Author: Nicole Ross Attorneys

Website of the Month: Turn Customer Complaints into Compliments with the HEART System

Written by Nicole Ross Attorneys on October 26, 2022. Posted in Website of the Month.

No matter how good your product and your service levels, the hard reality in business is that customer issues will arise. Perhaps they will be genuine problems or perhaps they are just misperceptions, but either way you need to act quickly and effectively to resolve them. Particularly in these times of online reviews making or breaking reputations so quickly and easily.

Here’s a tried and tested method to boost customer satisfaction generally, to change complaints into compliments, and to resolve all forms of conflict (it is equally useful for workplace and personal issues) with kindness and respect.

Read “How to Use the HEART Method to Improve Customer Satisfaction” on The Real Time Report’s website.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Building in Security Estates: The ‘Persuasive Sting’ of Penalty Levies

Written by Nicole Ross Attorneys on September 27, 2022. Posted in Property.

“… had the respondent imposed more moderate penalties, it would likely not have had the desired effect, or put differently, the same persuasive sting for individuals of substantial means.” (Extract from judgment below)

Buying “plot and plan” in a residential complex allows you the freedom to build your own dream house in a secure environment, quite apart from providing what is likely to be sound long-term investment. Just make sure that you will actually be ready to build within the time frame required by the HOA (homeowners’ association). If you don’t, you risk having to transfer the plot back to the developer (a costly exercise), or you could be lumbered with penalty levies many times higher than normal levies.

You can ask a court to reduce the penalty, but…

Our law gives us general protection from excessive “out of proportion” penalties by means of the Conventional Penalties Act, which in the section headed “Reduction of excessive penalty” provides that –

“If upon the hearing of a claim for a penalty, it appears to the court that such penalty is out of proportion to the prejudice suffered by the creditor by reason of the act or omission in respect of which the penalty was stipulated, the court may reduce the penalty to such extent as it may consider equitable in the circumstances: Provided that in determining the extent of such prejudice the court shall take into consideration not only the creditor’s proprietary interest, but every other rightful interest which may be affected by the act or omission in question.”

However, as a recent High Court decision illustrates, you will have your work cut out for you if you want the court to exercise that discretion in regard to penalty levies.

The ‘persuasive sting’ of 5x normal penalties

The HOA of a “luxury/ultra-luxury” residential estate required in its constitution that –
- Each owner must start construction within one year of transfer,
- Should construction not commence timeously the developer had the option to require re-transfer of the erf to it,
- If the developer did not exercise this option, the HOA could “impose whatever penalties it deems appropriate in its sole discretion” on the owner.
When several erf owners failed to build within the one-year deadline, the HOA passed resolutions imposing penalty levies on them until they started construction.
These levies started off at 2x the normal levies, and over an eight-year period were increased in stages to 5x the normal.
The HOA sued the defaulting owners in the Regional Court to recover these levies, winning both in that Court and on appeal to the High Court.
It was, held the High Court, up to the owners challenging the amount of the penalty to prove –
- What prejudice the HOA suffered,
- That the penalty was disproportionate to that prejudice, and
- The extent to which the penalty should be reduced.
In addition to the actual monetary prejudice (damages) suffered by the HOA, it was said the Court necessary to consider the HOA’s other “rightful interests” that might be affected by the failure to build, such as problems with security, nuisance, aesthetics, damage, and value loss caused by extended building activities. In this case, one of the additional reasons for the penalty provision was to discourage speculation in the erven by buyers intending to re-sell the plots for profit rather than build and live in the estate.
There was prejudice to the HOA even though the penalty provision was intended to create a deterrent rather than compensation for default – the prejudice was to the HOA’s “right to enforce concerted action for the common good, and to its interest in obtaining concerted action”.
Whether the penalty was “out of proportion” to the prejudice could be assessed in three ways:
1. By looking at comparable situations where the desired result was achieved (the Court compared another similar matter in which a 10x normal penalty was reduced by the Court to 8x normal, much more than the 5x imposed here),
2. By looking at the size of this penalty and the penalties in general in relation to the income and expenditure of the HOA, and
3. “By exercising one’s sense of fairness and justice.”
The HOA had been fair and reasonable in phasing in the increases over an eight-year period.
Imposing more “moderate” penalties “would likely not have had the desired effect, or put differently, the same persuasive sting for individuals of substantial means.”

