Plot and plan: The strange case of the unsigned sale agreement

A4BYou buy a plot in a residential development and the developer agrees to build you a house to stated specifications and plans.  You pay in full for the plot and it is transferred into your name.  All good so far.

But then you fall out with the developer over the costs, finishes and other specs for the building work.  What happens now?  A High Court case illustrating a particular danger for both developers and buyers revolved around these rather unusual facts –

  1. A buyer bought a piece of land and, as part of the sale agreement, chose to have built on the plot a house (one of five standard types of house offered by the developer).
  2. A significant twist here was that, unnoticed by either party, the sale agreement had never been signed by the seller, only by the buyer.
  3. Transfer of the plot to the buyer went through smoothly, but when it came to building the house, the buyer asked for additions and alterations to the standard specs.  He was unhappy to note that the quote for these deviations included an additional “modification fee” of R110,000.
  4. The buyer was having none of that and refused to agree, whereupon the seller purported to cancel the whole agreement.
  5. Again the buyer was having none of that and sued to keep his plot and to force the developer to build his house.  The developer in turn demanded its land back.

Question 1: Can the developer get its land back?

You will know that in our law a sale of land agreement is one of the few that is only valid if in writing and signed by both seller and buyer (or by their authorised agents).  So you cannot force transfer to proceed on an unsigned sale agreement.

But what happens if, as in this case, transfer has taken place anyway?  What is not widely known (and perhaps seems a bit strange at first blush) is that, if the buyer pays in full and the parties intend ownership to pass at the time, the transfer is valid.  A finalised transfer cannot be rolled back just because the sale agreement wasn’t in writing and signed.

The parties in this case for example didn’t even notice the lack of signature and the buyer went ahead and paid in full for the land.  So the plot was validly transferred to the buyer and the developer can’t get its land back.

Question 2:  Can the buyer force the developer to build his house?

This sale agreement, held the Court, was not a contract for sale of a house, it was “two notionally separate contracts: one for the sale of land and one for the construction of a dwelling on the land. It is only in relation to the contract for the sale of land that the formality of signature is required.”

Consequently the developer was ordered – per the unsigned agreement – to build the buyer his standard house, without the additions/alterations and without the disputed “modification fee”.

Buyers

Plot and plan contracts are by their very nature complex, so as always, agree to nothing – verbally or in writing – without full legal advice!

Developers

Make sure your plot and plan agreements are tightly drawn, and properly signed, to avoid the sort of scenario above – you run enough risks without adding to them unnecessarily!

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)

Employees: Must you report wrongdoers? A violent strike illustrates

A3B“…an employee bound implicitly by a duty of good faith towards the employer breaches that duty by remaining silent about knowledge possessed by the employee regarding the business interests of the employer being improperly undermined”  (Extract from judgment below)

Our laws and courts provide strong protection for the right of employees to go on strike, and are quick to shield participants in a protected strike from any unlawful action against them by their employers.

But this is subject to the important provision that strikers (and their unions) must always act within the law, which includes the fundamental requirement that strike action must at all times be peaceful and non-violent.

And, as a recent Labour Court decision shows, even employees innocent of any direct involvement in misconduct can be held liable if they refuse to assist in investigating it.

A strike turns violent

  • A wage dispute led to industrial action in the form of a protected strike
  • The strike was characterised by violent confrontations, intimidation, harassment, and attacks on property
  • Despite a court interdict against this serious misconduct, it continued unabated
  • The employer then dismissed not only those strikers directly involved in the violence, but also those found guilty of “derivative misconduct” for their failure to identify the actual perpetrators when asked to do so.

Trust, good faith, and the duty to identify offenders

The Labour Court, in upholding all these dismissals as being fair, set out and applied our law on “derivative misconduct” as follows –

  • The nature and essence of the employment relationship is based on trust and good faith
  • A breach of this good faith can justify dismissal
  • Nondisclosure of knowledge relevant to misconduct committed by fellow employees is a breach of the duty of good faith
  • Those strikers who, although innocent of actual perpetration of misconduct, consciously chose not to disclose information known to them (they remained silent when repeatedly asked to identify the perpetrators) were guilty of derivative misconduct and their dismissals were both substantively and procedurally fair.

