May Newsletter 2013

WHO WILL RID ME OF THIS LEAKING ROOF?  

“If the roof doesn’t leak, the architect hasn’t been creative enough” (Frank Lloyd Wright)

Witticisms by modernist architects aside, can you sue the seller when the roof of your new dream house starts leaking shortly after purchase?  

Roof leaks by their very nature often result from “latent” defects, a latent defect being one that “would not have been visible or discoverable upon inspection by the ordinary purchaser”.  And in all likelihood your sale agreement contains a standard voetstoots clause in terms of which the property was sold “as is”, with the seller contracting out of all liability for latent defects.

Voetstoots and fraud don’t mix 

But, as the Supreme Court of Appeal has again confirmed recently, a voetstoots clause can never protect a seller, who knows of a latent defect at the time of the sale, from intentional concealment of it made in bad faith and with the purpose of defrauding the buyer.  

The buyers of a house had sued the sellers when, after their thatch roof started leaking, it emerged that the roof was structurally inadequate both in regard to support beams and in regard to the pitch of the roof.  

The sellers’ “voetstoots defence” failed, the Court holding that “their fraudulent conduct in concealing the existence of the defective leaking roof forfeits the protection of the voetstoots clause in respect of this latent defect.”  They were also liable as a result of having induced the buyers to buy the house (or at least to reach agreement on the sale price) by fraudulently misrepresenting to them that a guarantee issued on pre-sale repair work to the roof was still in place.  

Note that a seller cannot, through “fraudulent diligence in ignorance”, deliberately avoid investigating a possible defect for fear of confirming his/her suspicion that the defect exists.  Thus the sellers in this case were held to have not had an “honest belief” that the pre-sale repairs were adequate because - although told by an independent assessor that he had “reservations” in regard to the pre-sale repairs – they avoided questioning him any further about what his reservations were.  In other words, they preferred to avoid having any doubt thrown on their “belief” that the repairs were adequate, which rendered it dishonest.

The end result – the sellers had “reasonable grounds to suspect that the leaks in the roof had not been fixed, and they were therefore obliged to disclose this knowledge to the [buyers]”.  The Court ordered them to pay the buyers R449 499 for repair costs, plus interest and (no doubt substantial) legal costs.

Note: Both sellers and buyers need to be aware that some or all voetstoots clauses may be negated by the new buyer protections in the Consumer Protection Act - there are conflicting views on this point and we will have to wait for legal precedent to be sure.

Thatch - what’s the Perfect Pitch? 

Per expert evidence before the trial court - the recommended pitch for a thatch roof is 45 degrees, whilst less than 30 degrees (as was the case in some areas of the roof in question) cannot “be regarded as functional”.

SHOPPERS: A NEW OMBUD RIDES TO YOUR RESCUE!

The appliance you bought at your local store doesn’t work when you get it home, so – 

  • You take it back and demand a refund.  
  • The store refuses and insists on repairing or replacing it instead.
  • You know enough about your rights in terms of the Consumer Protection Act to insist that you get to choose between a refund, replacement or repair – it’s not the store’s choice.
  • But still the store refuses to refund you, so you complain to the NCC – the National Consumer Commission.  

The problem is that the NCC has increasingly come under fire from consumers complaining of failure to deal speedily and effectively with even routine complaints.

So what are your alternatives?  

If litigation is premature (take advice in doubt) look for someone else to complain to - many industry associations have their own Ombuds mandated to investigate consumer complaints involving their members.  

Good news is that the “Ombud option” has just been extended to your local retail store and the like - retailers, wholesalers and manufacturers of “consumer goods” now fall under an Ombud scheme just launched by the Consumer Goods Council South Africa.   The new scheme is voluntary and enforceable only against industry subscribers, but with CGCSA having over 11,000 members, it looks like a worthwhile first point of reference if you are on the receiving end of defective, unsafe or unsuitable goods.

Find out how to lodge a complaint, and download a copy of the Code of Conduct for suppliers, at www.cgso.org.za.

PONZI SCHEMES – WHO TO SUE

“The quickest way to double your money is to fold it and put it back into your pocket” (Will Rogers, Wild West cowboy)

Of course if Will Rogers had really kept his savings in his pocket they would soon have devalued with inflation, but his warning against “Get Rich Quick” scams is as valid today as it was then. Yet Ponzi “investment” schemes (and their cousins in crime, pyramid schemes) just won’t go away.  The siren call of huge returns still lures investors from all walks of life to financial disaster.