In the end result, the owners must pay the full penalty levies, interest, and costs on an attorney and client scale.

Why You Should Sign a Power of Attorney Before You Emigrate or Travel

Written by Nicole Ross Attorneys on September 27, 2022. Posted in General Interest.

If you are emigrating, or perhaps just going overseas for an extended holiday or work contract, you may well leave behind some form of “unfinished business”. Perhaps you own a property, other assets or bank accounts needing attention, or have outstanding tax/business/financial affairs, or contracts to be signed, cars to be licenced, or something else unresolved that requires your future agreement or signature. Even if you can’t think of anything specific, consider executing (before you leave of course) an appropriate power of attorney in favour of someone you trust to act for you.

What is a power of attorney?

A Power of Attorney (“POA”) a document you sign authorising someone else to manage your affairs on your behalf as your agent. You can grant it for a specific purpose as a “Special Power of Attorney” or it can be a widely worded “General Power of Attorney”. In theory you can grant power of attorney orally, but in practice no one will (or should) act on that.

You must be at least 18 years old to execute a POA, and it remains valid only for so long as you have “legal capacity”.

You can terminate the POA at any time.

Why is a power of attorney important?

You can in a pinch execute and sign contracts, legal forms and the like whilst in a foreign country, but it can be a real mission. Depending on the circumstances, you may need to find (and pay) a notary public or embassy/consular official to authenticate documents, your signature, copies of papers etc. If it’s an embassy or consulate you need, you could find yourself travelling to another city, perhaps even another country. And if everything isn’t done exactly right the first time (a particular risk if you are dealing with someone not fully versed in South African law and procedure), you could find yourself repeating the process – perhaps even more than once in a sort of “Ground Hog Day” scenario. All avoidable if you leave behind in South Africa a valid and correctly structured POA.

How should you structure it?

The structure you will need depends on what affairs you need dealt with and why. It can be difficult to decide whether a POA is appropriate for a particular purpose, and if so how wide or how restricted you should make the powers you are granting to your agent. It can also be a challenge to find the correct wording to satisfy the requirements of whichever authority or other party is involved – for instance, specific forms are required by the Deeds Office, SARS, and banks. You might also need to leave behind more than one POA, each structured for a particular purpose. Similarly, you may be uncertain as to who to appoint as your agent, who is best qualified for each purpose, even perhaps who can you trust to act professionally and honestly.

There is no prescribed form and no list of required formalities for a valid POA but there are many possible permutations and legal risks involved, so the only way to ensure that it is valid and fit-for-purpose is to seek professional assistance specific to your circumstances.

Creditors: How to Secure Your Claim with a Notarial Bond

Written by Nicole Ross Attorneys on September 27, 2022. Posted in Debt Recovery, Insolvency / Liquidation.

You should always take as much security for your claims as you possibly can before advancing credit or lending money to a debtor. That’s because if your debtor fails and is “liquidated” (if a corporate) or “sequestrated” (if an individual), without security you will have only a concurrent claim in the estate.

And with a concurrent claim, you will be lucky to get back more than a few cents in the Rand, because you will rank right at the bottom of the ladder after both secured creditors and preferent creditors (employees, SARS etc).

So, first prize is always to hold security for your claim

Having a “secured claim” greatly increases your chances of being paid out a decent amount (hopefully your claim in full), because the proceeds of the asset/s subject to your security are earmarked (after payment of some estate costs and the like) to paying out the claims of the “secured creditors” holding security over each particular asset.

If your debtor owns immovable property, registering a mortgage bond over it will generally give you a very strong security, whilst with movable property you have various options. There are many options here, applicable to various types of claim in various circumstances – liens, cessions, tacit hypothecs, rights of retention and so on – but for the moment let’s have a look at the more general concepts of pledge and notarial bonds.

One of the strongest options with movables is to take a pledge over them, but that will require you to actually hold the movables in your possession. And of course it’s not always viable for a debtor to give you that possession – a much more likely scenario with most business debtors is that they need to keep possession and use their assets (machinery, fittings, vehicles, stock etc) to carry on trading. So what are your options in that situation?

