1

Why must I study Mercantile Law?

Accountants, economists, financial planners or businesspersons in the financial

and/or management environment have to think strategically and must show
leadership in business context. Strategic thinking would, amongst other things,
require that you weigh the risks connected to a particular transaction or a business
endeavour against the returns or benefits to be generated. As all business
transactions and endeavours take place within the framework of the law it is
important that these persons should have a good working knowledge of the law, as
legal risk will be one of those factors or risks. In order to determine the impact of
legal risk on routine as well as long term decisions, you have to be able to identify
legal problems and challenges, and to obtain specialist legal advice from legal
experts where needed.

The law is a living science and, therefore, it is constantly evolving. Legislation that
applies to business in general, such as the Companies Act and the Income Tax Act,
is regularly revised. It is, therefore, important that he/she should be aware of that and
that he/she should keep up with legal developments. Moreover, due to the fiduciary
nature of his/her work, a businessperson should realise the importance of ethical
conduct and that he/she should at all times act honestly, with integrity and with
reasonable care and skill. This means that he/she has to fulfil these duties with care
and respect the relationship of trust with clients, and at the same time act within the
framework and spirit of the law that regulates the profession and the transaction.
What is the law?
Rules of law and other rules

When individuals or groups of people interact, either in the community or in the world of
commerce, there will always be a potential for conflict due to differences in needs and
desires. Human behaviour is therefore regulated by a variety of rules and norms. Four
basic types of conduct rules are distinguished; viz:

1. rules of religion
2. rules of individual morality
3. rules of collective morality
4. rules of law
 2

The collective morality of society will mostly be opposed to murder. Similarly, the law
also prohibits this type of behaviour. Other types of conduct, such as for example,
euthanasia, same-sex marriages or the use of cannabis, might be treated differently
depending on the norm against which they are measured. In some cases, rules of the
individual morality will not condemn this type of conduct but the collective morality of
society and/or the law might be opposed to it, or the other way around.

Individual morality, or the collective morality of society, tends to change over time.
Conduct which used to be condemned can, therefore, become acceptable at a later time.
Norms also tend to differ along geographical and cultural lines. Whilst the use and sale
of cannabis is legal in certain countries, it is prohibited by law in SA. 1 As for same-sex
marriages, SA legislation allows for these marriages, and in many Western countries
there is a strong movement towards legalising same-sex marriages. However, due to
strong cultural believes, many African countries still prohibit these unions by law.

Rules of law are the only type of law that can be applied and enforced by state
institutions such as the police, the courts or the sheriff. The other types of rules are only
sanctioned by your conscience or by social dismissal.

The role of law within the context of business and commerce

In the context of business and commerce, the rules of law are often more important than
rules of the individual and collective morality. These rules should, however, not be
dismissed in toto. Religious convictions, as well as individual and collective perceptions
of the law, equity and justice can indirectly affect business.

For example, infringements of basic human rights can result in trade sanctions. These
measures can range from state-initiated sanctions which prohibit commercial
interaction with certain countries that ignore these rights, 2 to the mobilization of the
public by requesting boycotts against businesses which have ties with countries where
human rights abuses take place.3

1
Cf the decision of the Cape High Court, in 2017, as regards the decriminalisation of recreational use and
possession of dagga in the privacy of your own home in light of the Constitutional right to privacy which is
still to be confirmed by the Constitutional Court. Note, however, that this does not legalise the use and
possession of dagga.
2
E.g. sanctions against SA in the apartheid era or against Zimbabwe.
3
E.g. recent mass action against retailers who trade with Israeli companies. Or the condemnation of trade in
products produced by child labour or where blood diamonds are involved.
 3

Internationally, pressure is increasingly asserted to ensure that ethical business

practices are followed in production processes. In these contexts, business reputation in
itself can effectively be applied as a sanction in the business environment.

Rules of law are therefore defined as rules aimed at regulating human conduct (in
the form of social or economic conduct) so as to order society and commerce. In
other words; the main objective of the law is to create a peaceful and ordered society
(and commercial life) and to regulate civil society (and commerce in general).

The law prescribes what people are not allowed to do, what they are allowed to do
and what they must do. E.g., you may not commit fraud; you are allowed to rent a
house and you must pay your taxes. The law guarantees certain freedoms, such as the
right to freedom of speech or association, freedom to trade which allows for free
enterprise that can stimulate the economy. Furthermore, the law determines how
disputes can be solved peacefully through procedures applied by independent
institutions such as the courts or tribunals.

Mediation is another method of alternative dispute resolution and is becoming

increasingly popular, even in the commercial environment. Mediation differs from court
decisions or arbitration. A mediator does not come to a decision on the dispute but that
he/she simply accompanies the parties in reaching an agreement to solve the matter.

Legal aspects of commercial transactions, together with economic, financial and political
risks, are part of the risks which must be taken into account when a business strategy is
formulated, as they all imply a certain cost. Naturally, the services of a legal advisor will
be obtained to deal with the finer details applicable to non-routine transactions, but it is
equally important that, during the planning stages, the management team identifies the
need for legal advice and that a legal advisor is brought on board to determine legal risk
and the costs thereof.

Is the law fair or just, and should it be?

In SA, all business must be conducted within the framework of the Constitution and the
Bill of Rights. Thus, all internal discriminatory conduct (against employees, for example)
and externally (against counter parties) is unlawful. All people are equal before the law
and everyone should have access to the law.
 4

According to the principles of natural law, human conduct must meet unwritten
higher norms and values which exist irrespective of human intervention by means of
statute or other forms of regulation. The law should therefore meet these unwritten
norms to be fair and just. On the other hand, the positivists argue that the law is what it
is. Thus, any law created by the state (in the form of statutory law), irrespective of
whether the law is just, fair or reasonable, or whether it transgresses any moral or other
values, is still law and has to be followed.

The Bill of Rights states that all government and private conduct (whether that is by
individuals, companies or other business entities) should adhere to the principles of
freedom, equality and human dignity. This ensures equitable, reasonable and just rules
which respect human rights.

The Constitution is supreme, the legal rules should protect its citizens from state
abuse but also protect the individual’s fundamental rights from abuse by other individuals
and institutions.

Public policy plays an important role today, even in the law of contract. This concept is
based on the principles of freedom, equality and human dignity, and the Constitution
therefore also plays an important role in the traditional private sphere of private law.

Sources of law

There are a number of sources from which law can originate.

They are:

1. legislation
2. court decisions
3. the common law
4. custom
 5

Legislation4
The Constitution

The Constitution5 is the most important law in the constitutional system of the
country and regulates the legislative, executive and legal functions of the state.
The Constitution regulates, but at the same time also curbs, governmental power. Since
parliamentary sovereignty was abolished in 1993, the Constitution is the supreme law of
the country.

Any law (e.g. a national or provincial statute) or conduct of the President that is in conflict
with the Constitution may be declared invalid by a court of law. The courts (and
especially the Constitutional Court) have the power to measure parliamentary acts
(statutes) against the general standard of the Constitution and to declare them invalid if
in conflict.6

The testing right of the courts is exercised with reference to the fundamental human
rights recognised and entrenched by the Constitution. The Constitution is therefore the
supreme law of the country.

Chapter Two of the Constitution provides for a Bill of Rights in which these fundamental
rights are entrenched. Some of the rights that are entrenched in the Bill of Rights are the
right to equality (s 9), the right to assemble and to strike peacefully (s 17); the right to
freely choose a trade, occupation and profession (s 22), the right to fair labour practices
(s 23) and the right not to be deprived of property except in terms of law of general
application (s 25) and the right to fair administrative conduct (s 33). 7 Any act in conflict
with the constitutional principles of freedom, equality and human dignity of all people can
therefore be declared invalid by the Constitutional Court.

4
Also known as statutory law.
5
The Constitution of the Republic of South Africa, 1996.
6
If the High Court or the Supreme Court of Appeal has declared a statute invalid, it still has to be confirmed
by the Constitutional Court.
7
These rights are all important for taking part in commerce, and are subject to the general limitation of s 36.
 6

An example is the decision in S v Makwanyane 1995 3 SA 391 (CC) where the Court
held that the statutorily accepted death sentence is unconstitutional because it is conflict
with the right to life (s 11).

Another example is a finding of the Constitutional Court in December 1995 that declared
the requirement in the Marriage Act 25 of 1961 namely that a legal marriage could only
take place between a man and a woman unconstitutional for being discriminatory on the
grounds of gender equality and, therefore, being an infringement of fundamental human
rights (s 9). Parliament was given the opportunity to amend the law to provide for
marriages between people of the same sex. It was decided to enact new legislation
providing for these types of marriages. Parliament subsequently promulgated the
Civil Union Act, Act 17 of 2006, which came into operation on 30 November 2006.

The Bill of Rights contains a general prohibition on unfair discrimination on grounds of

gender, religion, ethnic origin, age, language, sexual orientation etcetera (s 9(3)). Any
human being’s right to privacy (s 14), human dignity (s 10), religion (s 15), freedom of
speech (s 16), equality before the law (s 9), cultural rights (ss 30 & 31) is thus protected
by the Constitution.

Although the Constitution is primarily aimed at regulating the relationship between the
State and the individual, it is clear that the purpose of the Bill of Rights is not only to
regulate this so-called “vertical relationship” but that it also applies horizontally between
individuals, or between companies or businesses, and can be enforced in those contexts
as well.
 7

It should, however, be noted that the rights entrenched in the Bill of Rights may be
limited by a law of general application to the extent that the limitation is reasonable and
justifiable in an open and democratic society based on human dignity, equality and
freedom with consideration of factors mentioned in s 36, such as the nature of the right,
the purpose of the limitation, nature and scope of the limitation, the relation between the
limitation and its purpose, and whether there is a less restrictive means to achieve the
purpose.

Sometimes, different human rights that are both protected by the Constitution will come
“in conflict”, such as the right to free speech and the right to dignity. The rights will then
have to be weighed against each other.
Typical examples are where rude or racist remarks are made on social media.

Parliamentary legislation (national level):

The Constitution empowers Parliament to legislate. Legislation (also known as

statutes or Acts) comprises legal rules made by Parliament. Under a democratic
order, Parliament is constituted by representatives of political parties elected by the
community. (In South Africa it is done on the basis of proportional representation.)

Strictly speaking, legislation should reflect the will of the people and the collective
morality of society. However, at times, laws are made which generate much debate like
the abortion law. The question is whether the law still reflects the collective morality of
the people. It should however be remembered that collective morality is not static and
that it tends to change over time. The law, on the other hand, is most of the time slow to
react to change, and is statute often the quickest way to amend the status quo.

Parliament8 is the most supreme legislator on national level, but it is subject to scrutiny of
the Constitution as the highest law of the land. Parliamentary acts are the most powerful
source of law on the national level and enjoy preference over the common law, as well
as court decisions and customary law.

However, they are still subject to the standards of the Constitution, e.g. laws that
encourage discrimination are unconstitutional. Legislation may be used to fill gaps in the
8
Consisting of the national legislator and the National Council of Provinces.
 8

law or to adapt the law to the needs of society Such as providing for electronic contracts
by means of the Electronic Communications and Transactions Act, Act 25 of 2002

 This is to address issues in existing legislation that are in conflict with the
Constitution (such as the Civil Unions Act)

 And to stop loopholes and cure defects in existing legislation (e.g. amendments
to tax laws or legislation regulating business enterprises).

Legislation is published in Government Gazettes that are available electronically.

Statutes have titles and numbers, e.g. the Insolvency Act 24 of 1936 and also have a
preamble which summarises the content and the purpose of the law. All statutes are
divided into sections, e.g. s 2 of the Insolvency Act. Each section, in turn, is subdivided
into subsections.

Provincial constitution and legislation (regional level)

Every province has a provincial legislature which may enact a constitution for its specific
province and it may legislate on so-called “own affairs”

 Local government
 Provincial roads
 Road traffic
 Health services
 Non-tertiary education
 Agriculture
 Language and cultural affairs
 Provincial sport
 Tourism
 Museums
 Trade
 Indigenous law
 Soil conservation
Together with the national legislature it can also make laws dealing with specific
issues, such as
 9

 Housing
 Trade
 Education
 Health services
 Agriculture

Subordinate legislation (local level and other)

Legal rules can also be formulated by other bodies. Delegated legislation is made by
local councils, municipal councils, university boards, health boards and even by
ministers.
A municipality may, for example, make building regulations which are operative within its
boundaries or a minister may make regulations in terms of a particular act, such as to
control interest rates in terms of the National Credit Act 34 of 2005.

Such regulations are known as subordinate legislation. This particular type of legislation
is subordinate in that the person or legislative body derives its authority to legislate from
an act of Parliament (the authorising act).
Subordinate legislation is limited in the sense that the person or legislative body can
only act within the boundaries of the authority provided by the authorising act.
Ultra vires legal rules (which are outside the boundaries set by the authorising act) may
be declared invalid by a court of law.

For example, an authorising act of parliament authorises a municipality to make

regulations in regard to the trading hours of liquor outlets within its municipal jurisdiction.
If the municipality, for example, enacts a regulation dealing with the procedure that shop
owners have to follow to obtain a liquor licence, the regulation would be ultra vires the
authorising act since it deals with an issue which is outside the powers given to local
government, and therefore it would be invalid.

Court decisions
 10

Apart from the common law and statutory law, court decisions are an important source of
law. The judiciary consists of different courts.

A distinction is made between high courts and lower courts of which the Constitutional
Court (seated in Johannesburg) is the highest court in the country.
The Constitutional Court has jurisdiction 9 over constitutional matters as well as over
all matters where the Court has granted an appeal based thereon that it would be in the
public interest that the matter is to be heard by the Constitutional Court or if such
decision goes against the spirit of the Constitution.

Apart from the Constitutional Court, you may appeal against the decision of any other
high court to the Supreme Court of Appeal (in Bloemfontein), which is normally the
highest court for any other civil and criminal matter, although the Constitutional Court can
still overrule a decision of the Supreme Court of Appeal if it is in the public interest or if it
goes against the Constitution.

The High Court of South Africa consists of a number of divisions with one (or even more
than one) court per province.

The divisions of the High Court have jurisdiction (the capacity to hear cases) over both
civil and criminal matters which arose within their geographical areas as well as over
constitutional matters, such as

9
The authority to hear these matters. Jurisdiction can, however, also refer to the geographical seat of the
court.
 11

 Whether a fundamental human right is infringed.

 Certain matters such as divorces10
 Status orders in respect of one’s mental capacity
 Sequestration
 Liquidation orders

The determination of the validity of and the interpretation of wills may only be
heard by high courts.

There are magistrates’ courts (lower courts) in most towns, which have limited
jurisdiction over civil and criminal matters, namely up to a maximum of R200 000 for
district courts and between R200 000 up to a maximum R400 000 for regional courts.
They may also hear criminal matters but not constitutional matters. As regards the latter,
a distinction is made between district courts (for smaller misdemeanours) and regional
courts (for more serious matters). Certain criminal offences (e.g. murder and rape) may
only be heard by a regional court or high court and treason only by a high court.

Special courts, such as for example commercial crime courts, tax courts, maintenance
courts, divorce regional courts, family courts, children’s courts, land claim’s courts,
equality courts and labour courts function as specialised courts in matters of a
specialised nature. In addition, there are also a number of tribunals where the presiding
officer is not a judge or a magistrate but a specialist in the field, such as competition
tribunals, rental tribunals and national consumer tribunals.

Small claims courts hear civil matters where the cause of action is less serious, and the
amount in dispute is relatively small (not exceeding R15 000) and therefore does not
warrant the legal costs of an action in a lower court (magistrate’s court). In these courts
the plaintiff and defendant act in their personal capacities and are not represented by
legal counsel.

10
To provide some relief on the High Courts, divorces can now also be heard in regional courts.
 12

Judges normally do not create law but only apply the law or interpret it. However, in
interpreting legislation or the common law, judges may create law when they give a new
interpretation to a statute or by extending or adapting a principle of the common law.

Statutory interpretation takes place with reference to principles and rules provided by
the legislator or by the courts. The Constitution also provides guidelines on the
interpretation of statute. When a judge interprets a statute he/she will firstly be led by the
statute, its context and more specifically the definitions provided therein. Section 1 of
each Act of Parliament contains definitions for word and phrases used in that particular
Act.

A general Act dealing with interpretation issues, the Interpretation Act 33 of 1957, also
states general rules on the interpretation of statutes. For example, where legislation
refers to a number of “days”, they are to be reckoned by excluding the first day and
including the last day, except where the last day falls on a Sunday or public holiday, then
that day will be excluded as well, or that any references to a male also includes females.
The Constitution (s 39(1)) states that human dignity, equality and freedom have to be
taken into consideration when legislation is interpreted. Section 39(2) of the Constitution
provides that the objectives of the Bill of Rights should not only be promoted through
statutory interpretation but also in the development of the common law and customary
law.

The extent to which court decisions are binding, are determined by the precedent system
(also known as the stare decisis11 doctrine). In essence the system entails that a
court is bound to the ratio decidendi12 of a prior decision by the same court or a higher
court within its jurisdiction until it is upturned by a court which is higher in the legal
hierarchy or where the decision was evidently wrong or where the facts of the matters
differ to the extent that another conclusion would be reached on the current facts. The
ratio decidendi is the part of the decision that refers to the legal question13

All courts are bound by the decisions of the Supreme Court of Appeal and the
Constitutional Court. Higher courts are bound by previous decisions of their own
11
Stare decisis = “stand by your decisions”
12
Ratio decidendi = “reason for the decision”
13
Where there is more than one judge, rulings can be made in the form of majority and minority rulings.
 13

division, whilst lower courts are bound by decisions of all higher courts, except in
situations where there are conflicting decisions, in which case the decision of the High
Court which has jurisdiction14 over the territory of the lower court in question must be
followed. The precedent system ensures greater legal consistency, certainty and
predictability.

The precedent system must be distinguished from a litigant’s right to appeal to a higher
court in the jurisdictional hierarchy. Where a claimant or defendant in a civil or criminal
suit is convinced that the ruling of the court was incorrect it has a right to appeal the
decision to a higher court.

As the Constitution court is the highest court in the country, it is the ultimate resort for an
appeal. However, it should be noted that an appeal to the constitutional court is only
14
Capacity to hear a case.
 14

possible in the case of a constitutional matter or where the matter is of public interest. In
other matters, the Supreme Court of Appeal is the court of last resort.

Court decisions are published monthly, e.g. in the SA Law Reports or the Constitutional
Court Reports. Note that court cases are referred to in a specific manner, e.g. Pinchin v
SANTAM 1963 (2) SA 254 (W).

The first party referred to is the plaintiff - versus (against) – the other party, the
defendant. When a matter goes on appeal the party who lodges the appeal is referred to
as the appellant and will be referred to first whilst the party who opposes the appeal is
the respondent.

The names of the parties are followed by the volume of the law report
(with reference to the year) – part (volumes are divided into 4 parts) – source (SA Law
Reports) - page – court which heard the case.

The common law

 15

The common law refers to the legal tradition of our legal system and also its legal
background which served as the basis for further development. The South African law is
not a codified legal system where the law is systemised and only found in all-inclusive
statutes lr codes.15 Although the last decade saw more statutory law, much of our law is
still derived from common law.

The law of contract, for example, is generally still regulated by the common law, whilst
some aspects of specific contracts are regulated by legislation. The Alienation of Land
Act 68 of 1981, The Rent Control Act 50 of 1999 and the National Credit Act 34 of 2005
are examples. Other branches of the law, such as negotiable instruments, insolvency
law, labour law and company law, on the other hand are heavily regulated by statute.

The common law originated in Roman Dutch law and in some instances is considerably
influenced by English law. The law of contract, for example, is filled with legal concepts
that have their origins in the English legal system. Our law of negotiable instruments
(banking law) is also strongly influenced by English law. But where did this mixed system
originate?The South African legal system can be traced back to Roman law – an
extremely sophisticated but codified system.

The Corpus Iuris Civilis, which dates back to the 6th century AD, is until this day still
used by legal scholars as a source of reference to find clarity on legal principles which
are uncertain and unclear. However, with the fall of the Roman Empire its legal system
also tumbled. In Italy, in later years, a revival of interest in the Roman law took place,
with the result that it was studied increasingly at Italian universities.

Interest in and acceptance of Roman law gained ground in Western Europe. The 17 th
century is characterised by the golden century in the Netherlands. Roman law thus
expanded its reach into the Netherlands which gave rise to the reception of Roman law
into Western Europe. Renowned jurists who worked in the province of Holland, such as
De Groot, Voet and Van Bijnkershoek, were strongly influenced by Roman law.

15
Many European countries have a codified legal system, such Germany, France and the Netherlands,
whilst England and Australia’s legal systems are based on the common law. Note that that is English
common law and not Roman Dutch common law!
 16

The reception gave rise to Roman Dutch law – a system that is still in place in our
country today after it was brought to the Cape by Van Riebeeck during VOC rule.16
However, during the first part of the nineteenth century the legal systems of the most
important European countries (including the Netherlands) were codified and the Roman
Dutch law therefore came to an end in those parts of the world. However, at the southern
tip of Africa, the Roman Dutch system remained in force, even after the British
occupation of the Cape in 1806. It remained even after the union and the Republic was
formed. As was said before, the influence of the British occupation remains clearly visible
in our law, especially in the field of mercantile law, such as in the law of companies,
contract and negotiable instruments. Today, the common law is mostly found in text
books.

Custom

Customary law does not consist of written rules but are derived from the customs of
society which are carried through from one generation to another. The Appellate Court
in Van Breda v Jacobs 1921 AD 330 ruled that a custom could be a source of law if it
meets the following requirements:

A custom should be:

(a) in use for a long time;
(b) should be fair;
(c) certain and clear;
(d) and the custom should be recognised and observed faithfully by society;

then it may acquire the status of a legal rule over time.

This principle is also recognised by Section 231(4) of the Constitution. It is important

to note that custom, as in the case of legislation and the common law, is subordinate to
the Constitution. Where a custom is unconstitutional (i.e. unfair and unjust) it will not
function as law (legal rule).

In the commercial context, trade usages which are generally known in a trade or
industry, which are certain in content, and which are regularly used will be implied by law
16
That was the time when the Cape was governed by a Dutch institution, the VOC, that can be compared to
a multinational company in today’s terms.
 17

into all contracts as a contractual term irrespective of the express agreement of the
parties. Our banking law provides a good example where trade usage and custom still
play an important rule.

For instance, when you open a cheque account with a bank you will earn interest on any
credit balance. This will rarely be stated in the contract as an express term, but it will be
implied by way of trade usage. Trade usage is recognised and applied internationally in
all commercial transactions. Its role and function can be traced back to its origins in the
middle ages when commercial law was largely based on uniform commercial customs
and practices.

Section 211(3) of the Constitution also provides for African customary law. Where
it is clear that a matter is governed by African customary law, a judge is obliged to apply
that law. However, where customary law is not in line with the Constitution, a court will
rule it unconstitutional and invalid. Thus, the custom that only sons may inherit property
from the fathers, even if there is no male heirs; or where women who are married under
customary law may not share in the proceeds of their common law husband’s pension
have, for example, been declared unconstitutional.

