BUSINESS LAW
Module Guide
Copyright © 2023
MANCOSA
All rights reserved; no part of this book may be reproduced in any form or by any means, including photocopying machines,
without the written permission of the publisher. Please report all errors and omissions to the following email address:
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This Module Guide,
Business Law (NQF level 6),
will be used across the following programmes:
•
Higher Certificate in Business Management
•
Bachelor of Commerce in International Business
•
Bachelor of Commerce in Entrepreneurship
•
Bachelor of Commerce in Marketing Management
•
Bachelor of Commerce in Retail Management
•
Bachelor of Commerce in Project Management
•
Bachelor of Commerce in Financial Management
•
Bachelor of Commerce in Accounting
•
Bachelor of Commerce in Supply Chain Management
BUSINESS LAW
Preface.................................................................................................................................................................... 2
Unit 1: Introduction to Business Law ....................................................................................................................... 9
Unit 2: The Law of Contract .................................................................................................................................. 24
Unit 3: The Law of Sale ......................................................................................................................................... 47
Unit 4: The Law of Lease ...................................................................................................................................... 57
Unit 5: The Law of Insurance ................................................................................................................................ 67
Unit 6: Labour Law ................................................................................................................................................ 73
Bibliography ........................................................................................................................................................ 108
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List of Contents
List of Tables
Table 1.1: Real Rights and Personal Rights ..................................................................................................... 16
Table 1.2: Theories of contract ......................................................................................................................... 18
Table 2.1: Materiality determined by type of mistake ........................................................................................ 30
Table 2.2: Summary of remedies available to an aggrieved party arising from breach of contract ................... 41
List of Figures and Illustrations
Figure 1.1: Hierarchy of Sources ...................................................................................................................... 18
Figure 1.2: Process for making Primary and Secondary Legislation ................................................................ 19
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Preface
A.
Welcome
Dear Student
It is a great pleasure to welcome you to Business Law (BL6). To make sure that you share our passion about this
area of study, we encourage you to read this overview thoroughly. Refer to it as often as you need to, since it will
certainly make studying this module a lot easier. The intention of this module is to develop both your confidence
and proficiency in this module.
The field of Business Law is extremely dynamic and challenging. The learning content, activities and self- study
questions contained in this guide will therefore provide you with opportunities to explore the latest developments
in this field and help you to discover the field of Business Law as it is practiced today.
This is a distance-learning module. Since you do not have a tutor standing next to you while you study, you need
to apply self-discipline. You will have the opportunity to collaborate with each other via social media tools. Your
study skills will include self-direction and responsibility. However, you will gain a lot from the experience! These
study skills will contribute to your life skills, which will help you to succeed in all areas of life.
We hope you enjoy the module.
MANCOSA does not own or purport to own, unless explicitly stated otherwise, any intellectual property
rights in or to multimedia used or provided in this module guide. Such multimedia is copyrighted by the
respective creators thereto and used by MANCOSA for educational purposes only. Should you wish to use
copyrighted material from this guide for purposes of your own that extend beyond fair dealing/use, you
must obtain permission from the copyright owner.
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B.
Module Overview
The module is a 15 credit module at NQF level 6
Aims of this Module
This module is aimed at introducing the learner to certain aspects of South African Business The learner will gain
an overview of the legal environment as it relates to South African businesses of various types, and certain key
contractual and transactional relationships.
The purpose of this module is to provide students with a basic introduction into the South African legal system
relating to commercial law. Whilst the learner will not be required to know the details of the historical development
of the legal system, it is within this structure that current legislation has been developed.
The module also covers the law of obligations; introduction to the law of contract; the formation of a contract;
principles and rules concerning valid and binding contracts; breach of contract; remedies on the ground of breach
of contract; the transfer and termination of obligations.
The law of lease governs the occupation of properties and possession of durables. The law of purchase and sale
is also critical in business as it determines the way in which goods and services are offered and accepted. The
law of insurance is covered briefly as an overview of this important element of business operational requirements.
The law pertaining to employment and alternative dispute resolution in South Africa is currently dynamic and
evolves daily. The learner will gain an understanding of the key legal relationships and requirements governing
businesses and the participants in business relationships.
Course Overview
•
Describe the legal framework within which businesses operate
•
Explain the requirements associated with the formulation of a contract
•
Outline the rights of parties associated with sale agreements
•
Outline the rights of parties associated with lease agreements
•
List the salient details of the laws associated with employment
•
Identify the essential elements of any contract of insurance
•
Display knowledge of consumer legislation; and
•
Evaluate the impact of consumer legislation
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C.
Learning Outcomes and Associated Assessment Criteria of the Module
LEARNING OUTCOMES OF THE MODULE
•
ASSOCIATED ASSESSMENT CRITERIA OF THE MODULE
Explain the requirements associated •
Formation of a contract is examined in order to
with the formulation of a contract
understand the requirements for a lawful contract to
come into existence between two or more parties
who have an intention to form a legal relationship
•
Describe the rights of parties associated •
Rights and obligations of buyers and sellers is
with sale agreements
outlined to demonstrate an understanding of their
respective roles in sale agreements
•
Terms and conditions and its impact on the rights of
parties involved in sale agreements are analysed
Evaluate the remedies available to parties in the
•
event of a breach of a sale agreement to assess the
legal implications of non-performance
•
Apply the rights of parties associated
•
Rights and obligations of landlords and tenants are
identified
with lease agreements
to demonstrate an understanding of their
respective roles in lease agreements
•
Terms and conditions of various rights of parties involved
in lease agreements are analysed
•
Remedies available to parties in the event of a breach of
a lease agreement are evaluated to assess the legal
implications of non-performance
•
Analyse the salient details of the laws
•
Employment laws are analysed to understand the
implementation of the laws associated with labour in
associated with employment
South Africa
•
Dispute resolution mechanisms in the resolution of
employment-related conflicts are evaluated to assess
their effectiveness in maintaining a harmonious
workplace
•
Propose a framework for essential •
Each element's role in the formation and performance of
elements of the laws of contract to
insurance contracts are analysed to understand the
insurance contracts
essential elements which are associated with such a
contract
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D.
Learning Outcomes of the Units
You will find the Unit Learning Outcomes on the introductory pages of each Unit in the Module Guide. The Unit
Learning Outcomes lists an overview of the areas you must demonstrate knowledge in and the practical skills you
must be able to achieve at the end of each Unit lesson in the Module Guide.
E.
How to Use this Module
This Module Guide was compiled to help you work through your units and textbook for this module, by breaking
your studies into manageable parts. The Module Guide gives you extra theory and explanations where necessary,
and so enables you to get the most from your module.
The purpose of the Module Guide is to allow you the opportunity to integrate the theoretical concepts from the
prescribed textbook and recommended readings. We suggest that you briefly skim read through the entire guide
to get an overview of its contents. At the beginning of each Unit, you will find a list of Learning Outcomes and
Associated Assessment Criteria. This outlines the main points that you should understand when you have
completed the Unit/s. Do not attempt to read and study everything at once. Each study session should be 90
minutes without a break
This module should be studied using the prescribed and recommended textbooks/readings and the relevant
sections of this Module Guide. You must read about the topic that you intend to study in the appropriate section
before you start reading the textbook in detail. Ensure that you make your own notes as you work through both the
textbook and this module. In the event that you do not have the prescribed and recommended textbooks/readings,
you must make use of any other source that deals with the sections in this module. If you want to do further reading,
and want to obtain publications that were used as source documents when we wrote this guide, you should look
at the reference list and the bibliography at the end of the Module Guide. In addition, at the end of each Unit there
may be link to the PowerPoint presentation and other useful reading.
F.
Study Material
The study material for this module includes tutorial letters, programme handbook, this Module Guide, a list of
prescribed and recommended textbooks/readings which may be supplemented by additional readings.
G.
Prescribed and Recommended Textbooks/Readings
The prescribed and recommended readings/textbooks presents a tremendous amount of material in a simple,
easy-to-learn format. You should read ahead during your course. Make a point of it to re-read the learning content
in your module textbook. This will increase your retention of important concepts and skills. You may wish to read
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more widely than just the Module Guide and the prescribed and recommended textbooks/readings, the
Bibliography and Reference list provides you with additional reading.
The prescribed textbook for this module is:
Prescribed Reading(s) / Textbook(s)
•
Kopel, S. (2022). Guide to Business Law. Seventh Edition. Cape Town: Oxford University Press.
Recommended Reading(s)
•
Bradfield, G., Kahn, E. and Lehmann, K. (2022). Principles of the Law of Sale and Lease. Eighth Edition.
Durban: LexisNexis.
•
Du Plessis, J.V. and Fouché, M.A. (2019). A practical guide to labour law. Ninth Edition. Durban: LexisNexis.
Unit 6 of module guide.
•
Hutchison, D., Pretorius, C.J. and Naudé, T. (2022). The Law of Contract in South Africa. Fourth Edition. Cape
Town: Oxford University Press.
•
Scott, J. et al. (2020). The Law of Commerce in South Africa. Third Edition. South Africa: Oxford University
Press. Unit 3, 4 and 5 of module guide.
Journal(s)
•
Coleman, T.E. (2021) ‘Reflecting on the Role and Impact of the Constitutional Value of uBuntu on the Concept
of
Contractual
Freedom
and
Autonomy
in
South
Africa’,
Potchefstroom
Electronic
Law
Journal/Potchefstroomse Elektroniese Regsblad, 24(1).
Website(s)
•
Jefferson, M. (2020) Employment law update – Unfair labour practice in relation to a promotion. Available at:
https://www.derebus.org.za/employment-law-update-unfair-labour-practice-in-relation-to-a-promotion/
(Accessed: 13 April 2022).
•
Legalwise (2022) Introduction to SA Law. Available at https://www.legalwise.co.za/help-yourself/quicklawguides/introduction-sa-law (Accessed: 13 April 2022).
•
Moola, M. (2020) COVID-19: Force majeure and the effect it has on rental contracts. Available at:
https://www.derebus.org.za/covid-19-force-majeure-and-the-effect-it-has-on-rental-contracts/ (Accessed: 13
April 2022).
Somo, T. (2020) Full disclosure – the materiality test for insurance explained. Available at:
https://www.derebus.org.za/full-disclosure-the-materiality-test-for-insurance-explained/ (Accessed: 13 April
2022).
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H.
Special Features
In the Module Guide, you will find the following icons together with a description. These are designed to help you
study. It is imperative that you work through them as they also provide guidelines for examination purposes.
Special Feature
LEARNING OUTCOMES
Icon
Explanation
The Learning Outcomes indicate aspects of the particular
Unit you have to master.
The Associated Assessment Criteria is the evaluation of the
ASSOCIATED
students’ understanding which are aligned to the outcomes.
ASSESSMENT
The Associated Assessment Criteria sets the standard for
CRITERIA
the successful demonstration of the understanding of a
concept or skill.
A Think Point asks you to stop and think about an issue.
THINK POINT
Sometimes you are asked to apply a concept to your own
experience or to think of an example.
You may come across Activities that ask you to carry out
ACTIVITY
specific tasks. In most cases, there are no right or wrong
answers to these activities. The purpose of the activities is to
give you an opportunity to apply what you have learned.
At this point, you should read the references supplied. If you
READINGS
are unable to acquire the suggested readings, then you are
welcome to consult any current source that deals with the
subject.
PRACTICAL
APPLICATION OR
EXAMPLES
Practical Application or Examples will be discussed to
enhance understanding of this module.
You may come across Knowledge Check Questions at the
KNOWLEDGE CHECK
end of each Unit in the form of Knowledge Check Questions
QUESTIONS
(KCQ’s) that will test your knowledge. You should refer to the
Module Guide or your textbook(s) for the answers.
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You may come across Revision Questions that test your
REVISION QUESTIONS
understanding of what you have learned so far. These may
be attempted with the aid of your textbooks, journal articles
and Module Guide.
Case Studies are included in different sections in this Module
CASE STUDY
Guide. This activity provides students with the opportunity to
apply theory to practice.
VIDEO ACTIVITY
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You may come across links to Videos Activities as well as
instructions on activities to attend to after watching the video.
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Unit
1:
Introduction to Business Law
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Unit Learning Outcomes
CONTENT LIST:
UNIT LEARNING OUTCOMES
1.1 The Relevance of Law
•
Demonstrate an understanding of the importance of
business law
1.2 A Brief History of South African Law
•
Explain the basic origins of the South African legal
system
•
1.3 Fundamental Concepts
Discuss the fundamental concepts of law (Law, the
State, Rule of Law)
1.4 Legal Relationships
•
Understand and define private and public relationships
1.5 Types of Legal Right(s)
•
Understand and explain the difference between real
rights and personal rights
•
1.6 Legal Liability
Understand and explain the difference between public
and private relationships in legal liability
1.7 Sources of Law
•
Identify the sources of South African law
1.8 The Law and Commercial Activity
•
Understand the minimum standards articulated by the
law, different kinds of property, business agreements,
corporate and commercial activity and the authoritative
mode of dispute in resolution
Prescribed and Recommended Textbooks/Readings
Prescribed Reading(s)
•
Kopel, S. (2022). Guide to Business Law. Seventh Edition. Cape Town:
Oxford University Press.
Recommended Reading(s)
•
Bradfield, G., Kahn, E. and Lehmann, K. (2022). Principles of the Law
of Sale and Lease. Eighth Edition. Durban: LexisNexis.
•
Du Plessis, J.V. and Fouché, M.A. (2019). A practical guide to labour
law. Ninth Edition. Durban: LexisNexis. Unit 6 of module guide.
•
Hutchison, D., Pretorius, C.J. and Naudé, T. (2022). The Law of
Contract in South Africa. Fourth Edition. Cape Town: Oxford University
Press.
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•
Scott, J. et al. (2020). The Law of Commerce in South Africa. Third
Edition. South Africa: Oxford University Press. Unit 3, 4 and 5 of module
guide.
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1.1 The Relevance of Law
The law can be said to be a control mechanism which regulates various structures in society namely; political,
economic and social relations. Due to the fact that people are in constant interaction, conflict will invariably arise;
and the need to resolve and regulate such conflicts arises as well. The law therefore provides a legitimate authority
for such control through State structures.
The law goes further to standardise what is acceptable behaviour and what is not. By standardising behaviour,
citizens are given a clear understanding of what they are required to do (duties), what they may do (rights) and
what they must not do (offences).
With the advent of the global market and international trade, there has been the development of ‘International Law’
to set a standard of acceptable economic standards across borders irrespective of the law of individual countries.
Thus to participate and profit from international trade, countries are bound by the standards of the international
community.
In most communities, people are constantly engaged in commercial activity and business transactions which need
to be regulated. Such transactions may in itself incorporate contractual law dealing with other related areas of law.
1.2 A Brief History of South African Law
A historical overview is important to understand the origins of the South African legal system. Current South African
law is a unique mixture of imported legal systems, often referred to as a hybrid system of law, and has some of its
roots in Roman law, Roman-Dutch law and English law.
Before the first European settlers arrived in South Africa, the indigenous people of this country had developed their
own system of law to govern relationships in their society. Gibson (2003: 5) refers to this as customary law (Gibson
2003: 5).
When Dutch settlers arrived in the Cape from 1652 onwards, they implemented legal practices from their
indigenous Holland. This is referred to as Roman-Dutch law. The law of Holland was founded on Roman law and
interpreted and adapted by Dutch lawmakers. The Roman Empire, which had a highly developed legal system,
had dominated much of Europe for many centuries (Gibson 2003: 5). Roman-Dutch law was the official law of the
Cape until the British took over the governance of the Cape in the early 1800’s and introduced parts of their English
law. Over time, laws have had to change in order to cater for the increasing complexities and changes of modern
society. The South African courts adapted the various rules and principles of these different legal systems to meet
local needs and situations (Gibson 2003: 5).
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1.3 Fundamental Concepts
1.3.1
Law
The law can be said to be a set of rules governing human interaction and which is recognised, endorsed and
enforced by the State. These said rules specify acceptable and unacceptable behaviour of the citizens of a country
and the consequences for failure to adhere to such rules.
1.3.2
The State
The South African State consists of three structures or branches, namely:
•
The Executive
•
The Legislature
•
The Judiciary
The Executive is tasked with implementing the laws made by Parliament and is made up of the President, ministers
and deputy ministers.
The Legislature (also known as Parliament) is tasked with making the law which takes the form of legislation.
Parliament is made up of the National Assembly and the National Council of Provinces. Parliament promulgates
law by passing Acts of Parliament (also known as statutes). Rules and regulations pertaining to the implementation
of such law is generally delegated to ministers of each province.
The Judiciary is tasked with hearing and deciding upon legal disputes. These may include disputes between private
individuals or between private individuals and the State itself. The judiciary is made up of the:
•
Constitutional Court
•
Supreme Court of Appeal
•
High Court
•
Magistrates Court
There are also specialist courts which deals exclusively with particular issues such as the Maintenance Court or
the Equality Court. The judiciary has the power to interpret the law, apply the law and develop the law when
necessary. Furthermore, by the virtue of the stare decisis doctrine, lower courts are bound by the decisions of
higher courts; it is thus argued by some that, courts also have the power to make laws.
Think Point 1
Identify and discuss the three structures and branches in South African and
Why, in your opinion are these structures important?
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1.3.3
Rule of Law
The law aims to promote societal justice. The concept of justice incorporates many principles such as the
reasonableness of a law, consistent application of the law and transparency of the law-makers. The principle which
has been most emphasised, however, is that no one is above the law.
In a state that is governed by the rule of law; the exercise of state power must be based on the established
principles of law and the founding document of such a state (usually the Constitution). The Constitution (Act 108
of 1996) sets the underlying values of the law (Bill of Rights) and constraints on state power. The rule of law
ultimately seeks to prevent the abuse of power or state authorities acting ultra vires.
Pharmaceutical Manufacturers Association of SA, in re: Ex Parte Application of President of Republic of SA 2000
3 BCLR 241 (CC), Chaskalson P stated that the ‘requirement of the rule of law that the exercise of public power
by the executive and other functionaries should not be arbitrary. Decisions must be rationally related to the purpose
for which the power was given, otherwise they are in effect arbitrary and inconsistent…
1.4
Legal Relationships
1.4.1
Public legal relationships
Public legal relationships deal primarily with state power and/ or departments and their capacity to govern certain
aspects of society. This power is derived from the law and may take various forms such as a directive or the issuing
and revoking of licenses.
1.4.2
Private legal relationships
Private legal relationships are governed by the individual rights and duties of parties. Whilst state power does not
usually play a role in such relationships, the content of such rights and duties does, however, derive its effect from
the law.
Rights and duties always relate to a legal object. The following classes of legal objects have been crystallised in
South African law and thus are able to give rise to corresponding rights and duties.
•
Corporeal Property (movable or immovable property)
•
Incorporeal Property (property that cannot be seen)
•
Intellectual Property (property of the mind, design or creation)
•
Performance or exchange of services (skills provided)
•
Personality qualities (unique to natural persons)
With regard to legal relationships, parties may enforce their rights against each other. When dealing with the
enforcement of rights and the consequences of the infringement of such rights, it becomes important to distinguish
between the two types of legal rights one may possess.
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Firstly, there are ‘real rights’ which relate to corporeal property and may be enforced against anyone. For example,
a man has a real right of ownership over his car. Should B Damage A’s car, a will have a right against B to pay for
such damage.
Secondly there are ‘personal rights’ which relate to the conduct, behaviour or performance by another legal entity.
These rights may only be enforced against that particular legal entity. For example, a has the right to a good
reputation, however, B has published untrue and nasty comment about A on Facebook. A may has a personal
right against B to remove such comments or to pay damages.
Activity 1
1. Distinguish between Public and Private Relationships? Provide an
example
2. There are five classes of legal objects form in South African Law. List and
explain these classes by providing examples to substantiate your answer?
1.5 Types of Legal Right (s)
a.) Real rights
Real rights are rights to material, physical things such as a car or pen-etc. Although the object of a real right will
always be a thing; the real rights themselves would be called upon or infringed upon, for example, rights of
ownership, rights of pledge, and rights of servitude. The powers we may exercise on these rights make up the
content of a right. E.g. Ownership – The owner of a property may do with it what he/she wants, the owner can
alienate it (sell or give away), or destroy it, or occupy it, etc.
b.) Personal rights
A personal right is a right of performance and is also referred to as a claim. When speaking of performance, we
are referring to action i.e. doing or not doing something.
c.) Characteristics of Real Rights
Characteristics of real rights and personal rights as identified by Willie (2007: 430)
I.
The object of a real right is a corporeal thing. A corporeal thing is a tangible object like a book or a pen.
II.
A real right affords a direct power over the object. This means that the owner of a real right can exert
direct influence on the object.
III.
Real rights are absolute and afford the right of hot pursuit. This means that there is an indeterminate
number of persons who are obligated not to obstruct the exercise of the subject’s right. Real rights are
enforceable against any legal subject in the world who may be in possession of the object.
