The Effects Of Municipal Debts On The Transfer Of Property

There have been various opinions relating to the judgment in the Perregrine Joseph Mitchell vs City of Tshwane Metropolitan Municipal Authority, North Gauteng High Court, Pretoria (8 September 2014) (“the Mitchell case”) and its effect on the law relating to clearance certificates in terms of section 118 of the Local Government: Municipal Structures Act (“the Act”) as dealt with by the court in the Tshwane Metropolitan Municipality v Mathabathe 2013 (“Mathabathe”).

Essentially section 118(1) of the Act provides that no transfer of property can take place in the deeds office until a clearance certificate is issued by the municipality stating that all debts incurred in the two year period prior to application for the clearance certificate, have been paid. Section 118(3) says that all kinds of municipal charges are “charge[s] upon the property” and they enjoy ‘preference’ over any mortgage bond.

Practically speaking municipalities issue two types of clearance certificates. A 118(1) or “two year” or “abridged” clearance, and a section 118(3) “historical” or “full” clearance. The two year clearance is the minimum required by law to pass transfer, and this kind of certificate certifies that all charges incurred in the two year period prior to application for same, have been paid in full. The historical clearance is a certificate that certifies that all amounts owing, no matter when they were incurred, have been paid in full. There is no requirement in law that a property owner obtain a historical clearance when passing transfer of a property, where logically it is preferable that this be obtained in all cases.

What does section 118(3) and “preference over any mortgage bond mean?

This means that the municipality’s claim for amounts owed to it by the property owner, ranks higher than the claim of a bank (or any other mortgagee) who has lent money to the owner of the property and registered a mortgage bond over the property to secure the repayment of the loan amount. So if the property was being sold in execution (by order of court) because the owner owed creditors large amounts of money, and if the purchaser price was insufficient to cover both the municipal charges owing and the amounts owing to the bondholder, the municipality would be paid in full, and the bondholder would then recover whatever was left in satisfaction of the loan. This was what the court decided in BOE Bank Ltd v City of Tshwane Metropolitan Municipality (240/230) (2005) ZACSA 21 (29 March 2005) (“BOE”).

In BOE, the court also looked at what the legal meaning of the word “charge” in section 118(3) is, and what the consequences of that word, in context, are. The court held that the word “charge” in section 118(3) indicates that the legislature intended to create a statutory hypothec. A ‘hypothec’ refers to any form of hypothecation in our law, where one person acquires rights in and to another’s property, as security for payment of some debt or performance of some obligation.

In this matter the court was called upon to consider how much of the debt owed to the municipality was covered or ‘secured’ by section 118(3). It is clear that section 118(1) has a time limit and that only amounts incurred in the two year period prior to application for clearance are covered by this section, but can the same be said for section 118(3) – is it also limited to amounts incurred in the two years prior to application for clearance or does it cover all historical debt no matter when incurred? The court held that section 118(3) is not limited debt incurred in the two years prior to transfer and that it ‘covers’ all historical debt owed to the municipality that remains unpaid at the date that the municipality enforces its rights in terms of section 118(3). The legal issue that then came to the fore as a result of this judgment, was what exactly a municipality could do, when enforcing its rights in terms of section 118(3). This was dealt with in the Mathabathe case. In this 2013 case the Supreme Court of Appeal was called upon to decide whether the municipality, after being paid for all amounts owing to it and incurred in the two year period prior to transfer, was further entitled to refuse to issue the clearance certificate, until such time as it had been given security (usually from the proceeds of the sale of the property) for the payment of the historical debt that remained owing to the municipality after the two year clearance certificate had been obtained. So essentially what the municipality was trying to do, was to use section 118(3) as escape route to claim payment of all historical debt before transfer, and before a clearance certificate in terms of section 118(1) could be issued.

The court considered the purpose of sections 118(1) and 118(3), and ultimately determined that they are two very different sections with different purposes. It held that section 118(1) gave the municipality a unilateral right to stop transfer until all amounts incurred in the two year period prior to application for the clearance certificate had been paid. Section 118(3) is quite different. It does not give the municipality unilateral right to stop transfer, but rather a right of security (or a hypothec or lien) over the property that is subject to the right. This hypothec or lien has no time limit in the way that section 118(1) does – where it is limited to amounts incurred in the prior two years. The hypothec in section 118(3) is unlimited and thus secures all amounts incurred prior to application for clearance, regardless of how long ago they were incurred prior for application for clearance, regardless of how long ago they were incurred, except if these amounts became prescribed. The ‘right’ that section 118(3) gives a municipality, is the right to sell the property in execution (following a judgment being granted for payment of the debt) to recover all amounts owed to it. The court held that the municipality was not entitled to use section 118(3) to ‘block’ transfer before all historical debt was paid. Once the debt incurred in the two year period prior to transfer had been paid, the municipality was legally obliged to issue a clearance certificate in terms of section 118(1).

