Does Ubuntu apply to contracts? “My business has been renting from the same landlord for over five years without missing a payment. We lost a big contract last year, so cashflow has been a bit tight, and caused us to be late on a rental payment. Our landlord immediately threatened that he would evict us if it happened again. Last month, unfortunately, we again slipped a payment and the landlord has now started eviction proceedings. Despite that our contract allows him to do that, I feel this is unfair as we have been a good tenant for a long time. Surely he can’t just kick us out because of two late payments.” In a recent eviction case involving a commercial lease agreement, a landlord applied to the court to evict a tenant that had failed to pay its monthly rental on time. The High Court held that the landlord was entitled to cancel the lease agreement, but the court refused to grant an eviction order, as it was found that it would be manifestly unreasonable, unfair and offend public policy. The court thereby in effect imported or infused the spirit of Ubuntu and good faith with our law of contract. However, on appeal, the Supreme Court of Appeal found the High Court decision to be wrong and held that it was impermissible for the High Court to have developed the common law of contract by infusing the spirit of Ubuntu and good faith so as to nullify the enforceability of the eviction clause in the rental contract. As it now stands, it appears that principles of Ubuntu have no place in the interpretation of a commercial contract. But, as this relates to constitutional aspects, our Constitutional Court will probably have the final say on this matter, particularly as the above eviction matter has been referred to the Constitutional Court. If one looks at previous decisions of the Constitutional Court, it has been held by the Constitutional Court, albeit in a criminal matter, that Ubuntu has become an integral part of our constitutional values and that Ubuntu regulates the exercise of rights through the emphasis it lays on sharing the co-responsibility and the mutual enjoyment of rights by all. But, how far our courts will go in developing the common law to allow for the mutual enjoyment of rights is yet to be seen. It is a well established understanding in our law that even though a contract or some of its terms may offend one’s individual sense of propriety and fairness, it does not automatically make that contract contrary to public policy. Our courts have also always been of the firm view that courts should be careful in developing the common law, as it could lead to uncertainty in private commercial contracts. Our Constitutional Court has had occasion to consider whether the common law should be developed to include Ubuntu. Although, the Constitutional Court avoided having to finally decide on the matter as it was decided that the constitutional issues were incorrectly raised, it is interesting to note a minority judgement by Judge Yacoob which makes mention that our common law has been infused with constitutional values and these values include Ubuntu, which requires that people should deal with each other in good faith. Whether this is an indication of the direction the Constitutional Court will go in deciding on the place of Ubuntu in commercial contracts, we will have to wait and see. For the moment, the position of our Supreme Court of Appeal is that Ubuntu cannot be applied in commercial contracts and that parties should not place reliance on this when reviewing their commercial contracts. It also means that, until the Constitutional Court possibly rules to allow such arguments, if your landlord is acting in accordance with the rental contract, you cannot prevent him from doing so by raising an argument of unfairness or contrarty to Ubuntu. Our advice is to seek the help of an attorney to advise whether your landlord is entitled to immediately evict and whether there are any provisions in the contract which may mitigate such eviction.

Cape Town – The Constitutional Court on Tuesday ruled that new home owners are not liable for historical debt taken over from previous owners. Municipalities such as Tshwane, eThekwini and Ekurhuleni – as well as the cooperative and governance minister - argued against a landmark high court judgment in 2016, which made a similar ruling. The high court application saw property owners take on Tshwane and Ekurhuleni for cutting municipal services to new home owners who had inherited historical debt. "The applicants complained that they faced darkness, having no electricity, and many other inhumane conditions because they bought property whose previous owners failed to meet their obligations to the municipality," the court explained in a media briefing. The municipalities had argued that it was lawful for them to attach and sell a newly purchased property to extract money for debt owed to them. In a unanimous judgment, the court ruled that the provision in Section 118 (3) of the Local Government: Municipal Systems Act, 2000 is well capable of being interpreted so that the charge does not survive transfer, the court explained. “The court held that a mere statutory provision … that a claim for a specified debt is a ‘charge’ upon immovable property does not make that charge transmissible to successors in title of property. “Public formalisation of the charge is required so as to give notice of its creation to the world.” The court ruled that, to avoid unjustified arbitrariness in violation of 25(1) of the Bill of Rights, Section 118 (3) must be interpreted so that the charge it imposes does not survive transfer to the new owner. As such, the ConCourt said it did not need to confirm the high court ruling, but granted the applicants a declaration that the charge does not survive transfer. The municipalities and the minister were ordered to pay costs.