The two types of notarial bond

In that case – where you cannot take actual possession of the movables – consider registering a notarial bond over them. There are two types of notarial bond, both requiring registration in the Deeds Office –

Your first and best option is a special notarial bond. This gives you substantial security, in the form of a “deemed pledge”. You now have first bite at the cherry over any movable asset listed in the bond, even though you don’t have possession. Note that these assets need to be clearly identified in the bond (“….specified and described in the bond in a manner which renders it readily recognisable…”) so list full descriptions, models, serial numbers, and the like for every asset.
Secondly, take a general notarial bond over all the debtor’s movable assets generally. That will bring into your net those assets which are not individually identifiable, such as stock, building materials and so on. The bad news is that a general notarial bond in itself gives you only a weak preference on liquidation, but the good news is that you can convert that into full, “real”, security if you move quickly enough.

How do you convert a General Notarial Bond into full security?

Provided you seek legal assistance quickly at the first sign of financial distress in your debtor, you may well have time to “perfect” the bond into full security by way of a court order prior to liquidation. Armed with the court order you take possession of all the debtor’s movables and hey presto you have a “real” security over them.

Let’s look at a recent example –

A supermarket group, owed over R2m by a trading store, held two general notarial bonds over its movable assets (presumably shop fittings, fixtures, equipment, stock etc).
Fearing that the store’s owner (a company) was trading in insolvent circumstances and would be liquidated, the creditor applied for an urgent High Court order allowing it to perfect its security.
The debtor opposed the application, asking the Court to exercise its discretion not to grant a perfection order. But the Court refused to do so, and granted the perfection order, on the basis that the creditor had no other remedy available to it (such as a damages claim). The Court was equally unimpressed with the debtor’s argument that the terms of the bonds were “unconscionable and contra bonos mores [offensive to conscience]”.

That’s clear judicial confirmation of the strong position you are likely to find yourself in where you hold properly drawn and registered general notarial bonds, and act quickly to perfect them in appropriate circumstances.

Dismissed for Criticising a Mine’s “No High Heels in the Workplace” Rule

Written by Nicole Ross Attorneys on September 27, 2022. Posted in Employment and Labour Law.

“The evil in this case is the wearing of high heels as opposed to flat shoes. It is a case that pits sartorial elegance against health and safety at the workplace” (Extract from judgment below)

Employers have a general duty to ensure health and safety in the workplace. But as a recent Labour Court case illustrates, policies dealing with these issues must be correctly drawn, implemented and enforced.

A mine’s “no high heels” policy challenged

A mining operation introduced a health and safety policy, applicable to all employees, requiring that: “Appropriate shoes must be worn at all times. Slippers, high heels and open shoes are not allowed”. A later clarification provided that “Only flat shoes may be worn at work…”. After a risk assessment around the issue of wearing high heels two years later, a further clarification was issued: “Employees are thus hereby instructed to wear only flat shoes when entering the mine premises and safety boots to be worn where applicable … Non-compliance with regards to this instruction(s) may lead to disciplinary action.”
A Human Resources Controller was observed on two occasions to be wearing high heels, and was instructed to comply with the policy, despite her pleas to be allowed to retain a “feminine look” at work.
She complied, but vented her dissatisfaction to several colleagues, asking them to come together to express dissatisfaction with the policy. She also unsuccessfully asked a trade union official to come to her aid.
She was dismissed after being found guilty at a disciplinary enquiry of gross insubordination and incitement. After unsuccessfully challenging her dismissal in the CCMA (Commission for Conciliation Mediation and Arbitration), she approached the Labour Court.

The Labour Court’s decision, and lessons from its judgment

The Labour Court overturned the dismissal and ordered the mine to retrospectively re-instate the employee.

