by slamatattorneys | Jul 30, 2021 | Business Law, Contract Law
The exceptio non adimpleti contractus is a contractual defence which can be raised in regard to reciprocal contracts.
While it is classically stated that reciprocity is the cornerstone of any good relationship, it is evident that times have certainly changed.
The exceptio non adimpleti contractus means in simple layman’s terms the right to withhold performance (eg. payment) where reciprocity exists contractually in terms of the performances by each party.
Performance by the parties must be simultaneously due or one party due to perform before the other. It is typically used in commercial contracts disputes when a party (a land owner or homeowner) is sued for payment by a service provider, for example a building company, when the service provider has not performed at all in terms of the contract or, as most frequently occurs, where the building company has performed defectively in terms of the contract.
The requirement of reciprocity is thus a crucial element of the defence and it also finds particular application in contracts of lease and contracts of letting and hiring and other commercial contracts.
It is increasingly clear that the legal principle of exceptio non adimpleti contractus is taking on substantial significance in South Africa in recent times and since the onset of the Covid19 pandemic and indeed in respect of the seemingly clear trend of parties’ wilfully defaulting/breaching contractual terms with self-professed impunity. This appears to be increasing especially in the fields of commercial contracts for:
- construction contracts for homes, homeowners associations and sectional title units;
- other ‘building’ contracts such as services for electrical wiring, plumbing, ventilation systems, audio-visual services, security systems, swimming pools, spas, Jacuzzis;
- service contracts particularly in regard to independent contractors services; and
- also pure service contracts where a service provider bills the consumer in arrears for the service rendered.
It is thus imperative that when a party to a reciprocal contract does not perform as that party agreed to, the other party must seek expert legal advice without delay from an expert contracts attorney to safeguard its interests, or otherwise the delays caused by inaction or the exercise of incorrect legal remedies may result in serious financial consequences and lack of legal recourse to obtain reciprocity or equity in terms of the contractual relationship.
ASHLEY SLAMAT ATTORNEYS – Success is the Only option™
www.slamatlaw.co.za ASHLEY SLAMAT ATTORNEYS – Copyright.
by slamatattorneys | Jul 30, 2021 | Contract Law
It is clear that the legal principle of force majeure in South African law of contracts is receiving more attention as the second year of the Covid19 pandemic moves on.
Essentially, force majeure in South African common law is a means of obtaining release from contractual obligations, where certain factual circumstances exist, to enable same to be invoked by any party to a contract. The relief does not arise automatically, as there are legal procedures and formalities which must be invoked litigiously.
Force majeure (also known as vis maior, an act of God or vis divina) is taking on more importance not only in regard to contracts concluded prior to the Covid19 pandemic but more importantly since the outbreak of the pandemic. Force majeure will be relevant where some particular objective force, power or agency exists which cannot be resisted or controlled by the ordinary man. This includes not only acts of nature but also acts of man such as new legislation, riots, nuclear disasters, pandemics caused by man and other man created immense impact events or mass destruction events like terrorist bombings.
It is closely linked to the legal principle of casus fortuitous which provides for release from obligations, subject to conditions, when something extraordinary or unforeseen occurs and which human foresight cannot be expected to anticipate or if it can be foreseen it cannot be avoided by the exercise of reasonable care or caution.
Ultimately, whether or not parties to a contract will be able to obtain the full intended benefit of the common law principle of force majeure depends to a large extent on the nature of the contract and where the scale of power is in regard to the parties’ respective negotiating positions of strength. The principle applies to contracts by virtue of the common law either as an agreed contractual term or ex lege (by operation of the law) if the term is not included in the contract itself.
Related to force majeure is the principle of supervening impossibility of performance which is another principle by which a party can obtain release from contractual obligations where performance becomes objectively impossible after conclusion of the contract. This can occur either through physical impossibility or legal impossibility of performance. Impossibility must be absolute, mere difficulty of performance does not suffice.
Invariably, one of the two principles may be applicable to a multitude of contracts concluded prior to Covid19 if one of the parties wishes to obtain a release from its obligations.
In regard to contracts still to be concluded, the positions of strength will determine whether or not the principle of force majeure will be included by agreement. Many companies offering banking, insurance and other related services offer standardized contracts to clients and these are not up for any negotiation. It is clearly take it or leave it.
Bearing in mind the massive stresses caused to millions of people worldwide, and in South Africa particularly, it is submitted that the principle of force majeure will continue to take on increased significance in contractual negotiations having regard to the belief held by so many that Covid19 is the first major health, cultural and legal significant factor to change the face of the world since the 11 September 2001 attacks and that the likelihood of another viral pandemic or similar event cannot be ruled out.
