ARE RESTRAINT OF TRADE AGREEMENTS ALWAYS VALID AND ENFORCEABLE?

A1_b]Historically restraint of trade agreements were void and unenforceable unless the employer could prove that it was a reasonable agreement entered into between the parties. Fortunately for employers the position in our law has changed.

What are restraint of trade agreements?
An agreement that seeks to restrict a party’s right to carry on a trade, business or profession in such manner or with such persons as he/she sees fit, is restraint of trade.

Restraint of trade clauses are most commonly found in employment and partnership contracts, which usually takes effect after termination of the contract, or in sale of a business or practice.

Why are they controversial?
They are controversial because there is a clash of fundamental values: on the one hand there is freedom or sanctity of contract which relies on agreements being honoured, and on the other hand there is freedom of trade which is a constitutionally recognised right.

As with other contracts, restraint of trade agreements are presumed to be prima facie valid and enforceable. Whereas the onus had earlier been on the employer to prove that implementation of restraint of trade was fair and in public interest, the onus is now on the employee to show why enforcement in the particular circumstances would be against the public interest.

An unreasonable restraint is contrary to the public interest and hence unenforceable. The reasonableness of a restraint of trade clause or agreement is judged on two bases: broad interests of community, and interests of the parties themselves.

Reasonableness inter partes depends on a variety of factors:

–    Does the employer have a protectable interest?
–    Area and duration of restraint (possibility of partial enforcement)
–   Concession by the employee in the contract that restraint is
reasonable, and inequality of bargaining power of parties (these
factors carry little weight)

Examples of protectable interests are confidential information, trade secrets, customer connections and lists, and goodwill of the business. However, it does not include interest in the elimination of competition, and the investment of time and capital in the training of the employee.

It is not sufficient simply to label confidential information as such. In order to be confidential the information must be commercially useful, in other words capable of application in trade or industry, have economic value to the person seeking to protect it, and be known only to a restricted number of people.

With regards to trade connections, it will only be relevant when the employee has close working relations with the customers, to such an extent that there is a danger of him/her taking them with him/her when he/she leaves the business. Relevant factors here include the following:

– duties of the employee;
– his/her personality;
– frequency and duration of the contact with the customers;
– his/her influence over them;
– nature of his/her relationship with them (degree of attachment,
extent of their reliance on him/her);
– level of competition between the rival businesses;
– type of product sold; and
– evidence that customers were lost when he/she left the business.

With reference to the above the following questions must be asked:
a)  Does party A have an interest deserving of protection?
b)  Is such interest being prejudiced by party B?
c)   If so, how does A’s interest weigh up qualitatively and
quantitatively against B’s interest in not being economically
inactive and unproductive?
d)  Is there some broader facet of public policy that requires the
enforcement or rejection of the restraint?

If restraint of trade agreement is reasonable inter partes, it may still be unenforceable if it is damaging to the public interest for a reason not peculiar to the parties.

Sources:
Basson v Chilwan & Others [1993] 3 SA 742
Sunshine Records (Pty) Ltd v Flohing & Others 1990 (4) SA 782 (A)
Magna Alloys & Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A)

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

CONTRACTING WITH MINORS IN A DIGITAL CONTEXT

A2_bIn this article, we examine whether contracts entered online by minors, using their parents’ credit cards, are legally binding in the specific context of social media such as Facebook.

Both Common law and legislation deal with the capacity of minors who enter into different types of contracts. According to the Children’s Act, 38 of 2005 a minor is a person between the ages of seven and 18 years. In terms of common law a minor does not have sufficient capacity to incur binding obligations under a contract and must obtain the assistance or consent of their guardian to do so. This consent can be given before the contract is concluded or thereafter, in which case it is seen as ratification of the contract. There are exceptions to this rule, which may be found in various pieces of legislation as well as in common law, such as contracts where the minor obtains only rights and no duties (e.g. a donation).