IV.
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Real rights do not lapse when the holder dies.
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V.
Real rights afford a right of preference in the event of insolvency. This means that where the owner of the
object is insolvent, the holder of the right has a preferential right to the proceeds from the sale of the
object.
VI.
Real rights flow from juristic acts like the transfer of property, cession and occupation. This means that
real rights cannot be established by mere agreement between two contracting parties.
d.) Characteristics of Personal Rights
I.
The objects of a personal right are personal security, bodily integrity or freedom.
II.
Personal rights are not absolute rights. This means that they are only enforceable against a
specific person and not against the whole world.
III.
Personal rights lapse when the holder dies.
IV.
Personal rights flow from contract or from a delict. A delict occurs when one party commits a
wrong against another. The basic elements of delict are conduct, wrongfulness, fault, causation
and damage.
1Table 1: Real Rights and Personal Rights
Real Rights
Definition
Personal Rights
Refers to a right in a thing, and is
A personal right is a right to performance
enforceable against any other subject. This
and is enforceable against a specific
means that one can legally protect one’s
person, and exists against the legal
real right to something from anyone who
subject only. This means that one can
tries to interfere with it.
legally protect one’s personal rights only
against interference from a specific
person (that is, the specific person who
caused one’s loss).
Examples
The most important real right is that of
Personal rights may be created by
ownership. Other examples of real rights
contract (that is, by agreement), undue
are the rights of servitude and real security
enrichment (where one person has been
rights, such as mortgage and pledge.
unjustifiably enriched at the expense of
another), or by delict (a wrong done by
one person to another).
Method of Transfer Real rights may be transferred from one
Personal rights may be contractually
person to another person by delivery in the
transferred from one person to another
case of movable (for example, a motor
by means of an agreement called
vehicle), or by registration in the case of an
cession.
immovable (for example, land).
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1.6 Legal Liability
Liability basically refers to an obligation or duty to do something. Legal liability may arise both in public and private
relationships.
In public relationships, the most common example arises in the context of criminal law. For example, everyone has
a legal duty to show reasonable care when driving on public roads. If you fail such duty by driving negligently, you
will be committing a crime and face a fine or imprisonment. In criminal cases, the State is always the party
prosecuting the matter on behalf of public interest or the values of society (bona mores).
In private relationships liability will arise in the following instances:
•
Liability created by means of a contract – when a party enters into a contract, he is obligated to fulfil his
duties as set out by such contract. Should he fail to do so, the aggrieved party may enforce the contract
or performance thereof, by means of legal proceedings
•
Liability created by means of the law of delict – there are standards set in society for the protection of an
individual’s property (be it physical property or personality rights). Should one infringe another’s right to
enjoy his property in a manner that is legally accepted as being wrong, intentional and blameworthy, that
person will be liable for the loss suffered
•
Liability based on the concept of unjustified enrichment – this relates to legal action instituted by one party
against another on the basis that he/she has without cause and at the expense of someone else, gained
some kind of benefit
In summation, personal liability cases will lead to civil proceedings being instituted and the parties referred to as
the Plaintiff and Defendant. In public liability cases, criminal proceedings will be instituted and the parties are
referred to as the State and the Accused.
1.7 Sources of Law
There are six authoritative sources of South African law (these have to be followed by courts): The Constitution,
common law, legislation, judicial precedent, custom, customary law (some include this source in the common law).
There are also persuasive sources of South African law (they are not compulsory for the courts), such as obiter
dicta, international law, decisions of foreign courts or international courts, academic writings, etc.
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1Figure.1: Hierarchy of Sources
i. Constitution
The Constitution (Act 108 of 1996,) is the supreme law of the country. Whilst it looks like any other piece of
legislation, the Constitution binds the state and all its structures including the legislature, the executive and the
judiciary. There are various values and rights contained in the Constitution that provides a basis for all other law;
every law in South Africa is subject to standards of the Constitution and if it is found to be inconsistent it will be
declared invalid. Furthermore, the Constitution directs the manner in which the state should conduct its activities
and the limitations that may be imposed on the rights contained in the Bill of Rights. There are a few rights that are
relevant to the discussion of commercial activity.
2Table 1: Theories of contract
Theory
Basis of contract
Will
Consensus: concurring
wills
Declaration
Reliance
Appearance of consensus: Belief in existence of
concurring declarations of
consensus, induced by
will
other party
Semi objective
Nature of agreement
Subjective
Objective
Effect of Mistake
Contract
Contract stands
Fails to protect
Favours form over
Merely a secondary basis
reasonable reliance
substance
for contract
Drawback
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Contract fails if reliance
unreasonable
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ii. Legislation
Legislation is passed for various reasons: to supersede common law; to bring clarity to something which is disputed
or not clear according to the common law; to create exceptions form common law.
In researching a legal issue, it is necessary to refer first to legislation; if the legislation does not deal with the issue
of interest, the researcher should refer to the common law.
Legislation is a set of binding rules set down by the Legislature. There are two types of legislation, the first primary
legislation which is made by original authorities empowered to do so (provincial legislatures) and delegated
legislation which is made by subordinate authorities (regulations by municipal councils).
2Figure 2: Process for making Primary and Secondary Legislation
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Legislation specifically relating to commercial activity:
3Table 1.3: Most important national statues applicable to commercial activity
Area of commercial activity
Most important Statutes
Business Entities: These statues set out how such
Companies Act 71 of 2008
entities may be formed, managed and dissolved or
wound up.
Taxation: These statutes define the tax liability of
individuals and business entities.
Value-Added Tax Act 58 of 1962
Value Added Tax Act 89 of 1991
Credit
National Credit Act 34 of 2005
Insurance: These statutes regulate the granting of
Long-term Insurance Act 52 of 1998
short and long-term insurance respectively.
Intellectual property: This legislation is the basis for
recognising and protecting the various forms of
intellectual property.
Insolvency: This statue regulates the situation where
Short-term Insurance Act 53 of 1998
Copyright Act 98 of 1978
Patents Act 57 of 1978
Trade Marks Act 194 0f 1993
Insolvency Act 24 of 1936
a natural person’s liabilities exceed his assets.
Competition: This statute creates a regulatory
Competition Act 89 of 1998
system for promoting and enforcing competition
across a diverse range of industries in South Africa.
Employment: These laws regulate the individual and
collective aspects of labour and address safety in the
workplace.
Labour Relations Act 66 of 1995
Basic Conditions of Employment Act 75 of 1997
Occupational Health and Safety Act 85 of 1993
Compensation for Occupational Injuries and
Diseases Act 55 of 1998
Consumer Protection
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iii. Judicial precedent
Precedent is based on the doctrine of stare decisis (to stand by previous decisions), whereby the decisions of a
high court (Constitutional Court, Supreme Court of Appeal and High Courts) on a particular issue will be binding
on all lower courts. This decision may change the law, repeal it or invalidate it. Though the facts before a judge
may differ to that of another case, the reason for the decision taken (ratio) is a principle of law and must be taken
into account. There are also instances whereby the decision of a case will only be used as a guideline or persuasive
authority by another court.
iv. Common law
During the colonisation of South Africa, both English and Roman-Dutch laws were applied and a hybrid system of
law developed. The English dealt predominantly with the law of insurance, the law of evidence and the law of
negotiable instruments.
This was a long time ago and since then; a great deal of legislation has been promulgated to deal with various
legal issues. However, there are principles of law (common law) that are still currently applicable in the South
African legal system. Therefore, where statute is silent on a particular, the principles of common law will apply by
default. It must be also borne in mind that with the introduction of the Constitution, any common law that is
inconsistent with the values and spirit of the Constitution must be developed by the judiciary.
v. Custom
The customs of a community and the manner in which they have been applied in the past will be taken into
consideration by the courts. Custom will acquire the force and effect of law if it can be proven that the custom is
substantially established, definite, reasonable and observed by the said community.
vi. Customary Law
Before the Constitution, customary law was not formally recognised as a part of the formal common law of South
Africa. Currently it is recognised as such by the Constitution. Unit 39 of the Constitution states however that the
customary rules have to comply with the Bill of Rights.
Customary law relates to custom of a specific ethnic group. Persons belonging to such a group may elect to
observe such laws and upon request, these laws may be enforced by the court.
vii.
Foreign Law
Foreign law refers to the laws applied in other countries. These laws are not binding in South Africa but the judiciary
must consider such laws when interpreting provisions of the Constitution. Therefore, it can be said that foreign law
only has the effect of persuasive authority.
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Reading
Read Chapter 1:
•
Humby, T.2014.Introduction to the South African Legal System. In: Scott,
J.et al. The Law of Commerce in South Africa. 2nd ed. Cape Town: Oxford
University Press, 1-34
1.8 The Law and Commercial Activity
1.8.1.
Law articulates minimum standards
In South Africa, the Constitution, which is the supreme source of law, underpins all other laws. Any law that is
found to be in conflict with the Constitution is deemed to be invalid and unenforceable. The rights and values
enshrined in the Constitution apply equally to laws that specifically regulate commercial activity; irrespective of
whether such laws take the form of statute or common law.
1.8.2.
Law recognises different kinds of property
The law recognises two types of property namely: Corporeal and Incorporeal Property.
Corporeal Property refers to things that can be physically touched for example, a car or a plot of land.
Incorporeal Property refers to things that cannot be seen or touched for example, trademarks or shares in a
company.
The law stipulates how property may be acquired, the rights attached to certain types of property, remedies for
damage to property and how property may be traded.
1.8.3.
Law facilitates and upholds business agreements
There are various types of agreements that may be entered into by parties engaging in commercial activity. These
agreements may take the form of:
•
Contracts of purchase and sale
•
Contracts of Employment
•
Contracts of Agency
•
Contracts of Lease
•
Contracts of Security; and
•
Contracts of Insurance
The law prescribes the circumstances in which these contracts will come into being, the formalities and essential
elements of such contracts and the remedies for the breach of such contracts.
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1.8.4.
Law is the foundation of corporate activity
The law recognises two types of entities that may be afforded legal personality (ability to acquire assets, contract,
incur debts, sue and be sued). The first entity is known as a ‘natural person’ and includes human beings with the
capacity to enter into legal transactions. The second entity is a ‘juristic person’ which despite not being a human
being it has its own separate legal personality e.g. A company.
1.8.5.
Law legitimises state regulation of commercial activity
The State has the inherent power to promulgate laws to regulate certain areas of society and to administer such
laws through various governmental departments. The State has the corresponding duty to administer such laws
reasonably and justly. Apart from creating laws, the State may regulate commercial activity by making regulations
governing commercial activity. The State may also regulate commercial activity with the specific intent of
addressing certain social issues, such as previously disadvantaged groups and empowerment programs or with
the intent of creating revenue for other social needs of the country.
1.8.6.
Law provides an authoritative mode of dispute resolution
There are various conflicts that may arise in the commercial arena involving different legal entities and issues. The
law prescribes how these conflicts are to be addressed and by whom. The most used mechanism is the judiciary
whereby an impartial magistrate or judge considers the matter taking the various factors into account. A decision
is made, also known as an order of court, and is binding on all the interested parties.
Knowledge Check Question 1
1.
What is legal liability?
2.
What is the difference between a right and duty?
3.
What are real rights?
4.
What are personal rights?
5.
Is Standard Bank a natural or juristic person?
6.
Edward was assaulted by a bouncer at a club. Which right was violated – his
real right or his personal right?
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Unit
2:
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The Law of Contract
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Unit Learning Outcomes
Content List
Learning Outcomes
2.1 Introduction
•
Introduce topic areas for the unit
2.2 Nature of a Contract
•
Explaining the nature of a contract
2.3 Consensus
•
Demonstrate an understanding of the concepts of an offer,
requirements for a valid offer, acceptance,
mistakes, misrepresentation, duress and undue influence in
consensus
2.4 Capacity
•
Understand and explain persons who completely lack
contractual capacity and persons with limited contractual
capacity
2.5 Certainty
•
Explain the concept of uncertainty
2.6 Lawfulness
•
Understand and explain lawfulness
2.7 Possibility of Performance
•
Demonstrate an understanding of the possibility of
performance
2.8 Formalities
•
Discuss the concept of formalities
2.9 Interpretation of Contracts
•
Understand and explain terminologies such as express terms,
tacit terms and implied terms
2.10 Conditional Contracts
•
Identify and explain the difference between suspensive and
resolutive conditions
2.11 Special Clauses Commonly
•
Found in Contracts
Describe the various special causes commonly found in
contracts
2.12 Rectification
•
Discuss the concept of rectification
2.13 Third Parties to a Contract
•
Understand and outline factors pertaining to third parties to a
contract
2.14 Breach of Contract
•
Understand the factors which could lead to a breach of
contract
2.15 Termination of Contract
•
Understand and outline the factors which could lead to a
termination of contract
2.16 Remedies for Breach of Contract
25
•
Understand and explain the remedies for a breach of contract
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Prescribed and Recommended Textbooks/Readings
Prescribed Reading(s)
•
Kopel, S. (2022). Guide to Business Law. Seventh Edition. Cape Town:
Oxford University Press.
Recommended Reading(s)
•
Bradfield, G., Kahn, E. and Lehmann, K. (2022). Principles of the Law
of Sale and Lease. Eighth Edition. Durban: LexisNexis.
•
Du Plessis, J.V. and Fouché, M.A. (2019). A practical guide to labour
law. Ninth Edition. Durban: LexisNexis. Unit 6 of module guide.
•
Hutchison, D., Pretorius, C.J. and Naudé, T. (2022). The Law of
Contract in South Africa. Fourth Edition. Cape Town: Oxford University
Press.
•
Scott, J. et al. (2020). The Law of Commerce in South Africa. Third
Edition. South Africa: Oxford University Press. Unit 3, 4 and 5 of module
guide.
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2.1
Introduction
A contract is an agreement entered into by parties with the purpose of creating legal rights and duties that may be
enforced by a court. There are no formalities for entering into a contract however there are CERTAIN requirements
(essentialia) that must be satisfied before a contract may be considered valid and enforceable. These requirements
include:
•
The agreement must be lawful
•
The contracting parties must have capacity to contract
•
The contracting parties must seriously intend to contract
•
The contracting parties must communicate their intentions to each other
•
The agreement must be sufficiently certain in its terms
•
The contracting parties must be of the same mind as to the subject matter
•
The contract must be possible to perform
•
The agreement must comply with any formalities required for that type of contract
2.2
Nature of a Contract
A contract is an agreement accepted by the law and which creates legal rights and duties for the parties to the
contract.
A contract usually encompasses a commitment by the parties to perform or refrain from performing a specific act
at a specified time. A contract may also be based on an assurance by a party that a certain set of circumstances
exist, have existed or will come into being in the future.
Parties to a contract usually fulfil their obligations on the basis of reciprocity, that is, the performance of one party
is contingent on the performance of the other party. Contracts may be concluded either in writing, verbally or tacitly.
In terms of South African contractual law, the principle of the ‘freedom of contract’ plays a significant role. This
principle asserts that contracting parties may agree to almost anything to the extent that such contractual terms
are lawful, possible and are in line with values or interests (boni mores) of society.
Think Point 1
Paul is a drug lord. He enters into a contract with James to sell drugs for him.
Would the contract still be valid although it is illegal?
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2.3
Consensus
Consensus is one of the requirements of a valid contract. A contract is considered to come into existence when
parties reach agreement or there is a ‘meeting of the minds’ on the essential terms of the contract.
Parties are required to declare their intention in a clear and explicit manner. The manner in which the parties
declare such intention may vary and may be written, verbal or both.
2.3.1 The offer
•
The offer is a proposal by one party (offer or) to another (offeree), specifying the performance he is willing
to make and conditions upon which such performance is tendered
•
An offer may address a specific person, a particular group or the public at large
•
The offer must be communicated to the offeree
•
The offer may be withdrawn any time before it has been accepted by the offerree
•
If the offer or does not stipulate a time period for which the offer will lapse, the offer will lapse after a
reasonable period of time
•
The offer will terminate upon the death of either party or upon rejection of the offer
a.) Requirements for a valid offer
•
The offer must be firm – the offer must denote a serious intention to do business
•
The offer must be complete – there should not be further issue or arrangements that need to be decided
upon
•
The offer must be clear and certain – the offer should not be ambiguous. If the contract is ambiguous, the
courts will use rules of interpretation to determine the intention of the contracting parties however parties
should endeavour to avoid such ambiguity
The Consumer Protection Act 68 of 2008 introduces further requirements for a valid offer:
•
The offer must be made in an understandable language
•
The offer must disclose whether the goods have reconditioned or rebuilt
•
Negative marketing is prohibited – suppliers/offerors may not promote a product on the basis that an
agreement will come into existence unless it is rejected
•
Consumers have the right to a cooling-off period if goods are marketed to them directly
2.3.2 Acceptance
Acceptance of an offer is a clear and unequivocal declaration of intention by the offeree to accept the offer and be
bound by it. Like the offer, the acceptance may be written, verbal or tacit.
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Requirements for a valid acceptance
•
The acceptance must be unqualified – the offeree must agree to all terms and conditions of the offer. An
acceptance that is conditional is deemed to be a counter-offer
•
The offer must be accepted by the offeree – unless the offer was made to the public at large. In instances
where it was made to a specific person, only that person may accept it
•
The acceptance must be a conscious act on the part of the offeree
•
The acceptance must be in the form prescribed by the offeror
There is often the situation whereby parties enter into an ancillary agreement regarding the main agreement that
may be concluded in the future. This ancillary agreement may take the form of an ‘option’ or a ‘preference contract’.
An option is an agreement limiting the offeror’s right to withdraw his offer for a certain period of time. A preference
contract is whereby one person undertakes to provide the other with a preference to contract with him in the event
that he decides to enter in a particular contract (there is no stipulated time period).
In principle, there is no contract if the parties are not in agreement regarding the material terms of their agreement.
Where the parties lack consensus their contract is void for ‘mistake’ (error). We will now discuss the concept of
mistake in a contract.
2.3.3 Mistakes
There are instances where there is no subjective consensus between the parties due to some material mistake by
one or both of the parties. If there is no actual agreement, the contract may be rendered void or voidable at the
election of the injured party. With regard to the law of contract, the term mistake has a restricted meaning and over
time the courts have identified the types of mistakes that may lead to dissensus.
a.) Types of mistakes:
(i)
Mistake of law
The general rule is that ignorance of the law is not an excuse and will not affect the validity of a contract.
(ii) Mistake in expression
The general rule is caveat subscriptor (let the signer beware). There is a duty on a contracting party to read the
contents of the contract. It will be deemed that he has read and understood the contract.
(iii) Mistake in motive
A mistake in motive will not invalidate a contract and due to the sanctity of contracts, the contract will be upheld
even if the contracting party has changed his mind.
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(iv) Mistake of fact
A mistake in fact will render a contract void. A mistake of fact will render the contract void if the mistake was both
reasonable and material.
The mistake may relate to various aspects of the contract namely;
•
The nature of the contract
•
The identity of the subject matter
•
The attributes of the subject matter, or
•
The identity of the contracting parties
There are also different types of mistake of fact:
•
Common mistake of fact – both parties have made the same mistake
•
Mutual mistake of fact – both parties made a different mistake
•
Unilateral mistake of fact – one of the contracting parties has made a mistake
4Table 2.1: Materiality determined by type of mistake
Error in corpore
Mistake as to subject matter of the contract
Material
Error in negotio
Mistake as to nature of the contract
Material
Error in persona
Mistake as to the identity of party to the
contract
Error in substantia /
Mistake as to attributes or characteristics of
qualitate
subject matter
Error in motive
Error iuris
Mistake as to party’s reasons for entering into
the contract
Mistake as to the law relating to some aspect
of the transaction
Sometimes material
Not material
Not material
Material only if it relates to
terms of agreement, rather
than motive
2.3.4 Misrepresentation
Misrepresentation occurs where a false statement of fact is made by one person to another, before or at the time
of the contract, of some matter or circumstance relating to the contract, with the intention of inducing the latter to
contract, and which actually induces him to do so (Scott et al., 2009:94).
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Generally contracting parties will negotiate terms and conditions of the contract before actually concluding the
contract. During such negotiations it is quite possible that statements made are factually untrue. Misrepresentation
is thus a false statement of fact or a false statement regarding a certain state of affairs accompanied with an
intention to induce the other party to contract. If a party has been induced into contracting on the basis of a
misrepresentation of a material aspect of the contract, the contract will be rendered voidable.
