PROPERTY AGREEMENTS – AN ALTERATION COULD SINK YOUR SALE!

COPYRIGHT IN CYBERSPACE: NEW GUIDELINES FOR ONLINE PUBLISHERS

BABY BOOMERS: AT WHAT AGE MUST YOU RETIRE?

CREDIT PROVIDERS – NCA REGISTRATION THRESHOLD REDUCED TO NIL

YOUR JUNE WEBSITE: “AM I CONTAGIOUS?” DON’T BE ‘PATIENT ZERO’ THIS WINTER

Imagine this.  You buy your dream house.  You take transfer.  You book a date for your move with Fred’s Furniture Removals.  But when you apply for electricity and water accounts so you can actually move in, your local municipality refuses until you settle an old (and substantial) municipal debt which the original owner still owes.  “Pay up” says the municipality, “or we’ll sue.  You could lose the house”.

Can that possibly be correct?  A recent Supreme Court of Appeal (SCA) judgement says that indeed it can.

 

• A property was sold in execution, and the buyer paid all municipal debts for the preceding 2 years (in order to obtain a municipal clearance certificate, which you need to take transfer), thinking that that was the end of the matter.
• The new owner on-sold the property to another buyer, who was refused municipal services until she paid a “historical debt” (over 2 years old and therefore not part of the clearance certificate) of R106,219-75.
• The no-doubt horrified new buyer understandably declined to either pay a cent to the municipality or to take transfer until a court ruled on whether she could really be held liable for someone else’s old debts like that.
• Initially the High Court found in her favour that old municipal debt cannot survive a sale in execution.  The SCA disagreed, holding that – per existing legislation and regardless of whether the sale was an execution sale or a normal private sale – the municipality’s claims for rates, taxes and services remained “a charge on the property”.  These old debts survived the change in ownership. Provided that it followed its own bye-laws (in this case requiring it to first try recovery from the original debtor, and disallowing action against an occupied property), the municipality could obtain court authority to “perfect its security” and sell the property.

Buyers:  Protect yourself!

There is talk of a constitutional challenge to this legislation, but in the meantime take legal advice immediately if you are ever on the receiving end of such a demand.  “Prescribed” (expired) debt cannot be claimed from you (prescription is 3 years for service accounts but 30 years for “rates and taxes”, which our courts have held includes sewer and refuse charges) and your lawyer will check whether all local bye-laws have been complied with.

Even more importantly, before signing the sale agreement ask your lawyer to check that it protects you as fully as possible.  For example the seller should prove payment of all municipal debts, old as well as new, and you should be indemnified against any other hidden claims crawling out of the woodwork after transfer.

Sellers: This is for you

Ensure a quick, clean transfer – ask your attorney (remember you choose the transferring attorney) to double-check that the municipality isn’t going to hassle you down the line for some old “forgotten” claim.

“A lot of people have ideas, but there are few who decide to do something about them now. Not tomorrow. Not next week. But today. The true entrepreneur is a doer, not a dreamer” (Nolan Bushnell, founder of Atari)

Like all your options, this one has both advantages and disadvantages.  Let’s explore some of them –

4 advantages …..

1. It’s simple – of all your options this is the easiest to set up, operate and close down.  There’s no need for company or trust registration, your administrative burden is low, and you make all management decisions independently.
2. It’s quick – you can start trading immediately.
3. Profits are yours and yours alone.
4. You are taxed at personal rates, which can sometimes (but not always – see below) be to your advantage.

….. and 4 disadvantages

1. Risk – you are 100% personally liable for all the debts and obligations of the business. All sales and contracts are in your name.  Remember that your potential liabilities extend far beyond your regular trade creditors – think for example of product/service liability, labour law compensation claims, and your landlord.  Creditors of your business can (and will if you run into financial difficulty) attach all your assets, both “business” and “personal”.  Sleepless nights await you if any important assets (like your house) are in your name.
2. Access to funding can be problematic for a sole trader, and not only is starting off with insufficient capital a common cause of business failure, but down the line it can stop you from expanding the business to its true potential.  For example, you can’t as an individual sell shares in your business to raise new venture capital.  As a rule of thumb therefore, sole proprietorship is a poor choice if you plan to grow your business significantly.
3. Tax and estate planning – as mentioned above, being taxed at your personal income tax rate may be a plus in some cases, but in others you will benefit far more from a tax-efficient structure incorporating one or more corporate entities or trusts as well.
4. It’s lonely!  Confirmed lone wolves will always be happiest on their own but for most of us having a partner or two not only both brings new skills to the business, it also eases the stresses and strains of management and decision-making.

