Monthly Archives: September 2016

When does a claim prescribe?

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cm_09_a4The issue of the legal nature of a vindicatory claim and whether it gives rise to a debt that is subject to the three-year extinctive prescription period has been decided differently by different divisions of the High Court. On 28 May 2015 the Supreme Court of Appeal came to a final decision in Absa Bank v Keet[1] as to whether claims under the actio rei vindicatio prescribe after 3 years or not.

One of the first questions that your attorney will ask you when you consult him is when your cause of action arose so that they can ascertain whether your claim has prescribed. If your claim is prescribed, it means that you no longer have any legal remedies available to you. Claims arising from a debt prescribe after three years and the rules of prescription are set out in the Prescription Act, 1969.

There is one specific claim where the application of the 3-year prescription period was uncertain and this was in regard to claims under the actio rei vindicatio. This is a legal action by which the plaintiff demands that the defendant returns a thing that belongs to the plaintiff, and it may only be used when the plaintiff owns the thing and the defendant is impeding the plaintiff’s possession of the thing.

A rei vindicatio action is often used in disputes surrounding instalment sales where ownership only passes on the payment of a last instalment or where instalments are not duly paid. This is mostly coupled with a claim for cancellation. In other words, the seller cancels the sale agreement and claims return of the thing sold.

In the case of Absa Bank v Keet[2] the seller of a motor vehicle attempted to cancel the sale agreement and to claim the return of the vehicle sold. The purchaser of the vehicle responded to this claim with a special plea stating that the claim for the return of the vehicle had prescribed.

The reason for stating that the claim had prescribed was that the agreement on which the seller sued would have come to an end on the date on which he contended the amount outstanding became due and payable, and that it was more than 3 years since that amount became due.

In the case of Staegemann v Langenhoven[3] it was held that a vindicatory claim does not prescribe after three years. The High Court in the Keet case held that this case was wrongly decided because if Staegemann were correct, ‘the Bank could withhold its demand for the tractor for another decade or even longer, and then demand return of the vehicle so that it could calculate its damages’.

The Supreme Court of Appeal (SCA) in the Keet case had to decide whether the High Court was correct in holding that the seller’s claim for the repossession of its vehicle is a ‘debt’, which for the purposes of the Prescription Act prescribes after three years.

The SCA made an important distinction between extinctive prescription and acquisitive prescription to come to its final decision. Extinctive prescription deals with a creditor’s right of action against a debtor, which is a personal right. On the other hand, acquisitive prescription deals with acquiring real rights to property (in terms of the Prescription Act a person can acquire ownership of property after 30 years of uninterrupted possession). Real rights are primarily concerned with the relationship between a person and a thing and personal rights are concerned with a relationship between two persons.

The person who is entitled to a real right over a thing can, by way of vindicatory action, claim that thing from any individual who interferes with his right. Such a right is the right of ownership. If, however, the right is not an absolute, but a relative right to a thing, so that it can only be enforced against a determined individual or a class of individuals, then it is a personal right.[4]

The Supreme Court of Appeal is therefore of the opinion that to consider a vindicatory action as a ‘debt’ which prescribes after three years is contrary to the scheme of the Act and that this would undermine the significance of the distinction which the Prescription Act draws between extinctive prescription and acquisitive prescription. In other words, what the creditor loses as a result of operation of extinctive prescription is his right of action against the debtor, which is a personal right. The creditor does not lose a right to a thing.

The SCA has therefore made it clear that to equate the vindicatory action with a ‘debt’ has the unintended and absurd consequence in that by way of extinctive prescription the debtor acquires ownership of a creditor’s property after three years instead of 30 years. The vindicatory action therefore does not prescribe after three years.

References:

[1] (817/13) [2015] ZASCA 81 (28 May 2015)

[2] (817/13) [2015] ZASCA 81 (28 May 2015)

[3] Staegemann v Langenhoven & others 2011 (5) SA 648 (WCC).

[4] Wessels Law of Contract in South Africa 2 ed vol 1 p 3-4.

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

What is the talem qualem or thin-skull rule?