The injured party is entitled to cancel the contract and claim restitution if the following four requirements can be
proved:
•
There was misrepresentation by the other party
•
This misrepresentation induced the injured party into contracting
•
There was an intention to induce the injured party to contract
•
The misrepresentation related to a material aspect of the contract
Think Point 2
Jade offers to sell her ‘genuine leather’ jacket to Sue. (Jade thinks it is unlikely to
be leather as she bought it from a flea market). She stresses to Sue that it is made
of pure Italian leather and was bought in a boutique in Milan. (She knows that Sue
is mad about Italian fashion and design). Sue told Jade she will only buy a
genuine leather jacket as she has had bad experiences with pseudo leather in
the past. Sue does not have time to shop around and it is summer in South Africa
so she cannot find many leather jackets. She buys the jacket from Jade. Is the
contract voidable?
2.3.5 Duress
If a person is induced into contracting due to violence, threat or fear then there is no legitimate consensus between
the parties. The contract will be voidable at the election of the aggrieved party. The following requirements must
be proved by the party who wishes to set the contract aside. Each one of these requirements must be proved.
•
There must be actual violence or damage or a threat of violence or damage directed at the life, limb or
freedom of the threatened person, or his or her property, which causes a reasonable fear that the threat
may be executed
•
If duress is caused by a threat, the threat must be imminent (about to occur) or inevitable (so that the
victim cannot escape)
•
The duress must be unlawful. This means that that the party exercising it uses it to obtain some benefit
he or she would otherwise not have obtained
•
A party to the contract or someone acting on his or her behalf must be responsible for the duress
•
The duress must cause the victim to conclude the contract. This requirement will not be met if the threat
has been removed and the victim freely enters into the contract anyway, or if the victim ratifies the contract
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(confirms its validity with retrospective effect). This requirement is also met if the party placed under
duress concludes the contract or concludes it on particular terms he or she may not have accepted but if
it was not for the duress See Broodryk v Smuts NO 1942 TPD 47
2.3.6 Undue influence
Undue influence renders a contract voidable. Undue influence is similar to duress in that an improper pressure is
exerted on the one party with the intention of inducing that party to enter into a contract. The distinction between
duress and the undue influence is that the improper pressure inflicted may not be overtly illegal or necessarily take
the form of threat or intimidation.
The following requirements must be satisfied to establish undue influence:
•
The defendant obtained an influence over the Plaintiff
•
Such influence decreased his resistance
•
The Defendant exercised his influence in a corrupt manner which induced him to contract on terms and
conditions that were prejudicial to him See Patel v Grobbelaar 1974 (1) SA 532 (A). Preller v Jordaan
1956 (1) SA 483 (A)
2.4 Capacity
Capacity to act must be distinguished from legal capacity. Capacity to act refers to the capacity to perform juristic
acts, conclude contracts and participate in legal dealings (Havenga). Capacity refers to the party’s legal ability to
enter into a contract. Capacity determines whether a legal subject may enter into binding contracts, and whether
such person can sue and be sued in his or her own name. In other words, it refers to competence in the eyes of
the law.
It is deemed that every natural person has contractual capacity until otherwise is proven. A person’s legal status
will directly influence his capacity to contract. Thus, natural persons can be categorised as:
•
Those with no capacity
•
Those who have limited capacity
•
Those with full capacity
2.4.1 Persons who completely lack contractual capacity
Persons with mental illness or defects and who are unable to understand the nature and consequences of their
actions will not have contractual capacity. Minors (under the age of 7 years) are considered to lack the mental
maturity to appreciate the consequences of their actions and therefore cannot enter into contracts on their own.
Where it is alleged that a person lacks contractual capacity, the onus of proof rests on the person making the
allegation.
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A person who lacks contractual capacity may only acquire rights and duties if a contract has been entered into on
his behalf and endorsed by a court of law.
Intoxication may preclude contractual capacity to the extent that it impairs a person’s ability to appreciate the nature
and consequences of his actions. Where a person is found to lack contractual capacity, unless otherwise assisted,
the contract entered into will be deemed void.
See The Mental Health Care Act 17 of 2002.
2.4.2 Persons with limited contractual capacity
The general rule is that those with limited contractual capacity will only acquire contractual rights and duties if they
have been assisted by someone with contractual capacity or obtained the necessary consent to contract.
a.) Minors
A minor is a person who is 18 years old and unmarried. A minor below the age of 7 years has no capacity to
contract. Minors between the ages of 7 and 18 years have limited capacity to contract; generally, minors are
required to obtain consent and assistance from their parent or guardian before contractual rights and duties will
accrue to them. However, a minor may, without the necessary consent or assistance, enter into a contract. In this
instance the minor will only acquire rights and no duties. Instead of providing assistance or consent, the guardian
may personally enter into contracts on behalf of the minor. The rights and duties will accrue to the minor irrespective
of his consent or knowledge to such contract. The minor may be able to escape liability in such contracts if he can
show that the contract was entered into by his parent or guardian unreasonably. The court may, in this instance,
order the restitution of the both parties.
When a major reaches the age of majority, he may elect to repudiate or ratify any contract entered to whilst he was
a minor. The ratification will then deem the contract to have been valid as at the date entered into.
Where a minor has contracted without the necessary consent or assistance, the contract will not be enforceable
against him and will be void. The contract may be enforced against the other contracting party provided that the
minor is willing to adhere to his own obligations; if the minor is unwilling, he must return any benefit already
received. If the benefit cannot be returned for whatever reason, the other party may have an action for unjustified
enrichment. Lastly, if the minor fraudulently misleads the other contracting party into believing that he has the
necessary capacity to contract, the aggrieved party may institute delictual action against the minor.
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Think Point 2
This means that if a minor buys a motorbike, and then wishes to get out of the
contract, the minor gets back all the money, and must give back the bike. If the
bike was subsequently stolen or destroyed, then the minor does not have to give
back anything. He will still get all his money. Is this fair?
b)
Married persons
With regard to married persons, a distinction is made between those who have married in community of property
and those who married out of community of property. Firstly, spouses married out of community have separate
estates and their contractual capacity is unaffected. Secondly, spouses married in community of property have a
joint estate and administer their marital property jointly. Each spouse has the equal contractual capacity and may
bind the joint estate on behalf of their spouse. There are also certain types of contracts that require the consent of
both spouses such as suretyships. Where a spouse contracts without the requisite consent and where the other
contracting party was unaware that such consent was required and could not have reasonably known, the joint
estate will still be bound.
See Matrimonial Property Act 88 of 1984.
c)
Insolvent Persons
An insolvent person is a person whose liabilities exceed his/her assets. In such instance, the estate of such person
is sequestrated. Sequestration refers to the surrendering of the insolvent estate through a court process.
Once a court has granted an order declaring a person to be insolvent, his contractual capacity is limited. Once the
process of sequestration begins, the estate of the insolvent vests with the trustee. The function of the trustee is to
administer the estate according to the law of insolvency. The trustee may enter into contracts on behalf of the
insolvent and the insolvent will require the trustee’s consent for any juristic act that may impact the estate negatively
e.g. disposing of estate assets.
d)
Prodigals
A prodigal is a person who squanders his assets irresponsibly and such squandering has the result of jeopardising
the welfare of himself or his dependants. Such a person, upon application by an interested party, may be declared
a prodigal and his capacity to enter into juristic acts is limited. A High Court may appoint a curator to a prodigal.
The curator will administer the prodigal's affairs, and contract on their behalf.
The prodigal will require consent from the curator of his estate to conclude contracts. Contracts entered into without
the necessary consent may be ratified by the curator at a later stage therefore the contracts in this instance are
merely voidable and not void.
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e)
Juristic persons
A juristic person has full capacity to enter into contracts and perform juristic acts. The rights and extent of such
rights are determined by its founding documents (the rights of a company will be regulated by the memorandum
of association).
2.5 Certainty
When entering into a contracts, parties must ensure that the terms and conditions are clear and unambiguous. The
intention of the parties must be reflected in the contract. In the event of a dispute arising between the parties, the
court is tasked with considering the contract without recourse to other evidence (parol evidence rule). A contract
may be invalidated on the grounds that it is vague and uncertain.
2.6 Lawfulness
With regard to the lawfulness of contracts, the courts are constantly faced with the competing interests of society.
On one hand, there is a need to uphold contracts that are freely and voluntarily entered into by private individuals.
On the other hand, the courts need to take into account the interests and values of society at large. Therefore,
when dealing with lawfulness, courts endeavour to balance public policy as well as the principle of the sanctity of
contracts.
As a general rule, all contracts are deemed to be lawful; a contract may be unlawful if it contravenes a statute or
the common law.
In the event that a contract infringes a statutory provision, the contract will not necessarily be rendered void. In
each such case, the court will consider the intention of the legislature in promulgating the Statute and the intended
consequences of non-compliance with the Statute. In doing so, the court will consider the scope, language and
objects of the Act. The court will generally declare a contract void if enforcing such an agreement would defeat the
purposes of the legislation.
If, after considering the competing interests of the parties of the contracts and that of society at large, the court
finds that the contract is against public policy; the court will declare the contract void and unenforceable.
2.7
Possibility of Performance
Possibility of performance is the seventh requirement for a valid contract. A contract is considered to be void and
unenforceable if, at the time it was entered into, its performance was impossible.
Objective impossibility is when the contract is impossible for anyone in the world to perform. The contract is
subjectively impossible when it cannot be performed by only the contracting party. Subjective impossibility does
NOT render the contract void; nor is the contract void if such impossibility was within the contemplation of the
parties (Scott et al., 2009:99).
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Impossibility may be due to vis majore or causus fortuitus. Vis majore refers to acts of nature, or acts of God. For
example, it is not possible to deliver a car to a client in another town on the agreed date if there is an earthquake.
Causus fortuitus refers to inevitable acts of an irresistible force such as acts of the state or government, death, or
plague. It would not be possible to complete a contract to resurface the roads if a civil war broke out in the streets
(Scott et al., 2009:99).
There can be no contract if the contract is not physically capable of being possible when the contract is made.
Contracts are void if performance is objectively impossible at inception, or may be void if it becomes impossible to
perform. For example, it is not possible for someone to agree to stay awake for twelve days in order to complete a
job.
Supervening impossibility may only be operative, this means that it makes the contract void, if it arises by an act
of God (vis majore), or act of the state, or an irresistible force beyond the control of either party (causus fortuitus).
Contracts will remain binding if the impossibility arises due to deliberate or negligent acts of one of the parties. A
contract may be voidable where performance becomes impossible only after the contract was entered into.
2.8
Formalities
This is the final requirement for a valid contract. Most contracts do not require formalities, as long as their intentions
are clearly communicated; verbally, in writing or by conduct. Some contracts, however, require certain formalities
as laid down by Statute.
2.9
Interpretation of Contracts
As discussed above, there may be instances where a court is called upon to make a decision on the intention of
the parties to a contract. This is usually the case where parties dispute the true meaning of the contract and require
objective adjudication. The court will be guided by the crystallised rules and presumptions relating to contractual
interpretation.
a.) Express terms
These terms are usually stated either verbally or in writing. It is generally accepted that such terms denote their
ordinary meaning without requiring any interpretation. Explicit terms may also be incorporated into contracts by
means of reference to them.
b.) Tacit terms
These terms are imputed into the contract by considering the circumstances of the parties at the time of contracting.
The parties may agree, in retrospect, that they intended certain terms to form part of the contract. These terms will
then be read into the contract. Parties may have merely forgotten to include these terms into the contract or may
have been under the impression that such terms were so vital to the contract that they need not necessarily be
written down. The courts will only read a term into a contract if it accords with the intention of the contracting parties
or if by considering the language of the parties in the contract as a whole, such a term should be incorporated.
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See Consol Ltd t/a Consol Glass v Tweee Jonger Gezellen (Pty) Ltd and another 2005 (6) SA 1 (SCA)
c.) Implied terms
Irrespective of the subjective consensus between the parties, there are certain terms that will be read into the
contract as they are terms which are imposed by the law, custom or trade usage. Due to the principle of the freedom
to contract, the courts will only impute a term into a contract, by operation of law or custom or trade usage; if it is
certain, clear, long established and does not conflict with the other express terms of the contract.
2.10 Conditional Contracts
There are instances when parties require a contract to become enforceable only upon the occurrence or nonoccurrence of a specified uncertain future event.
Parties may include certain conditions into the contract that will allow them to perform on the contract at a time
they both agree on. There are two types of conditions:
a.) Suspensive conditions
The performance of the contract is delayed until an agreed uncertain specified future event occurs. If the event
occurs, the parties are required to perform their obligations. If the event does not take place, the contract does not
become enforceable against the parties. However, parties may further require that the uncertain specified event
must occur by a particular date, if not, the contract will lapse.
For example, Mavis offers to sell her lounge suite to Joyce for R1000.00 and Joyce agrees to pay for the lounge
suite in monthly payments of R100.00 each for ten months. Mavis adds a suspensive condition to the contract of
sale. Mavis states that although Joyce can take the lounge suite and use it, the ownership of the lounge suite will
stay with Mavis and only pass to Joyce on condition that the last R100.00 payments is made. This will mean that
the contract of sale will be suspended, and not be complete, until Joyce fulfils the suspensive condition and makes
the last payment.
b.) Resolutive conditions
With resolutive conditions, the performance of the parties is enforceable until an uncertain specified future event.
If the event occurs, the contract is void retrospectively.
For example, if Mavis sells her lounge suite to Joyce for R1000.00 and adds a resolutive condition that Joyce must
pay the full amount by the end of the month. If Joyce has not paid the full price by the end of the month, the contract
is ended and Mavis can take the lounge suite back.
If either party intentionally prevents a condition from being fulfilled, the courts will apply the doctrine of the fictional
fulfilment and the condition will be considered to have been fulfilled by the parties.
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2.11 Special Clauses Commonly Found in Contracts
The following clauses are commonly found in contracts:
•
Indemnity clause – a term which may exclude a party to the contract from incurring liability in certain
instances
•
Non-variation clause – a term of a contract may not be changed without the written consent of both parties
•
Cancellation clause – this prescribes the manner in which the contract may be terminated at the instance
of the parties
•
Domicilium citandi executandi – the parties may agree on the addresses at which they will accept receipt
of any legal documents. The parties will be considered to have received all documents sent to this address
•
Jurisdiction – the parties may agree that should a dispute arise regarding the contract, the matter will
have referred to a specific court
•
Arbitration – the parties may agree that should a dispute arise regarding the contract, the matter will be
referred to arbitration as oppose to adjudication in court
•
Costs, the parties may agree on who is liable for the costs of drawing up the contract or the tariff on which
costs will be payable should a dispute be referred to court for adjudication
2.12 Rectification
As mentioned above, most contracts include non-variation terms, however, there are instances whereby parties
wish to correct and edit minor details of the contract. Rectification occurs when parties agree to correct, add or
delete certain aspects of the contract without changing the substance or meaning of the contract. Parties may not
rectify any terms that would prejudice a third party to the contract.
2.13 Third Parties to a Contract
Generally, a person may only bind himself to a contract and not anyone else. Even when one is acting in a
representative capacity, the representative is not the one who acquires any rights or duties.
Generally, a third party may only be bound by a contract if it has been contracted for his benefit, however, there
are a few instances where a third party will acquire both rights and duties.
a.) Contracts for the benefit of third parties (stipulati alteri)
This is where two parties (promisor and promissee) agree that an offer that has been made may be accepted by a
third party. The third party is not obligated to accept the offer. If the third party accepts the offer, the promissee is
no longer a part of the transaction. The contract will now be concluded between the promisor and the third party
even though the third party was not a party to the initial offer between the promisor and promissee.
Points to note:
•
The third party accepts both obligations and duties
•
The third party need not be in existence at the time the offer is made to the promissee by the promisor
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•
The promissee and promisor must have intended to keep the offer open for the benefit of the third party
•
The third party must accept the offer within a reasonable time
b.) Assignment
This occurs when the two parties to a contract are both debtors and creditors. Assignment merely means that a
third party will step into the shoes or replace one of parties. The third party accordingly becomes both the debtor
and creditor. All three parties must consent to the assignment.
c.) Cession
A cession occurs when one party transfers his personal rights to another. In other words, one party to the contract
(the cedent) may give his rights of action to another (cessionary).
This usually occurs when a debtor owes person, a money and person A then cedes his right to claim the money
from the debtor to person B. The debtor need not consent to the cession. There are five requirements for a valid
cession:
•
The cedent must own the right he wishes to cede to another
•
The right must be able to be ceded to another
•
The cessionary and the cedent must have the intention to cede the right
•
The right ceded must be adequately described
•
The cession of the right must not be unlawful
d.) Delegation
Delegation in contrast to assignment is whereby the debtor cedes his obligations to a third party. Therefore, the
initial agreement between the debtor and creditor falls away as the claim against the debtor now becomes a claim
against the third party. The debtor, creditor and third party must all consent to the delegation.
2.14 Breach of Contract
Breach of contract refers to the situation where a party to a contract refuses or, for whatever reason, fails to perform
in terms of a contract. If there is a breach of a material term of the contract, the aggrieved party may take several
actions against the other party. There are several types of breach that are recognised by the courts.
a.) Repudiation
Repudiation refers to the instance whereby a party to the contract refuses (express/implied refusal) to perform in
terms of the contract. The aggrieved party then has two choices. In the first instance he may accept the repudiation,
cancel the contract and claim compensation for any loss suffered. Alternatively, he may institute action to compel
the other party to perform his contractual obligations and in doing so, reject the repudiation.
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b.) Mora debitoris
This refers to the situation whereby a party fails to perform in accordance with time limits set by the contract. The
requirements for this form of breach is that the performance must be due and capable of being performed. With
regard to when performance is due, there is a distinction that must be made between mora ex persona and mora
ex re:
•
Mora ex persona is when there is time limit specified for the performance by the parties. Thus the parties
must perform within a reasonable time; and
•
Mora ex re is when a party fails to perform by or on the specified time period set out in the contract
c.) Mora creditoris
There are instances where contracting parties agree that in order for a debtor to perform his obligations, he will be
assisted by the creditor. If the creditor goes back on his word and refuses to assist the debtor, the creditor will be
in breach of the contract. Mora creditoris will only occur when the debtor has tendered proper performance at the
time when performance is due and payable.
d.) Positive malperformance
Positive malperformance will occur where a party to a contract tenders incomplete or defective performance of a
material obligation.
Positive malperformance will also take place where a party has initially agreed to refrain from doing something and
then consequently does the very same thing. The aggrieved party will then be entitled to cancel the contract on
the basis of breach. Once again the act committed must relate to an essential term of the contract.
e.) Prevention of performance
This occurs when either party prevents the other party from performing his contractual obligations. The aggrieved
party will be able to claim breach of contract irrespective of whether the other party preventing him from performing
negligently or intentionally.
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5Table 2.2: Summary of remedies available to an aggrieved party arising from breach of contract
Outcome wanted
Type of legal remedy
by the aggrieved
Circumstances in which the
Additional legal
legal remedy may be available
remedies that
party
Terminate the
may be possible
Cancellation
•
agreement
Contract provides for
•
Damages
cancellation (lex commissoria)
•
Interest
•
Mora debitoris
•
Positive malperformance
•
Prevention of performance
•
Mora creditoris
Exceptio non adimpleti
•
Failure to perform
•
Damages
contractus
•
Positive malperformance
•
Interest
•
Repudiation
Specific
performance, All situations involving breach, but
plus
subject to the court’s discretion to
payment
Keep the contract
refuse the order where:
•
Performance is impossible
•
Performance would be
inequitable under the
circumstances
Interdict
Where breach is threatened or
reasonably feared. Application may
be brought against the other party as
well as any other person who may be
interfering with the contract.
Damages
•
In contract: Where the party has
suffered actual loss
•
In delict: Where the party has
suffered personal injury
Claim money only
Interest
As per contract if expressly stated.
Otherwise, in all cases where a
liquidated debt remains unpaid, and
the claim is made from the date that
payment was due.
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Penalties
Aggrieved party may claim penalties
instead of damages. May be limited
by court discretion, and the
Consumer Protection Act, 2008 for
lay-by agreements and fixed-term
agreements.
Certainty about legal
Declaration of rights
position
Material disputes about rights or
obligations of a party to the contract.
2.15 Termination of Contract
When a breach of contract has been established, the aggrieved party may be entitled to cancel the contract,
however there are other ways in which a contract will come to an end.
a.) Performance or payment
When both parties have fully and validly performed in terms of the contract, the contract will come to an end. The
performance by both parties must be tendered timeously; either by or before the specified date or within a
reasonable time period.
b.) Notice
Parties may include a term in the contract which allows either of them to cancel the contract. The cancellation
clause will usually state the manner in which the contract must be cancelled. There are also instances where the
law may prescribe circumstances in which a party or both parties may terminate the contract.
c.) Release
One or both parties may waive the other’s duty to perform in terms of the contract which will have the effect of one
or both parties being released from their respective duties. There are no formalities that need to be complied with
before a party may waive his rights to performance by another.
d.) Novation
Parties may choose to substitute the old contract with a new one, however, both parties must consent to such
substitution. All respective rights and duties that arise from the original contract will terminate and be replaced with
rights and duties of the new contract.