Remember to take full professional advice on the legal and tax implications of using each type of entity before choosing.

This is the second article in our series “Choosing the right legal entity for your business”.  Next time we’ll look in more depth at the partnership option.

A recent High Court judgment reminds us once again of how important it is, when dealing with a company, to check that whichever director/s you are dealing with is/are fully authorised to bind the company.

• A liquidation application was launched against a property developing company with 3 directors,
• The applicant creditor was owed some R3.8m in loan and suretyship claims,
• Its problem was that the suretyship and loan agreements had been signed by only one of the directors of the property company, with the knowledge and approval of the second director but not of the third,
• The third director (acting as trustee of a creditor trust) opposed the liquidation application on the grounds that the first and second directors had acted without authority.  He argued that the creditor had no claim against the company, and therefore had no standing to liquidate it,
• The Court found on the facts that the creditor had failed to prove that the first and second directors had acted with authority.  Nor had it proved that they were held out as being persons authorised to manage the company’s affairs.  Thus it could not enforce any claim, and the liquidation order was refused.

So, how do you prove authority?

You must firstly show that you were dealing with someone who had either actual or apparent (often called “ostensible”) authority to contract with you.  You can’t enforce your claim if you can’t prove authority!

Assumptions, assumptions

As a rule you are allowed to assume that the board of directors and any managing director have the necessary authority.  The same doesn’t generally apply to any ordinary director or employee, except perhaps to the extent that they hold an executive position (financial director or branch manager perhaps) which suggests that they have authority “usual to that type of position”.  Of course you can’t make any assumptions at all if you actually knew, or should have known or suspected, that the director or employee was acting outside his/her powers and authority.

No wriggle room

To complicate matters (sorry, but this is important and to your advantage) what happens if a company tries to wriggle out of its contract with you on the basis that, unknown to you, the director had breached some internal company procedure?  Since usually only insiders will know about a company’s internal policies, it would be highly unfair to you if that were allowed.

To protect you, our law says that, once you have proved actual or apparent authority as above, you can then assume that all the company’s internal rules and policies have been complied with. Out of interest, if you ever hear lawyers earnestly and learnedly debating “The Turquand Rule”, this is what they are talking about.

Beware – our law on this is both complex and fraught with grey areas, and the notes above are just a summary of some general legal principles.  Insist on directors you contract with producing written proof of authority (a formal company resolution to start with) and take legal advice on your particular circumstances!

“Are we there yet?” (Donkey, in Shrek 2)

“Employees are a company’s greatest asset – they’re your competitive advantage” (Former Xerox Chairperson and CEO Anne M. Mulcahy)

STARTING A BUSINESS IN 2016?  3 STEPS TO GET YOU GOING

“In the middle of difficulty lies opportunity” (Albert Einstein)

1. Consider checking first that you are suited to the excitement, rewards, risk and rough-and-tumble of entrepreneurship by taking the “Entrepreneurial Personality Profile” test on the Psychology Today website at http://psychologytoday.tests.psychtests.com/take_test.php?idRegTest=3204.
2. Passed the test?  Great, next step is to get off on the right foot with “Starting a business: Ten simple rules for a successful start-up” on the Business Partners website at http://www.businesspartners.co.za/starting-a-business/.  (Tip:  Don’t ever lose sight of Rule 10 “Enjoy Yourself”!)
3. All done?  Stage 3 is to choose the right trading vehicle to suit your particular needs and those of your new business.  This is important – starting off with one legal entity and then later moving the business to another type risks all sorts of unhappy legal and tax issues (quite apart from all the obvious practical ones, like wading through piles of red tape at SARS, Telkom and your bank’s “please hold, your call is important to us” call centre).

