Category: Contracts (page 1 of 3)

Matrimonial property regimes

My partner and I are getting married soon and have heard about the different matrimonial property regimes one can enter but I am not sure what the difference is and what each one entails.

There are three types of matrimonial property regimes in South Africa. The three are marriage in community of property, marriage out of community of property with the inclusion of the accrual system and marriage out of community of property with the exclusion of the accrual system. When parties decide on either of the two latter, they must enter into a contractual agreement with one another before a notary public. It is important to understand what they all entail before one gets married.

Marriage in community of property is the so-called “default” regime, because all marriages are deemed to be in community of property if an Antenuptial Contract is not concluded before the marriage. This is also the most popular regime because it is the easiest one to conclude. When two parties get married in community of property, their estates will be joined together. Every asset and liability each party had before getting married and acquires during the marriage will become one estate and on dissolution of the marriage, the estate will be divided equally between the parties.

This system is based on the theory that each spouse, whether employed or at home running the household, contributes equally to the marriage and on dissolution of the marriage is entitled to share equally in the joint estate. It is important to note that when one enters this type of matrimonial regime, in some instances consent will be needed from the other party. One of the biggest disadvantages of this system is that if one party incurs debt, the debt will form part of the joint estate.

When one enters into a marriage out of community of property with the accrual system, it means that the parties entered into a contractual agreement with one another, which is known as an Antenuptial Contract. This contract must be entered into before a notary public and has to be registered at the Deeds Office. In this regime, the two estates of the spouses before the marriage remain separate. No consent will be needed from the other spouse in order to handle his/her own affairs. The accrual system will be applicable at the dissolution of the marriage or upon death, whichever may occur first.

What happens with the accrual is that whatever the parties acquired during the existence of the marriage, will be compared and the half of the difference in accrual will be owed by the estate which shows a larger accrual. On dissolution of a marriage out of community of property with the accrual system, inheritances and donations received by a spouse from a third party will not be included in the accrual.

In a marriage out of community of property without the accrual system, each party’s estate will remain separate. This system enables parties to control their own estate and affairs independently and on the dissolution of marriage, the parties will retain their own assets and liabilities. It is important to note that even if parties are married out of community of property excluding the accrual system, both parties will have to contribute to the household as a married couple – it is one of the duties that arises from marriage.

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. Errors and omissions excepted (E&OE)

What factors are taken into account by the Court when considering a formal bail application?

The granting of bail is in the nature of a contract in terms of which the state commits itself to the accused’s continued interim freedom once the court has authorised his release, while the accused commits himself to stand trial. It is apparent that the contracting parties are the state and the accused, although the discretion to grant bail vests in court.

Underlying the concept of bail is the presumption of innocence, whereby every person is presumed to be innocent until he or she is found guilty. Although not intended as a punitive measure, pre-trial incarceration nevertheless carries a penal element in that it deprives a prima facie innocent person of his freedom.

In most bail applications the onus rests on the state to persuade the court that the accused should not be released on bail. However, in Schedule 5 and 6 bail applications, which includes offences such as murder and premeditated murder the onus rests on the accused to persuade the court. In terms of schedule 5 bail applications, the accused needs to satisfy the court that interests of justice permit his or her release on bail, where in terms of Schedule 6 bail applications the accused needs to show that there are exceptional circumstances that permit the accused’s release on bail.

Essentially bail applications are governed by section 60 of the Criminal Procedure Act 51 of 1977 (“The Act”). Section 60 of the Act provides a number of factors to be taken into account by the court in either granting or refusing bail.

One of the important factors the court needs to consider is whether an accused person is a flight risk. In determining whether an accused is a flight risk, an accused needs to show that he or she has assets situated within the jurisdiction of the court, he or she has emotional, family, community or occupational ties within the court’s jurisdiction, and that the accused does not possess any travel documents or alternatively handed in the travel documents to the investigating officer.

A second factor to be taken into account is whether the accused will interfere with potential state witnesses. First, the court will consider whether there has been actual interference with state witnesses by the accused, secondly the court will consider interference with state witnesses by the accused in previous cases, and lastly in the absence of actual interference in the pending case or previous case the court will look at the fears of interference.

