includes contractual and delictual dispute resolution, Local Government litigation and matters relating to consumer protection legislation. Marike specialises in general commercial litigation (including liquidations and sequestrations) and family law litigation (including children’s law and maintenance matters), in both Magistrates’ and High Courts.

Sherine Roberts joined the firm as Senior Associate on 1 May 2016. She received her LLB degree from University of the Western Cape in 2004. Sherine joins the firm’s Conveyancing Department where she will practice as a conveyancer and notary.

As mentioned in our March newsletter Retha Oosthuizen, Herna Beviss-Challinor and Marnes de Wet were appointed as associates earlier this year.

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Shareholder claim for diminution of share value

Retha Oosthuizen

Does a shareholder in a company have a claim against a director or third party who committed a wrong against the company and so caused a diminution of the value of shares in the company? This was in issue in Itzikowitz v Absa Bank Ltd (20729/2014) [2016] ZASCA 43 (31 March 2016).

The scenario was the following: Mr Gary Itzikowitz is the sole shareholder of Compass Projects (Pty) Ltd (Compass). Compass, in turn, holds 17.29 per cent of the shares in a public company, Quantum Properties Group Limited (QPG). QPG held 100 per cent of the shares in A Million UP (Pty) Ltd (AMU), a property development company. Compass had a loan account in AMU from which it is owed R5 292 442. Absa was the banker to AMU and QPG and had extended loan facilities to AMU. After June 2010, Absa increased the loan facilities to AMU to over R500 million. Two years later AMU was hopelessly insolvent and Absa obtained a final court order for its liquidation in August 2012. Absa subsequently sued Mr Itzikowitz for R20 million, on the basis of a suretyship signed by him in 2008, binding himself ‘as a surety and co-principal debtor jointly and severally’ together with AMU in favour of Absa. The suretyship was limited to a maximum of R20 million plus accrued interest and costs.

A diagram of the scenario:

Cluver_Marketing

In response to Absa’s claim Mr Itzikowitz filed two counterclaims. He alleged that AMU’s demise was a result of intentional, reckless or negligent conduct by Absa in: (a) advancing funds to AMU when there was no reasonable prospect of the monies being repaid; (b) colluding with directors of QPG and AMU, and the auditors of AMU, to ensure that they advanced Absa’s wishes to the detriment of AMU; (c) colluding with AMU’s joint venture partner, Protea Hotels, to secure benefits for it at the expense of AMU; (d) ignoring the appellant’s written request in September 2011 to cease advancing funds to AMU; and (e) setting aside the attempted business rescue and then applying for AMU’s winding-up.

As a result of AMU being wound up, so the allegations go: (a) the value of QPG’s shareholding in AMU had been reduced to nil; (b) trading in QPG shares was suspended by the Johannesburg Stock Exchange; (c) the value of Compass’ shareholding in QPG was reduced to nil; and (d) Compass’ loan amount in AMU amounting to R5 292 442 was rendered irrecoverable. By way of his counterclaims the appellant seeks to recover from Absa the amount of the reduction in value of his shareholding in Compass, alleged to be R50 002 338.

Mr Itzikowitz’s counterclaim A was for pure economic loss and is founded in delict. The key allegations on which he relied were that: (a) Absa knew that he was a surety, who had a financial interest as an indirect shareholder in QPG and AMU; and (b) Absa knew (or more accurately foresaw) that a winding-up of AMU would materially impact upon the value of the QPG shares in AMU, the value of Compass shares in QPG and, correspondingly, the value of his shares in Compass. The ‘legal duty’ for his asserted delictual claim was framed thus:

‘In the premises the plaintiff [Absa] owed the defendant [Mr Itzikowitz] a legal duty to conduct itself towards AMU as a reasonable banker and not to take any decisions or to engage in any business conduct which could adversely affect the value of shares in AMU or the value of any loan account in AMU in material respects. The said legal duty arose directly as a result of the banker-customer relationship between the plaintiff and QPG and between the plaintiff and AMU.’