The concept “right” (and “obligation”)

We know by now that the law consists of legal rules. A legal rule, in turn, may confer a
right upon a person. A “right” is defined as the relationship between a person (legal
subject) and a legal object. A right, therefore, is an interest that is afforded protection
by the law. This is an important characteristic which distinguishes rights from other
interests which are not protected by law.

For example, it is in the interest of a child that his parents take note of him, love him and
regard him of value. However, these interests should be distinguished from rights, such
as to be cared for, fed, clothed and provided with shelter, and to receive a basic
education (cf ss 28 & 29 of the Constitution).

Whilst the former might be important for your development as a balanced human being,
they are not legally enforceable and therefore they are not rights, whilst the latter are
recognised by law as basic human rights. The legal subject, in turn, is defined as the
 18

person who is the holder of the right. This can be a human being (natural person) or a
juristic person (for example, a company, close corporation [CC], the state or the
university) who enjoys legal capacity.17

Traditionally four types of rights are identified with reference to the legal object:

1. Personal rights: here the legal object is a performance that is required from
someone in the form of having to give something, do something or not to do it;
e.g. the right to receive payment when I have sold something to someone.

2. Real rights: the legal object is a thing, e.g. a car or a house. Things can be either
movable or immovable in nature. Movables are characterised by the fact that they
can be moved from one placed to another without changing their essential
nature; whilst with immovables it is not possible. Immovables usually constitute
land and things that are attached to land or improvements made to land. A car is
therefore a movable and a house an immovable. Real rights can exist either in
the form of property rights, servitudes or security rights.

The right to become the owner of the car you have bought is a property right and
hence an absolute real right. The lessee’s right to the house he is renting is also
a real right, albeit a limited real right. The right of way over someone else’s
property is a praedial servitude and a (limited) real right. A widow’s right of
usufruct over the house which her spouse left for the children is a personal
servitude and thus a (limited) real right. Pledge and mortgage confer real rights
on the creditor to the extent that the property over which it is held may be sold to
settle its claim.

3. Personality rights: the legal object is aspects of the personality, such as the
right to your good name and reputation, or the right to dignity and bodily integrity.

17
In the case of a juristic person, rights (such as property rights) are vested in the entity and not in the
directors or shareholders but they, in turn, have rights against the entity to share in the profits. The difference
between natural and juristic persons is important in the context of liability (obligations). Natural persons are
personally liable for any obligations whilst in the case of juristic persons (except for exceptional cases), the
shareholders. directors, managers and other officials will not be liable for any liabilities.
 19

4. Intellectual property rights (or immaterial property rights): the legal object is an
intellectual product, such as copyright to the book you have written or the right to
a trade mark or patent.

Personal rights imply corresponding duties (obligations). An obligation is the

counter side of a right. E.g. A sells a car to B for R100 000. A obtains a right to
performance (payment) which is a personal right against B. At the same time there is an
obligation on B to pay R100 000. B has the right to delivery of the car against A (a
personal right).
A, in turn, has the obligation to deliver. One can also look at it as follows: A has a right to
performance, and in turn he has the obligation to deliver the car; whilst B has the right to
delivery and the corresponding obligation to pay for the car.18

It should be noted that personal rights can only be acquired by people who have
contractual capacity. Factors such as age and mental condition, and to a lesser extent
marital status, will affect someone’s status (legal and contractual capacity).
The other (subjective) rights are not affected by status requirements and everyone
acquires those rights at the moment of birth up to the day they die.

As said before, one should also keep in mind that the Constitution, and more specifically
the Bill of Rights, confers rights on every person. Once again, these rights are not
dependent on status requirements. These rights are based on the principles of freedom,
equality and dignity, which one might consider as the “legal object” of the right.

Origin of rights and obligations

18
It is standard practice to refer to parties as A and B, who may be natural or legal persons. Liability will
therefore arise for the individual in the case of natural persons and for the entity in the case of a juristic
person.
 20

Apart from fundamental human rights which are derived from statute (the Constitution)
rights and obligations originate from operative facts. The following diagram illustrates
this:

Operative fact

Events Human acts

Juristic acts Non-juristic acts

Other human acts

Delicts

Unjustified
enrichment Negotiorum gestio Vicarious liability

ment

An operative fact can be either an event or an act. An event is something beyond

human control. The natural death of a person, for example, can create personal rights
for the heirs against the executor of the estate. Rights and obligations can also arise
from the acts of persons. Two different forms of human acts are distinguished, namely
juristic acts and non-juristic acts.

A juristic act is the act of a person which, in accordance with the will of that party, gives
rise to a right or an obligation. A contract provides a good example. When A and B reach
agreement in terms of which A sells his car to B for R80 000, A and B each acquires a
personal right. A acquires a right against B that he must perform by paying R80 000. B,
in turn, acquires a right against A that A must perform by delivering the car.
These personal rights arise in accordance with the parties’ will.

A non-juristic act, is an act which gives rise to a right or obligation but independent of
the will or intent of the acting party. Here one can distinguish between delicts and other
human acts.

A delict is the unlawful act of a person who is at fault (either negligently or

intentionally) and which causes another person to suffer damage or loss. The injured
party acquires a personal right against the wrongdoer who caused the loss to
compensate him for that loss.
 21

A collision is a typical example of a delict.

If A drives negligently and collides with B’s car and damages the car, A has committed a
delict. B can recover the damage to his car from A, or to put it differently, B has a
personal right against A. The personal right in this case arises independently from B’s
will. In this particular instance, the delict relates to a violation of B’s real right which
resulted in loss.
Delicts can, however, also arise from an infringement of a personality right, such as
when your reputation has been damaged, or your intellectual property rights are violated,
for example through an infringement of the copyright on the song you have written.

Certain requirements have to be met before an unlawful act would qualify as a

delict. Firstly, there must be an unlawful act, 19 in other words conduct that violates
somebody else’s rights or goes against a law. Secondly, the unlawful act must have
been intentional or negligent. Intent will be present if someone is aware of the right and
still violates that right because that is what he wants (intends) to do, whilst negligence
refers to unreasonable conduct; i.e. a reasonable person would not have conducted
himself in that way in similar circumstances. Loss must have followed on the unlawful
act.

Loss is divided between patrimonial (financial loss where your estate suffers a loss) and
non-patrimonial loss (where there is no financial loss per se but emotional pain and
suffering is inflicted. The latter is where there was an infringement of personality rights,
such as in the event of defamation, and the court has to determine what the amount of
damages should be, depending on the circumstances of the case and what is considered
fair and just. The loss must have been the direct result of the unlawful conduct. In legal
terminology this requirement is referred to as the causality requirement - the delict was
the cause and the loss was the result.

However, delictual damage can also result from contract, for instance in the context
of professional negligence. Professions such as those of a chartered accountant, lawyer,
engineer or medical doctor require high standards of care and ethical integrity from you.
If you do not meet those standards you could be sued for damages based on
professional negligence.

19
“Act” includes a positive act as well as a negative act (failure to act) in circumstances where there is a
legal duty to act.
 22

You could, for example, in your professional capacity as auditor conclude a contract with
a client who provides you with a mandate (contractual authorisation) to audit his financial
statements. However, you are negligent in not picking up on some irregularity in the
statements.

The Auditing Professions Act and the ethical codes which regulate auditors 20 all
require that you are to act with reasonable skill and care as is required from a
reasonable professional in that capacity. If your negligent conduct caused your client
financial loss (directly or indirectly)21 he may keep you liable for damages based on
delict.22 These claims are based on the fiduciary nature23 of the relationship between
auditor and client but can also be based on misrepresentation. Your client will obtain a
personal right against you on the basis of delict but you can also be sued in contract for
breach of contract on the basis that you have not performed your contractual
obligations.24

The contract can be cancelled and you will have to give restitution of (pay back) all fees
that have been paid to you for services rendered, and you can also be sued for
consequential damages that relates to the breach of contract.

It must be noted that third parties (such as potential investors, persons that want to
transact with your client, or financial institutions that lend money to the client on strength
of the financial statements) will also be entitled to sue the auditor in delict if the
auditor were aware that the third party planned to act on the basis of this information.

Rights and obligations can also arise from other human acts. Unjustified enrichment
arises when the estate of one person is enriched or impoverished at the expense of
another person’s estate without any due cause. A typical example is where A pays B an
amount of money because he erroneously believes that he owes it to B. A then has a
personal right against B because B was unjustifiably enriched.
20
IRBA and IESBA codes.
21
Loss can be inflicted indirectly, e.g. where there is loss of reputation which can have financial implications.
22
You can also be held criminally liable.
23
That the auditor has a duty to take care.
24
The contract can, apart from the duty of reasonable skill and care stated in the Act, state other duties, such
as to provide tax and other financial planning advice, and here the auditor is also not to act negligently,
maliciously or fraudulently. If these duties also entail legal aspects, you have to obtain legal advice, failing
which you can be held liable in contract or delict. Note that the auditor can also be held liable under the
Consumer Protection Act.
 23

Another example of unjustified enrichment is where a minor who is not assisted by a

parent or guardian buys a bicycle and fails to pay for it. The claim is for the lesser
amount of the creditor’s impoverishment or the debtor’s enrichment at the time of
instituting the action. If the goods are lost at the time of instituting the action, the action
will be nothing more than an empty shell.
The only exception is in the case of life necessities, such as food or medicine,
where the action will stay intact even if the goods have already been consumed.

Negotiorum gestio is another example where rights and obligations arise from other
human acts. If A takes care of B’s affairs without being authorised to do so, he acquires
a personal right against B for his expenditures. For example, where A notices that a
water pipe burst in his neighbour’s house in the latter’s absence, arranges for a plumber
to repair the leak and pays him, B has to compensate A on grounds of negotiorum
gestio.

Finally, vicarious liability provides a basis for an employer to be held liable for the
conduct of his employees if such conduct is undertaken in the course and scope of his
employment with the employer. For example, if an employee (A) commits a delict in the
course and scope of his employment with B, the party who has suffered damage
acquires a personal right not only against A (on the basis of delict) but also against the
employer (B) on the basis of vicarious liability.

The operation of rights

Two categories of rights are distinguished, namely absolute and relative rights.
Absolute rights can be enforced against the whole world. Examples are:

 Real rights
 personality rights
 immaterial property rights.

The owner of a thing has a real right that he can enforce against any person who is in
possession of his property (even if it has been stolen and the thief has sold the property
to someone else).
 24

A relative right, on the other hand, is one that is only enforceable against a specific
person or persons. A personal right is relative.

E.g. if A and B agree that A will sell his car to B for R80 000, A only has a right to
payment against B and B only has a right to delivery against A. The name “personal
right” is therefore derived from the characteristic of relative enforceability.

Classification of the law

The law can be classified in different ways. It is possible to distinguish between statutory
law and common law; or between regulatory law (where the law applies unless the
parties themselves have made other arrangements) versus formal or mandatory law
(from which the parties cannot deviate through agreement).

The classification most often adopted is based on the fundamental difference between
public law and private law. Within this division, a further distinction can be made
between procedural law and substantive law. Furthermore, one should also keep in mind
that each country (state) has its own legal system which applies to that specific country.

When a SA person does business internationally, e.g. start a new business entity in
another country, this endeavour will be subjected to the legislation and regulations of that
country. Where one trades internationally, international agreements between states and
conventions would most probably apply, and it will be important to establish the legal
system which governs (regulates) the contract. It would therefore be of the utmost
importance that legal advice should be sought and/or the assistance of the Department
of Trade and Industry.

 Public law, in essence, regulates the relationship between the state authority
and its subjects.
 Criminal law is a division of public law.
 Procedural law which regulates the procedure of a legal action is traditionally
part of the public law family.
 Private law, on the other hand, regulates the relationships between private
individuals. It is often referred to as civil law.
 25

The following diagrams show how public law and private law is subdivided into different
branches of the law:

Public law

Constitutional Administrative International

Criminal law
law law law

Private law

Law of Law of Law of

Family law Law of things
Persons succession obligations

Law of
Law of parent Law of Law of testate Law of Undue
intestate Law of delict
and child marriage succession contract enrichment
succession

Mercantile law is, in essence, a branch of private law which is used in the world of
commerce. The traditional subdivisions of the law can be illustrated as follows:

Mercantile
law

Law of Law of Bills of exchange

Insolvency law Tax law Labour law
contract enterprise

Purchase Law of
Lease Companies
& Sale partnership

Credit Contract
agreements of insurance
 26

ADDENDUM A
CONSTITUTION OF THE REPUBLIC OF SOUTH AFRICA, 1996
BILL OF RIGHTS (ss 7-36; 39)

7 Rights
(1) This Bill of Rights is a cornerstone of democracy in South Africa. It
enshrines the rights of all people in our country and affirms the democratic
values of human dignity, equality and freedom.
(2) The state must respect, protect, promote and fulfil the rights in the Bill of
Rights.
(3) The rights in the Bill of Rights are subject to the limitations contained or
referred to in section 36, or elsewhere in the Bill.

8 Application
(1) The Bill of Rights applies to all law, and binds the legislature, the
executive, the judiciary and all organs of state.
(2) A provision of the Bill of Rights binds a natural or a juristic person if, and
to the extent that, it is applicable, taking into account the nature of the
right and the nature of any duty imposed by the right.
(3) When applying a provision of the Bill of Rights to a natural or juristic
person in terms of subsection (2), a court-
(a) in order to give effect to a right in the Bill, must apply, or if
necessary develop, the common law to the extent that legislation
does not give effect to that right; and
(b) may develop rules of the common law to limit the right, provided
that the limitation is in accordance with section 36 (1).
(4) A juristic person is entitled to the rights in the Bill of Rights to the extent
required by the nature of the rights and the nature of that juristic person.

9 Equality
(1) Everyone is equal before the law and has the right to equal protection and
benefit of the law.
(2) Equality includes the full and equal enjoyment of all rights and freedoms.
To promote the achievement of equality, legislative and other measures
designed to protect or advance persons, or categories of persons,
disadvantaged by unfair discrimination may be taken.
(3) The state may not unfairly discriminate directly or indirectly against
anyone on one or more grounds, including race, gender, sex, pregnancy,
marital status, ethnic or social origin, colour, sexual orientation, age,
disability, religion, conscience, belief, culture, language and birth.
(4) No person may unfairly discriminate directly or indirectly against anyone
on one or more grounds in terms of subsection (3). National legislation
must be enacted to prevent or prohibit unfair discrimination.
(5) Discrimination on one or more of the grounds listed in subsection (3) is
unfair unless it is established that the discrimination is fair.
 27

10 Human dignity
Everyone has inherent dignity and the right to have their dignity respected and
protected.

11 Life
Everyone has the right to life.

12 Freedom and security of the person

(1) Everyone has the right to freedom and security of the person, which
includes the right-
(a) not to be deprived of freedom arbitrarily or without just cause;
(b) not to be detained without trial;
(c) to be free from all forms of violence from either public or private
sources;
(d) not to be tortured in any way; and
(e) not to be treated or punished in a cruel, inhuman or degrading
way.
(2) Everyone has the right to bodily and psychological integrity, which
includes
the right-
(a) to make decisions concerning reproduction;
(b) to security in and control over their body; and
(c) not to be subjected to medical or scientific experiments without
their informed consent.

13 Slavery, servitude and forced labour

No one may be subjected to slavery, servitude or forced labour.

14 Privacy
Everyone has the right to privacy, which includes the right not to have-
(a) their person or home searched;
(b) their property searched;
(c) their possessions seized; or
(d) the privacy of their communications infringed.
 28

15 Freedom of religion, belief and opinion

(1) Everyone has the right to freedom of conscience, religion, thought, belief
and opinion.
(2) Religious observances may be conducted at state or state-aided
institutions, provided that-
(a) those observances follow rules made by the appropriate public
authorities;
(b) they are conducted on an equitable basis; and
(c) attendance at them is free and voluntary.
(3) (a) This section does not prevent legislation recognising-
(i) marriages concluded under any tradition, or a system of
religious, personal or family law; or
(ii) systems of personal and family law under any tradition, or
adhered to by persons professing a particular religion.
(b) Recognition in terms of paragraph (a) must be consistent with this
section and the other provisions of the Constitution.

16 Freedom of expression
(1) Everyone has the right to freedom of expression, which includes-
(a) freedom of the press and other media;
(b) freedom to receive or impart information or ideas;
(c) freedom of artistic creativity; and
(d) academic freedom and freedom of scientific research.
(2) The right in subsection (1) does not extend to-
(a) propaganda for war;
(b) incitement of imminent violence; or
(c) advocacy of hatred that is based on race, ethnicity, gender or
religion, and that constitutes incitement to cause harm.

17 Assembly, demonstration picket and petition

Everyone has the right, peacefully and unarmed, to assemble, to demonstrate, to
picket and to present petitions.

18 Freedom of association
Everyone has the right to freedom of association.

19 Political rights
(1) Every citizen is free to make political choices, which includes the right-
(a) to form a political party;
(b) to participate in the activities of, or recruit members for, a political
party; and
(c) to campaign for a political party or cause.
(2) Every citizen has the right to free, fair and regular elections for any
legislative body established in terms of the Constitution.
(3) Every adult citizen has the right-
 29

(a) to vote in elections for any legislative body established in terms of

the Constitution, and to do so in secret; and
(b) to stand for public office and, if elected, to hold office.

20 Citizenship
No citizen may be deprived of citizenship.

21 Freedom of movement and residence

(1) Everyone has the right to freedom of movement.
(2) Everyone has the right to leave the Republic.
(3) Every citizen has the right to enter, to remain in and to reside anywhere
in, the Republic.
(4) Every citizen has the right to a passport.

22 Freedom of trade, occupation and profession

Every citizen has the right to choose their trade, occupation or profession freely.
The practice of a trade, occupation or profession may be regulated by law.

23 Labour relations
(1) Everyone has the right to fair labour practices.
(2) Every worker has the right-
(a) to form and join a trade union;
(b) to participate in the activities and programmes of a trade union;
and
(c) to strike.
(3) Every employer has the right-
(a) to form and join an employers' organisation; and
(b) to participate in the activities and programmes of an employers'
organisation.
(4) Every trade union and every employers' organisation has the right-
(a) to determine its own administration, programmes and activities;
(b) to organise; and
(c) to form and join a federation.
(5) Every trade union, employers' organisation and employer has the right to
engage in collective bargaining. National legislation may be enacted to
regulate collective bargaining. To the extent that the legislation may limit a
right in this Chapter, the limitation must comply with section 36 (1).
(6) National legislation may recognise union security arrangements contained
in collective agreements. To the extent that the legislation may limit a right
in this Chapter the limitation must comply with section 36 (1).
 30

24 Environment
Everyone has the right-
(a) to an environment that is not harmful to their health or well-being; and
(b) to have the environment protected, for the benefit of present and future
generations, through reasonable legislative and other measures that-
(i) prevent pollution and ecological degradation;
(ii) promote conservation; and
(iii) secure ecologically sustainable development and use of natural
resources while promoting justifiable economic and social
development.

25 Property
(1) No one may be deprived of property except in terms of law of general
application, and no law may permit arbitrary deprivation of property.
(2) Property may be expropriated only in terms of law of general application-
(a) or a public purpose or in the public interest; and
(b) subject to compensation, the amount of which and the time and
manner of payment of which have either been agreed to by those
affected or decided or approved by a court.
(3) The amount of the compensation and the time and manner of payment
must be just and equitable, reflecting an equitable balance between the
public interest and the interests of those affected, having regard to all
relevant circumstances, including-
(a) the current use of the property;
(b) the history of the acquisition and use of the property;
(c) the market value of the property;
(d) the extent of direct state investment and subsidy in the acquisition
and beneficial capital improvement of the property; and
(e) the purpose of the expropriation.
(4) For the purposes of this section-
(a) the public interest includes the nation's commitment to land
reform, and to reforms to bring about equitable access to all South
Africa's natural
resources; and
(b) property is not limited to land.
(5) The state must take reasonable legislative and other measures, within its
available resources, to foster conditions which enable citizens to gain
access to land on an equitable basis.
(6) A person or community whose tenure of land is legally insecure as a
result of past racially discriminatory laws or practices is entitled, to the
extent provided by an Act of Parliament, either to tenure which is legally
secure or to comparable redress.
(7) A person or community dispossessed of property after 19 June 1913 as a
result of past racially discriminatory laws or practices is entitled, to the
 31

extent provided by an Act of Parliament, either to restitution of that

property or to equitable redress.
(8) No provision of this section may impede the state from taking legislative
and other measures to achieve land, water and related reform, in order to
redress the results of past racial discrimination, provided that any
departure from the provisions of this section is in accordance with the
provisions of section 36 (1).
(9) Parliament must enact the legislation referred to in subsection (6).

26 Housing
(1) Everyone has the right to have access to adequate housing.
(2) The state must take reasonable legislative and other measures, within its
available resources, to achieve the progressive realisation of this right.
(3) No one may be evicted from their home, or have their home demolished,
without an order of court made after considering all the relevant
circumstances. No legislation may permit arbitrary evictions.

27 Health care, food, water and social security

(1) Everyone has the right to have access to-
(a) health care services, including reproductive health care;
(b) sufficient food and water; and
(c) social security, including, if they are unable to support themselves
and their dependents, appropriate social assistance.
(2) The state must take reasonable legislative and other measures, within its
available resources, to achieve the progressive realisation of each of
these rights.
(3) No one may be refused emergency medical treatment.

28 Children
(1) Every child has the right-
(a) to a name and a nationality from birth;
(b) to family care or parental care, or to appropriate alternative care
when removed from the family environment;
(c) to basic nutrition, shelter, basic health care services and social
services;
(d) to be protected from maltreatment, neglect, abuse or degradation;
(e) to be protected from exploitative labour practices;
(f) not to be required or permitted to perform work or provide services
that-
(i) are inappropriate for a person of that child's age; or
(ii) place at risk the child's well-being, education, physical or
mental health or spiritual, moral or social development;
(g) not to be detained except as a measure of last resort, in which
case, in addition to the rights a child enjoys under sections 12 and
35, the child may be detained only for the shortest appropriate
period of time, and has
 32

the right to be-

(i) kept separately from detained persons over the age of 18
years; and
(ii) treated in a manner, and kept in conditions, that take
account of the child's age;
(h) to have a legal practitioner assigned to the child by the state, and
at state expense, in civil proceedings affecting the child, if
substantial injustice would otherwise result; and
(i) not to be used directly in armed conflict, and to be protected in
times of armed conflict.
(2) A child's best interests are of paramount importance in every matter
concerning the child.
(3) In this section 'child' means a person under the age of 18 years.

29 Education
(1) Everyone has the right-
(a) to a basic education, including adult basic education; and
(b) to further education, which the state, through reasonable
measures, must make progressively available and accessible.
(2) Everyone has the right to receive education in the official language or
languages of their choice in public educational institutions where that
education is reasonably practicable. In order to ensure the effective
access to, and implementation of, this right, the state must consider all
reasonable educational alternatives, including single medium institutions,
taking into account-
(a) equity;
(b) practicability; and
(c) the need to redress the results of past racially discriminatory laws
and practices.
(3) Everyone has the right to establish and maintain, at their own expense,
independent educational institutions that-
(a) do not discriminate on the basis of race;
(b) are registered with the state; and
(c) maintain standards that are not inferior to standards at comparable
public educational institutions.
(4) Subsection (3) does not preclude state subsidies for independent
educational institutions.

