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JANUARY 2015
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Beware Prescription: The Tale Of The “Watertight Case” That Died A Sad And Sudden Death
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“Sad is the day when a party with a watertight case comes to court and he is stopped in his tracks by a sudden death due to a fatal blow from a watertight defence of prescription. The present matter is a classic case of this nature” (extract from judgment below)
Here’s another warning from our courts about the dangers of procrastination when it comes to matters of law.
An employee’s pension fund is unlawfully raided
- A post office branch manager’s failure to comply with his employer’s “secure mail antifraud system policy” resulted in a posted credit card being given to the wrong person, who promptly took advantage by fraudulently using the card. The post office suffered loss when it was forced to refund the bank.
- Having dismissed the employee for misconduct after a disciplinary hearing (an action in the Labour Court to reverse this dismissal is still pending), the employer sought to recover its losses by deducting R159k from the employee’s pension fund.
- Whilst employers may in certain stipulated circumstances make deductions from an employee’s pension fund, the Court held that on the facts of this case the employer had acted unlawfully.
- Nevertheless the Court dismissed the employee’s claim, leaving him with only R55k in his pension fund and a liability for his own legal costs. His only mistake – he issued summons after expiry of the 3 year prescription period.
A prescription for failure
The general rule in our law is that, with a few specific exceptions, any debt becomes unclaimable (“prescribed”) 3 years after it becomes due.
However that 3 year period only starts running when you actually become aware of –
- The debt,
- The identity of the debtor, and
- The “facts from which the debt arises”
Note that you have to act reasonably here – you are deemed to have had the required knowledge if you “could have acquired it by exercising reasonable care”.
Critically, the Court pointed out that “knowledge of the legal conclusions is not required before prescription begins to run”, so it was no help for the employee in this case to claim that he didn’t understand the “legal consequences” of his delay.
In short, it’s up to you to become aware of any possible claim and to seek legal advice on it without delay.
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The Wages Of Fraud: 15 Years In Prison
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“White collar criminals who commit offences of a certain magnitude must not be permitted a soft landing” (extract from judgment below)
The recent “J Arthur Brown” judgment by the Supreme Court of Appeal (SCA) has received a lot of media attention, and victims of serious crime will take heart from the Court’s robust approach.
Mr. Brown had been sentenced by the High Court to fines and suspended sentences after pleading guilty to two counts of fraud involving “tens of millions of Rand”.
Sentencing – no soft landings
The SCA drastically increased those sentences to an effective total of 15 years’ imprisonment, in the process illustrating several important principles in our criminal law -
- Power to increase sentences on appeal: The State can appeal against a sentence imposed by a lower court where it results from a “material misdirection” by the trial court or where it “can properly be described as ‘shocking’, ‘startling’, or ‘disturbingly inappropriate’.”
- Minimum sentences: Where minimum sentences are provided for by statute, courts can only impose a lesser sentence if there are “substantial and compelling circumstances” to justify doing so.
- Imprisonment for fraud: In cases of fraud involving more than R500,000 the prescribed minimum sentence is 15 years’ imprisonment, even where only “potential” rather than “actual” prejudice to victims is proved.
- Equal justice: Our courts will “guard against creating the impression that there are two streams of justice; one for the rich and one for the poor”.
- Criminal intention: The fact that an offender’s level of criminal intention was that of dolus eventualis* rather than “direct intention” does not in itself justify any deviation from the minimum sentence provisions - it is just one factor to be taken into account. (*Dolus eventualis, as regular LawDotNews readers will recall from our May 2014 article “The Pistorius Trial: What Must the State Prove? And what is “Dolus”?” is a form of “legal intention” where a criminal proceeds with his/her criminal action/s despite foreseeing the possibility of resultant harm).
Victims of crime –fight back!
- Report it! Our courts have yet again shown that they will not easily allow criminals – including white collar criminals - “a soft landing”.
- If you think that the sentence handed down is unfairly lenient, push for an appeal to have it increased.
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Tax Penalties - What Must SARS Prove?
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SARS has the power to impose severe penalties on any taxpayer failing to declare or pay taxes in accordance with law.
For example, in a case recently before the Tax Court, a corporate taxpayer was audited by SARS and found to have overstated input VAT. It was assessed (after partial allowance of an objection) for –
- Some R16m in tax, plus
- 200% “additional tax” - R32m, plus
- 10% penalties - R1.6m, plus
- Late payment interest - R5m.
