Talking Point February 2016

A succinct discussion of selected topical, legal matters

Dear Friends and Colleagues

I take great pleasure in submitting the February 2016 edition of Talking Point to you.  This is the first edition for 2016.

Abraham Lincoln (1809 – 1865) was one of the most famous USA presidents.  His parents were illiterate and poor, and he received little formal schooling, but by adolescence was already an avid reader.  He worked as a manual labourer and then became a shopkeeper.  He decided to become a lawyer, and taught himself by reading textbooks.  He was admitted to the bar in 1837, and entered private practice, with success.

He was active in some local politics, served an unremarkable term in the House of Representatives from 1847 to 1849, and thereafter again practiced law.  He returned to politics to oppose pro-slavery legislation, but failed in his attempts in 1854 and 1858 to secure a seat in the Senate.  However, he gained national prominence as a debater, including in the famous Lincoln–Douglas debates of 1858; and his edited version of the texts of the debates became a popular book.

The Republican Party (formed to oppose pro-slavery legislation) nominated Lincoln for the Presidency; and he was elected in 1860 and re-elected in 1864.  He was assassinated in 1865.

Lincoln is one of the best sources of quotes:

  • I Discourage litigation.  Persuade your neighbors to compromise whenever you can.  Point out to them how the nominal winner is often a real loser — in fees, expenses, and waste of time.  As a peacemaker the lawyer has a superior opportunity of being a good man.  There will still be business enough.

  • The true rule, in determining to embrace, or reject any thing, is not whether it have any evil in it; but whether it have more of evil, than of good.”

  • Will springs from the two elements of moral sense and self-interest.”

  • You cannot escape the responsibility of tomorrow by evading it today.”

  • Marriage is neither heaven nor hell, it is simply purgatory.”

In this issue: a painting that turned out to be a worthless ‘fake’, the position of the lessor when the non-paying lessee is in business rescue, tender irregularity, and religious and non-religious world views clash in court.  The famous legal case discussed in this issue is the climax scene of the 1996 movie The People vs. Larry Flynt.

As always, I would greatly appreciate your feedback on Talking Point. Please email me at charlt@walkers.co.za.

Regards

Charl Theron

In this issue:

LEGAL MATTERS

Let the buyer beware

Belinda 2by Belinda van der Vyver

The purchase of paintings by South African “old masters”, like Pierneef and Irma Stern, has become an alternative investment choice for some.  The market for investment grade South African artwork is fairly buoyant, and record prices have been achieved in recent years.

If one is considering buying a painting for meaningful money, it would be prudent to consider the facts and decision in Barry and Isabel Knispel v Gallery 63 Antiques and others, a judgment of the Superior Court of New Jersey, USA on 19 June 2015.

In 1994, the Knispels purchased a painting titled Mending His Ways, that they believed to be by Norman Rockwell (one of the most famous American artists of the 20th century), from Gallery 63 Antiques, for USD 350 000.  Laurence Caspar, an art expert, had provided a written opinion to the gallery that the painting was an original Norman Rockwell, and the gallery had made the opinion available to the Knispels.  However, there was no contact between the Knispels and Caspar.

In early 2013, the Knispels had the painting appraised for insurance purposes, and were advised that it was a worthless ‘fake’, and not an authentic Norman Rockwell.  In December 2013, a painting by Norman Rockwell was sold for USD 46 million.  In December 2014 the Knispels sued the gallery and Caspar’s deceased estate for damages.

Note that this judgment concerned only the Knispels claim against Caspar’s deceased estate.  Caspar’s deceased estate filed a motion to dismiss the claim for lack of personal jurisdiction, and prescription (failure to commence legal proceedings within the time period allowed under the statute of limitations).

The Judge upheld the lack of personal jurisdiction motion, on technical grounds.  The Judge also dealt with prescription.  Prescription would not non-suit the Knispels if they could prove that, despite the exercise of reasonable diligence, prior to 2013 they could not have discovered that the painting was a worthless ‘fake’.  They failed to do so.  The Judge held:

Plaintiffs purchased the Painting for $350,000 over two decades ago.  They heedlessly failed to get their own appraisal at the time, or until very recently.  A purchaser of investment-grade artwork has some obligation to verify their speculative purchases.