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cm_09_a3In situations where a wrongdoer causes some form of damage to a victim, the victim might suffer more damage than one might usually expect. This might be caused by the specific circumstances in which the victim finds himself/herself, which leads to the victim suffering more damage than the average person.

Could this be used as an acceptable defence for the wrongdoer, or must the victim’s existing circumstances be ignored when establishing the liability of the wrongdoer? An example of the above-mentioned is where the victim is in such an adverse financial position that he/she is unable to mitigate the damage caused by the Defendant.

The thin-skull rule

The case of Smit v Abrahams 1994 (4) SA 158 (K) dealt with the matter at hand and is still the leading authority relating to the aforementioned question. In the case of Smit, the Plaintiff was involved in a motor vehicle accident in which the vehicle he owned was damaged beyond economical repair. The Plaintiff not only claimed the market value of the vehicle as damages from the Defendant, but also the cost of a rental vehicle for a period of three months in order to conduct his business. The extent of the Plaintiff’s damage was therefore partly caused by his own financial position and the fact that he could not afford a replacement vehicle at the time. These type of situations are known as thin-skull (or egg-skull) cases, where the circumstances of the Plaintiff influence the amount of damages suffered. In general, the thin-skull rule dictates that a Defendant cannot use the extraordinary vulnerability of the Plaintiff as a defence. This is also referred to as the talem qualem rule. The rule is based on the principle that you take your victim as you find them.

In the judgement, the thin-skull question is discussed as part of the court’s enquiry into the issue of legal causation. With regards to legal causation it is held that a rigid approach should not be followed, but rather a more flexible approach. This flexible approach should be based on reasonableness and fairness and each case should be dependent on its own facts. The fact that the Plaintiff’s damage was partly caused by his own financial vulnerability, is merely one of the factors to be considered when establishing whether or not the damage suffered was sufficiently relevant to the wrongdoer’s conduct.

Conclusion

It was held that, considering the facts at hand, the Plaintiff was entitled to hire a replacement vehicle in order to conduct business and that this would satisfy the criterion of reasonableness and fairness. Because of the fact that the Plaintiff was not in the financial position to buy a new vehicle after the accident and a vehicle was necessary for him to conduct the business, it was regarded as fair and just that the Defendant should carry the expense of hiring a replacement vehicle.

In cases where the thin-skull rule comes into question, the court will have to determine whether it is reasonable and fair to state that the damage suffered by the Plaintiff and particularly the extent thereof, was caused by the Defendant’s conduct. The thin-skull rule, as originally contemplated and formulated, is not directly applied in South African law. However, the applicable principle, namely that the Plaintiff’s vulnerability does not serve as an acceptable defence, is considered as a factor when the element of causation is considered.

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

How to register an inter-vivos trust?

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cm_09_a2In South Africa there are mainly two types of trusts that are registered. An inter-vivos trust can be created between living persons, and a testamentary trust is created in the will of a deceased.

An inter-vivos trust is registered at the office of the Master of the High Court in whose area of jurisdiction the main assets of the trust are or will be held.

The first step is to draw up a valid trust deed. A trust deed is a contract between the founder of the trust and the trustees, for the benefit of a third party or parties, known as the beneficiaries. In terms of the trust deed, the founder agrees to transfer certain assets to the trustees of the trust for the benefit of the beneficiaries. The trust deed must stipulate who the first trustees of the trust are going to be. In many instances the Master will insist on at least one independent trustee to be appointed. This means that the independent trustee will receive no benefit from the trust assets apart from the specified and reasonable trustee remuneration. The beneficiaries must be specified in the trust deed, as well as their entitlement to either the capital of the trust, the income of the trust assets, or both.

A trust deed is a valid contract and therefore subject to all applicable laws. Furthermore, there are significant tax, financial and other consequences of being involved in a trust, whether as trustee, founder or beneficiaries. Therefore it is imperative to seek professional advice when drawing up this deed.

