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Greg Dix From: Sent: To: Cc: Subject:

Greg Dix Tuesday, May 26, 2009 10:40 AM Edine Jordaan Thys Sutherland; Petro Jordaan Draft bulletin

May 2009

Estate agents must be aware of fraudsters and money launderers20 The Cape Times recently reported that according to the Institute of Security Studies (ISS) it is shown that fraud and money laundering are now targeting estates agents. The ISS is an advisory on the measures required to control money laundering in the property industry. Thobani Matheza, a researcher dealing with organized crime and money laundering said that the media and the court reports indicated the involvement of criminals running fraud syndicates and drug trafficking in buying up or developing property. The amount of money to be made in both residential and commercial property is fertile ground for fraud and estate agents should be aware of these activities.

Stamp Duty payable on release

With effect from 1 April 2009, stamp duty is no longer payable. This is in accordance with the Repeal of the Stamp Duty Act. The repeal in the Revenue Laws Amendment Act, 2008 as published in Government Gazette 31781 on 8 January 2009. The provisions of the Act still continues to apply to all dutiable instrument executed before 1 April 2009 and to all existing leases.



Section 66 of the Deeds Registries Act 47 of 1937 limits the duration of a usufruct to the lifetime of the person in whose favour it was cre further restricts the cession thereof to the owner of the land thus encumbered.

Strictly, according to the above section, a contingent usufruct cannot be registered. However, practice does allow for the registration of s contingent night. Contingent is defined in the Concise Oxford Dictionary as: “that can be anticipated to arise if a particular event occurs.�

Before embarking on a discussion of the contingent usufruct and the registrability thereof, a clear distinction must be drawn between a co usufruct and a usufruct in favour of more than one person. In terms of trite law, a usufruct may be created in favour of more than one pe wording of the instrument that creates the right will determine the extent of the usufruct in the event of death of any of the usufructuaries by any of them.

Where a usufruct is, for example, ceded to two or more persons in equal, undivided shares and one of the usufructuaries dies, the servitu lapse in respect of the undivided share of the deceased, and the property will remain subject to the usufruct in respect of the other holder share. However, where a usufruct is created in favour of two persons jointly, the principles of the ius accrescendi apply on the death of t dying. In the same vein, where a usufruct is created in favour of spouses married in community of property, the usufruct does not lapse p respect of an undivided half share when one of the spouses dies, but the share of the deceased accrues to the surviving spouse. The us will only lapse in toto on the death of the surviving spouse.

In terms of trite law, more than one usufruct cannot exist concurrently on the same property. Furthermore, in terms of the maxim nemo p alium transferre potest quam ipse haberet, nobody can transfer more rights than he owns. It is thus clear that where a usufruct concerns which is already subject to a usufruct, the second usufruct cannot be registered. To circumvent this, practice has allowed for the registrat contingent usufruct. Registrars of deeds will allow that the bare dominium be registered subject to the existing usufruct and the deed will made subject to the condition in respect of the second usufruct (this being the contingent usufruct). The second usufruct is not registered only be claimed from the bare dominium owner once the first usufruct has lapsed. In terms of Registrars Conference Resolution 47 of 19 registrar of deeds will insist on the cession of the contingent usufruct as soon as he becomes aware of the lapse of the first usufruct.

A further example of a contingent usufruct is an owner of land who bequeaths a usufruct to his son, A who is married out of community o B, subject thereto that should B survive A, she will be entitled to the usufruct after the death of A. As already discussed, two usufructs ca concurrently on the same property. To overcome this problem, the registration of a contingent usufruct in favour of B is the only solution creating document for the usufruct must further be made subject to the condition that B may claim her usufruct only after the lapse of the usufruct in favour of A.

Where the contingent usufruct is one which contravenes the provisions of, for instance, the Subdivision of Agricultural Land Act 70 of 197 consent from the Minister will have to be lodged when the usufruct is ceded to the contingent usufructuary. Similarly, where transfer duty on the creation of the usufruct in terms of Section 2 of the Transfer Duty Act 40 of 1949, the transfer duty receipt or exemption certificate lodged. Whether a contingent usufruct can be regarded as a registered real right is a question open for debate. However, from a deeds registry a contingent usufruct is regarded as a real right. For this reason, the practice allows for the application of the provisions of Section 69, 6 regulation 41(7) of the Deeds Registries Act 47 of 1937 to property subject thereto.

If property is subject to a contingent usufruct, such property cannot be transferred or mortgaged free from the contingent usufruct. The h contingent usufruct can, by an underhand consent, waive his right in which case the provisions of Section 68(1) of the Act will be invoked lapsing of the usufruct against the title of the land.

Where the bare dominium owner and the holders of the usufruct and contingent usufruct together sell their respective rights to the proper provisions of Section 69(1) of the Act can be applied, in terms of which the bare dominium owner and both the usufructuary and continge usufructuary jointly act as transferors to transfer the property to the new owner, free from any usufruct.

Should only the initial usufructuary sell or waive his right, the contingent usufruct will have to be created notarially and the new transfer b subject thereto.

If in the event of the bare dominium owner wishing to register a mortgage bond on the property, it is debatable whether any bondholder w property subject to a usufruct and a contingent usufruct, as security. To afford the bondholder the maximum security, the holders of the u contingent usufruct may, together with the bare dominium owner, mortgage their respective rights. Alternatively, the holders of the usufru contingent usufruct can waive their rights in favour of the bond. This can be done either notarially or in the bond agreement in terms of re 41(7) of the Deeds Registries Act. Republished with Allen West's permission

The question is whether Agricultural Land still exist and if so, on what basis



1. The purpose of the Agricultural Land Act The essential purpose of the Agricultural Land Act (Act 70 of 1970) “the Act”) has been identified as a measure whereby the legislative in interest, sought to prevent the fragmentation of agricultural land into uneconomic units. 2. (a)

The definition of Agricultural Land “Agricultural Land” means any land, except – 1.


land situated in the area of jurisdiction of a municipal council, city council, town council, village council, local board, health board committee …… but excluding any such land declared by the Minister after consultation with the executive concerned and by not Gazette to be agricultural land for purposes of this act;

land which the Minister after consultation with the executive committee concerned and by notice in the Gazette excludes from the

The following proviso was added to the definition by proclamation 100 of 1995 (“the proviso”) issued by the President in terms of section interim Constitution Act (Act 200 of 1993) (“the transitional act”):-

“Provided that land situated in the area of jurisdiction of a transitional council as defined in section 1 of the Local Government Transitiona 1993) which immediately prior to the first election of the members of such transitional council was classified as agricultural land and shall classified as such.” 3. Prohibition of certain actions regarding agricultural land Subject to the provisions of section 2 – 1. 1.


agricultural land shall not be subdivided; (i)

no portion of agricultural land… shall be sold or

advertised for sale no right of such portion shall be sold…….

unless the Minister has consented thereto in writing.

4. At issue At issue was the validity of written agreement concluded on 6th of December 2004 in terms of which Stalwo (Pty) Ltd (“Stalwo”) sold a su portion of the farm No 8 Port Elizabeth to Wary Holdings (Pty) Ltd (“Wary”). Stalwo refused to give transfer to Wary on the grounds that the agreement of sale was invalid. Wary approached the High Court in Port a declaratory order that the agreement was valid and that Stalwo should effect transfer to it.

Wary’s defence that the agreement was invalid was founded in main on the basis of no compliance with the provisions of section 3 of the Land Act.

5. The High Court The High Court upheld the defence and dismissed Wary’s application on the basis that the proviso to the definition of Agricultural Land “p point in time with reference to which it must be established if land qualifies as agricultural land. If at that point in time, it is to be regarded agricultural land it remains so notwithstanding any change to local government structures and their boundaries. This point in time is the f of the members of the transitional council. It is common course that at this point in time portion 54 qualified as agricultural land. It follow remained so and still was agricultural land at the time the agreement was entered into”. 6. Supreme Court of Appeal Wary then appealed to the Supreme Court of Appeal against the decision of the High Court.

The Supreme Court of Appeal inter alia held that the ‘proviso’ only applied during the existence of the Transitional Councils and did not a sale. The Supreme Court of Appeal upheld the validity of the contract and found for Wary. 7. Constitutional Court of South Africa Stalwo was granted leave to appeal in the Constitutional Court of South Africa.

Before the Court was the Minister of Agricultural and Land Affairs who was admitted as an intervening party and Trustees of the Haazekr Highlands Trust and Safamco Enterprises (Pty) Ltd as amicus curiae. 4

They supported the view put forward by Wary and raised additional arguments relative to the ‘proviso’ legislative history and the constitut importance that the Minister should regulate agricultural land.

In his judgement which was handed down on 25th of July 2008 Kroon AJ on behalf of the majority finds that in his view the interpretation to the ‘proviso’ is that the duration of the classification of the land as agricultural land was not tied to the life of the transitional council and Supreme Court of Appeal erred in this regard.