Also on technical grounds, the Judge held that the New Jersey Consumer Fraud Act did not apply vis-à-vis Caspar’s deceased estate.  It is unclear whether the Consumer Fraud Act will assist the Knispels in their claim against the gallery.

If the ‘fake’ painting incident had occurred in South Africa –

– the Prescription Act has a similar provision to that considered in the judgment, and the prescription point may well also have been decided against the Knispels; and

– the Consumer Protection Act may well not have assisted the Knispels.

Goodbye delinquent tenant

Belinda 2Jerome 2by Belinda van der Vyver and Jerome Veldsman

Southern Value Consortium v Tresso Trading 102 (Pty) Ltd, a judgement of the High Court, Cape Town on 23 November 2015, dealt with the right of a lessor to cancel the lease of a non-paying lessee under business rescue.

The lessee failed to pay rental, and the lessor cancelled the lease.  Then the lessor launched an application in the Court on 27 August 2015 for an order that the lessee be ejected from the property.  Prior to the matter being heard in Court, on 16 September 2015, the lessee commenced business rescue proceedings.  Note that the cancellation of the lease predated the commencement of business rescue proceedings.

A primary goal of business rescue proceedings is to give the beleaguered company ‘breathing space’ to get its financial affairs in order.  Part of the ‘breathing space’ is a moratorium on legal proceeding against the company.  The moratorium is not absolute.

The applicable provisions in Chapter 6 of the Companies Act are:

– During business rescue proceedings, no legal proceeding … against the company, or in relation to any property belonging to the company, or lawfully in its possession, may be commenced or proceeded with …

– No person may exercise any right in respect of any property in the lawful possession of the company, irrespective of whether the property is owned by the company …

Predictably, the business rescue practitioners relied on these provisions to avoid the ejectment order.  The Judge found otherwise:

Applicant [the lessor] claims to be the lawful owner of the property.  The business practitioners did not refute this claim.  It follows that the property never belonged to respondent [the lessee].  Following the cancellation of the lease agreement respondent was, furthermore, no longer in lawful possession of the property.  The business practitioners can therefore not rely on [the applicable provisions in Chapter 6 of the Companies Act] as a defence to applicant’s claim.”

In my view it could not have been the legislature’s intention that the company in business rescue would restructure its affairs by utilising assets to which it has no lawful claim.”

This judgment is a welcome antidote to what has previously been unscrupulous conduct by certain business rescue practitioners.

Another part of the business rescue proceedings ‘breathing space’ is the (not absolute) right of a business rescue practitioner to suspend an obligation of the company (1) that arises under an agreement to which the company was a party at the commencement of the proceedings, and (2) that would otherwise become due during the proceedings.

What will the position be if the lessee fails to pay rental, then the lessee commences business rescue proceedings, and only then the lessor cancels the lease?  We are of the view that the position ought to be the same as in Southern Value Consortium – the lessor ought to prevail.

What will the position be if, at the commencement of business rescue proceedings, the lessee is up to date with rental, but the business rescue practitioner fails to pay rental, and then the lessor cancels the lease?  What will the position be if the business rescue practitioner timeously suspended the obligation of the company to pay rental?  Can the lessor be compelled involuntarily to provide post-commencement finance to the company?  The answers to these questions will require a separate article.

 

Swift justice in tender irregularity

Amien 2by Amien Hoosain 

In Cape Book & College Supplies CC t/a University Bookshop v Northlink Tvet College, University Bookshop applied on an urgent basis to the High Court, Cape Town for the setting aside of a tender awarded by the College to Van Schaik, and the award of the tender to University Bookshop.  The case was heard on Christmas Eve 2015, and judgment was delivered the same day.

The College issued a tender on 16 October 2015 for the supply of certain textbooks for the 2016 academic year.  On 30 October 2015 the College advised bidders that a particular textbook was to be excluded from, and certain other textbooks were to be included in, the tender.  The tender closed on 16 November 2015, and on 27 November 2015 bidders were notified that the tender had been awarded to Van Schaik.