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e.) Set-off
This occurs when both contracting parties, for whatever reason, end up owing each other the same and/or equal
payment. Instead of paying each other, each party writes his debt off against the other.
There are four requirements that must be satisfied before set-off will occur:
•
The debt must be between the same parties in their same capacities
•
Both debts must be money or movable property of the same kind
•
The debt must be liquidated amounts (ascertainable in monetary value)
•
Both debts must be due, payable and without attached conditions
f.) Prescription
Prescription relates to the expiration of a particular time period and in particular the termination of a party’s
contractual obligations due to the effluxion of time. The effect of prescription is that the debt is no longer payable
including any accessory liabilities that may have arisen through such debt e.g. interest owed also falls away.
The law contends that a creditor should have a specified amount of time within which to institute action for recovery
of debts; if a creditor fails to do so within the prescribed time, he will permanently lose such rights.
There are different time periods for different types of debts:
•
A creditor has 30 years to institute action for payment of debt for: debts secured by a mortgage bond, a
judgment debt or taxes
•
The state has 15 years to institute action for debts owed to it as a result of loans, sale or lease of state land
•
A creditor has 6 years to institute action for debts arising from bills of exchange, negotiable instruments
•
A creditor has 3 years to institute action for any other debt owing
Prescriptions usually begins to run on the date that the debt becomes due and payable and only when the creditor
has knowledge of the identity of the debtor.
See the Prescription Act 68 of 1969.
Van Zijl v Hoogenhout [2004] 4 ALL SA 427 (SCA).
The running of prescription will be interrupted in the following instances:
•
If the debtor acknowledges liability for the debt
•
If the creditor extends the date for payment of the debt
•
If the creditor serves court process on the debtor
•
The rules of court provide that once summons is served, the plaintiff has 12 months to take steps to
proceed with the matter, should he fail to do, the summons will lapse
•
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If there is the occurrence of a specified event, prescription must begin to run all over again
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The running of prescription will be suspended in the following instances:
•
Creditor is a minor.
•
Creditor is an insane person, or person under curatorship
•
Creditor is prevented from interrupting prescription by vis major
•
Debtor is outside South Africa
•
Debtor and creditor are married to each other
•
Creditor and debtor are partners, and the debt is one arising from the partnership
•
Creditor is a juristic person; debtor is a member of the governing board of such person
•
Debt is subject of a dispute submitted to arbitration
•
Debt is subject of a claim filed against the estate of a deceased debtor or the insolvent estate of a debtor
•
Either the creditor or debtor is deceased or an executor has not been appointed
g.) Insolvency and rehabilitation
When a person has been declared insolvent and his estate is undergoing sequestration, certain transactions
entered before the order was made will be set aside by the court.
h.) Death
Where it is possible, the executor of the deceased estate will be liable on any contracts entered into by the
deceased and is also able to claim any contractual rights or benefits that would have accrued to the deceased.
The executor will be precluded from acting on any contracts that obligated the deceased to perform acts of a
personal nature for e.g. supply of service or skill.
2.16 Remedies for Breach of Contract
If there has been a material breach of the contract, the aggrieved party may elect to cancel the contract or abide
by it. If he cancels the contract, he may claim damages but if he abides by the contract he may claim specific
performance and damages form the defaulting party.
If the breach is not a material one, the aggrieved party may not cancel the contract but may only claim damages.
a.) Specific performance
The aggrieved party may demand that the other party perform in terms of the contractual obligations. The aggrieved
would have to approach the court for an order directing the specific performance. Specific performance will only
be ordered when the court has had regard to all relevant circumstances. It would be prudent of the aggrieved party
to apply for an order specific performance and damages as an alternative remedy. Courts will not grant specific
performance in the following cases:
•
Where specific performance is impossible
•
Where damages would be adequate compensation
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•
Where it would result in prejudice to the defendant or a third party
•
Performance would involve a personal relationship between the debtor and creditor
See Haynes v Kingwilliamstown Municipality 1951 (2) SA 371 (AD).
Barkhuzien v Napier 2007 (5) SA 323 (CC).
b.) Cancellation
An aggrieved party may only cancel a contract if the breach relates to a material term, in other words, he would
have not entered into the contract if it were not for the terms being included into the contract.
Activity 1
1
Andrew agrees to deliver a lounge suite to Lunga on Friday 7th May. He
however only delivers the lounge suite on Saturday the 8th. Is Lunga be
entitled to cancel the contract?
2
Marital Bliss agrees to deliver a marquee to Julia by 18h00 on the
afternoon of Friday 7th May. They however deliver the marquee on
Saturday 8th at 08h00 – only 14 hours late. Julia’s wedding ceremony
begins at 09h00. Is she be entitled to cancel the contract?
3
Write a paragraph on each scenario paying particular attention to
whether the time terms were material or not.
c.) Damages
The purpose behind a court awarding damages, is to place the aggrieved party in the same position he would have
been in had the other party fulfilled his obligations. The aggrieved party must be able to prove the following in order
to claim damages:
•
The amount of loss – interest may be included in this amount
•
The breach must be the direct cause of the loss suffered – each case will be judges on its own facts
•
The loss as a result of non-performance must not be remote or unforeseeable
•
The loss must be able to measurable in monetary terms
•
The aggrieved party must have attempted to mitigate the loss - that is to take all reasonable steps to reduce
the loss suffered
•
The aggrieved party must prove the damages
•
The aggrieved party must have attempted to mitigate the loss
In terms of contractual law, the only damages that may be claimed will be for financial loss suffered
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d.) Interdict
An interdict is a court order directing a person to do so something or to refrain from doing something. It may be
used to prevent someone from doing something that breaches the terms of the contract. It may also be used to
prevent a third party from doing anything that would affect the contractual rights of the interested parties to the
contract. In applying for an interdict, the aggrieved party must prove:
•
That he has a clear right
•
That this right is being injured or will reasonably be injured
•
No other remedy will assist him adequately
e.) Declaratory order
A party may apply to court for an order to clarify and confirm their rights in terms of a specific contract. The court’s
decision will be binding interested parties.
f.) Interest
Any claim for interest that an aggrieved party/creditor has lost on money he should have received by a certain date
would normally be claimed at the same time that damages have been claimed. With regard to liquidated amounts,
interest will be payable from the date upon which the amount came due.
When dealing with unliquidated amounts, interest may only be claimed from the date on which the debtor was
placed in mora (notified of amount owed).
Parties to a contract may stipulate the amount of interest to be charged at the time of contracting, if they fail to do
so, the rate of interest will be determined by the law.
For instance, if a contract has been concluded in terms of the National Credit Act 34 of 2005, the rate of interest
will be determined by the Act itself.
See The Prescribed Rate of Interest Act 55 of 1975.
Knowledge Check Question 1
1. List five requirements of a valid contract
2. What is the difference between void and voidable contracts?
3. Distinguish between a mistake and a misrepresentation
4. Name three types of breach of contract and give a practical example of each
type
5. Explain what is meant by specific performance
6. Discuss conditional contracts
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Unit
3:
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The Law of Sale
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Unit Learning Outcomes
CONTENT LIST
UNIT LEARNING OUTCOMES
3.1 Definition of the Contract of Sale
•
Demonstrate an understanding of the contract of sale
3.2 Requirements for Sale Contracts
•
Understand the nature of a contract of sale
3.3 The Transfer of Ownership
•
Discuss the transfer of ownership with regards to contract of
sale
•
Understand the essential elements of a sale
3.5 Duties of the Parties
•
Explain the obligations of both the buyer and seller
3.6 Warranties
•
Explore warranties against eviction and defects
3.7 Remedies
•
Understand the remedies available for both the buyer and
3.4 Essential Elements for the
Contract of Sale
seller
Prescribed and Recommended Textbooks/Readings
Prescribed Reading(s)
•
Kopel, S. (2022). Guide to Business Law. Seventh Edition. Cape Town:
Oxford University Press.
Recommended Reading(s)
•
Bradfield, G., Kahn, E. and Lehmann, K. (2022). Principles of the Law
of Sale and Lease. Eighth Edition. Durban: LexisNexis.
•
Du Plessis, J.V. and Fouché, M.A. (2019). A practical guide to labour
law. Ninth Edition. Durban: LexisNexis. Unit 6 of module guide.
•
Hutchison, D., Pretorius, C.J. and Naudé, T. (2022). The Law of
Contract in South Africa. Fourth Edition. Cape Town: Oxford University
Press.
•
Scott, J. et al. (2020). The Law of Commerce in South Africa. Third
Edition. South Africa: Oxford University Press. Unit 3, 4 and 5 of module
guide.
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3.1 Definition of the Contract of Sale
A contract for the sale of property requires a mutual agreement whereby one person (‘the buyer’) agrees to deliver
a specified object (the merx) to another party (‘the seller’). The buyer in return agrees to pay the seller the agreed
purchase price (pretium).
3.2 Requirements for Sale Contracts
As with all contracts, the general requirements for a valid contract must be satisfied. Generally, there are no
formalities that need to be adhered to in the contract of sale, however, there are various pieces of legislation that
may prescribe formalities for the sale of certain types of property. There are two legislations that have been
developed in recent years which have significantly impacted on the law of sale in South Africa and are worth
discussing at the outset of this chapter.
Activity 1
List and briefly discuss the general requirements for valid contract?
3.2.1
The Consumer Protection Act 68 of 2008
The Consumer Protection Act 68 of 2008 (CPA) aims to regulate ‘transactions for the supply of goods and services’.
The CPA will apply to all sale agreements (unless specifically exempted), the promotion of goods and to sellers of
goods.
The CPA will not apply to:
•
Goods promoted or sold to the State
•
Contracts of sales where the buyer is a juristic person. Therefore, the CPA will not apply to commercial
contracts where the freedom to contract operates unrestricted. The CPA will only apply to commercial
activity where the consumer is a small juristic person with an asset value or annual turnover of less than
1 million rand
•
3.2.2
The contract amounts to a credit agreement under the National Credit Act 34 of 2005
The National Credit Act 34 of 2005
The National Credit Act 34 of 2005 (NCA) will apply to all sale contracts which constitute credit agreements. The
buyer will be referred to as the ‘consumer’ and the seller referred to as the ‘credit provider’. As with the CPA, the
NCA will apply to all credit agreements unless otherwise exempted.
The NCA requires certain agreements to be reduced to writing, however, non-compliance with this requirement
does not render the contract void.
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3.2.3
Alienation of Land Act 68 of 1981
Unit 2(1) of this Act states that any alienation of land will not be valid and enforceable unless it is contained in a
deed of alienation and signed by the parties or their agents.
3.3
The Transfer of Ownership
Generally, parties enter into a contract of sale with the intention of transferring ownership in the merx to the buyer,
however, the law of sale does not regulate the transfer of ownership. The law of property, however, states that the
following requirements must be satisfied before ownership may be transferred.
3.3.1 The seller must be the owner of the property
The seller must be the owner of the property or must have been given a mandate by the owner to sell the property.
If the seller delivers the merx to the buyer but is not yet the owner of the merx, the buyer will not necessarily acquire
rights of ownership over the property but only the rights the buyer influenced over such property, e.g. possession.
There is therefore an obligation on the seller to obtain ownership of the item and then transfer it to the buyer. If the
seller sells an item without the knowledge or consent of the owner, the owner of the property may recover
possession of the property at any time from the buyer by means of the rei vindicatio action (this action is available
to the owner even if the buyer has already paid the purchase price).
3.3.2 Intention to transfer ownership
At the moment of transfer (generally delivery of the merx) the seller must have the intention to transfer the
ownership of the property. At the same time, the buyer must have the intention to acquire ownership of the property.
With regard to movable property, even though delivery may take place, ownership will not pass to the buyer until
the full purchase price has been paid.
If a seller fails to claim payment of the purchase price within a reasonable time, it may be inferred that it was a
credit sale. If it can be inferred from the contract that the buyer was not required to pay the purchase price on the
delivery of the merx, it will once again be deemed to be a credit sale. When it is unclear whether the contract of
sale is one of credit or sale, the terms of the contract, the surrounding circumstances and the actions of the parties
at the time of contracting will be considered by a court.
3.3.3 Delivery of the property
a.) Immovables
The ownership of immovables will only pass to the buyer on registration of the transfer of the property from the
seller’s name to the buyer’s name in the Deeds Registry Office.
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b.) Movables
There are two main ways of delivering movables:
Actual delivery: Is physically handing the thing over to the buyer or putting him into “effective control” of
the thing, e.g. the seller hands the cell phone over to the buyer, or gives him the keys to the new
warehouse.
Constructive delivery: This means the doing of something which the law accepts as being the same as
actual delivery. There are five kinds of constructive delivery:
Think Point 2
There is a difference between (a) the agreement by the seller and the
purchaser to sell a thing for a price and (b) the passing of ownership from the
seller to the buyer which will only happen when the seller delivers the thing to
the purchaser.
3.4
3.4.1
Essential Elements for the Contract of Sale
There must be an agreement on the merx
The parties must reach agreement on the property to be sold. The property may take any form, for e.g. movable
property, immovable property or incorporeal property. There are, however, various legislation which will dictate
whether or not certain types of property may be sold and if such property is sold, stipulate the conditions thereof.
It is not a legal requirement of the contract of sale that the seller be the owner of the property; the seller merely
agrees to deliver undisturbed possession of the property to the buyer.
With regard to whether the property is in existence at the time the contract of sale is entered into will require two
different situations to be looked at. Firstly, there is the situation where the parties are under the misapprehension
that the property is in existence when in fact it is not. In this instance, the contract entered into will be void abnitio.
In the second situation, whilst the property is not in existence at the time of contracting, both parties expect it to
come in existence in the future. The parties may include suspensive conditions into the contract stating that the
purchase price will only be payable once the property has materialised. However, for this type of contract to be
entered into, the property must be certain or ascertainable at the time of contracting. If the property is not
identifiable or cannot be identified, the contract may be found to be void on the grounds of vagueness.
3.4.2
There must be agreement on the price
The parties must reach consensus on the purchase price either expressly or tacitly. The parties must agree on a
price that is in money and in a legally recognised currency. The purchase price must be already ascertained or
ascertainable in money.
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The parties may specify the exact amount of the purchase price in the contract or may agree on a manner in which
such amount will be determined in the future. The purchase price does not need to reflect the actual value of the
property, but the price should not be so minor as to mask a donation for a sale.
The parties must also have the intention that the purchase price is actually paid when it becomes due and payable;
if this intention is absent, despite the terms of the contract, the contract will not be one of sale.
Activity 1
Bradley is getting married soon and wants to sell some of his things. He
decides that he no longer requires his pool table and believes that R5000.00
will be a reasonable sale price. Before Bradley puts out a public advertisement,
he asks his friends if they are interested in buying the pool table at the said
price. His best friend, Adele, makes an offer of R3500.00 even though Bradley
knows that Adele does not really have that amount of money. Has a valid offer
been made by Adele? Provide a reason for your answer?
3.5
Duties of the Parties
Parties will be legally bound by terms and conditions agreed to in the contract. With regard to statutory
requirements, parties will be bound by them even if they have not specifically agreed to them. These obligations
will be enforceable through the operation of law. According to the common law of sale, there a few obligations that
must be fulfilled by the parties.
3.5.1
The sellers’ obligations
a.) The duty to take care of the goods
The seller is responsible for all loss or damage caused (negligently) to the merx; until delivery has taken place.
Accordingly, the seller will not be liable for an accidental loss or damage to the merx once the contract of sale is
concluded.
The parties may contract to vary the general principles of common law that apply to the passing of risk.
In terms of the common law, the risk of accidental loss or damage to the merx will rest with the buyer when the
contract is complete (perfecta). The contract will be complete when:
•
All conditions attached to the contract has been fulfilled
•
The price can be determined
•
Their property sold must be determined
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It is important to note that risk may pass to the buyer even if delivery has not taken place and/or ownership passed
to the buyer.
b.) The seller’s duty to take care of the goods
If the sale is complete but delivery has not yet occurred, the seller has a duty to take reasonable care of the merx.
If it is found that the seller’s duty of care did not meet the standard of a reasonable person, he will be liable for the
loss or damage to the property on the basis of negligence.
However, if the merx sustains loss or damage through no reasonable fault of the seller, the buyer will only have
two remedies available to him. The buyer may cancel the contract on the basis of impossibility of performance; or
receive the damaged goods and request a reduction in the purchase price.
3.5.2
The buyer’s obligations
a.) The buyer must pay the purchase price
The buyer must pay the purchase price when it becomes due and payable. If the contract is silent on when the
price should be paid, it will be deemed to be payable upon delivery of the merx. However, as discussed above, the
parties may vary the common law position by agreement.
Generally, the seller is entitled to insist that payment of the purchase price is in cash and payment must take place
where delivery takes place.
With regard to credit sales, the time and place for payment will be set out in the contract and only take place after
delivery of the merx. If the payments are going to be done in instalments, the time and place must be specifically
stipulated in the contract and include provisions relating to interest charged if applicable.
With regard to the sale of immovable property, payment will generally take place at the time the property is
transferred to the buyer. In most transactions for the sale of immovable property, the seller will only transfer the
property upon receipt of bank guarantees or security from the buyer within time limits agreed to by both parties.
b.) The buyer’s duty to receive the goods
The buyer must receive the goods at the time and place agreed upon. If the parties have not agreed on a specific
time and place, the goods must be collected by the buyer within a reasonable period of time. The goods may be
collected at the buyer’s place of business or the place at which the merx was situated at the time of contracting.
If the buyer refuses or fails to receive the goods, he will liable for a breach of contract. The seller may then claim
damages for the costs incurred as result of the breach, such as storage costs.
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If at the time of delivery, the buyer feels that the goods do not meet the standard or description agreed to, he is
entitled to refuse to accept such goods and claim damages from the seller based for breach of contract or positive
malperformance.
If the buyer finds that after delivery has occurred, the merx is defective, he must give notice of such defect to the
seller within a reasonable time period.
3.6 Warranties
3.6.1
Warranty against eviction
A warranty against eviction is a promise by the seller that the buyer will not be dispossessed of the merx. If the
seller is aware that he is not the owner of the property and fails to tell the buyer; and the buyer is subsequently
dispossessed of the merx, the buyer is entitled to cancel the contract on the basis of fraud.
If on the other hand, the seller is not aware that he is not the owner of the property and contracts a bona fide sale
with the buyer, the contract remains valid and enforceable. The buyer will then have a remedy against anyone who
threatens to dispossess him of the property (provided that such dispossession is not by the owner who has a real
right in the property).
The warranty will provide the buyer with the following remedies upon dispossession:
•
He may cancel the contract
•
He may claim the value of the merx at the time of dispossession
•
He may claim the purchase price
•
He may claim damages for any cost incurred
•
He may also claim interest from the date of demand
3.6.2 Warranty against defects
In terms of the common law, the seller is liable for any latent defects (a defect that a reasonable person would not
have discovered upon inspection of the merx) discovered by the buyer whether or not he was aware of such
defects. The seller may be held liable for the latent defects if the following requirements are satisfied.
•
Defect in the merx – this refers to an attribute or quality of the merx which impairs the utility of it and
undermines the purpose for which it was sold
•
The defect must not be minor – the defect will only be considered if it renders the merx less useful for its
usual purpose
•
The defect must be latent – this looks at whether a reasonable person in the position of the buyer would
have discovered the defect. This is an objective test
•
The defect must have been existence at the time the parties entered into the contract – the surrounding
circumstances will be looked at. This is a subjective test
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The seller may exclude any liability for latent defects if both parties agree that the merx is sold ‘voetstoots’ (as is).
The buyer thus agrees to buy the merx and bear the risk of any latent defects. The responsibility then rests with
the buyer to inspect the merx. The seller will not be able to rely on a voetsoots clause and is liable for fraudulent
misconduct where he was aware of the latent defect and deliberately remains silent about it.
3.7 Remedies
3.7.1
The actio rehibitoria
The actio rehibitoria will be used by the buyer to rescind the contract, if the buyer can prove that he would not have
bought the goods had he been aware of the latent defect. Here the court will look at the degree of impairment that
the defect causes to the utility of the merx. If the buyer is able to prove the above, he will be entitled to cancel the
contract and claim restitution.
Restitution will place the buyer in the same position he was in before he performed in terms of the contract of sale
i.e. the repayment of the purchase price with interest. Therefore, if the buyer has already paid the purchase price,
he will be able to claim back the purchase price as well as interest. Restitution will further allow the buyer to claim
for reasonable losses incurred as a result of the transaction. Restitution also obliges the buyer to return the
defective merx to the seller unless this is impossible through no fault of his own. (The buyer will not be able to use
this remedy and simultaneously claim damages.)