Choose the right legal entity!

In South Africa you have these four main options to choose from –

1. A sole proprietorship (“sole trader”).  Only one owner – you are the business.
2. A partnership of 2 to 20 owners.
3. A private company (“Pty Ltd”) for any number of owners (“shareholders”).  Note that CCs (close corporations) still exist, but no new ones are registered.
4. A business trust (also any number of owners).

There are other specialised types of company available only to non-profit organisations (charities and the like), and to professionals (lawyers, accountants, doctors etc) and various ways in which different legal entities can be combined, but to start with let’s stick with the four basic options above.

In future articles we’ll look in detail at each of these four options but, and this is vital, don’t make any decisions without first seeking professional advice on the legal and tax implications of using each type of entity.  There are a lot of minefields here!

This is the first article in our series “Choosing the right legal entity for your business”.  Next time we’ll look in more depth at the “sole proprietorship” option.

“Where a seller recklessly tells half-truths or knows the facts, but does not reveal them because he or she has not bothered to consider the significance, this may also amount to fraud” (extract from judgment below)

1. Knew of the latent defect at the time of the sale, and
2. Did not disclose it, and
3. Deliberately concealed it with the intention to defraud.

In other words as a seller, if you know of a defect you must disclose it to the buyer.  Record any disclosure/s in a written and signed annexure to the deed of sale.

In real life of course there are often grey areas around what exactly is or is not “a defect” and when you will or will not be taken to have acted fraudulently in not disclosing it.

But as a recent High Court case illustrates, it is probably best to err on the side of caution here –

A most unlevel house

• The foundational wooden structures of a timber house had decayed, causing the house to subside on one side, with the result that the floors were no longer level.
• To remedy this, the owners had put a cement screed over the wooden floors and covered them with carpeting.  So too the ceilings were levelled by means of a false ceiling.
• The subsequent buyers only found out about these problems when they tried to effect renovations.  They sued for cancellation of the sale, damages and/or a reduction in the purchase price.
• The sellers, relying on a voetstoots clause, denied all knowledge of the decayed foundations, denied that the unlevel floors and ceilings were “defects”, and claimed to have remedied them purely for aesthetic reasons and without intending to conceal anything.
• Finding for the buyers, the Court noted that a “defect” is “any material imperfection preventing or hindering the ordinary or common use of the [property]”, and held that the unlevel floors and ceilings were clearly latent defects – the buyers would not have bought the house had they known of them.
• Moreover, the sellers should have disclosed these defects because, although they “never considered the significance” of doing so, our law is that: “Where a seller recklessly tells half-truths or knows the facts, but does not reveal them because he or she has not bothered to consider the significance, this may also amount to fraud”.
• In any event, said the Court, a seller has a duty to disclose any “unusual or abnormal qualities” in a house, and the uneven floors were such an unusual feature that they should have been revealed.

Buyers – be warned

Be warned that depriving a seller of the protection of a voetstoots clause is never going to be easy, particularly since you will need to prove that the seller intended to defraud you by concealing a defect.  Rather be sure of the condition of the house and property before you buy – consider for example using a trustworthy home inspection service to check everything out for you.

If you operate anywhere in a product supply chain (producer, importer, distributor, retailer, supplier, installer etc) be aware that your risk of being sued under the CPA (Consumer Protection Act) just increased.

First “No Fault”, now even wider liability 

To recap, the CPA makes you liable for any form or level of damage to person or property resulting from defective or unsafe products.

Critically, there is no need to prove any form of negligence on your part – liability is now “no-fault” or “strict”.  And whilst there are a few defences still open to you, they are limited.

Now a new and important High Court judgment has established that your liability is not limited to the “consumer” of the product; you are liable also to “innocent bystanders” and the like.  That’s a lot more risk.