The reference in the ‘proviso’ that land within the area of a transitional council was dictated by the factual position existing at the time and was done, was by pinpointing the stage from which land classified as agricultural land, would remain to be so classified.

The intention of the legislature with the introduction of the ‘proviso’ was to ensure the continued existence of ‘agricultural land’ and the M continued control over it through the provisions of the Agricultural Land Act thereby achieving the purpose of the Act despite the establish transitional councils.

The enhanced status of present day Municipalities and the fact that they have extended powers is not enough reason for the doing away Minister’s control over agricultural land. The order of the Supreme Court of Appeal was accordingly set aside and the order of the High Court reinstated.

The position is now clear in that any agricultural land which was classified as such immediately prior to the time of the first election of the the transitional council shall remain classified as such and any subdivision thereof shall be subject to the Minister’s approval, failing whic agreement shall be null and void ab initio in terms of section 3 of the Act. Contribution by Thys Sutherland of our property law department.


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June 2009

OVERVIEW OF THE CONSUMER PROTECTION ACT NO. 68 OF 2008 (“THE ACT”) Introduction The Act will come into effect from October 2010 and will have far reaching consequences on the South African economic landscape and consumers in general. The purposes of the Act are, amongst others, to protect consumers from exploitation and unfair marketplace practices, to promote and advance the social and economic welfare of consumers, to empower consumers and to develop a culture of consumer responsibility. The purpose of this article is to briefly set out the application of the Act.

Application of the Act The Act will apply to all transactions concluded in the ordinary course of business of a supplier, “occurring” within South Africa, for the supply to the consumer, or at the direction of the consumer, of goods or services in return for a consideration. The Act will also apply to goods and services which are “promoted” within South Africa to the extent to which such goods and services are reasonably capable of being subject to any transaction as mentioned above. Goods and Services The Act casts a very wide net in respect of the goods and services which are subject to its provisions. Goods are defined as any tangible goods “marketed” for human consumption, tangible objects including any medium on which anything may be written or recorded, any intangible product as well as the license to use same, a legal interest in land and gas, water and electricity. Services are defined as any work or undertaking for the direct or indirect benefit of another, the provision of education, information, advice or consultation (excluding advise which is subject to the Financial Advisory and Intermediary Services Act), banking services and related services including the assumption of risk on behalf of another (excluding advise which is subject to the Financial Advisory and Intermediary Services Act or the Short and Long Term Insurance Acts), the transportation of goods and people, the provision of a right of occupancy of any land regardless of whether or not such can be classified as a lease agreement, rights of franchise and, the provision of accommodation, entertainment or similar intangible product, electronic communication infrastructure, a right of access to any event, premises (regardless of whether such can be classified as a lease agreement), activity or facilities Exempt Transactions The following transactions are amongst those exempt from the Act: 1. Where the consumer is a juristic person and its annual turnover or asset value at the time of the conclusion of the transaction exceeds an amount published by the Minister responsible for consumer protection matters (the Minister has not yet determined the threshold). It is important to note that this exemption will not apply to Franchise offers or agreements;

2. Transactions which are subject to the National Credit Act No. 34 of 2005; 3. Services supplied in terms of an employment contract. Conclusion The Act has a very wide ambit and contains provisions that will bring about a drastic reform in the manner in which businesses are conducted in South Africa. The Act provides for, amongst other non-compliance provisions, imprisonment of up to 10 years and administrative fines of up to R1, 000, 000.00. Over the coming two months we will provide subsequent summaries of the fundamental consumer rights, protection of consumer rights, national protection institutions and the enforcement provisions of the Act. Article by Dean Milton

CAN SOUTH AFRICA ADDRESS THE CURRENT SKILLS SHORTAGE CRISIS? Our young economic and democratic dispensation is facing a major threat from the shortage of relevant and adequate skills required to support our economic growth. This problem is exacerbated by the reluctance of large corporate entities to invest in apprenticeship programs. Their argument is that the length of time and large amount of financial resources spent on individuals were often lost when competing companies poached them.

In an effort to reduce the skill shortage currently experienced in South Africa, our previous deputy President, Phunzile Mlambo-Nguka in 2006 launched the Joint Initiative on Priority Skills Acquisition (JIPSA). JIPSA compiled a data base of skills currently needed with the focus on engineering and planning skills for the transport, communication and energy industries; city, urban and regional planning and engineering skills; artisans and technical skills; concentrating on infrastructure development; management and planning skills and education, health and municipalities; teacher training in math, science, ICT and language competence; specific skills needed by the tourism and business process outsourcing sectors; and skills relevant to the local economic development municipalities. So far JIPSA has achieved great successes with the implementation of the abovementioned initiative. However, the JIPSA program is a long term orientated goal and does not address the current skills shortage in South Africa. Maria Ramos, Transnet’s Chief Executive, said in an article published on the web by Business Report on the 24th May 2007 that: “the skills challenge was a temporary thing. People often confuse the existence of people with degrees and qualifications with people with experience. Having many people that have graduated with an engineering degree does not mean having experienced engineers. I would hate to be a young engineer, because you are in so much demand. Everybody is quite happy to pay you a lot of money, they expect the world from you and you do not have the experience to deliver the world.” How can South Africa address the current skills shortage crisis? Sourcing skills from abroad seems to be the obvious short term solution. Government has already realized that importing skills can and should be a rational and well managed strategy aimed at competing vigorously in the Global market for talent and will contribute to South African’s human capital and therefore will accelerate and lead to sharing of economic growth. Foreign skills are the quickest way to expand our skills base and develop our own human capital. Sourcing skills from abroad will help build South Africa just as other countries have done the same, and will lead to South Africa reaping the benefits. They are no threat against which South African’s should have to be protected. South Africa currently is most in need of millwrights, electricians, fitters and turners, patron makers and injection molders and tool, jig and dye makers. Industry figures also predict that the demand for skilled artisans is approaching the 30 000 mark, while the need for semi skilled labor was increasing by more than 20% per year. In the late 1970’s early 1980’s, there were 30 000 annual registered apprenticeships. That number decreased to 3 000 two years ago and last year to 1 400. In conclusion, the remedy to our skills shortage is, in essence, two tiered: 1) to address the current skills shortage, skilled workers may be sourced from countries abroad. This will help to ensure that our burgeoning economic growth is not stifled by the skills shortage.

2) to address our long terms skills shortage, the Government initiative program JIPSA is focusing on improving the level and quality of education so that people can graduate with skills useful skills in our economy. By addressing the skills shortage problem in South Africa all the key players involved can assure that despite the current economic turmoil, South Africa can move forward by positively expanding its economic growth with the necessary skills as may be expected from a developing country. Article by Maritza Breytenbach

Broad Based Black Empowerment Act No. 53 of 2003: Sector Charter for the Construction Industry


2. 3.

In terms of the Sector Charter all enterprises that are involved in the design, planning, expansion, creation and/or maintenance of fixed assets related to residential or non-residential buildings, infrastructure or any other form of construction works in South Africa fall under this Sector Charter. The Charter is structured according to a 7 (seven) year time frame. This includes civil engineering contractors and build environment professionals such as consulting engineers, architecture and quantity surveyors. The Charter sets out the obligations on participants within the construction sector and enshrine targets across the seven BEE elements that will be measured according to a scorecard. The Sector Charter aligns with the Generic Code of Good Practice in terms of the BEE Act but with sector specific peculiarities.

2. 7 BEE ELEMENTS The 7 BEE elements are: 1. 2. 3. 4. 5. 6. 7.

Ownership; Management control; Employment equity; Skills development; Preferential procurement; Enterprise development; Socio-economic development initiatives.

See Scorecards below setting out the Compliance targets for the 7 BEE Elements. 2. SCOPE The scope of application covers various industries within the construction sector that broadly align according to two disciplines, namely the build environment professionals such as consulting engineers (“BEP”) and the contracting fraternity. The proposed codes differentiate in certain instances between these two disciplines on the basis of differentiated organizational structures and business models. See attached Annexures for the weighting points and compliance targets in respect of the seven BEE elements. Johan Kruger 3. THE OWNERSHIP SCORECARD

Category 1.1 Voting Rights

Ownership Indicator: Black people

Weighting points

Compliance Target

1.1.1 Exercisable Voting Rights in the Enterprise



1.1.2 Exercisable Voting Rights in the Enterprise





1.2.2 Economic Interest of Women



1.2.3 Economic Interest of the following Black Natural People in the Enterprise: Black Designated groups; Black Participants in Employee Ownership Schemes; Black Beneficiaries of Broad Based Ownership Schemes; Black Participants in Co-operatives 1.3 Realisation Points 1.3.1 Ownership fulfillment


10% Contractors 5% BEP’s


Release of all Black participants from third party rights arising from

1.2 Economic Interest 1.2.1 Economic Interest in the Enterprise

1.3.2 Net Value


financing of the shares Points are determined on a graduation factor based on a loan repayment period – Code 100


Category Management Control Indicator 1.1 Board Participation: 1.1.1 Exercisable Voting Rights of Black Board Members using the Adjusted Recognition for Gender 1.2 Top Management: 1.2.1 Black Senior Top Management using the Adjusted Recognition for Gender

Weighting points

Compliance Target




25% (Year 0 – 4) 40% (Year 5 – 7)



Measurement Category and Criteria: Black Employees

1.1.1 Senior Management Category as a percentage of all such employees using Adjusted Recognition for Gender. 1.1.2 Middle Management Category as a percentage of all such employees using Adjusted Recognition for Gender. 1.1.3 Junior Management Category as a percentage of all such employees using Adjusted Recognition for Gender. 1.1.4 Disabled Employees as a percentage of all office based employees using the Adjusted Recognition for Gender.

