Kruger & Co – Page 38

Sep 27

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Security Complexes and Fibre – You Can Use Telkom Ducting After All

By Kruger & Co | Property

“Reliable electronic communications go beyond just benefiting the commercial interest of licensees to the detriment of ownership of property. The statute [Electronic Communications Act] is designed to avoid this no-winner conflict. What it seeks is to bring our country to the edge of social and economic development for rural and urban residents in a world in which technology is so obviously linked to progress.” (Extract from Constitutional Court decision quoted in the judgment below)

If you haven’t already done so, you are no doubt thinking of upgrading soon to the “superfast broadband” provided by fibre optic cabling. In any event ADSL is about to disappear with Telkom’s plans to shut down its copper network and migrate ADSL customers to either fibre (where available) or LTE.

In a community scheme, your challenge is that your chosen fibre service provider must either use your existing underground ducting or start digging new trenches and putting in new ducting, sleeves and manholes. The expense and disruption of the latter option naturally make it very much second prize.

So Telkom no doubt celebrated its 2017 High Court victory over Vodacom and a Home Owners Association (HOA) restoring to Telkom exclusive and undisturbed possession of its underground ducting in a residential estate.

The fight, however, had only just begun. The HOA and Vodacom took this decision on appeal to the SCA (Supreme Court of Appeal), and this time they succeeded.

The complex and the copper cables

In what is no doubt a pretty standard historical scenario for residential complexes, the developers of a private security lifestyle residential estate had some 20 years ago asked Telkom to provide telecommunication services to the estate, and had built and installed the infrastructure at the developer’s cost but in compliance with plans provided by Telkom and under Telkom’s oversight.
Correspondence at the time indicated that “Telkom envisaged that the infrastructure would be for its exclusive use”, and since then it had always had access to the network and maintained it.
When the HOA rejected an offer by Telkom to install fibre and instead awarded a contract to do so to Vodacom, Vodacom installed its fibre in the Telkom ducting. Long story short, Telkom successfully asked the High Court for a “spoliation order” restoring “undisturbed possession” of the infrastructure to it.
On appeal however, the SCA ruled that in fact “Telkom’s actual use of the ducts, cables and its service to its customers remains undisturbed. It has not lost possession of anything. It remains entitled to enter into [the estate] for the purposes set out in s 22 [of the Electronic Communications Act] and its network remains fully functional as it was prior to Vodacom’s conduct. There was accordingly no spoliation.” The spoliation order was accordingly set aside.

Note that the judgment itself contains much that will be of interest to lawyers on the questions of “servitutal rights”, “quasi-possession of rights”, and the ins and outs of the Electronic Communications Act – but the important practical outcome for HOAs and complex homeowners is that it is now easier to choose your own fibre installer because, provided your installer does nothing to disturb Telkom’s use of the ducts (and its service to its clients), the free space in the existing underground infrastructure is available for use.

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.

Sep 27

0

How Courts Sort Fact from Fiction – A Tale of Jags, Deception and Damages

By Kruger & Co | Delict and Civil Claims, Litigation

“Truth will out” (Shakespeare)

You are wondering whether you can win in court against an opponent where your two versions of what happened are totally at odds with each other.

How will a judge decide where the truth lies? It’s an important question because even though you know you are telling the truth, the court must base its decision on the evidence put before it. In other words, whether or not Shakespeare’s “Truth will out” will apply to your court case is going to depend on what evidence you have, and on how you present it.

A recent damages claim for fraudulent misrepresentation illustrates…

Selling R320k worth of Jaguar XF as a R1m XFR

A dealership (owned by a close corporation) sold a “Jaguar XFR” to a buyer, who financed the purchase through a bank at a price of R985,139-29. Legally the sale was from the dealership to an intermediary, which then sold the vehicle on to the bank, which then sold it to the buyer on instalment sale.
When the buyer failed to make payments due under the instalment sale agreement, the bank seized the vehicle from him. In the process it became aware that it was in fact a Jaguar XF, not the XFR reflected in all the documentation.
That made a big difference to the bank because a Jaguar XFR5.0 V8 S/C is, the Court was told, a very different beast from its cousin the XF5.0 V8. What was most relevant to this case was that “the Jaguar XF is a considerably cheaper kind of Jaguar vehicle than the Jaguar XFR”.
The bank cancelled its agreement with the intermediary on the grounds of misrepresentation and the intermediary had to repay the R985k to the bank.
The intermediary then in turn tried to recover its losses from the dealership, which however refused to pay back a cent and refused to accept return of the vehicle. To reduce its losses, the intermediary sold the XF on for R275k, after which it sued the dealership for its net loss of R710k.
The two versions of events given by the dealership and the intermediary were irreconcilable and the factual evidence heard by the Court was an interesting and complex mix of allegedly forged signatures, unsigned documents, the mysterious addition of an “R” badge to the vehicle, and a disclosure that the dealership had bought the vehicle for R320k just days before on-selling it for R985k.

