Talking Point November 2015

A succinct discussion of selected topical, legal matters

Dear Friends and Colleagues

I take great pleasure in submitting the November 2015 edition of Talking Point to you.  This is the final edition for 2015.  All of us at Walkers wish you an awesome festive season, and a superb 2016.

In the light of a recent judgment in the England and Wales Court of Appeal (Civil Division) (Minkin v Landsberg [2015] EWCA Civ 1152), we have made an addition to the Walkers Terms of Engagement Policy at http://www.walkers.co.za/legal-notices/terms-of-engagement-policy/ (Limited Retainer).  In brief, if you instruct us specifically (orally or in writing) on a limited retainer, the scope of our duty to protect your interests will consequently be limited.

George Orwell (1903 –1950), real name “Eric Arthur Blair”, was an English novelist, and the author of two of the most famous novels of the 20th century: Animal Farm and Nineteen Eighty-Four.

Orwell had a varied career.  Early on, he regarded himself an anarchist, and later a socialist.  He fought for the Republicans against Franco’s Nationalists in the Spanish civil war.  There, he became passionately anti-Stalinist due to his dislike of the Soviet-backed communists who were suppressing revolutionary socialist dissenters.  Animal Farm (1945) is a political fable based on Stalin’s betrayal of the Russian Revolution.

Already prior to the publication of Animal Farm, Orwell alluded in private correspondence to his fear of centralised economies, leader-worship, police states, and totalitarianism, following the Allied forces’ victory over Hitler.  Nineteen Eighty-Four (1949) is his stark warning against totalitarianism and tyranny.

Orwell is one of the best sources of quotes:

  • Power is not a means, it is an end.  One does not establish a dictatorship in order to safeguard a revolution; one makes the revolution in order to establish the dictatorship.”

  • Who controls the past controls the future.  Who controls the present controls the past.

  • All the war-propaganda, all the screaming and lies and hatred, comes invariably from people who are not fighting.”

  • No advance in wealth, no softening of manners, no reform or revolution has ever brought human equality a millimetre nearer.”

  • Nearly all creators of Utopia have resembled the man who has toothache, and therefore thinks happiness consists in not having toothache.  They wanted to produce a perfect society by an endless continuation of something that had only been valuable because it was temporary.  The wider course would be to say that there are certain lines along which humanity must move, the grand strategy is mapped out, but detailed prophecy is not our business.  Whoever tries to imagine perfection simply reveals his own emptiness.”

In this issue, defamation, a major VAT scam, a private search and seizure (Anton Piller), and the governance of a public school.  The famous legal case discussed in this issue is the origin of the well-known USA Miranda Rights.

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

What constitutes actionable defamation

Gunnar casual 2Jerome casualby Gunnar Dahl and Jerome Veldsman

Mtyhopo v South African Municipal Workers Union National Provident Fund, a judgement of the Constitutional Court on 1 October 2015, dealt with this question.

Mr Mtyhopo was a member of the Fund, and the spokesperson for 99 disgruntled members, all desirous of leaving the Fund, but apparently locked in by a bargaining council collective agreement.  Mr Mtyhopo lodged a complaint with the Pension Funds Adjudicator, who found in his favour.  The Fund appealed to the High Court, Johannesburg.  Lacking legal representation, Mr Mtyhopo did not oppose the appeal.  Accordingly, the appeal succeeded without reconsideration of the merits of the complaint.

Mr Mtyhopo immediately took the dispute to the press.  He initiated communication with a journalist, and told the journalist the story about the Adjudicator finding in his favour, but omitted to mention the Fund’s successful appeal.

The Herald (a Port Elizabeth newspaper) published an article based on Mr Mtyhopo’s version.  The article included: :

The group also took the matter to the Pension Funds Adjudicator – a body which investigates and resolves pension fund disputes – which ruled in their favour in June last year.  This had not, however, influenced the bargaining council’s decision.

[Despite] numerous discussions with representatives of [the Fund] and letters of termination, we have not been successful and find ourselves disadvantaged in many ways.’  Mtyhopo said.”

The Fund regarded the article as representing it as uncooperative, and was incensed by the omission of any mention of its successful appeal.  The Fund demanded a retraction from The Herald, and this was published two days later.  The Fund also demanded a wide-ranging undertaking from Mr Mtyhopo, but he refused.

The Fund then applied to the High Court, Grahamstown, for an interdict prohibiting wide-ranging conduct by Mr Mtyhopo, including publishing any false and/or defamatory matter about the Fund.  The Court granted the interdict.  Mr Mtyhopo applied for leave to appeal, but was turned down by the Court, and subsequently by the Supreme Court of Appeal.  Hence his appeal to the Constitutional Court.

