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Legal Speak Made Easy

“Prima facie”

Literally meaning “at first face” or “at first sight”, this term is often used in statutes and contracts to provide that a document is proof of the facts recorded in it in the absence of evidence to the contrary. A birth certificate or a bank certificate of balance are common examples. It can also apply for example to evidence given in a trial in the sense of being “proof (evidence) calling for an answer”. In other words, to be considered correct unless shown not to be.

Effective 1 March 2024: New National Minimum Wage

The National Minimum Wage (NMW) for each “ordinary hour worked” has been increased from 1 March 2024 by 8.5% from R25-42 to R27-58. 

Domestic Workers: Assuming a work month of 21 days x 8 hours per day, R27-58 per hour equates to R220-64 per day or R4,633-44 per month. The Living Wage calculator will help you check whether or not you are actually paying your domestic worker enough to cover a household’s “minimal need” (adjust the “Assumptions” in the calculator to ensure that the figures used are up to date).

Budget 2024: Your Tax Tables and Tax Calculator

How much will you be paying in income tax, petrol and sin taxes? Use Fin 24’s four-step Budget Calculator here to find out.


The unchanged transfer duty and tax tables, with a note on fiscal drag

 
Unchanged from last year, so taxpayers can breathe a sigh of relief that rates have not been increased as many forecasters had feared. 

But the other side of the coin of course is that there is no inflation adjustment to the rates this year, which means that “fiscal drag” will leave you paying more tax if your inflation-linked increase pushes you into a higher tax bracket. Effectively, the buying power of your net income will fall. Plus if your property has increased in value into a higher threshold, your buyer will pay more transfer duty.

Source: SARS 

Source: SARS

Source: SARS

“Sin taxes” up – the details

Source: National Treasury


Retirement funding and the “two-pot” reform proposal

Source: SARS

Source: SARS

The proposed “two-pot” retirement reform: Per National Treasury: “Early access to retirement funds – “The two-pot retirement system will allow retirement fund members to make withdrawals from their retirement funds while they are still active members, so members need not resign to access part of their retirement benefits. … This reform is proposed to come into effect on 1 September 2024. The National Treasury aims to finalise the legislative process rapidly in the next few months to ensure that industry and regulators can prepare for implementation. Policy research and engagement continues on the outstanding auto-enrolment, mandatory enrolment and consolidation retirement reforms.”

The proposals and their tax implications are complex and subject to change, but currently provide for a one-off withdrawal of up to R30,000 on implementation, and thereafter annual “savings withdrawal benefits”.

Ponzi Schemes: Can Liquidators Claw Back 600% of Payouts?

“MTl’s business clearly amounted to an unlawful ponzi-scheme, i.e. a fraudulent investing scam promising high rates of return to investors and generating returns for earlier investors with investments taken from later investors.” (Extract from the MTI judgment)

Recent media reports of the MTI (Mirror Trading International) liquidators making repayment demands of investors highlight once again the dangers of falling for “too good to be true” investment schemes. 

The problem is that by their very nature, all pyramid schemes (including “ponzi” schemes) eventually fail, leaving the vast majority of investors with nothing but the hope of being awarded a partial dividend on their claims when the holding entity is eventually liquidated. 

But what if an investor is one of the “lucky early birds” who got paid out before the scheme’s collapse?

Debunking the “early bird investor catches the worm” myth

A common myth is that the only losers in a collapsed pyramid scheme are those investors who didn’t get their money out in time, and that the “early birds” who did act quickly are winners in the equation.

The problem for them is that liquidators have wide powers to reclaim payouts made to investors (as creditors) before liquidation. The idea is that payouts by definition come from new money paid in by new investors, and that to be fair to them it is necessary to put everything back into the pot for all investors and other creditors to share according to their claims. But of course they only share in what’s left after all the liquidation costs and fees have been settled, and in a large and complex liquidation like MTI’s those costs will be particularly substantial.