30 Language and culture

Everyone has the right to use the language and to participate in the cultural life of
their choice, but no one exercising these rights may do so in a manner
inconsistent with any provision of the Bill of Rights.
 33

31 Cultural, religious and linguistic communities

(1) Persons belonging to a cultural, religious or linguistic community may not
be denied the right, with other members of that community-
(a) to enjoy their culture, practise their religion and use their language;
and
(b) to form, join and maintain cultural, religious and linguistic
associations and other organs of civil society.
(2) The rights in subsection (1) may not be exercised in a manner
inconsistent with any provision of the Bill of Rights.

32 Access to information
(1) Everyone has the right of access to-
(a) any information held by the state; and
(b) any information that is held by another person and that is required
for the exercise or protection of any rights.
(2) National legislation must be enacted to give effect to this right, and may
provide for reasonable measures to alleviate the administrative and
financial burden on the state.

33 Just administrative action

(1) Everyone has the right to administrative action that is lawful, reasonable
and procedurally fair.
(2) Everyone whose rights have been adversely affected by administrative
action has the right to be given written reasons.
(3) National legislation must be enacted to give effect to these rights, and
must-
(a) provide for the review of administrative action by a court or, where
appropriate, an independent and impartial tribunal;
(b) impose a duty on the state to give effect to the rights in
subsections (1) and (2); and
(c) promote an efficient administration.

34 Access to courts
Everyone has the right to have any dispute that can be resolved by the
application of law decided in a fair public hearing before a court or, where
appropriate, another independent and impartial tribunal or forum.

35 Arrested, detained and accused persons

(1) Everyone who is arrested for allegedly committing an offence has the
right-
(a) to remain silent;
(b) to be informed promptly-
(i) of the right to remain silent; and
(ii) of the consequences of not remaining silent;
 34

(c) not to be compelled to make any confession or admission that

could be used in evidence against that person;
(d) to be brought before a court as soon as reasonably possible, but
not later than-
(i) 48 hours after the arrest; or
(ii) the end of the first court day after the expiry of the 48
hours, if the 48 hours expire outside ordinary court hours or
on a day which is not an ordinary court day;
(e) at the first court appearance after being arrested, to be charged or
to be informed of the reason for the detention to continue, or to be
released; and
(f) to be released from detention if the interests of justice permit,
subject to reasonable conditions.
(2) Everyone who is detained, including every sentenced prisoner, has the
right-
(a) to be informed promptly of the reason for being detained;
(b) to choose, and to consult with, a legal practitioner, and to be
informed of this right promptly;
(c) to have a legal practitioner assigned to the detained person by the
state and at state expense, if substantial injustice would otherwise
result, and to be informed of this right promptly;
(d) to challenge the lawfulness of the detention in person before a
court and, if the detention is unlawful, to be released;
(e) to conditions of detention that are consistent with human dignity,
including at least exercise and the provision, at state expense, of
adequate accommodation, nutrition, reading material and medical
treatment; and
(f) to communicate with, and be visited by, that person's-
(i) spouse or partner;
(ii) next of kin;
(iii) chosen religious counsellor; and
(iv) chosen medical practitioner.
(3) Every accused person has a right to a fair trial, which includes the right-
(a) to be informed of the charge with sufficient detail to answer it;
(b) to have adequate time and facilities to prepare a defence;
(c) to a public trial before an ordinary court;
(d) to have their trial begin and conclude without unreasonable delay;
(e) to be present when being tried;
(f) to choose, and be represented by, a legal practitioner, and to be
informed of this right promptly;
(g) to have a legal practitioner assigned to the accused person by the
state and at state expense, if substantial injustice would otherwise
result, and to be informed of this right promptly;
(h) to be presumed innocent, to remain silent, and not to testify during
the proceedings;
(i) to adduce and challenge evidence;
 35

(j) not to be compelled to give self-incriminating evidence;

(k) to be tried in a language that the accused person understands or,
if that is not practicable, to have the proceedings interpreted in that
language;
(l) not to be convicted for an act or omission that was not an offence
under either national or international law at the time it was
committed or omitted;
(m) not to be tried for an offence in respect of an act or omission for
which that person has previously been either acquitted or
convicted;
(n) to the benefit of the least severe of the prescribed punishments if
the prescribed punishment for the offence has been changed
between the time that the offence was committed and the time of
sentencing; and
(o) of appeal to, or review by, a higher court.
(4) Whenever this section requires information to be given to a person, that
information must be given in a language that the person understands.
(5) Evidence obtained in a manner that violates any right in the Bill of Rights
must be excluded if the admission of that evidence would render the trial
unfair or otherwise be detrimental to the administration of justice.

36 Limitation of rights
(1) The rights in the Bill of Rights may be limited only in terms of law of
general application to the extent that the limitation is reasonable and
justifiable in an open and democratic society based on human dignity,
equality and freedom, taking into account all relevant factors, including-
(a) the nature of the right;
(b) the importance of the purpose of the limitation;
(c) the nature and extent of the limitation;
(d) the relation between the limitation and its purpose; and
(e) less restrictive means to achieve the purpose.
(2) Except as provided in subsection (1) or in any other provision of the
Constitution, no law may limit any right entrenched in the Bill of Rights.

39 Interpretation of Bill of Rights

(1) When interpreting the Bill of Rights, a court, tribunal or forum-
(a) must promote the values that underlie an open and democratic
society based on human dignity, equality and freedom;
(b) must consider international law; and
(c) may consider foreign law.
(2) When interpreting any legislation, and when developing the common law
or customary law, every court, tribunal or forum must promote the spirit,
purport and objects of the Bill of Rights.
 36

(3) The Bill of Rights does not deny the existence of any other rights or
freedoms that are recognised or conferred by common law, customary
law or legislation, to the extent that they are consistent with the Bill.
 37

LAW OF CONTRACT

The contract may also be regulated by the Consumer Protection Act. It is, therefore,
important to know when this Act applies and how it differs from the common law
principles applicable to sales contracts. A credit agreement or a financial lease
agreement are regulated by the National Credit Act. This Act plays a very important role
in business ventures as all types of credit are regulated by it. An auditor or financial
advisor will make an assessment of a business by looking at ongoing contracts and the
rights and obligations connected thereto, such as for instance any property which was
bought, instalment sales agreements or financial leases to buy vehicles or contracts with
suppliers of goods and services.

One of the duties of a CA is to audit companies’ annual financial statements. A CA will

be contacted by the company to render this service to them, and the CA will of course
only be prepared to do so if they remunerate the CA for that service. The company will
have certain terms and conditions on how the service is to be rendered, such as when
the CA is to commence the audit and when it is to be completed; and on the CA’s part
there might be certain requirements in order to complete your task, such as to have
access to passwords, documentation etc. These rights and duties will be set out in a
contract and, furthermore, be regulated by the law of contract.

When the CA performs the duties as a CA in terms of such an agreement with the client
it is important to have a basic knowledge of the law of contract as it will play in important
role during the performance of your audit procedures. The CA needs to know, for
example, when the client becomes the owner of an asset which was bought in order to
determine whether the asset is correctly reflected in the financial statements at the end
of the financial year. If the client commits breach of contract, or if the client has a claim in
terms of breach committed by the other party, it could give rise to conditional liabilities
(the possible liability as a result of the breach) or conditional assets (the possible claim
as a result of the breach) which must be disclosed in the financial statements in
accordance with the correct accounting principles. The CA therefore has to know, just to
name an example, what a “condition” is.
 38

CHAPTER 1
THE OBLIGATION

Definition and characteristics

Contract law forms part of the law of obligations. A contract is, therefore, defined as
an agreement which creates obligations. 25 The most important consequence of a
contract (obligation in the broader sense of the word) is the rights26 and duties
(obligations in the narrower sense) that arise from it. However, it should be noted that
obligations do not only arise out of contract. They may also flow from delict or
enrichment.

An obligation is a relationship between at least two legal subjects which can either
be natural persons or juristic persons. The relationship can also exist between one
natural person or juristic person and a group (for example a partnership or
co-creditors/co-debtors) where the party/parties is/are bound to the other(s) to do or give
something or refrain from doing something.

1. It is possible for a contract to create obligations for more than one person, so-
called multiparty obligations.

2. The performance that is to be rendered in terms of the contract can be a duty

to do something or a duty to give something (a so-called positive
obligation), for example an obligation to build a house or to deliver a car.
However, it is also possible that the contract can create so-called negative
obligations, entailing that you refrain from doing something, for example not
sub-letting a flat.

The person who is bound to perform in terms of the contract has a duty/obligation and
is called the debtor. The person to whom he is bound has a right. He is the creditor. In
the context of contracts this right is called a personal right.

25
Note that “obligation” can be used in two ways in the English language, namely in the broader sense to
refer to the contract as a whole, and in the narrower sense to refer to the debtor’s duties.
26
In the case of contract, it is personal rights.
 39

An obligation has two very important consequences:

1. The first is that performance of such obligation is recognised by the law and
once it is performed in accordance with the contract it cannot be claimed
back.
2. The second is that the obligation may be legally enforced. The second
element defines the character of a contract. Once a valid contract is
concluded, the debtor has to perform. If he fails to do so, the creditor can
enforce his obligation in a court of law.

Sometimes the second element may be absent, in which case the agreement is not a
contract, albeit it can still create obligations in the form of a natural obligation.

Natural obligations
Natural obligations also arise from agreement. As already said, the difference between
natural obligations and so-called civil obligations (such as contracts) is that natural
obligations are not enforceable in a court of law. If the debtor performs, performance
will be valid but if he fails to perform, performance cannot be claimed or enforced.
Informal bets and gambling contracts (at least those which are not regulated by
gambling legislation) are examples of natural obligations.

Other agreements
Not all agreements create obligations. Only agreements that are made with the
intention of creating obligations are contracts. Agreements to do something or to
refrain from doing something, but which are made without the intention to be legally
bound by them, are not contracts, for example social agreements (such as to agree to
go for coffee) and so-called gentleman's agreements (such as to agree to remain friends
for life).

On the other hand, you must also realise that there are other types of agreements that
may create or terminate obligations but which are not contracts. Marital agreements
(marriage), debt extinguishing agreements (such as release from or waiver of a debt)
and real agreements (a deed of transfer to effect transfer of immovable property) are
 40

examples of agreements that fall into this category and should therefore be
distinguished from contracts.

Contract types

A contract is an agreement that creates obligations (which are enforceable).

It is possible to create a wide variety of obligations by contract.
Because of the principle of freedom of contract in South African law, it is possible to
conclude any type of contract as long as its content or its performance is not illegal or
against the public good (so-called contra bones mores contracts).
There are certain standard or set relationships which are regulated by law.
Sales and leases are typical examples of such relationships.

Although these contracts have to comply with the normal requirements for all contracts
and are regulated by the legal principles generally applicable to all contracts, there are
essential elements that define them and distinguish them from other types (the so-called
essentialia) and certain consequences that will arise from these categories of contract.

Types of contracts
1. Unilateral
2. bilateral/multilateral
3. reciprocal contracts

A unilateral contract creates obligations

which only involve rights for one
party/group and duties for the other,
for example a donation.

Bilateral Or Multilateral.
Where both parties/groups have rights and duties.
In other words, there is more than one obligation,
for example a contract for loan of use
(so-called financial lease) or a loan.
 41

A reciprocal contract is also a

multilateral contract,
but it contains an additional element,
namely that the obligations of the
parties exist in exchange for one another.
For example, the obligation to pay
the purchase price and the obligation
to deliver the goods in the case of a cash sale.

Requirements for a valid contract

 Capacity to act
 Agreement or reliance of agreement
 Proper behaviour at conclusion
 Formalities
 Lawfulness
 Possibility of performance
 Certainty of performance

The common law principles of contract law are based on the foundations of freedom of
contract (private autonomy) and the principle of sanctity of contract (namely that
contractual obligations must be kept and, therefore, are enforceable). These principles
are in line with the constitutional values of freedom and equal protection before the law
(s 9).

Since the Constitution is the highest law of the country, constitutional values will always
rank before the common law. Section 39 of the Constitution provides that the application
of and the interpretation of the existing legal principles, such as those of the law of
contract, as well as the creation of new legal principles, should always reflect the
underlying values of the Constitution.
 42

CHAPTER 2
CONTRACTUAL CAPACITY

Contractual capacity27 is the capacity to perform juristic acts, such as to conclude

contracts, independently without the assistance of anyone else. The crux of a juristic
act lies in the will of the acting party. The capability to form a will (volition) and to
express that will is essential for the performance of a juristic act. The law only recognises
a contract if it is concluded by a person who is capable of forming and expressing his
will.

A person must realise the nature, scope and consequences of his acts before he will be
regarded as having contractual capacity. Until a person has reached a certain level of
intellectual capacity, insight and judgement he will not be considered
contractually competent. Age and mental condition are two factors that influence a
person’s contractual capacity.

The influence of age on contractual capacity

The law determines two age limits which have important consequences for contractual
capacity. These limits are 7 years and 18 years.28 A person under the age of 7 years is
called an infans, while a person who is 7 years or older but still younger than 18 is called
a minor.

The infans
An infans has no contractual capacity whatsoever. All contracts must be concluded on
his behalf by a parent or guardian. When a contract is concluded on behalf of the infans
it is, however, important to note that the infans himself acquires the relevant rights and
obligations. The personal rights and obligations which arise from the contract bind the

27
Contractual capacity must be distinguished from legal capacity (the capacity to have rights and obligations;
i.e. to be a legal subject) and right of appearance (the capacity to act independently as plaintiff or defendant
in a legal matter). It must also be distinguished from the capacity to incur liability in civil and criminal matters.
28
According to the Children’s Act 38 of 2005 a person reaches majority at the age of 18. (This used to be 21
years.)
 43

infans and not the parent or guardian (but will be enforced by them on behalf of the
infans).

The minor

A minor has limited contractual capacity. By his own juristic act he can acquire rights
but no obligations. As for the acquisition of rights, he has full contractual capacity, but
as for the acquisition of obligations, his contractual capacity is limited. It is limited insofar
as the minor will only become contractually obligated if he has acted with the
permission or assistance of a parent or guardian.

The parent or guardian can also conclude the contract on his behalf. When a
parent or guardian grants permission to contract, it can be granted expressly with a
specific transaction in mind, or it can be a wide general permission for a specific class of
transactions. Permission may also be given after the contract has been concluded by
means of ratification. Permission may be given tacitly or be implied from the
circumstances.

If a minor concludes a contract without assistance and obligations arise for him from
that contract, the contract does not operate as it normally would. To the extent that the
minor has acquired rights the contract is binding, but to the extent he has acquired
obligations, it is not binding. The contract is not void since the minor can still enforce
the rights he has acquired from it.

However, the other party cannot enforce the rights he acquired against the minor.29
Furthermore, if the minor has performed in terms of the contract he can, with the
assistance of his parent or guardian, recover his performance.30 That would mean that,
if the minor, for example, has paid he can claim back the money with the assistance of
his parent or guardian, but the major will not be able to recover his performance
outright.

29
Similarly, under the Consumer Protection Act, an unassisted contract is voidable at the choice of the
consumer.
30
That is known as restitutio in integrum.
 44

In light of the above it is clear that a person who contracts with an unassisted minor may
find himself in an unenviable position. There are, however, two possible remedies for
him:

(i) In the first place, if the contract is reciprocal, the minor will not be able to
enforce performance unless he tenders performance as well. (This is the
defence of the exceptio non adimpleti contractus and will be dealt with
under 12.6 infra as one of the remedies for breach of contract.)

(ii) In the second place, the possibility exists that the minor may be held liable on
the grounds of unjustified enrichment. Unjustified enrichment is not linked to a
juristic act and, therefore, contractual capacity is irrelevant.

In order to succeed with a claim on the grounds of unjustified enrichment, the plaintiff
will have to prove that at the moment of instituting the action, the minor was enriched at
the plaintiff’s expense. This implies that he can only claim his own impoverishment or the
minor’s enrichment, whichever amount is smaller at the time the action is instituted. A
credit purchase provides an example where unjustified enrichment can become relevant.
If an unassisted minor bought goods on credit and took delivery the seller cannot
enforce payment against the minor. The seller’s estate has been impoverished with the
cost price (the price he paid for the goods).

The minor is enriched in an amount equal to the value of the goods at the moment
the action is instituted. If the goods have been damaged or depreciated in value, the
enrichment claim will be limited to that amount. Therefore, if the minor has damaged or
consumed the goods by that time, this would erode or extinguish the seller’s
enrichment claim, unless it is a claim for living necessities, such as food, clothes or
medicine. In the case of living necessities, the minor will be liable for the full purchase
price. If it does not relate to living necessities, and the minor has already sold the goods
to a third party, the amount of his enrichment would be equal to the price received if he
has not spent the money yet or the value of the asset bought with the proceeds. If the
 45

minor is still in possession of the goods he bought, he can return it in whatever condition
it might be in and whatever value it may now have.

EXPECTIONS:

Fraud by the minor

If the minor fraudulently misrepresents himself as being 18 or older and has already
reached such a stage of development that he could reasonably be mistaken for a major,
and the other party acts in good faith on the misrepresentation, the minor will be held
bound by the contract.

Ratification
Once he becomes a major, he can ratify any agreements he concluded when he was
a minor. The effect of ratification is that the agreement becomes fully operative with
retrospective effect as if the minor had the necessary assistance at the time of
concluding the contract. Ratification can take place expressly or tacitly.

A parent or guardian may also ratify a contract that was made without the necessary
permission. Again, this can be done expressly or tacitly, for example by paying for the
item that the minor has bought without assistance.

Statutory exceptions
There are a few statutory exceptions on the above rules. For instance, a minor who has
reached the age of 16 years can open a savings account at a financial institution and can
also make a will without parental assistance.

Emancipation
An emancipated minor can conclude certain agreements without specific permission
from his/her parents or guardian for that particular transaction. The minor becomes
emancipated when his/her parents or guardian allows him/her to independently
conclude certain types of agreements within the economic sphere in which he/she
is active. Emancipation, therefore, does not imply permission to perform any juristic act,
 46

but a certain class or category of juristic acts which are related to the economic sphere
which he/she is active in.

Emancipation requires that the minor has the ability to act independently when it
comes to financial or economic matters. In general, a certain degree of economic
independence is required. A separate place of residence and an own business might
provide some indication that the minor is emancipated, but the determining question
would be whether his parents allow him/her a certain degree of contractual freedom.
Emancipation can take place expressly or tacitly, but where it is given it does not mean
that his/her minority status has come to an end. The consent can later on be revoked.
The influence of mental capacity on contractual capacity

The mental condition of a person can influence his ability and therefore also his
contractual capacity. Two forms of mental incapacity are specifically relevant, namely
mental illness and prodigality. It should also be kept in mind that liquor and drugs can
influence a person’s capacity for volition (the ability to form a will) and to fully
comprehend the legal effect of his acts. It will, however, depend on the circumstances of
the case whether such person will be totally contractually incapacitated or whether his
contractual capacity will only be limited. This is a factual enquiry to establish the extent
to which the alcohol or drug has limited the person’s ability to form a will.

Mental illness
Once the High Court has declared a person mentally ill, that person has no
contractual capacity whatsoever. All contracts must be concluded on his behalf by his
curator. Any juristic act that a mentally ill person attempts to perform is null and void. If
performance was made to a mentally ill person in terms of a contract that was concluded
without assistance of the curator, the other party would only have a claim based on
enrichment.
Mental illness (insanity) is a question of fact, though. If a mentally ill person experiences
a lucid interval at a moment when he is temporarily sane (a so-called lucidum
intervallum), he has full contractual capacity at that moment even though that
transaction was concluded without the assistance of the curator.

Prodigals
A prodigal (or spendthrift) is someone who, due to a defect of judgement or
character, recklessly squanders his assets. The fact that a person has a tendency to
squander does not affect his contractual capacity. The Supreme Court must declare him
 47

a prodigal and forbid him to manage his own affairs before his contractual capacity is
affected. The effect of such an order is that the prodigal’s contractual capacity is limited.
A curator is appointed and without the assistance of the curator, the prodigal cannot
acquire obligations. He can, however, acquire rights if unassisted. His position is
therefore the same as that of a minor.31

The influence of marriage32 on contractual capacity

Unless they have concluded an antenuptial contract (ANC), all marriages concluded in
South Africa are in community of property. This matrimonial property regime entails
that the husband and wife have a joint estate and that all their assets and liabilities (even
those that they had before the marriage) are consolidated into one estate. Both spouses
have a 50% share to the estate which will be divided at the dissolution of the marriage,
whether by death or divorce. It is important to note that all liabilities are also shared
equally (so-called community of assets and liabilities).

Marital power was abolished by statute in 1984; thus, for all marriages both spouses
now have full contractual capacity and contracts concluded by any of the spouses will
bind the joint estate, even if concluded without the consent or permission of the other
spouse. Both spouses will acquire rights and obligations from such contracts.

There are, however, a few transactions where permission of the other spouse is still
required in order to bind the joint estate. Written consent is required to alienate or
attach immovable property and investments, to stand surety, to enter into a credit
agreement as a credit receiver (consumer), to buy certain immovable property or to
withdraw money held in the name of the other spouse at a bank or other financial
institution.

On the other hand, if the parties decide to marry without community of property, they will
have to conclude an antenuptial contract. This would entail that each spouse keeps
his/her separate estate and that there will be no community of assets and liabilities,
except for household necessities. Each marriage concluded without community of
property after 1 November 1984 is automatically concluded on the basis of the accrual
system, unless such system is also excluded by means of the antenuptial contract. In all

31
Also note that once a person has been declared insolvent by the Court, certain restrictions will be placed
on his contractual capacity as well. This aspect will be dealt with in the 2nd semester.
32
“Marriage” includes same sex unions and customary unions.
 48

cases of marriage without community of property, both spouses have full contractual
capacity to bind their personal estate except for household necessities, where they will
be jointly and severally liable for expenses.

Also note that a minor who enters into marriage with the consent of his/her
parents or guardian obtains full contractual capacity.
CHAPTER 3
AGREEMENT AND RELIANCE OF AGREEMENT

Agreement as requirement for validity

The most important requirement and basis for contractual liability is agreement
(consensus) or reliance of agreement. Not all agreements create obligations. A
contract will only be created when the parties reach agreement with the intention of
creating an obligation. Once their intentions are directed at the same thing and they
agree or reach consensus with the intention of creating obligations, the first requirement
for a valid contract is met.

To reach agreement, the parties must consciously agree. It is of no use if parties

accidentally have the same intentions but do not consciously agree. (For example, I want
to sell my car and X, who is unknown to me, has been admiring my car for a long time
and wants to buy it but he does not inform me of his intentions. No contract will come
into existence as there is no conscious meeting of the minds.)

Because the law is unable to enter the heads of the parties, it is forced to make
deductions from their declarations. The parties therefore have to declare their will, either
in writing, orally or sometimes even tacitly without words or through deeds (such
as to nod your head, take a card from a machine, pay money, or simply by not
objecting and thereby creating the impression that you agree). In other words, their
wills or intentions have to be communicated before they can reach consensus. In legal
terminology we refer to declarations of will made with the intent to create obligations as
an “offer” and “acceptance”.