Does POPI apply only to electronic record keeping?? “I’m an accountant and work from home. I don’t have a computer and have been doing all my work for years only on paper. My clients have been with me for a long time and I keep physical files for each of them. I’ve taken note of POPI, but I am unsure as to whether it will apply to me, as I don’t have any client information in electronic form. Surely I don’t need to worry about POPI?” One of the objectives of the Protection of Personal Information Act 4 of 2013 (“POPI”), which has been signed into law, but has not yet fully come into effect, is to regulate the manner in which personal information may be processed. POPI achieves this goal by setting out the minimum standards for the processing of personal information. It should be noted that POPI applies to a specific activity, namely the processing of personal information, rather than to a specific person or organisation. As a general rule, POPI will apply to any person or organisation who (or which) processes the personal information of others and who is defined under POPI as “responsible parties”. “Personal information” includes any information relating to an identifiable, living, natural person or an identifiable, existing juristic person and can include amongst others any identifying information such as a name, identity number or registration number, contact details or a physical address of a person or business. Information relating to the education, medical, financial, criminal or employment history of a person, as well as their personal views and opinions, are also covered in terms of POPI. “Processing” according to POPI, refers to any operation or activity whether or not by automatic means concerning personal information, including amongst others the collection, use, storage, retrieval, deletion or destruction of personal information. Therefore, even if a responsible party is only in possession of personal information, they are considered to be processing personal information in terms of POPI. POPI further applies to the processing of personal information by both automated (electronic) and non-automated (non-electronic) means when such information is entered into a record of a responsible party. Personal information which is processed by non-automated means, for example through mediums such as paper files or other physical or hard copy files, will only be subject to the provisions of POPI in the event that such personal information forms, or is intended to form, part of a filing system. Consequently, in the event that personal information is stored in hard copy format, which does not form part, or is not intended to form part, of a filing system, such processing activity will not fall within the ambit of POPI. The processing of personal information is thus an ongoing process which requires compliance with the provisions of POPI for as long as a person or organisation is in possession of such personal information. The application of POPI is very broad and will apply to most persons and organisations who (or which) are in possession of the personal information of others. In your situation, the fact that your information is in hard copy format, does not exclude POPI from applying to you. In addition, the fact that you retain your client’s information in physical files will qualify as processing personal information and will thereby also fall under POPI.

Social media use has led to numerous law suits both in South Africa and abroad. In the UK, Chris Cairns, a New Zealand cricketer, won a law suit against Lalit Modi, the former chairman of the Indian Premier League, after Modi accused him, on Twitter, of match fixing. Modi was ordered to pay Cairns in the region GBP 90 000 in damages and GBP 400 000 pounds in legal fees – a rather costly lesson for Modi on the appropriate use of twitter. Sally Bercow’s tweet “why is Lord McAlpine trending *innocent fact*” was found to be defamatory and led to Bercow apologising for her “irresponsible use of twitter” and settling with Lord McAlpine for an undisclosed amount. Closer to home, there have been various lawsuits in South Africa over defamatory statements made on social media. The first case of this nature involved the sale of church premises which sparked, among others, a Facebook campaign in which the Dutch Reform Church was likened to Judas Iscariot selling out for 30 pieces of silver. The court had no difficulty in finding that statements of this nature were harmful and injurious and should be interdicted (Dutch Reformed Church Vergesig Johannesburg Congregation and another v Sooknunan t/a Glory Divine World Ministries [2012]). In Herholdt v Wills, in which the offending post stated: “‘Letter to WH – for public consumption – I wonder too what happened to the person who I counted as a best friend for 15 years, and how this behaviour is justified. Remember I see the broken hearted faces of your girls every day. Should we blame the