Your first line of defence of course is to avoid these scams altogether. Have a look at Sanlam’s Infographic on how to spot and avoid these schemes– 

 Ponzi Scheme Infographic

Source: Sanlam Employee Benefits.
Reproduced with authority from http://www.atmosphere.co.za/article.aspx?id=83.

But protecting yourself from the more sophisticated scams is easier said than done, with victims ranging from desperate pensioners to high-flying executives - no one, it seems, is immune. If you or a friend/relative/colleague do fall victim to any form of risky or fraudulent investment scheme (“Ponzi” or not), here’s what to do –

  1. Firstly, don’t count on getting anything back from the scheme itself.  Your claim is normally against a company in liquidation, and whilst you should certainly investigate the advisability of pursuing your claim, it will be a concurrent claim and likely worthless.
  2. Better news is that recent determinations by the FAIS Ombud have paved the way for claims against a range of other individuals and entities involved in producing, promoting and selling such products, whether the products are found to be fraudulent or just “inappropriate”.  Financial advisers, their employers, brokers, “FSPs” (Financial Services Providers) – together with directors, compliance officers and “key individuals” of the actual product providers - have all been held liable for investors’ losses, with clear indications that the net may be cast even wider in appropriate cases.  

In a nutshell, if your investment turns toxic, your chances of at least partial recovery of your losses just took a turn for the better.

Financial advisors – manage your new risk!

Reportedly at least one of the determinations referred to above will be appealed.  Regardless of the outcome, your risk whenever any form of investment goes wrong (the rulings may well impact on the general liability of advisers for investment advice given, not just to Ponzi schemes) has almost certainly increased.  Take advice now on how best to manage your exposure.

THE PROFITS AND PERILS OF PROPERTY PARTNERSHIPS

“Communio est mater rixarum” (Co-ownership is the mother of disputes)

Buying property with the right partners can be extremely profitable all round, but – no matter how well you know and how much you trust each other – be sure to have in place upfront a full partnership agreement.  If (and it happens in even the strongest partnerships) disagreements arise and spiral out of control to the extent of ending up in court, there will be no real winners.  You will all at best be in for delay, cost and acrimony – and at least one of you will be very unhappy indeed with the outcome.

Take for example a recent High Court case concerning four partners who had bought a property for R2,050,000 as a commercial investment.  After losing the property’s tenant they agreed that they had to sell it.  Although its municipal valuation was R3,000,000 the best offer they could get was R2,200,000 – and whilst three of the partners accepted that, the fourth wanted to hold out for a higher offer.  The end result – the Court confirmed dissolution of the partnership and ordered that the sale at R2,200,000 proceed.  

The last resort risk 

Critically, if there had been no offer on the table, the partners would almost certainly have been ordered by the Court to take their chances on a no-reserve public auction – a last resort and potentially disastrous in these hard times.

And the remedy

If you do decide to buy property jointly – with anyone and for any reason – reduce your risk of loss, and avoid dispute, delay and cost by having a full partners’ agreement in place upfront.

SOMETHING WICKED THIS WAY COMES – BEWARE “TAX REFUND” EMAILS

Be very cautious indeed if you receive an email using the SARS name or logo.  Even if it looks 100% genuine, it may well come from a criminal trying to entice you into parting with personal information, such as your bank account details.  Don’t be fooled by the fact that the mails may appear to come from a SARS email address and in particular beware of  links in such mails to false forms and false websites which look authentic, but certainly aren’t.

SARS warns in particular of a recent increase in phishing mails suggesting that you are eligible to receive a tax refund or other payment, and provides the following advice:

  • “Do not open or respond to emails from unknown sources.
  • Beware of emails that ask for personal, tax, banking and eFiling details (login credentials, passwords, pins, credit / debit card information, etc) as SARS will never ask taxpayers for such information in an email.
  • SARS will not request your banking details over the phone, or via email or websites.” 

If you have even the slightest doubt about any email seeming to come from SARS, do nothing other than email phishing@sars.gov.za, call the Fraud and Anti-Corruption Hotline on 0800 00 2870, or call the SARS Contact Centre on 0800 00 7277.

THE MAY WEBSITES:  YOUR BLACKOUT SURVIVAL GUIDE

“The risk of power outages is high…..”   (Eskom)

With winter biting and Eskom issuing more and more ‘Red Alert’ warnings, every business and every home should have a contingency plan for both unplanned outages and any scheduled rolling blackouts.  Start with these websites – 

Have a Great May (and remember Mother’s Day on the 12th!)