Weighting Points

Compliance Target


Years 0-4 25%

Years 5-7 40%

















= 1.1.5 Disabled Employees as a percentage of all office based employees using the Adjusted Recognition for Gender. 1.1.6 BEP: Employees in all Management Categories as a percentage of all such employees using the Adjusted

Recognition for Gender.



Skills Development Element

Weighting Points

Compliance Target

Contractors BEP 1.1 Skills Development Expenditure on any programme specified in the Learning Programmes Matrix (Code 400, P57) 1.1.1 Skills Development Expenditure on all employees 2 2.5 1.5% as a percentage of Leviable Amount. 1.1.2 The portion of Skills Development Expenditure, 3 4 70% spent on Black Employees, as a percentage of Skills Development Expenditure on all employees using the Adjusted Recognition for Gender. 1.1.3 The portion of Skills Development Expenditure, 1.5 2 25% spent on Black Employees in all Management Categories, as a percentage of the portion of Skills Development Expenditure spent on Black Employees, using the Adjusted Recognition for Gender. 1.2 Learnerships 1.2.1 Number of Learners participating in Learnerships 1 1.5 2.5% or Category B, C and D programmes as a percentage of Contractors/ total employees. 1.5% BEP’s 1.2.2 Black Learnership and/or Black Category B, C and 2.5 3.5 70% D programme participants as a percentage of total Learnerships and Category B, C and D programme participants using the Adjusted Recognition for Gender. 1.2.3 Black People with disabilities participating in 1 1.5 5% Learnerships and/or Category B, C and D programmes as a percentage of Black Learnships and Black Category B, C and D programme participants using the Adjusted Recognition for Gender. This Item only applies to office based employees. 1.3 Bursaries 1.3.1 Scholarship and/or Bursary Expenditure on Black 2 2.5 0.3% Students, as a percentage of Leviable Amount 1.4 Mentorship 1.4.1 Implementation of an approved and verified 2 2.5 Yes to all criteria mentorship programme as set out in the Sector Charter=


Criteria: B-BBEE= 1.1 Procurement Spend 1.1.1

Spend on all Suppliers based on the

Weighting points 12

Compliance Target 0-4 Years

5-7 Years



Procurement Recognition Levels as a Percentage of Total Procurement Spend 1.1.2 Procurement Spend from Qualifying Small Enterprise or Exempted Micro Enterprise based on the applicable Procurement Recognition Levels as a percentage of Total Measured Procurement Spend 1.1.3 Procurement Spend from any of the following Suppliers as a percentage of Total Measured Procurement Spend: Suppliers that are 50% black owned. Suppliers that are 30% black women owned.




3 2

9% 6%

12% 8%



1.1 Enterprise Development Program 1.1.1 Compliance with the Requirements and Guidelines for an Enterprise Development Program for at least one recipient. The Measured Entity must submit an annual portfolio of proof indicating compliance with the pre-requisites as well as adherence to the Guidelines for an Enterprise Development Program. 1.2 Enterprise Development Contributions 1.2.1 Average annual value of all Enterprise Development Contributions and Sector Specific Programmes made by the Measured Entity as a percentage of NPAT/Leviable Amount.

Weighting Points

Compliance Target





Yes to all program requirements and prerequisites



3% of NPAT (Contractor)/0.75% of Leviable Amount (BEP)


Criteria Average annual value of all Socio-Economic Development Contributions by the Measured Entity as a percentage NPAT/Leviable Amount.

Article by Johan Kruger

Key contacts: Theunis Liebenberg Email:

Weighting 5

Compliance Target 1% of NPAT(Contractor)/ 0.25% of Leviable Amount (BEP)

Johan Kruger Email: Maritza Breytenbach Email:

TLi Group Companies

July 2009

Owner or Seller of property liable for misrepresentation made by the estate agent on his/her behalf In the hereinafter mentioned decision of Odendaal v Ferraris, the Court also came to the conclusion that the Seller is answerable for the misrepresentation by the agent in the course of execution of his mandate. Conclusion: It is advisable to include a clause in the agreement of sale to the effect that the Purchaser acknowledges that no representations, undertakings, etc have been made by the Seller or any agent or person on his behalf other than those contained in the agreement of sale. Contribution: Thys Sutherland

Fulfillment of suspensive conditions in an agreement of sale

In the case of Marais v Kovacs Investments 724 (Pty) Ltd (“Kovacs”) [2009] I Ali SA 174© Kovacs purchased a property from the Seller, Marais. In terms of the agreement of sale it was subject to the suspensive condition that the Purchaser is granted a loan for a specified amount by the 15th of August 2005 in order to pay for the balance of the purchase price. The agreement further stipulated that the suspensive condition is inserted for the benefit of both the Seller and the Purchaser and that the agreement could only be varied or terminated by mutual agreement between the parties. A loan was granted to Kovacs prior to the stipulated date of 15th of August 2005, but for a lesser amount than that stipulated in the agreement. Kovacs advised the Seller that the suspensive condition had been fulfilled and he remained in the property and continued to pay the occupational interest. He however failed to mention that the bond was granted for a lesser amount than was stipulated in the agreement. Months later Marais applied for a declaratory order that the agreement had lapsed. In a counter application Kovacs sought interim relief in the form of an interdict to restrain Marais from alienating the property and an order to have the agreement declared valid and binding. The issues before the Court were whether there had been “substantial” fulfillment of the suspensive condition, alternatively whether the parties, by mutual agreement, waived compliance with the suspensive condition, alternatively whether Marais was estopped from denying that the suspensive condition had been fulfilled due to the time lapse. The Court found that “it is now settled Law that if a suspensive condition in a contract has not been fulfilled by the date stipulated for its fulfillment, the agreement automatically falls away”. There was no evidence before the Court to indicate that Marais waived his right to the fulfillment of the suspensive condition and it is agreed that even if the suspensive condition was inserted for the exclusive benefit of Kovacs, Kovacs was still obliged to communicate his waiver thereof to Marais by the 15th of August 2005. The Court further held that: (i) the agreement lapsed on the 15th of August 2005 and such contract could only have been reinstated by the entering into of a new agreement of sale “to breathe new life into the corpse” (ii) Kovacs’ defense that a tacit agreement existed between the parties to waive fulfillment of the suspensive condition is also not acceptable in that the agreement contained a non-variation clause whereby any variation had to be in writing and signed by the parties to be of any force or effect. It is further argued that in terms of the Alienation of Land Act 68 of 1981, an amending agreement must comply with the provisions of the Act. Conclusion: If the suspensive condition in an agreement is not fulfilled by the date stipulated in the agreement, the agreement automatically falls away. In the words of the Judge - one cannot “breathe new life into the corpse”. Contribution: Thys Sutherland

Property sold voetstoots – immovable property defects not limited to physical condition