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)

Companies: How private are shareholders’ details?

A2B“Privacy, like other rights, is not absolute. As a person moves into communal relations and activities such as business and social interaction, the scope of personal space shrinks” (Extract from judgment below)

All companies – big and small, public and private – must keep registers of their shareholders and directors.   And, as the SCA (Supreme Court of Appeal) made clear recently, even “private” companies’ registers aren’t private at all.

An investigative journalist digs for detail

A financial journalist, investigating a controversial investment scheme, was tasked with investigating the shareholding structures of three companies.

The companies refused him access to their securities registers and he approached the High Court for assistance.

The companies asked the Court to exercise a discretion to refuse such access, and in hearing an appeal around this issue, the SCA has clarified the public’s rights as follows –

  • The public at large (including the media) have an unqualified right to inspect or copy those registers on payment of a statutory fee.
  • The motive of the person seeking access is totally irrelevant; nor does he/she have to show that the request is “reasonable”.
  • It is not necessary to comply with the requirements of PAIA (the Promotion of Access to Information Act)  although of course PAIA can be a useful tool to force access to company documents other than these registers.
  • It is a criminal offence for a company to refuse such access or to “otherwise impede, interfere with, or attempt to frustrate, the reasonable exercise by any person” of these rights.

So what shareholder information is public and what is confidential?

A shareholder is only required to provide –

  • His/her name,
  • His/her business, residential or postal address, and
  • “An identifying number that is unique to that person”.

The shareholder can also voluntarily provide an e-mail address.

Confidentiality can be claimed – by either the company or the shareholder – for the e-mail address (if supplied) and for the identity number.  Names and addresses are public, full stop.

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)

Meter wars: A consumer strikes back

A1B“You can’t fight city hall” (old idiom decrying the futility of trying to fight a bureaucracy)

You challenge the accuracy of a services account from your local municipality, thus:  “Your meter must be wrong, no way was my consumption that high”.  The reply:  “We’ve tested the meter and it works fine. Pay up or face disconnection”.

Off to court you go.  Can you “fight city hall” and who has to prove what?

There’s good news here for consumers in a recent High Court decision dealing with just such a situation.

The R4.5m water claim and the disconnection

  • A municipality installed a new water meter at commercial premises
  • When read for the first time 18 months later, it showed a spike of 13 times the historic average consumption measured by the old meter
  • Alarmed, the consumer requested that the meter be tested.  The municipality duly removed it, tested it, reported that it functioned correctly, and then (for an undisclosed reason) disposed of it
  • A third meter was installed.  Although the consumer’s business had by then grown substantially, water consumption was shown at three times less than the quantities measured by the previous meter
  • The consumer had paid the water account according to its own calculations.  Nevertheless disconnection of supply followed, and then the municipality refused to issue a clearance certificate when the property was sold.  In all the consumer was forced to make two payments totalling R16.5m, which it did under protest and with reservation of rights
  • Sued by the municipality for just under R4,5m, the consumer defended the action and counterclaimed for R9.5m (the amount it claimed to have overpaid).

Who must prove what?

Finding in favour of the consumer, the Court held that, once the consumer had raised a bona fide (“in good faith”) dispute, the onus was clearly on the municipality to prove that the meter had measured the water supply correctly and accurately.

That, held the Court, it had failed to do – its expert evidence concerning the testing was found to be unsatisfactory and insufficient.

The end result is that the municipality has to repay the consumer R8m – a substantial victory.

Consumers – a critical factor

Note that a critical factor here was that when the consumer made the two disputed payments to the municipality it did so under protest, without waiver or abandonment of any rights and without admission of liability that the amount was due.  Without those provisions, the onus would probably have been on the other foot, i.e. on the consumer to prove that the readings were not accurate.  That’s often going to be a near-impossibility when only the municipality has the legal right to test its meters and when it has control of all consumption data.  So pay nothing on a contested account without legal advice.

