Talking Point May 2014

A succinct discussion of selected topical, legal matters

I take great pleasure in submitting the May 2014 edition of Talking Point to you.

This issue includes an update on the plethora of legislation affecting the insurance industry; and contributions on the legal position when a person ‘disappears’, and when a person becomes a major; legal practice matters that affect clients; and more.

Moral philosophy is integral to the practice of law.  Mary Midgley, an English moral philosopher, compares philosophy to plumbing, something that nobody notices until it goes wrong.  The same applies to legal work.  Midgley at her best (in Beast and Man: The Roots of Human Nature):

“Do we find ourselves a species naturally free from conflict?  We do not. There has not, apparently, been in our evolution a kind of rationalization which might seem a possible solution to problems of conflict … [W]hat has developed is our intelligence.  And this in some ways makes matters worse …  [H]owever, it does help us to arbitrate.  Rules and principles, standards and ideals emerge as part of a priority system by which we guide ourselves through the jungle.”

The expression “the law of the jungle” was coined by Rudyard Kipling in the first line of the poem The Law for the Wolves to mean a social contract which explicates the balance between an individual’s responsibility to the community, and the community’s responsibility to the individual.  The poem concludes:

Now these are the laws of the jungle, and many and mighty are they; 

But the head and the hoof of the law and the haunch and the hump is – Obey!

We are at your service to guide you through the jungle that is the South African legal system.

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

Less draft legislation affecting the long-term insurance industry

Jerome casual– by Jerome Veldsman

In Talking Point March 2014 we reported on the tsunami of legislation that is likely to increase the cost of doing insurance business and concluded:

“It may be that National Treasury can’t see the forest for the trees when it comes to the actual effects, as opposed to the intended effects, of the legislative initiatives affecting the long-term insurance industry (and the financial sector as a whole).”

On 29 April 2014 the Financial Services Board and the Treasury announced that the Insurance Laws Amendment Bill, 2013 is to be abandoned, and the next draft of the Financial Sector Regulation Bill will be published later this year. In addition, more draft legislation is under consideration.

Regrettably, the position remains that it is virtually impossible for a long-term insurer (or Insurance Group) to develop a coordinated and systematic approach to compliance.

Presumption of death

Amien casual– by Amien Hoosain

On 8 March 2014, somewhere in the Western hemisphere, an aircraft with 241 people on board disappeared.  The subsequent search and rescue effort, the largest in history, has to date not shed any conclusive light on the fate of the aircraft or the people on board.  Insofar as known, no person domiciled in South African was on board.  What would the legal position be in such a situation regarding a South African?

If there is a dead body or other conclusive proof of death, a death certificate will be issued under the Births and Deaths Registration Act.  South Africa accepts foreign death certificates.  A death certificate usually constitutes sufficient proof of death for purposes of ending a marriage, claiming under a life policy, administration of the deceased estate, and other relevant matters.

When a person ‘disappears’, there is no dead body or other conclusive proof of death, so no death certificate can be issued.  Under such circumstances, an interested person may apply to the High Court for an order that the person be presumed dead.

As, for instance, a faked death can be financially beneficial (an insurance pay-out, escaping creditors, and the like), a court requires evidence on a preponderance of probability that the missing person is indeed dead.  The mere fact that the person has been missing for a long time is not necessarily sufficient, unless at the time of the application the person would have “reached an age so great that it exceeds any span of life which is realistically imaginable with reference to him“.

In respect of a shorter time span, evidence on a preponderance of probability that the person disappeared in an intrinsically dangerous situation or area may be sufficient.  Examples from case law where a person was presumed dead (after the elapse of some years with no trace of them being found, despite diligent search) include a person disappearing under a rapid in a river, an ocean wave washing a person off a rock, and in an old case: “… on the ground that they were among the Jews who were massacred during the Second World War, 1939 – 1945, when the German armies, in their campaign against the Russians, overran the Province of Lithuania“.