It is thus essential when considering the negotiation and conclusion of contracts in the current Covid19 times, and certainly in the post Covid19 world, that force majeure and impossibility of performance is a material term of any contract and that you employ the services of an expert contracts attorney to safeguard your interests, or otherwise you may be called upon to pay your pound of flesh.
ASHLEY SLAMAT ATTORNEYS – Success is the Only option™
www.slamatlaw.co.za ASHLEY SLAMAT ATTORNEYS – Copyright.
by slamatattorneys | May 24, 2021 | Contract Law
RESTRAINT OF TRADE versus PUBLIC INTEREST? IS THIS THE TRUE QUESTION?
RESTRAINT OF TRADE IN SOUTH AFRICAN LAW… AND THE PUBLIC INTEREST?
In essence, a restraint of trade provision is a term in a contract of employment that (typically) provides that after termination of employment, the employee is restricted in the work s/he can perform in that s/he will be restrained/restricted from performing the same/similar work in competition with his/her former employer, for an agreed period of time and in respect of an agreed geographical area. Further restrictions may be agreed to such as the number of people to be restricted, the types of entities and the industries involved.
These restraint provisions/terms aim to protect the employer’s proprietary interests, such as client and customer goodwill and connections, trade secrets, confidential information, know-how, business relationships, business territories, employment confidentiality.
A pertinent question to be asked is: to what extent is an employer legally capable to restrain a former employee?… especially where the employee only has the skills necessary to perform the job which s/he is restrained from performing?
The potential impact of restraint of trade terms/undertakings on former employees of a business is invariably substantially prejudicial and has it has been argued to prevent restrained persons from exercising their constitutional rights to choose their trade, occupation or profession.
A proper understanding and appreciation of how the law and the court will approach any application for a former employee to be restrained from competing with his former employer is to appreciate that there is no statute or legislation or regulation which provides an employer a right to this type of protection.
It is apposite to understand that unless the employee agrees in his contract of employment to be bound by a restraint, the employer has no legal entitlement to try and prevent him from working after termination of the employment relationship, even if this is in direct competition with the erstwhile employer.
Therefore, the manner in which the restraint terms are formulated in the contract of employment is critical, as the courts look very closely at the actual terms and conditions of these undertakings to determine if same should be enforced by the courts.
Invariably, the courts perform a balancing act between the rights of the employer not to be subjected to unfair competition, and the right of the employee to choose his trade.
The leading South African precedent dealing with these issues is Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 (4) SALJ 874 (A) which has been referred to with authority on numerous occasions since 1984. The Appellate Court, in 1984, laid down the general principle that, on the face of it, restraint terms are not unlawful per se and every restraint of trade agreement contained in an employment contract signed by an employee is assumed to be lawful and enforceable, The onus thus lies on the employee, if he/she wishes to be released from the restraint, to show that the restraint is unreasonable and contrary to public policy or the public interest as more commonly known.
In determining whether a restraint is enforceable, a court will consider, inter alia, the following factors:
- the duration of time that the restraint operates;
- any limitations on the employee working in his/her personal capacity or through a company;
- whether or not the restraint applies only to the employee or more than one person in association with the employee;
- whether the employee still has the ability to earn a living;
- the geographical area to which the restraint applies;
- whether a restraint payment was paid to the employee;
- the proprietary interests, goodwill, income assets, revenue flows, or capital assets that the employer seeks to protect.
Since 1993 (interim Constitution of South Africa) and 1997 (final South Constitution of South Africa) complex constitutional considerations have become applicable to restraint of trade provisions found in contracts of employment in that competing interests of employers and employees have to be weighed very carefully in light of the relevant constitutional provisions in the Bill of Rights and the manner in which same are applied in the law courts.
In the situation where an employee only possesses the skills of the particular job which s/he is restrained from performing, the consideration of the employee’s ability to continue to earn a livelihood will pose serious problems for the enforceability of any restraint.
The Magna Alloys case above also stated that “It is in the public interest that agreements entered into freely should be honoured and that everyone should, as far as possible, be able to operate freely in the commercial and professional world.” This provides for conflicting interests between the employer and employee which must be balanced in light of the public interest. This view has gained much plaudits and support over the years and particularly in the recent case law since 2010.
It is well established that the proprietary interests that can be protected by a restraint agreement are of two kinds. The first consists of the relationships with customers, potential customers, suppliers and others (trade connections). The second consists of all confidential matter which is useful for the carrying on of the business and which could therefore be used by a competitor to gain a competitive advantage (trade secrets).