University Bookshop was suspicious because Van Schaik’s bid was almost R900 000 less than its own, and enquired whether Van Schaik’s tender had included the additional books.  The College replied that Van Schaik had not, but that the omission was irrelevant, as even with provision for the cost of the additional books, Van Schaik’s bid would still have been the lowest.  University Bookshop appealed under an internal process, but the previous decision in favour of Van Schaik was upheld on 10 December 2015.

University Bookshop instituted these review proceedings on 11 December 2015, with the main argument that Van Schaik ought to have been disqualified due to non-compliance with the tender requirements.  In such regard, the Court confirmed that immaterial irregularities did not necessarily invalidate a tender award by a public body, but strict compliance with the procurement process was necessary for legality.  As the failure by Van Schaik to include the additional textbook (with a cost of about 14% of the total tender) in its bid, constituted a material irregularity, the Court set aside the award of the tender to Van Schaik.

Ordinarily a Court would remit the proper award of the tender to the public body for reconsideration, but a Court is entitled to make a substituted decision in exceptional circumstances.  Two key considerations in this regard are whether the Court is in as good a position as the public body to make the decision, and whether the appropriate decision is a foregone conclusion.

In this instance, the textbooks were scheduled to be delivered before the start of the academic year on 18 January 2016, and the Court regarded such urgency as exceptional circumstances.  The score-sheet used by the College to adjudicate the bids and all the bids were in the Court papers, and the criteria were objective.  Under the criteria, when applied to all the compliant bidders, University Bookshop had the highest total score by a narrow margin.  The Court set aside the tender awarded by the College to Van Schaik, and awarded the tender to University Bookshop.

Religious education v Religious studies

Jerome 2 by Jerome Veldsman

Fox and Others v Secretary of State for Education, a judgement of the UK High Court of Justice on 25 November 2015, dealt with the striking of a balance between the teaching of religious and non-religious world views in public high schools.  The relevant legislation is not ‘on all fours’ with the South African counterparts, but the subject matter and the judgment could inform the debate in South Africa.

The distinction in meaning between “religious education” and “religious studies” (only about religions) is at the heart of this case.  In a sense, the question to be answered was whether restricting religious education to religious studies would breach the duty to take care that the educational material must be conveyed in an objective, critical, and (importantly for this case) pluralistic manner.  The term “pluralism”, which has different meanings in different contexts, is not defined for purposes of the judgment.  However, the term appears to be used to convey that there are several values that may be equally correct, even fundamental, and yet in conflict with each other.

The new curriculum for religious studies issued by the Secretary of State for Education contained content about various religions, but was wholly devoted to the study of religions.  Several parents, who held non-religious beliefs, assisted by the British Humanist Association, challenged a specific assertion (the “Assertion“) in the new curriculum (not the prescribed content of the curriculum).  The Assertion was that: “the subject content is consistent with the requirements for the statutory provision of religious education in current legislation“.

The challenge was grounded in human rights law provisions:

(1)  protecting freedom of thought, consicence, and religion; and

(2) mandating the right to education, including that “the State shall respect the right of parents to ensure such education and teaching in conformity with their own religious and philosophical convictions“.

The claimants were of the view that:

– The Assertion could mislead schools into (illegally) restricting religious education to the religious studies (only about religions) in the new curriculum.

– The state has a duty to ensure that any educational provision it makes for religious education must treat religious and non-religious views on an equal footing.

The judge accepted that the Assertion could mislead schools, as claimed.  The judge did not accept the “equal footing” argument, but ruled that the Assertion could not stand:

… the duty of impartiality and neutrality owed by the state do not require equal air-time to be given to all shades of belief or conviction.  A [curriculum] can quite properly reflect the relative importance of different viewpoints within the relevant society.  …  The duty might therefore be described as one of “due” impartiality.  … a generous latitude must be allowed to the decision-maker as to how that works out in practical terms.  But the complete exclusion of any study of non-religious beliefs for the [curriculum] would not in my judgment be compatible with [the right to education].