alcohol, the drugs, the church, or are they more reasons to not have to take responsibility for the consequences of your own behaviour? But mostly I wonder whether, when you look in the mirror in your drunken testosterone haze, you still see a man?” In this matter, the South Gauteng High Court was called upon to determine a claim of defamation arising out of this comment. In considering the remarks, Justice Willis had regard to the common law rights to privacy and to freedom of expression which are enshrined in our Constitution but stated that the founders of our Constitution could not have foreseen the tensions that social media have created for these rights. In this instance, these rights were in conflict and the Court was called upon to weigh up the right to privacy against the right to freedom of expression. The Court reiterated that in our law, the fact that the published statement may be true is not, of itself, a defence. The publication must also be for the public benefit. Our law does not protect salacious gossip. The Court reaffirmed its obligation to develop the common law in accordance with Constitutional principles and reiterated the need for the courts and lawyers to keep abreast with the pace of technological progress. The Learned Judge pointed out that the “’social’ quality of the social media has legal implications for publication therein (or should one, more correctly, say ‘thereon’). The Respondent in this case, claimed that the offending post was not aimed at defaming the Applicant. Her purpose in posting such comment, she claimed, was so that the Applicant would “reflect on his life and on the road he had chosen.” Justice Willis was not convinced. On the evidence before him, he was satisfied that she was unable to justify her post and that she was motivated by malice. In this instance, the Court was satisfied that the remarks were defamatory and that the Applicant’s right to privacy and to good name and reputation had been unlawfully infringed by the Respondent. “Facebook is fraught with dangers especially in the field of privacy” and therefore the Court agreed that by intervening it may have a positive effect on the use of Facebook. The Court stated that “the tensions between every human being’s constitutionally enshrined rights to freedom of expression and dignitas is all about balance.” The Court granted a mandatory interdict instructing the Respondent to take down any posts regarding the Applicant on Facebook and any other social media site. Isparta v Richter was an action for damages. In this case, the offending post “Aan alle mammas en pappas … wat dink julle van mense wat stief tiener boetjies toelaat ome klein sus-sies to bad elke aand . net omdat did die ma se lewe vergerieflik??? This post was followed by the comments “Not a chance” and “Oh hell nee sal dit nooit toelaat nie”. The court found that this post was scandalous and suggested that the Plaintiff encouraged and tolerated sexual deviation and paedophilia. Interestingly, the court not only ordered damages in the sum of ZAR 40 000 against the author of the posts, but held her husband equally liable because he was tagged in the posts and failed to take steps to distance himself from the posts. The most recent case relating to defamatory content published on Facebook is McKenzie v Braithwaite. The offending post “Debate: Your ex has your daughter (5) for the weekend and is sleeping at a mates hours. They all (about 6 adults) go jolling and your ex’s drunk, 50 yr old girlfriend ends up sleeping with your daughter cause he doesn’t want his girlfriend sleeping in a single bed she can share the double bed with his/your daughter! How would you feel?” This post led to an urgent application in which the interim relief granted was that the author of the offensive posts was (1) ordered to remove all messages of a defamatory nature, (2) instructed to refrain from posting any defamatory statements about the complainant in the future and (3) instructed to refrain from publishing, making or distributing defamatory statements about the complainant. On the return day, the court confirmed only the first order on the basis that the second two orders went too far. In this regard, the court noted that it should not speculate on what could constitute defamatory statements in the future as not every defamatory statement is actionable as there may be a good defense. In all of these cases, our courts were called upon to balance the rights to dignity, privacy and freedom of expression. When using social media platforms it is important to remember that everyone who has contributed to the dissemination of defamatory content may be held liable for defamation. This has serious implications for social media users who frequently share, like or retweet defamatory comments posted by others. While none of these cases involve workplace interactions they are important as they highlight the risks associated with social media use.