3.7.2
The actio quanti minoris
The actio quanti minoris is available to the buyer where there is a latent defect but the buyer chooses to abide by
the contract. The buyer may claim a reduction in the purchase price and retain possession of the merx; the
reduction in the purchase price will take into account the difference between the value of the defective merx and
the value of a similar merx without any defect. Another method used to determine the amount of the reduction in
the purchase price would be the costs of the repairs in removing the defect.
The buyer must choose either a remedy based on the actio rehibitoris or the actio quanti minoris.
The buyer can lose his right to these actions for latent defects if he does not act quickly once he finds out about
the latent defect. He cannot wait six months and then take a faulty radio back to the shop and claim restitution or
a reduction in price. Also if the buyer knows about the defect at the time that he buys the goods, but still buys them
despite the defect, he cannot later claim against the seller. Even if the buyer did not know about the defect at the
time he buys the goods, but finds out about the defect soon after buying the goods and instead of taking them back
to the seller, he tries to repair the goods himself or have someone else repair the goods, he will not be able to use
these actions against the seller. The reason is that the law presumes that he is prepared to accept the goods with
the latent defect.
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A seller can protect himself against a buyer's claim for latent defects by putting a voetstoots clause into the contract
of sale. This will mean that the buyer takes the goods as they are. If the goods later turn out to have a latent defect,
the buyer cannot take them back and claim restitution or a reduction.
Consumers must be very careful about buying goods which are sold voetstoots. The only way a buyer can claim
against the seller where there is a voetstoots clause is where the seller knew about the defect in the goods and
was fraudulent in selling it knowing that it had a serious problem or defect. But this is difficult for the buyer to prove.
Think Point 3
Can you recall having bought a product that proved to be faulty? What was it?
What did you do about it? What was the result of your action?
Reading
The Consumer Protection Act 68 of 2008 for more information of the
comprehensive liability of manufacturers and dealers who are considered to be
specialised sellers bearing specialised liabilities.
D & H Piping Systems (Pty) Ltd v Trans Hex Group Ltd and Another 2006 (3) SA
593 (SCA).
Knowledge Check Question 1
1. Explain what is meant by “a particular price”.
2. Name the two implied warranties in a contract of sale.
3. What is a latent defect?
4. Briefly explain what is meant by the passing of the risk?
5. What is the general rule for the passing of ownership?
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Unit
4:
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The Law of Lease
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Unit Learning Outcomes
CONTENT LIST
UNIT LEARNING OUTCOMES
4.1 Introduction
•
Introduce topic areas for the unit
4.2 The Essential Elements of a
•
Explain the essential elements of a lease
4.3 Formalities
•
Understand the formation of a contract of lease
4.4 Duties of the Lessor
•
Explain the duties of the landlord
4.5 Duties of the Lessee
•
Explain the duties of the tenant
4.6 Termination of the Lease
•
Discuss the ways in which a lease can be terminated
Lease Agreement
Prescribed and Recommended Textbooks/Readings
Prescribed Reading(s)
•
Kopel, S. (2022). Guide to Business Law. Seventh Edition. Cape Town:
Oxford University Press.
Recommended Reading(s)
•
Bradfield, G., Kahn, E. and Lehmann, K. (2022). Principles of the Law of Sale
and Lease. Eighth Edition. Durban: LexisNexis.
•
Du Plessis, J.V. and Fouché, M.A. (2019). A practical guide to labour law.
Ninth Edition. Durban: LexisNexis. Unit 6 of module guide.
•
Hutchison, D., Pretorius, C.J. and Naudé, T. (2022). The Law of Contract in
South Africa. Fourth Edition. Cape Town: Oxford University Press.
•
Scott, J. et al. (2020). The Law of Commerce in South Africa. Third Edition.
South Africa: Oxford University Press. Unit 3, 4 and 5 of module guide.
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4.1
Introduction
The law of lease deals with the letting and hiring of immovable property and involves a contract between the
landlord (lessor) and the tenant (lessee). A lease agreement is made up of mutual agreements between the parties
whereby the lessor will provide temporary use and enjoyment of the property in return for payment of money from
the lessee.
4.2
The Essential Elements of a Lease Agreement
•
The lessor will bind himself to provide use and enjoyment of the property to the lessee
•
The use and enjoyment of the property by the lessee will only be temporary
•
The lessee binds himself to pay a specified amount of money in return for use and enjoyment of the property
4.2.2
Use and enjoyment of the property
There is no requirement that the lessor must provide the lessee with full use and enjoyment of the property; partial
use and enjoyment of the property may be granted.
The property to be let must be identified or be able to be identified. The lessee only acquires temporary use and
enjoyment of the property with the intention of returning the property, in the same condition, it was leased to him.
4.2.3
The duration of the contract of lease
The lessee will only be given temporary use and enjoyment of the property; this does not prevent the parties from
renewing the contract. It is a not requirement of the lease that the duration of the lease be for a definite time. The
contract may include conditions which state that the lease will run until a specified event occurs or will terminate
upon the occurrence of the specified event. Therefore, the lease may be concluded for an indefinite time and be
terminated upon notice by either party.
4.2.4
The rent
The lessee must agree to pay rent; the rent to be paid must be certain or ascertainable. Therefore, the parties may
agree on a method of calculating the amount of rent to be paid rather than a specific amount. The parties may
agree to an independent third party deciding on the amount of rent to be paid. Either party may set the amount to
be paid, insofar as the other contracting party agrees, however, the Rental Housing Act 50 of 1999 has the power
to set aside rentals that are considered to be excessive or exploitative.
Activity 1
1. Sandiya does not know when she will get another job and may consider
selling her property. Advise her on the rules relating to the sale of property
where the whole/part of the property has been leased.
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4.3
Formalities
There are generally no formalities attached to the leasing of property. With regard to long leases of immovable
property, the formalities in respect of the Lease of Land Act 18 of 1969, states that such leases must be registered
against the title deeds of the property.
4.4
Duties of the Lessor
4.4.1 The duty to deliver the property to the lessee
The lessor’s primary duty is to provide use and enjoyment of the property to the lessee. The lessor must deliver
the property to the lessee; ensure that the lessee has the property at his disposal and may begin undisturbed
occupation of the property. With regard to long leases, the lessor must assist the lessee in registering the lease
against the title deeds of the property.
The property delivered by the lessor must allow the lessee to use and enjoyment of the property. The parties may
specify the condition in which the property must be delivered, however, it is generally accepted that the property
must be delivered in a condition that is reasonable for the proper use and enjoyment of the property.
4.4.2
The duty to maintain the property in proper condition
The lessor must not only deliver the property in a condition that is reasonable for the use and enjoyment of it but
also maintain the property in such a condition for the duration of the lease. The parties may also vary the lessor’s
duty to maintain the property and apportion some or all of it to the lessee. The lessor will not be obliged to maintain
the property where the lessee has caused damages to the property.
• The lessee’s remedies if the lessor fails to deliver or maintain the property
a.) Where the lessor has failed or refuses to maintain the property in a reasonable condition, the courts are
slow to enforce specific performance as it if difficult to enforce. The lessee may repair the property himself
and thereafter claim the costs of repair from the lessor. Alternatively, the lessee may set off the costs of the
repair against the rent due to the lessor. The lessee will only be able to recover the costs of repair if the
lessee:
o
had given the lessor notice of his intention to repair the property and
o
allowed the lessor reasonable time to repair the property
See: Mpange v Sithole 2007 (6) SA 578
b.) Should the lessor fail to perform any of his duties; and the lessee cannot objectively be expected to be satisfied
with the defective performance, the lessee will be entitled to cancel the contract.
c.) If at the time of delivery, the lessor delivers property that is defective, the lessee may choose not to accept
such delivery and may cancel the contract. If whilst the lease is already in existence, the property becomes
defective to the point that the lessee cannot objectively be expected to continue with the lease (property must
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be rendered practically useless for their purpose); the lessee must first provide the lessor with an opportunity
to remedy the situation and thereafter cancel the contract if the lessor fails to perform.
d.) If the lessor fails to deliver or to maintain the property in a reasonable condition, the lessee will only be able
to claim consequential damages if:
•
he can prove that the lessor knew or ought to have known of the defective property
•
the lessor failed to remedy the situation
See Fourie NO v Hansen 2001 (2) SA 823 (W)
e.) The lessee, may choose to abide by the lease even though the property is defective if he believes that the
defect is not serious enough to warrant cancellation. In this instance, the lessee will be able to claim a reduction
in rent to the extent that the use and enjoyment of property was impaired by the defect.
4.4.3
The duty to ensure the lessee’s undisturbed use and enjoyment of the property
The lessor must ensure that the lessee has the property at his disposal and is free to use and enjoy it without being
disturbed by the lessor or anyone else. In other words, the lessor must not unreasonably disturb the lessee from
using and enjoying the property and further prevent third parties with superior title from disturbing (evicting) the
lessee.
a.) The lessor disturbing the lessee
The lessor must not unlawfully disturb the lessee’s use and enjoyment of the property, however, a lessor is entitled
to enter the leased property for the purpose of effecting repairs. If the lessor cannot complete the repairs whilst the
lessee is in occupation of the property, he may compel the lessee to vacate the property.
Apart from effecting repairs, the lessor also has the right to inspect the leased property. According to Unit 4 (2) of
the Rental Housing Act 50 of 1999, a lessor may only exercise his right of inspection in a reasonable manner and
after reasonable notice to the lessee.
Should the lessor unlawfully disturb the lessee’s use and enjoyment of the property, the lessor will be guilty of
committing a breach of contract and the lessee will have the usual remedies for breach of contract available to
him. However, an interdict is the normal means of restraining the unlawful conduct of lessors in these instances. If
the lessor has unlawfully prevented the lessee from entering and occupying the property, the lessee may recover
his rights by means of the mandament van spolie action that is, a person who has been dispossessed of property
without due legal procedure may apply to court to have the property returned to him. The lessee will only be entitled
to a reduction in the rent payable for the period he was deprived of the use and enjoyment of the property.
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Think Point 2
What should happen in a case where a landlord suspects that a tenant is using
the premises for an unauthorised and possibly illegal business? Should the
landlord be allowed to ‘snoop around’ while the tenant is out so as to make sure
there is nothing illegal happening on his premises?
b.) Third party with superior title disturbing the lessee
As mentioned above, the lessor has a duty to prevent a third party, who claims to have a superior title, from
disturbing the lessee’s use and enjoyment of the property. If the lessor is unable to prevent a third party from
disturbing the lessee’s use and enjoyment of the property, the lessor must compensate the lessee for such
disturbance. If the lessee is in fact evicted and/or disturbed, the lessor will be liable for a breach of contract and
the normal remedies for breach of contract will be available to the lessee.
The lessee is required to notify the lessor of any threaten eviction to allow the lessor to remedy the situation. The
lessee will be entitled to a reduction in rent in accordance with the deprivation of his use and enjoyment of the
property.
4.5 Duties of the Lessee
4.5.1 The lessee’s duty to pay the rent
The lessee’s primary obligation is to pay the rent and to pay such rent in the legal tender of the country. The parties
may vary the common law position that the rent should be paid in arrears. For instance, the parties may agree that
the rent be paid in advance or on a specific date every month. A lessee normally has the last moment on the last
day to make payment.
Parties may agree that payment be made at a particular office and it will be accepted that parties intended that
payment be made during the business hours of that office. If the parties have agreed on a time but no place for
payment, the duty is on the lessee to find the lessor to effect payment and avoid defaulting on payment.
If the lessor has not specified a date for payment, he will first have to stipulate the date by means of a letter of
demand before the lessor can fall into default.
a.) The lessor’s remedies on the lessee’s breach
There are two ways in which a lessor may breach the contract with regard to payment of rent. The first way is by
defaulting on the payment of the rent and the second is by denying liability for the rent at all. In both instances the
lessor has the usual remedies for breach of contract available to him. If the lessor elects to cancel the contract, he
may claim damages for any loss suffered as well as accrued arrear rent.
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b.) The lessor’s tacit hypothec for unpaid rent
The lessor’s tacit hypothec secures his claim against the lessee for any unpaid or arrear rental. The hypothec
attaches to all movable property brought onto the leased property by the lessee, as well as any fruits or crops that
accrue to such movable property. The lessor will be entitled to utilise the hypothec when the lessee defaults on
payment of the rent, however, there are certain requirements that must be taken by the lessor to perfect the
hypothec. There are various types of property that will be subject to the lessor’s hypothec such as:
i.) The lessee’s property
All movables that belong to the lessee falls within the bounds of the hypothec. The movable property may include
money or property that the lessee is unaware of but is situated on the property.
ii.) The sub-lessee’s property
The sub-lessee’s property will only be subject to the hypothec to the extent that the sub-lessee has rent due and
payable to the lessee.
iii.)
Property of a third party
According to Bloemfontein Municipality v Jacksons Ltd 1929 AD 266, the property of a third party will be subject to
the lessor’s hypothec if:
•
The goods were brought onto the leased property
•
With the consent of the third party
•
With the intention that they remain on the property indefinitely
•
For the use of the lessee
•
The third party has the opportunity to declare his ownership to the lessor and fails to do so; and
•
The lessor is unaware that the goods belong to a third party
The third party’s property will only form part of the hypothec to the extent that the lessee’s property does not satisfy
the arrear rent due to the lessor.
iv.) Perfection of the lessor’s hypothec
The hypothec is only enforceable when the lessee’s payment of rent is in arrears. The lessor must obtain a court
order by providing proof to the court that the lessee’s payment of rent is in arrears. The court order will have the
effect of attaching the goods and interdicting the lessee from removing such goods from the leased property.
According to the common law, the court order is brought against the lessee on notice and has the effect of making
the lessor a ‘privileged creditor’. The hypothec will terminate once payment of the arrear rental occurs; upon such
termination, the lessor must return all attached movable property to the rightful owner.
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According to The Magistrates’ Courts Act 1944, the lessor may apply for an automatic rent interdict which may be
issued when the summons for claiming arrear rent is issued. The interdict has the effect of preventing any person
from removing any goods subject to the lessor’s hypothec before a court decision has been made on the matter.
4.5.2 The lessee’s duty of proper use and care of the property
Generally, the lease contract will stipulate the purpose for which the property has been leased but parties may also
agree upon the purpose tacitly:
•
The lessee may use and enjoy the property for the purpose for which the lessor anticipated it to be used
and be enjoyed
•
For the purpose for which it had been previously used
•
Or for the purpose that flows from the nature of the property
Furthermore, in using the property for its said purpose, the lessee is required to use and care for the property in
the same manner he would have done if he was the owner of the property.
a.) The lessor remedies in the event the lessee misuses the property
The normal contractual remedies will accrue to the lessor upon the lessee’s breach of the contract. The lessor may
obtain an interdict preventing the lessee from using the property unreasonably, improperly and for anything other
than its contemplated and intended purpose. The lessor may be entitled to cancel the contract provided the contract
has a forfeiture clause or the breach is serious. The lessor will be entitled to claim damages if the lessee’s improper
use of the property results in loss to the lessor. However, if the breach committed does not allow for a cancellation,
the lessor will not be able to claim for damages prior to the expiry of the lease as the lessee is still able to restore
the property to good order.
4.5.3 The lessees’ duty to restore the property in termination of the lease
The lessee only has a right to temporary use and enjoyment of the leased property; upon termination of the lease,
the lessee is obliged to return or restore the property to the lessor. The lessee’s failure or refusal to return the
property will constitute ‘unlawful holding over’ of the property which amounts to a breach of the contract. Whilst the
lessor’s right against the lessee will include the right to terminate the contract, The Rental Housing Act 50 of 1999
indicates that a lessor bears the onus of proving that the termination of a lease does not amount to an unfair
practice and is permitted in terms of the lease itself.
a.) The lessor’s remedies on the lessee’s breach
Should the lessee fail or refuse to the return the property or return the property in the condition it was given to him,
the lessor will have his usual contractual remedies for breach of contract available to him such as specific
performance and damages for any loss incurred.
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Legal process must be adhered to when a lessor contemplates the eviction of a lessee. With regard to the eviction
of commercial lessees, the lessor must prove that he is the owner and that the lessee is in occupation of the leased
property.
With regard to lessee’s who have leased the property for residential purposes, the provisions of The Prevention of
Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998 will apply. The courts have stated that the
aim of the Act is to regulate eviction in a fair manner. The Court, in considering the circumstances of the case
(rights and needs of the elderly, children, disabled person etc.), will only order eviction where it is just and equitable
to do so.
See Ndlovu v Ngcobo; Bekker and another Jika [20020] All SA 384 (SCA).
Section 26 of the Constitution (Act 108 of 1996).
4.6
Termination of the Lease
A contract of lease may be terminated through the usual means of terminating a contract, such as:
•
The parties have fully and properly performance all of their contractual obligations
•
Mutual agreement by the parties
•
The matter has prescribed
•
There has been supervening impossibility of performance
•
There are also specific ways in which a lease contract may be terminated
a.) Effluxion of time
If the parties have agreed that the lease contract will be for a specified period of time, the contract will terminate
automatically upon expiry of such time.
b.) Termination by notice
If the parties have not specified a specific date upon which the contract will terminate, either party may terminate
the contract upon reasonable notice to the other. The period of notice must allow the lessor sufficient time to lease
the property to another or allow the lessee sufficient time to find alternative accommodation.
The notice of termination will only be deemed valid and enforceable when the other party receives actual
knowledge of it.
c.) Termination by extinction of the lessor’s title
Should, for any reason, the lessor’s title over the property terminate, the lease will not automatically terminate. If,
however, the lessee’s right to use and enjoy the property has diminished due to the lessor’s absence of title, the
lessee may claim damages from the lessor.
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The lessee will also be protected by the doctrine of the ‘huur gaat voor koop’ (lease before sale). In terms of this
doctrine even though the lessor sells the leased property and his title over the property has extinguished; the
lessee’s right to use and enjoy the property remains intact until lawfully terminated for any other reason other than
the sale itself.
d.) Termination by death
The lease will only terminate upon death of either party if the contract makes allowance for such termination.
Generally, the death of either party will not terminate the contract. The continuation of the lease contract will be at
the discretion of the executors of the late estates.
e.) Termination by insolvency
A person whose liabilities exceed his assets may be declared by the court to be insolvent. Once he is so declared,
he may not contract until he is granted permission to do so again by the court. If the court agrees, he is said to be
rehabilitated. Once the estate of the insolvent has been finalised and distributed, he is no longer responsible to
any of the creditors who lost money through his insolvency, even when he is later rehabilitated.
Once the debtor is declared insolvent, he is sequestrated and a trustee is appointed by the court to take away all
the debtor's remaining assets. The trustee then sells the assets, which is called realisation. The trustee then
distributes the proceeds to creditors with secured claims. This payment causes the discharged.
Knowledge Check Question 1
1. Discuss the duties of the lessor and the lessee in a contract of lease.
2. What ordinary and extraordinary remedies can a tenant use if the landlord
does not carry out his duties in terms of the lease?
3. What is the landlord’s tacit hypothec and in what circumstances can he use
it?
4. Explain the doctrine of “huur gaat voor koop”.
5. If a tenant makes improvements to the rented property what can he do when
the lease period is ends?
6. How can a lease be terminated?
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Unit
5:
The Law of Insurance
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Unit Learning Outcomes
CONTENT LIST
UNIT LEARNING OUTCOMES
5.1 Introduction
•
Introduce topic areas for the unit
5.2 Different Types of Insurance
•
Differentiate between indemnity and non-indemnity
insurance
5.3 Essentials of an Insurance Contract
•
Discuss the essentials of a contract of insurance
5.4 The Insured’s Duty of disclosure
•
Discuss the duty of disclosure
5.5 Manner in Which Claims must be
•
Identify the ways in which claims must be lodged
•
Discuss the requirements that must be satisfied before an
brought
5.6 The Doctrine of Subrogation
insurer can initiate the subrogated claim
Prescribed and Recommended Textbooks/Readings
Prescribed Reading(s)
•
Kopel, S. (2022). Guide to Business Law. Seventh Edition. Cape Town:
Oxford University Press.
Recommended Reading(s)
•
Bradfield, G., Kahn, E. and Lehmann, K. (2022). Principles of the Law of
Sale and Lease. Eighth Edition. Durban: LexisNexis.
•
Du Plessis, J.V. and Fouché, M.A. (2019). A practical guide to labour law.
Ninth Edition. Durban: LexisNexis. Unit 6 of module guide.
•
Hutchison, D., Pretorius, C.J. and Naudé, T. (2022). The Law of Contract
in South Africa. Fourth Edition. Cape Town: Oxford University Press.
•
Scott, J. et al. (2020). The Law of Commerce in South Africa. Third Edition.
South Africa: Oxford University Press. Unit 3, 4 and 5 of module guide.