A third factor to be taken into account is whether the accused will commit further crimes whilst on bail. In terms of this factor, the court will look at the disposition of violence on the part of the accused, as it is evident from his or her past conduct and a threat of violence which the accused may have made to any person.

Lastly, personal factors of the accused may play a crucial role in the court granting bail. Personal factors of the accused include factors such as the fact that the accused is in poor health, the advanced age of the accused, the fact that the accused is particularly young, the fact that the accused has dependants to support, and the financial position of the accused.

In conclusion, there are various factors that are taken into account by our courts when deciding whether to grant or refuse bail. Most importantly, the presumption of innocence plays an imperative role in formal bail applications.

Reference List:

  • The Criminal Procedure Act 51 of 1977
  • Van der Berg J, (2013) Bail: A Practitioner’s Guide, Juta

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. Errors and omissions excepted (E&OE)

Migrant workers – is there any social insurance for them in the employment sphere?

In South Africa, not all risks are catered for by public schemes. The current public social schemes exist to deal with particular contingencies such as: unemployment, maternity, traffic accident-related injury or death, unemployment and employment injuries and diseases. When it comes to old age and health, private insurance schemes are considered. This position is the same for both employees ordinarily working in the country and migrant employees.In the employment sphere, however, social insurance for migrant employees are limited to only certain circumstances.

The Compensation for Occupational Injuries and Diseases Act, 130 of 1993 (“COIDA”) provides for compensation for disablement caused by occupational injuries or diseases sustained or contracted by employees in the course of their employment, or for death resulting from such injuries or diseases; and to provide for matters connected therewith. According to section 23(3)(b) of COIDA, where an employee performs his/her duties within South Africa for a period longer than 12 months, that employee is deemed to be employed in the Republic and, therefore, enjoys the protection of the Act. This principle is also applicable to persons who ordinarily work in the Republic, however, performs work on a temporary basis outside of South Africa.

Therefore, migrant workers also qualify for protection under COIDA. However, there is a duty on the employer to make the necessary arrangement for those employees with the Commissioner.

Where it is a case of a non-resident employee who qualifies for protection in terms of COIDA and social protection in another country where he/she performs work, following an occupational injury, he/she must elect to claim compensation either in terms of COIDA or in terms of the law of the other country.

When it comes to unemployment insurance, migrant employees seldom enjoy protection under the Unemployment Insurance Act, 63 of 2001 (“UIA”). According to section 3(1)(d) of the UIA , persons who enter the country for the purpose of carrying out a contract of service , apprenticeship or learnership, are not covered by the Act, if there is a legal or a contractual requirement (agreement or undertaking) that such a person must leave the country, or that such a person be repatriated, upon termination of the contract. Therefore, the employer and migrant employee will not be contributing towards the Unemployment Insurance Fund (“UIF”).

Unfortunately, this leaves migrant employees to be vulnerable and exploited by South African employers as they are seen as a “cheaper” labour option.

In South Africa, public insurance schemes mostly protect employees that are part of the formal sector. Therefore, the migrant employees who find themselves in the informal sector will not enjoy the limited coverage of South Africa’s public insurance schemes.

Accordingly, migrant employees are not protected to the same extent as employees ordinarily working in South Africa. However, legislation such as COIDA and UIA do provide for coverage for migrant employees in limited circumstances. This limited coverage usually only get utilised by employees in the formal sector.

In South Africa, not all risks are catered for by public schemes. The current public social schemes exist to deal with particular contingencies such as: unemployment, maternity, traffic accident-related injury or death, unemployment and employment injuries and diseases. When it comes to old age and health, private insurance schemes are considered. What is the position when it comes to migrant workers? Are they protected?

Migrant workers enjoy very limited social insurance coverage in South Africa under the Compensation for Occupational Injuries and Diseases Act, 130 of 1993 and the Unemployment Insurance Act, 63 of 2001.

Reference List:

  • A van Niekerk, N Smit, M A Christianson, M McGregor, BPS van Eck LAW@WORK 3rd Edition (2015).
  • Unemployment Insurance Act, 63 of 2001.
  • Compensation for Occupational Injuries and Diseases Act, 130 of 1993.

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. Errors and omissions excepted (E&OE)

When does a foreign system of law apply to your contract?