Mr Itzikowitz’s counterclaim B, which was pleaded in the alternative, was based on the same allegations of misconduct by Absa as in counterclaim A.  However, here he relied on the provisions of s 218(2)[1] read with s 22(1)[2] of the Companies Act 71 of 2008. He alleged that the devaluation of his shares in Compass qualified as ‘any loss or damage’ contemplated by s 218(2) and that Absa’s conduct constitutes a breach of s 22(1). This, so the allegation went, permited him to recover the devaluation directly from Absa. The judgement did not deal with counterclaim B and for purposes of this summary we will therefore only focus on counterclaim A.

Counterclaim a: Pure economic loss

In contrast to cases of physical harm, conduct causing pure economic loss is not prima facie wrongful.[3] The onus was therefore on Mr Itzikowitz’s to show that his right/s and/or legally recognised interest/s were infringed by ABSA.

As it was recently put by the Constitutional Court in Country Cloud Trading CC v MEC, Department of Infrastructure Development, Gauteng [2014] ZACC 28; 2015 (1) SA 1 (CC) para  43: ‘Until we are satisfied the department wronged Country Cloud, its claim does not get off the ground’.[4]

In its defence ABSA contended that damage, if any, could only have been suffered by AMU and not be Mr Itzikowitz who is ‘a shareholder thrice removed from that company’.[5]

In considering the arguments the court referred to the established principle that a company has a legal personality separate of its shareholders. The court confirmed that:

  1. this concept is not merely a technicality;[6]
  2. the property of the company belongs to the company and not its shareholders, even if there is only one shareholder;[7]
  3. a shareholder does have a general right of participation in the company’s assets, but this right is deferred until the company is wound-up and will then also be subject to the creditor’s claims.[8]

The court held that the point of departure for this type of enquiry must be to determine in which of the three categories identified in Johnson v Gore Wood & Co (a firm)[9](“the Johnson Categories”) the claim falls. The categories are as follows:

  1. If the company suffers a loss caused by a breach of a duty owed to it only the company will be able to sue in respect of that loss. The shareholder will not be able to sue to make good a diminution in the value of its shareholding where it merely reflects the company’s loss (i.e. if the action against the responsible party would result in the company’s assets being replenished, the claim will lie with the company and not the shareholder).
  2. If the company suffers a loss but has no cause of action to sue, the shareholder may sue in respect of the loss but only if he has a cause of action to do so. This is the case even if the loss is a diminution in the value of the shareholding.
  3. If the company and the shareholder each suffer a loss caused by breach of duties independently owed to each party, each party will be able to sue for recovery of its loss. They will, however, not be able to claim in respect of any loss caused by the breach of a duty owed to the other party.

In short, the Company is therefore the only entity which can claim for the loss caused by a breach of duty owed to it. The shareholder will only be entitled to claim in the event of a breach of a duty owed to the shareholder, even if it amounts to a claim for loss of diminution of value in shareholding.

Conclusion:

The court ruled that Counterclaim A falls squarely within the ambit of type 1 of the Johnson Categories. It therefore ruled that Mr Itzikowitz is not entitled to sue to recover the diminution in value of his shares in the absence of a breach of a duty owed to him.

Statutory remedies:

In this context it should be noted that the Companies Act, 71 of 2008 also provides shareholders with certain statutory remedies. These include, inter alia, the sections relied on under counter claim B above, and also:

Section 163: Oppressive or prejudicial conduct

In terms of section 163 the court can be approached for relief against oppressive or prejudicial conduct as well as conduct which disregards the interests of the applicant unfairly. Such conduct need not necessarily be unlawful. It is important to keep in mind that this section does not abolish common law remedies (as is the case with section 165, referred to below).