How did the Court decide?

The Court followed “the technique generally employed by courts in resolving such factual disputes” which it summarised as (format supplied):

“To come to a conclusion on the disputed issues a court must make findings on –
1. The credibility of the various factual witnesses;
2. Their reliability; and
3. The probabilities.”
Those three factors are of course closely inter-linked, and the Court’s assessment of them will lead it to decide whether whichever party bears the onus of proving a fact or facts has succeeded in doing so. There’s a clear blueprint there for any litigant wondering whether their version of events is likely to be accepted as fact, or rejected as fiction.
In this case, the “We did nothing wrong” evidence given for the dealership by the close corporation’s member and ex-member was rejected by the Court, which referred to both the general probabilities and to several important changes of story both on the papers and on the witness stand with comments like “…had to change his version drastically during cross-examination as to how the transaction came about…”.
The end result – the Court found that the member had made a misrepresentation, knowing that it was false, that the vehicle was a Jaguar XFR and not a Jaguar XF. The ex-member was found co-responsible for the fraudulent misrepresentation and all three (member, ex-member and dealership) held jointly and severally liable for damages of R710,139-29 plus interest and costs.

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.

Sep 27

0

Your Websites of the Month: Tips to Manage Debt and Master Your Money

By Kruger & Co | Website of the Month

Times are hard, and although hopefully we are now seeing the first green shoots in our economy, there has never been a better time to improve your relationship with money and the state of your finances.

Have a look at these website articles for ideas on how to make a start –

“No more fighting over bills! Here are 3 tips to master your money” on The Catalyst website
Time’s “Struggling to Repay Your Debt? The Snowball Method Could Help” here.

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.

Aug 28

0

Your Will: What You Can and Can’t Do

By Kruger & Co | Wills and Estate Planning

“Where there’s a will, I want to be in it” (Anon)

Your will (“Last Will and Testament”) is quite possibly the most important document you will ever sign. Without a properly-executed will you put your loved ones at risk of financial and emotional hardship, you forfeit your right to nominate who administers your deceased estate, and most importantly you forfeit your right to choose who inherits what from you.

But just how wide is your right to choose? Can you leave anything to anyone? Is your freedom to decide limited in any way? Must your executor blindly carry out your last wishes?

Your fundamental right to “freedom of testation”…

For centuries our common (i.e. unwritten) law has recognised “freedom of testation” as a basic principle, subject only to being balanced against a restricted list of specific limitations.

Moreover our courts have confirmed that this freedom is supported by our Constitution. To quote the Supreme Court of Appeal (SCA): “The right to dignity allows the living, and the dying, the peace of mind of knowing that their last wishes would be respected after they have passed away.”

…and the limits

Even as far back as Roman times there were limits to freedom of testation, and these have grown over time to incorporate the following general principles against which your will’s validity can be tested –

You cannot have anything in your will that is illegal, immoral, or “against public policy”, or impossible to fulfil, or so vague as to be unenforceable.
Legal obligations for maintenance of dependants and of your “surviving spouse” (where he/she qualifies) will generally take preference over bequests.
How you were married could well be relevant. Thus if you were married out of community of property with the accrual system, your surviving spouse may have a claim against your estate for half of the combined increase in the value of your separate estates during the marriage (specific rules apply).
Courts also have a variety of other statutory powers such as the power to alter trust provisions and to remove or modify restrictions on immovable property.
Pension and retirement fund benefits may not be paid out to your nominee – the fund’s administrators must first identify any dependants with possible claims on them.
Constitutionality: Your bequests also stand to be tested against our Constitution. Thus in 2010 the SCA removed a discriminatory clause in an educational fund bequest open only to “European girls born of British South African or Dutch South African parents”, commenting that “In the public sphere there can be no question that racially discriminatory testamentary dispositions will not pass constitutional muster” (emphasis added). Similarly in 2006 the High Court struck down provisions in a will limiting a bursary fund to white non-Jewish males.
On the other hand, the SCA in a 2018 judgment upheld a private trust’s provisions benefitting only the deceased’s biological descendants to the exclusion of two adopted grandchildren. “There is much to be said for public trusts being judged more strictly than private trusts”, said the Court, noting that the public nature of the bequests in the earlier judgments was “a determining factor in the weighing up process in those specific cases.” Note that the particular facts of that case also played a part in the Court’s decision, so adopted children and grandchildren might well succeed in different circumstances.