Let’s say I own a company in South Africa that makes and sells jewellery. The company is hugely successful and attracts international clients. A client who lives in Canada buys a piece of jewellery from my company, which is transported from South Africa to Canada. However, when the piece of jewellery arrives in Canada, the client finds that it is defective. Which system of law is applicable to the contract: Canadian Law or South African Law?

It is a requirement in the South African Law of Contract that, for a contract to come into existence, an offer to contract must be made by one party to the agreement (“the offeror”), which must then be accepted by the other party to the agreement (“the offeree”). It is pivotal to determine when and where such a contract is concluded, as this will give an indication as to which country’s system of law will govern the contract (assuming that all other elements for a valid contract have been satisfied).

The offeree may communicate his decision to accept the offer to contract by posting a letter to the offeror, or by sending the offeror an email. The method of communication utilised by the offeree will affect the place where and moment when the contract comes into existence; and, ultimately, which system of law is applicable to the contract.

The general rule is that a contract comes into being when and where consensus between the parties has been reached. This is typically the place where and moment when the offeror learns that the offeree has accepted the offer. However, there are exceptions to this general rule, which are discussed below.

  • Postal contracts

The court in Cape Explosive Works v South African Oil and Fat Industries Ltd 1921 CPD 244 explained that, when an offeree posts an acceptance letter to the offeror, the contract comes into being once the letter accepting the offer is posted to the offeror. In other words, the offeree need not follow up and ensure that the offeror has received his acceptance for the contract to be binding and enforceable.

  • Section 22 and 23 of the Electronic Communications and Transactions Act 25 of 2002 (“ECTA”)

Section 22 of the ECTA provides that “[a]n agreement concluded between parties by means of [electronic communications] is concluded at the time when and place where the acceptance of the offer was received by the offeror”. Further, section 23 reads as follows: “[electronic communications] used in the conclusion […] of an agreement must be regarded as having been sent by the [offeree] when it enters an information system outside the control of the [offeree] or […] when it is capable of being retrieved by the [offeror]”.

Therefore, unlike with a postal contract, the contract only becomes binding and enforceable when the offeree has sent off his electronic communication of acceptance of the offer to contract and the offeror has received or is able to retrieve such communication. In other words, the ECTA holds that a contract will come into existence where an email appears in the offeror’s inbox, but it has not been read; or, where the offeree leaves a message on the offeror’s answering machine, but the offeror has not listened to it yet.

For example, if X, who lives in South Africa, sends an email to Y, who lives in America, informing him that he accepts his offer to contract, the contract will come into existence at the moment that the email has been sent to the offeror and once it is received or capable of being retrieved by the offeror. For that reason, as the email will be received or be capable of being retrieved in America, the system of law applicable in this situation would be American Law (assuming that all other elements for a valid contract have been satisfied).

  • Agreement by the parties

As South African Contract Law emphasises the freedom of contract, parties to a contract are entitled to agree to terms stipulating when and where a contract comes into existence.

In sum, the system of law applicable to the contract will depend on whether the parties have agreed on a moment when and place where the contract should come into being. If no such agreement is reached, the applicable system will depend on the means chosen by the offeree to communicate his acceptance of the offer to the offeror.

It is, therefore, advised that parties to a contract agree on a moment when and a place where the contract should come into existence in order to avoid confusion as to which system of law will be applicable to the contract.

Reference List:

  • Cape Explosive Works v South African Oil and Fat Industries Ltd 1921 CPD 244.
  • Electronic Communications and Transactions Act 25 of 2002.
  • Van der Merwe et al Contract: General Principles 4 ed.
  • Hutchinson et al The Law of Contract in South Africa 3 ed.

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. Errors and omissions excepted (E&OE)

Electronic signing of documentation

The commercial world is currently moving to greater levels of digitisation. Organisations are implementing automated and electronic solutions in an effort to improve efficiency and better the environmental footprint at the same time. The move to digitisation and electronic signatures prompted questions surrounding the legality of these documents. This article aims to highlight certain legal aspects of electronic signatures in both a general business environment and an audit industry environment.