Municipalities – what you must prove

Make sure you can prove that meter tests comply fully with all prescribed requirements. And (this of course should go without saying) don’t dispose of any contentious meters until litigation has been well and truly put to bed!

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)

Tax season starts 1 july: your deadlines

A4BSARS has published the new Tax Season deadlines for individuals.

Your important dates for filing your ITR12 Tax Return Form for the period 1 March 2015 to 29 February 2016 are –

  • 23 September 2016: Manual/postal submissions, or
  • 25 November 2016: Non-provisional taxpayer returns submitted via eFiling or at a SARS branch, or
  • 31 January 2017: Provisional taxpayers via eFiling.

© DotNews, 2005-2016. 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)

Directors, managers: Your new risk of “cartel conduct” criminal liability is even wider than reported

A3B“A cartel involves an agreement or concerted practice between two or more competitors to engage in fixing prices and/or trading conditions, dividing markets and/or collusive tendering.  By artificially limiting competition that would normally prevail between them, firms avoid exactly the kind of pressures that lead them to innovate, both in terms of product development and production methods. This results ultimately in high prices and reduced consumer choice.” (Competition Commission)

Government’s determination to crack down on cartel conduct is evidenced in the newly-introduced criminal liabilities imposed on individuals by amendments to the Competition Act.  Offending businesses already face substantial penalties, and now any director or manager of a business guilty of causing or permitting it to engage in a “prohibited practice” is also personally liable to prosecution, risking heavy fines (up to R500,000) and/or imprisonment (up to 10 years).

A “prohibited practice” here means “directly or indirectly fixing a purchase or selling price or any other trading condition”, “dividing markets by allocating customers, suppliers, territories, or specific types of goods or services”, or “collusive tendering”.

Legal commentators are suggesting that even more severe sanctions (possible life imprisonment, blacklisting from public tenders etc) imposed by separate anti-corruption legislation could also come into play.

Don’t forget also that these penalties for directors and managers personally are in addition to the existing and substantial penalties already faced by the businesses themselves.

Don’t take any chances here – get advice before embarking on any course of conduct which might be regarded as falling foul of these provisions.

© DotNews, 2005-2016. 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)

Starting a business? The partnership option

A2B“Alone we can do so little; together we can do so much” (Helen Keller)

In our last article in the series “Choosing the right legal entity for your business” we looked at the sole proprietorship option.  Let’s move on to the partnership option, where a group of business owners replaces the sole owner/trader.

Firstly, what exactly is a partnership?

We talk loosely about our “partners” in various contexts, but it is important to understand how the law views the concept in a strictly business situation.  In broad terms a partnership is an association of between 2 to 20 people/companies/trusts who agree to pool resources (such as money, property, services, skills etc – whatever is agreed upon) and to operate a jointly-owned business, trade or profession for profit.  Partnership assets are jointly owned by the partners and profits are split between them as agreed.

A quick note on the different types of partnership

In this article we talk only about the most common form of partnership – the “ordinary” partnership.  In specific circumstances you may also want to consider an “anonymous” partnership (where one or more of the partners are “sleeping partners”) or an en commandite or “limited” partnership.  They differ from “ordinary” partnerships in several important respects so take specific legal advice if you are thinking of using them.

We’ll look at the “universal partnership” concept in a future article (it’s normally relevant in cases of cohabitation by unmarried couples).

6 advantages of partnerships…..

  1. It’s relatively easy to set up and operate a partnership in the sense that there’s no need for formal registration as there is with a company or trust.  Just be sure to have a comprehensive written partnership agreement in place.  Although this is not a legal requirement, and although it adds an element of cost and delay, our law reports are full of bitter and costly partnership disputes resulting from the uncertainties that will always attend a verbal or poorly-drafted agreement. Good intentions and a handshake mean nothing when friction arises.
  2. You have no statutory audit requirements and your administrative burden is low compared to, for example, running a company.
  3. You are taxed at personal rates, which can sometimes (not always – see below) be to your advantage.
  4. A partner often gives you access to another source of funding and/or assets for the business.
  5. Most partners also bring new skills to the business.
  6. It’s not nearly as lonely as being a sole trader – you have partners to share both the workload and the stresses and strains of management and decision-making.  Just make sure you also share a common vision for the business, or friction is inevitable.