Recently, the South African Human Rights Commission (SAHRC) accused Sunette Bridges (Bridges), an Afrikaans music artist, of hosting racial commentary on her Facebook page. It argued that this amounted to hate speech in terms of the Promotion of Equality and Prevention of Unfair Discrimination Act of 2000 (the Act). It alleged that it facilitated racism, allowing it to flourish. Bridges denied that she had ever incited violence or hate speech and that she would continue to exercise her constitutional right to freedom of speech and would work “tirelessly” to expose crimes that “trampled” on the rights of the white minority. But the Equality Court confirmed and declared that the controversial comments posted by other users on her page amounted to hate speech and harassment in terms of the Act, reasoning that such freedom of expression ought not to be aimed at vilifying and spreading hatred against certain groups of people in South Africa. In terms of the settlement between Bridges and the SAHRC, which was mandated by the Equality Court, Bridges would have to regularly monitor her Facebook pages and remove content that amounted to hate speech, harassment, or incitement of violence. Furthermore, she would have to warn users of the court order, block those who posted offending comments, and put up English and Afrikaans posts distancing herself from hate speech. Courts have historically been reticent to interdict publications in the media due to the conflicting right to freedom of expression. However, it stated that social media is not primarily news media and that it was justified in adopting a different attitude towards it, namely removal of the offending statements. Often, a number of people are involved in the publication process. As a general rule, everyone who contributes to the publication process may be liable. This may include editors to network hosts. But in the case of Facebook, this may be casting the net of liability too wide. In granting the interdict, the Equality Court’s view was that it is more feasible to focus on the conduct of the wrongdoer than to order Facebook to take down the offensive post. Therefore, administrators of Facebook pages bear an onus in taking responsibility for that which is posted on their pages and deleting what is defamatory. This onus is heavy insofar as extra precautions and vigilant monitoring of the content is concerned, especially where there is little control of what is being posted. In addition to hosting defamatory material on one’s social network pages, it is also important to always be aware that when defamatory material is repeated, both the original and subsequent communicators may be held liable. This is particularly pertinent to ‘sharing’ things on Facebook or ‘retweeting’ Twitter posts. It is not a defence to say the material is already in the public domain. Some other examples Ordinary users are just as responsible for defamatory content posted and one should not think Courts are shying away from granting relief (including punitive damages) – in H v W 2013 (2) SA 530 (GSJ) W published an open letter to H on Facebook for public consumption. The content thereof was defamatory in the eyes of the Court. An excerpt is provided: “ Remember the broken hearted faces of your girls every day. Should we blame the alcohol, the drugs, the church…” In Isparta v Richter 2013 (6) SA 4529 (GP) the defendants defamed the plaintiff by posting certain comments on the defendant’s Facebook Wall, resulting in an award of R40,000 damages due to the defendants’ unwillingness to retract the defamatory statements or apologise. However, in Setlegelo v Setlegelo 1914 AD 221 on a similar set of facts, the Court took a different stance with regards a remedy: it found an interdict the most effective relief insofar as there is minimal cost and harmful items can be completely removed. Conclusion Studies show that social media will soon be the most commonly used means of communication. The ever accelerating ability of people to access the Internet using mobile devices has only added to the enormous impetus of this phenomenon as is illustrated by the fact that more than 600 million people access Facebook using mobile devices. Statements on social media can spread worldwide very quickly and there is no legislation dealing explicitly with social media, but it ‘mouses’ its way into every sphere – equality, dignity, privacy, freedom of expression, access to information, rights to demonstrate, picket and petition, employment law (dismissal for misconduct), and so on. One should always be mindful of the way in which opinions and information are shared online. Think before you speak. Think twice before you write. Think three times before you share your opinions on Facebook.

NOTHING BUT APPROPRIATE The Supreme Court of Appeal was recently tasked with the interpretation of s 153(1) and (7) of The Companies Act[1]. The Court was asked to consider applications by either the Business Rescue Practitioner or any affected persons in entities that are under review requesting the court to set aside votes rejecting the adoption of a proposed Business Rescue Plan on account thereof that these votes are “inappropriate”. The Gauteng Division of the High Court, adopted a two-pronged approach that entailed, firstly, a determination of whether the vote rejecting the plan was inappropriate and secondly, if indeed found to be inappropriate, considering whether it would be reasonable and just to set aside the result of the vote. In terms of the Gauteng ruling, an application to set aside the result of a vote must fail in the event that the Court finds that the vote was appropriate. In other words, should it be found that a particular vote rejecting a proposed Business Rescue Plan was appropriate, the application will be dismissed without considering whether setting aside the vote would be reasonable and just. In the Supreme Court of Appeal judgement in the matter of First Rand Bank Ltd v KJ Foods CC (In business rescue)[2] delivered on 26 April 2017, Schoeman AJA (Mpati AP, Theron and Van Der Merwe JJA concurring) proceeded by firstly discussing all the applicable provisions of the Companies Act[3]. They started with the provisions of s 128(1)(b) defining business rescue as the development and implementation of a plan to rescue an entity by restructuring its