HOUSES, COHABITATION, CO-OWNERSHIP, AND THE DANGER OF DISPUTE
(“Communio est mater rixarum” (Roman law maxim meaning “Co-ownership is the mother of disputes”)
A recent High Court case highlights once again the dangers of cohabiting without entering into a formal cohabitation agreement, particularly when substantial assets are acquired jointly.
Things fall apart
After living as a couple for 16 years, the parties – let’s call them A and B - jointly bought a house,
They intended to marry but never did so,
When their relationship came to an end they agreed to terminate their co-ownership of the property,
What they couldn’t agree on was how to effect the termination, nor on how to split the proceeds – hence the application to the High Court.
The perils of prescription
Because A and B had no written agreement as to what their respective financial obligations were in regard to the costs of acquiring and maintaining the house, the Court had to exercise its “wide equitable discretion in making a division of the joint property”.
Critically, A claimed that many of B’s claims had prescribed (i.e. become unclaimable for lack of enforcement within 3 years). B tried to convince the Court that his and A’s co-ownership amounted to a partnership, in which event prescription wouldn’t have run its course and his claims would remain enforceable. He failed – it can be extremely difficult to prove the existence of any form of financial partnership in a cohabitation situation.
The danger of course is that cohabiting couples will only start thinking of enforcing their claims against each other when they break up – too late!
Losers
The result – B is down R815k in respect of prescribed claims against A for a share of the initial purchase deposit, bond repayments, improvements and rates and taxes.
In the final analysis however both parties are losers – they could have avoided all the delay, dispute, uncertainty and cost of litigation through the simple expedient of putting in place a comprehensive cohabitation agreement upfront.
ARMED ROBBERY! SUING YOUR SECURITY COMPANY – THE FINAL CHAPTER
“South Africa is plagued by crime – often viciously violent, sometimes sophisticated and organised, often ridiculously random, but always audacious and contemptuous of the values we are supposed to believe in and the human rights enshrined in our Constitution …..” (Constitutional Court, below)
Unfortunately it is often the most violent and vicious of the criminal gangs who breach all our defences by the simple expedient of impersonating police officers. Regular readers of LawDotNews will recall the traumatic story of a family who in 2009 fell victim, in their own home, to just such a gang.
The Constitutional Court has just written the final chapter in the family’s long quest through our courts to hold their security services provider liable for the nightmare experience they were subjected to.
The police imposters, and the guard who opened the gate
To recap, a family with young children (aged 2, 5 and 8), having previously been subjected to the trauma of a home invasion robbery at gunpoint, fortified their new house with an extensive security system including electrified fencing, perimeter beams, multiple alarm systems, a guard house (with bulletproof glass), an intercom system with closed-circuit television, and an armoured pedestrian gate with a peephole.
What should perhaps have been the strongest link in their new security system turned out in fact to be the weakest – namely a 24-hour armed security guard service.
On the night in question armed robbers masquerading as police officers drove up the family’s driveway and demanded entry. The guard on duty opened the pedestrian gate, allowing the robbers to apprehend him and gain access to the home. They accosted the family and their household staff and stole goods worth some R11m.
The family sued the security company for damages, winning in the High Court but losing on appeal in the Supreme Court of Appeal.
The final chapter
The family refused to give up and took the matter to our highest court – the Constitutional Court. Holding (on the facts) that the security company had both breached its contract with the family and was vicariously liable for the guard’s negligence, the Court declared it liable to pay damages to the family.
Home owners: What is the weakest link in your security? If you think it may be your security services provider, or perhaps the terms of your contract with it, take legal advice now. And call for help immediately if you are approached by anyone who claims to be a police officer but cannot produce an official SAPS appointment card (a white card with the officer’s photo under “SA POLICE SERVICE”, the SAPS logo to the right and officer’s name at the bottom; on the reverse, “APPOINTMENT CERTIFICATE”, “Sect 30 Act 68/1996”, then force number, name and ID with issue date and issuing SAPS signature).