….. and 6 disadvantages

  1. Loss of control – you now have only part control and ownership of the business, and decisions can take longer than if you were on your own.
  2. Any partner can bind the partnership contractually so it is essential that you find partners whom you can trust implicitly to act both honestly and wisely in relation to the partnership and its business.
  3. As a partnership isn’t a separate legal entity, you are personally liable for all the debts and obligations of the partnership business. If the partnership can’t pay its debts, creditors can and will sue you for them.  And if the partnership is sequestrated, your personal estate will simultaneously also be sequestrated unless you provide security for all partnership debts.  As with sole proprietorship, sleepless nights await you if any important assets (like your house) are in your name.
  4. When any partner dies, leaves the partnership or goes insolvent, or when a new partner joins, the partnership automatically ends.  Once again you are then personally liable for any shortfalls in the partnership’s ability to pay its debts.
  5. If you end up paying more than your pro-rata share of any partnership shortfalls, your claim against the other partners (or their estates) will be worthless unless they have enough net assets to pay you.
  6. Tax and estate planning – as with sole proprietorship, being taxed at your personal income tax rate may be a plus in some cases, but in others you will benefit far more from a tax-efficient structure incorporating one or more corporate entities or trusts as well.

What about “Joint Ventures”?

Before you agree on a joint venture (“JV”) with another individual or business, be careful.  Although a JV normally applies only to a single transaction, it could well amount to a partnership, no matter what title or description you give it.  And as we saw above, partnerships have many pitfalls for the unwary – rather put your JV into a separate entity or have your lawyer draw up a JV agreement giving you some form of liability protection.

Watch out incidentally for “inadvertent” partnerships – as a partnership can be formed verbally or even tacitly (implied from conduct), you could find yourself establishing a partnership by mistake!  Another reason to have everything recorded in a full contract.

Remember to take full professional advice on the legal and tax implications of using each type of entity before choosing. 

This is the third article in our series “Choosing the right legal entity for your business”.  Next time we’ll look in more depth at the private company option.

© DotNews, 2005-2016. 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)

Neighbours behaving badly: Nip illegal building in the bud!

A1BBad neighbours don’t just impinge on your enjoyment of your property; they can also cause serious harm to its value.  So if you notice illegal building activity next door, move quickly to nip the problem in the bud.

Your hand in this regard has just been strengthened.  An important new decision by the Supreme Court of Appeal (SCA) confirms that you aren’t limited to trying to compel the municipality to enforce its own building and zoning laws – you can apply for demolition directly.

Demolition ordered – despite a “supine” municipality

  • A new retail/office development exceeded the local Town Planning Scheme’s coverage limit of 60% (the actual coverage as constructed was 86.13%), and insufficient parking bays were provided
  • The developer claimed to have obtained municipal approval of its building plans but the “supine and uncooperative attitude of the municipality” made it difficult for the Court to determine any more than that, if the municipality had indeed given approval, it seemed later to have cancelled it
  • In any event, held the Court, any such purported approval of the plans had to be set aside and the developer was ordered to partially demolish its building so as to bring it into compliance with the law.

First prize, second prize

The SCA has cleared the way for neighbours themselves to apply for demolition orders.  That’s an important new weapon in the fight against illegal construction activity, but it’s still only second prize.

The problem is that where you (rather than the municipality) bring the demolition application, “private” or “neighbour” law applies and the court is not obliged to order demolition; it has a discretion whether or not to do so.  And, demolition being a draconian remedy, the court may rather decide to make an alternative order such as a damages award.  Indeed, had the developer in this particular case not incurred the court’s wrath by persisting in its illegal conduct after ignoring warnings of illegality, it might have escaped demolition altogether.