affairs, business, property, debt and other liabilities in a manner that maximises the likelihood of the entity continuing in existence on a solvent basis or, if not possible, would result in a better return for the entity’s creditors or shareholders compared to the immediate liquidation of the entity. The learned Judges continued by considering s 153(1)(a)(ii) and s 153(7). The honourable court found that s 153(1)(a)(ii) provided for the result of a vote to be set aside by an application to court and that s 153(7), having regard to the factors listed in subsec 7(a) to (c), confers on the court a discretion to order that the vote on a business rescue plan be set aside if the court is satisfied that it is reasonable and just to do so. The interpretive process was explored by the learned Judges ruling that all relevant and admissible context, including the circumstances in which the legislation came into being, must be considered when interpreting the Act. It was further found that “a sensible meaning is to be preferred to one that leads to insensible or unbusinesslike results”. The learned Judges continued to state that the proper approach in the interpretation of these provisions is one that is in line with the objectives of the Act. These objectives include enabling the efficient rescue and recovery of financially distressed companies in manner that balances the rights and interests of all relevant stakeholders and that the words of the Act should be construed in the context of the Act as a whole, including the purpose for which it was enacted and not in isolation. The court came to the conclusion that the two-pronged approach should be rejected in favour of a value judgement to be exercised by the court having regard to the factors in s 153(7)(a) to (c) and all the facts and circumstances relevant to the case including the purpose of business rescue. This judgment is widely welcomed by business rescue practitioners and bona fide affected persons alike as it should serve as a deterrent to mala fide affected persons, especially creditors, attempting to derail business rescues in bad faith where a reasonable prospect of rescuing the company, in accordance with the object and purpose of the Act, exists. The judgement should further serve as an incentive to creditors to engage with practitioners during the drafting of the business rescue plan in order that the expectations of creditors are addressed before voting on the plan takes place, avoiding the necessity of an application for the relief as contemplated in terms of s 153(7) above. Taking into account that the purpose of the Act is the rescue of companies capable of rescue, the judgement in KJ Foods should not be seen as an infringement of the rights of an affected party to vote against the adoption of a particular business rescue plan but rather a reminder to creditors to exercise their vote in good faith to maximise the likelihood of achieving the objectives of business rescue. In the current slow economic climate where business confidence is low and inflation and unemployment are heavy burdens on ordinary South Africans we welcome the fresh approach by the Court to consider all the facts and relevant issues of the case in casu to ensure that self-serving creditors do not obstruct the implementation of a feasible business rescue plan to the detriment of all other affected persons and the general economy.

The Supreme Court of Appeal has ruled that municipalities cannot demand that property sellers pay months in advance for rates, fees and charges before issuing a rates clearance certificate, according to a report by The Star. Previously, to transfer a property in South Africa, the deeds office must be provided with a rates clearance certificate confirming that the charges due to the municipality have been paid to enable the registrar to effect transfer of the property. According to The Star, the case dealt with Nelson Mandela municipality and a private investment company, Amber Mountain Investments. Based on the facts, the municipality demanded at least R1 million in advanced rates for one year – an amount Amber Mountain Investments was forced to pay under duress if it wanted the sale to go through. The seller believed it was liable only for rates and taxes up to the date of transfer, but not thereafter. “This is good news for the property market when you consider municipalities are often demanding sellers pay up to a year’s rates, fees and charges in advance prior to issuing a rates clearance certificate,” said Aidan Kenny, director and property specialist at Werksmans Attorneys. He said that sellers could now refuse to pay rates and charges in advance beyond the date of the certificate when applying for a rates clearance certificate. Other new rules to know In February of 2017, the High Court handed down an important judgment detailing new changes for all South African property owners and their utility bills. This case dealt with a dispute between industrial group, Argent, and the Ekurhuleni Municipality. For five and a half years, Argent was charged for its estimated water consumption. Argent duly paid these charges, and during this period, the Ekurhuleni Municipality failed to take actual readings of the water meter. In its judgement the High Court introduced the following new rules which would need to be followed by all utility bill payers and municipalities: If a consumer receives a utility bill citing, for the first time, charges older than three years, they cannot be held liable for such amounts, as the charges have prescribed. It is not the duty of the consumer to read meters and determine their actual consumption. As a result a consumer will not be considered to have acknowledged a debt when the municipality has failed to provide details. The prescription period (3 years)commences when the municipality should have taken actual readings and invoiced the consumer. The municipality has a duty to carry out such readings and invoice consumers at its convenience but at reasonable intervals. Where no records of regular actual readings are available to ascertain how much of a bill for several years has prescribed, the industry standard should be applied: average the consumption out over the months between the two readings and then use that average to calculate the consumer’s liability for the remaining period.