Clearly, there will always be a balancing act in play here because, as we saw above, freedom of testation is itself regarded as a constitutional right.

Critical: A well-drawn and valid will

The last thing your grieving loved ones will need is a long and bitter court battle over whether your will is valid – or over any areas of uncertainty or dispute.

Bear in mind that of necessity the list above is only a brief summary of the legal principles involved – there are many “ifs and buts”, grey areas (such as the balancing act referred to above in regard to the question of constitutionality), and considerations beyond the scope of this article.

That’s why there can be no substitute here for legal advice specific to your circumstances. Have your attorney draw your will for you (or check it if you already have a will). It must be properly drawn, it must correctly and clearly reflect your wishes, it must be validly executed – and it must pass muster when tested as above!

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.

Aug 28

0

Property: Are Verbal Agreements Valid?

By Kruger & Co | Property

“A verbal contract isn’t worth the paper it’s written on” (Samuel Goldwyn)

Verbal agreements in South Africa are generally as binding and valid as written ones. Of course not recording your agreements in writing is a bad idea – oral agreements are a recipe for doubt and dispute, and proving the exact terms agreed on will be challenging if not impossible.

Moreover certain types of contract have to be in writing, and signed by all parties, to be valid at all. For example in South Africa an oral contract for the sale, exchange or donation of land, or of any “interest in land”, is unenforceable.

A recent High Court case shows the danger of overlooking this requirement…

Two properties, no right of way access

The buyer of two properties intended to build two new houses on them.
He orally agreed with one of the sellers “to right of access (right of way) for both new second dwellings through his property” and “to provide and sign all necessary documents for effecting the agreed upon right of way through his property”. The right of way was supposedly a 3m wide corridor for vehicle access across the property.
However the sale agreement itself made no mention of this arrangement which accordingly remained verbal only.
When a series of disputes arose (involving amongst other things hotly-denied allegations of forgery, breach of contract and cancellation of the deed of sale), the buyer asked the High Court to declare the right of way servitude agreement “valid and in full force”, and to order the seller to sign the documentation for its registration.
The Court refused, holding that “the right of way in issue in this matter constitutes an ‘alienation ‘ of an ‘Interest in land’”. In other words, it was a “servitude” (simply put, a right given to A over B’s property – such as to live on it or to gain access to another property through it) and had to be in writing to be valid and binding.

The bottom line

As always, when buying or selling property take legal advice before you sign anything, and remember to tell your attorney about any verbal agreements you have made. In this case, the oral right of way agreement should have been recorded in the written and signed agreement of sale, then registered against the title deeds in the Deeds Office to ensure its enforceability “against the world” (thus including subsequent owners of the other property).

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.

Aug 28

0

What is Poor Work Performance? A Case of Missed Sales Targets

By Kruger & Co | Employment and Labour Law

“…the employer has a duty to investigate all possible alternatives short of dismissal, and this duty accords with the onus of proving the fairness of the dismissal” (extract from judgment below)

An employee who fails to perform adequately at work is by definition not fulfilling his or her side of the employment bargain, but that doesn’t mean that dismissal is necessarily an appropriate remedy.

Guidelines for dismissal

The onus is on you as employer to prove that the dismissal was fair, and the “Code of Good Practice on Dismissals” provides these guidelines –

“Any person determining whether a dismissal for poor work performance is unfair should consider –

Whether or not the employee failed to meet a performance standard; and
If the employee did not meet a required performance standard whether or not –
1. The employee was aware, or could reasonably be expected to have been aware, of the required performance standard;
2. The employee was given a fair opportunity to meet the required performance standard; and
3. Dismissal was an appropriate sanction for not meeting the required performance standard.”