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5.1
Introduction
There are various reasons for a business experiencing a financial loss. All businesses risk damage to their property
or liability for the actions of their employees. To safeguard against potential legal liability and to allow the business
to continue to exist, should any of the contemplated risks materialise, businesses mandate another entity to bear
such risk on its behalf. Therefore, insurance deals with the transfer of risk whereby one party (the insurer) will
indemnify another party (the insured) should a specified risk occur. In return, the insured agrees to pay a certain
some of money (the premium) to the insurer.
5.2
Different Types of Insurance
5.2.1 Indemnity Insurance
Indemnity insurance is an undertaking by the insurer to compensate the insured for a specified financial loss (to
be calculated at the time of loss) that may or may not occur. Should the specified event materialise, the insured
will be reimbursed the actual patrimonial loss incurred? Examples of indemnity insurance include property
insurance and liability insurance.
5.2.2
Non-indemnity insurance
Non-indemnity insurance is an undertaking by the insurer to compensate the insured for a specific amount (amount
calculated in advance) on the occurrence of a specified event. The value attached to this type of loss incurred by
the insured will not necessarily correspond with the actual patrimonial loss suffered by the insured. The amount of
compensation to be paid by the insurer will be agreed to between the parties. An example is life insurance.
Activity 1
List all the possible events that may take place at some point in your life that you
may need to insure against. Is it possible to think of everything? Is it possible to
know how many of these things will actually happen?
5.3
Essentials of an Insurance Contract
5.3.1 The insurer undertakes to pay or perform something
The insurer agrees to pay the insured an amount of money on the occurrence of an event contemplated by the
parties. The insured has the discretion to decide the manner in which he utilises the money paid to him to
compensate for his loss. For instance, the insured may or may not choose to utilise a pay-out by the insured to
repair an insured vehicle damaged in an accident. It is also common for an insurer to include a ‘reinstatement
clause’ in the contract which reserves the insured’s rights to either pay the insured a particular amount of money
or to take it upon himself to have the damaged property repaired or replaced.
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5.3.2 The insured undertakes to pay a premium
The insured undertakes to pay a premium to the insured. It is not a prerequisite that the insured actually pays a
premium in order for the contract to become valid and enforceable. The contract will come into being if the insured
undertakes to pay a premium in the future. Insurance policies may stipulate a date upon which the premium must
be paid and it is generally accepted that such premium must be paid in money.
5.3.3 On the happening of an uncertain event
There are two ways in which an event may be regarded as uncertain. Firstly, the parties may be uncertain as to
whether the event will or will not materialise. Secondly the parties may be uncertain as to when the event will occur.
Think Point 1
Relatively few young people buy life insurance. Why? Do you think they should?
What might change their attitude toward buying insurance?
5.3.4 To compensate the insured for the materialisation of the uncertain event
The performance tendered by the insured must meet legal requirements according to the type of insurance policy
entered into by the parties. With regard to indemnity insurance, the insured must be indemnified for patrimonial
losses caused by the uncertain event. In terms of non-indemnity insurance, the insurer must agree to pay the
insured a specified some of money upon the occurrence of the uncertain event.
5.4 The Insured’s Duty of Disclosure
The insurer’s decision to contract is dependent upon the information given to it by the insured to firstly calculate
the risk to be taken; and secondly to determine the premium payable by the insured. To ensure that such calculation
is correct and reasonable; the law requires the insured to make all material disclosures to the insurer.
When considering what would constitute a ‘material disclosure’, the courts consider whether a reasonable person
would have thought the disclosure would allow the insured to calculate the potential risk of the situation. The court
will also consider whether or not the insurer would not have entered into the contract or entered into the contract
on different terms had the insured disclosed all material facts.
The duty to disclose not only applies to the insured providing accurate information to all questions put to him but
also extends to disclosing, on his own accord, facts to the insured that are material to the policy. The insured is
obligated to disclose all information that is within his knowledge or which he should have known had it taken
reasonable steps to obtain such knowledge.
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Think Point 2
Is there anything that you believe you should have or would have to disclose when
applying for an insurance contract? Is there anything you would be tempted not
to disclose? Why?
5.5 Manner in Which Claims Must be Brought
The insurance contract will generally state the manner in which a claim must be lodged. The prescribed method
will usually include details regarding:
•
When and how the insured should be notified of the claim
•
How the claim should be lodged
•
Institution of legal proceedings should the claim be repudiated
Activity 2
Koos’ policy stipulates that losses must be reported to the police in the first
instance, within 48 hours, and then to the insurance company in writing, within
another 48 hours. When his car is stolen, Koos immediately telephones the
insurance company, but goes to the police after six days. Can he claim?
5.5.1 Fraudulent Claims
With regard to fraudulent claims, there are various ways in which an insured may commit fraud. Firstly, the insurer
may claim for losses which he has not actually incurred or may try to claim an amount in excess of the actual loss
suffered. Secondly the insured may fabricate evidence to give rise to a claim. Insurance policies will usually include
provisions which deal with fraudulent claims, such provisions may state that:
•
The fraudulent insured will lose his entire claim if it is in any part fraudulent
•
The fraudulent insured will lose any claim to damages he may have against the insurer
•
The policy will terminate upon discovery of any fraudulent behaviour on the part of the insured
5.6 The Doctrine of Subrogation
The doctrine of subrogation underpins the law of insurance and allows for the insurer to sue in the name of the
insured. It also prevents the insured from receiving both compensations from the insurer as well as from a third
party. In other words, the doctrine combats unjustified enrichment. The doctrine allows the insured to recover any
money that he may have paid-out to the insured.
The law of subrogation will only arise where the insured has a cause of action against a third party for compensation
of loss suffered by the said insured. The insurer then steps into the shoes of the insured for the purpose of instituting
legal action against the third party for any intentional or negligent harm caused to the insured or his property.
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There are three requirements that must be satisfied before an insurer can institute a subrogated claim against the
third party.
•
The insurance contract entered into must be valid and enforceable
•
The insurer must have indemnified the insured for any loss that may be incurred on the occurrence of an
uncertain specified event
•
The insured loss must have been fully compensated for by the insurer
Reading
Read Chapter 8
•
Sutherland, P and Van der Bijal, C .2014. The Law of Insurance. In:
Scott, J.et al. 2014. The Law of Commerce in South Africa. 2nd ed.
Cape Town: Oxford University Press, 301-324
Knowledge Check Question 2
1. What is the difference between indemnity and non-indemnity insurance?
Give some examples.
2. What are the four essential terms of the insurance contract?
3. What is meant by ‘a future uncertain event’?
4. What is the duty of disclosure? Why is it so important?
5. What are some of the reasons why a claim may be considered fraudulent?
6. When does an insurance contract terminate?
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Unit
6:
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Unit Learning Outcomes
CONTENT LIST
UNIT LEARNING OUTCOMES
6.1
Introduction
•
Introduce topic areas for the unit
6.2
Sources of Labour Law in South
•
Discuss the sources of labour in South Africa
Africa
6.3
The Contract of Employment
•
Identify the different types of employment contracts
6.4
Definition of ‘Employee’
•
Define employee
6.5
Essentials of an Employment
•
Identify the requirements for the validity of an employment
Contract
contract
6.6
Essentials of the contract
•
Identify the requirements for a valid contract
6.7
Duties of the Employer
•
Discuss duties of the employer
6.8
The Employee’s Remedies
•
Outline the remedies available to employees
6.9
The Employee’s Duties
•
Discuss the duties of the employee
6.10
Employers Remedies
•
Outline the remedies available to employers
6.11
Termination of the Employment
•
Discuss the ways in which the employment contract can
Contract
be terminated
6.12
The Employers Delictual Liability
•
Discuss the employers delictual liability
6.13
Overview of labour legislation
•
Outline the labour legislation
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Prescribed and Recommended Textbooks/Readings
Prescribed Reading(s)
•
Kopel, S. (2022). Guide to Business Law. Seventh Edition. Cape Town:
Oxford University Press.
Recommended Reading(s)
•
Bradfield, G., Kahn, E. and Lehmann, K. (2022). Principles of the Law of
Sale and Lease. Eighth Edition. Durban: LexisNexis.
•
Du Plessis, J.V. and Fouché, M.A. (2019). A practical guide to labour law.
Ninth Edition. Durban: LexisNexis. Unit 6 of module guide.
•
Hutchison, D., Pretorius, C.J. and Naudé, T. (2022). The Law of Contract
in South Africa. Fourth Edition. Cape Town: Oxford University Press.
•
Scott, J. et al. (2020). The Law of Commerce in South Africa. Third
Edition. South Africa: Oxford University Press. Unit 3, 4 and 5 of module
guide.
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6.1
Introduction
Labour law deals with all legal relationships that may arise in the workplace, be it individual (entered into between
the employer and an employee) or collective (entered into by several employees and the employer) relationships.
The employment relationship is governed by the employment contract which is informed by the basic principles of
the law of contract. There are further essential elements of the employment contract that are regulated by the
common law and endorsed by specific labour legislation.
6.2
Sources of Labour Law in South Africa
6.2.1 Common Law
The common law relating to employment law, and in particular, the employment contract has been inherited from
the custom and practices of Roman-Dutch and English law brought into South Africa in the early 1800’s. Whilst
there has been major legislative development in this area of law, the foundation of labour law still remains intact in
the common law principles of contract.
6.2.2 Legislation
Numerous pieces of legislation have been promulgated to specifically deal with employment issues as well as
promote constitutional values such as fairness and equality. While the discussion of every labour legislation is
beyond the ambit of this guide, there are several Acts worth noting and which continuously inform labour relations
in South Africa. These include.
•
The Labour Relations Act 66 of 1995
•
The Basic Conditions of Employment Act 75 of 1997
•
The Employment Equity Act 55 of 1998
•
The Unemployment Insurance Act 63 of 2001
•
The Occupational Health and Safety Act 85 of 1993
•
The Compensation for Occupational Injuries and Diseases Act 130 of 1993
•
The Employment Services Act 4 of 2014
6.2.3 Collective Agreements
Employment conditions entered in terms of sectoral determinations or agreements between trade unions and
employer associations will provide a part of and take precedent over individual contracts of employment in a
particular industry or sector.
6.2.4 International Labour Standards
The South African state is constitutionally bound to refer to international and foreign law when interpreting and
developing our domestic laws. Therefore, the conventions, and recommendations of the International Labour
Organisation and other international organisations must be considered by the courts.
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6.2.5 Constitutional Provisions
Section 23 of the Constitution states that everyone has the right to “fair labour practices”. Whilst the right to fair
labour practice has been entrenched in the law through the Constitution, it must be borne in mind that such rights,
as with most constitutional provisions, may be limited for justifiable reasons.
6.3
The Contract of Employment
6.3.1 Introduction
The ordinary contract of employment involves the rendering of labour or services by the employee to his employer
for remuneration. The employee in turn submits himself to the supervision and control of the employer. The
common law principles are still applicable however they have been largely expanded by labour legislation. Thus
where labour legislation is silent on a particular issue, the common law will apply.
6.3.2 Various Contracts that may arise in the workplace
•
Locatio conductio operarum – Ordinary contract of employment
This contract may be defined as a reciprocal contract in terms of which an employee places his services at the
disposal of the employer at a determined or determinable remuneration in return the employer acquires authority
over the employee and exercises supervision regarding the rendering of the employee’s services.
•
Locatio conductio operus – The contract of letting and hiring
This contract involves the letting and hiring of (piece) work between an employer and an independent contractor.
It may be described as a reciprocal contract between the parties in terms of which the independent contract
undertakes to build, manufacture, repair or alter a corporeal thing within a certain period and in return the employer
undertakes to pay the contract a specified remuneration or reward.
Activity 1
Identify and discuss the advantages of being an employee versus an independent
contractor.
6.4 Definition of ‘Employee’
The courts have favoured what is known as the ‘mixed’ or ‘dominant impression’ test. This test requires a
consideration of all the facts as evidenced from the agreement between the parties, trade practices and customs.
Some of the factors considered by the court will include:
•
That the person who alleges to be an employee is obliged to render his services personally and is not
allowed to delegate this obligation
•
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That he has to keep fixed hours and is paid a regular wage or salary
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•
That he is subject to the alleged employer’s disciplinary code
•
That he is entitled to benefits, such as membership of a pension fund or medical aid scheme
•
That he is subject to a degree of control by the employer
The above factors, when considered collectively, may assist in determining whether a person is, in fact, an
employee.
6.4.1 Presumption as to who is an employee
Section 83A of the Basic Conditions of Employment Act and (Section 200A of the Labour Relations Act), which
took effect in August 2002, introduced a rebuttable presumption of who an employee is. Section 83A provides as
follows:
(1) A person who works for, or renders services to, any other person is presumed, until the contrary is proved, to
be an employee, regardless of the form of the contract, if any one or more of the following factors is present
(a) The manner in which the person works is subject to the control or direction of another person;
(b) The person’s hours of work are subject to the control or direction of another person;
(c) In the case of a person who works for an organisation, the person is a part of that organisation;
(d) The person has worked for that other person for an average of at least 40 hours per month over the last three
months;
(e) The person is economically dependent on the other person for whom that person works or renders services;
(f) The person is provided with tools of trade or work equipment by the other person; or
(g) The person only works for or renders services to one person.
(2) SubSection (1) does not apply to any person who earns in excess of the amount determined by the Minister in
terms of Section 6 (3).
(3) If a proposed or existing work arrangement involves persons who earn amounts equal to or below the amounts
determined by the Minister in terms of Section 6 (3), any of the contracting parties may approach the CCMA for an
advisory award about whether the persons involved in the arrangement are employees.
The effect of this Section is that a person who earns less than the threshold (determined by the Minister from time
to time, currently R205 433.30 per annum) is presumed to be an employee if any one of the above indicators is
present. The onus is on the employer to prove the contrary. The result of S83A is if an employer fails to prove that
the person is an independent contractor, that person is deemed to be an employee,
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6.5
Essentials of an Employment Contract
The contract of employment, like any other contract, must comply with the basic requirements for a valid contract.
General requirements for the validity of a contract of employment:
6.5.1
Consensus
It is required that both parties have a serious intention to create mutual rights and duties to which they are legally
bound. Consensus is generally reached when there is an acceptance by one party of the other’s offer e.g.:
employee accepts the offer of employment made by the employer.
6.5.2
Capacity
The person must be legally capable of performing in terms of the contract. Some people have limited capacity and
therefore cannot enter into a contract e.g.: minors and persons married in community of property.
6.5.3
Legal competence
The parties to the contract of employment must be legal capable of performing in terms of the contract.
6.5.4
The contract must be possible
The contract of employment must not be in conflict with the law. Further, the contract must be physically possible
to perform in that the employee must be able to render the agreed services to the employer.
6.5.5 Formalities
If formalities are prescribed for the formation of the contract it must be observed.
6.6
Essentials of the Contract
A contract of employment is an agreement between two parties in terms of which one of the parties (employee)
undertakes to place his or her personal services at the disposal of the other party (the employer) for an indefinite
or determined period in return for a fixed or ascertainable remuneration, and which entitles the employer to define
the employee’s duties and to control the manner in which the employee discharges them.
Therefore, a contract of employment is:
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•
Voluntary
•
Between two parties
•
The employee agrees to perform certain specified and/or implied duties for the employer
•
For an indefinite or specified period
•
In return for payment of a fixed or ascertainable remuneration
•
Giving the employer a right to direct the employee as to the manner in his or her duties are carried out
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6.6.1 Agreement
It is required that both the employer and employee enter into a contract of employment freely and voluntarily. No
person can be compelled to work for another.
Duress (forced – can be physical or psychological), common misunderstanding about the material terms of the
contract or misunderstanding induced by intentional or unintentional misrepresentation will render the contract
void.
The agreement presupposes that at the time of contracting the parties were fully aware of the nature of the duties
to which they agreed and of the obligations i.e. employees renders personal services at the disposal of the
employer and the employer is required to remunerate the employee.
6.6.2 Formalities
The common law does not impose any formalities when concluding a contract of employment. A contract of
employment is concluded when an employee unconditionally accepts the employer’s offer of employment. Sections
28 and 29 of the BCEA requires that all employers who employ more than 5 employees to conclude agreements
with the employees setting out certain particulars. Failure to comply with this renders the contract void but it does
mean that the employer may be subject to certain penalties.
6.6.3 Commencement
A contract of employment commences when the parties have agreed to the essential terms e.g.: remuneration;
leave; hours of work and so on. The parties can agree to suspend the operation of the contract for a particular
period e.g.: the parties agree that the employee will commence working at some future date.
The employment becomes fully enforceable from the moment the parties reach consensus on the terms. However,
it is not necessary that the parties reach agreement on each and every detail of the conditions of employment,
these can be finalised at a later date. However, if agreement is not reached on fundamental terms such as duties
or remuneration no contractual relationship is formed unless in time the parties have taken to have tacitly
(words/conduct/practices) consented to the terms.
Tacit terms are read into the contract because it is assumed that although the parties did not include them expressly
they would have done so had they thought about it at the time of concluding the contract.
Implied terms are read into the contract irrespective of the intention or wishes of the parties – implied terms are
deemed by law to form terms of contracts even if the contracting parties were unaware of them.
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6.6.4 Content
The BCEA requires that the employer provide an employee with certain essential details at the commencement of
employment, this includes but not limited to:
•
The full name and address of the employer
•
The name and occupation of the employee or a brief description of the work
•
The place of work
•
The date of which employment commences
•
The hours of work
•
The wage or salary
•
The rate for overtime
•
Deductions
•
Leave
•
Notice period for terminating employment
•
Duration of employment
•
Safety and security
6.6.5 Specific Work
When the contract is concluded, the parties must agree on the work the employee will be required to perform. The
employee is obliged to do the agreed work provided that it is not unlawful or beyond the area of skill of the
employee.
6.6.6
Remuneration
The parties must agree on the remuneration to be paid to the employee at the conclusion of the contract.
Remuneration may be payable in cash and/or in kind. If remuneration is payable in money, the amount there of
need not be fixed but it must at least be reasonably ascertainable. Where remuneration is paid in kind, a value
must be attached thereto.
Think Point 2
It is common practice to pay labourers on wine farms partly in cash and partly
with cheap wine. Is this ethical? What are the social repercussions of such
employment practices?
6.7
Duties of the Employer
The employer has a number of duties arising from the contract of employment. Should he fail or refuse to comply
with these obligations, he will be committing a breach of contract and the employee will then have certain remedies
at his disposal.
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The employer has the following duties:
•
To accept the employee into his service
•
To provide the employee with work
•
To pay the agreed remuneration
•
To pay a quantum meruit
•
To provide safe working conditions
•
To comply with statutory duties
6.7.1 To accept the employee into his service
Because the rendering of services is a prerequisite for the payment of remuneration, it follows that the employer
will be committing material breach of the contract should he fail to take the employee into his service. The employee
will then be entitled to claim damages amounting to his actual loss, in other words, the amount he would have
earned in respect of the incomplete part of his period of service.
6.7.2 To provide the employee with work
In certain circumstances, an employer is obliged to provide work for the employee. An employer has to provide
work, failing which he will be committing breach of contract for instance, the employer must provide work for the
employee where the amount of remuneration is based on the amount of work done, or where the failure to provide
work for the employee has the effect of reducing the status of the employee.
Think Point 3
A client has asked you to provide six copies of a hundred-page contract document
within an hour. You ask the marketing assistant to give you a hand and she
refuses because photocopying is not her job. It is the job of the secretary who is
off sick. What now?
6.7.3 To pay the remuneration agreed upon
It is the employer’s most important obligation to pay the employee the agreed remuneration.
Where there is no agreement regarding the time of payment, payment will usually take place at the end of the
period of service. Where the employee is working for an uncertain or indefinite period, he must be paid on a regular
basis. The general rule is that the employee must render his services before receiving payment.
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6.7.4 To pay quantum meruit (‘As much as deserved’)
A quantum meruit is a reasonable remuneration for services rendered. Where an employee absconds from or
abandons their job before its completion, he is not entitled to any remuneration, not even a pro rata payment in
respect of the work actually completed. The employer will be obliged to pay the quantum meruit where the
employee was bona fide (in good faith) in not completing the work.
6.7.5 To provide safe working conditions
The employer is under an obligation to provide safe working conditions for the employee and must take reasonable
steps to ensure the safety of its employees. The employer may be held delictually liable if an employee is injured
due to the lack of safe working conditions.
6.8
The Employee’s Remedies
If the employer fails to comply with any of his obligations or fails to comply with them properly, he is in breach of
contract. The employee will then have certain remedies against the employer at his disposal such as:
•
Cancellation of the employment contract
•
Claiming specific performance
•
Claiming damages
•
Refusal to work
•
Statutory remedies
6.8.1 Cancellation
Material breach of contract by the employer allows the employee to resile (abandon a position or course of action)
from the contract. When the employee claims cancellation of the contract, it amounts to summary termination of
the contract, as opposed to where the employee gives due notice of termination. If the breach is less serious the
employee may cancel the contract by giving the required notice of his intention to terminate.