CHANGES RE QUORUMS AT THE AGM OF SECTIONAL TITLE BODY CORPORATES OCCASIONED BY THE SECTIONAL TITLE SCHEMES MANAGEMENT ACT 8 0F 2011 AND ANNEXURE 1 PMR 19 A quorum is the minimum number of members of an assembly or society that must be present at any of its meetings to make the proceedings at that meeting valid. Previous management rules (“PMR”) 57 and 58 contained in Annexure 8 to the Regulations made under the Sectional Titles Act 95 of 1986 (“the ST Act”), dealt with the quorum requirement for general meetings of the body corporate. These two rules have been combined to form the basis of the new PMR 19 contained in Annexure 1 to the Regulations made under the Sectional Titles Schemes Management Act 8 of 2011 (“the STSM Act”). PMR 19(1) states that no business can be transacted at a general meeting unless a quorum is present or represented, for example by proxies. The revision of this PMR includes certain major changes. Previously the quorum requirement was dependant on the size of the scheme. There were three categories: Schemes of 10 units or less: the number of owners holding at least 50% of the votes. Schemes of less than 50 but more than 10 units: the number of owners holding at least 35% of the votes. Schemes with 50 or more units: the number of owners holding at least 50% of the votes. An improvement to the new provision is that it is now clearly states that quorum is calculated on the value of votes, and not on the number of votes. PMR 19(2) states that a quorum is constituted when: A body corporate that has less than 4 primary sections or members (only 3 or fewer primary sections or members), two thirds of the total value of votes must be present or represented; In any other scheme, one third of the voting values are required. The reduction of the quorum requirement to one third of the voting values, for all but very small schemes, has the virtue of simplicity and will make it easier for schemes with between 4 and 50 units to achieve quorums. However, for schemes with above 50 units, the quorum requirement is effectively increased from one fifth to one third of the total voting values. Where there are 2 or more members, at least 2 persons must be present to form a quorum, unless all the units are registered in the name of one person. There are two categories of vote values that are not taken into account when calculating a quorum: Firstly, the voting values of units registered in the developer’s name are not taken into account when calculating the the value of votes required to constitute a quorum. The fact that the value of the developer’s votes are not taken into account in calculating the quorum, is designed to ensure that developers do not arrange for the body corporate to take important decisions, without the presence of a reasonable number of other owners. This provision could cause difficulties in cases where developers choose to retain a substantial number of units in a scheme. Secondly, to establish a quorum, and for the purposes of section 6 of the STSM Act (dealing with general meetings), any section registered in a body corporate’s name, is not taken into account, and the body corporate, is not considered to be a member of itself in terms of PMR 19(3). The body corporate cannot have representation rights at its own meetings. This provision effectively suspends the representation rights attached to any unit registered in the name of the body corporate so that meetings are constituted only on the basis of member representation. The new PMR also provides for situations where a quorum is not present. PMR 19(4) states that if within 30 minutes from the time appointed for a general meeting a quorum is not present, the meeting stands adjourned to the same day in the next week at the same place and time. If, on the day to which the meeting is adjourned, a quorum is still not present within 30 minutes from the time appointed for the meeting, the members entitled to vote and present in person or by proxy constitute a quorum,considering the provisions of the act.