Security service providers: Take particular note of the Court’s comments that “The community expects security guards not to give criminals access to guarded property. It is wrongful to do so” and “Security guards are trained to provide guarded protection and to detect nefarious ways in which opportunists may try to penetrate that protection. That is the core of their mandate…..In providing the robber with access to the property without attempting to ascertain his identity or business, [the guard]’s conduct thus in any event failed to meet the standard of a reasonable security guard.”
ACCELERATION CLAUSES: BORROWERS (AND LENDERS) BEWARE!
“Confusion now hath made his masterpiece” (Shakespeare, Macbeth)
An “acceleration clause” in a loan agreement (where the loan is repayable in instalments) provides that if the borrower fails to pay any one instalment, the full amount of the loan becomes due and is immediately recoverable in full by the creditor. Inserting such a provision into a loan agreement is a sensible precaution for a lender to take – without it he could only sue for any overdue instalments, not for the full amount of the loan.
Borrowers: your danger
Failure to pay just one instalment exposes you to court action for recovery of the full amount owing.
Lenders: your limits
But, as a recent High Court judgment illustrates, lenders also have to act cautiously here. A lender had invoked an acceleration clause to sue the debtor for the full amount outstanding (over R7,6m) after the debtor missed one instalment of R42,133-15. The debtor had, after receiving an email from the lender, paid the instalment – but he hadn’t paid the default interest (a measly R86-57).
In other words, the borrower’s failure to pay R86-57 led to the entire debt of R7,6m being called up in full.
The Court refused to enforce the acceleration clause on two grounds –
The lender’s email to the debtor advising of the overdue instalment was not “a proper demand” – it didn’t inform the debtor of the full amount he had to pay (the default interest wasn’t mentioned), nor was it unambiguously a demand to pay,
It would, held the Court, be “startlingly draconian and unfair”, and therefore a breach of “public policy” to allow the acceleration clause to be invoked without “some form of communication to pay a measly sum of R86.57 immediately following payment of the large principal sum”.
The “contrary to public policy” principle
A basic principle in our law is that, whilst generally you are held to your agreements (contracts), any agreement that is “contrary to public policy” will be void and unenforceable.
The problem is that deciding what is and what isn’t “contrary to public policy” is by no means an exact science. For example, the Court in this case held that “it is not a question of a contract offending an individual sense of proprietary and fairness but rather whether the values of the Constitution are breached”. Clearly there are no hard and fast rules here, and lenders need to err on the side of caution if they are to avoid having their agreements rendered unenforceable.
At the very least, be aware of “constitutional values” not only in drawing up your contracts, but also in enforcing them - be able to prove that you have clearly informed the borrower of the amount/s in arrears, that you have made a clear demand for payment and have warned him/her of the consequences of not paying timeously. With all the grey areas here, take advice in doubt.
A ROGUE AGENT STEALS YOUR MONEY – IS THE BANK LIABLE?
You walk into an official bank agency to open up an investment account – can you take it for granted that the bank is accountable to you for your investment if the agent “goes rogue” and steals it?
Generally the answer will be yes, because our law entitles you to assume that a bank’s branch manager or agent “is empowered to represent the bank in the sort of business (and transactions) that a branch of the bank and its manager [or agent] would ordinarily conduct”. Put differently, the bank will generally be bound by its agent’s “apparent authority” even if the agent is in secret acting fraudulently and in his/her own interests.
But of course you will have a problem if you knew (or should reasonably have known) that the manager or agent was acting beyond the scope of the bank’s “ordinary business”.