Offer and acceptance

An offer is a proposal or expression of willingness to contract on certain terms, the
acceptance of which will create a contract.
 49

Requirements for a valid offer

To constitute a valid offer, three requirements have to be met.

 The offer must be made with the serious intention to conclude a contract
(obligation). There is a difference between contracts and other agreements, such
as social dates where there is no intention to create enforceable rights and
obligations.
The same applies where you make an offer to someone else in jest but you have
no intention to create a contract. It should also be noted that a statement of intent
indicates that a person has the intention to conclude a contract is not an offer (or
a contract) as it only serves as the basis for further negotiation or contractual
terms.

 The offer must be clear, certain and unambiguous.

 There must be a clear communication of wills and the offer must be made to a
particular person or persons and generally not made to the public at large.

It is on these grounds that one distinguishes between an offer and an invitation to

make an offer. An advertisement is an example where a declaration of intent will
sometimes be an offer but in most cases will merely constitute an invitation to make an
offer and thereby to do business.

The reason for that appears from the facts of Crawley v Rex 1909 TS 1105. In this case
a store displayed a notice on its window stating that tobacco was for sale at a special
price. After he already bought some tobacco, Crawley re-entered the shop and wanted to
buy more for the special price. The shop owner refused to sell more tobacco to Crawley.

Crawley argued that by means of the notice the shop owner made an offer, which he had
accepted and that the shop owner was therefore obliged to deliver. The court rejected
this argument and held that the advertisement was merely an invitation to the public to
 50

make an offer. Crawley was the one making the offer and the owner was not obliged to
accept the offer. The court held that no contract was concluded since the owner refused
Crawley’s offer.

If an advertisement were to constitute an offer at all times, it would mean that the advert
is an expression of willingness to conclude a contract on the terms stated in the offer,
resulting in an obligation being created which may be enforced in a court of law. If
a store were to run out of the advertised product it could be bombarded with hundreds of
claims from angry customers. This is the principle that applies in general to
advertisements in newspapers, magazines, catalogues, pamphlets, junk mail or on
websites. It also applies to the prices on items in self-service stores.33

But how is the public then protected against false advertising? That is done through
complaints to the Advertising Standards Authority of SA and by means of the Trade
Practices Act 1976. Also note the provisions of the Consumer Protection Act 68 of
200834 regulating the right to fair and responsible marketing (ss 29-31).

However, the courts have held that an advertisement where a sum of money is offered if
a product does not function properly will constitute an offer. The case of Carlill v
Carbolic Smoke Ball Co [1893] 1 QB 256 illustrates this point. The Carbolic Smoke Ball
Company’s advertisement stated that if people inhaled their smoke ball three times a day
it would prevent them from contracting the influenza virus.

They also warranted that they will pay £100 if the product failed. Mrs Carlille used the
product as prescribed, but still contracted flu. The Court held that, despite the fact that an
advertisement is normally considered to be a mere invitation to do business, it will
constitute an offer if it is linked to a money back guarantee.

Communication of wills means that an offer should be directed to a specific person. An

offer to the public, as in the case of an advertisement, would normally not constitute an
offer. A reward, on the other hand, may sometimes be regarded as an offer. However,
the offer still has to come to the knowledge of the offeree before he can accept it.

33
The Consumer Protection Act, however, has very specific regulations in place when the price displayed is
incorrect.
34
Which came into operation on 1 April 2011.
 51

In the case of Bloom v American Swiss Watch Co 1915 AD 100, after a robbery at an
American Swiss store, an reward was promised to anyone who would come forward with
information which could lead to the arrest of the robbers. Bloom provided the necessary
information. However, he never had any knowledge of the reward.
Consequently, because there was no communication of wills he never was in a
position to accept the offer. Take note that in this instance the advertisement would
normally constitute an offer, being an advertisement for a reward, but no contract could
come into being because Bloom did not have any knowledge of the offer (reward).

A tender is similar to an advertisement. Tenders are well known in business contexts

and are regularly used for big building projects or government projects. The person who
requests the tender does not make an offer but merely invites an offer (tender) from the
other party. The legal position regarding auctions differs slightly. Here certain rules or
conditions apply as regards the manner in which the auction will be handled, which rules
are made known beforehand.

A distinction is made between auctions with a reserve price (where a predetermined

price is to be exceeded before the sale takes place) and auctions without a reserve
price. Auctions are normally held with a reserve price, unless it is stated differently.
The auctioneer invites the attendees (bidders) to make an offer which is then to be
accepted or rejected by the auctioneer. When he accepts the offer, agreement is
reached and a contract is concluded. In the case of auctions without a reserve price, the
auctioneer makes the offer and the terms of the offer are that the item is to be sold to the
highest bidder. The offer becomes accepted when the highest bid is made, and the
contract is concluded.

In Frank R Thorold (Pty) Ltd v Estate Late Beit 1996 4 SA 705 (A), valuable books
were auctioned at a public auction on condition that the highest bidder would be the
buyer and all disputes would be settled at the discretion of the auctioneer. The
auctioneer (Frank Thorold) did not see L raising his hand and closed the bidding on Beit
for R80 000. L immediately objected and the auctioneer decided to reopen the bidding.
Once again the bidding was closed on B, but this time for the sum of R300 000. B,
however, refused to pay more than R80 000. The court held that there was a dispute and
that the auctioneer was entitled to declare the first sale void and to reopen the bidding.35
35
The Consumer Protection Act 8 of 2008 sec 45 provides special provisions regarding auctions. In terms of
sec 45(3) a sale by auction will only be complete when the auctioneer announces its completion by the fall of
 52

It is important to refer to cases where one of the parties has stronger bargaining
power than the other one. One has to decide whether the terms of the offer (or
contract) have come to the knowledge of the other party. EG An airline ticket where the
terms of the contract are either in small print on the backhand of the ticket, or there is
only a reference to the issuer’s standard terms. Did the receiver of the ticket have
knowledge of the terms, or was his attention drawn to them? The Consumer Protection
Act requires that terms should be made public, and that they must be reasonable.

The same principles apply to the small print found on insurance contracts and bank
loan documentation which are concluded by way of standard form contracts.
Where contracts are concluded electronically by clicking on an icon, the terms of a
standard contract which appear on a linked page would only become part of the contract
if a reasonable person could notice the reference to such page and the content of those
terms are accessible and in a legible format that are downloadable and storable.

Revocation of an offer. An offer is not a contract yet. It may, therefore, be revoked

before acceptance. Normally, revocation is only possible when such revocation has
come to the knowledge of the offeree.

An option constitutes an exception to the general rule. Where the offeror is

contractually bound to keep an offer open by means of an option, the offer may not be
revoked. An option is an agreement to keep open an offer for a certain period of time.
Within the option period, the offeror cannot make an offer to anybody else or accept
another offer, even for a higher price. When the option is exercised (original substantive
offer is accepted), a contract is concluded on the terms set out in the offer.

A wants to sell his house and makes an offer to B. B wants more time to think it over and
A offers to give him two weeks to think about it. B accepts it. In this case, A made two
offers to B: the first one was the substantive offer to buy the house and the second was
an offer for a two week option on the house to keep the substantive offer open for that
time. When B accepts the second offer, the option is concluded. Does not mean that he
accepted the substantive offer; a contract of sale will only come into being once B
exercises the option. However, he might decide not to exercise the option, in which case

the hammer, or in any other customary manner, and until that announcement is made, a bid may be
retracted. Sec 45(4) further provides that if any item on auction is subject to a reserved price then notice
must be given of this condition before the item is auctioned.
 53

the substantive offer will lapse. If A accepted an offer from C in the option period, the
option contract will be breached and B can sue A for breach of contract. Because an
option is based on contract it is important to remember that the option contract must also
meet the same validity requirements as all other contracts.

Various grounds for lapse of an offer

(a) An offer lapses after a reasonable time or at the time determined in the contract.
That means that it has to be accepted within a reasonable time. E.g. Dietrichsen
v Dietrichsen 1911 TPD 486 where Dietrichsen wished to buy a portion of a
farm owned by his brothers. After negotiations the transaction was put into writing
in a document dated 1 November 1907, which was signed by his brothers as the
sellers on that date but only by him during February of the following year. The
Court held that the offer was not accepted within a reasonable time and that no
contract was concluded. In Bloom v American Swiss Watch Co supra, Bloom
came forward with the information that could lead to the arrest of the robbers
after the police had already solved the crime, by which time the offer had already
lapsed.

(b) An offer may also lapse if one of the parties dies or becomes incapable of
concluding a contract, unless the offer provides for substitutes. However, this
principle will probably not be applied as strictly today as it used to be.

(c) An offer lapses when it is rejected by the offeree or when a counter offer is
made. A counter offer is therefore a rejection of the original offer followed by a
new offer. A offers to buy B’s car for R100 000. B responds by telling A that he is
prepared to sell it to him for R120 000. If A does not accept, B cannot fall back on
A’s original offer of R100 000 as that has lapsed already.

(d) An offer lapses when it is not accepted in accordance with the offer. A states
that his offer must be accepted in person but B accepts by means of an sms. The
offer lapses due to the acceptance not being made in the prescribed manner.

(e) An offer lapses when it cannot create an obligation, for example the content of
the offer is impossible or illegal such as to offer to sell your baby on the internet.
 54

What is an acceptance?
An acceptance is an express or implied declaration by the offeree to the offeror of his
intention to be bound contractually on the terms of the offer.

Requirements for a valid acceptance

(a) An offer may only be accepted by the person to whom the offer was made
(the so-called addressee). An offer may sometimes be a general offer, such
as in the case of a reward. It must, therefore, be interpreted in order to
determine its scope.

(b) An acceptance must be made with a serious intention to conclude a

contract (and therefore an obligation).

(c) An acceptance must be unequivocal and made in accordance with the

terms of the offer. It cannot be qualified; if so, it will not amount to an
acceptance but it will be a counter offer.

For example, the offer states A wants to sell his car for R50 000 to B. B cannot reply by
accepting the offer to buy A’s car for R48 000 as that will amount to a counter offer.
However, the offeree may ask whether the offeror would accept different terms, such as
a lower price. That is not an acceptance, but at the same time it is also not a counter
offer. This is still part of the negotiations. The same will apply where the offeree partly
accepts but still requires information about some of the terms, such as the engine
capacity of the car, for example.

(d) The acceptance must be communicated to the offeror. (However, in the case
of the postal contract, things will be slightly different.) Silence is not enough.
However, a nod of the head, a handshake or payment may constitute an
acceptance.
 55

(e) The acceptance must be made at a time and in a place and manner
prescribed by the offer. In Ficksburg Transport (Edms) Bpk v Rautenbach
1988 1 SA 318 (A), R granted an option to F to buy a farm. The option had to
be exercised in writing by 15 May. On 15 May, F’s attorney went to R’s farm
to notify him that the option is being exercised but he found that R was
temporarily out of town.

Subsequently, the attorney attached the letter to the front door and handed a copy to an
employee. On his return the following day, R found the letter. He argued that the option
was not exercised in time. The majority of the court held that F did not do everything in
his power to comply with the prescribed manner of acceptance, because he did not
make any enquiries as to the whereabouts of R prior to serving the notice and did not
make any arrangements to serve the notice at a later time if R was not available. The
minority, however, took a more reasonable stance. They held that F did everything
possible to serve the notice in time and that the option was, therefore, served in time.

A subsequent case came to a similar conclusion. In Amcoal Collieries Ltd v Truter

1990 1 SA 1 (A) T granted A an option to purchase coal rights to a property. In terms of
the contract, T chose his farm “Vandyksput” as service address for all notices. Three
days before expiry of the option, A instructed X to deliver a letter to T exercising the
option. As T was not home, X slipped the letter under the door. By the time T read the
letter the option had already expired. The Court held that the option was exercised as T
indicated this address as the chosen address for exercising the option.

When and where does the contract come into being?36

A contract comes into being at the time when and place where agreement is reached.
One can stipulate the time and place contractually. In the absence of such a stipulation,
one of three theories is applicable, depending on the circumstances of the case.

When the offer is made by means of an instantaneous form of communication, e.g.

telephonically (landline or cell phone), the contract is concluded when the offeror

36
It is, amongst other things, important to know when and where a contract is concluded, as it will indicate
which court has jurisdiction over the contract, and which legal system applies. It can also have implications
for certain duties such as, for example, if payment is to be made on conclusion or within a certain time after
conclusion.
 56

is informed of the acceptance of the offeree. This theory is called the information
theory. The acceptance does not have to be made by telephone. It can be done by
means of the post (snail mail), as long as it is not an electronic means of communication.

In other words: where A, in Stellenbosch, makes a telephonic offer to B, in

Johannesburg, on the 1st of January, and B accepts the offer by post, and the letter
reaches Stellenbosch on 10 January, but is only read by A on the 15 th when he returns
from vacation, the contract is concluded on 15 January as that is the day on which A is
informed of the acceptance of his offer.

In the case of a postal contract, where the offer is made by post (snail mail), the
postal theory determines that the contract comes into being at the time and place of
posting the acceptance, unless the offeror specifically states otherwise. In other words:
the contract is concluded at the time and place where the letter of acceptance is
dispatched, which is normally indicated by means of the post mark.

The postal theory is applicable when the following requirements are met:

(a) The offer must be made by post and in the normal run of business.
(b) The transaction must be a commercial transaction.
(c) The acceptance must be made via the post.
(d) The acceptance must not be addressed or posted incorrectly because of a
mistake by the acceptor and the postal services must be in proper working
order.

The basis for the postal contract is an assumption, namely that the offeror had
consented to the acceptance being made at the time of posting. The scope of the postal
theory is not clear. It is probable that the postal theory also applies to telegrams,
although there is some criticism towards this approach.

The postal theory does not apply to telephones. In S v Henkert 1981 (3) SA 445 (A) it
was ruled that telephones present a method of instantaneous communication, and that
these contracts are therefore covered by the information theory. The Supreme Court of
Appeal in Jamieson v Sabingo 2002 (4) SA 49 (SCA) also ruled that telex and telefax
communication should be treated similarly to telephone communication and that the
 57

information theory would therefore apply. (Note, however, that this case was heard
before ECTA came into operation.)37

In the case of a postal contract, the withdrawal of an acceptance or the rejection of an

offer is problematic, especially when a faster means of communication is used for the
withdrawal or rejection.

For instance: A sends an offer in the post to B. B accepts it by post. B then changes his
mind. He sends a rejection with a faster medium of communication, such as e-mail. Or B
rejects an offer by mail. However, thereafter he sends an acceptance with a faster
medium, which reaches A before the rejection does. In the first scenario, strictly
speaking, the contract was concluded when the letter of acceptance was placed in the
mailbox. However, on grounds of public policy and fairness, the withdrawal will be
allowed unless there is some detriment for the offeror. The same applies for the second
scenario.

Where the offer or the acceptance, or both, is made by means of an electronic means of
communication, (e.g. e-mail, sms or other electronic data message), the situation is
regulated by the Electronic Communications and Transactions Act (ECTA) 25 of
2002. Section 22 of this Act stipulates that a contract is concluded when the
acceptance of the offer (in the form of an electronic data message) is received by the
offeror. “Received”, in turn, means that the data message has entered an information
system and is capable of being retrieved by the addressee 38 (s 23(b)). The Act also
provides that the message is deemed to be accepted at the usual place of business or
residence of the addressee.

In other words: even if the acceptance is read at an internet café or abroad, it will still be
deemed that the contract is concluded at the usual place of business or residence of the
offeror. It is also irrelevant when the message is read since the Act is based on the
receipt theory. The date on which the message is received in the offeror’s inbox will be
the date on which the contract is concluded. This would mean that the contract could
technically be concluded without the offeror’s knowledge.

37
One can also argue that a facsimile, or a telex, is a data message which is regulated by the Act.
38
“Addressee” here refers to the person to whom the electronic message was directed and not necessarily
to the offerree (addressee). This is the direct words as used in s 23 of the Act. The addressee can therefore
either be the offeror or the offeree, depending on the circumstances and the facts of the case.
 58

Problems could thus arise where the network or computer software malfunctions,
especially where the acceptance of the offer is linked to a particular date. However,
these are problems that are experienced in the context of the postal theory as well.

Contracts that are concluded during video conferences or in chatrooms on the internet
are for all practical purposes treated similar to instantaneous communication methods
and, therefore, similar to contracts concluded by telephone.

Because the users of electronic means of communication can be anywhere in the world
when data messages are exchanged, the parties are advised to agree on where and
when the contract has been concluded and to indicate that in the contract, especially
where an international contract is concluded.
 59

Mistake
Where one of the parties makes a mistake, there is no consensus and no contract,
unless a contract can be based on reliance (which will be discussed later).

The mistake/error must be material with regard to the content of the contract/obligation.
According to the facts of Maritz v Pratley (1894) 4 SC 345, a mantle-piece was
displayed together with a mirror at an auction. The buyer made an offer because he
thought the mantel piece and mirror were sold as a set, only to discover that he made a
mistake and that it was only the mantel piece that was for sale. No contract was
concluded on grounds of material mistake.

However, when a person makes a mistake but it is a case where he would at any rate
have concluded the contract, even if he had known about the error, such an error is not
material. In the case of Parow Lands (Pty) Ltd v Schneider 1951 3 SA 183 (SWA) a
German buyer did not understand the terms of a contract written in English. However,
during cross-examination it appeared that, even though he paid more for the property
than it was actually worth, he would in any case have bought the property, even if he had
understood the terms of the contract.

Types of mistakes, One has to distinguish between two types of mistake, namely
material mistake and error in motive.

Material mistake occurs in connection with the material terms of the contract
(e.g. the identity of the other party, the content of the performance 39 or the nature of the
contract40), in the absence of which the parties would not have concluded the contract.
Material mistake deals with an error as regards the content of the contract.

An error in motive is not material. It is merely a mistake which motivated a party to

conclude a contract. But it does not affect the content of the agreement as such.
E.g. A buys a cow because he thinks his cow is dead but in actual fact she is not.
Error in motive deals with an error as to why the contract was concluded.
39
See the facts of Maritz v Pratley in 3.3 as example.
40
You want to buy the thing but the other party only wants to lease it to you.
 60

The two types of errors differ in their legal effect. In the case of material error, no
consensus is reached and, therefore, no contract is concluded. (It is often said that the
contract is void, though, technically, no contract was concluded.) However, in the case of
an error in motive, consensus is reached and a contract comes into being.41

Reliance as alternative basis for a contract

Up to now we have concentrated on agreement, BUT there are cases where contracts
may come into being although one or both parties laboured under a material
mistake/error. A party (A) may hold another (B) to a contract if no agreement was
reached because of material error but A reasonably expected that there was agreement
between them. In other words, he had a reasonable reliance of agreement.

Requirements for the reliance theory

(i) Firstly, reliance should be created through the conduct of the other party.
(ii) However, reliance on its own does not suffice; the reliance must also be
reasonable.

The requirement of reasonable reliance was why Steyn lost his case against LSA Motors
in Steyn v LSA Motors 1994 (1) SA 49 (A), and why he did not become the proud
owner of a car sponsored by them after playing the required hole-in-one at a golf
tournament. The prize was mentioned in the press and that is where Steyn read about. It
was also advertised on a bill board at the 17 th hole. The Court held that Steyn was an
amateur and that prizes are only given to professional players. It was, therefore, not
reasonable for Steyn to have expected to win more than a few hundred rand

Where a material mistake is made, one can still ask whether a contract could have
come into existence based on reliance. Is the person who wants to enforce the contract
able to show a reasonable reliance that agreement was reached? The onus is on the
person who wants to enforce the contract. However, this procedure is seldom followed
by the courts as the question is mostly asked from the other side around. This approach
is discussed in the next paragraph.

Iustus error
41
In the event of an error in motive, the contract might be rescindable in certain circumstances. See Ch 4.
 61

Where there is clear proof of the existence of a contract, for example if there is a signed
document, the court places the onus on the contract denier. He must show that his error
is reasonable. In other words, they do not ask whether the reliance of the contract
enforcer was reasonable, but whether the denier has made an iustus error
(reasonable material mistake).

The process works as follows: The person who wants to enforce or assert the contract,
firstly, has to show that there is an ostensible (apparent) contract, for example a written
and signed document. According to the maxim caveat subscriptor,42 the person who
signed the contract can usually not avail himself of the fact that he did not read the
contract or did not understand its terms.

By signing the contract, he created the reliance that he will be bound by the terms of the
document. The person who denies the contract must then show that his mistake was
material. The onus is, therefore, on him. The denier of the contract must also show that
his error is reasonable (iustus). Generally, this requirement will be satisfied if his error
was caused by the misrepresentation of the other party.

In the case of George v Fairmead 1958 (2) SA 465 (A), George signed the hotel
register and by doing so exempted the hotel from liability in the case of theft of any of his
luggage. The exemption clause appeared in the middle of the page where he had to
sign, between the space where he had to fill out his particulars and the space where he
had to sign. Some of George’s possessions were stolen and the Court held that, even if
he had never read the exemption clause, he was still bound to the exemption on the
grounds of caveat subscriptor.

He would only be able to claim compensation for his loss if he could prove an iustus
error. In this instance, his error was not reasonable as the exemption clause was in a
conspicuous place.

42
This means that the person who signs the contract must be careful since you are normally bound to the
terms of a contract that you have signed.
 62

However, if the exemption clause was printed in small print on the reverse side of
document or contained in a separate document which was only referred to in the contract
that was signed, there rests a duty on the contract assertor to have pointed out this fact
to the contract denier. This is also what is required by s 49 of the Consumer Protection
Act.43

In both Sonap Petroleum v Pappadogianis 1992 (3) SA 234 (A) and Horty
Investments v Interior Accoustics 1984 (3) AS 537 (W), typing errors in the leases
resulted in the content of the agreements being materially different from that which the
parties orally agreed on. In the Sonap case the parties signed a written lease in terms of
which P leased a premise to S from where they would run a garage. The period of the
lease was 20 years, to commence once the premises had been certified as ready for
occupation.

For some reason no certificate was issued and S only realised that after a couple of
years. S’s attorney prepared an addendum to the lease stating that the lease was to run
for a period of 15 years commencing on 1 December 1974. The date was correct but the
period incorrect. When S signed the addendum, he did not notice the reduction in the
period of lease. Although P noticed it, he never made any inquiries as these terms were
to his advantage. The lessor wilfully misled the lessee because he was aware of the
typing error, which resulted in the lease period being shorter than originally agreed upon,
and never directed the lessee’s attention to the error.

The Court held that, despite the signed lease and the ostensible consensus, the lessee
was not bound to the contract because of iustus error caused by the
misrepresentation (silence) of the lessor.

In the Horty Investments case, a typing error appeared in the contract, which stated
the lease could not be cancelled for the period 1 May 1981 to 1 May 1993. During this
time the rent could not be increased either. The reference to “1993” was a typing error
and according to their agreement should have read “1983”.