• A cyclist had the misfortune to ride into a low-hanging live power line spanning a footpath.
• Electrocuted so severely that his clothes caught fire, he was saved only by the quick thinking and actions of his companions, who were fortunately able to pull him free, extinguish the flames, and resuscitate him after he stopped breathing.
• Severely injured, the cyclist sued Eskom for substantial damages under the CPA.

Are you liable only to “consumers” or to everyone?

• Eskom admitted that it was responsible for the power line and that it was both the producer and distributor of the electricity.  But it denied liability, relying on the fact that the cyclist was not in this case acting as a consumer or user of electricity, and arguing that the CPA protects only “consumers” of products, and no one else.
• The Court however, having analysed the wording, spirit and purpose of the CPA, disagreed.  It held that you need not be a “consumer in the contractual sense” to have a claim.  A third party such as an innocent bystander would also be covered.  The cyclist is therefore entitled to recover his proved damages from Eskom.

Manage your risk

1. Take legal advice on the extent of your exposure, have all your supply contracts, usage instructions and warnings checked, and beef up your quality control procedures.
2. Check that your product liability insurance covers you for CPA strict liability claims to innocent third parties as well as to consumers.

“Procrastination is the thief of time” (Edward Young, 18th c. poet)

Procrastinators on the other hand are doomed to repeat the eleventh-hour panic in 2020.  Rather comply now if you haven’t already done so.

Does this extension apply to you?

The new 31 December 2020 deadline applies to most smaller businesses – specifically to any “private body”, including any private company, but not to any non-private company, nor to any private company in any of the business sectors listed below with either –

• 50 or more employees, or
• An annual turnover of or above specific thresholds – see the table below for details.

We all know just how hard it is to keep those New Year’s resolutions.  The year kicks in, it’s back to work, routine takes over…..

Don’t let that happen this year.  For some great ideas on actually realising your resolutions read “44 Ways to Kick-Start Your New Year” on the Success Magazine website at http://www.success.com/article/44-ways-to-kick-start-your-new-year.

YOUR HOLIDAY SEASON GUIDE TO HOME BUYING AND SELLING

“Buy land – they’ve stopped making it” (Mark Twain)

Selling or buying a house can seem like a complicated and confusing process but help is at hand!   Have a look at this simple overview: “Buying or Selling a House – What You Need to Know” from the Law Society of South Africa on its website at http://www.lssa.org.za/legal-practitioners/resources-for-attorneys/misc/public-information-brochures/misc/buying-and-selling-a-house.

1. If you are the seller, you have the right to choose the conveyancer (the specialist attorney who will register change of ownership in the Deeds Office).  Choose a conveyancer you can trust to act with both speed and integrity.
2. When buying into a complex, you are bound by rules and regulations imposed by either a Body Corporate if you are buying a sectional title unit or, if you are buying a separate title property in a complex managed by a Home Owners Association (“HOA”), by the HOA.  Thus in a recent High Court case a homeowner in an equestrian estate was ordered to stop operating her seminar/lecture business because it breached her contractual obligation to the HOA to conform with local town planning laws.  Read and understand all rules and regulations before you buy!
3. A lot can go seriously wrong with property transactions, and for many people your house is going to be your most important asset, so don’t take any chances:   Agree to nothing until you have asked your lawyer for advice!

From 1st November, you can only register a vehicle, obtain or renew a vehicle licence or driver’s licence, or register any change in your particulars or address, if you submit proof of –

1. Your full names, date of birth and ID number, by way of “any form of acceptable identification”, and
2. Your residential and postal address, in the form of “any utility account”.  If the utility account is in someone else’s name, you can lodge it together with an affidavit or affirmation from the other person declaring that you reside at that address.  Anyone residing in an informal settlement can lodge “a letter with an official date stamp from the ward councillor confirming [your] postal and residential address”.

These new rules apply to all motor vehicle and driver’s licence transactions country-wide, but if you don’t have standard identification and proof of address documents, contact your own local authority for details of what it will and won’t accept.