It is not of itself unlawful to permit [a curriculum] to be created which is wholly devoted to the study of religion. …  But the Assertion tells its readers that such a [curriculum] will fulfil the entirety of the state’s [religious education] duties.  …. The Assertion thus represents a breach of the duty to take care that information or knowledge included in the curriculum is conveyed in a pluralistic manner.

The Judge required additional submissions from the parties before determining the relief to be granted to reflect his conclusions.  

Hustler Magazine, Inc., et al v Falwell

The inside front cover of the November 1983 issue of Hustler featured a parody of an advertisement for Campari Liqueur that contained the name and picture of Jerry Falwell, then a nationally known evangelical Southern Baptist pastor, and conservative political commentator (a public figure).

The original ads for Campari were interviews with celebrities about their “first times”.  At the end of each ad, it was disclosed that the reference was to the first time the celebrity sampled Campari, but the play on the sexual double entendre of the term “first time” was obvious.

The Hustler parody followed the form and layout of the Campari ads, but contained an alleged “interview” with Falwell in which he states that his “first time” was during a drunken incestuous rendezvous with his mother in a shed.  The parody portrayed Falwell and his mother as drunk and immoral, and suggested that Falwell was a hypocrite who preached only when drunk.  In small print at the bottom of the page, the ad contained the disclaimer, “ad parody — not to be taken seriously.”

Falwell, a serial litigator, took umbrage, and sued Hustler and its publisher (Larry Flynt) to recover damages for (1) invasion of privacy, (2) libel, and (3) intentional infliction of emotional distress.

The matter concluded with a judgement of the USA Supreme Court on 24 February 1988, dealing with the relevant parts of the First Amendment to the USA Constitution.  The text: “Congress shall make no law … abridging the freedom of speech …”  (Under the due process clauses in the Constitution, the USA Courts have extended this prohibition to apply to all laws.)

The Court of first instance:

– Summarily dismissed the claim for invasion of privacy.

– Dismissed the claim for libel, on the basis that:

– in order to succeed, a public figure must prove the publication of a defamatory falsehood, and that the statement was made with knowledge that it was false or with reckless disregard of whether it was false or not (with “actual malice“); and

– in this instance, the parody could not “reasonably be understood as describing actual facts about [Falwell] or actual events in which he participated“, and was accordingly not be regarded as a false statement.

– Ruled in Falwell’s favour on the claim for intentional infliction of emotional distress, and awarded damages of USD 200 000 in his favour, on the basis that the “actual malice” requirement did not apply to this claim.

Hustler’s first appeal was unsuccessful, and it appealed to the USA Supreme Court.

In the Supreme Court, the primary question was whether the “actual malice” requirement also applied to intentional infliction of emotional distress on a public figure by a parody such as this one.  The Court delivered its judgment on 24 February 1988.

Hustler argued that the protection of freedom of speech is a shield for political cartoonists and satirists against claims by public figures, despite the caustic nature of their work.  Falwell countered that the caricature in question was so “outrageous” as to distinguish it from more traditional political cartoons.  The Court held:

There is no doubt that the caricature of respondent and his mother published in Hustler is at best a distant cousin of the [classic] political cartoons …, and a rather poor relation at that.  If it were possible by laying down a principled standard to separate the one from the other, public discourse would probably suffer little or no harm.  But we doubt that there is any such standard, and we are quite sure that the pejorative description “outrageous” does not supply one.  “Outrageousness” in the area of political and social discourse has an inherent subjectiveness about it which would allow a jury to impose liability on the basis of the jurors’ tastes or views, or perhaps on the basis of their dislike of a particular expression.

The Court concluded that: “public figures and public officials may not recover for the tort of intentional infliction of emotional distress by reason of publications such as the one here at issue without showing, in addition, that the publication contains a false statement of fact which was made with “actual malice“.  Accordingly, Falwell lost.

Hustler Magazine, Inc., et al v Falwell was cited with approval by the High Court, Johannesburg in Cele v Avusa Media Limited 2013 JDR 0269 (GSJ) – a case involving a digitally altered photograph of Mr Bheki Cele.