Although the lessee spotted the change in dates he never inquired about it and signed
the contract, believing those were the terms the lessor was satisfied with. The lessor

43
Where a party seeks to excluded from liability for injuries sustained by the other party to the contract, the
Act requires that such party must acknowledge the existence of this exclusion by signing this clause
explicitly before it will be enforceable.
 63

later on applied to court to have the lease voided. The court held that the reliance of
the lessee was unreasonable and that there was an iustus error. In this particular
case it was the lessee who made the misrepresentation and not the lessor.

The lessee spotted the mistake but decided to keep quiet. Misrepresentations can
occur if the other party fails to clear up a misunderstanding about the terms of a contract
in circumstances where there was a duty on that party to do so.

In short, the concept iustus error can be summarised as follows: Iustus error is a
mistake that would exclude consensus and make the contract void. The term
translates as a material mistake (excludes consensus) which is also a reasonable
mistake. A mistake would be reasonable if the other (non-mistaken) party does not have
a reasonable reliance on there being consensus. Generally, the courts say that a
material mistake would be reasonable if the non-mistaken party caused such mistake
(e.g. by making a misrepresentation to the mistaken party), knew about the mistake or
ought reasonably to have known of the mistake.

If the mistaken party’s material mistake is NOT a reasonable mistake, then the non-
mistaken party is deemed to have had a reasonable reliance on there being consensus,
and the contract will be deemed to be valid (even though there is no true agreement as a
result of the material mistake).
 64

CHAPTER 4
GROUNDS FOR RESCISSION

Introduction
Sometimes a contract is validly concluded and consensus was reached on all the
material terms but the contract can still be avoided because one of the parties has acted
improperly during its conclusion. In such an instance consensus was obtained but in an
improper manner. The result is that the contract is voidable; in other words, the
consensus may be rescinded.

At this point it is important to distinguish between the concepts “void” and “voidable”
contracts. A void contract is a contract where the requirements for the validity of a
contract have not all been met (e.g. there is no agreement, or the contract is illegal, or
the formalities were not complied with, etc). In this case no contract came into being. A
voidable contract is a contract where all requirements for validity have been met
and the contract is valid, but one of the parties may have a choice to exercise the
remedy of escaping from the contract (having the otherwise valid contract declared void).

Grounds for rescission

In South African law, there are certain recognised grounds of rescission, e.g.
misrepresentation, duress and undue influence.44 It is an open question whether any
form of improper behaviour will suffice. The possibility that a contract may also be
rescinded on other grounds, for example on grounds of abuse of circumstances,
economic duress or economic bribery, has been recognised by the courts.

Misrepresentation
A misrepresentation is a representation that is false.
44
Also note that in addition to the common law, ss 40-41 of the Consumer Protection Act provides protection
against misrepresentations, undue influence, duress and other forms of unconscionable conduct in the
context of a transaction between a supplier and a consumer for the delivery of goods or services. The court
can, after considering a range of factors, declare that the contract was, in whole or in part, unconscionable,
unjust, unreasonable or unfair, and it can make any further order the court considers just and reasonable in
the circumstances, such as restitution of monies or compensation for losses and expenses incurred as a
result of the contract (s 52(3)).
 65

When is a misrepresentation a ground for rescission?

Sometimes the error in motive of one party (A) is induced by a false representation
(misrepresentation) of the other party (B). The misrepresentation moved A to conclude
the contract. However, because there is consensus on the material terms of the contract
there is a valid contract. The consensus was however obtained by improper means, i.e.
through misrepresentation. The consensus is therefore voidable and A can apply to court
to have the contract rescinded if he is able to meet certain requirements.

The following example serves to illustrate: A is the owner of a farm. B wants to buy the
farm and meets A to show him around. A points out the boundaries to B but in such a
manner that it creates a false impression causing B to believe that the farm includes
some forested land. B purchases the farm in this belief – this being his motive for buying.
Subsequently B signs the deed of sale which describes the land in terms of the title
deed. According to this description, the farm does not include the forest. There was
consensus on the material facts, namely the identity of the parties, the price and the
subject matter of the sale namely that particular farm as well as the nature of the contract
and a valid contract is concluded. However, the contract can be rescinded on the
grounds of misrepresentation if the requirements for a misrepresentation are met.

However, before we deal any further with misrepresentations, it is necessary to

distinguish the various functions that a misrepresentation can fulfil in the law of
contract. In the previous chapter we learned that misrepresentation can be used to prove
that an error is reasonable, so-called iustus error. In this chapter we deal with
misrepresentation as a ground for rescission.

If the misrepresentation causes a material and reasonable error (iustus error),

there is no consensus and no contract. For example, the buyer expressly asked
whether the land included the afforested area and made it clear that he was not
interested in buying if the farm did not include the forest, but the seller assured him that
it did, whilst that is not the case. If the buyer’s error is caused by the seller’s
misrepresentation, it could be an iustus error which causes the contract to be void even
though there is ostensible proof of a sale in the form of a written and signed deed of
sale.
 66

However, if the misrepresentation merely causes an error in motive, then there is

consensus and a valid contract, but the contract could be voidable due to a
misrepresentation. The representation as to the forestation of the land influenced the
buyer’s decision to buy, in the absence of which he would never have bought the farm. 45
But how does this example differ from the previous scenario? In this case the seller
made a misrepresentation but the buyer never asked him whether the land includes the
forest; in other words, whether the forest is part of the land never became part of the
(material) terms of the contract and, therefore, at the most only played a role in
motivating him to conclude the contract.

To make things even more complicated, a misrepresentation must also be

distinguished from guarantees. The parties can decide to make representations part
of the terms of their contract (consensus) by guaranteeing that a certain state of affairs
exists. E.g. A guarantees that his farm has a forest. If the representation is false, A
breaches the contract (breach of warranty) and the normal remedies for breach of
contract are available for B. It may be difficult to distinguish misrepresentations and
guarantees, but it should be done on the facts of a particular case and with reference to
the intention of the parties.

Requirements for misrepresentation as a ground for rescission:

(a) There must be a misrepresentation (express or tacit). A misrepresentation can

also consist of silence or a failure to provide information.46

(b) It must be made by the other contracting party or someone who acts on his
behalf (e.g. his agent or an employee).

(c) It must be a misrepresentation with regard to fact. A mere prediction or opinion is

not enough; neither is mere puffing. An opinion as to a reasonable price,
therefore, does not amount to a misrepresentation.

45
Alternatively, he would still have bought the farm but he would have paid less for the farm.
46
Silence will amount to a misrepresentation in circumstances where there is a duty on a contractual party to
provide information, such as a failure to provide medical information when applying for life insurance.
 67

Lamb v Walters 1926 AD 358: L concluded a contract with W to buy some land near
the then Salisbury (today Harare). L, however, was a foreigner, who only arrived in
the country from Britain 3 days prior to the sale. Before entering into the contract, L
asked W whether the asking price is fair and reasonable, and W assured him that it
was. The truth was that the price was much higher in comparison to the prices in that
region. When W wanted to enforce the contract, L argued that there was a
misrepresentation made in regard to the price. The Court, however, held that W only
gave an opinion and that it did not constitute a misrepresentation as he was not an
estate agent. However, when a person gives an opinion which he does not believe
himself, he makes a misrepresentation with regard to fact, namely his state of mind.
That could amount to a misrepresentation.

In Feinstein v Niggli 1981 2 SA 684 (A), although the seller of shares in a restaurant
knew that the monthly turnover of the restaurant was not enough to cover the buyer’s
financial commitments, he still informed the buyer that it would be enough. The court
held that F made a misrepresentation.

(e) The misrepresentation must be material. The question is whether a

reasonable party would have been misled by the misrepresentation. However,
where the person makes a misrepresentation to defraud the other party
(intentional misrepresentation), should the reasonableness test still apply?
There are two views in this regard.

A line of cases following Lourens v Genis 1962 1 SA 431 (T) states that it would still
apply; whilst the other line of cases following Otto v Heymans 1971 4 SA 148 (T),
states that there is no need for the reasonableness test. In the Lourens v Genis
case, Lourens defrauded Genis by telling him that his son has so-called x-ray eyes
and that he is capable of spotting underground soil water without having to drill for it.

The court held that no misrepresentation was made since no reasonable person
would have believed L’s story. The contract could, therefore, not be rescinded. In the
Otto case it was held that the defrauder could not rely on an argument that a
reasonable person would not have believed the misrepresentation and that the other
party was too easily induced by it. Until now there has not been any clear answer to
this issue but it seems that the majority is inclined to not require proof of materiality in
cases of fraudulent misrepresentation.
 68

(f) The misrepresentation must have led to or induced the contract before the
contract can be avoided. In other words, there must be a causal link
between the misrepresentation and the contract. Where the contracting
party would have concluded the contract in any event, even in the absence of
the misrepresentation, and the misrepresentation simply resulted in the
contract being concluded on different terms, it cannot be avoided. In such a
case, only damages can be claimed in the amount of what was paid in
excess.

According to the facts of Bird v Murphy 1963 2 PH A42 (D), Bird admired Murphy’s
Mercedes for quite some time and saved money until he thought he had enough to
approach Murphy with an offer. During negotiations Murphy represented the car as a
1957 model and Bird based his offer on that. After he had bought the car, he found
that it was actually a 1953 model. He consequently applied for rescission of the
contract.

However, during cross-examination he admitted that he still would have bought the
car even if he had known the car was an older model but that he would have offered
less for it. The court ordered that he was only entitled to damages in the amount that
he paid in excess to what he would have paid in different circumstances and that he
could not have the contract rescinded. The issue of damages will be discussed in
more detail later on.

It should be noted that fault is not a requirement for rescission. However, fault is a
requirement for a claim for damages. To be able to rescind the contract, the contract
should not contain an exemption clause.

Exemption clauses

The possibility of rescinding a contract on the grounds of misrepresentation may be

excluded by contract. A clause may be added to the contract which excludes rescission
on the basis of misrepresentation. This is called an exemption clause. In such a case,
the representee cannot rescind the contract on the basis of misrepresentation, since the
ground for rescission was contractually excluded by means of consensus.
 69

The only exception is fraud. An exemption clause may not exclude fraudulent
misrepresentations. Such an exemption clause is void, and it would mean that the
contract can still be rescinded on the basis of a misrepresentation. It should also be
noted that, where a misrepresentation causes a material mistake (iustus error), the
contract will be void. The exemption clause will then be void and of no effect.47

Remedies48

The remedies or forms of legal relief that are available to the aggrieved party would
depend on the circumstances of the particular case. In principle, there are two types of
remedies available, namely remedies aimed at termination of the contract (namely
rescission and restitution, together with supplementary damages) and remedies aimed at
maintaining the contract and damages for loss suffered.

The diagram below provides a summary of these remedies and the circumstances in
which each of them would be available. Firstly, one would have to determine whether a
valid contract was concluded. If the misrepresentation led to a material and
reasonable error, the contract would be void and there would be no need to rescind the
contract. However, where the misrepresentation only led to an error in motive, the
contract will be valid and performance must be rendered until the contract is rescinded.
Where there is no misrepresentation, or other ground for rescission, and a valid contract
was concluded, the contract cannot be rescinded and no other remedy would be
available, and performance must be made.

If there is a valid contract and the answer to the question whether there was a
misrepresentation made is “yes”, the availability of the remedies will depend on
whether all the requirements for rescission are met, and more specifically whether
the misrepresentation induced the contract (or the error in motive). To put it differently,
was there a causal link between the misrepresentation and conclusion of the contract?

47
Contracts regulated by the Consumer Protection Act are subject to additional requirements. Sec 49

states that exemption clauses must be drawn to the attention of the consumer. Such an exemption will be
void by virtue of s 51(3) and according to s 52(4) can be severed from the remainder of the agreement.
48
Legal relief.
 70

If the answer is yes, the aggrieved party has a choice between rescinding the contract
(and restitution) and maintaining the contract (with a claim for damages).
If the answer is no, the contract cannot be rescinded and a claim for damages would be
the only remedy available for the aggrieved party.

The different remedies will now be discussed in more detail.

Rescission and restitution

Where the aggrieved party meets all the requirements for misrepresentation as a ground
for rescission he/she has a choice whether to abide by the contract or to rescind (cancel)
the contract.49 It should be remembered that until the contract is rescinded by the court,
the contract still remains a valid contract and the parties still have to perform their
obligations.

To rescind the contract, certain requirements have to be met:

49
Rescission is strictly speaking a unilateral act and the court is merely confirming a rescission.
 71

(i) The innocent party must give notice of his intention to rescind by means of
unambiguous conduct or words.
(ii) The decision to rescind must be communicated to the misrepresentor within
a reasonable time.
(iii) In the case of rescission, restitution50 normally has to take place, although
there are exceptions where a party can avoid a contract even if he cannot
give restitution. (This aspect will not be discussed in detail.)

Damages

Damages are a supplementary remedy to rescinding or upholding (maintaining) the

contract. The amounts of damages will differ depending on whether the contract is
rescinded or not. In the case of rescission and restitution, normally only wasted
expenses can be claimed as damages. Where the misrepresentee abides by the
contract, the damages that can be claimed will however be broader.

For damages to be claimed, certain requirements have to be met. In essence, a

misrepresentation will have to meet the requirements of a delict:

(a) There must be a misrepresentation (unlawfulness) which meets the requirements

as set out above in 4.3.3.

(b) Causality: The misrepresentation must have caused the damage. However, he
does not have to show that the misrepresentation induced the contract.

(c) Fault: The misrepresentation must be either fraudulent or negligent. This must be
contrasted with the remedy of rescission where no fault is required. Initially the
courts were only prepared to grant damages in cases of fraud, but it is now
accepted that negligence is sufficient.

(d) The loss suffered must be patrimonial (financial) loss.

Method of calculation

50
Returning the performance that was received.
 72

Sometimes it is difficult to determine the amount of damages that can be claimed.

Damages must be calculated according to the method of negative interest. The
actual position (after the misrepresentation was made) of the party claiming damages
must be compared with the hypothetical position that would have applied if no
misrepresentation were made. In other words, the innocent party must be placed in the
position that he would have been in if no misrepresentation were made.

The amount that can be claimed will differ depending on whether the misrepresentation
caused (induced) the contract (causation) or whether the parties would in any case
have concluded the contract but only on different terms. Remember, the misrepresentee
may only avoid the contract if the misrepresentation caused the contract. However, he
may still claim damages if he would have concluded the contract in any event, but due to
the misrepresentation the contract was concluded on terms that were more detrimental
to him.

For example: A buys a car from B for the amount of R100 000. However, the contract
was induced by B’s misrepresentation. The actual value of the car is R80 000. In the
absence of the misrepresentation he would not have concluded the contract. A meets all
the requirements for rescission. However, A decides not to rescind the contract but to
claim damages. A’s actual position is that he now has an asset worth R80 000. His
hypothetical position would be that he would not have concluded the contract and that he
still would have had R100 000. His loss is the difference between the two and he will be
entitled to R20 000 damages.

However, if he would have bought the car in any event, he will be unable to prove a
causal link between the misrepresentation and the contract and, therefore, he will not be
able to cancel the contract. However, if he can prove that he would only have been
prepared to pay the actual value of the car, he will be able to claim damages. In these
circumstances, his actual position is that he paid R100 000 and his hypothetical position
would be that what he would have been prepared to pay if he had known what the real
value was, namely R80 000. Once again, the amount of damage will amount to R20 000.

Duress
 73

When does duress occur?

Duress occurs where a contract is concluded by one party based on fear induced by a

threat made by the other contracting party. Coercion takes place in these situations,
which does not only include physical coercion but also psychological coercion.

Requirements for duress as ground for rescission:

(a) Threats must be made against the contracting party, his family or goods. It seems
the threat can even be one that affects your economic interests. However, this
aspect has not been decided by our courts yet. In the case of economic duress,
the threats must be illegitimate and unconscionable and not merely a case of
hard bargaining.

In Hendricks v Barnett 1975 1 SA 765 (N) an economic threat was made but in the
end the case was decided on other grounds. Hendricks, an expert horse breeder was
the manager of Barnett’s stud farm. Barnett visited the farm from time to time but
never had enough knowledge of the horses to be able to identify them. When Barnett
decided to sell the farm, he told Hendricks that he would pay him a bonus when his
services were to be terminated. There was no agreement on the amount of the bonus.
Hendricks would stay on until the horses had been sold on an auction. The
auctioneers advertised the auction widely in the press and also printed a catalogue of
the horses that were for sale. A few days prior to the auction, Hendricks threatened to
leave before the auction was held unless Barnett paid him R10 000.

If he would leave, for all practical purposes, the auction would not proceed because
he was the only person who could identify the horses. Barnett would suffer a huge
financial loss if that were to happen. Out of fear, he agreed to pay the bonus.
However, economic threats will not easily give rise to rescission as you will have to
prove that the threat was unlawful. Here you will have to distinguish between
economic duress and pure hard bargaining. The latter will not be unlawful.

(b) The fear of the party who wants to escape the contract must be reasonable.
The fear must be of such a nature that it is reasonable for this type of person to
suffer it. The test to determine this is, therefore, partly subjective, partly objective.
 74

(c) The danger must be imminent or inevitable.

(d) The contract must be concluded because of the threat (causality). If the threat
only led to the contract being concluded on different terms, then the only possible
remedy will be damages.

(e) The threat must be unlawful (contra bonos mores). To put it differently, the
purpose of the threat must be unlawful. It is unlawful if the conduct or act with
which he is threatened is wrongful (e.g. assault). However, the threat can still be
unlawful, even if the threatened conduct is not in itself unlawful (e.g. a threat of
prosecution). This will be the case where the threat is used to obtain something
that is unlawful, i.e. something that the person who made the threat would
otherwise not have been entitled to. In such a case, the threat as a whole is
unlawful.

(f) The last requirement is particularly relevant in cases where someone steals
money, is caught out by his superiors, and a contract is subsequently concluded
where he agrees to pay back the money owed under the threat of criminal
prosecution. Three standpoints can be distinguished:

 In the Witwatersrand court in Machanick Steel & Fencing v Westrhodan;

Machanick Steel & Fencing v Transvaal Cold Rolling 1979 1 SA 265 (W), the
court held that these contracts could sometimes be enforced.

The court said that a threat is unlawful only when the person making the threat
receives an advantage that he otherwise would not been entitled to, e.g. where the
threatened person is obliged to pay back the money stolen plus an additional amount
for keeping silent about the theft.

 The Durban High Court in Ilanga Wholesalers v Ebrahim 1974 2 SA 292 (D)
said the threat is not unlawful if the money is actually due, but that it would only
be if the amount is not known with precision.

 In the Cape in Arend v Astra 1974 1 SA 298 (C), the court took a much
narrower approach. The court said that such a threat is always unlawful because
 75

the contract amounts to compounding a crime and stifling its prosecution, and
that there is always an unfair benefit for the person who exerts the threat. [But
see the BOE case.]

In BOE Bank Ltd v Van Zyl 1999 (3) SA 813 (C), Van Zyl signed surety for his son-in-
law’s debts with BOE Bank. The bank discovered that the son-in-law (K) was defrauding
the bank by not paying back his debts as per their agreement. Subsequently, the bank
threatened to have K arrested or to have his estate sequestrated. Because Van Zyl’s
daughter was married in community of property to K it would mean that their joint estate
would be sequestrated and that both his daughter and his grandchildren would suffer.
The same result would happen if K were to be arrested.

Because of this threat, Van Zyl signed as surety and co-debtor for K’s debts towards
BOE. When the bank sued Van Zyl on the deed of suretyship, he alleged that the
contract was signed under duress. The Cape Court, however, held that the threat was
not unlawful. Compare this judgement of the Cape Court with their judgement in Arend
v Astra supra. Is this judgement correct? The bank benefited from the surety in a way
that it otherwise would not been entitled to. Under normal circumstances, the bank would
only have shared in the proceeds of the insolvent estate as a preferent creditor, whilst
now they were ensured of the full amount plus interest.

Remedies

Rescission and restitution

The same situation applies as in the case of misrepresentation. See para 4.3.5.1 supra.

Damages
The same situation applies as in the case of misrepresentation. See para 4.3.5.2 supra.

Undue influence
When does undue influence take place?
 76

Undue influence takes place where one party exercises his influence over the other in an
undue manner because of the relationship between them. Initially there was doubt
whether undue influence is part of the SA law. It originated in the English law, but the
Appeal Court in Preller v Jordaan 1956 1 SA 483 (A) introduced it into SA law. For
years Preller had been Jordaan’s medical doctor, but also his confidant and financial
advisor.

At a time when Jordaan, now an elderly man, was hospitalized, and therefore both
mentally and physically weak, Preller convinced him to donate four of his farms to him;
something which, under normal circumstances, he would never have done.

The requirements for undue influence as a ground for rescission

(a) The person who commits undue influence must be in a position of influence over
the other party, e.g. a priest and a woman on her deathbed, a husband and wife,
persons planning to marry or an attorney and his client. In other words, there
must be a relationship of trust between them.

(b) The will of the influenced person must be pliable (capable of being manipulated) -
see the examples mentioned above.

(c) The relationship between the parties must be abused by the influencer in an
unscrupulous manner.

(d) For the purpose of rescission the undue influence must have caused or induced
the contract which was to his detriment, and which he otherwise would not have
concluded (causality).

CHAPTER 5
 77

FORMALITIES

General principle
Generally, no formalities are required for a contract to be valid. Agreement or reasonable
reliance is sufficient. A contract may be concluded expressly or tacitly. However, in some
cases formalities are required. Formalities can take on different forms.

Types of formalities and sources

Types

(i) The most general requirement is writing.

(ii) Notarial execution means that the contract must be concluded in writing before
a notary public who will then have to comply with certain formalities.

(iii) Registration means the contract will have to be registered in an administration

office, such as the deeds office or companies’ office.51

Sources
Formalities may arise from 3 sources.

(i) Formalities are sometimes required by legislation.

(ii) Parties themselves may lay down formalities in their contract.

(iii) The law of evidence determines how and when something can be put before a
court as evidence. The law of evidence sometimes requires that the content of a
contract may only be evidenced in certain forms.

51
In terms of the Companies Act of 2008 which came into operation on 1 May 2011, companies are to be
registered by CIPRO (The Companies and Intellectual Property Registration Office.)
 78

Statutory formalities
There are many statutory formality requirements, but we will only look at the most
important ones. In each case we will focus on the scope, requirements and
consequences of non-compliance.

Alienation of Land Act 68 of 1981

If land is alienated52 the contract must be in writing. If it is not in writing, it is void.
(The meaning of "writing" will be discussed later on.)

General Laws Amendment Act 50 of 1956

This Act provides that certain contracts need special formalities, for example:

 Sec 3: A lease or transfer of mineral rights must be notarially executed.

 Sec 5: Where one person undertakes to make a future donation to another

person or to a charity organisation, the contract has to be in writing. If not, it is
void.

 Sec 6: Where one person agrees to pay the debts of another person if such other
person does not pay (called suretyship), the contract of surety has to be in
writing. If not, it is void.

National Credit Act 34 of 2005

A credit agreement is an agreement whereby one party sells goods or services on credit
to another and the purchase price is to be paid in instalments over a period of time. The
contract has to be in writing and has to contain certain clauses. There is no explicit
requirement that the contract should be in writing but this requirement is implied since a
particular form is required and all subsequent amendments should also be in writing.