THE CONSUMER PROTECTION ACT (CPA) and CANCELATION OF LEASE AGREEMENTS Prior to the commencement of the Consumer Protection Act No 68 of 2008 (CPA) on the 1st April 2011, the law of contract and the common law covered the issue of when and how a tenant went about cancelling a lease agreement. That has all now changed since the commencement date of the CPA; and tenants and landlords need to be aware of the statutory provisions of the Act; which now cover the early termination and cancellation of lease agreements. Prior to April 2011; both parties were pretty much bound by the terms of the lease agreement and this was very weighted in favour of landlords and against tenants. It happens that incorrect terminology is sometimes used when leases are cancelled early. Landlords and their agents often refer to an early cancellation of a lease agreement by the tenant as “a breach of contract.” This is not the case. If the CPA is followed correctly; it does not amount to a breach of the contract. A formal legal process needs to be followed to ensure full compliance with the CPA. In terms of the Consumer Protection Act, tenants have the RIGHT to cancel their leases, as long as they do so while fulfilling ALL the cancellation criteria or requirements. Tenants who do this must do so formally and properly in writing and they must give at least 20 business days’ notice. The rental for those 20 business days is payable by the tenant; and they must pay same; pro rata, if applicable, to the landlord for that period. This action DOES NOT amount to a breach of contract. Once the landlord or his agent have received the written notice of cancellation, they should make a note of the date on which the lease is now due to end; and should start advertising immediately for a new tenant for the property. This responsibility lies squarely on the shoulders of the landlord or his agent to find a new and suitable tenant. The costs of so advertising however should also be noted, as these costs can be charged to the tenant, as part and parcel of the “reasonable penalty” that the landlord is entitled to hold the tenant responsible for; as a result of the early cancellation of their lease agreement. It is not the responsibility of the tenant if this process is followed correctly to find a replacement tenant. Although the landlord is entitled, in terms of the CPA, to hold the tenant liable for a “reasonable penalty” fee for early cancellation of the lease; this does not and is not meant to be used to penalise tenants; but rather is intended to allow the landlord to recoup any losses he may have suffered as a result of the early cancellation of the lease agreement; and the tenant vacating before the lease has run its course. The costs that may be included in such a penalty would for example include the credit check costs for a prospective new tenant; and any other reasonable incidental costs relating to the new tenant and which have been reasonably incurred by the landlord in finding that replacement tenant; such as advertising costs and would also include the reasonable rental amount lost by the landlord if and during the period that the property was to stand vacant. It is not however a carte blanche penalty which the landlord can simply impose as he sees fit; eg 3 months’ rent. That will not fly. It must be based on his actual financial damages. It has justifiably been described as” a penalty which cannot be charged upfront. They can only be calculated once a new tenant has been found and the landlord cannot gain financially or benefit from the tenants cancellation penalty costs. He is simply reimbursed.” On this basis; penalty clauses in lease agreements which purport to agree a cancellation penalty in advance will simply not hold up in court. The inconvenience for a landlord caused by an early cancellation will no doubt be both annoying and time consuming; but it is clear that a tenant has the RIGHT to cancel a lease. The landlord is only then entitled to recover his actual loses in an early cancellation penalty clause. The CPA is however vague as it does not define a “reasonable penalty;” and only states that a reasonable penalty may be charged for early cancellation. In practice however and in SA Law; a person who suffers damages as a result of another person’s actions is only ever entitled to recover those damages which he has actually sustained; and can prove. In practice also; it normally does not and should not take more than a month to find another tenant. One again; both landlords and tenants must be aware of their rights in this regard. We hope this explanation on penalty clauses will help you to know your legal rights. (With appreciation to the Legal Advice Office) Should you require any professional assistance and advice in this regard kindly do not hesitate to contact our offices at +27 11 888 8604 or info@vanvuurenlaw.co.za

Business Rescue - Creditor’s Frustration A typical email from a frustrated creditor: “We rent out equipment at monthly installments. One of our customers has not been paying us for the last 10 months, as they are in business rescue. What are our rights as a supplier? Do we have a right to payment or how does it work. What I basically need to know is, are they supposed to pay us or not? Do we have rights?” The short answer to this is “Although you have rights, they do not have to pay until the business rescue plan has been adopted by the creditors.” All creditors' claims are dealt with in the business rescue plan. Creditors have the right to either vote for or against the plan. A creditor should bear his dividend in a liquidation versus what he will be getting in terms of the rescue plan in mind when exercising his vote.. All creditors are bound by the rescue plan once it is adopted by a 75% majority (based on value of claims) of creditors present and voting at the second meeting of creditors. If the practitioner decides that there is no possibility of rescue or if the rescue plan is rejected, liquidation will follow. Until such time the creditors cannot institute legal action for repossession of this equipment. The practitioner could decide to tender the equipment back to the creditor or carry on with the lease in which case the lease payments would receive preference over other creditors' claims for goods and/or services rendered before the commencement of the business rescue. Creditor frustration normally stems from a lack of understanding of the rescue process and the rights of creditors. All the relevant information regarding a specific business rescue such as the affidavit setting out the background and reasons for the financial distress, particulars of the practitioner, minutes of meetings as well as the rescue plan can be obtained from CIPC.