A good example of how that works in practice comes from a recent Labour Law judgment…

The sales reps fired for missing their targets

A group of sales representatives failed to meet their (newly-introduced) sales performance targets.
They were given letters warning of poor work performance, followed a month later by a final ultimatum giving them the opportunity to make written representations with reasons for failing to meet their targets.
They did so, referring to a list of challenges they said they were faced with, but the employer found their explanations unacceptable and they were served with notices to attend performance enquiries which resulted in their dismissals.
The CCMA (Commission for Conciliation, Mediation and Arbitration) found the dismissals to have been substantively unfair (although procedurally fair) and ordered the employer to reinstate the employees with full back pay.
On review in the Labour Court the employer argued that the performance targets were reasonable and achievable (other employees were achieving them) and that it had to introduce the targets in order to “improve cash flow for survival.”
The Court in the end result confirmed the reinstatement order, finding that –
- The employer failed to show that the employees were given sufficient training, guidance, support, counselling and reasonable time to improve their performance.
- The employees had genuine concerns that were outside their control and could have been managed with the employer’s assistance.
- The employer had failed to explore alternative measures short of dismissal, like training.
The employer had accordingly failed to show that dismissal was an appropriate sanction.

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.

Aug 28

0

Home Builders – Your Contractor Must Register with the NHBRC

By Kruger & Co | Property

“…the Act is consumer-protection legislation designed to offer protection against incompetent builders and the construction of homes having structural defects” (extract from judgment below)

In order to promote housing consumer rights, home builders (including residential property developers and builder/contractors – an “owner builder” may apply for exemption) must, in terms of the Housing Consumers Protection Measures Act (“the Act”) register with the NHBRC (National Home Builders Registration Council). They must also enrol houses they build with the Council, and pay an enrolment fee – which, as we shall see below, can be substantial.

Failure to comply is a serious matter for builders – it’s not only a criminal offence (with penalties of a R25k fine or a year’s imprisonment) but it means no payment can be claimed for work done. In other words you could be fined/jailed as well as lose your right to payment.

Two recent SCA (Supreme Court of Appeal) cases deal with specific types of home builder but they provide a timely reminder to all builders, big and small, of the need to comply with the Act.

Trusts – must you register?

The first case dealt with a trust which was building a sectional title housing development.
It failed to renew its original registration and then refused to comply with non-compliance notices served on it.
It argued that it was not a “person” and therefore did not fall under the Act.
The SCA was having none of that, saying that the question was not whether a trust is a “person” but whether it fell under the Act. Commenting that “To exclude trusts from the ambit of the Act would result in a consequence which is arbitrary and unjust”, it declared that trusts must indeed register.

What about “build to let” developers?

In the second case, the developer/builder of a property development comprising shops and 223 residential apartments refused to pay the (over R1.5m) enrolment fee required by the NHBRC.
Saying that it planned to rent the apartments out to tenants, and had no intention of selling them or developing them in terms of a sectional title scheme, the developer argued that it was itself the “effective end user” of the apartments and therefore it was “absurd to expect it to insure against itself”.
Eventually however the developer paid the fee under protest, and then successfully applied to the High Court for an order that it was not obliged to comply with the Act’s enrolment provisions.
On appeal however the SCA held that the enrolment provision of the Act “does apply to homes being built for lease and rental purposes”. It also rejected the developer’s alternative argument that the requirement was “unconstitutional, unlawful and invalid” because it was irrational to expect the developer to “insure itself against itself”.

To register and enrol, or not to register and enrol?

There are some exceptions to the Act’s application, and “owner builders” can apply for exemption. But there are grey areas here and our courts have signaled a willingness to interpret the Act as having a wide reach. As we have seen, the penalties for getting this wrong are substantial so if you aren’t 100% sure where you stand, specific legal advice is a no-brainer!

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.

Aug 28

0

Your Website of the Month: Video Guides to Starting Your Own Business

By Kruger & Co | Business, Website of the Month

“A journey of a thousand miles begins with a single step” (Laozi)

Many of us dream of starting up our own thriving businesses. But it’s an ambition that few actually attempt, let alone achieve, and no wonder – it’s scary going out on your own, and there are many challenges awaiting you on the long road ahead. And we all know how that first step on the road to success is often the very hardest to take.

So where to start? The Internet has a wealth of useful resources for entrepreneurs and would-be entrepreneurs. The general principles of entrepreneurship apply universally, so the American website BusinessTown, with its extensive library of easily-digestible video content, is a great place to take that first all-important step. Customise a list of videos relevant to your particular needs under headings such as –

Start a business
Run a business
Increase sales and profits
Ramp up to the next level.

There are videos there covering everything from “5 myths about starting your own business” in the “Should You Start a Business?” section to “Finding new business ideas in the everyday” in the “Hundreds of Business Ideas – Which One Is Right for You?” section.

A final thought – before you actually launch, get proper legal advice. Ask questions like “what vehicle should I choose to house my new venture?” “What formalities must I comply with?” “What agreements should I have in place?” And so on…

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.