Whilst this decision stemmed from the Court’s conclusion that the employer had failed on the facts to prove either insubordination or incitement on the part of the employee, its judgment highlighted a number of factors that all employers should bear in mind –

Policies must be justified, lawful, clearly drafted, and unambiguous. Part of the employer’s problem here was its initial failure to support the policy with a risk assessment, and to unambiguously specify which parts of the mining premises it applied to.
Policies must be enforced consistently.
Terms and conditions of employment cannot be changed unilaterally.
Employees have a right of freedom of expression, and a right to lawfully question (and express their views about) workplace policies.
Insubordination can manifest as a refusal to obey a reasonable and lawful demand, or as a challenge to or defiance of an employer’s authority, but only where that authority is lawful and/or reasonable.
“Whether misconduct amounts to insubordination depends on a number of factors, including the willfulness of the employee’s defiance, the reasonableness of the order that was defied and the actions of the employer prior to the purported act of defiance.”
In this case there was no evidence of a deliberate and serious challenge to or defiance of the policy. The employee had complied with the clarified policy after being instructed to do so, albeit grudgingly. It would only have been insubordination, said the Court, if she had said she would refuse to comply in future.
A charge of incitement in the workplace requires proof of incitement of other employees to act unlawfully, for example to take part in an unprotected strike – which the employer in this case had failed to prove.

None of the above detracts in any way from your duty as an employer to implement policies for the protection of workplace health and safety – but do it correctly!

Website of the Month: Four Key Areas in Your Strategic Planning

Written by Nicole Ross Attorneys on September 27, 2022. Posted in Business, Website of the Month.

“Strategy is the art of carefully selecting where a business applies its focus and resources in order to achieve its ultimate aim. A large part of the work is in selecting what not to do rather than what’s to be added.”

Strategic planning is an essential part of optimising your business for success. Without it you will drift rudderless, unfocused and wasting effort and resources with no clear destination in mind.

Jon Cherry’s article “The Four Strategies” on his Cherryflava website lists four key areas to consider – in combination, they will help drive your business forward, inspiring all the work, and the people, that hold your “North Star” vision close.

Your Will Can’t Wait: The Tragic Case of a Mother Who Took Too Long

Written by Nicole Ross Attorneys on August 29, 2022. Posted in Wills and Estate Planning.

“We are such stuff / As dreams are made on, and our little life / Is rounded with a sleep.” (Shakespeare)

We aren’t comfortable thinking about our mortality, but death comes to all of us and it is our loved ones who will suffer if we don’t make plans to look after them whilst we still can.

First prize here will always be a full estate planning exercise, but at the very least put a will in place. There is no other way of ensuring that your loved ones’ interests are protected, that they inherit what you want them to inherit, and that your estate is wound up by an executor you trust to act with integrity and professionalism.

Formalities rule

Make sure that your will is a proper and valid one, professionally drawn in accordance with all the required legal formalities.

As we shall see below, our courts have only a limited ability to help out when requirements aren’t fully complied with, and that can be disastrous for your dependants.

A dying mother’s instruction to draw a will – too little, too late

A tragic High Court case from 2021 illustrates the dangers of delay –

Dying of terminal cancer, a mother filled out a bank form headed “Will Application / Aansoek om testament”. In it she gave the bank instructions to draw her will.
Her intentions were laid out clearly in the document – to leave everything to her minor child.
Unfortunately she died the next day, before her will was drawn and signed. Her husband claimed that she had accordingly died “intestate” (without a valid will) leaving him to inherit a full “child’s share” with a minimum of R250,000. As their marriage was in community of property, the husband was already a 50% owner of all the marital assets, and this estate not being a large one the practical effect appears to be that he would likely inherit everything, and the child would get nothing.
A group of relatives, trying to give effect to the mother’s wishes and to protect the child’s interests, asked the High Court to accept the bank’s instruction document as a valid will in terms of a section in the Wills Act which provides that: “If a court is satisfied that a document or the amendment of a document drafted or executed by a person who has died since the drafting or execution thereof, was intended to be his will or an amendment of his will, the court shall order the Master to accept that document, or that document as amended, for the purposes of the Administration of Estates Act, 1965 (Act 66 of 1965), as a will, although it does not comply with all the formalities for the execution or amendment of wills referred to in subsection (1).” (Emphasis supplied).

A cruel twist of fate

There was no doubt here that the bank form correctly set out the mother’s wishes. But there was a fatal problem – as the Court put it “…the content of the document in issue and the circumstances surrounding its execution indicate clearly that the deceased did not intend it to be anything other than a drafting instruction. There is nothing to support the contention that the deceased intended the document to be her will; everything points to the contrary.”