There is, however, no indication that the contract will be void if the contract was not put
in writing but it will amount to an offence for the credit provider if a copy of the document
is not provided to the consumer.
Consumer Protection Act 68 of 2008
52
“Alienate” means to sell, exchange or donate.
 79

In all transactions where consumer goods or services are provided in the normal course
of business for value, a written record of the transaction has to be made available to the
consumer. The contract will not be void if the consumer never signed the contract.

Formalities in Respect of Leases on Land Act 18 of 1969

Generally, a lease does not have to be in writing (irrespective of the term of the lease).
But what happens if A leases a property from B and B now sells the property to C? The
general principle is "huur gaat voor koop". The lessee has a right against the new owner
to complete his lease. However, a long term lease (a lease for 10 years and longer) will
have to be registered in the Deeds Office to protect the lessee.

If not, the lessee will not be able to exercise the "huur gaat voor koop" rights against a
bona fide third party for longer than 10 years. Note that a long term lease will still be
valid even in the absence of registration.

Which terms have to be in writing?

Alienation of land, donations and suretyship merely require that the contract must
be in writing and signed by the parties.
But what does that mean?

 Not necessarily all the terms of the contract have to be in writing. Merely the
material terms have to be in writing. If all of the material terms of the contract are
not in writing, the contract as a whole is void. This was decided in Johnston v
Leal 1980 3 SA 927 (A). In this case the parties did not fill out the blank spaces
in a standard contract of sale.

The information needed dealt, amongst other things, with the purchase price,
details of a mortgage bond for that amount as well as the date on which the bond
should be obtained.

Also note that the Consumer Protection Act requires that the terms should be clear and
in plain language that is easily understandable.
 80

 It is not necessary that the contract must be contained in one written document; it
can, for example, be contained in several letters or faxes.

 There are also no specific requirements as to the quality of writing. A note that is
hand written on scrap paper will suffice.

 There is no minimum requirement of legibility in the Act. However, most probably

the contract has to comply with a minimum standard of legibility.

 The contract will be regarded as signed if it contains any mark which signifies
consent, i.e. a finger print, initials or a cross as long as the signor can be easily
identified. Signatures can also be effected in the form of an electronic signature.

It is not essential that the signature must be on every page or at the end of the
document but it must be clear that the signature applies to the whole contract. In
practice, a contract is usually signed on each page in the presence of two witnesses and
on the last page the signatures are accompanied by the date and place of signature.

Statutory requirements in the field of e-commerce

The Electronic Communications and Transactions Act, No 25 of 2002 (ECTA)

makes provision for electronic contracts. In terms of s 12 the requirement that a
document must be ‘in writing’ is met if it is in the form of a data message (e.g. e-mail or
fax). Section 13 provides that an electronic signature is valid and provision is also made
for an ‘advanced electronic signature’ which has been accredited by the authorities to
avoid fraud.

Section 18 further provides for a document to be notarised electronically by an

electronic signature by an authorised person. Note, however, that not all types of
contract can be electronically executed. E.g. land may not be alienated by means of a
deed of sale which is concluded electronically; the same applies for long term leases.

How do you effect variations (amendments) to a contract?

 81

If writing is a statutory requirement, variation (amendment) of the terms of the contract

may only be effected in writing. If the variation is not in writing, it will be void. The
contract itself, however, remains valid.

There are certain important exceptions where writing is not required. Those deal with
termination of the contract and revival. The parties may orally agree that the contract is
terminated. The parties may also orally agree that a contract should be revived where it
was terminated by agreement or otherwise.

Formalities laid down by the parties themselves

The parties themselves may lay down formality requirements that have to be met. The
offeror may already lay down formalities for acceptance in the offer. Moreover, the
parties may conclude a preliminary agreement that the later contract will only be valid
once certain formalities are met. However, variations of the terms of such a later contract
may still be effected orally.

It is possible to protect a written contract by agreement against tacit and oral variation.
That is done by means of an entrenchment or non-variation clause.

Entrenchment against variations

The mechanism for entrenching a contract was developed in the case of SA Sentrale
Graanmaatskappy Bpk v Shifren 1964 4 SA 760 (A)53 (and is therefore known as the
“Shifren conduit”). It is very important that the clause stating that only written variations
are allowed (the so-called entrenchment or non-variation clause) should also be
contractually protected against oral variation.

In other words, it is not sufficient to have a clause (e.g. clause 11) which states:
"Clause 10 may only be amended in writing", because then the non-variation clause
(clause 11) may still be amended orally and subsequently also clause 10.

Thus, the best way to formulate it is:

53
Confirmed by the Supreme Court of Appeal in Brisley v Drotsky 2002 (4) SA 1 (SCA).
 82

 “The contract as a whole may only be amended in writing.”

 OR if clause 11 says: “Clause 10 as well as this clause (clause 11) may not be
amended except in writing."

Again, it is not always easy to determine what constitutes a variation. But a contract can
be orally terminated or revived, unless it is specifically excluded in the contract.

The Parol Evidence Rule

Pursuant to the Parol Evidence rule, external evidence may not be given to add to,
vary, detract from, or qualify the content of an agreement where the parties have
incorporated their contract into one document.54 The fact that the parties have decided
on one document is the important aspect here (the so-called integration rule).

In this case, the court may neither look at utterances that precede the contract or are
contemporaneous with the contract, nor at other previous or contemporaneous
memoranda. (It is still possible to look at these aspects to prove the content of the
contract, as long as they are not used to supplement, vary or qualify the content of the
contract.)

54
An exception is provided for in s 55(2)(e) of the Consumer Protection Act.
 83

Purpose

The purpose of the rule is to create certainty for written documents where the parties
have agreed to put their contract into one document. The legal basis is that the parties
intend to have their agreement contained in one document. For example, A sells “his car”
to B. The entire contract is in writing. Can B now argue that they actually agreed that A
would sell his wife’s car?

Scope

The Parol Evidence rule must be distinguished from other formality rules. The Parol
Evidence rule merely prohibits evidence which shows the parties had agreed to
something different from what is expressed in the written contract. But subsequent oral
variations may still be proven unless the parties have agreed otherwise in the contract.

The rule is based on the agreement of the parties to integrate their contract into one
document with the purpose that this document is to be the sole source of information on
the content of their agreement. You may still lead evidence that shows:

 that the parties did not intend to integrate their entire agreement into one written
document;

 that the parties did not reach agreement at all;

 that there was misrepresentation, undue influence or duress.

Rectification

Rectification is possible where the contract was integrated into one document, but was
incorrectly reflected in the document due to a honest mistake or fraud by either of them.
It is important to note that, in this context such a mistake is not an error which influences
the consensus of the parties. Rectification is only possible if there was a valid underlying
agreement (consensus).

For example; the parties agreed to price X. Both wanted to have the document read X
but a mistake is made or there is fraud and the contract now reads price Y.
 84

Often the Parol Evidence rule applies in situations where legislation requires the
contract to be in writing. However, this is not a prerequisite for the operation of the
rule.

The Parol Evidence rule only applies where the intention is to integrate the
contract into one document. (Remember: a contract can be in the form of various
documents and can still be valid in terms of the writing requirement). In the case of
statutory formalities, rectification will be possible, but only if the contract complied with
the legislative formalities in the first place. (In other words, rectification cannot be used to
rectify a lack of formalities.)

It is important to distinguish between rectification and variations (amendments). In

case of the latter, the parties will reach agreement on the variation or amendment and it
will be made in accordance with the guidelines as set out earlier on in this chapter.
However, if they cannot reach agreement and the contract contains mistakes (often
caused by fraud committed by the other contractual party), rectification can only be
effected by the court.
 85

CHAPTER 6
LEGALITY

General
Freedom of contract is a general principle of South African law. That entails that parties
may conclude contracts on any terms that they prefer, as long as the public interest 55 is
protected. Hence some contracts are regarded as illegal or unlawful.

Forms of illegality
Contracts can be illegal in 3 different ways:

(i) the conclusion of the contract can be illegal;

(ii) performance of the contract can be illegal; and
(iii) the purpose of the contract can be illegal.

Sources
Illegality may originate in several sources. Three sources are identified:

(i) legislation (statute);

(ii) good morals;
(iii) public interest in the broader sense.

Contracts concluded under circumstances where behaviour is prohibited by

statute

Sometimes certain types of behaviour are prohibited by law or are considered crimes.
What happens with a contract that is concluded in such circumstances? It is a question
of statutory interpretation. Is the statute (legislation) aimed at prohibiting the contract or
not? If the answer is yes, then the contract is void.
55
After 1994, public interest is hugely determined by the Constitution.
 86

However, the question is often difficult to answer because legislation seldom deals with
this question expressly. Certain rules of thumb have been developed as tools to assist
the court in determining these difficult issues.

The purpose of the statutory provision and the evil which it is trying to stamp out must
first be determined. The court must then ask:

 Does the contract as such undermine this purpose?

 Does the contract fall directly within the ambit of the prohibited evil?

If the act contains a penal provision, it must be asked whether the legislator did not
intend that this penalty would be sufficient. Would invalidity of the contract not lead to
even more unacceptable consequences?

Examples:

According to the facts of Metro Western Cape (Pty) Ltd v Ross 1986 3 SA 181 (C), M
traded without the necessary licence required by provincial ordinance. The court found
that the contract M concluded with R was not void because the penal provisions of the
ordinance effectively served its aim, namely ensuring that businesses are to be run from
suitable premises by suitable people. To declare the contracts of sale void would cause
grave inconvenience and even more injustice towards innocent customers.

In Henry v Branfield 1996 1 SA 244 (D&CLD), a private sale of foreign currency

contravened currency regulations and was held to be unenforceable because the
regulations are based on strong policy considerations.

An illegal contract may also be against public interest or good morals.

Good morals often concern sexual mores, e.g. insurance of a building in which a brothel
is conducted if the insurer is aware that the insured premises is used for this purpose
 87

A range of aspects may fall under the heading public interest, such as:

 An agreement to commit a crime, delict or some unlawful act will normally be

illegal under this heading.

 What about a life policy that covers suicide? Usually there is a two year waiting
time.

 What about an exemption clause? Here negligence and fraud must be

distinguished. In Afrox Healthcare Bpk v Strydom 2002 (6) SA 21 (SCA) 33-
34, the appeal court stated that an exemption clause may be against public policy
or interest because of excessive inequity. (Cf also the Consumer Protection Act.)

 Parties may not attempt to exclude the jurisdiction of the court, e.g. self-help in
the case of a lease contract. Arbitration and mediation clauses, however, are
allowed as those are alternative dispute resolution mechanisms that are widely
recognised.

 Agreements to share in the proceeds of litigation. Contingency fee agreements

which provide for attorneys to share in the proceeds of a claim used to be illegal
but are now regulated by statute (the Contingency Fee Act 66 of 1997) and thus
no longer illegal. The Highest Court of Appeal also ruled that it is no longer
against public policy.

 A contract with an enemy subject during a time of war.

The Court of Appeal has ruled that, in this context, public policy is to be determined with
reference to the protection of constitutional principles of freedom, equality, human
dignity, non-racism and non-sexism.

Although public policy mainly refers to the interest of society at large, it can in some
instances also cover the interests of an individual or a group if that would be to the
benefit of society.
 88

Contracts in restraint of trade

In practice, contracts in restraint of trade are the most important contracts in the context
of illegality. A restraint of trade contract is one where a person undertakes to refrain from
doing certain work under certain circumstances or from exercising a trade or profession.

Two principles of public interest come into conflict in these situations:

(i) Sanctity of contract: Every person should be free to conclude a contract on

the terms that he prefers. Once a party has agreed to certain terms then he
should be bound by them.
(ii) Freedom of trade: Every person should be free to exercise his trade or
profession freely. (Sec 22 Constitution 108 of 1996)

The courts have designed a test which is aimed at balancing these principles on every
set of facts. The contract must not be contrary to the public interest. The court in
Magna Alloys v Ellis 1984 4 SA 874 (A) held that the restraint will normally be against
the public interest if it is unreasonable between the parties to the contract. However, the
Constitution also influences the interpretation and application of the standard of public
interest.

The most important question is whether the restraint is reasonable between the
parties. This issue is normally conclusive. So how do we determine reasonableness?

Two elements play an important role.

(i) Does the person who wants to enforce the restraint have a legitimate interest?

(ii) If there is a legitimate interest, the question is: does the restraint attempt to
protect only this legitimate interest?

In the case of Basson v Chilwan 1993 3 SA 742 (A) the court added a further element.
It should be asked whether protection of the legitimate interest weighs up against the
 89

freedom of trade of the restricted person. (This element has however not yet played any
significant role in the case law).

To satisfy the first element, only legitimate interests may be protected. But when are
interests considered to be legitimate? That depends on the type of contract.

Restraints normally appear in one of 2 types of contracts, namely

(i) A restraint can be in a sale of a business.

(ii) A restraint is also often found in an employment contract.

So it is important to firstly establish the type of contract involved and then to determine
whether the restraint purports to protect a legitimate interest.

In a sale of a business, the most important interest that may be protected is goodwill.

In an employment contract, two interests may be protected, namely

(i) trade secrets that have come to the knowledge of the employee; and

(ii) customers with whom the employee had contact and over whom he,
therefore, has influence.

To satisfy the second element of the reasonableness test, it should be established

whether the restraint only protects those interests that were identified as worthy of
protection. In each case the court must look at the duration, area and scope of the
restraint to determine whether the clause is not too wide and, thus, unreasonable.
 90

Examples:

According to the facts of Weinberg v Mervis 1953 3 SA 301 (C), W sold his medical
practice to M because he wanted to emigrate. The contract of sale contained the
following clause: “Dr Weinberg shall as from the delivery of the assets be restrained at all
times thereafter from practising as a doctor of medicine in any form directly or indirectly
within the radius of ten miles from the City Hall of Cape Town except as a specialist.”
After W returns to SA he starts practicing again in Cape Town. Is the restraint of trade
enforceable? In other words, is the restraint reasonable?

This inquiry entails establishing whether the enforcer has a legitimate interest, and then
to establish whether the restraint only protects those interests that have been identified.
Whether the enforcer has a legitimate interest depends on the type of contract involved.
Because it involves a sale of a business, goodwill may be protected. In this instance this
is what is being protected here. Therefore, one can move on to the next aspect. Is the
restraint perhaps not too broadly worded? Time, area and scope of activity have to be
taken into consideration. In this instance goodwill is being protected for ever (lifelong).
The Court found that it is possible to do that, because goodwill is a factor that determines
price and is an aspect that will continue to exist even after the business is sold again.

Although, generally, the area of 10 miles is very wide, it was not considered to be too
wide in this case because the buyer should still be given the opportunity to expand the
business. In regard to scope of activity, it is found that the restriction is also not too wide,
because W could still come back and practice as a specialist within that area. Generally
speaking, however, a restraint of 10 miles on a general practitioner to practice in any
form would be considered too wide. On the facts of this case the restraint is, therefore,
reasonable and enforceable.

In Cowan v Pomeroy 1952 3 SA 646 (C), P sold his shares in a company which sells
toys and a small range of plastic goods to retail merchants. The contract states that P
was not entitled to interest himself “in the sale of toys and goods made of plastic
materials.” After P became the representative of a toy company C applied to court for a
restraining order. The application failed because the restraint of trade was formulated too
 91

wide to include all plastic goods and also to prohibit the sale of toys in general, whilst the
business never sold to the general public.

Katz v Efthimiou 1948 4 SA 603 (O): E sold to K a general dealer’s business in

Harrismith and undertook not to be interested in any such business within a radius of 100
miles of Harrismith. The general dealer’s business was a comparatively small one
“carried on in one room with dimensions 5 feet by 12 feet, run entirely on the cash basis,
and carrying a very limited stock of the usual commodities dealt in by the average small
grocer” (614). The court held that, although a restraint is usually aimed at protecting the
possibility of expanding the business for the new owner, this expectation should also be
reasonable. In light of the facts the restraint was unreasonable.

In the case of Paragon Business Forms (Pty) Ltd v du Preez 1994 1 SA 434 (SE), P
is a company that sells business forms. D was employed by P as a salesman. D sold
products in Port Elizabeth and its surroundings. He had so-called reserved clients (whom
he served exclusively). D’s contract of employment contained a restraint of trade which
read as follows: “The employee undertakes that for a period of 9 months from the date
that his employment with Paragon ceases, he will not, either alone, jointly or together
with or as agent for any other person, partnership, body corporate or association of any
nature whatsoever accept employment with any business which is the same or similar to
that of Paragon or any company or body corporate carrying on business which is the
same or similar to Paragon.

The clause shall only apply to the area of jurisdiction defined in schedule 1.” Schedule
1 included the magisterial districts of PE and surroundings. Once again the question is
whether the restraint is reasonable. Does the enforcer have a legitimate interest?
This question depends on the type of contract involved. This is an employment contract
and 2 interests are here at stake, i.e. trade secrets known to the employee and clients
over whom the employee has gained or maintained influence because of his
employment. P argued that there are trade secrets in the form of secret price lists.

The court accepted that the lists might have been secret but because they were highly
complex and changed regularly it meant that a salesman never knew the prices by heart
and each time had to look at the lists to determine a price. On the facts there were no
trade secrets as the employee never knew the price lists. On the other hand, it was clear
that there were clients over which the employee had influence. The employee had a
 92

golden opportunity to gain influence over his reserved clients. The second question is
whether this restraint only protected this particular interest.

A period of 9 months was definitely not too long. The influence that an employee could
have gained over a reserved client could definitely have lasted for 9 months. The
restraint was also not too wide. The employer served clients in the PE district and
surroundings and that was the area of the restraint. The restraint was also not too wide
as regards scope of activity. D is not allowed to work for a similar type of business. If he
were to work for a similar business, he would be able to poach clients over whom he had
gained some influence. The restraint was therefore found to be reasonable and
enforceable.

According to the facts of Sibex Engineering Services (Pty) Ltd v van Wyk 1991 2
SA 482 (T) V is employed by S as an expert technician to perform on-line maintenance
on pipelines of Sasol I and II. His employment contract provided that V is restrained to
engage in direct or indirect competition with S after leaving their employ for a period of
24 months. S argues that the restraint is necessary in order to protect their trade secrets
and secret information. The court held that the restraint is against public policy as, due to
the nature of V’s employment as a technician, he never had access to any trade secrets
or secret information.

Unreasonableness as ground for illegality

The basic principle is that you cannot escape from a contract merely because it is unfair.
However, a contract may become illegal if it is so unfair that it offends the public interest.
This will only be allowed in extraordinary circumstances. Sasfin v Beukes: Beukes
applied for finance from Sasfin and ceded his book debts (as a dentist) to them as
security. No date was stated for cancellation of the cession.

Even after the loan had been paid, the cession still remained in force, resulting in
Beukes’ monthly income being affected to the extent that he could no longer provide in
his own monthly needs and that of his family. The Court held that the finance contract
was illegal because the cession was against public interest.
 93

More recently, the Constitutional Court in Barkhuizen v Napier 2007 5 SA 323 (CC)
held that the right to freedom of contract can be limited in the interests of fairness
(equity) in contracting. The Supreme Court of Appeal in Bredenkamp v Standard Bank of
SA Ltd 2010 4 SA 468 (SCA) subsequently confirmed this sentiment, but pointed out that
there is still no over-arching requirement of equity in the enforcement of contractual
provisions, but that it is to be measured against public policy considerations that are to
be found in the Constitution56 and elsewhere.57

Effect of illegal contracts

Illegal contracts are mostly void but there are cases where they are merely
unenforceable, e.g. in the case of a restriction on freedom of trade or in the case of a
natural obligation such as a wager. The point of departure is that no action can arise
from an illegal cause (ex turpi causa non oritur actio).

Severance of contracts
If part of a contract is illegal and void the entire contract will be affected, unless the legal
part can be separated from the illegal part.58

Two questions should be asked:

 Are the different parts physically separate? Can the illegal part be taken out
without changing the meaning or word order?

56
Such as freedom, equality and human dignity.
57
Secs 41, 41 and 48 of the Consumer Protection Act regulates unfair, unreasonable or unjust contract
terms where the contract is regulated by the Act. The notion of unfair, unreasonable and unjust terms are
defined in subsec 2. Remedies are provided by s 52 and range from a declaratory order coupled with
restitution and relief for losses and expenses, to severing the void parts from the other contract terms, to
declaring the whole of the contract void.
58
Sec 54(4) of the Consumer Protection Act provides for severance as well as alteration of the terms in
certain instances, especially where the supplier has contracted out of liability without bringing it to the
attention of the consumer.
 94

 Did the parties intend to keep the legal and illegal parts separate and would the
parties have contracted only on the legal part?

Restraint of trade clauses are the only exception. The courts follow a wider approach
where there is an attempt to enforce only part of the restraint. Under certain
circumstances they are prepared to add words or to change the word order, even if it
alters the initial intention of the parties.

Return of performances
Where performance has been made but the contract is illegal, performance may be
claimed back by means of an enrichment claim.59

Certain requirements have to be met. Because performance is claimed by means of

an enrichment claim, the contract must be void. Some forms of illegality only make the
contract unenforceable, e.g. restraint of trade or unfairness. Where the contract is only
unenforceable, performance cannot be claimed, but if it is made, it is valid.

The Courts will not allow restitution of performance when it is against public
interest. Performance may not be claimed back where the in pari delicto rule applies.
It means that in cases where both parties have acted illegally they are “equally
blameworthy” and restitution of performance will not be allowed as it would be against
public policy. There are, however, certain exceptions on the rule:

 Where one person has nothing to do with the illegality he may claim back his
performance, e.g. where the police sell diamonds to catch smugglers.

 Where a contract is illegal because it is contrary to a statute but the act only
prohibits the actions of one party, restitution will be granted.

59
Where a contract enjoys protection under the Consumer Protection Act, s 52(3) provides for statutory
restitution.
 95

In Van Staden v Prinsloo 1947 4 SA 842 (T) P sold and delivered a second hand tractor
to V for £600. A price control regulation stated that the price may not be in excess of
£400. In terms of this regulation it was an offence to sell for more than this amount but
no mention was made of buying for a higher amount.

P had knowledge of the regulation but V didn’t know about it. After V had obtained
knowledge of the regulation he offered restitution of the tractor and claimed the
instalments he had already paid. The claim was successful as the parties were not in
pari delicto.

Even where both parties are involved in the illegality of performance, it may still be
claimed back if:

(a) it is not against the public interest, AND if

(ii) it conforms to the principle of simple justice between man and man.
 96

CHAPTER SEVEN
POSSIBILITY OF PERFORMANCE

Performance must be possible at conclusion of the contract. If performance is

impossible, no obligation will come into existence due to impossibility of performance. If
performance of obligations becomes impossible after conclusion of a contract and it is
not due to the fault of either of the parties, the obligation will be extinguished due to
supervening impossibility of performance. It is important to distinguish impossibility
from prevention of performance. Whilst the former is a validity requirement, the latter
is a form of breach of contract.

When is performance impossible?

1. Performance will only be impossible if it is objectively impossible. It must be

impossible for any person to render performance.