There are two remarkable aspects to the proceedings in the Constitutional Court.  The judgment is unanimous, and the Court decided the matter without granting the parties’ legal representatives an oral hearing.  Mr Mtyhopo won hands down.

The Constitutional Court reiterated that: “a statement is defamatory of a plaintiff if it is likely to injure the good esteem in which he or she is held by the reasonable or average person to whom it had been published.”  The Court then analysed the article, and held:

The newspaper article, so far as it goes, is factually correct on the Adjudicator’s decision.  What the newspaper article leaves out is the fact that the Johannesburg High Court overturned the Adjudicator’s decision at the instance of the Fund.  Did that defame the Fund?  The question is whether the omission diminished the Fund in the estimation of reasonable readers.  A well informed reader would certainly be entitled to know, and would want to know, about the Johannesburg High Court decision.  But, not knowing about it, would she think less of the Fund?  That seems very unlikely.”

Many defamation cases are initiated without good reason, and end up reflecting badly on the complainant.  Merely being offended by a statement (or omission) does not constitute defamation.  The Fund should not have commenced these proceedings, and this matter should not have proceeded all the way to the Constitutional Court.  It is noteworthy that, in practice, this litigation was sponsored, for the Fund’s trustees, by the Fund’s members, and for Mr Mtyhopo, by international donors.

VAT schemesters are also entitled to constitutional rights

Jerome casualby Jerome Veldsman

SARS v Sassin and Others, a judgement of the High Court, Durban on 21 October 2015, dealt with SARS falling, to the tune of more than R800 million, for an unsophisticated VAT scam.

There is a special concession to qualifying farmers in the VAT Act that entitles them to purchase qualifying goods used or consumed for agricultural purposes (including certain animal feed products) at the zero-rate.  One Badenhorst, a then small-scale trader in animal feed products (and not a farmer), decided to ‘exploit’ this concession.

For several years, Badenhorst had a low key relationship with Benietha Veevoere (Pty) Ltd, a prominent and respected trader in animal feed products.  The trade between Badenhorst and Benietha Veevoere was minimal.

The position changed in September 2012.  Following a meeting between Badenhorst and Sassin, a stakeholder in and the main trader of Benietha Veevoere, the volume of trade between Badenhorst and Benietha Veevoere escalated dramatically to billions of Rands.  The trade was, however, phantom trade.  Each purchase by one from the other was essentially neutralised by a concomitant sale in the other direction.  However, whilst Badenhorst charged Benietha Veevoere VAT at 14% (and a lower price), Benietha Veevoere charged Badenhorst VAT at the zero-rate (and a higher price).

So, Benietha Veevoere claimed the 14% VAT output tax from SARS on its ‘purchases’ from Badenhorst.  Benietha Veevoere paid hundreds of millions of Rands it received from SARS in this way over to Badenhorst, after subtracting the ‘discount’ that Badenhorst granted to Benietha Veevoere.  In addition, Badenhorst paid a percentage based ‘secret profit’ to Sassin (R65 million in total).

Only in early July 2013 did SARS begin to suspect that something was amiss, and started corresponding with Benietha Veevoere.  Yet, at the end of July 2013, SARS paid another amount of almost R100 million to Benietha Veevoere.

The scheme unravelled early in August 2013, but amazingly Badenhorst still conned Sassin into paying back to Badenhorst R24 million of the ‘secret profits’.

SARS used its draconian powers under the Tax Administration Act to conduct an inquiry in late 2013.  In the present proceedings, SARS went after Sassin, his wife, and ten trusts related to him, relying primarily on information obtained in the inquiry.  It is not stated in the judgment, but it seems that Sassin and his wife are married in community of property and that Sassin stashed his takings in the trusts.

SARS claimed, from all the respondents, the remaining R41 million of Sassin’s ‘secret profits’, and from Sassin alone, as alleged co-wrongdoer in the fraudulent scheme, R370 million.

Sassin (and the other respondents) objected –

– to SARS’ reliance on information obtained in the inquiry, which information was recorded without being tested by the respondents; and

– to the procedure that SARS chose for the proceedings.

Pointedly, Sassin (and the other respondents) did not engage with the real merits of SARS’ claims.

As to the first objection, SARS lost:

Whilst I have no difficulty in principle regarding the important public function that SARS is required to perform in the collection of taxes in order to enable government to comply with its constitutional duties, I do have a difficulty when SARS sets out to achieve its aims in an unfair, unconstitutional and prejudicial manner, as it seeks to do in the present matter.  Admittedly, SARS has extraordinary and wide-ranging powers in terms of the TA Act as well as the South African Revenue Act … in order to carry out its duties.  I do not believe, however, that our courts should sanction any conduct on the part of SARS and/or its officials which fall foul of the Constitution and the Bill of Rights.”