A court will first issue a ‘temporary’ order presuming death, which must be published widely.  It has been known for the missing person to respond to such an order.  Even a ‘final’ order presuming death remains of a provisional nature.  It has been known for a person presumed dead to turn up alive many years later.  Such person, or another interested person, may then apply to court to have the order set aside.  If set aside, anyone who benefited from the order may be obliged to return any property still in his possession.

An order presuming death does not automatically terminate the missing person’s marriage.  The spouse may apply to court for an additional order dissolving the marriage pursuant to the presumption of death.

In the case of a presumed catastrophic aircraft incident, if there is conclusive evidence that the relevant person was on-board, after the elapse of say two years, a court may well grant an order presuming death.

 

The age of majority

Nox– by Nox Malumbete

In terms of section 13(1)(a) of the Prescription Act, a minor’s claim does not prescribe until one year after he has attained majority.

Until the Children’s Act of 2005 became operative on 1 July 2007, the age of majority was twenty one.  On such date it dropped to eighteen.  The Children’s Act does not contain transitional provisions in respect of prescription.  How now?  The answer was provided in Malcolm v Premier of the Western Cape, a judgment of the Supreme Court of Appeal on 14 March 2014.

Malcolm was born in 1987.  At six years of age in 1999, Malcolm was admitted to a government hospital for treatment.  There was an outbreak of Hepatitis B at the hospital, and Malcolm contracted the disease.  In 2009, after his 21st birthday, but within one year of such birthday, he sued for damages, based on the averred negligence of the hospital staff.

The government entered a special plea of prescription.  It argued that, when the Children’s Act became operative on 1 July 2007, Malcolm being twenty years of age on such date, automatically attained majority.  He therefore had only one year from 1 July 2007 to institute a claim; and failed to do so.  The High Court, Cape Town upheld the special plea of prescription.  Such approach was consistent with the then widely held view.

On appeal, the Supreme Court of Appeal found otherwise.  The SCA held that there is a presumption against the change in the law operating retrospectively so as to create a new obligation or impose a new duty or attach a new disability in regard to events already past.  Accordingly, in respect of claims arising before 1 July 2007, for prescription purposes, the claimant must be regarded as a minor until he has attained the age of twenty one.

Such indulgence to the ‘infirmity of the tender age’ of young persons will not to be disruptive.  The moral of the story is that legislation ought to be better drafted with comprehensive transitional provisions.

Disputed document generated on computer

Gunnar casual 2by Gunnar Dahl

In Adcock Ingram Critical Care v Batswadi Pharmaceuticals, a judgment of the High Court, Johannesburg on 26 March 2014, the plaintiff claimed money from the defendant.  The defendant relied for its defence on letters allegedly written by its directors before the litigation started.

The plaintiff disputed that the alleged letters were authentic, and accordingly brought an application for an order that the relevant electronic devices of the defendant (used by the directors, the servers of the defendant, and any backups of these devices, be made available to the plaintiff’s technology consultant for analysis.

The Rules of Court provide that if the condition of any item or property is relevant to any matter in dispute between litigants, any party may require the party in possession of such item to make it available for inspection by the requesting party.

The plaintiff argued that it required such access to the devices and records of the defendant to enable it to investigate and establish whether or not the letters relied on by the defendant were genuine.  The history as contained in a computer system can provide details of when a document was created, amended, and the like

The defendant argued that the Rules of Court did not make provision for such an examination, and that the examination would reveal confidential information.

The plaintiff won.  As to the technical argument, the court referred to a 1927 judgment in which it was held: “The rules of procedure of this court are devised for the purpose of administering justice and not hampering it, and where the rules are deficient I shall go as far as I can to grant orders which will help to further the administration of justice.”  As to confidentiality argument, the court held that any concern could be dealt with by inserting safeguards in the court order.

The defendant lost badly.  Human nature negates safeguards on paper when it comes to confidential information.  If the letters were indeed genuine, the defendant ought immediately to have tendered to provide all records relating to the letters for examination by the plaintiff’s information technology consultants.

 

Do you trust your lawyer?

Jerome casual– by Jerome Veldsman

Many clients, especially large corporates, treat the procurement of legal services on par with, for instance, the procurement of stationary or cleaning services; and prescribe billing rates, and even the format and formatting of invoices. Such approach may be in accord with say some notes in an MBA course, but is in context unsound. Commoditisation or micro management of a personal and specialised service inevitably lowers the quality of the service. Such is human nature.