“His demeanour at this time was highly aggressive, flying his arms about and it was clear to me that he had to prevent himself from lashing out at me physically” (Trustee quoted in judgment below)

The irrational, aggressive and disruptive “Nightmare Next Door” owner is regrettably a well-known and much-disliked feature of all too many residential complexes.  He or she makes trouble at every opportunity, attacking other owners and the body corporate’s trustees with equal abandon.

What can you do about it?  In sufficiently serious cases, our courts will come to your rescue, as a recent High Court decision illustrates.

• The owner of a sectional title unit harassed the board of trustees in his complex to such an extent that they obtained a court order prohibiting him from raising complaints, objections and the like with the trustees in any way other than through written communication to the secretary of the body corporate.
• Undeterred, he breached this order on at least 3 occasions, threatening for example to remove the trustees’ roof tiles (so that, he said, they could feel what it feels like to live in a unit with roof leaks), and aggressively objecting to the way a trustee was painting some plant pots. It couldn’t have helped his case that the female trustees on the board seem to have borne the brunt of these attacks, and to have felt physically intimidated on at least one occasion – as evidenced in the quoted evidence above.
• Holding the owner to be clearly in contempt of the original court order, the Court sentenced him to 6 months’ imprisonment.  It suspended this sentence for 5 years on condition that the owner “does not harass or contact any member of the Board of Trustees personally, but must address all communication regarding complaints, grievances, proposals or commentary to the secretary of the applicant in writing”.

….. and costly

Because it was the owner’s “irrational and acrimonious behaviour” that necessitated the court action, the Court also ordered him to pay the Body Corporate’s legal costs on the punitive attorney and client scale.

“To afford the victims of domestic violence the maximum protection from domestic abuse that the law can provide” (Preamble to the Domestic Violence Act)

 

A recent SCA (Supreme Court of Appeal) decision underlines the very strong duty on SAPS members to assist victims of domestic violence.

The Domestic Violence Act (“domestic violence” isn’t limited to cases of physical harm – it includes a very wide range of abusive conduct) provides legal protection to victims, especially to those most vulnerable such as women, children, disabled people and the elderly.   If you are a victim (or helping a victim) the Police are obliged to assist and cannot shirk their responsibilities. You should in appropriate cases lay criminal charges and/or apply for a protection order.  Police officers attending to domestic violence cases must help victims to lay criminal charges, find shelter and obtain medical treatment where necessary.

Police must pay for victimising a victim

The facts of the case before the SCA were these –

• Hospitalised after being assaulted by her ex-husband, a woman tried to lay an assault charge at her local police station.
• There she was (wrongly) told that she had to get a protection order first, but when the magistrate’s court confirmed that a protection order is not a prerequisite to laying criminal charges, she returned to the police station.
• Her ex-husband was called to the station and they were told to discuss an amicable resolution.  When this failed, both made statements and laid charges against each other. Both were arrested, charged and detained overnight.  The woman was injured next morning when an officer forcibly flung her into a police van to take her to court.
• Finding that the police had acted negligently towards the victim, had subjected her to secondary victimisation and had, by not assisting her, exacerbated her sense of vulnerability, the Court awarded her damages of R280,000.

If you are involved in any “commercial activity” relating to property – development, ownership, management, valuation, provision of services such as estate agency etc – you have a substantial stake in the draft new B-BBEE Aligned Property Sector Codes.

Gift ideas for your clients

Get some inspiration with “13 Fun (and Affordable) Gifts for Your Business Clients” on the BusinessNewsDaily website at www.businessnewsdaily.com/8422-gifts-for-clients.html#sthash.4h7JsbZt.dpuf.  Google for local suppliers and alternatives by adding “site:za” into your search terms e.g.  “Electronic travel mug site:za”.

Emergencies I: Install this app

The “mySOS SA” Emergency app gives you access to appropriate emergency assistance –

• When you don’t know who to call,
• When you don’t know where you are,
• When you really need help…

Download it from your smartphone or https://www.mysos.co.za/.