Different types of electronic signatures

The Electronic Communications and Transactions Act, 25 of 2002 (ECTA) differentiates between standard electronic signatures and advanced electronic signatures. Standard electronic signatures include digital or scanned signatures. An example would be using an iPad to sign a document or merely printing, signing and scanning the document. Advanced electronic signatures are defined as electronic signatures which results from a process which has been accredited by the Authority as stipulated in Section 37 in the ECTA, for example, Quicklysign.

Standard electronic signatures are sufficient in most instances if and when the method of signing had not been agreed upon by the parties beforehand. Advanced electronic signatures are required for a suretyship agreement as well as signing as a Commissioner of Oaths (Section 18 of ECTA). Some documents are specifically excluded from being signed electronically (as per Schedule 2 of ECTA) for example:

  • an agreement for alienation of immovable property;
  • an agreement for the long-term lease of immovable property in excess of 20 years;
  • the execution, retention and presentation of a will; and
  • the execution of a bill of exchange as defined in the Bills of Exchange Act, 34 of 1964.

Electronic signature of financial statements

Stakeholders in the audit industry will be all too familiar with the challenges being posed by printing various sets of financial statements, only to be scanned again after signature. The industry seems to be one of those that will benefit from the efficiencies provided by electronic signatures but are these electronic signatures on a director’s and auditor’s report acceptable?

The Independent Regulatory Board of Auditors (IRBA) identified the increase in usage of electronic signatures on financial statements and audit reports and reported on the matter through the 2017 public inspections report. IRBA communicated that the following challenges are experienced by the practice of electronic signatures:

  • uncertainty as to the identification of the final version of the auditor’s report and annual financial statements;
  • uncertainty as to the approval by the company’s board of the exact final version of the annual financial statements; and
  • the risk that the incorrect annual financial statements are published.

We are of the opinion that an advanced electronic signature service provider, as approved by the ECTA, will sufficiently mitigate the above-mentioned challenges identified by IRBA. Contact us in order to obtain more information as to how we can assist in finalising documentation efficiently.

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. Errors and omissions excepted (E&OE)

Buying a Property on Auction

Properties sold on auction is not necessarily the bargain buy everyone seems to think it is. This is because the property on auction isn’t necessarily being sold due to financial distress. In today’s times, homeowners have turned to auction as a means of selling their property as soon as possible and for as a high a price as possible. When planning on buying a property on auction, it is important to do your homework and prepare. This is what you need to know about property auctions:

There are different types of properties that can be bought on auction, they include:

  • Property up for sale by the owners themselves as a means of selling the property as quickly as possible.
  • Sale in execution. This is a sale due to the financial distress of the property owner.
  • Property in possession. Property that has been bought back by the bank, in other words, a repossessed property.

What to do before the auction:

Before the auction, there are certain things you can do to prepare, this includes:

  • Viewing the property before the auction, as these properties are sold “as is”.
  • Gather additional information on the property being auctioned ahead of time. Find out more about the area, local schools, facilities, asking price for properties in the said area etc.
  • Make sure to have a copy of the Conditions of Sale. The reason being, before buying this property, it is important to know exactly what you are buying. You could be taking over accounts that have not yet been paid etc.
  • If you are going to bid on a property, ensure that your finances are ready well in advance.
  • Finally, if you cannot physically attend the auction, and want to bid by phone, you will have to organise this in advance.

What to do at the auction:

When arriving at the auction, there are certain processes that need to be followed before you can bid on the property, this includes:

  • When arriving at the auction, you need to register to bid on the property. To register, you will need your ID, proof of residence, and the fee for registration.
  • Go through the provided Conditions of Sale and ensure that no changes have been made to the document.
  • Ensure that the auctioneer can clearly see you.
  • If your bid is successful, you will be instructed to sign the Conditions of Sale as a means of confirming your purchase.
  • You will then have to pay the auctioneer’s commission which is usually 10% of the purchase price plus VAT, as well as a deposit of 5% of the purchase price.
  • You will need to have the funds shortly after the auction as this is a guarantee to the seller that you can purchase the property.

What will happen after the auction:

After the auction, if the buyer of the property is dissatisfied with the property for whatever reason, it’s too late. This is because auction properties are sold “voetstoots”, which means “as is”. This is one of the main reasons why it’s so important to see the property as part of your preparation before the auction. It’s also important to note that if the buyer defaults on the sale, the seller can take legal action and force the buyer to fulfil the contract. Before bidding on a property, it is important to make sure that you want to buy and can afford to buy the property being auctioned, as the breaching of contracts comes with serious financial and legal repercussions.