The duly signed and witnessed trust deed must be submitted to the Master of the High Court, together with the completed and signed Acceptance of Trusteeship for all trustees and certified copies of their identity documents. This Acceptance of Trusteeship states the basic information of the trustees that the Master requires, as well as certain declarations made by the trustee. If the Master requires the trustees to furnish security, proof of the bond of security by those trustees must be provided to the Master when the trust is registered. Form JM21 sets out certain requirements and information that must be supplied to the Master together with the other documents set out in this paragraph. This information includes details on the professions or business occupation of the trustees to be registered, any previous experience that these trustees might have in the administration of trusts, the name and branch of the bank where a bank account will be opened for the trust, and so forth. An original undertaking by an auditor or accounting officer must accompany form JM21. Lastly, proof of the payment of the prescribed fee of R100 must be submitted.

On receipt of the above documents in accordance with all the requirements, the Master will issue a Letter of Authority to the trustees. The trustees may then act on behalf of the trust.

Any amendments to the original trust deed must be placed on record with the Master of the High Court where the original trust deed is on record.

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Transfer of a property: Is VAT or transfer duty payable?

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cm_09_a1A purchaser is responsible for payment of transfer cost when acquiring an immovable property, but it should further be established if the transaction is subject to the payment of VAT or transfer duty to SARS.

When an immovable property is transferred, either VAT or transfer duty is payable. To determine whether VAT or transfer duty is payable one should look at the status of the seller and the type of transaction.

VAT

If the seller is registered for VAT (Vendor) and he sells the property in the course of his business, VAT will be payable to SARS. A vendor is a person who runs a business and whose total taxable earnings per year exceed R1 000 000. He will then have to be registered for VAT. A further stipulation is that the property that is being sold must be related to his business from which he derives an income.

The Offer to Purchase should stipulate whether the purchase price includes or excludes VAT. If the Offer to Purchase makes no mention of the payment of VAT and the seller is a VAT vendor, it is then deemed that VAT is included and the seller will have to pay 14% of the purchase price to SARS. It is the seller’s responsibility to pay the VAT to SARS, except if the contract stipulates otherwise.

When a seller is not registered for VAT, but the purchaser is a registered VAT vendor, the purchaser will still pay transfer duty but can claim the transfer duty back from SARS after registration of the property.

Transfer duty

When the seller is not a registered VAT vendor it is almost certain that transfer duty will be payable on the transaction. A purchaser is responsible for payment of the transfer duty. Transfer duty is currently payable on the following scale:

  1. The first R750 000 of the value of the property is exempted from transfer duty.
  2. Thereafter transfer duty is levied at 3% of the value of the property between R750 000 and R1 250 000.
  3. Where the value of the property is from R1 250 001 up to R1 750 000, transfer duty will be R15 000 plus 6% on the value of the property above R1 250 000.
  4. If the value of the property falls between R1 750 001 and R2 250 000, transfer duty will be R45 000 plus 8% of the value of the property above R1750 000.
  5. On a property with a value of R2 250 001 and above transfer duty is R85 000 plus 11% on the value of the property above R2 250 000.

Transfer duty payable by an individual or a legal entity (trust, company or close corporation) is currently charged at the same rate.

Transfer duty is levied on the reasonable value of the property, which will normally be the purchase price, but should the market value be higher than the purchase price, transfer duty will be payable on the highest amount. Transfer duty is payable within six months from the date that the Offer to Purchase was signed.

In instances where a party obtains a property as an inheritance or as the beneficiary of a divorce settlement, the transaction will be exempted from payment of transfer duty.

Where shares in a company or a members’ interest in a close corporation or rights in a trust are transferred, the transaction will be subject to payment of transfer duty if the legal entity is the owner of a residential property.

Zero-rated transactions

This means that VAT will be payable on the transaction but at a zero rate. If both the seller and the purchaser are registered for VAT and the property is sold as a going concern, VAT will be charged at a zero rate, for instance when a farmer sells his farm as well as the cattle and the implements.

Exemption

Transfer duty, and not VAT, will be payable when a seller who is registered for VAT sells a property that was leased for residential purposes.

It is thus important for a purchaser to establish the status of the seller when buying a property. The seller who is registered for VAT should carefully peruse the purchase price clause in a contract before signing, to establish if VAT is included or excluded.

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)