Tax evasion, collusion and the rogue agent
To take an extreme example, these were the facts in a case recently decided in the Supreme Court of Appeal -
Two businessmen invested funds (some R7,5m between them) with an authorised bank agent,
They concluded bank investment agreements and were issued with what appeared to be bank deposit receipts,
The agent went “rogue”, stealing their R7,5m (and more from other clients),
When the investors sued the bank for their losses, it emerged that their investment agreements had been put into fictitious names as part of a tax evasion scheme, the bank “deposit receipts” appeared to be forgeries, and the investments were not recorded in the bank’s systems,
The fact that the investors colluded with the bank agent to open the investment accounts for an unlawful purpose made it impossible for them to convince the Court that they could have believed the agent to be acting within his level of authority. The Court accordingly held the bank not liable for the agent’s theft.
THE POPI’S PROGRESS: SLOW, BUT THE CLOCK TICKS ON
POPI (the Protection of Personal Information Act) is now partially in effect, but only to the extent that the way is now cleared for the appointment of an Information Regulator and the promulgation of Regulations. That’s certainly progress, but it’s likely to be a while still before the main provisions of the Act come into effect – and even then, you will have at least a year to comply.
Nevertheless, the clock is ticking faster so here’s a reminder - if you haven’t already done so, start now on identifying what personal data you hold, why and under what authority you hold it, and how secure it is. We promised to let you have some practical advice on how to go about actually preparing for compliance in future newsletters, so watch this space!
THE JUNE WEBSITE: ENTREPRENEURS – R1.7M IN PRIZES FOR BLACK-OWNED SMEs
“Be careful about reading health books. You may die of a misprint.” (Mark Twain)
SMEs are eligible for a share of R1.7m in prizes in the Eskom Development Foundation Business Investment Competition if they are –
Black-owned,
South African-owned,
Legally registered,
Operating within the agricultural, manufacturing or trade/services sector,
Operational for at least 24 months prior to the competition.
Don’t miss this chance to grow your business!
You only have until 18 July to enter so go now to Eskom’s “Business Investment Competition” page at http://www.eskom.co.za/OurCompany/CSI/Pages/BIC.aspx for the full terms and conditions, guidelines, prizes and rules.
Have a Great June!
(“Communio est mater rixarum” (Roman law maxim meaning “Co-ownership is the mother of disputes”)
A recent High Court case highlights once again the dangers of cohabiting without entering into a formal cohabitation agreement, particularly when substantial assets are acquired jointly.
Things fall apart
After living as a couple for 16 years, the parties – let’s call them A and B - jointly bought a house,
They intended to marry but never did so,
When their relationship came to an end they agreed to terminate their co-ownership of the property,
What they couldn’t agree on was how to effect the termination, nor on how to split the proceeds – hence the application to the High Court.
The perils of prescription
Because A and B had no written agreement as to what their respective financial obligations were in regard to the costs of acquiring and maintaining the house, the Court had to exercise its “wide equitable discretion in making a division of the joint property”.
Critically, A claimed that many of B’s claims had prescribed (i.e. become unclaimable for lack of enforcement within 3 years). B tried to convince the Court that his and A’s co-ownership amounted to a partnership, in which event prescription wouldn’t have run its course and his claims would remain enforceable. He failed – it can be extremely difficult to prove the existence of any form of financial partnership in a cohabitation situation.
The danger of course is that cohabiting couples will only start thinking of enforcing their claims against each other when they break up – too late!
Losers
The result – B is down R815k in respect of prescribed claims against A for a share of the initial purchase deposit, bond repayments, improvements and rates and taxes.
In the final analysis however both parties are losers – they could have avoided all the delay, dispute, uncertainty and cost of litigation through the simple expedient of putting in place a comprehensive cohabitation agreement upfront.
ARMED ROBBERY! SUING YOUR SECURITY COMPANY – THE FINAL CHAPTER
“South Africa is plagued by crime – often viciously violent, sometimes sophisticated and organised, often ridiculously random, but always audacious and contemptuous of the values we are supposed to believe in and the human rights enshrined in our Constitution …..” (Constitutional Court, below)
Unfortunately it is often the most violent and vicious of the criminal gangs who breach all our defences by the simple expedient of impersonating police officers. Regular readers of LawDotNews will recall the traumatic story of a family who in 2009 fell victim, in their own home, to just such a gang.