LIABILITY OF SURETIES FOR DEBTS OF A COMPANY IN BUSINESS RESCUE It is clear from case law and the applicable sections in the Act that the current legal position regarding the liability of sureties for the debts of a company in business rescue, is not settled. There are different interpretations and views regarding this which are illustrated by the various court cases and contrasting judgements. Scope of applicable law, legal principles and case law: Section 133(2) of the Companies Act 71 of 2008 states that during business rescue proceedings, a surety by the company in favor of any person may not be enforced by any other person against the surety except with the leave of the court. This has the effect that the company under business rescue may not be sued by the creditor. The Companies Act (“the Act”) is not clear as to whether this protection afforded to the company under business rescue, is also applicable to sureties and co-principal debtors of the company and the question is whether the moratorium is applicable to the sureties. Since the inception of the Companies Act, it has been left to the courts to determine the extent of the protection to which the sureties and co-principal debtors of the company is entitled to. Section 155(9) of the Act states that a compromise with the creditors of the company, does not affect the liability of a person who is a surety of the company. In Investec Bank v Andre Bruyns 2012(5) SA 430 (WCC), it was held that the moratorium and protection under Section 133(2) of the Act is a defence in personam for the company under business rescue and this protection does not extend to the sureties of the company. This has the effect that a creditor can enforce payment of the debt against the surety during business rescue proceedings. This can only apply where no business rescue plan has been approved yet because the company can be discharged of its debts at a later stage in terms of an approved business rescue plan. In African Banking Corporation of Botswana Ltd v Kariba Furniture Manufacturers (Pty) Ltd & Others 2013 (6) SA 471 (GNP) the court held that the liability of sureties is not affected and they remain liable. In DH Brothers Industries (Pty) Ltd v Gribnitz NO & Others 2014(1) SA 103 (KZP) it was held that if the plan provided for a discharge of the main debt and the creditor acceded to it, then the common law position will be applicable which would have the effect that the liability of the surety for the debt will no longer exist. Section 154(2) of the Act states that where a business rescue plan has been approved and or the implemented in accordance with the Act, a creditor is not entitled to enforce any debt owed by the company prior to commencement of the business rescue proceedings, except to the extent provided for in the business rescue plan. In the case of Tuning Fork (Pty) Ltd v Green and another 2014 JOL (WCC), it was held that unless otherwise stated in the business rescue plan, a creditor may not proceed against any person who signed as surety for the debtor company in business rescue after the adoption of the business rescue plan which provides for the discharge of the debt by agreement between the debtor company under business rescue and the creditor or release of such debtor company’s obligations to the creditor. In the Tuning Fork case, it appears as if the judge held the view that where there is no statute dealing with this situation, the common law must be followed and under the general principals of suretyship, if a debtor has been released of his liability, the surety is also released from such liability. The Act does not make provision for the situation where a business rescue plan have been adopted and what the effect is on the sureties of the company. Where a compromise was entered into by the company, with its creditors, Section 154(2) of the Act is applicable which states that the liability of sureties is not affected. In Blignaut v Stalcor (Pty) Ltd 2014 JDR 0349 (FB), the court held that it could not have been the intention of the legislature to also give sureties and co-principal debtors the same protection that it gives the company. Section 154(1) of the Act provides that if business rescue plan is implemented in accordance with the terms and conditons, the creditor who has acceded to the discharge of the debt in whole or in part, will lose the right to enforce the relevant debt. Conclusion: The purpose of the Act includes inter alia to provide for the efficient rescue and recovery of financially distressed companies in a manner that balances the rights and interests of all relevant stakeholders”. It was never the intention of the legislator, to extent the same protection to sureties that it provides to the principal debtor. The legislator would have made provision in the Act for such protection to the sureties. The purpose of the suretyship, is to ensure that the creditor receives payment in the event of failure to pay the debt by the principal debtor. Suretyships is for the purpose of protecting the creditor and to ensure that the creditor can pursue his claim against the surety and co-principal debtor. The liability of the surety is not affected by the business rescue of the principal debtor. Creditors must ensure that a business rescue plan must make specific provision for the situation of the sureties and that the business rescue plan preserve claims against sureties. Alternatively, guarantees from third parties for the principal debt or obligation must be obtained rather than to rely on the suretyships as the only form of security. The claim against the surety must be preserved by stipulation in the business rescue plan, so that the principal debt is not discharged by way of release of the principal debt in a business rescue plan. Specific inclusion of the preservation of this claim in the Business Rescue Plan is of utmost importance.