In Aranda Textile Mills (Pty) Ltd v Hurn and another [2000] JOL 7350 (E), the court emphasised that employers’ proprietary interests sought to be protected must be properly described as belonging to the employer. The court pointed out that it will generally be contrary to the public interest to enforce an unreasonable restriction on a person’s freedom to trade. The court went on to record that:
“A man’s skills and abilities are a part of himself and he cannot ordinarily be precluded from making use of them by a contract in restraint of trade. An employer who has been to the trouble and expense of training a workman in an established field of work, and who has thereby provided the workman with knowledge and skills in the public domain, which the workman might not otherwise have gained, has an obvious interest in retaining the services of the workmen. In the eye of the law, however, such an interest is not in the nature of property in the hands of the employer. It affords the employer no proprietary interest in the workmen, his know-how or skills. Such know-how and skills in the public domain become attributes of the workman himself, do not belong in any way to the employer and the use thereof cannot be subjected to restriction by way of a restraint of trade provision. Such a restriction, impinging as it would on the workman’s ability to compete freely and fairly in the market place, is unreasonable and contrary to public policy.”
It will generally be contrary to the public interest to enforce an unreasonable restriction on a person’s freedom to trade/earn a living. However, where the proprietary interests of the employer, which needs protection, outweighs the employee’s interest in continuing his trade, such a restraint will be reasonable and enforceable.
In the recent case of PB Hairdressing Organisation v Rudolph Kruger and Jingles Hair Emporium, the Applicant employer in seeking to enforce a restraint of trade provision, failed to demonstrate any protectable interests. The Labour Court dismissed the employer’s application.
In the case of PB Hairdressing Organisation t/a Carlton Hair International v Vinciguerra and Another (J2948/16) [2017] ZALCJHB, the Labour Court dismissed the employer’s application to enforce a restraint of trade. The Labour Court found on the facts, inter alia, that the restraint sought to be enforced was contrary to public policy and thus unenforceable. The employee was 21 years old and had been employed a junior hair stylist. He averred that he only accrued between 20 to 30 regular clients in the 6 months that he spent working at Carlton Hair, where a more senior stylist would have 12 to 20 regular clients a day. In this instance, the court held that the restraint of trade which restrained him until 18 November 2017 from within a radius of ten kilometres (as the crow flies) from the front door of the salon, was against public policy and unreasonable because the employee was a junior employee, qualified for only 6 months and who was only 21 years old.
Clearly, employers face an uphill task to enforce restraint provisions in contracts of employment. It is vital that such restraint terms are professionally crafted, drafted in light of the prevailing business world and changing circumstances.
Copying and pasting of restraint of trade terms into employment contracts does not suffice.
by slamatattorneys | Apr 18, 2021 | Contract Law
Suretyship contracts – requirements and consequences
We are receiving numerous calls for assistance with suretyship contracts. This trend may be in light of the Covid-19 times and the recent up-trend for businesses and individuals seeking to operate their businesses and finance opportunities by utilising credit instruments.
However, it is imperative that one seeks sound legal advice when considering to enter into a contract of suretyship simply because the legal phenomenon of suretyship is one which many still struggle to fully understand. Invariably, sureties end up in court when being sued for performance as a surety and/or co-principal debtor.
In layman’s terms, suretyship occurs when one person agrees to stand good for the debt(s) of another person. This practice has occurred for centuries in business and personal relationships and caused serious hardships to many who insensibly agreed to be sureties.
In law – what is a contract of suretyship?
A contract of suretyship is one in terms of which one person (the surety) undertakes to the creditor of another person to perform the latter’s obligation owed to the former when the debtor fails to perform. Typically, the performance by the surety is of a financial nature (eg. payment of a debt). However, the contract of suretyship is accessory in nature which means it cannot and does not ever exist on its own.
Suretyship is one of the most complicated credit instruments. The law pertaining to suretyship agreements was codified in South African law in 1956 (in terms of the General Law Amendment Act 50 of 1956) owing to numerous disputes and court cases in regard to suretyship agreements and the enforcement thereof.
Requirements for the valid contract of suretyship
Section 6 of the General Law Amendment Act 50 of 1956[1] prescribes the legal requirements for a valid contract of suretyship, namely, that the terms of a suretyship agreement must be contained in a written document signed by or on behalf of the surety.
The existence of a principal obligation is a common law pre-requisite for a valid surety agreement due to the fact that suretyship is accessory in nature. This underlying obligation is typically one in terms of a loan or credit facility granted by a bank to a client (the debtor).
The Appellate Division held in 1978[2] that the “terms” of the contract of suretyship referred to in Section 6 supra are:
- The identities of the creditor, the debtor and the surety(ies);
- The nature and amount of the principal debt.
A number of subsequent cases have amplified the above requirements which have resulted in the clarification in many respects of the ‘terms’ which must be embodied in the contract of suretyship for it to be valid and binding in law.
Furthermore, oral variations of a contract of suretyship are void as these do not comply with Section 6 supra.
Some of the salient rights available to sureties include the following[3]:
The Benefit of excussion means the creditor is obliged to first claim and recover from the principal debtor before turning to the surety for payment of the debt or the part of the debt that remains unpaid.