In contrast, where a municipality does its job properly and brings its own application for demolition, “public law” applies and our courts have previously held that they then have no discretion where unlawful buildings are concerned – they must order “total demolition”.

First prize it seems is still to force your municipality to fulfil its legal and moral duty to uphold the law by taking the offending builder to court itself.

Regardless, the most important thing is to act quickly – so get legal help as soon as you become aware of illegal construction!

© DotNews, 2005-2016. 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)

Credit Providers: NCA Registration Threshold Reduced To Nil

A4BIf you are a credit provider and required to register as such in terms of the NCA (National Credit Act), not doing so can have drastic consequences for you.  For a start, your agreements will likely be declared void and unenforceable.

Apart from some specific exclusions from the NCA’s provisions (take advice if you aren’t sure whether you fall into any of them), you must register if the total principal debt owed to you under all outstanding credit agreements exceeds a set threshold.  This used to be R500,000 but has now been reduced to nil – meaning that all affected credit providers have to register regardless of the amount of credit advanced.

The NCA and Regulations are complex with a lot of technical requirements and pitfalls for the unwary, so get help from your lawyer if you are unsure of anything!

For more advice and practical solutions you are welcome to contact our Commercial Law department.

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)

Baby Boomers: At What Age Must You Retire?

A3BEmployers need to be particularly on their guard for cases in which a workplace dismissal is automatically unfair.  Our courts take a particularly dim view of discrimination cases falling into this category.

Age discrimination is one such instance, and an employer faced with such a claim can defend it only by proving (the onus is on the employer) that the employee has reached “the normal or agreed retirement age for persons employed in that capacity”.

With “Baby Boomers” (people born between 1946 and 1964) now retiring in record numbers, expect to see a spike in disputes and litigation over retirement issues.  A recent Labour Court decision illustrates just how costly any mistake in this regard is likely to be for the employer.

Forced to retire at 63, awarded nearly R1.3m

  1. An employee of an informally-run, family oriented business believed his agreed retirement age to be 65, although this was not specified in his contract of employment, and the business had no staff manual
  2. The business was sold twice, each time to larger corporations with more formal policies in place
  3. The employee refused to sign a new employment contract specifying an agreed retirement age of 60, saying it would be difficult to find new work at that age
  4. When he was forced to retire on turning 63, he approached the Labour Court for assistance, asking for 2 years’ remuneration as compensation in terms of the LRA (Labour Relations Act) and another 2 years’ remuneration as damages for violation of the EEA (Employment Equity Act)
  5. The employer defended this claim on the basis that retirement age for employees was governed by its standard retirement policy which set retirement age at 63 (previously 60)
  6. On the facts however it was unable to prove this defence, and the Court found the dismissal to be unfair and awarded the employee compensation of R1,283,760 (16 months’ remuneration).
  7. Note that the Court accepted that the employer had acted in good faith, genuinely believing that it was entitled to apply the standard retirement policy in the absence of a written agreement to another retirement age.  Had the employer acted in bad faith, the Court would doubtless have made a much higher award – and whilst claims for automatically unfair dismissal in terms of the LRA are capped at 24 months’ remuneration, EEA awards have no such limit.

Employers: your essential action plan

  • No matter how small or informally-run your business may be, have all new employees sign written employment contracts specifying a compulsory retirement age
  • If your existing employment contracts don’t stipulate a retirement age, remedy that now.  Note that this must be a matter for negotiation; you cannot unilaterally impose new terms like these on employees.

Employees: fight any form of discrimination

You have strong legal protection from all forms of unfair discrimination, direct or indirect, “on any arbitrary ground, including, but not limited to race, gender, sex, ethnic or social origin, colour, sexual orientation, age, disability, religion, conscience, belief, political opinion, culture, language, marital status or family responsibility.”

For more advice and practical solutions you are welcome to contact our Employment Law  department.

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)