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Letters to the Editor

 

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Letters are not published under noms de plume. However, letters from practising attorneys who make their identities and addresses known to the editor may be considered for publication anonymously.

 

National Credit Act: Rental agreement – a wolf in sheep’s clothing?

 

I wish to bring the following topic to the fore. It concerns a much-debated legal issue regarding the interpretation of the National Credit Act 34 of 2005 (NCA). In particular, the applicability of the NCA to a so-called ‘rental agreement’ or common law lease. In the latest decision by the Supreme Court of Appeal (SCA) in Absa Technology Finance Solutions (Pty) Ltd v Michael’s Bid a House CC and Another 2013 (3) SA 426 (SCA), this issue was traversed by the court. It is trite that a flat rental agreement where the lessee pays an invariable rental for the full term of the rental agreement is not governed by the NCA. That much is clearly defined in the Act and reconfirmed by the SCA.

 

The question that arises, however, is the so called ‘rental agreements’ in disguise. Professor JM Otto discussed the case of Absa Technology Finance Solutions Ltd v Pabi’s Guest House CC and Others 2011 (6) SA 606 (FB) in NJ Grové & JM Otto Basic Principles of Consumer Credit Law 2ed (Cape Town: Juta 2002) at 15. The so-called ‘variable rental agreements’ in contrast to the so-called ‘flat rental agreements’, were scrutinised by Prof Otto and I quote from the article by him (as the court did in the Pabi’s case), ‘This profit is often nothing else but disguised interest. In fact, the contract will often provide for a variable rental during the term of the contract which rental is determined by a particular reference rate, such as the prime rate of a certain bank. That in itself is a dead giveaway’ (at para 15). 

 

In my view, the prime question flowing from the above, is therefore not what the rental agreement appears to be, but what the content thereof in factual terms evidences. For example, a common law lease with a flat and invariable rental for the full period of the lease, clearly does not fall under the ambit of the NCA. If the rental varies in some way or other during the term of the agreement, one has to scrutinise the content of the lease very carefully to ascertain whether it contains hidden interest/fees/charges, which is in effect part and parcel of a debt deferred to a later date.

 

Against the background of the above contentions, I want to provide a practical example for scrutiny to ascertain whether it is a flat rental agreement not governed by the NCA or is it a so-called extended credit agreement under s 8(4)(f) of the NCA: Some rental agreements make provision, not for variable rentals in terms of a variable bank rate but for an annual increase of the rental by a fixed percentage of say 15% per annum. Is this now still a common law lease not governed by NCA or do we have a ‘variable’ rental agreement that probably falls under s 8(4)(f)? In most cases the lessee is unaware of this annual increase. But say he or she was informed at the time, is this form of rental agreement a credit agreement governed by NCA or not?

 

Based on the example above, I would like to pose for consideration the following questions:

Can the fixed 15% rental increase annually, be equated to a deferral of a rental to be paid at a date in the future for the same reason that a variable rental agreement referred to in Prof Otto’s article, can thus be equated? The increased part of the rental for the second year is indeed as a fact ‘deferred’ to the second and following years. Or is the increased rental simply what it appears to be: A yearly escalation of a rental, which is not uncommon to common-law leases? Or is this the part where hidden interest and profit come in? Furthermore, if we should assume that the ‘increased part’ of future rentals is a deferral of a debt already due but payable only in the second and following years, where are the fees, charge or interest payable in terms of the agreement or the amount that has been deferred? Can it be said that a fee or charge or interest is also included in the annual percentage increase in the rental payable? The fact of the matter remains that it is not a flat rental for the full term of the lease as in the
Michael’s Bid a House case. If the lessee in our example initially pays, say R 303 per month in terms of the rental agreement and the term of that agreement is, say five years, he will end up paying R 529,95 per month during the fifth year. Almost double the initial rent. Over the full term of the lease with the annual increased rentals, he will pay the total amount of R 24 515,04 whereas he would have paid, if a flat invariable rental was payable, only R 18 180. Is the difference simply as a result of normal escalation or can it be regarded as disguised interest, fees or profits? 

 

My final question thus is: Is the above scenario simply the result of an escalation in terms of a standard common law lease, which does not fall under the ambit of the NCA or do we have a wolf in sheep’s clothing?

 

Hannes du Bois

attorney, Cape Town

 

Inter-company loans and suretyships: Getting caught by the new         Companies Act

The heading to s 45 of the Companies Act 71 of 2008 is misleading. It is recorded as ‘loans or other financial assistance to directors’. However, in the body of the section the legislature has chosen to include financial assistance between related or inter-related companies as well as financial assistance to directors.

 

For purposes of s 45, it is important to have regard to the definitions of the terms ‘related’ and ‘inter-related’ in the Companies Act. Essentially without wanting to simplify them too much, when they are used in relation to juristic persons, these terms refer to companies within the same group.

 

Section 45(2) of the Companies Act states that a board may authorise a company to provide direct or indirect financial assistance to a ‘… related or inter-related company…, subject to subsections (3) and (4)’.

 

Subsection (3) then proceeds to require –

• a special resolution of the shareholders, adopted within the previous two years, which approved of such assistance either for the specific recipient, or generally for a category of potential recipients; and

• a confirmation that the board, at the time of approving of the financial assistance, is satisfied that the company meets the solvency and liquidity test set out in the Companies Act and that the terms of the financial assistance are fair and reasonable to the company.

 

In this regard it is important that one bears in mind that the term ‘financial assistance’ goes much further than simply incurring an expenditure on behalf of another or advancing money on loan
account, but it also includes guaranteeing a loan or other obligation or securing a debt or obligation. As such, a holding company’s decision to grant a suretyship or a guarantee for a subsidiary needs to comply with the provisions of this section.