The big question that remained to be answered by the court at this point, was what the municipality’s rights were in relation to the balance of the historical debt owed at transfer, specifically in terms of section 118(3) but also generally speaking? The court (unfortunately) dealt with its answer to that question only in passing, in only one sentence in paragraph 12 of the judgment. The court said that the municipality “was plainly wrong in its contention that ‘upon registration [of transfer] … [it] loses its rights under Section 118(3) of the Act’”. This has interpreted widely to mean that the municipality does not lose its right of security in terms of section 118(3) on transfer – namely the right to take judgment for amounts owing by the seller for historical debt, attach the property, and sell the property in execution to recover the amounts owed – and that such right continues to be available to the municipality even once the property has transferred to the purchaser.

The authors are of the view that if the court really did intend to convey that the municipality’s right to attach the property even after it has already been transferred to the purchaser, in order that the property could be sold to satisfy the purchaser’s debts, then it was, with respect, plainly wrong. This is because there is clear authority to the effect that a lien (be it a real lien, or a debtor and creditor lien) cannot be enforced against an ‘innocent’ purchaser was not aware of that debt incurred by the seller, where the purchaser who was not aware of the debt and the municipality took no steps to make the purchaser aware of that debt. In these circumstances the municipality ‘loses’ or waives its rights to enforce its lien, and it cannot exercise it against the new owner, who was ‘innocent’ of the debt.

In the Mitchell case the court held that the hypothec created by section 118(3) does not ‘survive transfer’ and thus cannot be enforced by a municipality against the purchaser of a property, but only where the property is being sold in execution.

Mitchell is not authority for the general principle that the hypothec created in section 118(3) does not ‘survive’ transfer in other situations, such as insolvency, or transfers in the ordinary course from willing buyers to willing sellers.

The Mitchell judgment also held that when one understands that section 118(3) does not transfer the debt of the municipality from the seller to the purchaser – it merely creates a right of security in favor of the municipality that can be used (only before transfer, and in sales in execution) to attach the property and sell it to satisfy the seller’s debts to the municipality – it becomes apparent that short of any law making a purchaser liable for a seller’s debt (which section 118(3) does not do, and neither does any other law) and in the absence of agreement by the purchaser that it will be liable for the seller’s municipal debts, there is no justification in law for a municipality recovering amounts owed by sellers from purchasers of properties. This is very important because hypothecs generally do not themselves create a debt that must be paid – they are simply mechanisms that exist and can be used to enforce payment of that debt.

The third very important aspect of the Mitchell judgment was the ruling that a municipality cannot refuse to supply electricity or water, to a purchaser of a property, merely as a result of the seller’s unpaid municipal debts.

In conclusion:

  1. A municipality can refuse to provide a seller with a rates clearance certificate in terms of section 118(1) but only until all amounts incurred in the two year period prior to application for a clearance certificate, have been paid in full or satisfaction for their payment has been given to the municipality.
  1. The section 118(3) lien/hypothec does not survive transfer and cannot be enforced by a municipality against a purchaser, to attach and sell the property concerned (before transfer) to satisfy the seller’s municipal debts to the municipality.
  1. If a municipality choses to enforce its section 118(3) hypothec and attach the property and sell it to satisfy the seller’s debts to the municipality, this must be done before transfer, and in this event the municipality’s claim will rank superior to bondholder’s, so the municipality gets first preference proceeds and the bondholder can take whatever is left over to satisfy its claims against the seller.
  1. Purchasers are not liable for seller’s municipal debts existing at the date of transfer.
  1. Municipalities cannot refuse to supply electricity and/or water and/or refuse to enter into agreements for the supply of these services to purchasers because of the unpaid municipal debts of sellers, unless:
  • The purchaser agrees to this; or
  • The law changes to make purchasers jointly and severally liable with sellers for municipal debt existing at the date of transfer.
  1. After transfer the municipality’s right to claim any amounts still owing by the sellers remain intact, and the municipality is entitled to take any legal action or institute any credit control measures that it is authorized to, in the ordinary course, to recover amounts owing from the seller.

by Francois van Zyl
francois@dyason.co.za

Is your stem cell treatment safe and legal?