This section can be relied on under circumstances where the action of the company or related person results in oppressive or unfairly prejudicial conduct or where the business of the company is carried on in a manner which is oppressive or prejudicial to, or unfairly disregards the interests of a shareholder. The exercise by a director or prescribed officer of a corporate power will also, in most instances, be considered an act of the Company.[10]

Section 165: Derivative action:

Section 165 provides shareholders with a derivative action. A derivative action can be described as follows:

Broadly stated, a derivative action (also referred to as the exception to the rule in Foss v Harbottle) arises where a shareholder brings a claim on behalf of the company, to recover for the company a loss which he alleges has been sustained at the hands of the individuals in control of the company. The benefits of the action accrue to the company and not the shareholder. To the extent that the benefits improve the balance sheet or prospects of the company, the reflective benefit may be realised in the value of his shares.”[11]

Section 165, in contrast to section 163, abolishes and replaces the common law derivative action. However, this relates only to wrongs committed against the company and will not limit the shareholder’s right to institute action in his own right should his interest be infringed.

In terms of section 165 any shareholder, director or registered trade union is entitled to serve a demand on the company to commence or continue legal proceedings, or take related steps, to protect the interests of the company. [12] The Company will then be granted 15 business days to apply to court to set aside the demand on the grounds that it is frivolous, vexatious or without merit.[13] The Act in section 165 (4) prescribes the procedure which the Company must follow in the event of the demand not being set aside.

The party who served the demand is then entitled to approach the court for leave to bring or continue the proceedings in the name of and on behalf of the company. The court will only grant leave under specific circumstances, including cases where the company did not adhere to the steps required in terms of section 165 (4) and only if the court is satisfied that the applicant is acting in good faith. The proposed proceedings involve the trial of a serious question of material consequence to the company, and it is in the best interests of the company.

[1] Section 218(2) reads: ‘Any person who contravenes any provision of this Act is liable to any other person for any loss or damage suffered by that person as a result of that contravention.’.

[2] Section 22(1) reads: ‘A company must not carry on its business recklessly, with gross negligence, with intend to defraud any person or for any fraudulent purpose.’.

[3] Steenkamp NO v Provincial Tender Board, Eastern Cape [2005] ZASCA 120; 2006 (3) SA 151 (SCA) para 1.

[4] See also Minister for Safety and Security v Scott & another [2014] ZASCA 84; 2014 (6) SA 1 (SCA).

[5] [9]

[6] Dadoo Ltd & others v Krugersdorp Municipal Council 1920 AD 530 at 550.

[7] The Shipping Corporation of India Ltd v Evdomon Corporation & another [1993] ZASCA 167; 1994 (1) SA 550 (A) at 566C-D.

[8] S v De Jager 1965 (2) SA 616 (A) at 625.

[9][2001] 1 All ER 481; [2002] 2 AC 1 (HL).

[10] Visser Sitrus (Pty) Ltd v GOede Hoop Sitrus (Pty 0Ltd and others 2014 (5) SA 179.

[11] Itzikowitz v Absa Bank Ltd (20729/2014) [2016] ZASCA 43 (31 March 2016) footnote 14.

[12] Section 165 (2).

[13] Section 165 (3).

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

The rights of commissioning parents in a Surrogacy Agreement to maternity leave

Alex refers a dispute to the CCMA on the basis of unfair discrimination, because his company refused to grant his application for maternity leave due to the fact that he is not the biological mother of his child. They further argue that a commissioning parent party to a surrogacy agreement is not entitled, in terms of their company policy, to the full and due four months paid leave as females are under the same policy.

Alex and Ben are in love and decide to enter into a civil union on 31 October 2010 in terms of the Civil Union Act[1]. Everything is going great and a year later they decide as a couple to enter into a surrogacy agreement with a surrogate mother in terms of which they shall have a baby. The surrogacy agreement was in accordance with the Children’s Act[2] and was confirmed by Court Order.