A minor can escape liability even when they have been bound in terms of the contract (i.e. where the guardian has assisted the minor in the conclusion of the contract, consented to or ratified the contract). This can be done where the contract was prejudicial to him or her at the time that it was concluded. The court may then, on application, set the contract aside and order that each party be placed in the same position as what they were in before the contract had been concluded.

Facebook is currently involved in an ongoing class-action lawsuit. In this lawsuit, a class of parents in America are pressing their claim that Facebook should change how it handles online transactions by minors.

Attorneys for the parents in the above case note that it is important that Facebook has knowledge of a user’s actual age but still treats children the same as adult users when it comes to taking their money.

One of the biggest issues here is that reciprocal performance, being the payment of money via credit or debit card and the child obtaining credits, takes place almost immediately. Therefore, if the parent were to be refunded, the minor would be unjustifiably enriched using the credits.

The system, that Facebook currently employs, is therefore problematic since it takes advantage of children who may not fully understand the contracts that they are entering into when they purchase game credits. Furthermore, should the parents be immediately refunded in the current system, it may lead to situations where the parent consents to the purchases and then after the child obtains the enjoyment from the credits, request that their accounts be credited due to a ‘lack of consent’.

It is therefore clear that this system of payment should be changed. We should obtain clarity on how to deal with this in South Africa once the class-action suit in America has been concluded and a solution has been reached. At present, it seems that there will be no alternative for parents whose children overspend or use their credit or debit cards, without permission. If your child has, a Facebook gaming habit it is a good idea to keep a close eye on your wallet until we have clarity on the recourse available to parents who find themselves in this situation.

Bibliography

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

DISCLAIMER NOTICES

A3_bDisclaimer notices offer protection for owners and employees concerning shopping centres, stadiums, parking lots and other public areas. For these notices to be effective, certain requirements have to be adhered to. False reliance on these disclaimers can be a very expensive mistake. Find out whether your disclaimer notice will be sufficient to protect you and your employees.

Disclaimer notices are commonly seen in shopping centres, stadiums, parking lots and other public areas. These notices are generally aimed at protecting the owner or employees with regards to the area in question, by exempting him/her from legal liability when a member of public using the area suffers damage.

It is well established that disclaimer notices are enforceable when properly implemented. This is clear from the extract below:

Durban’s Water Wonderland (Pty) Ltd v Botha and Another (1999) 1 All SA 411 (A) at 115:

“If the language of a disclaimer or exemption clause is such that it exempts the proferens from liability in express and unambiguous terms effect must be given to that meaning. If there is ambiguity, the language must be construed against the proferens. (See Government of the Republic of South Africa v Fibre Spinners & Weavers (Pty) Ltd 1978 (2) SA 794 (A) at 804 C.)”

According to prevailing case law, when considering whether a disclaimer notice is effective, two factors have to be considered:

Firstly, from the Durban Water Wonderland case, it is evident that for the disclaimer’s content to be effective, the wording thereof must not be ambiguous. It is therefore required that the disclaimer must indicate in express terms what the person relying on the disclaimer is exempted from when someone reads the disclaimer. However, any alternative meaning of the disclaimer notice cannot be too widely interpreted. It is simply required that the meaning of the disclaimer is clear to anyone reading it. This test is implemented so that a vague statement cannot be regarded as sufficient to bind someone according to the legal principle of so called “quasi-mutual assent”, which is the underlying basis binding a person that reads a disclaimer notice.

Consider the following examples: “the owner of the property is hereby exempted” and “the owner, managing agent and any other employee is hereby exempted”. In the first example only the owner of the property is exempted from liability, while in the second example, employees of the owner and the managing agent of the property are included under the exemption clause. The first example would not have been sufficient if damage was caused to a person by the negligence of an employee, as employees were clearly not within the ambit of the notice. It is therefore important to ensure that the wording of a disclaimer is clear, unambiguous and is sufficient to protect all parties that need protection.