Understanding the functions of the commission for conciliation, mediation and arbitration

This article briefly discusses the procedure which is followed when a dispute is referred to the Commission for Conciliation, Mediation and Arbitration. It explains what the different functions of conciliation and arbitration are and in what order these forms of dispute resolution should be conducted in order for the process to function optimally.

I have a dispute which has been referred to the CCMA. How does the process work?

The Commission for Conciliation, Mediation and Arbitration (“CCMA”) is a state-funded institution which acts as the centrepiece of the statutory dispute resolution system in the employment sphere. The CCMA, however, operates independently from the state.A dispute is referred to the CCMA within 30 days of the date when the dispute arose. When a dispute is referred to the CCMA, the first step in the process is that the Commissioner (the objective party presiding over the matter), who will act as a conciliator, assists the parties to reach a mutually agreed upon outcome. The conciliator cannot make any binding determinations during this process. Therefore, there is no obligation on the parties to accept the suggestions of the conciliator. What is also important to note is that the proceedings are confidential and conducted on a “without prejudice” basis, therefore, whatever is said during the said proceedings cannot be used against either party later in the process. Conciliation is not defined in the Labour Relations Act 66 of 1995 (“LRA”), however, in practice, the Commissioners tend to make use of mediation, conducting a fact-finding exercise, subsequently making a recommendation to the parties, which is regarded as an advisory arbitration award.

After conciliation has failed, the Commissioner will issue a certificate stating that the dispute remains unresolved after conciliation proceedings have been conducted (certificate of outcome). The referring party will then have the option to refer the matter to arbitration by completing an LRA Form 7.13 and serving it on all the relevant parties, including the CCMA, within 90 days after the date on which the certificate of outcome was issued. The director of the CCMA may direct that the parties conduct a pre-arbitration conference. The purpose of the said conference is so that the parties can simplify the matter and clearly define what the dispute is.

Arbitration is essentially a hearing based on the merits of the dispute. The arbitrator will give all the parties an opportunity to prove and argue their case. After the arbitrator has heard the parties’ cases, the arbitrator must make a finding, which any reasonable decision-maker could come to based on the available evidence. Reasons for the arbitrator’s decision may be provided. The arbitrator’s decision is final and binding on the parties, subject to a review application in the Labour Court. The arbitrator may also make an order as to costs in accordance with the CCMA rules.

It should also be noted that in 2002, amendments to the LRA were introduced, which also provide for what is now known as “con-arb”. What this entails is that the Commissioner will have to commence arbitration immediately after conciliation was found to be unsuccessful. However, a party to the proceedings may object to con-arb, whereafter the procedure as discussed above will then follow in the alternative.

When a dispute is referred to the CCMA, the first step in the process is that the Commissioner will attempt to settle the matter by way of conciliation which might include mediation, conducting a fact-finding exercise, subsequently making a recommendation to the parties, which is regarded as an advisory arbitration award. When the dispute remains unresolved, the matter will then be finalised on arbitration.

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. Errors and omissions excepted (E&OE)

Sources:

  • CCMA Rules
  • Labour Relations Act 66 of 1995
  • Country Fair Foods (Pty) Ltd v CCMA (1999) 11 BLLR 1117 (LAC)
  • CCMA website – https://www.ccma.org.za/Advice/CCMA-Processes/Arbitration
  • Law@work 3rd Edition (2015) A van Niekerk, M Christianson, M McGregor, E Smith, BPS van Eck

COURT INTERFERENCE IN A CONTRACTUAL RELATIONSHIP

When two or more parties enter into a contractual agreement knowingly and free from duress, the terms of the agreement must be upheld by each signatory. However, it must be noted when the contract is entered into under pacta sunt servanda, which means “agreements must be kept”, principles of fairness, good faith and reasonableness don’t play a part when circumstances leading to contract breach arise.