The form could therefore not be accepted as a valid will, and the child is left with little or nothing other than the Court’s expressed hope that the husband would if practicable “honour his late wife’s declared wishes regardless of the fact that due to a cruel twist of fate [the child] did not end up being entrenched in a will as she had intended.”

Without a doubt the Court would have come to the child’s assistance if it could have, but the clear wording of the Wills Act left it unable to do so.

Make a will – now!

None of us knows when Death will come knocking at our door. If you don’t already have a valid, updated will in place, make sure that “Make a Will” or “Update my Will” is at the very top of your priority list.

Your will could well be the most important document you ever sign, so getting professional advice and assistance is an easy decision here.

Owning Property Jointly – The Rewards, The Risks, and The Remedy

Written by Nicole Ross Attorneys on August 29, 2022. Posted in Property.

“Co-ownership is the mother of disputes” (old Roman law maxim)

There can be big advantages to buying property jointly but be aware of the risks and take steps to lessen them before you put pen to paper.

The problem comes if there is a falling-out with your co-owner. Perhaps you come to blows on your usage of the property, or on the incurring of expenses, or on whether it is time to sell, or perhaps you are splitting from each other entirely. That could be a business partnership terminating, or a marriage ending in divorce, or (as in the case we discuss below) a failed romantic relationship. Our courts must regularly resolve bitter joint-ownership disputes between ex-spouses, ex-friends, ex-colleagues, siblings, and close relatives – none of whom dreamed they might ever come to blows when they first hatched plans to buy property jointly.

If a dispute does arise, how will you resolve it? And if you split up, who keeps the property? Or do you sell it jointly, and if so how, and when? How will the bond and other property debts be settled?

The good news is that by and large the risk of dispute can be reduced with a bit of foresight and planning. Preferably with professional advice and assistance – this is after all likely to be an important asset in both your estates.

Let’s have a look at a recent High Court case to illustrate –

A breakup and a fight

A couple in a “romantic relationship” co-habited in a house of which they were the joint registered owners in undivided half shares.
When the relationship broke down irretrievably, the partners were unable to agree on a method of ending the property ownership. One partner moved out and the other, after changing the locks, applied to the High Court for an order terminating the joint ownership and appointing a receiver/liquidator to sell it.
The other party fought this application, contending that the couple had, in addition to being in a personal relationship, also been in a “universal partnership” which still existed.

A co-owner can normally insist on partition of the property at any time

The general rule in our law is this: “No co-owner is normally obliged to remain a co-owner against his will.” Thus “every co-owner of property may insist on a partition of the property at any time. Even if there is an agreement to constitute perpetual joint ownership, the co-owner may demand partition at any time. If the co-owners cannot agree on the way the property is to be divided, then the Court is empowered to make an order which appears to be fair and equitable.”

That opens the door to a wide range of options for the court, but often it means an order for sale of the property (possibly by public or private auction) and division of the net proceeds between the joint owners.

But is it “bound” or “free” co-ownership?

But it’s more complicated than that. Our law recognizes two types of co-ownership –

In a “free” co-ownership, the co-ownership is the only legal relationship between the co-owners. In this event, the rule above applies – either joint owner can insist on division at any time.
In a “bound” co-ownership however “there is a separate and distinct legal relationship between them of which the co-ownership is but one consequence. Co-ownership is not the primary or sole purpose of their relationship”.

In this event, the co-ownership can only be dissolved when the primary relationship is terminated. In this case, the party opposing the court application said that no order of division could be made until the “universal partnership” between the parties had ended.

The Court found that there had indeed been a universal partnership in existence, in other words that this had been a case of “bound” co-ownership. But it also held (on the facts) that both the romantic relationship and the universal partnership had ended when the parties stopped living together. The romantic relationship was the ‘tie’ between the parties and when it came to an end, any situation of bound co-ownership became a free co-ownership to which the “end at any time” rule applied.

The result – the Court ordered the joint ownership terminated and appointed a receiver and liquidator to sell the property, pay all the property debts, and divide the proceeds between the parties.

The remedy

So the risk is finding yourself in the same unhappy position as the ex-partners in this case, having to ask the High Court to sort out your dispute for you.