Stem cells have the unique ability to replicate and develop into specialised tissues with specific functions. Currently stem cells are used to replenish blood cells that are depleted during chemo therapy for cancer. And although indications exist in numerous clinical trials that stem cells can also be used to treat diseases such as arthritis, heart attacks, multiple sclerosis, diabetes and spinal cord injuries, only one stem cell product, Prochymal from Osiris Therapeutics, has obtained market approval by Canadian and New Zealand regulatory authorities for the treatment of so called graft vs. host disease which presents as a complication of haematopoietic stem cell transplants. Thus, the development of stem cell treatments for the above mentioned diseases is still in pre-clinical and clinical trial phase and might remain there for quite some time before safety and efficacy thereof can be proven, considering the unpredictable nature of stem cells. Only then can such treatments be approved and registered for sale.

In South Africa, stem cell treatments are categorised as biological medicine in terms of the Medicine Control Council’s (MCC) Guidelines for the Registration of Medicines where the active ingredient or key excipients have been derived from living organisms or tissues, or manufactured using a biological process. The Medicine and Related Substances Control Act 101 of 1965 further subjects all medicines that are biological medicine to registration with the MCC and specifically prohibits the sale of any unregistered medicine which is subjected to registration in terms of Section 14(1).

Accordingly, in the absence of proven and registered stem cell treatments available for sale, the only other route to obtain stem cell treatment is by participating in a clinical trial, if compliant with the specific clinical trail’s inclusion criteria, or in rare circumstances, via medical innovation.

Unfortunately many of the promises that stem cell research holds for curing diseases, for which no treatment currently exists, is often translated as fact, resulting in the financial exploitation and physical harming of already desperately ill patients. In the matter of United States of America v Laura Brown and Stephen Mark van Rooyen decided on 28 March 2006 in the United States District Court for the Northern District of Georgia, Atlanta Division under case number 1:06-cr-00153-UNA, Criminal Indictment No: 1:06CR153, the defendants were criminally indicted after administering the same type and quantity of stem cells to different patients regardless of the diseases they were suffering from and charged between $10 000 and $32 000 for these unproven and unlicensed treatments. None of the patients undergoing these treatments were cured and many of them died during the course thereof.

In an effort to protect patients against similar exploitation and harm, the International Society for Stem Cell Research (ISSCR) issued Guidelines for the Clinical Translation of Stem Cells in 2008 which point out some important aspects a patient should carefully consider before engaging in stem cell treatment. These guidelines include the following:

  • There is a long process of laboratory studies and clinical research to show that a treatment is safe and effective. Like a new drug, stem cell treatments must be assessed and meet certain standards before national regulatory bodies approve their use;
  • Doctors have been transferring blood stem cells by bone marrow transplants for more than 50 years, and advanced techniques are used clinically to collect blood stem cells. Umbilical cord blood is often collected as a source of blood stem cells, for experimental use as an alternative to bone marrow in transplantation. Other tissue-specific stem cells, such as for skin and corneas, have played a role in tissue transplants for several years, contributing to long-term regeneration. Other stem cell treatments are still experimental;
  • Unlike drugs, stem cells cannot necessarily be produced and tested for quality in large batches, and treatments may even be patient specific. For most diseases, it is still being determined which cells best will repair a particular damaged or diseased tissue, and how to get them to the right place in the body. Side-effects and long-term safety must also be determined, since transplanted cells may remain in patients’ bodies for many years. Therefore, careful monitoring and extended follow-up of patients who receive stem cell treatments is extremely important;
  • To test whether and how a new intervention may work for a particular disease or injury, studies are done first in vitro and, if possible, in animals with a disease or injury similar to those in humans. These preclinical studies should be reviewed by other experts, published and repeated before the research is extended to human subjects. After demonstrating a reasonable expectation that the treatment will work and be safe, permission is sought to conduct a clinical trial in humans, starting with a few individuals. New experimental treatments may sometimes be carried out on a very small number of people before a clinical trial is started. As the safety and side-effects are better understood and methods for delivery of the treatment to the correct part of the body improve, the number of patients may be gradually increased and the new intervention compared with existing treatments. Once safety and effectiveness is demonstrated, the relevant regional regulatory agency should approve the use of the treatment for particular diseases or conditions;
  • No medical treatment can be described as completely safe as all may involve risk, albeit small. Even small risks should be explained clearly by a medical professional;
  • Patients must be sure that there is good scientific evidence that the treatment is safe and effective, and that their rights are respected;
  • Patients should be cautious if claims are based on anecdotal evidence; if multiple diseases are treated with the same cells; the source of the cells or how the treatment will be done is not clearly documented; practitioners claim there are no risks; or in cases of high or hidden treatment costs.