As to the second objection, SARS lost:

Quite clearly its choice of procedure was incorrect.  In my view, the applicant acted rather presumptuously by approaching the court in this fashion.”

The end result is that SARS may continue with its claim against Sassin (and the other respondents), but SARS will not be entitled to rely on information obtained in the inquiry, unless SARS proves such information with oral evidence in Court; and SARS has to follow the much longer correct trial procedure.

Inexplicably, despite the many hundreds of millions of Rands Badenhorst in effect stole from SARS, he is currently insolvent, and there is no hope of SARS recovering any amount from him.

By the time SARS gets to have its day in Court with Sassin, there may well also be no hope of SARS recovering any amount from him.

SARS is trying to have the concession removed from the VAT Act.  However, the concession serves a legitimate purpose, and the public will be better served by SARS (and the Treasury) exercising greater diligence over public funds.

 

You have been served – Who is Anton Piller?

Amien casualMatt small (2)by Amien Hoosain and Matthew van Eden

In Anton Piller KG v Manufacturing Processes Limited (1975), the UK Court of Appeal, under its inherent jurisdiction, ‘created’ a special search order.  In Roamer Watch Co SA v African Textile Distributors (1979), the High Court, Johannesburg, under its inherent jurisdiction, adopted the Anton Piller search order into South African law.

An Anton Piller order affords a person (Anton) permission to enter onto and search the premises of another person (Bernard), and to seize evidence (hard copy and electronic) relating to a claim or potential claim Anton may have against Bernard.  The surprising aspect of an Anton Piller order is that it is authorised by a Court on application by Anton, without any notice to Bernard.  An Anton Piller order is an interim order.  On the return date of the order, Bernard will be afforded an opportunity to object, and to set aside the Anton Piller order; but only after the Anton Piller order has been executed.  If Bernard succeeds, Anton must return the seized material.

In order to obtain an Anton Piller order, Anton will have to prove (by way of affidavits):

– that Anton has a prima facie cause of action against Bernard, which claim Anton intends to pursue;

– that Bernard is in possession of evidence vital to Anton’s case; and

– that there is a real, or well-founded, apprehension that Bernard will hide or destroy such evidence.

Non-Detonating Solutions (Pty) Ltd v Durie and Another, a judgment of the Supreme Court of Appeal (SCA) on 2 October 2015, is the most recent development regarding Anton Piller orders.

Non-Detonating Solutions was the holder of the intellectual property in a device known as the AutoStem, a self-stemming rock-breaking cartridge for a non-detonating explosive.  In this context, “stemming” refers to filling in drill holes charged with explosives with inert incombustible material to separate explosives.  Non-Detonating Solutions provided the intellectual property to toolmakers, under strict terms of confidentiality, to enable the toolmakers to provide quotes for the manufacture of the devices.  One of these toolmakers allowed Durie access to the intellectual property, and Durie set about developing a competing device.

Non-Detonating Solutions wished to pursue legal proceedings against Durie, and successfully brought an Anton Piller application in the High Court, Cape Town.  On the return date, the Court discharged (set aside) the interim order on the basis that it was overly broad and not specific enough regarding the documents/evidence that were the subject of the search.  Non-Detonating Solutions appealed to the SCA, with success, as the SCA held that the original order had not been too broad.

The SCA stated that “… based on the principle of proportionality only vital evidence in the sense of evidence of importance to the applicant’ case, must be the subject of the search.  The specified documents must constitute vital evidence and a blanket search for unspecified documents or evidence which may exist is not allowed.”

There may be an inconsistency in such ‘proportionality’.  Non-Detonating Solutions (Anton in the above example) is authorised to search for any document “in respect of a self-stemming cartridge substantially identical to the AutoStem cartridge or any component thereof; or based on the concept or idea of the AutoStem cartridge, any component thereof or any adaptation of any or all of the aforesaid“.  However, during such search Non-Detonating Solutions gets to read every document of Bernard, to determine whether (or not) the document fits the profile.  An Anton Piller order seems to have progressed from the original intention to preserve evidence to being a search for evidence.  The Constitutional Court has not yet had an opportunity to consider the constitutionality of Anton Piller orders.

If served with an Anton Piller order, it is advisable to have one’s own attorney on the scene as soon as possible.

Management of a public school

Roxy 5Jerome casual by Roxanne Ker and  and Jerome Veldsman

The governance and management of public schools is of import to many, including parents of school-going children and those who serve on governing bodies.  In a judgment on 16 October 2015, the Supreme Court of Appeal provided some guidelines.