It would appear that the final word has not yet been spoken about the nature of the defects which are covered by the voetstoots clause in an agreement of sale. In a recent Supreme Court of Appeal Case of Odendaal vs Ferraris [2008] 4 All SA 529 (SCA) this came to the fore whether a “defect is to be restricted only to the physical attributes of the merx or to apply more broadly to extraneous factors affecting its use or value,” The facts of the Court case were briefly – (i) Ferraris purchased a property from Odendaal; (ii) After taking occupation of the property Ferraris discovered various defects in the property which were not disclosed to him and suggested that these defects were purposely not disclosed to him; (iii) He also discovered that some of the improvements to the property were done without approved plans by the Local Authority and these facts were also not disclosed to him; (iv) Ferraris put a stop to the transfer and Odendaal applied for eviction of Ferraris on the basis that Ferraris’ failure to allow transfer to proceed constituted a repudiation of the agreement of sale on the strength of which Odendaal cancelled the sale; (v) Odendaal applied to the High Court for the eviction of Ferraris; (vi) The High Court declined such order of eviction, it is not clear on what grounds or whether the Court found Odendaal concealed certain defects, nor does the Court deal with the legal principles of the voetstoots clause; (vii) Appeal was noted against the High Court’s refusal to grant an application for the eviction of Ferraris by Odendaal; (viii) Odendaal’s submission was that Ferraris’ defence of non-disclosure of defects is not valid in that the voetstoots clause in the agreement specifically protects Odendaal against any non-disclosure; (ix) In the Supreme Court of Appeal, Counsel for Ferraris relied on a new point of law, namely that the voetstoots clause did not protect the appellant from her failure to obtain statutory approval for the construction of the improvements that were not in accordance with approved plans. The Court found support for its submission in the decision of Goldblatt J in van Nieuwkerk vs McRae where the judge held that in a sale of residential property a buyer is entitled to assume that the buildings on a property were erected in compliance with all statutory requirements and that it could be used to its full extent. Goldblatt J went on to hold that a Seller cannot in these circumstances rely on a voetstoots clause since it excludes liability for any latent defects of a physical nature, but does not apply to “the lack of certain qualities or characteristics which the parties have agreed the merx should have.” The Appeal Court looked at various other decisions of the Courts and the nature of the various defects covered by the voetstoots clause. On Page 536 the Court found that “This conclusion raises the more general question of the nature of the defect that would fall within the scope of a voetstoots clause. Its ambit was left open in Ornelas, though the Court rightly emphasized that the exclusionary scope of a voetstoots clause in any particular case must be decided on its own facts. In a broad sense, any imperfection may be described as a defect. Whether the notion of a “defect” is to be restricted only to physical attributes of the merx or to apply more broadly to extraneous factors affecting its use or value has generated discordant judicial and academic opinion. In relation to a voetstoots sale of land, for example that is sale of land “as it stands”; it has been held that the language is wide enough to cover not only any hidden defect in the property itself, but also any defect in the title to, or area of, the property”. The Supreme Court of Appeal was rather hesitant to formulate a general rule and stated as follows “but I refrain from expressing a view thereon since, as pointed out, the basis of the decision thereto [referring to another case] was that something entirely different was delivered from what has been sold.” The Supreme Court of Appeal found that the improvements were effected without the Council’s approval and that “in my view…. the absence of statutory approval such as at issue here…. constitutes a latent defect”. This resulted in Odendaal’s argument being correct in that he was protected by the voetstoots clause. This however is not the end of the matter it is “trite” law that if the Purchaser wishes to circumvent the reality of the voetstoots clause, the Purchaser is obliged not only to prove that the Seller had knowledge of such undisclosed defect and failed to disclose it, but also that the Seller purposely withheld such information with the intention to defraud. It follows that the appeal was upheld.

Conclusion: The Supreme Court of Appeal has really gone overboard, unless one can prove that the Seller had knowledge of the latent defect and not only did not disclose it, but also that he/she deliberately concealed it with the intention to defraud. This places an impossible burden on the Purchaser in that it is almost impossible to proof that the Seller had deliberately concealed the defect with the intention to defraud the Purchaser. We can only say “Quo Vadis� Appeal Court Contribution: Thys Sutherland

Key contacts: Edine Jordaan Email: Thys Sutherland Email:

September 2009 - Issue2

Is the registration of a Mortgage Bond regarded as a disposal of the assets if the major portion is bonded in terms of Section 228 and will a shareholders resolution be required? In the High Court of South Africa (Western Cape High Court) Case No 15427/08 in the matter between – The Standard Bank of South Africa Limited as the Plaintiff and Hunkydory Investments 188 (Pty) Ltd as First Defendant

In this yet unreported judgment which was delivered by Owen Rogers A.J on the 1st of June 2009, the facts were briefly that:1. The Plaintiff, a Bank, seeks summary judgment against the Defendant, a Company, on the strength of four mortgage bonds. The action was instituted by simple summons. 2. Copies of four bonds were attached to the summons and an order was sought declaring the hypothecated property executable together with costs of suit. 3. Notice of intention to defend was delivered in response to which the Plaintiff applied for summary judgment. 4. The issues before the Court were 4.1 The constitutional challenge that it is unconstitutional for the National Credit Act to exclude juristic persons from its ambit in the manner set out in Sections 4(1)(a) and 4(1)(b). The Judge found:- “Precisely the same point had been raised in a Court Case 6408/08 on 10 October 2008, my colleague Elize Steyn A.J gave judgment in case 6408/08 rejecting the constitutional challenge and granting judgment. The Defendant in the present matter was aware of this case …” 4.2 Turning to the other grounds of opposition the Judge continued “I shall consider first the Defendant‟s contention that the mortgage bonds are not binding on it because the passing of the bonds constituted disposal as contemplated in Section 228 of the Companies Act 61 of 1973 and because shareholder

resolutions as required by that section were not procured…. In addressing these questions I shall assume in Defendant‟s favour that the property was at all material times the Defendant‟s only or major asset.” Clause 11: “As to the legal question, the issue is whether registration of a mortgage bond over a Company‟s major asset constitutes an act whereby the Company “disposes of” the whole or greater part of the assets within the meaning of Section 228(1). The range of transactions encompassed by the phrase “dispose of” has been the subject of some discussion in academic writing. Since the issue is one of considerable practical importance, it warrants careful consideration.” The Judge continues under Clause 12 on Page 6 of the judgment:- “The ordinary meaning of the phrase “dispose of” is “to make over or part with by way of sale or bargain, sell”, “to transfer into new hands or to the control of someone else (as by selling or bargaining away)”. [see Kinloch NO and Another v. Kinloch 1982 (1) SA 679 (A) at 697H–698C]. “The Afrikaans text uses the verb “vervreem” which was said in Grobler v Trustee Estate De Beer 1915 AD 265 to mean the act of transferring ownership (at 274). I do not think that one would ordinarily describe a transaction whereby a debtor agrees to the hypothecation of his property as one whereby the debtor disposes of the property to the creditor or to anybody else. True, if the debtor defaults and the creditor becomes entitled to execute on his security, the property may then be transferred and lost to the debtor, but the object of the transaction from the debtor‟s perspective is not to part with his property and if all goes well the property will stay with him. If the property is eventually disposed of, it will not be because it is the wish or intention of the debtor, but because the creditor has rights under the bond which, because of the debtor‟s default, can be enforced by the creditor no matter what the debtor‟s wish may be. Moreover, when property is sold in execution, the person who sells the property is the sheriff, not the debtor.” The Council for the Defendant also submitted that prohibition on alienation also prohibits hypothecation, but on this the Judge reflected as follows: “The case of Estate Foley Alias Melville v Natal Bank (1883) 4 NLR 26 concerned a statutory provision to the effect that no transfer of shares would be valid until approved by the Director. The Court held, with reference to certain old authorities, that when alienation is prohibited, so is pledging or hypothecation…I can understand that in certain contexts the same reasons which justify limitations on an outright disposal would also apply to hypothecation, but it is not of much assistance in interpreting the words “dispose of” in the Companies Act. I may add that a restriction on the “transfer” of shares may potentially have a different meaning from a restriction on the “disposal” of shares.” “In any event, I consider the description of a mortgage as „the first step towards a disposal of the hypothecated property‟ as not really accurate. Whenever a Company borrows money or incurs a debt, the Company‟s assets are exposed to the risk of attachment and disposal by judicial sale…… The only real difference the mortgage makes is that if the Defendant were to have other creditors apart from the Bank, the mortgage would give the Bank preference in the judicial sale….” Section 70(dec)(2), which was the predecessor of Section 228, in the 1926 Companies Act was introduced therein by Act 46 of 1952. In terms of the Millin Commission and its Report in 1948, the need was recognized to give shareholders greater protection from potential abuses of powers of directors, but in its final report it specifically stipulates “we have been urged to recommend a provision in the act to restrict the borrowing powers of directors on behalf of the Company, but on consideration, we think this is a matter which can be left, as in the past, for regulation by the Articles of Association. See Section 51 of Table A”. The Judge continues with his judgment in Clause 21 on Page 12 “This makes it clear, I think, that the mischief at which the new section was directed was a disposal in the form of a transfer of ownership rather than a transaction which exposed the Company‟s assets to the risk of forced disposal because of borrowings.” In Clause 23 on Page 15 of the judgment the Judge concluded: “Accordingly, and accepting for the moment that in certain contexts the words “dispose of” might be given a wide meaning that could include hypothecation, I see no warrant for adopting the wide meaning in Section 228(1). The meaning I favour is the one espoused by the authors of Henochsberg on the Companies Act at Page 444. It is supported by the prima facie view expressed by Basson A.J in Advance Seed Company (Edms) Bpk v Marrok Plase (Edms) Bpk 1974 (4) SA 127 (NC) at 132E…… I thus conclude that in Law the Section 228 point is bad.” Judgement is granted in favour of the Plaintiff declaring the hypothecated property executionable. I trust that this decision will put to rest the uncertainty that existed regarding Section 228 of the Companies Act

insofar as bond registrations are concerned and whether the registration of the bond constitutes disposal as contemplated in Section 228 to which the shareholders are obliged to consent. It is to be pointed out that this is a decision by the Western Cape High Court and is not binding on other Provincial High Courts, but I am of the opinion that this is a quality decision and likely to give a clear direction to the other divisions of the High Court and the High Court of Appeal. Key Contact: Thys Sutherland (Director: Property Department). Email: Tel: +2711 326 1330

YOU NEED A BIGGER DEPOSIT TO GET A HOME LOAN (appeared in THE SATURDAY STAR of 22 August 2009) The prime lending rate has dropped to 10.5%, its lowest level in three years, but banks are tightening up their lending criteria and you will need to put down a sizeable deposit if you want to qualify for a home loan. You will also have to pay the transfer and registration costs from your own pocket. Saul Geffen, the chief executive of mortgage originator Ooba, says the latest oobarometer (Oobaâ€&#x;s house price index) shows a trend of diminishing average bond amounts month-on-month. In July, the size of the average approved bond dropped by 7.7% to R 587 222.00 from R 636 169.00 in June.