Happily however there is a simple remedy. Before you buy property jointly, have a professional draw you a full agreement setting out (at the very minimum) –

The nature of your relationship. In a co-habitation scenario you should probably also have a full “co-habitation” agreement, whilst a business scenario should be linked to your existing arrangement.
The best vehicle for co-ownership – for some, a simple “let’s put the house in both our names” will be enough, for others a company or a trust may be better.
Who will own what percentage of the property.
Who will contribute what to the costs of purchase and to the property expenses and upkeep.
Who will have what use of the property.
What will happen if one or both of you wants to leave the relationship, dies, or is incapacitated.
And so on – every situation will be unique.

If the parties in this case had put such an agreement in place, they might well have saved themselves the stress, wasted time and legal costs of a protracted and complex dispute. The liquidator/receiver’s charges for selling the property and paying out their shares to them will no doubt rub a lot of salt into all those wounds.

A final thought: Having a formal contract in place is not a forecast that things will go wrong between you – on the contrary, it should greatly reduce the risk of any dispute or unhappiness arising in the first place.

Heigh Ho, Heigh Ho, It’s Off to Court We Go – But What are the Costs of Suing?

Written by Nicole Ross Attorneys on August 29, 2022. Posted in Litigation.

“Agree, for the law is costly” (Marcus Tullius Cicero)

As Roman lawyer and statesman Cicero pointed out two millennia ago, litigation comes at a cost. So first prize will always be to settle out of court. If you can’t settle and decide to sue, arm yourself with “deep pockets and nerves of steel”, particularly if you end up in the higher courts.

The upside is that if you win your case, you are likely to benefit from a costs order in your favour, our law generally following the rule that “costs follow the result”. There are however a few things to bear in mind with that –

No matter how “watertight” you may think your case is, litigation always carries an element of chance, and the hard fact is that you could lose for any number of unforeseeable reasons – evidence going badly, grey areas of law being interpreted against you, misdirections by whichever court you are in – those are just some of the risk factors you face. And if you do lose, you will be paying two sets of legal costs!
There are also exceptions to the “costs follow the result rule” – for example in labour matters, employees will normally not be ordered to pay any costs at all. Our courts have also been known to exercise their discretion to depart from the general rule in order to spare unsuccessful litigants from an adverse cost order where principles of fairness or special circumstances are involved, such as an attempt to protect the interests of minors or other vulnerable groups.
Remember also the “Pyrrhic Victory” factor – it’s all very well getting a costs order in your favour, but enforcing payment is another thing entirely, particularly if you are suing a debtor pleading poverty or an adversary skilled at dodging your attempts at recovery.
You are in any event unlikely to recover more than a portion of your costs. That sounds unfair but it’s how it works. To understand why, read on…

Three categories of legal costs

You will in practice come across three main types of costs –

“Party and Party costs”: These are the costs you are most likely to be awarded if you win. They will be “taxed” by a court official at whatever tariff applies to the court you find yourself in, and the tariffs vary widely – ask your lawyer for details.These tariffs are applied strictly and will only include your lawyer’s necessary costs for the actual litigation, not for pre-litigation consultations and the like. Nor will they include additional work carried out by your lawyer which the taxing official regards as not strictly necessary to the conduct of the case.
“Attorney and Client costs”: These costs are also subject to the same tariffs but their scope is broader, and the taxing official may allow for example additional attendances and correspondence, travel costs and the like. An example commonly given is correspondence to you from your lawyer keeping you advised of progress in the case – not strictly necessary for the litigation itself, but likely to be allowed as a recoverable “attorney and client” charge.You will only be awarded attorney and client costs where either they are specified in a contract with the other party (it’s a particularly common clause in property-related and commercial agreements), or where a court decides for whatever reason to punish your opponent with a “punitive” costs order.
“Attorney and Own Client costs”: These are additional costs you must pay your lawyer at whatever rates you have agreed to. The rates are normally incorporated in a mandate which you agree to when you first seek legal help, and they are not capped by the tariffs mentioned above. You cannot in practice recover them from the other party.