6.8.2 Specific performance
Specific performance in the form of reinstatement after an unfair dismissal warrants attention. Traditionally
reinstatement of the employee was never ordered, they were simply entitled to claim damages. A new trend
discovered by courts is although reinstatement would normally not be ordered, specific performance is not
excluded as a remedy for the employee.
The courts have discretion to refuse specific performance and award damages instead if they deem it to be in the
public interest that specific performance should not be granted. The fact that the relationship between the employer
and employee has irretrievably broken down is one of the factors which may induce the court not to award specific
performance.
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6.8.3 Damages
An employee who suffers a loss as a result of the breach of contract by the employer, may claim damages against
the employer. The amount of damages is calculated in accordance with the remuneration which he would have
received if the breach of contract had not taken place. The employee must, however, take reasonable steps to
mitigate his losses.
6.8.4
Refusal to work
The court has held that employees may refuse to work if their employer has committed a breach of contract. In one
case the employer had failed to pay his employees their weekly wages on a Friday, as a result of which the
employees collectively refused to work after reporting for duty on the following Monday. The court considered the
refusal by employees justified; just as an employer is not obliged to pay employees who fail to comply with their
contractual obligations - “no work no pay”- the employees may refuse to work if the employer fails to abide by his
obligations. A refusal to work in these circumstances does not constitute a strike, but rather a legitimate exercise
of contractual rights
6.8.5
Statutory remedies
In addition to common law remedies the employee may utilise the statutory remedies provided for in our labour
legislation. The Labour Relation Act, for example, provides dispute resolution measures in a variety of cases, such
as unfair dismissals, unfair labour practices, infringements in the freedom of association, disputes over
organisational rights and so forth. Generally speaking, a dispute can be referred to a bargaining council or the
CCMA (Commission for Conciliation, Mediation and Arbitration) for conciliation. If conciliation fails, the dispute is
arbitrated by the council or CCMA or adjudicated by the Labour court, depending on the nature of the dispute. The
Basic Conditions of Employment Act puts mechanisms in place for the recovery of outstanding payments and the
Employment Equity Act provides for the resolution of unfair discrimination disputes.
6.9 The Employee’s Duties
A contract of employment creates (expressly or tacitly) the following obligations for the employee:
•
To make his personal services available to the employer
•
To “warrant” his competence and reasonable efficiency
•
To obey the employer
•
To be subordinate to the employer
•
To maintain bona fides
•
To exercise reasonable care when using the employer’s property
•
To refrain from misconduct
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6.9.1
To make his services available
An employee is obliged to make his personal services available to the employer. The rule at common law is “no
work, no pay”. The employer may not force the employee to perform work other than agreed upon, unless the
parties have agreed to the performing of other work. The employee must commence working on the agreed date
and must obey all lawful instructions given by the employer. If he is absent without reason or consent, he is
committing breach of contract and such absence may be a reason for a summary dismissal,
6.9.2
To warrant his competence
When the contract of employment is entered into the employee tacitly guarantees that he is suitable for the work
and must therefore be able to do the work for which he was appointed. The standard of competence which the
employer is entitled to expect, will depend on factors such as the capacity in which the employee is engaged, his
level of skills and training or any promises made by the employee concerning his skills and abilities.
6.9.3
To obey the employer
The employee will be obliged to obey his employer and to perform all reasonable instructions. Disobedience
amounts to a breach of contract, but will not in all cases justify the dismissal. An employment relationship is founded
on mutual respect between the employer and employer, with the employer is in a position of authority. The
relationship is generally one of subordination. If an employee refuses to obey an instruction of the employer
dismissal may be justifiable if the instruction was reasonable and fell within the job description of the employee.
This indicates that an employee is allowed to disobey an unreasonable or unlawful instruction of the employer.
6.9.4 To be subordinate to the employer
The employer is in a position of authority and the employee is obliged to be subordinate to the employer and to
show him his due respect. Insubordination has been defined by the court as meaning - ‘when the employee refuses
to obey a lawful and reasonable command or request and the refusal is wilful and serious (wilful disobedience), or
when the employee’s conduct poses a deliberate (wilful) and serious challenge to the employer’s authority’.
Insubordination may assume a number of forms from verbal defiance, to the most serious being a refusal to obey
a reasonable instruction. An employee will be committing a breach of contract should he behave in a defiant
manner and may be dismissed accordingly.
6.9.5 Maintaining bona fides (Good faith)
The employee is obliged to act in good faith and not to do anything that may harm the relationship of trust between
himself and the employer. Dishonesty amounts to a breach of good faith and justifies dismissal.
6.9.6
To exercise reasonable care when using the employer’s property
The employee must at all times exercise reasonable care when using the property of the employer. Negligent
behaviour by the employee whereby damage is caused to the employer’s property constitutes a breach of contract.
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6.9.7
To refrain from misconduct
Misconduct is said to have occurred when an employee disregards the rules of the workplace. The Code states
that every employer must adopt disciplinary rules which establish the standard of conduct required of employees.
The rule will vary according to the size and nature of the employer’s business. The rules are intended to create
certainty and consistency.
Thus the employee must at all times act in accordance with acceptable practices, standards and policies of his
employer and may, not engage in any form of misconduct. Misconduct constitutes a breach of contract and may
justify dismissal in appropriate circumstances.
6.10 The Employer’s Remedies
If the employee does not comply with his obligations, he is in breach of contract and the employer will have the
following remedies at his disposal:
•
Summary Dismissal
•
Specific performance
•
Damages
6.10.1 Summary dismissal
The employer is entitled to dismiss the employee summarily (without notice) when the latter has committed a
material breach of contract. Some accepted common law grounds for the summary dismissal include:
•
Incompetence to do particular work
•
Refusal to work
•
Disobedience of reasonable commands
•
Rude behaviour towards the employer
•
Disclosure of trade secrets or the misuse of information obtained through his employment
•
Dishonesty in the scope of his duties, for example, fraud and theft. Dishonesty must be proved
•
Putting the employer’s property to private use
•
Misconduct, for example, drunkenness or assaulting co-workers or customers; and
•
Insubordination, rebelliousness and conduct undermining discipline
In terms of legislation, a dismissed employee is entitled to outstanding remuneration for time served and payment
for all annual leave days to his credit. If an employee is summarily dismissed, he is not entitled to notice pay. If he
is dismissed on notice, he may be required to work during the notice period; alternatively, the employer may exempt
him from working the notice period, but must then pay him in lieu of the notice.
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6.10.2 Specific Performance
In some circumstances the courts are reluctant to order specific performance, for instance the court is unlikely to
compel a deserting employee to return to his employer. In cases of this nature the employer will be entitled to
damages only.
However, specific performance in other circumstances may be the appropriate order to make. For example, the
employer A has a restraint of trade clause in the contract of employment of X. X resigns and takes up employment
with the competition. The employer A applies to court for an order of specific performance i.e. that X complies with
the terms of the contract.
6.10.3 Damages
Whether the contract is cancelled or specific performance demanded, the employer is entitled to claim damages
from the employee if the behaviour or negligence of the latter causes him damages or losses. The onus is on the
employer to prove that the damages flowed from the breach of contract.
6.11 Termination of the Employment Contract
The contract of employment may be terminated in the following ways:
•
By notice
•
By the conclusion of a specified period
•
By agreement
•
By death of the parties
•
By the insolvency of the parties
•
By the illness of the employee
•
By impossibility of performance
•
By cancellation (summary termination)
•
Redundancy of a post
•
By completing a specific task
6.11.1 By notice
If the contract of service was concluded for an unlimited period, it may be terminated by the giving of due notice.
Notice may, of cause, be given by either party. In other words, the employee may give notice that he intends to
terminate his services, that is, to resign, or the employer may give notice to employee to terminate his services.
Common law does not prescribe minimum periods of notice and thus reasonable notice must be given, however,
Section 37 of the BCEA prescribes notice periods and requires notice to be in writing, unless the employee is
illiterate.
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6.11.2 By the conclusion of a specified period
Where a contract of service has been concluded for a specified period, it comes to an end when that period expires
and no notice is required. An offer of employment on a fixed term or the renewal of a fixed term contract must be
in writing and state the reasons for the limited-duration contract.
6.11.3 By agreement
The parties may terminate the contract by mutual agreement.
6.11.4 By death of the parties
The general rule is that the death of the employer does not terminate the contract of employment, while the death
of the employee terminates the employment relationship due to impossibility of performance.
6.11.5 By the insolvency of the parties
The trustee (or liquidator) of the sequestrated estate may terminate the contracts of employment only after he has
consulted with any registered trade union whose members are likely to be affected by the termination of the
contracts or with the employee’s themselves. The rationale behind the prescribed consultations is that, if the
employer’s business can be saved, all or some of the employees may continue in employment and not lose their
jobs.
An employee whose contract has been suspended or terminated, is entitled to claim compensation from the
employer’s insolvent estate for losses suffered as a result of the suspension or termination. An employee whose
contract has been terminated, is further entitled to claim severance pay from the insolvent estate.
6.11.6 By the illness of the employee
The illness of the employee does not normally terminate the contract of service, but an employer is entitled to
dismiss the employee if the absence due to illness continues for an unreasonable period. Note the employer must
have a fair reason and follow a fair procedure before such dismissal.
6.11.7 By impossibility of performance
If it is objectively impossible for the employee to perform, he is not committing a breach of contract and the contract
of employment is terminated by the impossibility.
6.11.8 By cancellation
If one of the parties commits a material breach of contract, the other party is entitled to cancel the contract.
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6.11.9 Redundancy of post
The redundancy of a post offers a valid reason to the employer for terminating the service of his employee, provided
he gives sufficient notice of such termination to the employee. A post becomes redundant only when no employee
can be required to perform the duties attached to the post anymore.
6.11.10 Completing a specific task
Where the employee has been appointed to perform a single task only, the contract lapses automatically once the
task has been completed.
6.12 The Employer’s Delictual Liability
As a rule, an employer is liable to third parties for delicts committed by its employees, provided the delict was
committed during the course and scope of the employee’s employment. This doctrine, is known as vicarious
liability.
In order to hold the employer liable for the delicts of his employee, the following requirements must be proved:
•
There must be an employer/employee relationship; and
•
The delict must have been committed by the employee in the course of the performance of his duties, that
is, ‘in the scope of employment’
6.12.1 Employer/Employee relationship
Before the employer can be held liable for delicts committed by an employee, the existence of a contract of
employment must be proved. The person must be an ‘employee’ at the time the delict is committed.
6.12.2 The delict must have been committed by the employee in the course of the performance of his
duties
The employer is not liable to third parties for all delicts committed by his employee, but only those committed during
the scope of employment.
Whether an action falls within the scope of an employee’s duties depends on the particular circumstances of each
case. The employer will generally be liable in the following instances:
•
While the employee was carrying out the duties of the employer
•
When the employee was acting within the scope of his employment, whether during or after working
hours
•
If the employee performs an illegal act necessary for the carrying out of his duties
•
If the employee performed an act which was prohibited by the employer, but nevertheless promoted the
interests of the employer
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•
Where the employee committed a delict while promoting partially the interests of the employer and
partially his own interests
Before the employer will be held liable, it must be proved that the employee was the cause of the delict and is
legally liable for such delict. Where the employee is liable, the employer may be sued as a co-defendant. Both the
employer and employee are jointly and severally liable for the delict.
6.13 Overview of Labour Legislation
6.13.1 The Basic Conditions of Employment Act 75 of 1997.
The Basic Conditions of Employment Act (BCEA) aims to give effect to the constitutional provision of fair labour
practices. It does this by:
•
Establishing minimum conditions of employment that serves to protect all employees
•
Regulates variation of minimum conditions by various labour mechanisms
•
Ensures decent work standards in accordance with international standards; and
•
Prohibits exploitative terms and conditions of employment
Maximum working hours
Regulation
•
Maximum of 45 hours a week
•
If an employee works 5 days a week or less,
she/he may not work more than 9 hours a day
•
If an employee works 6 days or more a week,
she/he may not work more than 8 hours a day.
These hours include an or lunch break
Additional comments
Employers are required to endeavour to
reduce the maximum ordinary hours to 40
hours a week and eight hours a day, through
collective bargaining and Unital
determinations (Section 9(3) and Schedule 1
of the BCEA. +
These hours may be extended by agreement
by up to 15 minutes a day, but no more than
an hour per week, if employees serve
Lunch
members of the public (Section 9(2)).
An employee is entitled to a meal interval of at
The meal interval can, by agreement, be
least one hour after five hours of continuous work
reduced to 30 minutes, or be done away with
(Section 14)
if the employee works fewer than six hours in
a day.
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Maximum 10 hrs per week
•
These may be increased to a maximum of 15
Overtime
hours a week by a collective agreement (Section
An employee may work overtime only by
agreement
•
10)
An employee working overtime has to be
paid one-and-a-half times normal pay or
get time off
•
An agreement to work overtime may not
be for more than a total of 12 hours
(ordinary hours plus overtime) on any
particular day
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Sundays and public holidays
Business Law
Regulation
Additional comments
The employee has to be paid double the normal
•
The same principle and payment scale
apply to work performed on a public
rate of pay (Section 16).
holiday (Section 18)
•
If the employee normally works on
Sundays, the employee has to be paid
one-and-half times the normal rate.
•
If an employee normally works on a
public holiday, she/he will still be
entitled to double pay for that day
Night work
An employee must be given:
•
Night work is work that is performed
•
an allowance, or
after 18h00 and before 6h00 the next
•
a reduction in hours of work, and
day
•
be provided with transport between the
employee’s place of residence and the
•
It can only be worked in terms of an
agreement
Rest periods
workplace (Section 17)
An employee is entitled to:
The BCEA makes provision for daily and
•
weekly periods
A daily rest period of 12 hours between ending
and recommencing work, and
•
A weekly rest period of 36 consecutive hours,
which generally, has to include Sundays
Compressed work week
(Section 15)
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Parties may agree that the employee will work up to
Averaging of working hours and overtime is
12 hours a day (including a meal interval) without
allowed where hours are calculated over a
receiving overtime pay, provided that
period of time
•
The employee does not work more than 45
This is to cater for peak periods in certain
ordinary hours in any week,
sectors, for example agriculture, where
•
More than 10 hours’ overtime in any week, or
(during harvest time) employees may
•
On more than five days in any week
agree to extend hours of overtime to a
Ordinary hours and overtime can be averaged over
maximum of 15 hours per week, but after
a period of up to four months in terms of a collective
harvesting, this will no longer be
agreement (Section 11 and 12).
necessary.
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Vacation leave
Business Law
Regulation
Additional comments
A minimum of 21 consecutive (calendar) days’ paid
Employers and employees may agree on
vacation leave (excluding public holidays) per year for
additional leave, either paid or unpaid
most employees. This would amount to 15 working
days (Section 20).
An employee is entitled to four consecutive months’
The employee must notify the employer in
maternity leave, which may commence at:
writing of the dates of the leave she
•
Any time from four weeks before the expected
intends to take.
date of birth, or
It is unpaid leave but she may claim from
On a date that a medical practitioner or midwife
UIF.
certifies that it is necessary either for the
Remember that the BCEA sets the
employee’s health or her unborn child (Section
minimum leave, but the parties can agree
25).
to more favourable terms, for example,
Maternity leave
•
An employee may not work for six weeks after the birth
paid maternity leave. If an employee is not
of her child. If an employee miscarries in the third
paid, she may claim from the UIF.
trimester of her pregnancy or has a still born child, she
is entitled to six weeks’ leave after the miscarriage or
Family responsibility leave
still birth.
An employee is entitled to three days’ family
Only for employees who have worked for
responsibility leave for every 12 months worked
longer than four months and who work at
(Section 17). Family responsibility leave may be
least four days a week.
taken when an employee’s:
The interpretation is strict. For example, no
•
Child is born or is sick, or
provision is made for leave to be taken in
•
In the event of the death (but not illness) of the
the event of the death of in-laws or
employee’s spouse or life partner, parent, adoptive
members of the extended family and leave
parent, grandparent, child, adopted child,
relating to illness is limited to children only.
grandchild or sibling.
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Regulation
Six week’ paid sick leave in every three-year cycle
worked (Section 22).
Sick leave
If an employee has been absent from work for more
than two consecutive days or on more occasions in an
eight-week period, the employer may request the
employee to submit a medical certificate (Section 23).
Such a certificate may be issued by a medical doctor or
Additional comments
A leave cycle is calculated as the number
of days that an employee would normally
work during a six-week cycle.
If an employee works five days a week,
she/he would work 30 days in six weeks
and that would entitle her/him to 30 days’
sick leave in three years.
a person registered with a professional council.
6.13.2 The Employment Equity Act 55 of 1998
Constitutional equality forms the backdrop of the Employment Equity Act. The Act aims to:
•
Prohibit unfair discrimination
•
Provide for affirmative action measures; and
•
Promoting equal opportunity in the workplace
The EEA states that ‘no person’ may unfairly discriminate against an applicant for a job or an employee in terms
of ‘any employment policy or practice’.
To better understand the EEA, it is important to understand the following constitutional provisions:
•
The Equality Clause (Section 9(1))
In terms of Section 9(1) of the Constitution everyone is equal before the law. The right to equal protection of the
law is thus guaranteed to everyone.
•
The Affirmative Action Clause (Section 9(2))
This Unit requires that legislative measures be implemented to give effect to restitutionary measures - known as
affirmative action measures.
Equality includes equal enjoyment of all rights and freedoms, not only in society in general, but also in the
workplace. Affirmative action is the measure produced by law to create equal opportunities in the workplace for all
people in South Africa. Affirmative action is necessary as a positive action to overcome institutionalised
discrimination.
•
The Anti-Discrimination Clause (Section 9(3) and (4))
The equality clause does not prohibit discrimination but it does prohibit unfair discrimination. Unfair discrimination
involves treating people in a way which impairs the fundamental dignity of a person.
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Discrimination means different treatment of different people. Discrimination can be both fair or unfair. Fair
discrimination occurs when there is a justifiable basis for the discrimination example affirmative action. Unfair
discrimination is different treatment of people on an arbitrary ground or using inappropriate criteria to differentiate
between one person or group and another.
In terms of Section 9(3) no-one may unfairly discriminate, directly or indirectly, against another person on any of
the following grounds: race, gender, sex, pregnancy, marital status, ethnic or social origin, colour, sexual
orientation, age, disability, religion, conscience, belief, culture, language and birth. See (The Employment Equity
Act 55 of 1998) which, read with the Constitution, seeks to achieve equity in the workplace, by:
•
promoting equal opportunity and fair treatment in employment through the elimination of unfair
discrimination; and
•
implementing affirmative action measures to redress the disadvantages in employment experienced by
designated groups, to ensure their equitable representation in all occupational categories and levels in
the workforce
The list of “stated grounds” is preceded by the word “including”, which indicates that unfair discrimination is not
limited to the stated grounds only. This is not a closed list and other grounds of discrimination, not mentioned in
Section 9(3), may also result in unfair discrimination.
•
Proof of Discrimination
If discrimination on one of the stated grounds is alleged, the presumption is that the discrimination is unfair. The
onus is then on the respondent to show that the discrimination is not unfair. If discrimination is alleged on a ground
not listed in Section 9(3), the onus rests with the person who alleges discrimination to show that there was
discrimination and that it was unfair. If the differentiation is not on the listed grounds in 9(3), the discrimination can
be classified as an analogous ground. There is no presumption of unfairness with relation to analogous grounds
as provided for in 9(3). The applicant has to show that the law or conduct is based on attributes or characteristics
which have the potential to impair the fundamental dignity of persons or can seriously affect the person is a serious
manner. In the case of Harksen v Lane and Others [1997] (11) BCLR 1489 the Constitutional Court set down 3
factors which must be considered when determining whether the discrimination has an unfair impact:
(a) The position of the complainants in society and whether they have suffered in the past from patterns of
disadvantage.
(b) The nature of the provision or power and the purpose sought to be achieved by it. If its purpose is not directed,
at impairing the complainants but is aimed at achieving a worthy and important societal goal, such as, for
example, the furthering of equality for all, this purpose may, depending on the facts of the particular case,
have a significant bearing on the question whether complainants have in fact suffered the impairment in
question.
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(c) The extent to which the discrimination has affected the rights or interests of complainants and whether it has
led to an impairment of their fundamental human dignity or constitutes an impairment of a comparably serious
nature.
6.13.3 Unemployment Insurance Act 63 of 2001
The purpose of the Act is to assist employees that are undergoing temporary unemployment by means of shortterm financial assistance. Employees that may claim financial assistance, may be unemployed for various reasons
which include illness, maternity leave and leave after the adoption of a child. The dependents of the employee will
also be entitled to claim unemployment benefits upon the death of the employee.