The practical issue is that whatever was paid out to investors/creditors – both by way of the original investment and the “profit” on it – is likely to be claimed back by the liquidator. And the investor forced to repay everything is left with nothing but a concurrent claim in the liquidation. 

Of course a liquidator’s prospects of recovery will be boosted if they can obtain a court declaration of unlawfulness of the scheme and invalidity of the investment contracts (as has already happened in the MTI liquidation), but let’s see how that could then play out in practice.

The liquidator’s options for recovery

To summarise the options available to a liquidator in recovering payouts made before liquidation – 

  • “Voidable preference”: If the payout was made within six months prior to liquidation and immediately thereafter the company’s liabilities exceeded its assets, it is repayable to the liquidator unless the investor can prove that that the disposition was made “in the ordinary course of business” and without intention to prefer one creditor above another. That could be hard to prove in the case of a pyramid scheme.
  • “Undue preference”: If at any time a payout was made by the company with the intention of preferring one creditor above another, it is repayable to the liquidator if the company’s liabilities exceeded its assets at that stage. In this case, the onus is on the liquidator to prove the intention to prefer, but that may perhaps be easier to prove in a pyramid scheme scenario than in other corporate failure scenarios.
  • “Disposition without value”: Monies paid out to a creditor at any time must be repaid to the liquidator if the company received no “value” in return, subject to – 
    •  Where the payout was made more than two years prior to liquidation, the liquidator must prove that immediately thereafter the company’s liabilities exceeded its assets. 
    • But if the payout was made within those two years, the onus switches to the creditor to prove that immediately thereafter the company’s assets exceeded its liabilities. In the case of a pyramid scheme that may be impossible to prove.
    Note that the creditor in such a case will also generally lose their claim against the company.
  • “Collusive dealing”: If the liquidator can prove that a creditor colluded with the company to pay out monies with the effect of prejudicing creditors or of preferring one creditor above another, the colluder will not only forfeit their claim but can also be ordered to pay in a penalty of up to the same amount. A liquidator could for example try to prove that the investor/creditor was aware of the unlawfulness of the scheme at the time of the payout. 

Even worse, could investors lose a lot more than they put in?

Media reports suggest that an MTI investor, who invested R20,000 and was paid out R21,000 shortly before liquidation, received a demand from the liquidators to repay not just his initial investment and profit, but for 600% of what he put in. The sum claimed (at date of writing) is R122,000, that being the current value of the bitcoin he initially invested – the argument being presumably that what was disposed of was “property” (bitcoin), in which case the liquidators would be entitled to reclaim either the bitcoin or its value at the date the disposition is set aside. The justification will no doubt be that that is what the company and its creditors as a whole have actually lost as a result of the disposition. If our courts agree with that view, being sued for a great deal more than the original investment will be a particular risk when the investment is a volatile asset like bitcoin. 

The High Court has previously declared MTI an illegal and unlawful scheme and all agreements between it and investors unlawful and void, but that of course is only the first step for the liquidators in proving their claims against investors. Media reports suggest that many investors are lawyering up to oppose the claims so we must wait and see how it all plays out in the courts. 

Regardless, the risk of not only losing the original investment but then also having to cough up a great deal more over and above that certainly does fire yet another warning shot across the bows of anyone tempted to invest in any scheme promising unrealistic returns. Prospective investors shouldn’t part with a cent until they confirm that the scheme is actually legitimate.

When is Resignation a Constructive Dismissal?

“…the prospect of continued employment must be shown to have been objectively intolerable and the employee must have resigned due to the intolerable situation and not for another reason.” (Extract from judgment below)

Perhaps you are an employer, and that troublesome employee who you’ve been hoping would resign does exactly that. Saving you, as you see it, from the risk, hassle, and expense of disciplinary or retrenchment proceedings. But are you really home and dry?

Or perhaps you are an employee, driven to resign by your employer’s constant maneuvering to make your continued employment unbearable. Do you have any recourse?