Alternative sources of funding

If you can’t afford to sue, or if you don’t want to risk your own money to fund a court case, ask about alternative sources of funding such as –

Contingency (“No Win, No Fee”) arrangements, which are offered by some attorneys, most commonly in personal injury cases.
Legal Aid is available to “poor” people who pass a Means Test and whose case meets all the other criteria set by Legal Aid South Africa.
Litigation Funding is normally only available for larger matters, and the funders apply strict criteria.

Although these alternatives should protect you from costs if you win the case, check what risk you run if you lose and an adverse costs order is made against you.

Litigate with your eyes open!

Go into litigation with your eyes open. Make sure you understand your prospects of success, what resources of time (and stress!) you will have to commit to the cause, what costs you might recover from your opponent and what you won’t, what you might have to pay the other side if you lose and so on.

It’s Not Simple to Sell a House in Execution (Even if a Trust Owns It)

Written by Nicole Ross Attorneys on August 29, 2022. Posted in Debt Recovery, Property.

“A court shall not authorise execution against immovable property which is the primary residence of a judgment debtor unless the court having considered all relevant factors, considers that execution against such property is warranted” (High Court Rules)

Selling a house in execution is not as simple as getting judgment and sending the Sheriff of the Court off to arrange a sale.

This article is important to you if –

You are about to lend money to, or do business with, an individual (or a trust or company) that you feel comfortable dealing with because they own a substantial asset in the form of a house.
You are trying to enforce a judgment against a recalcitrant debtor by selling the debtor’s house.
You live in a house threatened with sale in execution (or are trying to help a friend or relative in that position).
The “owned by a trust” angle (more on that below) will also be relevant to you if you are wondering whether to buy a residential property in your own name or in a trust or company.

The “judicial oversight” rule means delay and risk for the creditor

High Court Rules provide that “A court shall not authorise execution against immovable property which is the primary residence of a judgment debtor unless the court having considered all relevant factors, considers that execution against such property is warranted.”

This is to give effect to the right to have access to adequate housing which is enshrined in section 26 of our Constitution, and the court will look at whether the property is the primary residence of the debtor, at whether there may be an alternative means of satisfying the judgment debt, and at a host of other relevant factors.

Bottom line is that the court will not order an execution sale if it concludes that execution isn’t warranted or will deprive the debtor of adequate housing. Even a successful application for execution will involve cost and delay, whilst an unsuccessful one will be a body blow to the creditor’s prospects of recovering the debt.

That’s clearly a factor to bear in mind when lending to, or transacting with, an individual. But what if the house is owned by a trust or company?

The case of the trust-owned wine farm

A bank loaned R8.5m to a trust operating as a wine farm, wine cellar, wine merchant and restaurateur. The loans were secured by mortgage bonds over the property. Trustees, trust beneficiaries and trust employees occupied the house and cottages.
When the trust failed to repay the loans, the bank took judgment against it and applied for an order to sell the property in execution, an application vigorously opposed by the trustees.
The High Court held that the judicial oversight procedure only applies when a property is the debtor’s primary residence. In other words, it wouldn’t apply in a case such as this where, although the debtor is a trust, the actual occupants are individuals.
Not so, held the Supreme Court of Appeal on appeal: “Due regard must be had to the impact that the sale in execution is likely to have on vulnerable and poor beneficiaries who are occupying the immovable property owned by the judgment debtor, who are at risk of losing their only homes.” Moreover, the fact that the farm was used commercially did not deprive the occupants of constitutional protection.
“Judicial oversight” was accordingly necessary despite the properties being owned by a trust and not by the occupants themselves. Note that there are indications in the judgment that although this case concerns trust-owned property, the oversight principle is likely to apply equally to the occupants of company-owned properties.
On the facts however, the trustees had failed to show that “as a result of indigence, the beneficiaries will be left vulnerable to homelessness if the farm in question is sold in execution. On the contrary, the farm is valued at between R35 million and R40 million, and the reserve price was fixed at a minimum of R21 million; the ability to acquire alternative accommodation is unquestionable.” Also relevant – at one stage of negotiations, the trustees had actually consented to the judgment and to the property being declared executable.

The practical result is a win for the bank and the farm can now be sold in execution. But the principle remains – don’t assume that lending money to, or transacting with, a home-owning trust or company is a safe bet because of the value in the property. It carries the same risk as if the property were owned and occupied by an individual debtor.