”The continuing drop in the average bond size is a reflection of the banks‟ increased deposit requirements” Geffen says. Year-on-year, the average deposit as a percentage of the purchase price, continues to show a significant increase: it was up by 30.8% from July last year. According to the oobarometer, buyers are putting down an average deposit of 24.2% of the purchase price to secure a bond, compared to 18.5% in July last year. The oobarometer shows that, month-to-month, the required deposit has increased by 28% since June. However, Personal Finance has it on good authority that at least one of the four big banks will be taking a more favourable stance on deposits for home loans from next month. The current lending criteria of the major banks are: STANDARD BANK Standard Bank is not granting 100% mortgage bonds, regardless of the property value. For properties valued at up to R 300 000.00, you can get a 95% loan. For properties valued between R 300 000.00 and R 2.5 million, you can get a 90% loan, and for properties valued at R 2.5 million and more, you can get an 80% loan. These terms are much tighter than they were in June last year when Standard Bank announced that it would grant 100% home loans for properties valued up to R 750 000.00. For properties valued between R 750 000.00 and R2.5 million, you could get a 95%, and for properties valued between R2.5 million and R 3 million, you could get a 90% loan. Currently, if you are purchasing vacant land, you can get a loan of 75% if you are an existing Standard Bank customer. If you are not a Standard Bank customer, you can get a 75% loan if the land has a value of under R 1 million and a 60% loan if the value is more than R 1 million. Last year Standard Bank sold repossessed properties for a total of R 131 million (this amount was set off against the outside debt on the properties), which is 42% higher than the 2007 amount of R92 million. ABSA BANK Absa requires a 15% deposit on a home loan if you are an existing client and a 30% deposit if you are not an Absa client. If you are buying vacant land you will have to put down a 40% deposit. The average deposit on an Absa home loan is 22.6%, up from an average of 14.4% last year. Luthando Vutula, the managing executive of Absa Home loans, says the tighter deposit requirements have been implemented as a result of the declining property market. “The extent of the deposit requirements are directly related to the performance of the property market in the different property value segments and the pace with which property prices have declined in these segments” he says. However, Vutula adds that if you cannot meet the deposit requirements, the bank will accept other forms of collateral, such as your retirement savings. FIRST NATIONAL BANK Jan Kleynhans, the chief executive of First National Bank (FNB) Home Loans, says the bank is repossessing about 40 properties a month, or about 480 properties a year at a total value of about R 300 million. Repossessions have nearly doubled since a year ago, he says. “Despite the drop in interest rates, real disposable income in the household is declining, and with it the capacity to reliably service debt in the future,” he says. If you buy a property valued below R1.5 million, you can get a loan of 90% with FNB and if you buy a property valued at more than R 1.5 million, you can get a loan of 80%. Kleynhans says FNB is offering higher loans than other banks as it is confident that the current environment is a good opportunity to attract “good risk” customers. The bank has introduced a “quick sell” programme to help customers who are battling to meet their bond repayments to fast-track the sale of their homes before their homes are repossessed. If you purchase a “quick sell” property, FNB will give you a 100% loan, which means you only need cash to pay for transfer and registration costs. For a list of the properties available, go to NEDBANK Clive van Horen, the managing executive of retail secured lending at Nedbank, says the bank offers 90% loans on properties valued at under R 3 million and loans of 85% on properties valued at more than R 3 million (these terms apply whether or not you are an existing Nedbank client). “The volume of new home loan applications has dropped by more than 50% from the first half of 2008 to 2009, suggesting that consumers‟ concerns about the broader economic environment are causing them to hold back on buying houses” he says. Van Horen says the bank tightened its lending policies in the second half of last year in anticipation of the increased risk levels and higher cost of funding. “We believe this was the only logical response to protect the bank‟s capital and depositors,” he says. Nedbank‟s home loan approval rate has declined since last year from an average of one of three applications to one out of four applications. Van Horen says the rate is likely to improve only once consumer indebtedness declines, economic growth resumes, discretionary incomes increase and house prices stabalise. Nedbank offers 100% loans on repossessed properties and properties sold via the Nedbank auction programmes, where distressed homeowners can sell their properties to avoid repossession.

Key Contact: Arnold Schoombee Email: Tel: +2711 326 1330 THE CAUSALTHEORY vis-à-vis THE ABSTRACT THEORY OF TRANSFER OF OWNERSHIP OF IMMOVABLE PROPERTY A critical part of the Registrar‟s duty in the process of conveying property is to ascertain whether there is a valid causa for the transaction and more specifically whether the transferor had the locus standi to transfer the property in question. The court case Legator MvKenna v Shea (143/2008) (2008) ZASCA 144 (27 November 2008) virtually transforms the concept of a valid causa into an aspect of controversial dimensions by triggering the long standing debate around the feasibility of the abstract theory of transfer as compared to the causal theory of transfer. For the sake of clarity the basic semantics of an Abstract and a Causal theory are now briefly discussed: Abstract Theory: according to this theory, the legal ground giving rise to delivery plays no essential role in the transfer of property and as such it is irrelevant whether the causa is defective or faulty. All that is required is the intention to pass and receive ownership; furthermore the transaction must contain an obligation-creating agreement. The said agreement comprises the reason for passing of ownership and the real agreement in which consensus for transfer is achieved. Whether or not the causa is defective, ownership passes if the real agreement is essentially valid. Causal Theory: according to this theory a valid underlying transaction known as the iusta causa is a prerequisite for the passing of transfer. Simply put, the causal theory lays down that if the causa for the transfer of ownership is defective, ownership will not pass; notwithstanding that there has been delivery in the case of movables or registration in the case of immovable property, resulting in a registered deed of transfer being cancelled and the property being transferred back to the real owner. On 8 March 2002, McKenna was appointed as curator in the estate of Ms. Shea as the latter had suffered brain injuries in a motor car accident which rendered her incapable of managing her own affairs. The appointment of the curator was not given in the form of Letters of Authority/Curatorship. On 22 April 2002, McKenna sold the property to the Erskiness family (even though he was not yet in possession of the requisite letters of appointment); and claimed that the sale was urgent as he had discovered that Ms. Shea was afflicted by numerous pressing debts that could only be defrayed by the sale of the immovable property. The Master of the High Court eventually issued the Letters of Curatorship in terms of Section 72(1)(d) of the Administration of Estates Act 66 of 1965(3 June 2002); however the requisite consent from the Master was only received on 17 July 2002. The registration of the transfer was effected at the Pietermaritzburg deeds registry on 27 July 2002. On 10 March 2003 the Durban High Court declared Ms. Shea capable of managing her own affairs based on her impressive recovery. Almost a year later she instituted action in the Durban High Court for the return of her immovable property. This action was granted by the court based on the following reasons: 1.

The sale agreement entered into between McKenna and Erskiness was invalid because Mckenna had not received the requisite Letters of Authority from the Master of the High Court (although he was appointed as curator bonis).


On further inspection it is clear that the Letters of Authority (issued on 3 June 2002) and Consent (given on 17 July 2002) were obtained after the Agreement of sale was entered into on 22 April 2002; therefore the curator had no authority to enter into the said agreement. The decision of the court is therefore in line with the Causal Theory.

Mckenna appealed the Durban High Court decision and based his contention on the Abstract Theory. The Appeal Court held that Mckenna had not entered into a valid agreement with the purchaser because he made the sale subject to a suspensive condition that the sale was subject to approval by the Master, but however failed to make the suspensive condition a condition of sale in terms of the Alienation of Land Act 68 of 1981 and also because the purchaser had not expressly accepted the condition, thereby, in the absence of the express acceptance rendering the agreement invalid. The appeal court then gave the following ruling: “If both parties to an invalid or purported invalid agreement have performed in full, neither party can recover where the lawful purpose of their transaction, common to them both, has been achieved.” Therefore Ms. Shea could not

claim her property back as the intentions of the parties to the transaction had been achieved (the Abstract Theory). Accordingly the court upheld McKenna‟s appeal. With regards to the transfer of movables, the South African courts have long ago opted for the Abstract Theory in preference to the Causal Theory; however some uncertainty remained regarding the transfer of immovable property. In the High Courts that uncertainty has now been eliminated in various recent decisions, most notably Legator McKenna v Shea (143/2008) (2008) ZASCA 144 (27 November 2008) where Brand, JA, writing for a unanimous court stated that “the time has come for [it] to add its stamp of approval to the viewpoint that the Abstract Theory of transfer applies to immovable property as well”. Key Contact: Arnold Schoombee Email: Tel: +2711 326 1330 TLi Group Companies

TL Li Inc. 25 51 Main Avenue, corner Repu ublic Road Fe erndale Ra andburg T: +27 11 326 1330 1 F: 086 651 6813 3


Trraditionally th he  notion  of  value  was 

perceived narro owly as financiaal value  

This isssue


Corp porate Governance for S South

Africa: King III R Report


Key Contact: Johan K Kruger

+2711 326 6 1330

K King Report  on Governaance for South Africa:   K King III Repo ort    1 1.


fo or Shareholdeers.    This  notion  has 

The Kiing III Report ((King III) has been drafted to o 

evvolved along  with  global  trends  into 

addresss the  provisio ons  of  the  neew  Companiess 

th he notion of vaalue in terms o of the triple  

Act in  relation to co orporate goverrnance and thee 

bottom line  –  – social,  econ nomic  and 

de an overview w  purpose of this Articcle is to provid



me of  the  mosst  important  aspects  a of  Kingg  of  som III.    2 2.