The answer to both questions lies in the Labour Relations Act’s definition of “dismissal”, which includes an employee resignation when “an employee terminated employment with or without notice because the employer made continued employment intolerable for the employee.”

And when there’s a dismissal, it has to be a fair one or the employer is in for a very expensive lesson. As we shall see …

The three requirements for “constructive dismissal”?

As confirmed in the Labour Court judgment we discuss below, there are three requirements for constructive dismissal to be established, all three of which must be proved by the employee –

  1. The employee must have terminated the contract of employment, and 
  2. The reason for termination of the contract must be that continued employment has become intolerable for the employee, and
  3. It must have been the employee’s employer who had made continued employment intolerable. 

Note that there is no constructive dismissal if an employee resigns for any other reason, for example “because he cannot stand working in a particular workplace or for a certain company and that is not due to any conduct on the part of the employer.”

And a test for “intolerability”

“Intolerability”, said the Court, “is a high threshold, far more than just a difficult, unpleasant or stressful working environment or employment conditions, or for that matter an obnoxious, rude and uncompromising superior who may treat employees badly. Put otherwise, intolerability entails an unendurable or agonising circumstance marked by the conduct of the employer that must have brought the employee’s tolerance to a breaking point.”

The case of the specialist fraud and risk investigator in a bullet proof vest

  • A specialist fraud and risk investigator resigned from his employment with a bank after 17 years’ service, then successfully referred an unfair dismissal dispute to the CCMA (Commission for Conciliation, Mediation and Arbitration), claiming constructive dismissal. 
  • Suffering health problems and involved in high-risk investigatory work which put his physical security at risk (hence no doubt his wearing a bullet-proof vest), he claimed to have been subjected to ongoing victimisation, bullying and harassment. His complaints included grievance disputes not being attended to, refusal of compassionate leave, poor work performance assessments, disciplinary and incapacity proceedings – the list goes on.
  • Finding on the facts that there was “an accretion of conduct creating an increasingly oppressive work relationship for [the employee], with no functioning mechanism available to halt the deterioration”, the Court held that the employer had made the employment relationship intolerable. The employee was entitled to regard his resignation as a constructive dismissal and, that dismissal being an unfair one, the Court confirmed the CCMA’s compensation award of ten months’ remuneration. 

Property Sales: “Conditional Acceptance” of an Offer is Not Acceptance, It’s Rejection

“The conditional acceptance of an offer amounts to rejection of same and not the conclusion of a contract, but may be a counter–offer.” (Extract from judgment below)

A good offer comes in for your property, so you accept it. But you’re not happy with a few of the terms, so before you sign you make a few changes to the offer. Maybe they are big changes, maybe they seem inconsequential. 

Either way, you are now effectively negotiating, not accepting the offer. You have in fact just rejected it. Unless the buyer now accepts your amendments in writing (by initialing or counter-signing against your alterations), you almost certainly have no valid sale.

Thinking that you have a valid sale when you don’t is a common and easily-made mistake, and a recent High Court decision shows just how important it is for both seller and buyer to be aware of this danger.

The property auction, the counter-offer, and the commission claim

  • A property on auction attracted a top bid of R1.85m and after some haggling the buyer put in a second offer of R1.9m.
  • The seller accepted this second offer, but critically with amendments. The parties could not agree on these outstanding issues, with the result that the seller sold the property to another buyer without the auctioneers’ involvement.
  • At which stage the auctioneers sued the seller for commission, arguing that a sale had been concluded at R1.9m because the amendments to that offer were “not material” ones (in other words, they weren’t important, significant or essential terms). The terms in question related to who was to receive the agreed occupational interest and to the issue of a gas compliance certificate. Neither amendment, argued the auctioneers, was material to the sale.
  • The Court however disagreed, commenting that “In principle, anything more or less than an unqualified acceptance of the entire offer amounts to a counter-offer and constitutes a rejection of the original offer.” It accordingly dismissed the auctioneer’s claim for commission on the basis that the seller’s amendments were material and amounted to a counter-offer which the buyer had never accepted. In other words, no sale agreement had ever come into existence.