If any uncertainty exists when faced with the decision whether or not to engage in stem cell treatment, it is recommendable that the advice from a stem cell specialist and/or biotechnology attorney is obtained before committing to innovative life changing treatment.

by Marietjie Botes
marietjie@dyason.co.za

Harmful Traditional Practices: A look at the customary law practice of “Ukuthwala” and the law in South Africa

The Concept of “Ukuthwala”
The South African customary practice “Ukuthwala” has become a serious issue amongst South Africans due to its deviation from its original concept. Its deviation has become a concern not only amongst the Nguni communities but in South Africa as a whole. The way it has affected South Africans, one could wonder whether the practice should be seen as a harmful practice.

Ukuthwala is a custom practised in Nguni communities. In South Africa, the custom originated from the Xhosa culture. Although the custom is predominantly practised among Xhosa-speaking tribes, the practice has expanded into other ethnic groups. For example, the Mpondo clan has adopted ukuthwala from Xhosa clans, as well as young Sotho men.

The word ukuthwala literally means “to carry”. Some authors have described ukuthwala as the act of stealing the bride. A man that intended to be a bridegroom, together with one or two friends, would approach the intended bride later in the day and they would forcibly take her to the intended bridegroom’s home. Sometimes the girl would be unaware of the groom’s intentions, but in many instances it would be according to a plan and agreement between her parents and the groom’s parents for her to be caught. On the same day the girl was thwalaed, those who effected the ukuthwala custom were required to report to the girl’s home to assure her parents that the girl was safe and was with them.

Ukuthwala has also been described as a mock abduction or irregular proposal aimed at achieving a customary marriage. Note that the word irregular does not mean unlawful.

The purpose of ukuthwala is to negotiate a marriage, not conclude it, and sexual intercourse is customarily not the intention.

The following are forms of ukuthwala:

  • Where a girl is aware of the intended abduction and the parties collude. The ‘force’ used in the act of abduction is therefore for the sake of performance only. In this type of ukuthwala, the girl gives consent. If after ukuthwala has taken place, the parents of the girl refuse to give consent, there cannot be a valid ensuing customary marriage.
  • Where families would agree on the intended union, but the girl is unaware of such agreement. This often occurs when the girl is not happy with the parent’s choice. Or the girl happens to be of a high rank.
  • Where the custom occurs against the will of the bride. Here there is no initial consent from either the girl or her parents. She is taken by force. In this form of ukuthwala, the bride is unwilling and therefore the intended marriage would be a forced marriage.

Current position/deviation
The practice is no longer the same. It reportedly includes very young girls being married to older men and charges of abduction being laid. Girls are sometimes forced to drop out of school to follow this traditional custom.

Ukuthwala is an old custom that is now being misused and exploited in several parts of the eastern Transkei. The abduction of girls of 12 or 13 years is not standard cultural practice. It is no longer ukuthwala, but merely an act of child abuse. Ukuthwala has changed drastically. Young girls are forced to marry older men, including relatives of the girl, kidnapping and taking the girls for themselves as their wives without such abductions being reported to the Traditional Authorities.

In the community’s view, this practice is harmful because it forcibly takes their children against their will, violates their rights and also degrades, traumatises and robs them from their childhood.

Due to this customary deviations a number of cases, including kidnapping, abduction and rape have been reported has resulted from it.

Legal issues
Sections 30 and 31 of the Constitution states that everyone has the right to participate in the cultural life of their choice and that no one may be denied the right to enjoy such culture. But, every right in the Constitution is subject to limitation in terms of Section 36. Irrespective of the limitation, this practice violates basic Constitutional values.

This practice mainly affects children and in Sv Manamela 2000(5) BCLR 491 (CC) it was held that the State was under a Constitutional obligation to take measures to diminish the amount of public and private violence in society, with aim of protecting children from maltreatment, abuse and degradation.

Christian Education South Africa v Minister of Education 108 of 1996 is indicative of the Constitutional Court’s commitment to uphold the dignity of children and that children are of paramount importance as a vulnerable group and to protect children from practices which have the potential to violate their dignity.