Environmen ntal and  Socieety  Issues  aree 

becoming more  m importaant  in  modern n  life.    The  gllobal  trend  has  become  onee 



King III requiress that a company’s Board 

of socio  and  economic  sustainabilityy 

off Directors  (“TThe  Board”)  provide  p an 

and environ nmental  proteection  through h 

in ntegrated repo ort to shareholders on an 

clean and  renewable  energy  and d 

an nnual basis  addressing  the  t triple 

“green” con nsciousness. 

bottom line.  Th he  report  shou uld  provide 

su ufficient information  on how  the 

The primaryy reason for th he existence off 

Company has  positively  p and  negatively 

a business e enterprise is to o create value.  

afffected the environment and d the socio  an nd  economic  life  l of  the  com mmunity  in 

which it operated during the year under  4.2.

review. The  report  should  also  provide 

The Audit Committee must: 

foresight on  how  positive  aspects  can 

be enhanced  and  negative  aspects 





financial risks,  financial  reporting 


and internal controls; 

integrated with  other  aspects  of  the  business 





possess sufficient  and  relevant  knowledge of corporate law;  

throughout the year.  ƒ


have a  good  understanding  of 


have a  thorough  understanding  of  accounting  standards  (such  as  GAAP)  or  any  other  financial 





reporting framework  or  set  of 



stakeholders on  an  “apply  or  explain”  basis.  



Company; and 

This means that Companies must apply King  ƒ

III and  best  practice  recommendations  in 

maintain overview  of  the  internal  audit department or processes. 

King III  and  where  those  charged  with   

governance decide  not  to  apply  a  specific 

principle and/or  recommendation,  they  should  explain  such  decision  fully  to  their 




stakeholders. King  III  distinguishes  between 

Non‐Executive Directors  should  not  receive 

the words  “should”  and  “must”,  the  former 

share options.   

referring to a recommendation and the latter 

to an obligation.   





Audit Committees are appointed by the 

Shareholders and  not  the  Board.    A 

IT governance is dealt with in detail in King III for 

member of  the  Audit  Committee  may, 

the first  time.    Directors  should  ensure  that 

however, be liable on the same basis as 

prudent and  reasonable  steps  have  been  taken 

a Director  may  be  liable  (even  if  such 

with regard to IT Governance.  IT Governance is 

member is  not  a  Director).    Audit 

particularly important  in  respect  of  the  risk 

Committees are  therefore  responsible 

management of  the  company.  sdffsfsfsdfsdf  

to the Company and not to the Board. 


board (without detracting from the authority of  the Chairman) when the Chairman has a conflict 

of interests. 

King III  recognizes  that  ADR  has  become  an 

important element of good governance.  This is 

The LID may provide assistance in: 

also in  line  with  the  new  Companies  Act  which  offers parties the option of resolving disputes by  way  of  ADR.    King  III  favours  mediation  or 


Board meetings; 


any meeting which the Chairman initiates  with the LID;  

conciliation and,  failing  that,  arbitration.    In  ƒ

some countries it may take several years before 

executive of the company may initiate with 

a matter can be heard before a Court of Law.  It 

the LID; and 

is therefore advisable to have an ADR system in  ƒ

place in  order  to  ensure  the  expeditious 

The term  of  appointment  of  the  LID  is 

circumstance dependant  but  should  generally 


endure for  the  duration  of  any  actual  or 

perceived conflict  of  interest  of  the  Chairman. 

King III  provides  for  the  approval  by 

Shareholders of  a  remuneration  framework  which binds Directors and Management in their 


determination of remuneration packages. 

and the  Chief  Executive  Officer  should  be  two 


separate persons.    The  Chief  Executive  Officer 


should be  responsible  for  management  and  for 

providing all necessary information to the Board. 

King III  recognizes  that  companies  may  have 

The Board,  under  the  direction  of  its  Chairman 

sound reasons  for  appointing  a  Chairman  who  does 

      DIVISION OF FUNCTIONS    King III provides that the Chairman of the Board 


in any consultation that the LID may initiate. 

resolution of disputes. 


any consultations that any other director or 





decides on  the  direction  and  strategy  of  the 



independence or  who  is  non‐executive.  Notwithstanding the fact that the company must  be  able  to prove  the  existence  of  such  reasons,  King  III    provides  for  the  concept  of  a  LID  to  assist  the  Board  in  dealing  with  any  actual  or  perceived  conflict  of  interest  that  may  arise  in  these  circumstances.  The  main  function  of  the  LID  is  to  provide  leadership  and  advice  to  the 






King III  provides  for  internal  audits  to  ensure 

In the  following  months  we  will  include  a 

that the  external  audits  match  the  internal 

“Directors Corner”  section  in  our  monthly 

audits and  to  ensure  the  adequacy  of  internal 

newsletter which  will  focus  on  setting  out  the 

controls in respect of risk assessment in relation 

rights and obligations of the board in relation to 

to the  strategic  planning  of  the  Company.  

corporate governance in terms of King III. 

Persons tasked  with  the  internal  audit  of  the  Company should then report to the Board.    For more information contact our Commercial Team:



Contact person: Theunis Liebenberg Email:

King III  will  be  published  on  1  September  2009 

Johan Kruger  Email:

and will be effective as from 1 March 2010.  This  will  give  Companies  sufficient  time  to  prepare 

Maritza Breytenbach  Email:

for the  implementation  thereof  as  well  as  to  prepare  for  the  implementation  of  the  new 

Dean Milton  Email:

Companies Act  which  will  probably  become  effective on 1 July 2010.                    TLi Group Companies    

Directors: Theunis Liebenberg B.Proc.LLB Dip Tax Prac., Donna-Lee Smith B.Proc LLB, Edine Jordaan B.Com LLB, Thys Sutherland Dip Proc Consultant: Madelein Lindeque BLc LLB LLM Associates: Elna Snyman BLc BA (Hons) LL.B, Joeleen Booyens BLc LL.B Professional Assistants: Maritza Breytenbach LLB, Carel Visser LLB Financial Manager: Lelanie Jacobs Theunis Liebenberg Incorporated – Registered shortened name: TLi Inc.


INTRODUCTION King III will be effective from 1 March 2010 and imposes an obligation on Companies to appoint an audit committee (“committee”) to enable it to perform its functions. The purpose of this article is to set out the King III obligations of the audit committee.

5. Expertise, resources and experience of management:


annually consider the appropriateness of the expertise, resources and experience of the management component responsible for financial duties.

A holding company’s committee must have at least 3 members who are independent non-executive directors. The chairman of the committee and the chairman of the board of directors cannot be the same person.

In Public companies the committee must also evaluate the suitability of the finance director and recommend changes to the Board where necessary.

Certain Minimum qualifications and experience are required in respect of corporate law, financial risk and sustainability reporting as well as international and other reporting standards. Public companies must ensure that committee appointments comply with qualification criteria to be established by the Minister as contemplated in section 95 (4) of the Companies Act No. 71 of 2008, and any premature termination of the services of any committee member must be approved by the relevant executive authority of the (public) company. RESPONSIBILITIES The committee should meet at least twice per annum and should oversee stakeholder reporting, including:

6. Combined Assurance Model: The committee is responsible for ensuring that assurance by management and internal and external auditors sufficiently satisfies the committee that significant risk areas are adequately addressed and that suitable risk reduction controls are in place. The committee is responsible for monitoring the relationship between external assurance providers and the company and for recommending to the Board the need for external assurance. INTERNAL ASSURANCE

1.Financial reporting: evaluate management judgements; and scrutinise all relevant narrative information so as to ensure it presents a balanced view of the company’s performance.

The committee is responsible for overseeing the internal audit; and should be an integral component of the risk management process comprising:


financial reporting and risks,


the reviewing of internal financial controls, fraud risks and information technology risks.

2. Interim results: Consider whether there are reasons for internal and external auditors to perform assurance procedures (quarterly or 6 monthly); and REPORTING make recommendations to the Board. 3.Summarised Financial Information: engage external auditors to provide assurance. 4.Integrated sustainability reporting: assist the Board in reviewing sustainability reporting; and consider and recommend the necessity of engaging external auditors to provide assurance.