Jul 29

0

Beware of Property Cyber Scammers

By Kruger & Co | Criminal Law / Crime, Property

“Forewarned is Forearmed!” (Wise old saying)

Why yet another warning about cyber-scams in the property industry? It’s because the hard fact is that the criminals are winning this war. In fact we are now reportedly the “second most targeted country in the world with regard to cyber-attacks” (Law Society of South Africa).

Hence, no doubt, the Legal Practitioners Indemnity Insurance Fund report of “over 110 cybercrime related claims with a total value of R70 million” in the period July 2016 to August 2018.

The scammers are using more and more sophisticated techniques to lull their victims into complacency, and your best protection is your own vigilance – forewarned is definitely forearmed!

And remember that property transactions will always remain a firm favourite with online fraudsters for two simple reasons –

Property sales usually involve large amounts of money.
Electronic communication between attorneys and clients is a fertile ground for interception and deception.

A seller’s or a buyer’s nightmare – every cent stolen!

As a seller, you’ve sold your property for R5m, transfer to the buyer has been registered but the money doesn’t show up in your bank account (let’s call it “account A”). You phone your conveyancer only to be told “but we did pay you, we followed your instruction to pay into account B.” Of course account B was set up by a fraudster and your R5m is long gone.

Or as a buyer, you have paid the full purchase price into the transferring attorney’s “new bank account C” and are shocked to be told by the attorney that you have actually paid nothing at all to anyone – except to a scamster. Good-bye both money and property!

What happened?

How your money gets taken – 2 main scenarios

Cyber criminals are resourceful, creative and constantly updating their methods so this is by no means an exhaustive list of your risk areas. To date however the two main categories of scam remain –

Your attorney’s payments to you: As a seller, when you give the transfer instruction to your attorney you will nominate a bank account – account A in this example – to receive the sale proceeds. Before transfer however (often at the very last minute) the conveyancing firm receives a genuine-looking email “from you” changing your banking details to “my new account, account B”. Your emails to and from your attorney have been intercepted, and your details cleverly spoofed. Your money is gone – forever. Of course if you chose the right attorney to attend to your transfer in the first place this shouldn’t happen to you – but, as we shall see below, the scammers are so sophisticated now that you can never ever let your guard down, no matter how trustworthy the firm.
Your payments to the attorney: The main risk here is to the buyer paying the whole or a large portion of the purchase price to the transferring attorney. Of course transfer duty and other costs of transfer can also add up to a tidy sum, whilst as a seller you will be paying for things like bond cancellation costs, rates, agent’s commission and so on.
The scam here is that once again emails are intercepted, and this time you receive an authentic-looking but entirely fraudulent email asking you to pay into “account C”. The email appears to come from the conveyancing firm but of course it is again a clever (often very sophisticated) impersonation, this time of the firm’s branding, details and email address.

The false account details might be in the email itself or in a falsified attachment – nothing is safe. The email may be in the form of a “we’ve changed our banking details” notification, or the criminal may work on the basis that you just won’t notice the change. And of course account C isn’t the conveyancer’s trust account at all, and the minute you make a payment into it your money is – once again – gone forever.

Who can you recover your stolen money from?

By the time you realise you have been scammed, the criminals are long gone and your chances of catching up with them are remote to say the least.

So could the attorney possibly be liable? A recent High Court judgment deals with that very issue…

Court: Attorney negligent, must pay almost R1m

In this case a transferring attorney was ordered to pay her client damages of R967,510-53 for negligence.

In a nutshell, the attorney had attended to a property transfer for the sellers, and a scammer intercepted emails between the sellers and the attorney’s secretary. This was a classic “Scenario 1” operation, and seemingly a sophisticated one – the scammer persuaded the secretary to accept an emailed “my bank account details have changed” instruction and to pay the proceeds into the scammer’s account.

The sellers sued the attorney for damages, the attorney denied any negligence whatsoever, but the Court found that she had indeed failed to carry out her mandate with the “due care, skill and diligence expected of a reasonable attorney and a conveyancer in the circumstances.”

What is important for you is that the Court reached this conclusion on the particular facts of this matter. There were specific factors present here such that a “diligent, reasonable attorney” would, said the Court, have taken steps to verify the information in the fraudulent emails.

That suggests that there are many possible sets of facts which would have left the seller unable to prove any failure of duty by the attorney. Your risk is that if you try to hold the attorney liable you will have to prove that your loss resulted from his/her fault and not from yours – that’s never going to be easy and if you fail, you are left high and dry.