Ben and Alex discussed the logistics pertaining to their new bundle of joy, as in terms of the Surrogacy Agreement they will be handed the child directly after birth, without the surrogate even catching sight of it. One or both of them will have to be available to care for the newborn from the moment of birth.

They decided that Alex would be the one to apply to his employer for paid maternity leave for a period of four months. This maternity application to his employer was in terms of the prescriptions of the Basic Conditions of Employment Act[3] (BCEA) and more specifically in terms of his company’s policy on maternity leave.

Alex received feedback from his Human Resources Department, informing him that his application for maternity leave was rejected in terms of the company’s policy and the BCEA, as neither provides for the issuing of maternity leave for surrogate parents. As a counter offer Alex was offered and subsequently accepted two months paid adoption leave and two months unpaid leave.

Alex was not at all satisfied with the treatment received by his company and he felt that he has been discriminated against, as the Children’s Act and the Civil Union Act both recognised his status and rights as a commissioning parent. There was therefore no excuse as to why his company and the BCEA should not recognise it as well.

Alex referred this dispute regarding unfair discrimination to the CCMA[4] for conciliation.[5]

The CCMA, upon hearing this matter, established that Alex’s company’s policies were similar but more stringent than the BCEA in that they provided separately for adoption leave as offered to Alex and Ben, and not at all for surrogacy rights to leave. Furthermore it came to light that due to recent legislative developments as mentioned above, there was no reason why Alex should not be entitled to maternity leave and that such maternity leave should be granted for the full and/or same period as any other mother is entitled to.

Upon hearing submissions from Alex, Ben and Alex’s employer the CCMA decided that by refusing Alex’s application for maternity leave Alex was unfairly discriminated against by the company in its implementation and structure of its archaic maternity leave policy.

The CCMA ordered that Alex be paid an amount equivalent to two months’ salary for the previously granted unpaid leave. In addition, Alex’s company must recognise the status of parties to a civil union and not discriminate against the rights of commissioning parents who have entered into a surrogacy agreement, in applying its maternity leave policy.

Lastly, the company was ordered to pay Alex’s costs of having to bring this application.

It is clear from the facts of this situation that legislative intervention is needed in this regard in order to adequately and undeniably address the rights of commissioning parents to maternity leave. This case pertained to company policies and was addressed as such, but Alex and Ben initially sought relief for themselves and other similarly placed applicants so as to prevent unfair discrimination against them in this regard.

[1] Act 17 of 2006

[2] Act 38 of 2005; Chapter 19

[3] Act 75 of 1997; Section 25 (hereinafter BCEA)

[4] The Commission for Conciliation, Mediation and Arbitration

[5] M I A v State Information Technology Agency (Pty) Ltd (D 312/2012) [2015] ZALCD 20 (26 March 2015)

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Can I still make a case of unfair labour practice if I have settled?

In this article we will discuss whether, in the face of an agreement between an employer and an employee in terms of which an employee accepts a demotion to a lower position, the employee is nevertheless entitled to refer an unfair labour practice dispute concerning this demotion to the CCMA.

The facts in Builders Warehouse (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others[1] can be summarised as follows: The employee worked as an Administrative Manager at Builders Warehouse (Pty) Ltd. She was informed by doctors that she was very ill and would most likely have to go to hospital frequently and take various types of medication. Over the next three years her absenteeism increased significantly and her employers became concerned as she was no longer able to do her job effectively, even when she was not absent, due to the side effects of her medication. Builders Warehouse (Pty) Ltd, after having discussions with the employee, suspended her pending an investigation into her capacity to undertake the functions of an Administrative Manager, taking into account her health and performance. Builders Warehouse (Pty) Ltd held an incapacity hearing and the external Chairperson ruled that, due to the employee’s excessive and increasing absenteeism, dismissal was the appropriate sanction. The Chairperson, however, offered her a demotion instead of a dismissal. The employee accepted this demotion in writing.