The committee should report to the Board and stakeholders as to how its duties have been carried out.

DIRECTORS APPOINTMENT: (CM 29) DOES ONE REQUIRE A CM29 CONFIRMATION FROM CIPRO AS PROOF OF DIRECTOR CHANGES? On 25 February 2009 Cipro posted a notice on its website informing its clients that the service whereby a CM29 can be electronically lodged are temporarily suspended until further notice since it came to the Registrar’s attention that certain areas on their website are not well protected against fraud and consequently require system changes. This resulted in the Registrar being inundated with manual applications. Unfortunately for companies, Cipro does not have the manpower to deal with the processing of these lodgments in an effective and time efficient manner. Currently one can expect to wait between 10 to 12 weeks before receiving a CM29 confirmation. Praise must go to the officials tasked with processing the overwhelming manual lodgments of CM29's as they will go out of their way to assist those clients who urgently need a CM29 confirmation if shown good cause. However, many companies are experiencing the frustration of this unfortunate time consuming process since other entities such as SARS, auditors and financial institutions request a CM29 confirmation as proof that a director is newly appointed or has resigned. This can have unfortunate financial and other implications for companies. But is this abovementioned requirement fair and legally correct? When is a director regarded as appointed/ resigned legally? Is it when one receives the CM29 confirmation from the Registrar or when appointed/ resigned by the company by way of an ordinary resolution/ letter of resignation? In the absence of any provision in the articles of a company or the Companies Act, No 73 of 1963 (hereinafter referred to as the “Act”), in dealing with the appointment of directors, the common law will apply. According to the common law the members of a company in general meeting have the power to appoint directors by ordinary majority. Directors will become validly appointed through the act of appointment. No other formalities are prescribed. So, if a resolution of the members provides simply that Mr X is appointed as director and he consents to his appointment, he will, according to the common law, henceforth be a validly appointed director. Of course the members can provide for appointment to take effect at another point in time, but it is submitted that this will occur only where express provision is made for it or where it can be inferred clearly from the circumstances. To what extent is this rule affected by a company’s articles and memorandum of association or the Act? The articles of a company normally determine the procedures for the appointment of directors in some special circumstances (see Schedule 1 Table B art 67-71), but this ordinary power of members, namely to appoint

- Section 215 then obliges a company to keep a register of directors and it sets out the requirements for such a register, but again it assumes that the name of the person entered into the register is already a director of the company. It imposes a criminal sanction for noncompliance, but clearly does not prescribe a precondition for appointment. - Section 216(1)(a) also requires that persons whose details need to be entered into the register of directors, must provide the information necessary for keeping the register to the company within 21 days of appointment. The observations made with regard to s 211 will also apply here. Although the form CM27 does not explicitly mention, it the lodging of a properly filled out form CM27 with the company will also constitute compliance with this provision. - Sections 216(2) and 216(3) then dictate that the company must within fourteen days of receiving the particulars that it will have to enter into the register, established in terms of s 215, lodge a return with the Registrar on form CM 29. Again it is clear from ss 216(2) and 216(3) that this provision does not affect the validity of appointment.

Conclusion The scheme clearly only requires that information about a particular fact, ie is the appointment of a director, must be communicated to the Registrar. It assumes that the details provided will be of a person who is already a director. Non-compliance does not lead to invalidity of appointment, but to criminal sanction. Notice of appointment and changes in the particulars treated are in the same manner according to s 216(3). This clearly indicates that proper appointment is not affected by furnishing of details to the Registrar (or Cipro). It is clear that this is how these provisions are generally viewed. A cursory glance at the information kept by Cipro clearly indicates that very many directors are not accurately reflected in the records kept by Cipro, yet these persons remain effective directors of the companies to which they have been appointed. Nevertheless, other entities still demand a CM29 confirmation from the Registrar before acknowledging that a Director is appointed/ resigned by the company. Hopefully the Registar’s proposed “proof of concept of the customer verification” system will finally be tested and effectively implemented soon and provide relief for all those affected. Key Contacts: (+2711) 326 1330 Theunis Liebenberg:

directors, is seldom affected by the articles. The Companies Act itself also does not prevent the immediate appointment of a director by the members.

Johan Kruger: Maritza Breytenbach : Dean Milton :

- Section 211 provides for the formal consent to appointment by a director. It provides that a director must give written consent to appointment (on form CM27), but it is clear that this is not a prerequisite for valid appointment. The Act states merely that written consent must be given within 21 days of appointment or a longer period provided by the Registrar. Failure to comply with the provision is visited with criminal sanction, but it does not affect the validity of an appointment. TLi Group Companies

TLi Lawyers 251 Main Avenue, corner Republic Ave Ferndale Randburg T: +27 11 326 1330 F: 086 651 6813


This issue The New Companies Act Who will be affected? Key Contact Johan Kruger +2711 326 1330


3. TYPES OF COMPANIES The Act provides for two types of Companies, namely: 

1.  THE ACT  The Companies Act No. 71 of 2008 (“the Act”) has been  signed by the President on 8 April 2009. The commencement  date still has to be promulgated, but it will not be before  April 2010.  2. REGULATORY AGENCIES  The Regulatory Agencies created by the Act are: 

Non‐Profit Companies: companies incorporated for a public benefit  or an object relating to one or more cultural or social activities,  communal or group interests where the income and property are  not distributable to its incorporators or members, except as  permitted by the Act. Non‐Profit Companies will have the words  “NPC” at the end of their names; and  Profit Companies: companies incorporated for the purpose of  financial gain for its shareholders and will either be: 

The Companies and Intellectual Property Commission (“the  Commission”) headed by the Commissioner – will mainly be  responsible for the registration of companies, to maintain  information in connection therewith and enforcement of the  Act; 

State Owned Companies – “SOC Limited”; 

Private Companies – “Proprietary Limited” – (Pty) Ltd;  

Personal Liability Companies – “Incorporated” or “Inc”; or 

The Companies Tribunal – will mainly be responsible for  adjudication and provision of dispute and resolution; 

Public Companies – “Limited” or “Ltd”. 

The Takeover Regulation Panel – will mainly be responsible  for the provision of the regulations of transactions and  offers; and  The Financial Reporting Standards Council ‐ responsible for  receiving and considering information regarding the 

4. FORMATION: MEMORANDUM OF INCORPORATION AND RULES  A Company will have a Memorandum of Incorporation which will  set out the rights, duties and responsibilities of the Shareholders,  Directors and others.  A Company may also make rules relating to the governance of the  Company which rules must be filed with the Commissioner. The  Rules may not be inconsistent with the Act or the Memorandum of  Incorporation.  Shareholders may enter into a Shareholders Agreement but if such  Agreement is inconsistent with the Act or the Memorandum of 

Incorporation, such inconsistency will be void. 



Only Pub blic Companiess need audited d financial stateements,  but regu ulations promulgated in terms of the Act maay require  other typ pes of Compan nies to be auditted as well. 

Certain ggovernance req quirements aree not applicable to Companiees  with onlyy one Shareho older or where every Shareho older is also a  ny. Only Public Director of the Compa c Companies m must convene aan  annual ggeneral meetin ng of Sharehold ders. 

6. SHAREES  The Act aacknowledges that shares arre considered aas movable  propertyy. Shares will no longer have a nominal or p par value.  A Compaany may provid de financial asssistance with the  subscripttion of shares, provided thatt:    •

such assistancce is pursuant tto:   ‐ an Employeee Share Scheme; or  ‐  Special Reso olution adopte ed within the previous  two years; and 

The Act now provides ffor meetings to be held entirrely by electronic  commun nication or onee or more Shareholder may p participate in  meetings by electronicc communication. Decisions b by Shareholders  may be ssubmitted for cconsideration to the Shareho olders entitled to  exercise voting rights instead of a forrmal voting at Shareholders  Meetinggs.  A Compaany is allowed to require a hiigher percentaage of the votin ng  rights in respect of ord dinary resolutio ons and may also provide forr a  lower peercentage in reespect of Special Resolutions,, provided therre is  always aa margin of at least 10% betw ween the requirements for an n  Ordinaryy Resolution an nd a Special Reesolution. 

the Board is satisfied:  ‐ that the Com mpany would satisfy the solveency and  liquidity tests;; and  ‐ the terms arre fair and reassonable to the Company.  

mstances and subject to  A Compaany may, undeer certain circum certain cconditions, acq quire its own sh hares and any subsidiary  of the Co ompany may acquire shares of that Company.  7. FINAN NCIAL ASSISTAN NCE TO DIRECTTORS AND PRESCRIBED  OFFICERS  A Compaany may give fiinancial assistaance to Directo ors or  Prescribeed Officers or rrelated Compaanies or Corporrations or  Memberrs of such relatted Companiess, provided that:  •

such assistancce is pursuant tto:     ‐ an Employee Share Schem me; or  ‐ Special Reso olution adopted d within the prrevious  two years; and 

     tthe Board is satisfied that:  ‐ the Company would satisfyy the solvency and  liquidity tests;; and  ‐ the terms arre fair and reassonable to the Company. 