A further issue to take into account when the effectiveness of a disclaimer notice is considered is the question whether such disclaimer has been properly displayed. A disclaimer can only be effective when it is found that the disclaimer was displayed in an appropriate position, which would allow the reasonable person to have seen the disclaimer, or to ought to have seen the disclaimer. Practical issues, such as the size of the disclaimer, the distance from the viewer, the visibility, font and positioning of the disclaimer should be taken into account. This test is implemented as the content of the disclaimer can only fall within the knowledge of a person, when the notice is of such a nature that it is easily spotted by someone. When a disclaimer is affixed to a premise, it is therefore important that the above factors be taken into account.

It is clear that a disclaimer is an effective method of protection, especially when used in areas where large amounts of people visit frequently. However, the use of a disclaimer notice is a potentially risky practise, as it must be ensured that the wording and placement thereof is sufficient for the reliance thereon. It is recommended that an attorney be consulted before putting up such a notice.

Bibliography

Cases

Durban’s Water Wonderland (Pty) Ltd v Botha and Another (1999) 1 All SA 411 (A)

Government of the Republic of South Africa v Fibre Spinners & Weavers (Pty) Ltd 1978 (2) SA 794 (A)

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

WHEN IS A TENANT AN ILLEGAL OCCUPANT?

A4_bWhere the Contract of Lease is breached in any way by the tenant and he or she after receiving notice thereof has not remedied such a breach within the period agreed upon, then the landlord may cancel the contract. The tenant will be found to be an illegal occupier in this instance.

Where a tenant fails to perform as agreed upon in his Lease agreement, he will be found to be in breach of that agreement. An example of this is a failure to pay rent timeously or at all. The landlord must notify the tenant in writing of his decision to terminate the contract by means of a letter of cancellation, allowing the tenant a reasonable period, or such timeframe as agreed upon in terms of such a lease, to vacate the property.

If the tenant chooses to ignore the notice of cancellation of the lease agreement by remaining on the property and continuing to use and enjoy it, the tenant will be regarded as an illegal occupier of the property. The same applies if the tenant continues to occupy the property after the expiration of the initial lease period. An illegal occupier may be evicted from the rented property by the landlord or owner. This will be done at a Magistrate’s or High Court and for that the services of a lawyer will be required.

There is no longer a Common Law right to evict someone. Instead the owner or landlord must follow the procedures and provisions of the Prevention of Illegal Eviction and Unlawful Occupation of land Act 19 of 1998 (hereinafter referred to as the “PIE Act”). The tenant must be notified of the pending action, by means of a Notice of Intention to Evict and this must be done at least 14 days before the date of the court hearing. This notice must also be sent to the respective Municipality involved.

On the date of the hearing, the court will consider factors such as whether the person is an unlawful occupier, whether the owner has reasonable grounds for eviction and alternative accommodation available to the tenant. It is now considered a criminal offence to evict someone without a court order to that effect. Constructive eviction, for instance, where a landlord cuts the water or electricity supply to the property in order to “drive” the tenants out, is a criminal offence.

The type of action or application that your legal representative will bring will vary depending on the facts and circumstances of the matter. Such actions or applications can be heard in the Magistrate’s or High Court, depending on the value of the occupation and not the leased property value. The lease agreement may also have a clause embodied in it where the parties agree to a particular court’s jurisdiction, where upon that will be followed. If the court proceedings are successful a Warrant of Ejectment may be issued, whereupon the owner or landlord may proceed with the eviction of the illegal occupier.

Once the owner or the proprietor of the leased property has followed all the prescribed procedures as laid out in the PIE Act and they have established that their tenant is considered an unlawful occupier then they may proceed with the above-mentioned steps in order to evict them from their property.

An unlawful occupier may be removed from the premises upon the instruction of an Eviction Order / Warrant of Eviction with the assistance of the Sheriff of the respective court at a minimal fee. The steps laid out in the PIE Act are simple to understand and follow allowing a transparent and fair chance to both the landlord and the tenant in these difficult situations.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.