Emergencies II: Add ICE numbers to your address book

Don’t forget to have at least one “ICE” (In Case of Emergency”) number in your cell phone address book – paramedics and other emergency personnel are trained to check your phone for these emergency numbers so they can contact your family/friends/colleagues when you can’t do it yourself.  Follow the steps in “How to Add ICE to Your Cell Phone” at http://www.wikihow.com/Add-ICE-to-Your-Cell-Phone.

Surviving the drought

Sadly many parts of SA are it seems in for a drought of epic proportions. “Saving water for a sustainable future” on the Western Cape Government website at https://www.westerncape.gov.za/general-publication/saving-water-sustainable-future will help you cope with the inevitable water restrictions.

Travelling internationally?  Here’s the new visa concessions timetable

See “Changes in SA immigration regulations: What you need to know” on the Homecoming Revolution website at http://homecomingrevolution.com/south-africa/2015/10/29/changes-in-sa-immigration-regulations-what-you-need-to-know/.

Granting credit – new Affordability Regulations

If you are a credit grantor or consumer you need to know about the new Affordability Assessment Regulations, available on the National Credit Regulator’s website at http://www.ncr.org.za/documents/pages/NCA-amendment-Regulations-March-20151.pdf.  For an overview and a practical example see “Consumer Credit: Affordability Assessment” on the Consumer Protection in South Africa blog at http://consumerlawrsa.blogspot.co.za/2015/04/consumer-credit-affordability-assessment.html.

Domestic workers’ wages up 1 December

Full details of the new minimum wages are in “You will have to pay your domestic worker more from December” on the BusinessTech website at http://businesstech.co.za/news/government/104309/you-will-have-to-pay-your-domestic-worker-more-from-december/.

“Hangover Cures around the World”

And to end off on a lighter note ….. whether or not you yourself would ever think of imbibing (let alone over-imbibing) anything stronger than iced tea, have a laugh with this infographic on the Health24 website at http://www.health24.com/Medical/Liver-Health/Alcohol-and-your-liver/Hangover-cures-around-the-world-20130210.  Experiment with these only if you dare, and entirely at your own risk!

Enjoy the break!

• A property developer obtained municipal approval to build a house on his property
• The municipality, finding on inspection that the construction taking place deviated from the approved plans, obtained a court order forbidding him to continue
• Undaunted, the developer carried on building, ignoring notices clarifying his legal position, a direction to “cease all work forthwith” and ultimately the threat of a contempt of court order
• Hauled back to court, he tried to convince the court that, having applied for special consent to the deviation from plan, he believed that he was entitled to continue building
• Unsurprisingly the Court was not impressed with this defence and, refusing to condone his conduct, found him guilty of contempt of court
• Commenting that the object of contempt of court proceedings is not only to vindicate the court’s honour but also to compel performance of court orders, the court sentenced the developer to 30 days, suspended for 2 years on condition that he demolishes the illegal building work within 30 days, and thereafter complies with the original order.

So what do you do if your neighbour builds illegally?

Regular LawDotNews readers will recall the oft-repeated advice to seek legal assistance immediately you become aware of any illegal building activity in your area.  Don’t delay; you need to move quickly and decisively.

And once again our courts have confirmed that every municipality has “not only a statutory duty but also a moral duty to uphold the law and to see to due compliance …..”  Nor will our courts tread softly when it comes to assisting municipalities in carrying out this duty.

What about fixed term employees?

Employees: A final thought

“Samsung paid Apple $1bn in 30 truckloads of coins” (Thus runs a 2013 rumour – false but widely reported – after Apple’s victory in the “lawsuit of the century”)

Here’s a scenario for you – you win a huge court case, and your very vengeful opponent (believing perhaps the Apple v Samsung rumour recounted above) turns up at your doorstep with a convoy of coin-filled trucks.  Must you accept the payment?

Scenario 2: You’re a landlord. Your tenant, angry with you for some reason, decides to punish you by marching into your office with next month’s rental in 5 cent pieces.  What are your rights?

Now you’re a shopkeeper whose customer wants to pay for his groceries with R500 worth of R1 coins – can you refuse to accept them?

Or perhaps you are a disaffected motorist issued with an unfair (you think) traffic fine.  Revenge being sweet, you decide to inconvenience the municipal teller by paying the fine with the most complicated mix of different coins you can think of.  Must the teller spend the next hour counting coins?