So, do you have a binding sale agreement?

If the amendments to the offer have been accepted and signed by both buyer and seller, no problem – the counter-offer has been accepted and you have a binding sale agreement.

Otherwise, as our courts have put it: “When parties conclude an agreement while there are outstanding issues requiring further negotiation, two possibilities would follow: no contract formed because the acceptance was conditional upon consensus, or a contract formed with an understanding that the outstanding issues would be negotiated at a later stage.” Deciding which is which means trying to deduce the parties’ intentions from their conduct and other circumstances – a grey and specialist area requiring specific legal advice.

Bottom line

Making a counter-offer can be an excellent tactic for negotiating towards agreement, but be very careful with the concept of “conditional acceptance”. It is actually not an acceptance at all but a rejection of the offer and could well be a counter-offer requiring acceptance by the other party in order for there to be a valid sale. Avoid all doubt by making sure everything is signed and counter-signed. 

As always, ask us before you sign anything!

Legal Speak Made Easy

“Pacta sunt servanda”

Pacta sunt servanda” is an important and fundamental legal principle internationally. It simply means “agreements must be kept”. There are limitations, and increasingly in South Africa our courts have referred to values of ubuntu, fairness and public policy when holding unacceptable contractual terms to be unenforceable. But it’s a principle worth bearing in mind at all times – agree to something freely and voluntarily, and as a rule you will be held to your agreement by law.

Budget 2024: The Minister of Finance Wants to Hear from You!

“Right now we have got a challenge because our growth levels are insufficient to be able to cope with higher levels of debt … I will have more on this in the February budget next month. I can tell you now, we are operating in a fairly constrained fiscal space so the message we are likely to put across in February is going to be a difficult one.”
(Minister of Finance, January 2024)

Finance Minister Enoch Godongwana has invited the public to share suggestions on the 2024 Budget he will deliver on Wednesday 21 February 2024.

Go to National Treasury’s “Budget Tips for the Minister of Finance” page and fill out the online form. 

“Pay Extra for My Generator or I’ll Cut You Off During Loadshedding”. Can a Landlord Do That?

Loadshedding continues to plague us and our businesses, and when tenants are connected during power cuts to their landlord’s alternative power source – such as a generator – it is essential for both parties to understand their respective rights.


Lights out for a shopping mall gym

  • An upmarket gym had relied for years on its shopping mall landlord’s generator to get through loadshedding, without having to pay extra for it.
  • “Out of the blue” the landlord demanded a monthly “diesel recovery levy”, and a dispute arose over whether it was entitled to do so or whether the cost was already covered by an existing “all-inclusive monthly fee for all expenses related to the lease of the premises”.
  • The parties agreed to refer that dispute to arbitration but then the landlord decided to flex its muscles by cutting off the gym’s connection to the generator.
  • The gym obtained an urgent reconnection order from the High Court. Although that is only a temporary solution for the tenant (it must still win the arbitration or pay the extra levy), the Court’s decision is a significant one in that it has confirmed the principle that access to an alternative source of power does fall under the protection of the “spoliation” principle.


“Spoliation” – no one can take the law into their own hands

No one can go the self-help route and take the law into their own hands by removing property from someone else without a court order. Anyone deprived of possession like that can urgently obtain a “spoliation” order forcing an immediate return to it of the property.

At this stage, the court won’t be interested in who has the legal right to the property – all it will look at is whether –

  1. The possessor was in “peaceful and undisturbed possession” and
  2. It was unlawfully deprived of that possession.  

That’s straightforward with possession of a “corporeal” thing like a car, or a house, or a parrot. But when it comes to an “incorporeal” like access to an alternative energy source, things become more complicated. Now you must prove that you had “quasi-possession” of the power supply.