After this agreement between Builders Warehouse (Pty) Ltd and the employee was concluded, she obtained legal assistance and subsequently complained to the CCMA that Builders Warehouse (Pty) Ltd had committed an unfair labour practice by demoting her.

The question here is whether, in the face of an agreement between Builders Warehouse (Pty) Ltd in terms of which the employee accepted demotion to a lower position, she was nevertheless entitled to refer an unfair labour practice dispute concerning this demotion to the CCMA.[2]

The arbitrator in the CCMA decided that because there was consent to the demotion, the CCMA did not have jurisdiction to hear the dispute. The employee then appealed to the Labour Court and once again to the Labour Appeal Court, of which the outcomes are set out below.

The Labour Court and the Labour Appeal Court looked at Section 186(2)(a) of the Labour Relations Act[3] in this regard, which states the following:

“Unfair labour practice means any unfair act or omission that arises between an employer and an employee involving –

unfair conduct by the employer relating to the promotion, demotion, probation (excluding disputes about dismissals for a reason relating to probation) or training of an employee or relating to the provision of benefits.”

The Labour Appeal Court upheld the judgement in the Labour Court and found that although a binding contract comes into existence when employers and employees settle their differences by agreement, such an agreement does not mean that the CCMA does not have jurisdiction to hear the dispute. The fact that the parties have agreed that the employee accepts demotion is not a complete defence for the employer because the ambit of this unfair labour practice is wide enough to include the implementation of an agreement to accept demotion.[4] The Labour Appeal Court confirmed that the determination of whether a demotion took place, unlike the determination of dismissal, does not require an arbitrator to determine if there was consent or not.[5]

In conclusion, it is clear from the Builders Warehouse case that, although consent is a relevant issue in regard to the merits of a dispute regarding an unfair labour practice, it is not a jurisdictional prerequisite. This means that the CCMA does have the power to hear a matter relating to a demotion even though there was consent thereto.

Bibliography

  • Builders Warehouse (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others (PA 1/14) [2015] ZALAC
  • Labour Relations Act 66 of 1995

[1] (PA 1/14) [2015] ZALAC.

[2] (PA 1/14) [2015] ZALAC Par 12.

[3] Act 66 of 1995.

[4] Builders Warehouse (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others (PA 1/14) [2015] ZALAC Par 14.

[5] Builders Warehouse (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others (PA 1/14) [2015] ZALAC Par 13.

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

What is the role of the Family Advocate?

The Family Advocate has many duties but in the context of Divorce Law, they are mostly consulted for making sure that all Parenting Plans and divorce Consent Papers are in the best interest of any minor children involved. The public can, however, also have access to the Family Advocate and it is important to note that they offer a free service.

The roles of the Family Advocate include the following: to provide education to family members and to others involved in the systems serving the family and youth; to help identify the strengths and needs of families; to be a mediator between the system and the family by helping to educate professionals on the strengths and needs of the family; to help family members understand the different roles of the agencies involved in the system and how they may affect the family and assist families in identifying and utilizing necessary services.

A Family Advocate helps state and local agencies and systems adopt more strengths-based and family-driven programs, policies, and services. The focus is to better meet the needs of families and their youth who have mental illness, co-occurring disorders or substance use disorders and improve outcomes for all, including families, youth, and the agencies they utilize.

A Family Advocate also has the authority to draft Parenting Plans at no cost which will help provide the minor child with a stable and suitable schedule between the two parents. A Family Advocate cannot however provide for a maintenance amount as this falls under the jurisdiction of the maintenance court. Should a parent feel like they are not sure of their rights or responsibilities towards their minor child, the Family Advocate can be approached in order to arrange a meeting between the two parties to mediate the rights and responsibilities between the two parties. This process is also at no cost, however should one of the parties deny the meeting, the Family Advocate has no authority to subpoena them to attend the meeting.

The Family Advocate is a perfect remedy for parents who have their child’s best interest at heart and who aim to provide a stable environment for the child when both parents are no longer together.

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)