With regards to property law, for example, if a lease agreement states a date on which rental is due, then the party responsible for making this payment should meet this obligation. Failing to do so could enable the lessor to cancel the signed lease without notice and retake the property. Genuinely, because the lessee had agreed to the clause by signing the contract, that would then mean that they agree on the grounds of cancellation.

But if the late payment was due to circumstances beyond the lessee’s control, does the cancellation clause still stand?

If the lessee does not oblige with the lease cancellation, the lessor may approach a court to deliver judgement on the agreement and serve a notice of eviction. The lessee may argue that they acted in good faith and that the matter was beyond their control. The lessee may also argue that the implementation of the pacta sunt servanda principle varies from case to case and should be determined by the circumstances surrounding breach of the lease.

If the court chooses to hand down judgement based on the lessee’s argument, it is incorrect due to the freedom each party had when entering into a contractual agreement. Each party has bargaining power and should have, before signing, ensured that any possible errors were taken into account. Good faith and fairness don’t play a part when it comes to an agreement and a court cannot base that as the reason why the lessor should not have cancelled the lease.

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. Errors and omissions excepted (E&OE)

CANCELLING A CONTRACT?

Every person, whether an individual or a juristic person, will find themselves in a situation where they will want to terminate a contract. The aim of this article is to set out the requirements for terminating a contract as well as to give basic guidance when doing so.

When a person wants to cancel a contract, the cancelling party (innocent party) will have a choice to either cancel the contract or to enforce it. This article refers to the innocent party and the party in breach. The reader must however remember that fault it not a requirement for breach of contract.

The law regards breach of a contract as a wrongful act in itself which allows the innocent party to cancel the contract. It is important to remember that cancelling a contract is an extreme remedy that is only available in exceptional circumstances, namely where there is a cancellation clause or where the breach of contract is material or serious. If the contract is however silent on cancellation, the innocent party may still cancel the contract provided that the said breach is material or serious in nature.

The point of departure when cancelling a contract is to determine what the exact terms of the contract are, i.e. if the contract has a cancellation clause or not and whether there is a date of performance or not.

If the contract has a cancellation clause, the innocent party will be able to cancel the contract in the event of a breach of a term thereto. The innocent party must however take care not to cancel the contract incorrectly, otherwise the party in breach may interpret the cancellation as a repudiation of the contract, in which case the party in breach will also have the right to cancel the contract.

In the event where the contract does not have a cancellation clause, the innocent party will only be able to cancel the contract if the breach is material in nature. What constitutes a material breach depends on the terms of the contract. According to South African case law, a material breach is one which goes to the root of the contract and constitutes a breach of a vital term thereto.

Depending on the type of breach, the innocent party might have to give the party in breach notice of same. This will be the case where there is no date of performance specified in the contract. The innocent party must then demand performance by giving the party in breach reasonable notice to perform before he will be able to cancel the contract.

On the flip side, if a date of performance is specified in the contract, and a party does not perform in time and as stipulated, that party will be in breach, otherwise referred to as being in mora. It does however not automatically give rise to the right to cancel the contract. The only instance where there will be an automatic right to cancel a contract is if there is a cancellation clause or a suspensive condition in the contract.

A contract containing a suspensive condition will terminate automatically unless the suspensive condition is fulfilled or waived. If there is not a cancellation clause in the contract and no date of performance, the innocent party must give notice to the party in breach that time is of the essence and give him a reasonable time to perform.

In summary, the requirements for cancelling a contract vary according to the terms thereto, the type of contract and the factual scenario. There are no formalities for cancelling a contract unless the parties otherwise agree and/or a statute (i.e. Alienation of Land Act and the National Credit Act) prescribes same.

Other requirements include that the innocent party must give reasonable notice to the party in breach that they are cancelling the contract, which cancellation becomes effective from the time the cancellation comes to the attention of the party in breach.

The consequences of cancelling a contract are that the obligations to perform terminate and the parties are obligated to return what has been performed. If both parties agree to the cancellation, the preferred route would be to enter into a cancellation agreement, setting out what needs to be returned, claims for damages etcetera.

Considering that each contract and factual scenario differs and will be judged and interpreted accordingly, readers are advised to obtain legal counsel before cancelling a contract.