Legal tender – the limits

The answer to all these questions lies with the South African Reserve Bank’s policy on what or what is not “legal tender”.  If it is, you must accept it.  With banknotes, any amount may be tendered, but with coins the following limits apply for each individual transaction-

• In R1, R2 or R5 coins: R50.
• In 10c, 20c or 50c coins: R5.
• In 5c coins or less (no longer being minted, but still legal tender): 50c.

You can report transgressors (reports of shops refusing to accept 5c coins have been circulating since minting of them stopped in 2012) to the Reserve Bank at 086 112 7272.

Bitcoin: What’s the Buzz?

Bitcoin on the other hand is a very different animal – it’s the most used virtual currency and it’s giving governments sleepless nights. Decentralised, borderless, neither linked to nor controlled by any bank or banking authority, it lends itself to anonymity (more correctly “pseudonomy”) and a kind of Cyber Wild West – with no law-enforcing Sheriff in sight.  That may change as authorities increase their efforts to regulate it – or at least to monitor it for financial crime like money laundering, tax evasion, breach of exchange control regulations etc – but it remains to be seen how successful they will be.

Here in South Africa, Bitcoin is currently –

• Perfectly legal to use, but not “legal tender”, so no one can force you to accept it as payment.  If you do, be sure to comply with FICA and other local regulations (take advice in any doubt).
• Packed with potential.  We are all feeling our way on this one, and as always, great opportunity and great risk walk with us hand-in-hand.   If you invest in Bitcoins – and some investors have made fortunes doing so – beware of possible grey areas around tax treatment and exchange control laws.
• Very much accepted and used at your own “sole and independent risk” (quote from SA Reserve Bank).  You have zero legal protection, no guarantee of value, convertibility or stability, and exposure to hacks, fraud and theft.  Bitcoin enthusiasts refute many of these supposed risks but for now it seems safer to proceed on the basis that you could lose everything in the blink of an eye or you could make a fortune; no one really knows.

“Big Brother is Watching You” (George Orwell, 1984)

If you trade in a public company’s shares, bonds or other securities (on the JSE for example) be careful of our “market abuse” rules.  They are wide enough that you could fall foul of them inadvertently, and as the penalties for non-compliance are harsh take specific advice in any doubt.

In a nutshell, inside information is any specific information which is “obtained or learned as an insider” and which, if it were made public, “would be likely to have a material effect on the price or value of any security listed on a regulated market.”

You are an insider if you have such information through being a director, employee or shareholder, if you have access to it “by virtue of employment, office or profession”, or if you know that the source of the information was one of those people.

Big Brother is watching!

The JSE’s surveillance staff constantly monitors trading activity for any “unusual price and volume movements”.  Any suspicious activity is probed and if referred to the FSB (Financial Services Board), will be investigated by the ominous-sounding “Directorate of Market Abuse”, with its powers of interrogation and search-and-seizure.  The FSB’s Enforcement Committee can then impose administrative penalties on offenders or refer them for criminal prosecution.

The Court upholds R1m penalty

A new and important High Court decision concerned an individual and a company who, as part of a strategy to acquire a controlling interest in a public company, bought tranches of its shares whilst armed with the non-public knowledge that it had obtained a R99m loan from the IDC.

The buyers denied any wrong-doing but on the facts the FSB found them guilty of insider trading and handed them a R1m penalty.  Plus they must pay the costs. This wasn’t a criminal prosecution so the FSB was able to act independently and quickly, bypassing our criminal justice system and evaluating evidence on a “balance of probabilities” rather than the “beyond a reasonable doubt” standard required for criminal conviction.

On appeal the High Court confirmed the FSB’s decision, giving it a useful precedent to continue imposing substantial penalties on offenders.  To rub salt into the offenders’ wounds, their share investments were subsequently rendered valueless when the company was liquidated.  Not relevant, said the Court, what counts is the rise in the share price when the inside information becomes public; later price movements are irrelevant.