MEC for Education, Gauteng v Fedsas, a judgement of the Supreme Court of Appeal on 16 October 2015, was another round in the “history of a sustained power struggle between provincial education departments and school governing bodies over governance and management of public schools“.  This round dealt with the question whether school governing bodies or provincial education departments have the power to determine admissions policy and capacity of public schools.  The Court found in favour of the provincial education departments.  Somewhat strangely in this matter, the Court ordered the loser to pay the legal costs of the winner, despite the issues raised being of a constitutional nature, of national importance, and affecting the interests of the public at large.

In a more general context, the guidelines included the following.

Participants in school governance must engage with each other in good faith, under a collaborative administration system to enhance access to decent basic education for all learners irrespective of race, talent, and behavioural and intellectual dispositions.

A public school must be managed, not only in the interests of those who happen to be learners and parents at a specific time, but also in the interests of the broader community in which the school is located, and in the light of the values of the Constitution.  A public school has an obligation to facilitate the realisation of the right to basic education to as wide a number of learners as reasonably possible.

An even distribution amongst public schools of learners of different racial, income capacity, intellectual ability, and behavioural dispositions, is to be promoted.  The right to education prohibits restricting access to basic education for burdensome or less talented learners.

Regarding the decision as to whether (or not) a public school is to admit a learner from another school, the governing body (or any related person) of the former is not entitled to request a report from the learner’s current school (or any related person) on information that could be unfavourable or potentially prejudicial about the learner being admitted.  Once a learner is admitted to the school, the governing body may obtain such information to enable the new school to prepare for the learner beforehand.

Such prohibition includes information about an applicant learner who might threaten the security of other learners at the new school.  No public school enjoys more protection from burdensome learners than others, and the constitutional right to education extends equally to all children, including those who are considered burdensome for various reasons.  

Miranda v Arizona

Miranda v Arizona, a judgement of the USA Supreme Court on 13 June 1966, dealt with the relevant parts of the Fifth and Sixth Amendments to the USA Constitution.  The text:

– Fifth Amendment: “No person … shall be compelled in any criminal case to be a witness against himself …

– Sixth Amendment: “In all criminal prosecutions, the accused shall enjoy the right … to have the Assistance of Counsel for his defence.”

The Court heard four cases, each dealing with an accused who had not been advised of his right to remain silent or his right to counsel before interrogation, as one consolidated case; Ernesto Miranda was coincidently listed first, and his name became famous:

– Miranda: he was arrested and taken in custody, where he was identified by the complaining witness, then interrogated by two police officers for two hours, after which he signed a written confession.  He was convicted of kidnapping and rape, and sentenced to 20 to 30 years’ imprisonment.

– Michael Vignera: he was taken in custody, orally admitted guilt, and then arrested; and thereafter questioned by an assistant district attorney in the presence of a transcriber who transcribed the questions and answers.  He was convicted of first degree robbery, and sentenced to 30 to 60 years’ imprisonment.

– Carl Calvin Westover: he was arrested and taken in custody, where he was interrogated the night of the arrest and the next morning by local police; then the FBI continued the interrogation, and two-and-a-half hours later he signed two confessions, which had been prepared by the FBI during the interrogation.  He was convicted of several robberies, and sentenced to 15 years’ imprisonment.

– Roy Allen Stewart: he was arrested and taken in custody, where over five days he was interrogated on nine different occasions; and during the ninth interrogation he orally admitted his guilt.  He was convicted of robbery and first degree murder, and sentenced to death.

The majority (five out of nine judges) ruled that, due to the coercive nature of interrogation by police and/or prosecutors, a confession would be inadmissible under the Fifth and Sixth Amendments, unless the following was correctly done:

He must be warned prior to any questioning that he has the right to remain silent, that anything he says can be used against him in a court of law, that he has the right to the presence of an attorney, and that if he cannot afford an attorney one will be appointed for him prior to any questioning if he so desires.  Opportunity to exercise these rights must be afforded to him throughout the interrogation.  After such warnings have been given, and such opportunity afforded him, the individual may knowingly and intelligently waive these rights and agree to answer questions or make a statement.  But unless and until such warnings and waiver are demonstrated by the prosecution at trial, no evidence obtained as a result of interrogation can be used against him.”

The Court quashed the convictions of all four individuals.  All four were subsequently retried (without the confessions being introduced in evidence), and found guilty of the same offences or plea-bargained lesser offences.

Congress passed a law to negate the Miranda rule, but the Supreme Court stuck the statute down as being unconstitutional.

The position under our Constitution and judgments of the Constitutional Court are consistent with the Miranda rule.