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. Errors and omissions excepted (E&OE)

Reference List:

  • “Contract: General Principles” by Van Der Merwe, Van Huyssteen, Reinecke & Lubbe 2004 (Juta Law)

AM I PREJUDICED BY AN ARBITRATION CLAUSE IN MY BUILDING CONTRACT?

Contracts for the building of a house or providing for substantial alterations to a house commonly contain an arbitration clause. This article looks at the advantages of resolving disputes relating to building contracts by arbitration rather than by litigation in the courts.

I had a written contract with a builder to make substantial alterations to my house. I was very unhappy about how the work was done and I then went to consult my attorney with a view to taking the builder to court. My attorney informed me that the contract contained an arbitration clause which required all disputes relating to the contract to be referred to arbitration. When I signed the contract with the builder, my attention was not drawn to the arbitration clause and I had no idea what the consequences were.

As a general point of departure, before entering into a contract with another party it is important to understand all the contractual terms, including the arbitration clause. An arbitration clause requires the parties to refer their dispute for resolution outside the courts to a private arbitrator appointed by or on behalf of the parties. The arbitrator, who is required to be impartial and independent, must decide the dispute by fairly considering the parties’ evidence and arguments. The decision of the arbitrator, referred to as an award, is final and binding on the parties and can only be reviewed by a court for serious procedural irregularities. There is therefore no right of appeal to the court if a party disagrees with the arbitrator’s decision on the merits. The client could approach the High Court to have the arbitration agreement set aside, but this will be expensive and time-consuming. The client will have to show “compelling reasons” why the arbitration agreement should be set aside. The client must also be aware that arbitration offers certain advantages.

What are the advantages of arbitration instead of litigating in court?

In this context, arguably the most important benefit is the opportunity to appoint an arbitrator with specialised knowledge of building disputes. The right arbitrator will have experience in resolving such disputes. If the parties cannot agree on an arbitrator when the dispute arises, the arbitration clause will typically confer the power on a specified institution to appoint the arbitrator. It is preferable that the appointing body should be a specialist arbitral institution, which will ensure that the appointee has experience in building disputes and has the necessary training as an arbitrator. Non-specialist appointing bodies tend to appoint a person from their own profession, irrespective of that person’s training and experience as an arbitrator.

Another important advantage of arbitration compared to litigation is its flexibility. Because arbitration is based on an agreement, the parties under the direction of the arbitrator can design a process tailor-made for their dispute, instead of being bound by rigid court rules. This should result in the arbitration being considerably quicker and also less expensive than litigation. The relative informality of the process compared to a court means that arbitration is less traumatic for the parties and is less damaging for their relationship. The confidentiality of the process and the award can be another advantage.

The Arbitration Act of 1965 requires an arbitration agreement to be in writing, but it does not need to be signed by the parties. The purpose of this written agreement is to provide a record of its contents rather than to prove consent. At the time the contract is entered into, the home owner must ensure that the building contractor is registered as a home builder under the Housing Consumers Protection Measures Act of 1998. If the builder is not registered, this can affect the validity of the building contract and deprive the homeowner of statutory protections.

The arbitrator will typically convene a preliminary meeting with the parties and their legal representatives as soon as practicable after the arbitrator’s appointment. By that stage, from the client’s request for arbitration and the builder’s response, the arbitrator will have a fair idea regarding what the dispute is about. It is at this stage that the arbitrator can design an appropriate procedure to resolve the dispute, which will differ significantly from that used in court. The arbitrator may even suggest that the parties consider allowing the arbitrator to mediate their dispute.

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. Errors and omissions excepted (E&OE)

Reference List:

  • Arbitration Act 42 of 1965 s 1 “arbitration agreement”; s 3(2) regarding the court’s power to set aside the arbitration agreement.
  • The Housing Consumers Protection Measures Act 95 of 1998, s 10(b).
  • Regarding the purpose of the agreement being in writing, see the International Arbitration Act 15 of 2017 schedule 1, article 7(3).
  • Regarding how a court should exercise its discretion under s 3(2) of the Arbitration Act, see De Lange v Methodist Church 2016 2 SA 1(CC); [2015] ZACC 35, paras 34-37.
  • Regarding the need for the contractor to be registered as a home builder, see Cool Ideas 1186 CC v Hubbard 2014 4 SA 474 (CC).
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