A legal practitioner ought to be entitled to exercise discretion in many respects. A judgment in the High Court, Cape Town on17 March 2014 is a case in point. As part of SARS’ investigation of the cross border arrangement of a group of companies, SARS required copies of all relevant invoices for legal services (for structuring and documenting the arrangement). SARS has employed legal practitioners with private sector experience, and an experienced person can reverse engineer much of the facts underlying legal advice, and the like, from perusal of a detailed invoice for the relevant legal services.

The taxpayer objected, and approached the court for a declaratory order that the invoices were protected from disclosure under the right to legal professional privilege; the content of which is that communications between a client and a legal practitioner are protected from disclosure, if certain requirements are met. In brief, if the client claims the privilege, the requirements are that the legal practitioner must have been acting in a professional capacity, the client must have consulted the legal practitioner in confidence, the relevant communication must relate to legal advice, and the advice must not facilitate the commission of a crime or fraud.

The judge examined the invoices, and ruled that:

“… I have found myself unable to grant the declaratory relief sought by the applicant in respect of any redaction where it has not been sufficiently clear to me on a reading of the invoices as a whole that it discloses – either directly, or inferentially – the substance, as distinct from the mere occurrence, of a communication in the continuum of communications entailed between the applicants and their attorneys in the seeking or giving of advice.”

SARS was in a “heads I win, tails you lose” position. If the taxpayer explained in court how the invoices could be reverse engineered to disclose details of the underlying communications (to prove the requirements for the privilege), SARS would have the underlying communications. As the taxpayer did not do so, SARS now gets the invoices to do the reverse engineering for itself.

There may be some nativity in the judgment. If the invoices are not likely to disclose “inferentially – the substance … of a communication … between the applicants and their attorneys “, why the tenacity of SARS to obtain the invoices?

The taxpayer ought to have avoided this hazardous disclosure by authorising the legal practitioner to exercise discretion in respect of the content of invoices. If a client does not sufficiently trust its provider of legal services, the client ought to move to another service provider. If the problem persists, introspection may be required.

 

Who is to blame?

Matt– by Matt van Eden

Za v Smith and Matroosberg Reservaat CC, a judgment in the High Court, on 19 March 2014 narrowly went against the plaintiff.

In June 2009, two friends (Mr Moggee and Mr Za) drove into the Matroosberg Reservaat with the intention of sharing an ice cold beer, whilst soaking up the view atop the iconic Conical Peak, before heading back down the mountain for a braai.  Alas, tragedy struck.

Whilst walking towards the spot they had chosen to soak up the view, the two men unexpectedly and almost simultaneously slipped on the snow, and slid towards the precipice.  Mr Za slid over the precipice and fell to his death.

Ms Za (the deceased’s spouse) claimed delictual damages from the defendants on the basis that the defendants: “owed the deceased a duty to ensure that he was protected from or warned of any unusual risks arising from his partaking in the recreation activities offered by Matroosberg Reservaat CC, including the risk of injury or death caused by falling at or in the near vicinity of Conical Peak“; and breached such duty.

The court held that even if it assumed in favour of Ms Za that the defendants were under a duty to protect the deceased against the harm suffered, and that the defendants negligently failed to take adequate steps to protect the deceased against the harm suffered, the defendants’ negligence was not the cause the death of the deceased.

He [Mr Moggee] had previously seen the kloof and had sat with his family in the snow on the edge of the precipice, admiring the view. He wanted to repeat that experience with his friend on the day in question and to experience the thrill associated therewith…the steps proposed would not, on the probabilities, have prevented the death of the deceased.

The moral of the story is that if a danger is clear and apparent, there is no obligation to warn about such danger.  As examples: the danger is so clear and apparent on Table Mountain or the Drakensberg escarpment at Tugela Falls, that a sign pointing the danger out would be redundant.