6.13.4 Compensation for Occupational Injuries and Diseases Act 130 of 1993
The Compensation for Occupational Injuries and Diseases Act 130 of 1993 provides for payment of compensation
to employees who have sustained work related injuries or diseases. The employee will be entitled to claim
compensation irrespective of whether the employer was negligently or intentionally the cause of such injury or
disease. Compensation may also be claimed by the dependents of the employee if such employee had died as a
consequence of the work related injury or disease.
6.13.5
Occupational Health and Safety Act 85 of 1993
The Occupational Health and Safety Act 85 of 1993 requires the employer to bring about and maintain, as far as
is "reasonably practicable" a work environment that is safe and without risk to the health of the worker. The main
purpose of the Act is to provide compensation for employees employed by a mine and who may contract respiratory
diseases as a consequence of their work.
6.13.6 Employment Services Act 4 of 2014
The overall purpose of the Act is to stimulate employment in the country. This will be achieved by improving:
•
Employment prospects for vulnerable work seekers
•
Opportunities for new entrants to the labour market to gain work experience
•
Re-employment prospects for employees facing retrenchments
•
Access to education and training for work seekers (in particular vulnerable work seekers)
•
Promoting the employment of foreign nationals in a manner that gives effect to the Constitutional right to
fair labour practices but at the same time not impacting adversely on existing standards and the rights and
expectations of South African workers
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The purposes are to be achieved by:
•
Providing free public employment services
•
Providing free services to citizens which may include the registration of job seekers or referrals to training
and career information
•
Advise workers on access to social security benefits
•
Assist the exchange of information between work seekers and employers
•
Provide career counselling to work seekers
Activity 1
List five requirements by employees in terms of the Occupational Health and
Safety Act?
6.13.7 Labour Relations Act 66 of 1995
1. Introduction
The Labour Relations Act 66 of 1995 (LRA) has been amended by The Labour Relations Amendment Act 6 of
2014. The amendments became operational on the 1st of January 2015.
The main objectives of the Act are to advance economic development, social justice, labour peace and
democratisation of the workplace. These goals are to be reached by furthering the primary objectives of the Act,
which are:
•
To give effect to the fundamental rights conferred by the Bill of Rights contained in the Constitution
•
To give effect to obligations incurred by the Republic of South Africa as a member state to the
International Labour Organisation
•
To provide a framework for collective bargaining between trade unions and employers and employer’s
organisations
•
To promote orderly collective bargaining, collective bargaining at sectoral level, employee participation
in decision making in the workplace and the effective resolution of labour disputes
As the Act is applicable to every employer and every employee, it is necessary to determine who an employer and
who an employee is.
An “employee”, according to Section 213 of the Act, can be described as:
•
Any person, excluding an independent contractor, who works for another person or for the State and who
receives or is entitled to receive any remuneration
•
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Whether a person is an employee or an independent contract is further clarified by Unit 200A of the LRA (and
Section 83 of the BCEA).
Differences between a contract of employment and a contract of work:
In the case of SA Broadcasting Corporation v McKenzie (1999) 20 ILJ 585 (LAC), the LAC set out the main
differences between a contract of employment and contract of work.
Below is a Table reflecting the essential characteristics and differences between an employee and an independent
contractor.
Essential Characteristics between Employee and Independent Contractor
Employee
Independent Contractor
(Contract of employment)
(Contract of work)
Rendering of personal services by the employee to
The performance of a certain specified work or the
the employer.
production of a certain specified result.
The employee is at the beck and call of the employer
Not obliged to perform the work himself or to produce
to render his personal services.
the result himself, unless otherwise agreed.
The employer may choose when to make use of the
The independent contractor must perform the work
services of the employee.
within the period fixed by the contract.
Employee is obliged to obey the lawful commands,
Is subservient to the contract, not under the
orders or instructions of the employer.
supervision or control of the employer. Not obliged to
obey the instructions regarding the manner in which
the task is to be performed.
Contract of service is terminated by the death of the
The death of the parties to a contract of work does
employee.
not necessarily terminate it.
Contract of service terminates on expiration of the
Contract of work terminates on completion of the
period of service.
specified work or on production of the specified
result.
Section 200A provides that if any one or more of the following factors are present, the person who works for or
renders services to another person is presumed to be an employee, regardless of the form of contract. The onus
is on the employer to prove the contrary.
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A person is presumed to be an employee if he:
•
Is subject to the control or direction of another person
•
Works hours that are subject to the control of another person
•
Forms part of the organisation
•
Has worked for another person for an average of at least 40 hours per month over the three months
•
Is economically dependent on the person for whom he works
•
Is provided with tools of trade or work equipment by the other person; or
•
Only works for one person
The presumption does not apply to persons who earn in excess of the threshold amount stipulated by the Minister
in terms of the BCEA which is currently R205 433.30.
Included in the definition of “employee” are casual employees, managers and directors of a company, shop
stewards who are employees, migrant workers, probationary employees and other temporary employees. An
employee who was dismissed and who, therefore, can no longer be termed an “employee” has access to the
dispute resolution procedures of the LRA to challenge the fairness of such dismissal.
An “employer” is a person who receives services from an employee for remuneration or who is assisted in the
conduct of its business by an employee.
2. Collective Bargaining:
Collective bargaining is generally defined as a process through which employers (employer organisations) and
employees (trade unions) engage in bargaining about terms and conditions of employment.
The parties can only bargain about matters of mutual interest which is:
•
terms and conditions of employment
•
terms of the relationship between the trade union and employer; and
•
set out mechanisms to resolve disputes
The Courts have held that interest disputes (e.g. power play; future wages; terms and conditions of employment)
must be dealt with in the bargaining process through negotiation. Purpose of the bargaining process is to reach
agreement on terms and conditions of employment. If negotiations succeed, the parties form a collective
agreement, which takes precedence over any individual employment contract.
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3. Strikes
Section 213 of the LRA defines a strikes as the partial or complete concerted refusal to work, or the retardation or
obstruction of work by persons who are or have been employed by the same employer or by different employers,
for the purpose of remedying a grievance or resolving a dispute in respect of any matter of mutual interest between
employer and employee.
a.) Circumstances when strikes are prohibited
In certain situations, employees are prohibited from striking:
•
Collective agreement - parties may agree by collective agreement as to when a strike will be prohibited.
•
Dispute referred to arbitration - parties may agree to refer a specific dispute to arbitration and are prohibited
from striking before a process of arbitration has been undertaken (compulsory arbitration)
•
Essential services - certain services may be of such importance that going on strike would prejudice the
public (e.g. parliamentary and police service are specifically mentioned)
b.) Procedure for Protected Strikes
The 1995 LRA prescribes certain procedures that must be complied with in order for employees to enjoy full
protection while participating in “protected” industrial action (also termed procedural strike or lock-out).
Step 1: Refer the matter to Council or CCMA.
Step 2: During Conciliation at the CCMA – a ‘certificate of non-resolution’ is issued.
Step 3: Union or Employer are to give the other party 48 hours written notice before commencement of strike or
lock-out (if the State is the employer, 7 days’ notice is required).
Step 4: Protected strike or lock-out commences after expiry of notice period.
c.) Consequences of a Protected Strike
•
Employees may not be dismissed for striking. The employee may however be dismissed for
misconduct during a strike or for operational requirements of the employer. The employer must
however have a fair reason for the dismissal and must follow a fair procedure
•
Involvement in a protected strike does not amount to a delict or breach of contract
•
The employer is not obliged to remunerate strikers
•
Civil proceedings may not be instituted against a person for his involvement in a protected strike
unless his conduct constitutes an offence
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d.) Consequences of an Unprotected Strike
•
The Labour Court may interdict the strike
•
The Labour Court may award just and equitable compensation for any loss attributable to the strike,
having regard to the following factors
•
Whether attempts were made to comply with the provisions of the LRA and the extent of those attempts
•
Whether the strike or lock-out was premeditated
•
Whether the strike or lock-out was in response to unjustified conduct by another party to the dispute
•
Whether there was compliance with a Labour Court order or interdict restraining any person from
participating in industrial action
•
The interests of orderly collective bargaining
•
The duration of the strike or lock-out
•
The financial position of the employer, trade union or employees
•
Involvement in an unprotected strike may constitute a fair reason for a dismissal, provided that a fair
procedure is followed
4. Lock-Outs
A lock-out is the employer’s economic weapon during the collective bargaining process to induce workers to accept
his offer or proposal. A lock-out is therefore the exclusion from the workplace. From the definition provided
in the Act, two elements are implied:
•
An act by the employer (the exclusion of employees)
•
With the specific purpose of persuading the employees to accept the proposal of the employer
If an employer locks out employees in response to a protected strike it is not necessary for the employer to follow
the Section 64 procedure as the union has already followed the procedure for its strike action. It is merely necessary
for the employer to give notice (48 hours or 7 days) before the lock-out commences
The consequences of a protected and unprotected lock-out respectively are similar to the consequences that follow
upon a protected and unprotected strike.
5. Dismissals
In terms of Section 185 every employee has the right not to be unfairly dismissed. Section 186(1) of the LRA sets
out several grounds which may constitute a dismissal. Section 188 on the other hand sets out the requirements
for a fair dismissal.
A dismissal means that:
•
an employer has terminated employment with or without notice
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•
an employee employed in terms of a fixed term contract of employment reasonably expected the employer-
•
to renew a fixed term contract of employment on the same or similar terms but the employer offered to
renew it on less favourable terms, or did not renew it, or
•
to retain the employee in employment on an indefinite basis but otherwise on the same or similar terms as
the fixed term contract, but the employer offered to retain the employee on less favourable terms, or did not
offer to retain the employee
•
an employer refused to allow an employee to resume work after she -
•
took maternity leave in terms of any law, collective agreement or her contract of employment
•
an employer who dismissed a number of employees for the same or similar reasons has offered to reemploy one or more of them but has refused to re-employ another, or
•
an employee terminated employment with or without notice because the employer made continued
employment intolerable for the employee, or
•
an employee terminated employment with or without notice because the new employer, after a transfer in
terms of Section 197 or Section 197A, provided the employee with conditions or circumstances at work that
are substantially less favourable to the employee than those provided by the old employer
a.) Automatically Unfair Dismissals
Section 187 of the LRA deals with some dismissals that are deemed to be automatically unfair.
A dismissal is automatically unfair if the employer’s reason for the dismissal is because • An employee exercises his right to freedom of association
• An employee has disclosed information that he is lawfully required or entitled to give another person
• An employee is exercising any of his rights conferred by the Act
• An employee participates in any proceedings in terms of the Act
• An employee participates or supports a protected strike
• An employee refuses to perform duties while they are participating in a protected strike or during a lockout
• An employee refuses to accept the employer’s demands during a lock-out
• An employee’s pregnancy, intended pregnancy or any other reason relating to the pregnancy
• Employer’s unfair discrimination
• In terms of a transfer or reason related to a transfer in terms of Section 197 or 197A
• An employee made a protected disclosure
b.) Requirements for a Fair Dismissal
An employer must prove that a dismissal is based on one of following reasons:
•
Misconduct
•
Incapacity due to ill health or Poor Work Performance
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•
Employer’s Operational Requirements
To ensure the fairness of a dismissal in the above mention instances, there must be substantive fairness and
procedural fairness.
If an employee claims that he was dismissed, but the employer denies this, the onus is on the employee to prove
the existence of the alleged dismissal. Once the existence of a dismissal has been proved, the onus then shifts to
the employer to prove that such dismissal was fair.
i.) Dismissal for Misconduct
Misconduct is prevalent in every workplace and thus a prudent employer will and generally does adopt a
disciplinary code of conduct. According to the Act, when disciplining an employee, the concept of progressive
discipline must be utilised. This basically means that discipline should incorporate counselling and warnings before
dismissal is found to be an appropriate sanction. However, there are instances whereby the misconduct is of such
a serious nature that the only appropriate sanction would be dismissal. In other words, the misconduct has severed
the relationship of trust between the parties.
As a general rule, serious misconduct (prior warnings not required) or repeated instances of the similar type of
misconduct will warrant dismissal. For example, an employee may be dismissed for insubordination, drunkenness
at work, theft or absenteeism. Dismissal for less serious forms of misconduct will only be justified where the
employee has previous warnings and has been counselled on the sanction that may be imposed should such
misconduct be repeated.
ii.) Dismissal for Incapacity due to poor work performance
Incapacity includes incapacity due to ill-health and poor work performance. If an employee is incapable of doing
the work because he lacks the skills, knowledge or ability and consequently does not meet the required standards
of performance of the employer; he may be dismissed for such incapacity.
An employee should not be dismissed for unsatisfactory performance unless the employer has•
given the employee appropriate evaluation, instruction, training, guidance or counselling; and
•
after a reasonable period of time for improvement, the employee continues to perform unsatisfactorily
iii.) Incapacity in relation to Ill health or Injury
Incapacity on the grounds of ill health or injury may be temporary or permanent. If an employee is temporarily
unable to work in these circumstances, the employer should examine the degree of the incapacity or the
injury.
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If the employee is likely to be absent for an unreasonably long period, the employer should investigate all the
possible alternatives short of dismissal. When alternatives are considered, relevant factors might include:
•
The nature of the job
•
The period of absence
•
The seriousness of the illness or injury
•
And the possibility of securing a temporary replacement for the ill or injured employee
In cases of permanent incapacity, the employer should ascertain the prospect of securing alternative
employment, or adapting the duties or work circumstances of the employee to accommodate the
employee's disability.
The cause of the incapacity may also be relevant. In the case of certain kinds of incapacity, for example
alcoholism or drug abuse, counselling and rehabilitation may be appropriate steps for an employer to consider.
Particular consideration should be given to employees who are injured at work or who are incapacitated by
work-related illness. The courts have indicated that the duty on the employer to accommodate the incapacity
of the employee is more burdensome in these circumstances.
iv.) Dismissal for Operational Requirements
Another valid reason for dismissal is the operational requirements of the employer such as the economic,
technological, structural or similar needs of the employer – relate to the redundancy of posts consequent
to a restructuring of the employer’s enterprise. Section 189 is applicable to so-called “minor” retrenchments
while both Section 189 and 189 A are applicable to “major” retrenchments.
6. Unfair Labour Practices
Section 23(1) of the Constitution guarantees everyone a right to fair labour practices. The LRA expounds that rights
in Section 185(b) which states that every employee has the right not to be subjected to an unfair labour practice.
Section 186 (2) defines an “Unfair labour practice” as:
An unfair act or omission that arises between an employer and an employee involving(a) unfair conduct by the employer relating to the promotion, demotion, probation (excluding disputes about
dismissals for a reason relating to probation) or training of an employee or relating to the provision of benefits to
an employee;
(b) the unfair suspension of an employee or any other unfair disciplinary action short of dismissal in respect of an
employee;
(c) a failure or refusal by an employer to reinstate or re-employ a former employee in terms of any agreement; and
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(d) an occupational detriment, other than dismissal, in contravention of the Protected Disclosures Act, 2000 (Act
No. 26 of 2000), on account of the employee having made a protected disclosure defined in that Act. (Section
186(2) added by Section 41(c) of Act 12 of 2002).
To note:
The protection against unfair labour practices only applies to a specified list of actions.
An employee cannot commit an unfair labour practice.
•
The definition makes provision for the protection of employees against unfair labour practices. This
protection does not extend to employers – an employee cannot commit an unfair labour practice
•
Reference is only made to an employer and employee relationship [, thus an unfair labour practice
will only arise within the domain of an employment relationship that is currently in existence
•
The list unfair labour practices is exhaustive. If the conduct of an employer has not been listed, then
it will not amount to an unfair labour practice
7.
Dispute Resolution
a.) Mechanisms of Dispute Resolution
The LRA provides for various ways in which a dispute may be resolved:
•
Mediation/conciliation
•
Arbitration
•
Court order
•
Strike action
b.) Mediation/Conciliation
Irrespective of how the dispute is ultimately resolved, the first step in all the processes is conciliation or mediation.
This prevents the costs of strike action or litigation before all other alternatives have been exhausted. Each type
of dispute is dealt with by the LRA which specifies which process will lead to a final determination.
The person mediating or conciliating has no power to compel the parties to do anything or to elicit evidence from
them. Therefore, it has been said that the degree of success of such processes is dependent on the good faith of
the parties to attempt to resolve the dispute.
c.) The Role of the Judiciary
The CCMA, particularly its arbitrators, has the power to make awards that are binding on the parties. Its powers
are exercised in a quasi-judicial tribunal. Arbitrators at the CCMA are not judicial officers and their awards may be
reviewed by the relevant and competent court.
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d.) The Labour Court
This court has the status of a superior court, with powers equal to those of a Provincial Division of the High Court.
One of the important functions of the Labour Court is the granting of interdicts (order made, usually for a limited
period, compelling a party to perform or not to perform a specific act) also known as ‘interim orders’.
Urgent interim orders may be granted ex parte basis, which means that the party against whom the order is sought,
may not even be present. In the labour law area, it is a requirement that, when seeking an urgent order, the other
party must be given at least 24-hour notice that such application is being made, so that they have an opportunity
to oppose the granting of the order, should they wish to do so.
The court will enquire into the prima facie circumstance of the case in order to grant the relief sought and in
particular will require evidence on the following;
•
As to the actual harm suffered, or the imminence thereof
•
The party against whom the relief is sought is acting in contravention of the law or in breach of an
agreement; and
•
The urgency of the matter
The court will not make a final determination but due to the urgency of the matter, it will issue an interim order
(limited duration of validity). A return date will be set by the court upon which both parties will appear in court with
prepared arguments and the court will make a final order regarding the matter.
Another important function of the Labour Court is to review decisions reached by the CCMA arbitrators. Since
arbitrator’s awards are final and binding, it is not possible to appeal their decisions. Rather the decisions may be
taken on review. The process of review incorporates examining the procedure followed by commissioner and
specifically whether the relevant factors were taken into consideration, whether every party to the arbitration was
afforded an opportunity to make representations etc.
e.) The Labour Appeal Court
This Court hears appeals on decisions referred to it from the Labour Court. It has the same status as the Supreme
Court of Appeal. It is possible to thus approach the High Court or refer an appeal to the Supreme Court of Appeal
on a labour matter. The Labour Court and the Labour Appeal Court may have concurrent jurisdiction with the High
Court but by virtue of them being specialist courts, labour matters are generally referred to them.
f.) The Constitutional Court
The Constitutional Court is the final and absolute judicial authority on all legal issues but it is not a court of first
instance.
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The Constitutional Court has the power to consider any pieces of legislation referred to it or any decisions of inferior
courts based on the assertion that such decisions are not in accordance with the values spirit and objectives of the
Constitution.
Knowledge Check Question 1
1.
What is the difference between locatio conductio operarum and locatio
conductio operis?
2.
What would a typical contract of employment contain?
3.
What are the common law duties of the employer?
4.
What is quantum meruit?
5.
What are the common law duties of the employee?
6.
Is the employer liable for the delicts of an employee?
7.
What is the purpose of the Basic Conditions of Employment Act (BCEA)?
8.
What are the remedies for breach of an employment contract?
9.
What is the purpose of the Labour Relations Act?
10.
What is unfair discrimination?
11.
What factors should an employer should bear in mind when dismissing an
employee?
12.
List six dismissible offences
13.
Who is responsible for compensating workers for occupational injuries?
14.
What happens to a worker who is permanently disabled?
15.
What is the responsibility of the employer with regards to health and safety
in the workplace?
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Bibliography
•
Bradfield, G., Kahn, E. and Lehmann, K. (2013) Principles of the Law of Sale and Lease. Third Edition.
Cape Town: Juta. Chapter 1, Chapter 2. This is the latest edition of the textbook that is available.
•
Hutchison, D. B. and Pretorius, C.J. (2012) The Law of Contract in South Africa. Second Edition. South
Africa: Oxford University Press Southern Africa. This is the latest edition of the textbook that is available.
•
Kopel, S. (2017). Guide to Business Law. Sixth Edition. Cape Town: Oxford University Press. This is the
latest edition of the textbook that is available.
•
McGregor, M. (2014) Labour Law Rules. Second Edition. Siber Ink. This is the latest edition of the
textbook that is available.
•
Reading, J., Scott, D., Baqwa, S., Eiselen, T., Humby, M., Kelly-Louw, I., Konyn, S., Kopel, A., Mukheibir,
H., Schoeman, S., Scott, N., Smit, P., Sutherland, C. and Van Der Bijl, C. (2009) The Law of Commerce
in South Africa. Cape Town, South Africa: Oxford University Press. Chapter Eight. This is the latest
edition of the textbook that is available.
•
Scott, T.J., Cornelius, S.J. and Baqwa, D. (2014) The Law of Commerce in South Africa. Second Edition.
Cape Town: Oxford University Press. Chapter 1, Chapter 2, Chapter 3, Chapter 5, Chapter 8, Chapter 9.
This is the latest edition of the textbook that is available.
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