In effect the taxpayer’s total tax bill more than tripled from R16m to R55m.
The taxpayer asked SARS to “be lenient and waive the Additional Tax, penalty & interest” on the basis that “it was never our intention to defraud SARS and to evade the payment of any amount of tax payable…..We were under the impression that our auditor was handling all our tax affairs and we trusted his judgment as we do not have tax and accounting experience.”
SARS was unmoved by this plea and the taxpayer approached the Tax Court for relief.
SARS, held the Court, had rightly concluded that the taxpayer’s failure to produce documentation in support of VAT inputs claimed by it “constituted intent by the [taxpayer] to obtain an improper VAT refund with a view of defrauding the fiscus”.
The onus on SARS
Nevertheless the Court set aside the 200% additional tax on the ground that SARS had accepted the onus to prove that the penalty was correctly imposed and had failed to produce any evidence as to how and why it had decided to impose the extra tax, nor had it proved “that the imposition of the additional tax was justified”.
Take professional advice upfront – it could help your challenge later
In another Tax Court decision relating to an understatement penalty of R47m, which the Court reduced substantially whilst also waiving penalty interest in full, the Court commented: “I am of the view that having received advice, there were reasonable grounds for the [taxpayer] to take the tax position which he did. Nor can it be said that he did not take reasonable care – he did so by consulting the experts”.
That seems to be a clear suggestion that seeking professional advice before taking a stance on any major tax question may well help you in challenging any excessive penalties imposed on you.
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Property Sales: Don’t Be An Unregistered Credit Provider!
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Be careful when buying and selling property that you aren’t held to have lent more than R500,000 to the other party. As a recent High Court case illustrates,that will leave you with no contractual claim to your money.
The seller, the buyer, and the loans
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Having bought a property for R700,000, the buyer paid the seller in full and took occupation.
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He was however unable to take transfer when it emerged that a bondholder was owed money as a result of an unlawful transfer of the property to a third party.
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To enable the seller to pass transfer to him, the buyer lent the seller three amounts of money totalling R882,397. The seller signed an acknowledgment of debt for that amount and then repaid R250,000.
- When the seller failed to repay the balance, the buyer sued him.
The law
The buyer’s summons, held the Court, was defective because it did not allege that the buyer had registered as a “credit provider” in terms of the NCA (National Credit Act). That, held the Court, was fatal to the buyer’s summons -
- The NCA requires you to register as a credit provider where either –
- You make more than 100 loans (other than “incidental credit agreements”), or
- The total amount you loan comes to more than the set threshold of R500,000.
- The total amount loaned by the buyer to the seller in this case being over the threshold, the buyer was obliged to be registered under the NCA as a “credit provider”.
- It is irrelevant if, as in this case, the loan is a “once-off” or if the lender doesn’t “frequently” provide credit. If the total amount loaned is over R500,000, registration is required. In other words, the NCA’s registration requirement doesn’t apply only to those who make a business of providing credit – it also applies to you and to me in our daily lives.
The trap (for all lenders, not just in property transactions) and the danger
If you lend money to anyone (as part of a property transaction or not) and if you are required to register as a credit provider but don’t, your loan agreement is unlawful and void. Your only chance of recovering your money then will be to sue for “unjustified enrichment” which has its own set of requirements for you to prove, and defences for the debtor to raise.
Don’t take a chance of falling into this little-known trap. If your property deal is structured in such a way that you may need to be registered as a credit provider, seek legal advice immediately, and certainly before you lend money to anyone.
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The January Website: Make 2015 Your Year Of Visionary Leadership
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“In the middle of difficulty lies opportunity” (Albert Einstein)
2015 is it seems going to present us with many challenges and that, as Einstein pointed out, means that it will also be a year of many opportunities. Take advantage of them by honing your leadership skills.
Who better to learn from than one of the greatest leaders and visionaries in recorded history?
“11 Leadership Lessons from Alexander the Great” at http://tinyurl.com/11Alexander is INSEAD’s analysis of Alexander’s strengths (and his weaknesses) to give us insights into his power that remain relevant today.
Learn from him. Become a visionary leader, and make 2015 a year of success and happiness!
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