However, getting married without voluntary informed consent alone is regarded as a harmful practise according to the Maputo Protocol and the UN Charter on Human Rights. The Children’s Act similarly provides that every child has the right not to be subjected to social, cultural and religious practices that are detrimental to their well-being. The Customary Marriages Act also requires parties to be at least 18 years and to consent to marriage

by Avela Makunga
avela@dyason.co.za

Duties and Potential Liabilities of Insurance Broker’s

The broker is usually the “agent” of the insured, in the principle sense, and it is within this relationship that most claims arise against the broker. The broker does not usually have the duty to give a meticulous interpretation of each and every clause of the insurance contract to the insured, but if he or she does endeavour to give such advice and it is proved to be wrong, the broker will incur common law liability.

The General Code of Conduct as set out in the Financial Advisory and Intermediary Services Act requires a financial services provider or representative thereof to provide a reasonable and appropriate general explanation of the nature and material terms of the insurance agreement. Commonly it is required of the broker to make a full and frank disclosure of any information that will enable the insured to make an informed decision and to provide the insured with any appropriate contractual information that would be material.

If the insurance recommended by the broker contains unusual provisions that limits or exempts the insurer, it is the duty of the broker to bring such provisions to the attention of the insured.

The following scenario illustrates the events that often result from the insured not having sufficient cover, resulting in the insurance company applying an average on the amount claimed, when an insured concludes an insurance agreement with the underwriter or broker of the insurer for a specified cover period for comprehensive cover, as particularly set out in the Policy Schedule for house hold contents of the insureds main residence.

When the insured then suffers substantial damages after falling prey to an armed robbery at his/her main residence, which damages far exceeds the amount insured fro in respect of the insured’s insurance policy, it is clear that the insured seems to be under insured, under which circumstances the insurer will then apply an average. When an average is applied an insured becomes liable for a portion of his loss, bearing in mind that valuation documentation dated before the occurrence usually must be presented to the insurance company.

If the insurer tenders an amount, which is rejected by the insured and the insured subsequently issues a summons against the insurer, citing only the insurance company and not the broker, it often happens that an insured is under-insured due to the broker neglecting to inform the insured of his risk of becoming liable for a portion of his own the loss, should the risk for which he is insured materialise and it appears that he does not have sufficient cover.

In PFC Foods CC v Three Peaks Management Ltd 2012 the legal duties of the broker towards the insured was dealt with, the Plaintiff’s claim against the defendant arose from a contract with Zurich Insurance Company South Africa Limited, in respect of which the Defendant was the intermediary. The Plaintiff averred that the Defendant breached its obligations in terms of the mandate to the extent that when the insured event occurred, the Plaintiff was not paid the full amount insured for by the insurance company.

The court found that the duty to exercise reasonable care and skill extends, in appropriate cases, to the duty to take reasonable steps to elicit and convey material information from and to the insured. This includes information about terms of the policy which, if contravened it might leave the insured without cover, this being part and parcel of the broker’s general duty to use reasonable care to ensure that the insured is covered – see Lenaerts v JSN Motors (Pty) Ltd 2000 (1) 4 SA 1100 (W) at 1109H-J.

In Stander v Raubenheimer 1996 2 SA 70 (O) at 675 G-676 I the court held that the broker was under a duty to elicit all material information from the insured and to convey that to the insurer. The broker knew that the contents of the insured’s house would not be covered if they were damaged or destroyed in a house with a thatch roof but failed to ascertain from the insured whether his house had a thatched roof or not. The decision was that the broker breached its contractual obligation to ensure that the insured’s assets were covered.

The question concerns legal liability with obligations in this regard either based on contract or delict. The first enquiry to be made is, what is the legal liability of the broker in terms of the contract, whose main function is to facilitate the contract of insurance between the insured and the insurer. In order to establish the legal liability and the extent to which the insured was aware that he was under-insured, the broker must explain the extent of the cover to the insured, informing the insured that he or she is under-insured and informing the insured that his insurance policy should be adjusted to sufficiently cover all insurable interests. The broker should keep a record of these communications and information should the question of legal liability arise once the litigation proceedings have been instituted.

Once a broker has done everything reasonably possible to draw the attention of the insured to obligations imposed by the policy, it becomes the insured’s responsibility to ensure compliance see Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group (Pty) Ltd [2003] 4 All SA 317 (SCA).

Having considered all the evidence the court found that the Defendant did not act with reasonable care and skill and that the Defendant (being the intermediary) was liable to pay the Plaintiff the amount claimed from it.

Insurance brokers should accordingly ensure that, the insured is sufficiently covered in terms of the insurance policy agreement and accordingly advise their clients when suspecting that their clients might be under-insured. Reciprocally, the insured must also inform the insurance broker of any changes in their insured interest to enable the insurance broker to advise the insured regarding possible adjustments of their insurance cover.

by Samantha Wonfor
samantha@dyason.co.za