 

The Legal Practice Bill

Gunnar casual 2– by Gunnar Dahl and Jerome casualJerome Veldsman

This may sound like a fragment of Alice in Wonderland.  If that is so, it is because the [National Credit] Act itself could have been written by Lewis Carroll, so peculiar are some of its provisions.”

– Per Lewis JA in Absa Technology Finance Solutions (Pty) Ltd v Michael’s Bid a House CC
and Anothe
r 2013 (3) SA 426 (SCA).

The Legal Practice Bill, which may soon be law, elicits the well-known expression: “Curiouser
and curiouser!
”  The drafting style is similar to that of the NCA, and the worthy developments are
overshadowed by lack of practical insight.

The following is a summary of the Fees in respect legal services provisions in section 35:

When any attorney first receives instructions from a client for the rendering of litigious or non-litigious legal services, the attorney must provide to the client a written cost estimate notice, specifying all particulars relating to the envisaged costs of the legal services, including:

  • – the likely financial implications, including fees, charges, disbursements, and other costs;
  • – the attorney’s hourly fee rate, and an explanation to the client of his or her right to negotiate the fees payable to the attorney;
  • – an outline of the work to be done in respect of each stage of the litigation process, where applicable;
  • – the likelihood of engaging an advocate, as well as an explanation of the different fees that can be charged by different advocates, depending on aspects such as seniority or expertise; and
  • – if the matter involves litigation, the legal and financial consequences of the client’s withdrawal from the litigation, as well as the costs recovery regime.

 

An attorney must, in addition to providing the client with the cost estimate notice, also orally explain to the client every aspect contained in the notice, as well as any other relevant aspect relating to the costs of the legal services to be rendered.

A client must, in writing, agree to the envisaged legal services by the attorney, and the incurring of the estimated costs as set out in the cost estimate notice.

Non-compliance by an attorney the above requirements will constitute misconduct (thus face a disciplinary committee), and the attorney will probably not be entitled to claim the costs and disbursements from the client.

The motivation and temptation for a client to be forgetful about receiving a comprehensive explanation, and the like, seems irrational.  A little white lie for potentially a say R1 000 000 ‘bonus’; with no consequences if caught out.  A prudent attorney (would you engage a different kind?) ought probably to record (preferably audio and visual) the required oral explanation.

Attorneys work on a simple business model.  Fees are determined with reference to hourly rates or tariffs, and must sufficiently exceed the costs of running a legal practice.  So, in reality, the cost (wasted time) of compliance with the cost estimate notice will have to be recovered from clients.  We estimate the cost of compliance is likely to average out at more than R2 500 per instance (bearing in mind that some instances will come to naught).

Note that the cost estimate notice will be required for each instruction.  We often (daily) receive an email instruction from say a financial or legal advisor (in Cape Town or abroad) to comment on, for instance, a specific provision in a statute.  In many instances, under the present system, the fee for the email commentary, often delivered within a few hours, is less than R2 000.  Under the proposed system, the client will have to wait for a cost estimate notice to be drafted, be subjected to the oral explanation, sign the cost estimate notice, and only then will the work on the commentary commence (at more than double the cost and days later).

It is difficult to make predictions, especially about the future.  In many matters, upfront estimated costs are wrong, as the important variables are unknown.  The following is an example.  A credit provider consults with an attorney about recovery of an overdue loan repayment of R50 000.  Due to the vagaries of the National Credit Act, the letter of demand requires particular attention, increasing the legal costs.  If the borrower pays after receipt of the letter of demand, the costs will be in the region of say R2 500 (plus the R2 500 cost estimate notice add-on?).  If the borrower takes a point based on the peculiarities of the NCA (usually if some interest group gets involved), and the matter goes through the appeal procedures to the Constitutional Court, the costs will be in the region of say R2 000 000.  Imagine what the content of a fully compliant cost estimate notice will be, and estimate of what use it will be to the client.

The cost estimate notice is a good way to make legal services less accessible.  In practice, to make legal services more accessible, most legal services, not specifically reserved for attorneys, conveyancers, and notaries, may well in future be done by attorneys in an entity separate from a law firm, such as a private company.

Sometimes, good intentions are the problem, not the solution.