The Constitutional Court has just written the final chapter in the family’s long quest through our courts to hold their security services provider liable for the nightmare experience they were subjected to.
The police imposters, and the guard who opened the gate
To recap, a family with young children (aged 2, 5 and 8), having previously been subjected to the trauma of a home invasion robbery at gunpoint, fortified their new house with an extensive security system including electrified fencing, perimeter beams, multiple alarm systems, a guard house (with bulletproof glass), an intercom system with closed-circuit television, and an armoured pedestrian gate with a peephole.
What should perhaps have been the strongest link in their new security system turned out in fact to be the weakest – namely a 24-hour armed security guard service.
On the night in question armed robbers masquerading as police officers drove up the family’s driveway and demanded entry. The guard on duty opened the pedestrian gate, allowing the robbers to apprehend him and gain access to the home. They accosted the family and their household staff and stole goods worth some R11m.
The family sued the security company for damages, winning in the High Court but losing on appeal in the Supreme Court of Appeal.
The final chapter
The family refused to give up and took the matter to our highest court – the Constitutional Court. Holding (on the facts) that the security company had both breached its contract with the family and was vicariously liable for the guard’s negligence, the Court declared it liable to pay damages to the family.
Home owners: What is the weakest link in your security? If you think it may be your security services provider, or perhaps the terms of your contract with it, take legal advice now. And call for help immediately if you are approached by anyone who claims to be a police officer but cannot produce an official SAPS appointment card (a white card with the officer’s photo under “SA POLICE SERVICE”, the SAPS logo to the right and officer’s name at the bottom; on the reverse, “APPOINTMENT CERTIFICATE”, “Sect 30 Act 68/1996”, then force number, name and ID with issue date and issuing SAPS signature).
Security service providers: Take particular note of the Court’s comments that “The community expects security guards not to give criminals access to guarded property. It is wrongful to do so” and “Security guards are trained to provide guarded protection and to detect nefarious ways in which opportunists may try to penetrate that protection. That is the core of their mandate…..In providing the robber with access to the property without attempting to ascertain his identity or business, [the guard]’s conduct thus in any event failed to meet the standard of a reasonable security guard.”
ACCELERATION CLAUSES: BORROWERS (AND LENDERS) BEWARE!
“Confusion now hath made his masterpiece” (Shakespeare, Macbeth)
An “acceleration clause” in a loan agreement (where the loan is repayable in instalments) provides that if the borrower fails to pay any one instalment, the full amount of the loan becomes due and is immediately recoverable in full by the creditor. Inserting such a provision into a loan agreement is a sensible precaution for a lender to take – without it he could only sue for any overdue instalments, not for the full amount of the loan.
Borrowers: your danger
Failure to pay just one instalment exposes you to court action for recovery of the full amount owing.
Lenders: your limits
But, as a recent High Court judgment illustrates, lenders also have to act cautiously here. A lender had invoked an acceleration clause to sue the debtor for the full amount outstanding (over R7,6m) after the debtor missed one instalment of R42,133-15. The debtor had, after receiving an email from the lender, paid the instalment – but he hadn’t paid the default interest (a measly R86-57).
In other words, the borrower’s failure to pay R86-57 led to the entire debt of R7,6m being called up in full.
The Court refused to enforce the acceleration clause on two grounds –
The lender’s email to the debtor advising of the overdue instalment was not “a proper demand” – it didn’t inform the debtor of the full amount he had to pay (the default interest wasn’t mentioned), nor was it unambiguously a demand to pay,
It would, held the Court, be “startlingly draconian and unfair”, and therefore a breach of “public policy” to allow the acceleration clause to be invoked without “some form of communication to pay a measly sum of R86.57 immediately following payment of the large principal sum”.