 

Section 45(6) of the Act provides that any resolution that the board of a company passes, agreeing to provide financial assistance and any subsequent agreement that it may conclude in relation to such assistance, is void to the extent provision of that assistance is inconsistent with the section. Section 45(7) of the Act further provides that a director is liable to the extent referred to in s 77(3)(e)(v) of the Act personally for any losses, damages or costs sustained by the company as a direct consequence of that financial assistance if the director was present at the time the board decision was approved and failed to vote against same.

 

I have no doubt that there are many companies in South Africa that record running loan accounts between themselves, their subsidiary companies and their holding companies without considering compliance with s 45. Indeed, many of these companies also conclude suretyships and guarantees for the obligations of other members of the group as an ordinary course matter. This now needs a special resolution before the board can authorise such financial assistance.

 

I suggest that each company should, every two years, pass and renew a standing shareholder authority to grant loans to the various companies in the group of which it forms part, in relation those matters that are reasonably foreseeable in the next few years. Some of these foreseeable matters include settling expenses on behalf of other group companies or securing the debts and obligations of other group companies in relation to various contractual obligations (such as leases and banking facilities).

 

Because the agreement itself is void (and the board resolution is void) it stands to reason that the shareholders resolution must be passed before the financial assistance is granted. Accordingly, this financial assistance cannot be ratified after the fact.

 

Derrick Kaufmann

attorney, Johannesburg

 

Barring of CAs from CCMA proceedings disconcerting

 

At the risk of sounding flippant, it is my assertion that the barring of candidate attorneys (CAs), with right of appearance, from appearing at the Commission for Conciliation Mediation and Arbitration (CCMA) is perturbing, to say the least.

 

Notwithstanding the provisions of s 8(1) of the Attorneys Act 53 of 1979 authorising a CA to appear for and on behalf of his or her principal in any court in the Republic of South Africa (not being a regional court or any division of the High Court) and before any statutory board that his or her principal is entitled to appear, the CCMA r 25(1)(c) read with s 213 of the Labour Relations Act 66 of 1995 (LRA) still finds a CA incompetent to appear before its proceedings by virtue of not being admitted to practice.

 

It is mind-boggling though that a robed CA, who appears before a magistrate in a very formal court setting, is barred from conducting a CCMA arbitration, as arbitration is conducted in a less formal setting.

 

The recent judgment handed down by the Supreme Court of Appeal in CCMA v Law Society, Northern Provinces (SCA)(unreported case no 005/13, 20-9-2013)(Nugent, Malan, Wallis JJA, Van der Merwe and Swain AJJA) dealt extensively with legal representation. In light of some of the findings therein, it is my view that legal representation in misconduct/incapacity cases (where attorneys and advocates are not allowed as of right) should be endorsed for CAs. These matters are less complex and will provide CAs with the requisite practical experience in labour dispute resolution, which is not dealt with in the magistrates’ courts. This should be the case especially for those CAs who have chosen labour dispute resolution as an elective at the law school (school for legal practice).

 

In the context of the foregoing, it is my view that the current state of affairs is devoid of any rational basis and further, prejudicial to CAs’ developmental aspirations, especially to some of us who have earmarked employment law as one of specialisations in practice.

Siphiwe Ntuli

assisted by
Harry Makgalemele

candidate attorneys,
Johannesburg

 

Concerns regarding appointment of pro bono acting judges in the labour court

I am a practising attorney specialising in labour law and naturally I am a regular at the Labour Court.

 

I am very concerned about the appointment of pro bono acting judges for the Labour Court. I would like relevant people, including the officer of the Labour Court, Judge President and the Chief Justice, to elucidate the criteria used to select pro bono acting judges for the Labour Court during the recess periods.

 

Labour law practising lawyers form a very small society and, therefore, we know each other as well as the judges, and even CCMA commissioners.

 

Ordinarily, one assumes that for a person to be appointed as an acting judge in the Labour Court, such a candidate would be well acquainted with the basic principles of labour law and the rules governing the Labour Court.

 

Unfortunately, due to their ignorance of labour law principles, some of the pro bono acting judges compromise the integrity of the judicial system in the manner in which they conduct labour law cases. It is obvious that some are certainly not labour law practitioners and they are simply thrown in at the deep end when it comes to adjudicating labour disputes.

 

Attorney, Johannesburg

 

• The author of this letter has asked to remain anonymous. The editor is ­satisfied as to the author’s identity.

 

Ukuthwala

In a landmark judgment and sentencing, the Wynberg Regional Court has jailed a man for 22 years for practising ukuthwala by taking a 14-year-old girl from her home against her will but with the consent of her uncle and grandmother and made her his wife. The court denounced this as rape, trafficking in children and assault on the child under the guise of culture and religion.

 

This practice is very rife in Bergville (KwaZulu-Natal) where school girls are forced into marriage by young adult males, who are sometimes total strangers. Ukuthwala causes an abrupt end to a girl’s childhood and schooling career.

 

This custom has no place in our constitutional democracy and the 21st century. Sections 30 and 31 of the Constitution protect culture and individual rights, including the rights of children to be protected against abuse, which takes precedent over the recognition of customary law. Child trafficking, abduction and gender-based sexual violence should not be sugar-coated as ukuthwala. How can a 14-year-old make an informed decision? She cannot grasp the concepts of pregnancy, venereal disease and HIV and AIDS.

 

Section 12 of the Constitution guarantees the right to freedom from all forms of violence. Age of consent to sexual intercourse is 16 in terms of the Criminal Law (Sexual Offences and Related Matters) Amendment Act 32 of 2007. Recognition of Customary Marriages Act 120 of 1998 prescribes that spouses be over the age of 18 and that they must both consent to marriage.

 

Ambrose Mfayela

regional magistrate,
Scottburgh

 

 

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