9. DIREECTORS, COMP PANY SECRETARY AND AUDITTORS Board Meetings of Diirectors may be conducted b by electronic  commu unication and, except where the Memoran ndum of  Incorpo oration provides otherwise, aa Meeting of the Board may be  adopteed by written cconsent of the majority of Dirrectors given in n  person n or by electron nic communicaation. The Act ccontains certaiin  standards of Directorr’s conduct and d how duties aare to be  perform med. These staandards also ap pply to Prescribed Officers or  commiittee memberss of the Compaany.  Public Companies and State Owned d Companies are obliged to  appoin nt a Company SSecretary and aan Auditor and d there are certtain  extend ded accountabiility requiremeents for Compaany Secretariess,  Auditors and Audit Committees. Th he Act also requires that a  Compaany Secretary m must be knowledgeable and eexperienced in n  the releevant Law. Aud ditors must bee appointed up pon incorporatiion  and each year thereaafter at the Com mpany’s annuaal general  meetin ng.  The same individual may not serve as th he auditor or  designaated Auditor o of a Company ffor more than ffive consecutivve  financial years. 



The Act provides for the procedure to be followed for  amalgamation or mergers as well as schemes of  arrangement. The Takeover Regulation Panel is responsible  for co‐ordinating and regulating such transactions. 

The Act has various procedures for the enforcement of any  provision or right in terms thereof or of a Company’s Memorandum  of Incorporation or Rules, namely:  Alternative dispute resolution; 

11. BUSINESS RESCUE AND COMPROMISE  Adjudication by the Companies Tribunal;  The rehabilitation of Companies in financial distress is  completely different from the requirements for judicial  management under the present Companies Act. The Act  provides for procedures for the business rescue of a  Company in terms whereof a Business Rescue Practitioner is  appointed to oversee the business rescue process.  The effect of a business rescue procedure is that:  •

No legal proceedings may commence or proceed  unless:  ‐ with the consent from the Business Rescue  Practitioner;  ‐ with leave of a Court;  ‐ for set‐off against a claim made by the Company in  legal proceedings; or  ‐ in criminal proceedings; 

No guarantee or surety by a Company may be  enforced (except with leave of the Court); and    Any time limit as to the right to commence  proceedings or to otherwise assert a claim against  the Company, is suspended during the rescue  proceedings. 

The Board of Directors may resolve that the Company begin  rescue proceedings or a Shareholder, Creditor or Trade Union  may apply to the Court to place the Company under  supervision and commence rescue proceedings. 

Application to the High Court;  Filing a complaint to the Commission or the Takeover Regulation  Panel.  The Commission or the Takeover Regulation Panel may issue  Compliance Notices to a person whom they may on reasonable  grounds believe to have contravened the Act or assented to, was  implicated in or directly or indirectly benefited from a contravention  of the Act.  Failure to comply with a Compliance Notice as aforesaid may result  in an application to a Court for the imposition of an administrative  fine or the matter may be referred to the National Prosecuting  Authority. Administrative fines which may be imposed will be an  amount not exceeding the greater of 10% of the Company’s  turnover for the period during which the Company failed to comply  with such Compliance Notice or the maximum amount prescribed in  terms of the Act, [presently R1,000,000.00 (One Million Rand)]. 



All pre‐existing Companies continue to exist as a Company as  if registered and incorporated in terms of the Act. 

The Act will definitely impact on the business of companies  and there are some interesting changes and new challenges  to the governance of companies. The above mentioned are  only some of the important aspects and you are welcome to  contact us for further information.  

Pre‐existing Companies may, within 2 (two) years  immediately following the general effective date of the Act,  file (without charge) an amendment to its Memorandum of  Incorporation to bring it in accordance with the new Act.  Close Corporations may still be registered up to the date that  the Act becomes operative. The Act makes provision for a  Notice of Conversion to be filed by a Close Corporation in  order to convert the Close Corporation to a Company. No  Close Corporation will be registered after the effective date  of the Act. Existing Close Corporations will be allowed to  continue trading as a Close Corporation, but it is possible that  close corporations may in future be incentivized to convert to  a Company. 

TLi Lawyers 251 Main Avenue, corner Republic Ave Ferndale Randburg T: +27 11 326 1330 F: 086 651 6813 ADDITIONAL TLi CONTACTS Theunis Liebenberg

Dean Milton

Maritza Breytenbach

TLi Group Companies


TLi Inc. 251 Main Avenue, corner Republic Road Ferndale, Randburg South Africa T: +27 11 326 1330 F: +2711 326 1359

MUTUALLY PROFITABLE AND LONG LASTING BUSINESS RELATIONSHIPS The TLi Group of Companies The TLi Group of Companies include, TLi Inc (Corporate, Tax, Immigration and Labour Lawyers), TLi Corporate Law Advisors (mainly focused on mergers, acquisitions and structuring of various transactions), SLi (Property Lawyers), The Performance Group (IT Solutions, Contract Management) and Legal Information Services (Company Secretarial and Document management).

TLi - Company, Tax, Property and Labour Lawyers The culture bred in TLi since its inception in 1995, is one of hard work and passionate dedication in the pursuit of providing our clients with sound, innovative and tailor made legal products and services. It is this culture, combined with the outstanding legal practitioners and a wealth of experience, which has led to TLi’s remarkable success as a client orientated legal service provider amongst the cream of the crop in the legal industry. TLi (a company duly complying with the Broad Based Black Economic Empowerment Act and its regulations) is part of the TLi Group of Companies that forms a competitive structure of Lawyers that service their clients’ commercial, labour, property, commercial litigation and immigrational needs.

Sound legal advice is an asset to any business. TLi has the skills and expertise to provide a one stop legal service to clients. Our aim is to add value to our clients’ businesses by delivering the best legal services and products available in the market, and in so doing, build up lasting mutually profitable relationships.


Commercial Law Property Law Labour Law Litigation Tax Law Immigration Law

Service Portfolio Commercial Law

Legal Information Services

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Listing of Companies on the JSE Turnkey Companies Shareholders/Joint Venture agreements Liquidations Mergers and Acquisitions Commercial Contracts BEE Structures

TLi Company Profile - 2009


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Company Registers Personal attendance on statutory audit Company Secretarial Services Assistance with Directors/ Shareholders meetings Amendments to share capital structures New Shelf Companies/CC’s Cipro annual returns

Our firm’s attention to detail and commitment to understanding the business needs of our clients within the broader legal and corporate perspective has led to us earning the trust of some of South Africa’s largest commercial players.

TLi Company Profile - 2009

TLi Immigration

Property Law       

Property Transfers Bond Registrations Township Registrations Sectional Title Registrations “Bare Dominium” Transfers Purchase Agreements Commercial Property Finance

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Labour Management and Advice CCMA and Labour Court Litigation Disciplinary Hearings Negotiations with Trade Unions Human Resource Training Employment Contracts

Litigation       

Litigation supporting the abovementioned disciplines High Court and Magistrate Court litigation Banking Law Immigration Law Insurance Law Commercial Law National and Cross Border Recoveries

Tax Law     

Trusts and Wills Estate Planning Tax Planning, especially with regard to property Risk Management Business Planning & Structuring

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Corporate Permits Business Permits Work Permit s Intra Company Transfer Permits Permanent Residence Permits

We work closely with the Department of Home Affairs and the Embassy of South Africa in various countries to assist our clients with their immigration needs. We assist our corporate clients with applications for Intra Company Transfer Permits (a permit that allows employees from a Company abroad to work for a South African based Company) as well as Corporate permits (a permit that allows a Company to bring in a fixed amount of skilled workers from abroad). For more information contact our Immigration team. Email: Contact person: Maritza Breytenbach

Company Secretarial / Commercial Services The new Companies Act promises the beginning of a new era of statutory compliance and Directors’ responsibility for non-compliance with laws and to ensure good corporate governance. The King III Report stands in conjunction with the new and current Companies Act and cautions Directors on awareness of laws, rules and standards applicable to Companies. Directors of Public Companies must appoint a Company Secretary who, in their opinion, has the requisite knowledge and experience to carry out their duties. Legal Information Services (Pty) Ltd, in association with TLi Inc, consist of Lawyers with the necessary legal expertise to advise and assist corporate clients on all the laws, rules and standards applicable for the management and compliance with Company Law and Corporate Governance requisites. Apart from the infrastructure cost and time saving benefits of outsourcing this responsibility to a capable legal firm, another benefit is that the Directors of a Company re-direct their legal responsibility and mitigate the risk of offences stemming from incorrect statutory decisions. TLi Inc is proud to say that as a niche firm, it has mastered the art of providing tailor made commercial law and company secretarial services to clients and by doing so have become an indispensible part of their client’s legal solutions. For more information contact our Commercial Team: Email: Contact person: Theunis Liebenberg

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