Protect yourself. Be vigilant!

So prevention really is much better than cure here. Litigation will be expensive and risky, and even if you succeed in your damages claim the attorney’s normal indemnity insurance excludes these types of claims so your victory could be a hollow one.

Fortunately there are several common sense steps you can take to minimise your risk –

If you have the choice of transferring attorney (which you normally would have if you are the seller), choose an attorney you trust to do the job properly, carefully and professionally.
Having said that, no matter how much security your attorneys have put in place on their side, if it is your system that is vulnerable that is what the criminals will exploit. So keep all your anti-virus, anti-malware and other security software updated, learn all about protecting yourself from malware/spyware/phishing attacks, and generally treat all electronic communications with caution – even those appearing to come from a trusted source like your attorney.
Read “Is That Sender For Real? Three Ways to Verify the Identity of An Email” on FRSecure’s blog. All the tips given there are important, but at the very least use the methods given to find out where the email really comes from. Then check back to see that it matches in every detail the email address you were given at the start of the transfer process.
Be suspicious if anything in an email just feels “not-quite-right” – perhaps only a cell phone number is given, or a free generic email address (like Gmail) is used, or the wording is somehow “off”. If the email makes you even the slightest bit uneasy, err on the side of caution and investigate further.
Most importantly, never accept notification of any supposed change in your attorney’s banking details without visiting or phoning your attorney to check all is in order (don’t of course use the contact details given in the suspicious email, they could also have been doctored!).

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.

Jul 29

0

Can Your Bank Take Your Money Without Permission?

By Kruger & Co | Debt Recovery, General Interest

“A bank is a place that will lend you money if you can prove that you don’t need it” (Bob Hope)

A recent High Court decision has settled the knotty question of whether your bank can take money it holds for you in one account to cover your debt to it in another, without your permission and without notice to you.

Firstly, what is “set-off”?

To understand how important this new decision is, we need to go back to our common law (unwritten law) principle of set-off. In simple terms, common law set-off allows one debt to be cancelled out by another. So if for example I owe you R1,000 and you owe me R900, I am both your creditor and your debtor, and vice-versa. If we come to blows, I can then set the one debt off against the other with the net effect that I owe you R100.

Credit-lenders, and in particular banks, used to make extensive use of this to collect debt. If for instance you fell behind in your mortgage bond or credit card payments, your bank could, if it was so inclined, take the arrears out of your current account as soon as your salary was paid into it – without your consent and without notice to you.

Banks have always argued that this ability has made it easier for them to lend money to us when we ask for it, as it reduces their risk by giving them more security if things go wrong. Giving notice or asking for consent would, they argue, allow a recalcitrant debtor to quickly withdraw the funds and frustrate the debt collection. But the other side of the coin of course is that you could suddenly find yourself without money to live, let alone to service your other debt payments – a situation particularly hard on lower earners and those struggling with mountains of debt.

Enter the NCA (National Credit Act) in 2005…

How the NCA changed things

In broad terms, the NCA (when it applies – see next paragraph) restricts set-off in such a way as to give the consumer the right to choose whether or not to consent to set-off, which accounts it may be applied to, in respect of which amounts, when it is to be applied, and in respect of which debts.

But does the NCA apply to your particular debt? In most cases, yes. In a nutshell (there are some “ifs” and “buts” here so ask your lawyer for specific advice) the NCA applies to most personal loans, home loans, overdrafts, credit card debt, asset finance agreements, lease agreements and so on. It covers consumers who are individuals and some – not all – “juristic persons” (companies and the like – take advice for details).

Which brings us to the High Court…

Nevertheless at least one bank (which is unlikely to be alone in this practice) has continued until now to apply common law set-off without consent, in other words they would take money from a customer’s account to cover the customer’s debt on a separate credit agreement. The bank argued that the NCA’s set-off restrictions did not apply on its interpretation of the NCA, in its circumstances and to its credit agreements. Importantly, its agreements omitted any mention of set-off (where an agreement does mention set-off, there is no argument – the NCA restrictions definitely apply).

Having received complaints from consumers to this effect, the National Credit Regulator asked the High Court to interpret the NCA’s provisions and to rule on the legality of the bank’s practice.

The High Court’s decision

Common law set-off without your consent as above cannot happen if the NCA applies to your credit agreement.

In a nutshell – you have the choice! Banks and other credit-lenders must ask you before taking money from one account to cover your debts in another.

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.