For example, if A sells a particular car to B and the car is destroyed by a fire then
it is objectively impossible. Subjective impossibility (i.e. where a particular person
cannot perform) will not make performance impossible. For example, A sells his
car to B, but it appears that A was never the owner of the car. Performance
becomes subjectively impossible if the previous owner claims the car and makes
it impossible for A to perform.

2. Today it is difficult to say that something is physically impossible, but the court will
look at the risk and cost of performance. If the risk and cost are
disproportionately high to the standard/commercial value of the performance,
then performance will be regarded as impossible.

3. Performance will not be impossible if impossibility is due to the fault of either

of the parties, then it will be a case of breach of contract, namely prevention of
performance.
97
 98

Effect

If performance is or becomes impossible then both the obligation and counter

performance become void due to impossibility. If performance becomes impossible after
conclusion of the contract, the obligation is extinguished due to supervening
impossibility.

When no obligation is created or the obligation is extinguished, there is no need to

perform any longer. In the case of reciprocal contracts, the counter performance will be
extinguished.

Contractual exclusions

The parties may nevertheless agree to a different result by way of express and tacit
provisions, e.g. through warranties. If performance is warranted (guaranteed) it causes
breach of contract if performance is not made, even if performance is impossible.

In some cases, the effect is excluded by the common law, e.g. the effect of the passing
of risk on the buyer under contracts of sale. Here, the buyer still has to perform even
though performance has become impossible.

(The risk rule applies when the contract becomes perfect (perfecta) and will be
discussed later on in the context of specific contracts.)
 99

CHAPTER 8
CERTAINTY / ASCERTAINABILITY

The terms of a contract must be certain or ascertainable for the parties to know what is
expected of them and for the courts to enforce the performance. The contract must be
concluded in such a way that a certain or ascertainable obligation can be discerned.

However, sometimes the language used is of such nature that it is impossible to

establish the intention of the parties. Courts do not like to find contracts void on the basis
of uncertainty and they will attempt to give meaning to the contract. They will try to
interpret the contract and for this purpose extrinsic evidence is allowed.

Contract terms are normally interpreted with reference to their normal understanding and
where that cannot be established, the surrounding circumstances will be looked at, e.g.
the purpose of the contract or whether the parties had previous negotiations or their later
conduct.

The Parol Evidence rule would not prohibit this because that rule only applies to
variations, editions, etc. when the parties have agreed to integrate their agreement into
one document. The rule, therefore, does not prohibit interpretation of the contract.

Special situations
Determination by third party or other method

An obligation will come into being even if its content is uncertain at conclusion if the
content is capable of determination by a third party or it is ascertainable through another
objective method. E.g. A buys a business from B at a price to be determined by an
auditor.

Discretion of one of the parties

The principle of certainty and as certain ability is being watered down in cases where a
discretion to decide the content of an obligation is given to one of the contractual parties.
It has long been accepted that a lessee or the buyer may not determine the rent or
purchase price. E.g. A buys a car from B. They agree that A will pay the purchase price
 100

determined by him. This principle has been questioned in NBS Boland Bank v One
Berg River Drive 1999 4 SA 928 (SCA), but not finally decided.
It has also been held that an essential term cannot be determined by means of a
discretion, but again this was questioned in NBS Boland Bank v One Berg River Drive
supra (on Appeal). The courts will allow a discretion in the case of a non-essential term
if there is an objective element to the discretion.

E.g. A may perform when his position is financially sound, and if such discretion is
subjected to the requirement that it should be exercised reasonably. This requirement
will become part of the contract by operation of law.

An important practical problem that has occurred is the following: A receives a loan that
is secured by a bond from Bank B. The loan contract determines that Bank B may alter
the interest amount payable in its discretion. Whilst the Witwatersrand court in the cases
of NBS v Badenhorst-Schnetler Bedryfsdienste BK and NBS v One Berg River
Drive 1998 3 SA 729 (W) said that this is too vague, the Cape Court in The Standard
Bank of SA Ltd v Friedman 1999 2 SA 456 (C) and the Natal Court in Deeb v Absa 1999
2 SA 656 (N) both held that such a contract was valid as one has to read into the
contract that the bank should exercise its discretion reasonably. The One Berg River,
Friedman and Deeb cases together went on Appeal.

The Appellate Court regarded the discretion as valid on the following grounds:

 The rules regarding the limitations of discretions with regard to rent and purchase
prices should not be extended.

 The determination of interest is not an essential term.

 The problem with discretions really only exists where the debtor is able to
perform if he so pleases.

 There is an implied term in all contracts that discretions should be exercised

reasonably. If the discretion is exercised unreasonably the court may strike down
the exercise of the discretion.

Effect
 101

If an obligation is not certain or ascertainable, it is void.

Counter-performance will also be void.

CHAPTER 9
MULTI-PARTY OBLIGATIONS

Different types of contractual relationships may be distinguished by law. The simplest

form of relationship exists between one creditor and one debtor. However, it is also true
that obligations can exist between more than one debtor or creditor, so-called multiparty
obligations.

Different types of multiparty obligations:

Three types of multiparty obligations are distinguished.

Simple co-debtor/creditor relationship

In a simple co-debtor relationship, the parties agree to pay a debt and that every debtor
is liable for an equal portion.

A, B, C and D agree to pay E R100.

If they are simple co-debtors,
each debtor is then liable in a proportionate
amount of R25 per person towards creditor E.
Each debtor has a liability towards E for R25
and the creditor E has a personal right
against each debtor for R25.

Persons are simple co-creditors where each creditor is entitled to a proportional

amount of a debt.

E agrees to pay A, B, C and D R100.

Each creditor (A, B, C or D) can
claim R25 from debtor E.
In other word, each of the creditors
have a personal right against
the debtor for R25.
 102

Joint co-creditors or co-debtors

Persons are joint co-debtors when the full amount of the debt must be claimed
jointly from all of them.

E.g. A, B, C and D owe E R100. E may only collect the debt from A, B, C and D jointly
and must hold them liable as a group. Persons are joint co-creditors when they must
claim the full amount jointly.

E.g. E undertakes to pay A, B, C and D R100. A, B, C and D may only claim this amount
together as a group.

Joint and several (solidary) co-creditors and co-debtors

In joint and several co-debtor relationships every debtor is liable for the full
amount but if one performs all of them are freed.

E.g. A, B, C and D owe E R100. A, B, C and D are each liable for the total of R100. If
one of them pays the full amount, the others will be freed. This form of debt relationship
is often used for security.
 103

Different scenarios have to be distinguished in relation to its performance:

 The obligations of the other debtors only expire on this basis if substantial
performance was made. Payment, set-off and novation are considered to be
substantial performance, but prescription is not.

 If the creditor frees one debtor from performing the whole obligation, the other
debtors will be liable for the whole amount minus the amount for which that
debtor would have been liable if they were each liable for a pro rata share.

 If a solidary co-debtor performs only part of the whole debt, then he and the other
debtors will remain liable for the remainder of the debt. However, if the creditor
claims a lesser amount from him and he pays that, he will be freed.

 The question whether a solidary co-debtor can claim from the others where he
has performed more than his pro-rata share will depend on the express or implied
agreement between the debtors.

In the case of joint and several co-creditors all creditors are entitled to the debt.
However, if compared to joint and several co-debtor relationships this type of relationship
is not used that often in practice.

E.g E agrees to pay R100 to ABCD. If anyone of the creditors claim the amount from Z
and he pays, he will be freed and the other creditors will have no right against Z.

Which type of relationship is applicable to a specific situation?

Sometimes it is difficult to determine exactly which type of relationship the parties wanted
to conclude. It mostly depends on the parties' intention. Generally, courts are reluctant to
hold that the relationship is joint and several.
 104

Partners are joint creditors and debtors during the operation of a partnership and after
the termination of the partnership they become joint and several co-debtors and
creditors. Sureties are joint and several co-debtors.

CHAPTER 10
CONDITIONS, TIME CLAUSES & SUPPOSITIONS

The operation of an obligation may be made subject to certain contractual terms.

Conditions, time clauses and suppositions are examples of these terms.

Conditions Definition
A condition is an uncertain future event to which an obligation can be subjected. The
requirements for a condition is that it should relate to a future event, contain the element
of uncertainty, refer to a lawful event and not be contrary to the nature of the obligation.

Classification
Conditions may be classed according to different criteria:

Suspensive or resolutive
Suspensive conditions suspend the operation of an obligation until fulfilment of the
condition.
E.g. I shall pay you R10 if (on condition that) it rains tomorrow.

An obligation that is subject to a resolutive condition comes into operation immediately,

but dissolves when the condition is fulfilled.
E.g. I sell my house to you as long as (on condition that) I do not receive a better offer
within a month.

They may also be classified according to the extent to which fulfilment of the obligation
may be influenced by the parties.

Potestative / casual / mixed

Potestative conditions imply that one of the parties has some control over the fulfilment
of the condition.
E.g. I will pay you R100 if (on condition that) you climb Table Mountain.
A casual condition is completely outside the control of the parties.
 105

E.g. I will pay you R100 if (on condition that) there is an earthquake this year.
Mixed conditions contain elements of both casualty and control.
E.g. A pays B R100 if (on condition that) he marries C.

Positive / negative

Positive conditions apply where something positive has to happen for fulfilment.
E.g. I will give you the car if the bank approves the loan.

In the case of a negative condition the condition fulfils when the event should not
happen. E.g. I will give you R100 if (on condition that) you do not marry A.

It is important to note that these categories interact with each other and that they can
operate in combination.

Operation

A condition fulfils if:

 the condition is positive, and the event happens.

 the condition is negative, and it is certain that the event is not going to happen.

A condition fails if:

 a condition is positive and it is certain that the event is not going to happen.
 a condition is negative and it is certain the event is going to happen.

What happens if one of the parties interferes with the fulfilment of the condition by wilfully
preventing its fulfilment? The law will regulate the position as if the interference did not
take place through the doctrine of fictional fulfilment of conditions.

E.g. A buys a company from B subject to it making a profit in 2015. The company would
make a profit in the normal course of business but B does not want to sell any longer. He
now intentionally concludes a very bad deal so that a loss is in actual fact made.
 106

A condition must be fulfilled within a reasonable time. If not, it will be regarded as having
failed.

Time clauses

A time clause establishes a future certain event to which the operation of an obligation is
subjected. Time clauses differ from conditions in that it is certain that the future event will
take place. Sometimes it is certain that the event will take place and also certain when it
will take place.

E.g. I will give you R100 on Christmas Day. If it is not certain when a certain event will
take place but certain that it will take place, then it is still a time clause.

E.g. I will give you R100 when your wife dies.

Different types

As in the case of conditions, suspensive and resolutive time clauses are distinguished.

Operation

It is important to determine in whose favour a time clause operates.

E.g. A owes B R1000, which must be paid in monthly instalments of R100.

If the clause is in favour of the debtor the creditor may not claim any amount until it
becomes payable. However, the debtor may perform beforehand. If the time clause is in
favour of the creditor, he may claim beforehand but the debtor may only perform
beforehand in certain circumstances.

When will a time clause be in favour of a creditor? When payment of interest is to be

insured. Therefore, the debtor can perform beforehand if he pays the full amount of
interest. If doubt exists, then there is a presumption that the time clause is in favour of
the debtor.
 107

Suppositions

Conditions and time clauses concern future events, but in the case of a supposition the
operation of an obligation is made subject to an event that has already taken place (of
the past) or a set of facts that already exist (of the present).

E.g. A buys a plot subject thereto (on the supposition) that B is the owner.

Operation
If the supposition is wrong, the obligation falls away.
Normally an error in motive will not affect the validity of a contract, but if such a motive
was made a supposition (contractual term) by agreement, the contract can be void.
 108

CHAPTER 11
BREACH OF CONTRACT

If a contract is valid and enforceable, it must be performed. If a party does not perform in
accordance with the contract he commits a breach of contract.

The law distinguishes between different types of breach, namely

 repudiation

 prevention of performance

 positive malperformance

 mora debitoris

 mora creditoris

 Repudiation

Repudiation occurs where a person creates the objective impression that he is not going
to perform in accordance with the contract.

For example, by denying the validity of a contract or disputing its terms; resiling from a
contract without valid grounds; giving insufficient notice of cancellation; or notifying a co-
contractant that you cannot perform.

 Repudiation may take place both before or after the time when performance
must take place.

The question is not whether a person subjectively intended to comply with the contract
but whether he created the objective impression that he is not going to perform; i.e.
whether it is reasonable in the circumstances to infer from his conduct that he will not
comply.
 109

In Tuckers Land and Development v Hovis 1980 1 SA 654 (A) plots were sold in a
new town development. Hovis bought a plot from a plan in an area that was originally
demarcated for residential purposes. However, this particular set of plans was rejected
by the authorities concerned, resulting in the town planners having to go back to their
drawing boards.

The second set of plans was subsequently approved. However, on this plan the plot H
bought was now situated in an area demarcated for non-residential purposes. The Court
held that the amended plans created the objective impression that the developers were
not intending to honour their agreement with Hovis and that they repudiated the contract.

 Prevention of performance

If a party makes his/her own performance or that of the other party impossible, it will
constitute breach of contract in the form of prevention of performance.
E.g. A sells his car to B but before delivery thereof he drives through a red traffic light
and the car is written off.

Prevention of performance as a form of breach must be distinguished from

impossibility of performance. (See ch 7.) Both objective impossibility of performance
at conclusion of the contract and objective impossibility of performance after conclusion
do not constitute breach of contract.

Performance can be made impossible before or after the time for performance.

Both objective and subjective prevention constitute breach of contract.

For example, if the seller negligently destroys something prior to delivery, it is a case of
objective (absolute) prevention.

However, if the seller sells a thing that is already sold to someone else, it is subjective
(relative) prevention.

Fault will be required, but the person who prevented performance will be deemed to
have fault unless he proves otherwise. (There is a rebuttable presumption to this effect.)
 110

 Positive malperformance

Positive malperformance takes place where the performance of a contracting party

(debtor) does not meet the standards for performance as set out in the contract, or
where he does something he has undertaken not to do.

For example, building a house with defective material, or sub-letting in contravention of a

prohibition against sub-letting. Positive malperformance is the most common form of
breach.

Fault is probably also not a requirement here, although there is no case law on that.
Normally there is a presumption that fault was present when the malperformance took
place.

 Mora debitoris

This type of breach takes place where a person delays timeous performance but still
performs, albeit late. (mora = delay; debitoris = of the debtor).
E.g. A undertakes to deliver a car which he sold to B on Friday but only arrives on the
following Monday with the car.

Mora debitoris must be distinguished from prevention of performance. Where the time
and content of performance are so intertwined that late performance will have no
purpose (i.e. it becomes impossible) it is prevention of performance rather than mora
debitoris.

E.g. You must provide me with a fancy dress costume for a ball on Friday evening. What
happens if you bring it to me on Saturday morning? This will be a case of breach in the
form of prevention. On the other hand, if it is a contract for an everyday wear dress, it
would be mora debitoris.
 111

To be successful with a claim for mora debitoris, certain requirements have to be met:

(a) Before there can be mora debitoris, a time for performance must be
stipulated. If the contract sets the time for performance, mora debitoris will be
committed automatically on that date if performance was not rendered on
such date. However, if no date is set in the contract, notice (a demand) has
to be given to the party who failed to perform to demand performance and
mora will only take place after the time stipulated in the notice. In these
circumstances, the debtor is “placed in mora” by way of notice. E.g. I agree
to pay you R100 but we do not agree to a time. You will now have to give me
notice that I must perform before I will be in breach. I will only be in breach of
contract when I do not perform at the time set in the notice. No formalities are
required for such a notice. It may be written or oral. However, it is better to
put it in writing because it will then be easier to prove that notice was given.
The parties may also lay down some formalities for the notice in the contract.
However, it must be remembered that the debtor must be given a reasonable
time to perform.

(b) Mora debitoris can only occur where performance is due. Mora will not occur
where performance is subject to a suspensive condition or time clause.

(c) Until recently it was believed that fault is a requirement. However, the
Supreme Court of Appeal has recently decided that fault is not a requirement
for mora debitoris but if there is a legal justification for why performance was
late there will be no breach of contract. E.g. a debtor undertook to deliver
goods but on its way from overseas, the ship that carries the goods was
delayed due to a storm at sea. (I.e. there is no need to prove fault in order to
succeed with a claim for mora debitoris but the debtor can defend himself
against a claim for breach of contract by proving that he had no fault.)
 112

 A unique feature of mora debitoris is that the duties of the debtor increase
with mora debitoris.

Obligations of the debtor will no longer fall away if performance becomes impossible and
he still has to perform. And from the moment when someone is in mora, interest is
payable.

 Mora creditoris

Where the creditor fails to co-operate to ensure timeous performance by the debtor, he is
in mora creditoris.
E.g. A undertakes to build B’s house before the end of the year but after a month B has
not provided A with the plans yet.

 Mora creditoris should be distinguished from other forms of breach.

Where the creditor objectively creates the impression that he is not going to perform, he
repudiates the contract.
E.g. where by the end of the year, B has not provided the plans yet.
Where the creditor makes performance impossible by his lack of co-operation it will be
prevention of performance.
E.g. if A had to build a stadium for a World Cup rugby match and the World Cup is
already on but the plans have not been delivered yet.

The requirements are:

 The creditor must have a duty to co-operate.

 The debt must be payable or performable by the debtor. This means that there
must be a date for performance, or performance must have been demanded by
means of a notice of demand. All conditions and must be fulfilled and suspensive
time clauses met.
 113

 The debtor must offer to perform. The debtor must do everything that he can do
without the co-operation of the creditor. The co-operation of the creditor must be
the only outstanding element for proper performance.

 The creditor must refuse to co-operate in the manner required.

 The creditor does not have to be at fault. (In future this requirement will probably
be dealt with as in the case of mora debitoris and the guilty party will be able to
use the absence of fault as a defence against a claim for breach of contract.)

Where mora debitoris makes the duties of the debtor more onerous, mora
creditoris lightens the load of a debtor.

The debtor will only be liable in the case of impossibility of performance where it is
caused by his wilful or grossly negligent acts. If performance becomes impossible then
the creditor will remain liable to render counter-performance.
 114

CHAPTER 12
REMEDIES FOR BREACH OF CONTRACT

Where breach of contract has occurred the innocent party has several remedies. They
are remedies aimed at enforcing or upholding the contract (specific performance); or at
cancelling the contractual relationship (cancellation). Damages can also be claimed,
either as an independent or a supplementary remedy.

Specific performance

The innocent party may ask the court for specific performance. Specific performance is
an order of court that a debtor must perform in accordance with his contract. If a person
does not comply with the order, he commits contempt of court.

If he is ordered to pay money, the order may be executed by judicial procedure, whereby
his assets can be seized and sold in execution to meet his obligations.

Specific performance is regarded as the primary remedy for breach of contract in South
Africa. But there are cases where the court will refuse to grant it and in such cases the
creditor will have to claim damages.

Specific performance cannot be granted in the Magistrates' Court without an alternative

order for damages (Magistrates' Court Act 32 of 1944 s 46).

The court will always have a discretion to grant specific performance. The discretion to
grant specific performance must be freely exercised. There are no fixed rules, but each
case will be treated on its own merits according to the principles of public policy and
fairness.
 115

Some principles have developed in the common law where specific performance
will not be granted:

 No specific performance will be given where performance is impossible.

 The debtor will not be excused from performance even if it causes him hardship,
but courts will not grant specific performance where it will lead to undue hardship.
It will also not be granted if performance would cause undue expense or
detriment for the debtor or the public in comparison to the benefit it would have
for the creditor.

 The courts are reluctant to force an employee onto an employer because of the
personal nature of the relationship between employer and employee. The same
applies for partners in a partnership.

In the case of Troskie v Van der Walt 1994 3 SA 545 (OPA), where a rugby
player breached the contract with his club to play for another club, the Court held
that they cannot grant specific performance because of the personal nature of an
employment contract. However, in principle, an employer is entitled to specific
performance, although in a particular instance there may be factors which justify
a court in refusing such an order such as when fundamental human rights are
being affected when an employee is forced to go back. It would therefore depend
on the specific circumstances of the case.

In Santos Professional Football Club v Igesund 2003 3 SA 73 (C), though, the

coach was, for example, forced to go back to the club where he was employed,
though, because the nature of the contract between them was not a typical
employer-employee agreement. (Contracts between employers and employees
are also regulated by labour legislation.)

 A court will not enforce a contract if performance is not clearly defined to the
extent that it is impossible to determine whether performance has taken place in
accordance with the court order and therefore to enforce the order. It will depend
on the circumstances whether it is only difficult or impossible to enforce the order
of court.
 116

According to the courts a debtor cannot argue that damages will be a sufficient remedy.
The creditor will have a right to specific performance even if the creditor could be
sufficiently compensated by a claim for damages. Damages will not be a defence even if
a contract of sale has been concluded and the goods sold can be obtained in the open
market.

In the case of Benson v SA Mutual Life Assurance Society 1986 1 SA 776 (A) SA
Mutual failed to deliver the full number of shares to Benson as per their contract. They
offered to pay Benson damages to put him in a position to buy the balance of the shares
on the stock market. The Court held that damages are not sufficient in this case, even
though the shares were available in the open market.

Cancellation
The innocent party may cancel the contract in certain circumstances. Cancellation is an
extraordinary and drastic remedy.

A contract may be cancelled only if:

(i) the contract makes provision for cancellation in the event of any or a specific
type of breach (so-called lex commissoria = right of cancellation or right of
rescission).

(ii) the breach is sufficiently serious or material.

Whether it is indeed sufficiently serious to justify cancellation depends on the

type of breach committed:

 In the case of positive malperformance the question is whether the breach is

serious or goes to the root of the contract to the extent that it cannot be
expected of the creditor to be bound to the contract.

 In the case of repudiation and prevention of performance the question is

whether the breach is sufficiently grave. If only part of the contract becomes
impossible or is repudiated, the question is whether the debtor can be
reasonably expected to abide by the contract.
 117

In the case of mora creditoris and mora debitoris cancellation will be possible if
time is of the essence.

Time will be of the essence if the contract allows for cancellation. This is in accordance
with the principle stated above.

But time will also be of the essence if the contract is commercial and speculative or
subject to price fluctuations, or if it deals with perishable or seasonal goods;

or if time is made of the essence, i.e. the innocent party gives notice that he is going to
cancel if performance does not take place within a specified time. If time is made of the
essence by means of a notice, the debtor must be given a reasonable time to perform. In
this context one has to distinguish between two scenarios; one where the parties have
agreed on a date for performance and one where there was no date for performance.

Where there is a date for performance but the debtor fails to perform on that date, the
debtor will automatically fall into mora, and the creditor only needs to make time of the
essence (i.e. secure a right of cancellation) by giving the debtor notice to perform within
a reasonable time, and indicating that the contract is to be cancelled on failure to do so.

Where no date was stipulated, the creditor first has to place the debtor in mora by
means of a notice to secure breach of contract and thereafter send a second notice to
make time of the essence. Because it is rather impractical to send two separate notices,
it is possible to combine them into one notice. Normally no formalities are required, but
preferably it should be in writing.