As complicated as that may sound, what’s important on a practical level for both landlords and tenants is that this judgment has confirmed in principle that access to an alternative power supply such as a generator falls under the law’s protection as much as possession of a corporeal “thing”.


The bottom line

Whether or not a tenant has an enforceable right to its landlord’s alternative power supply – and if so whether it must pay extra for it – will depend on the wording of the lease.

But the landlord cannot just cut off an existing power supply without following legal process.

You Can (and Should) Both Discipline and Prosecute Thieving Employees

“It’s the profile of the most trusted individual, in a position of trust, like an accountant or bookkeeper. They usually never take leave, and someone who never allows anyone access to their system would go to the length of taking their laptops with them while they are on holiday so that they can continue working. They are usually caught in the moment of forced absence from work.” (Specialised Commercial Crimes Court as reported by News24)

Our courts report a surge in serious cases of theft from employers by their most trusted employees – often bookkeepers and accountants. The greater the trust placed in these dishonest individuals, the more they steal and the longer they get away with it.

Particularly in more serious cases, employers should lay criminal charges as well as instituting disciplinary proceedings. Criminal courts are imposing hefty deterrent sentences, and the Labour Court has confirmed that laying charges does not prejudice the simultaneous disciplinary process.


Minimum sentences apply

Firstly, minimum sentencing provisions apply when large amounts have been stolen. Even first offenders must be sentenced to a minimum of 15 years’ imprisonment for any fraud or theft involving more than R500,000 (R100,000 for persons acting together or R10,000 for law enforcement officers) unless “substantial and compelling circumstances exist which justify the imposition of a lesser sentence”.

Let’s look at some recent cases –

  • 50 years for a R537m theft: Over some two decades of employment in a position of trust as an accountant, an employee admitted to 336 counts relating to thefts totalling an astonishing R537m. She had tried to cover up with fraudulent VAT claims and although her lavish lifestyle (she spent R5m on one specific day) attracted attention, it seems that it was only an anonymous tip off that eventually led to her detection and arrest. She was sentenced by a Specialised Commercial Crimes Court (SCCC) to 50 years behind bars.
  • 10 years for a R13.4m fraud: A creditor’s clerk, once again in a position of trust, pleaded guilty to 972 counts of fraud totalling over R13.4m and stretching over 9 years, only discovered when she went on sick leave. The mitigating factors in her case (she has health issues and is 65 years old) led the High Court to reduce her 15-year sentence to a below-the-minimum 10 years. 
  • 18 years for a R14m theft: A financial manager stole over R14m, leaving the couple who had trusted him with their finances without their life savings (including a cancer diagnosis payout) and on their knees financially and emotionally. The Court’s sentence of 3 years more than the minimum reflected its finding that the aggravating factors justified removing the manager from society, despite his gambling addiction and previous clean record.  
  • 15 to 30 years for a R52m fraud? A trusted store accountant “viewed as a brother” by its traumatised owners (one of whom even contemplated suicide), admitted to two counts of fraud totalling R52m as a result of his gambling addiction. He will only be sentenced in March, but it seems from media reports that he is unlikely to receive less than the minimum 15 years’ imprisonment per count, possibly to run concurrently. 


The Labour Court confirms you can do both

A municipal manager with 15 years’ service was criminally charged with very serious frauds. He asked the Labour Court to stop his employer’s disciplinary process against him, arguing that in defending himself at the disciplinary hearing he might have to give self-incriminating evidence.

The Labour Court disagreed, finding that the employee had several layers of protection available to him in the criminal trial, and clearing the employer to proceed with the disciplinary hearing simultaneously. In fact, said the Court, “It is tantamount to an abuse of court process by a person holding a managerial position using court processes to prevent his employer from subjecting him to a disciplinary process under the guise of protecting his constitutional rights.” It accordingly ordered him to pay all costs on the punitive attorney and client scale – a very unusual censure in labour law matters where both sides are normally left to cover their own costs.