The Benefit of Division amongst co-sureties which provides for the instance where there is more than one surety and where the creditor claims payment of the whole amount or more than a surety’s agreed share. Then the surety can demand that the debt be divided between all the co-sureties so that each of them ends up paying only their allotted portion.
The Surety’s Right of Recourse where a surety has paid the debt of the principal debtor to the creditor, the surety is entitled to claim payment from the principal debtor of the amount that he/she has paid to the creditor.
The Right to Contribution by Co-sureties where a co-surety, who has paid the debt, is by law entitled to recover from each of the other co-sureties contributions of their agreed portions of the debt.
Effect of the National Credit Act 34 of 2005, as amended (“the NCA”) on Contracts of Suretyship?
A contract of suretyship is one of the important instruments which credit providers make use of in mitigating their risks of granting credit.
Therefore, it is crucial to establish whether a suretyship contract is a credit agreement in terms of the National Credit Act. The determining question is: whether or not suretyship contracts will fall within the scope of the NCA depends on whether or not the underlying/principal agreement is regulated by the NCA.
In the High Court case of First Rand Bank Ltd v Carl Beck Estates (Pty) Ltd ZAGPHC 423 the high court, in granting summary judgment in favour of the bank, made an obiter remark that the NCA applies to suretyship contracts and that it clearly falls within the definition of a “credit guarantee” as set out in section 8(5) of the NCA.
Warning – do not contract with the devil or you may have to pay your pound of flesh
It is imperative that one considers the terms of any contract of suretyship very carefully when contemplating taking responsibility for the payment of the debts of another person.
Truly and invariably, the scales are tipped immensely in favour of the credit grantor in the negotiation of the underlying obligation particularly when seeking finance through credit instruments. The credit worthiness of the debtor is of critical importance and ‘family- relationed’ contracts of suretyship should be avoided at all costs.
Once you have signed as surety it is virtually impossible to escape liability on the basis that you were not aware of the suretyship clause in the agreement or that the suretyship contract is ‘unfair’.
Case law confirms that a person who is a signatory to any agreement is obliged to familiarise himself with the content of a document which he signs. Ignorance of the law is no excuse.
This confirms the Roman law principle of caveat subscriptor which means that a signatory must be aware of what he is signing. This however applies to anyone who enters into a contract, and not only to contracts of suretyship.
Make sure that to protect yourself and your assets, you should consult with an attorney before you take on the responsibility for someone else’s debts.
www.slamatlaw.co.za
12 April 2021
[1] Amended by s34 of the General Law Amendment Act 80 of 1964.
[2] Sapirstein & others v Anglo African Shipping Co(SA) Ltd 1987 (4) SA 1 at 12B-D.
[3] The ejection of the exception doli generalis from SA law in the matter of Bank of Lisbon & South Africa Ltd v De Ornelas and another 1988 (3) SA 580 (A) has resulted in sureties raising the defence of public policy when the creditor seeks to rely upon a clause in the contract of suretyship which is perceived to be harsh and unconscionable by the surety. However, the courts have made it clear since 1990 that public policy does not offer a ‘free pardon to recalcitrant debtors’ – per Kriegler J in Donelly v Barclays 1990 (1) SA 375 (W). Most public policy challenges have consequently failed dismally.
by slamatattorneys | Mar 17, 2021 | Contract Law
The purpose of the Conventional Penalties Act 15 of 1962 is to, inter alia:
- Provide for the enforceability of penalty stipulations in contracts including stipulations based on pre-estimates of damage (liquidated damages);
- Provide for the enforceability of forfeiture clauses in contracts.
The Act provides that any penalty stipulations in a contract shall be enforceable, in the event of breach of the contract, in any competent court. The penalty may take the form of a sum of money or delivery or performance of a thing. Liquidated damages also amount to a penalty.
The Conventional Penalties Act 15 of 1962 provides further that a creditor is not entitled to recover both damages and the penalty which may be payable in a specific instance or to recover damages in lieu of the penalty, unless the contract expressly so provides.
A creditor who accepts or is obliged to accept defective or non-timeous performance shall not be entitled to recover a penalty in respect of the defect or delay, unless the penalty was expressly stipulated for in the contract in respect of that defect or delay.
The Conventional Penalties Act 15 of 1962 provides further for the reduction of a penalty by a court if it appears to the court that the penalty is out of proportion to the prejudice suffered by the creditor subject to the court taking into consideration prescribed facts or circumstances.
The Act also provides that in the instance where one party to a contract withdraws from the contract (in circumstances provided therefore) and the other party thereto shall forfeit the right to claim performance or restitution, such forfeiture by the latter party shall have the same effect as if it were a penalty stipulation in terms of the Act.
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