The “contrary to public policy” principle
A basic principle in our law is that, whilst generally you are held to your agreements (contracts), any agreement that is “contrary to public policy” will be void and unenforceable.
The problem is that deciding what is and what isn’t “contrary to public policy” is by no means an exact science. For example, the Court in this case held that “it is not a question of a contract offending an individual sense of proprietary and fairness but rather whether the values of the Constitution are breached”. Clearly there are no hard and fast rules here, and lenders need to err on the side of caution if they are to avoid having their agreements rendered unenforceable.
At the very least, be aware of “constitutional values” not only in drawing up your contracts, but also in enforcing them - be able to prove that you have clearly informed the borrower of the amount/s in arrears, that you have made a clear demand for payment and have warned him/her of the consequences of not paying timeously. With all the grey areas here, take advice in doubt.
A ROGUE AGENT STEALS YOUR MONEY – IS THE BANK LIABLE?
You walk into an official bank agency to open up an investment account – can you take it for granted that the bank is accountable to you for your investment if the agent “goes rogue” and steals it?
Generally the answer will be yes, because our law entitles you to assume that a bank’s branch manager or agent “is empowered to represent the bank in the sort of business (and transactions) that a branch of the bank and its manager [or agent] would ordinarily conduct”. Put differently, the bank will generally be bound by its agent’s “apparent authority” even if the agent is in secret acting fraudulently and in his/her own interests.
But of course you will have a problem if you knew (or should reasonably have known) that the manager or agent was acting beyond the scope of the bank’s “ordinary business”.
Tax evasion, collusion and the rogue agent
To take an extreme example, these were the facts in a case recently decided in the Supreme Court of Appeal -
Two businessmen invested funds (some R7,5m between them) with an authorised bank agent,
They concluded bank investment agreements and were issued with what appeared to be bank deposit receipts,
The agent went “rogue”, stealing their R7,5m (and more from other clients),
When the investors sued the bank for their losses, it emerged that their investment agreements had been put into fictitious names as part of a tax evasion scheme, the bank “deposit receipts” appeared to be forgeries, and the investments were not recorded in the bank’s systems,
The fact that the investors colluded with the bank agent to open the investment accounts for an unlawful purpose made it impossible for them to convince the Court that they could have believed the agent to be acting within his level of authority. The Court accordingly held the bank not liable for the agent’s theft.
THE POPI’S PROGRESS: SLOW, BUT THE CLOCK TICKS ON
POPI (the Protection of Personal Information Act) is now partially in effect, but only to the extent that the way is now cleared for the appointment of an Information Regulator and the promulgation of Regulations. That’s certainly progress, but it’s likely to be a while still before the main provisions of the Act come into effect – and even then, you will have at least a year to comply.
Nevertheless, the clock is ticking faster so here’s a reminder - if you haven’t already done so, start now on identifying what personal data you hold, why and under what authority you hold it, and how secure it is. We promised to let you have some practical advice on how to go about actually preparing for compliance in future newsletters, so watch this space!
THE JUNE WEBSITE: ENTREPRENEURS – R1.7M IN PRIZES FOR BLACK-OWNED SMEs
“Be careful about reading health books. You may die of a misprint.” (Mark Twain)
SMEs are eligible for a share of R1.7m in prizes in the Eskom Development Foundation Business Investment Competition if they are –
Black-owned,
South African-owned,
Legally registered,
Operating within the agricultural, manufacturing or trade/services sector,
Operational for at least 24 months prior to the competition.
Don’t miss this chance to grow your business!
You only have until 18 July to enter so go now to Eskom’s “Business Investment Competition” page at http://www.eskom.co.za/OurCompany/CSI/Pages/BIC.aspx for the full terms and conditions, guidelines, prizes and rules.
Have a Great June!
IN THIS ISSUE - June 2014