Where breach has occurred and it entitles the innocent party to cancel the contract, that
party will have a choice or election between cancellation and specific performance. The
innocent party cannot be forced to cancel the contract.

But once the choice is exercised, it will be final.

 118

The Supreme Court of Appeal ruled that the election is to be made within a
reasonable time after the creditor has become aware of the breach.

Notice has also to be given to the other party to the contract before the cancellation
becomes effective. Parties may again agree expressly to a specific form of cancellation.
Often it is agreed that notice must be given at a particular place.

Once again it is possible to combine this notice with the notices referred to above.
In practice, this usually happens by way of a summons.

Where the innocent party has acquired a right to cancel, the innocent party normally
cannot purge (accept or ignore) the default and extinguish the right thereby.
The only exception is where the right to cancel derives from repudiation.

Cancellation has certain consequences, namely:

(a) the duties to perform in accordance with the contract will be extinguished, and

(ii) restitution must be made of all performances already rendered (except where
restitution was made impossible by circumstances beyond the control of the
debtor).

Damages

Damages for loss suffered as a result of breach of contract may be claimed whether a
contract is cancelled for breach of contract or not. The amount of damages claimed in
the case of cancellation differs from the amount that can be claimed where breach
occurs but the contract is not cancelled.

What is the method of calculation? The purpose of damages is that the innocent party
should be placed in the position he would have been in if the contract was performed
properly (in other words if no breach of contract occurred).

The position that the innocent party is in at this point in time must be compared with the
hypothetical position that he would have been in if proper performance had taken place.
This method is called positive interest.
 119

Certain limitations should be taken into consideration when claiming contractual

damages:

Only pecuniary losses may be claimed. You may not, for instance, claim with a
contractual claim for damages suffered to your good name, or for pain and suffering.
According to the facts of Jockie v Meyer 1945 AD 354, Jockie, a Chinese person, was
not allowed to stay in a beachfront hotel in PE whilst the ship on which he was a sailor
was docked for repairs in the harbour. As a result, Jockie each day had to travel a longer
way to work from a boarding house. The Court held that he did not suffer any pecuniary
loss that could be compensated by means of damages even though he was humiliated
and had to suffer discomfort.

If X were to build a house for B and the house collapses because of faulty workmanship
resulting in B being badly injured, what may he claim? He cannot claim for his lost looks.
(Although he has no contractual claim for damages he may claim for that by means of a
delictual claim.) If B were a model, though, he would have suffered pecuniary loss as a
result of the loss of his job and he would be able to claim contractually for loss of income.

The breach must be the factual cause of the harm suffered (causal link). This must
be determined by means of the "but for" test. If it was not for the breach of contract, you
would not have suffered any losses.

The “but for” test is just a minimum requirement and the liability is restricted even
further. Was the harm foreseeable? Here a distinction is drawn between general and
special damages. General damages are the damages that normally flow from a particular
transaction. They may be claimed in all instances (e.g. loss of interest on money paid in
terms of the contract, loss in market value, or loss of normal use of thing that was
bought).

Special damages are extraordinary damages that flow from a particular contract (e.g.
loss of profit; consequential damages). Special damages may only be claimed if it was
within the contemplation of the parties at conclusion of the contract that such damages
could flow from a particular breach. (In other words, the debtor must have known at the
time of conclusion that there might be a possibility of the creditor suffering loss if he were
not to perform his contractual obligations.)
 120

This approach has often been criticised and it seems it would be more acceptable to
allow a claim for special damages if the loss was reasonably foreseeable for the person
who breached the contract at the moment of breach.

The innocent party may not simply sit back and wait for damages to accumulate. He
must take reasonable steps to limit the damages; in other words there is duty on him to
mitigate his losses. In North and Son (Pty) Ltd v Albertyn 1962 2 SA 212 (A), Albertyn,
a wheat farmer, had his tractor serviced by North and Son. Subsequently, the tractor
broke down five times, resulting in Albertyn missing the main planting season. Albertyn
informed the garage that he needed the tractor for planting purposes. In between, at
times when the tractor was in working order, he ploughed and planted a few lands. He,
however, enjoyed a smaller harvest as usual. The Court found that he mitigated his
losses by working the land when he could.

Penalty clauses

Sometimes it is very difficult to prove damages. The parties, therefore, may agree
that a party who breaches the contract should pay a fixed amount of money to the
innocent (aggrieved) party on breach. That will save the creditor the trouble of proving
the amount. This is called a penalty stipulation.

Thus, a penalty clause is a clause by which someone bounds himself to pay a specific
amount in the form of damages or as a penalty in case of breach. It is obvious that
penalties can sometimes be abused and they are, therefore, controlled by the
Conventional Penalties Act 15 of 1962 which places certain limitations on penalty
stipulations:

 Sec 2 (1):
If the contract provides for a penalty, the innocent party MUST claim the penalty.
He may not choose between the penalty and damages UNLESS the contract
allows for such an election. Even where the contract provides for such a choice
you will not be able to claim both damages and the penalty amount.

 Sec 2(2):
 121

Where defective or late performance is made and accepted, a penalty may only
be claimed if it was specifically determined for this particular type of situation. A
general penalty clause will not suffice in such instances.
 Sec 3:
The court is empowered to reduce a claim if it is out of proportion to the damage
suffered. It may be reduced to the extent that it is regarded equitable. The onus
to show that the amount is disproportionate rests on the party who avers it. The
court may consider a wide range of factors in determining this. Even factors like
inconvenience and loss of reputation may be looked at.

Exceptio non adimpleti contractus

In the case of a reciprocal contract where the other party is obliged to perform
beforehand (as in the case of a credit sale) or simultaneously (as in the case of a cash
sale), a party may refuse to perform before counter-performance is given. If the contract
does not say anything, then there is a presumption that performance must take place
simultaneously.

Since performance is refused until proper counter-performance is rendered, the

exceptio ensures proper performance. (It may, therefore, at the same time operate as
a defence to claims from a party who has not performed properly or in full yet.) Although
the exceptio is aimed at ensuring proper performance, there are cases where the courts
will relax the exceptio and not enforce it rigidly.

The court will sometimes use its discretion and allow counter performance where
defective performance was made. In that case a reduced contract price is allowed.

For such a claim the following requirements have to be met:

(i) Defective performance is being utilised by the creditor or he must have

received some benefit from it.

(ii) If it would be fair for the court to exercise its discretion in favour of the
debtor.
 122

(iii) If the debtor can show the amount with which his claim should be reduced
because of the defect (in other words, the amount needed to correct the
breach).

The reduced contract amount is often determined by subtracting the cost of

getting performance up to standard from the contract price. However, other
methods may also be used, depending on the facts of the case.

Examples: In BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk

1979 1 SA 391 (A)

BK Tooling subcontracted Scope Precision Engineering to engineer or create moulds

which they could use to produce rubber mounting pieces for engines in Ford cars. On
delivery it was found that they could not use all the moulds due to their diameters not
being correct. However, they did manage to deliver their order to Ford with the remaining
moulds that were up to standard.

They then refused to pay Scope on the basis of the exceptio. Scope argued that
although their performance was not up to standard, BK Tooling utilised the defective
performance and they were therefore entitled to a reduced contract amount. On appeal
the Appellate Court set down the requirements for relaxing the exceptio (as set out
above).

In the case of Thomson v Scholtz 1999 1 SA 232 (SCA), Thomson sold his farm to
Scholtz. In terms of their agreement Scholtz could take occupation of the farm on a
certain date against payment of occupational rent until transfer of ownership. Although
the buyer was able to farm the land he was unable to take possession of the farm house
since the seller remained in occupation.

He was forced to reside in a hotel in town whilst working the farm during the day. The
buyer refused to pay occupational rent as per their agreement on grounds of the
exceptio. The Court held that is difficult to determine the amount with which the rent
should be reduced as there was no formula available.
 123

After taking all relevant circumstances into consideration, such as the extent to which
Scholtz’s enjoyment of the farm had been reduced, it was decided that the occupational
rent should be reduced by 25%.

CHAPTER 1: INTRODUCTION

CHAPTER 2: HARM (DAMAGE)

CHAPTER 3: CONDUCT

CHAPTER 4: CAUSATION

CHAPTER 5: WRONGFULNESS

CHAPTER 6: FAULT

CHAPTER 7: VICARIOUS LIABILITY

CHAPTER 8: PROFESSIONAL LIABILITY

 124

LAW OF DELICT
CHAPTER ONE

Definition of a delict:

Van der Walt en Midgley: “In general terms a delict can be defined as wrongful
and blameworthy conduct which causes harm to a person.”

The law of delict forms part of the law of obligations.

When a delict is committed and proved a legal relationship is formed between the
person who committed the delict and the person against whom the delict was
committed. The claimant then has a right to claim compensation from the person who
committed the delict, who then has a corresponding duty to compensate the
claimant.

Not all forms of damage or harm can be claimed in terms of the law of delict. Only
certain types of damage can be recuperated delictually. The interests that are
protected by the law of delict include personal property and rights to property,
security of the person (both bodily and mentally), personality interests (such as
privacy) and certain incidences of pure economic loss.

“Loss rests where it falls”. No general duty exists to prevent another’s harm. Only
in instances where a recognised legal duty exists in terms of which a person is
expected to protect another person’s interests can it be said that the person has an
obligation to act positively to prevent another’s harm.

The aim of the law of delict is the compensation of damage. The law of delict
addresses situations where one party has been caused harm by the actions of
another party. Although other secondary goals such as maintaining public order
and the discouragement of harmful conduct can be served by the law of delict the
 125

aim is not to punish the person responsible, but rather to compensate the victim in
those cases where the legal convictions of society demands it.

The elements of a delict

As a rule delictual liability is dependent upon the presence of all the elements of a
delict. These elements are:

(a) Harm
(b) Conduct
(c) Wrongfulness
(d) Fault
(e) Causation

Schematically these elements can be illustrated as follows:

Coduct Causation Damage

Fault

Wrongful-ness

Each of the abovementioned elements will be discussed during the course of this
section.
 126

CHAPTER TWO
HARM (DAMAGE)

When a claimant approaches the court to ask for a delictual remedy it is to

compensate the claimant for damage or loss or harm that they have suffered as a
result of actions that negatively impact their interests. It is therefore necessary to
ascertain whether the claimant has a concern that is protected by the law of delict
and, if that is the case, whether that interest has been detrimentally affected.

Delictual claims must be brought under different actions. The specific type of harm
that has been suffered as it relates to the type of concern that has been harmed
leads one to the correct delictual action.

A representation of the most common actions and the types of harm that they
address would be as follows:

Type of harm Action to institute

Patrimonial loss actio legis Aquilia or

(Damnum iniuria datum) Aquilian action

Pain and suffering that relates to bodily The Germanic action

injury and detriment to the psyche of the
claimant

Infringing on personality interests actio iniuriarum

(iniuria)
 127

Patrimonial and non-patrimonial harm

Patrimonial harm

Patrimonial harm or loss is harm that occurs when there is a negative effect on a
person’s estate.

Patrimonial harm falls in three broad categories:

1. Financial loss relating to damage to property.

2. Financial loss relating to personal injuries.

3. Financial loss not relating to either damage to property or personal injury

which is therefore purely economic loss.

In this regard the concept of one’s patrimonial interests or financial estate does not
only refer to current assets and liabilities but also include certain financial
implications that may be encountered in the future.

If, by example, a person is injured by a negligent driver he would be able to claim

compensation for the medical costs that result from his injuries. It may also be that a
good chance exists that he would have to undergo some operation in the future, also
as a result of the accident.
 128

The future loss in the form of the medical costs for the operation that will only
become due when the operation is undertaken can also be viewed as patrimonial
harm.

Calculating patrimonial harm

To ascertain whether patrimonial harm has been incurred the value of the claimant’s
estate is calculated and compared to what it would have been if the incident in
question did not occur. If there is a negative impact harm has been suffered.
This approach is referred to as the “sum formula approach”.

According to this approach the total loss or depreciation in value of an asset, the loss
or reduction of a right or opportunity with legally recognised financial value, or the
incurrence of liability or debt would negatively impact a claimant’s estate and would
therefore constitute patrimonial harm.

Not all harm can be claimed by delict

There are instances where clear loss or negative financial results accrue to a
person’s estate but because of policy considerations it is not recognised as harm for
the purposes of the law of delict.

In Union Government v Ocean Accident & Guarantee Corp 1956 (1) SA 577(A) a
magistrate was badly injured by a negligent driver of a motor vehicle. As a result the
magistrate could not work for some time but in terms of his terms of employment the
government was still obligated to pay his monthly remuneration to him.

The question was whether the government could recoup the loss from the negligent
driver. The claim was not recognised because it would have spread the scope of
delictual liability too wide if every person who had a contractual relationship with the
victim would be able to claim their losses from the driver.
 129

Non-patrimonial harm

Non-patrimonial harm refers to harm that cannot be measured in monetary terms

and doesn’t affect the estate of the claimant. Here the focus is on a negative change
or factual disturbance of legally protected mental or personality interests.

Objective considerations are used in certain instances to determine the occurrence

of non-patrimonial harm, for example whether the reputation of a claimant has been
lowered by slanderous actions of another or whether a person’s privacy has been
breached.

Subjective considerations play a part in determining whether the claimant has in

fact experienced the harm. Here the question must sometimes be asked how the
claimant responded to the breach of his or her personality interests or whether the
claimant experienced pain and suffering.

Non-patrimonial harm is divided into two categories, namely:

1. Pain and suffering

2. Violation of personality interests

Pain and suffering

Pain and Suffering is made up of two components namely (i) pain and suffering in
the more literal sense and (ii) loss of amenities of life. This category of harm must
 130

be related to a bodily injury of the claimant. A person would not be able to claim
because of the pain and suffering he or she experiences by having to watch his or
her child lying in a coma or because of the death of a beloved pet.

The first component, literal pain and suffering, relates to pain that is actually
suffered and pain that will continue into the future. To be recognised as delictually
claimable harm it must be experienced subjectively. Pain and suffering is however
not limited to physical pain, the concept includes emotional shock, mental anguish
as well as fear and angst that relate to the injury concerned. However, the pain must
be experienced. For example, if a person is in a coma and it can be proven the
person was not aware of the pain, no damages can be claimed for that specific
period.

The second component, namely loss of amenities of life, was described in

Sigourney v Gilbanks 1960 (2) SA 552 (A) as “a diminution in the full pleasure of
living and a loss of enjoyment of life”. This concept also includes general discomfort
and inconvenience as well as the embarrassment and humiliation that can be
associated with disfigurement and disability. When determining loss of amenities of
life all the mentioned examples do not necessarily have to be experienced by the
claimant which means that loss of amenities of life is assessed on both subjective
and objective factors.

To institute a claim for pain and suffering the Germanic action must be used.

Violation of personality interests

In terms of the common law the following personality interests are classically
recognised:

Any factual violation of these interests constituted an iniuria, which was the harm
element required in terms of the actio iniuriarum. Personality interests are
traditionally associated with personhood, but a tendency has developed to recognise
that juristic persons (such as companies) can also have personality interests,
although not to the extent that natural persons can have such interests.
 131

Natural persons have the full spectrum of personality interests. Juristic persons
have objective personality interests (for example reputation) but not subjective
interests (such as dignity).

The personality interests that are recognised and protected by the law of delict
will now be considered:

Bodily integrity

Bodily integrity is usually violated by an assault or by deprivation of liberty. Violation

of bodily integrity can also be insulting or demeaning but not necessarily. However if
it is it could also constitute a violation of dignity.

Dignity

In the narrow sense dignity can be described as a person’s self-esteem. If another

person’s actions are insulting or has a detrimental effect on a person’s self-esteem it
may lead to delictual liability. The insult must be factually proven and the claimant
must also feel insulted by the defendant’s conduct. The test is therefore subjective
and focuses on what the claimant actually experienced. It therefore follows logically
that a juristic person such as a company cannot have this form of dignity.

In the broad sense dignity includes concepts such as privacy and identity. With time
the law has developed to recognise these aspects of dignity as separate personality
interests. Insulting behaviour is not a necessary requirement for the violation of a
person’s privacy or identity.

Privacy

Privacy has been described as the right to be left alone. The interest that is
protected in this case is the right to enjoy one’s personal space in peace and
tranquillity away from the public. Every individual has the right to decide what they
want to keep private and what they want to make public. For this reason every
 132

person’s private sphere is determined subjectively. Whether such a determination

can be deemed reasonable is a question that can better be addressed under the
wrongfulness element of delictual liability.

The factual violation of privacy usually happens in one of two ways, namely:

a) Intrusion into another’s private sphere (for example by trespassing or in a

“peeping tom” scenario).

b) The disclosure of private or confidential material

Identity

Identity refers to the unique or specific aspects of a person that identify him or her
as an individual. The right to a person’s identity is therefore the right to one’s image
and related aspects.

The integrity of a person’s image is similar to bodily integrity and the violation of a
person’s identity occurs when one’s image or aspects associated with a person’s
image is used outside the sphere or extent of that person’s private sphere. The
factual violation of a person’s identity can be assessed objectively and it is
therefore not necessary that a person feels humiliated or insulted for this type of
harm to be suffered.

Reputation

Violation of a person’s reputation occurs when the public esteem in which that
person is held is diminished by the publication of defamatory material. The question
is therefore whether people think less of the claimant because of someone else’s
conduct.

To diminish a person’s public esteem others have to become aware of the conduct in
question, therefore the publication of the defamatory material lies central to the
 133

question of violation of a person’s reputation. Publication refers to the transfer of

defamatory material to another either verbally or in written form.

To test whether the material in question constitutes a violation of the claimants

reputation the question is asked whether it would cause a right-thinking person
in general to think less of the claimant.

Differences between patrimonial and non-patrimonial harm

Measurability

Patrimonial harm can be measured in terms of the claimant’s estate while non-
patrimonial harm cannot truly be measured in this way.

The aim of compensation

a. Patrimonial harm – compensation equivalent to the loss that has

been suffered

b. Non-patrimonial harm – solace or satisfaction. The amount of

compensation depends on the circumstances.
 134

CHAPTER THREE
CONDUCT

The general rule is that delictual liability is based on voluntary human conduct. The
conduct concerned must take the form of some overt behaviour, mere thoughts that
are not manifested in some way are insufficient to warrant delictual liability.

All conduct that causes harm to another does not necessarily give rise to delictual
liability, all the elements of a delict must first be present.

Voluntary conduct

The question of voluntariness refers to the requirement that the conduct in question
must be susceptible to the wrongdoer’s will and control. The principle is that only
conduct or acts in regards of which the person concerned can make a decision
whether to act or refrain from acting can be held against him or her.

If a person claims that their conduct was involuntary it is said that they raise the
defence of involuntariness or automatism.

A person’s conduct can be involuntary in the following cases:

(a) Force. If a person is forced to act it may be that for the purposes of
establishing liability, the law of delict will not regard the person’s actions as
conduct. Take note that only absolute force (vis absoluta) will be recognised
as sufficient to avoid liability, for example where a person is peeling an
 135

orange with a knife and another stronger person grabs his hand and forces
the knife into another person’s chest. Mere threats would not be seen as
sufficient force for the purposes of excluding voluntariness.

(b) Reflex reactions: If a person knocks over an expensive vase whilst sneezing
his conduct would not be viewed as voluntary.

(c) Unconsciousness: Certain conduct that causes harm can be committed by

for example a sleepwalker or during an epileptic fit. Such acts will usually not
be viewed as conduct for the purposes of delictual liability.

The defence of automatism or involuntariness is considered in a very strict light

by the courts. If, for example, the person concerned allows a condition of
unconsciousness to occur in a negligent manner the defence will not be successful.

In the case of Wessels v Hall and Pickles (Coastal) (Pty) Ltd 1985 (4) SA 153 (C)
the defendant (a diabetic) had a hypoglycaemic attack while driving a motor vehicle.
Because he was aware of the possibility of such an attack occurring and didn’t take
preventative measures his defence of automatism was not recognised.

Human conduct

As a rule the law of delict only considers the actions of natural persons. Juristic
persons (such as companies) can however be held delictually responsible because
of the conduct its office bearers (such as the directors of a company).

Positive acts and omissions

Most delictual claims are based on the positive acts of the defendant, for
example the negligent driving of a vehicle or hitting someone with a fist. In some
instances refraining from acting can also be viewed as conduct that gives rise to
 136

delictual liability. As previously discussed there is no general duty on members of the

public to prevent another’s harm. There is therefore no general duty to act positively
if a potentially harmful or dangerous situation arises. The reason is that it would be
socially and economically unfeasible and unnecessarily restrictive to enforce such a
duty.

Instances do however exist where a legal duty to prevent harm to another is

recognised. In these instances the person who has such a legal duty can be held
responsible for failing to act positively.

This failure is called an omission.

A legal duty to act positively can arise in the following ways:

(a) Previous conduct or control of a dangerous thing . If someone creates a

risk by his conduct or is in control of a dangerous thing (such as a firearm or a
dangerous animal) such a person’s omission to act positively to prevent the
harm that occurs as a result of the danger may be viewed as conduct for
purposes of delictual liability. Such a person cannot be heard to say that he or
she did not act and should therefore escape liability

(b) Special relationship of care. The relationship between a police officer and
members of the public or between a warden and a prison inmate is of such a
nature that a duty to protect exists.

In Minister van Polisie v Ewels 1975 (3) SA 590 (A) a policeman watched
as a member of the public was being assaulted. Despite the fact that the
policeman did not act positively the special relationship that existed meant
that the policeman had a legal duty to prevent the person’s harm and his
omission was viewed as delictual conduct.

(c) Professional duty. If the failure to prevent harm occurs during the rendering
of professional services (for example as a lawyer, doctor or auditor) and a
lack of professional proficiency or skill is shown an omission can be viewed as
conduct.
 137

CHAPTER FOUR
CAUSATION

To find a defendant delictually liable the defendants conduct must be the cause of
the claimant’s harm or loss. In legal terms the question is whether a causal link
exists between the harm that the claimant has suffered and the defendant’s
wrongfull conduct. To determine whether a causal link exists the court considers
the facts of the case, the evidence that has been presented as well as relevant
probabilities in the circumstances. The most important question is how to go about
establishing whether causality exists, in other words which method must be used to
test for a causal link.

The process of establishing causality is made up of two parts, the first of which is a
factual analysis to determine whether the relevant conduct is the factual cause of
the harm or materially contributed to it. If not there can be no delictual liability. If it
is the second part of the analysis becomes relevant. Here the question is whether
the conduct in question is related closely or directly enough to the damage or
whether it is too far removed or remote to constitute liability.

(1) Factual causality requires a factual analysis.

 Did the defendant’s conduct cause the claimant’s harm or did it contribute to it
in a material way?
 If not the defendant is not liable. If it did one has to move to the second
question or component, namely

(2) Legal causation which is a legal analysis where legal norms and policy as
well as normative questions come into play.
 138

 Is the causal link strong enough?

 Is the link between the harm and the conduct in question sufficiently close?
 Should the law acknowledge that the defendant caused the harm or should
liability be restricted?

Factual causation

The most prevalent method used to determine whether a factual causal link exists is
the conditio sine qua non test (the test is also called the “but for” test). According
to this test the defendant’s conduct must be a necessary condition for the occurrence
of the harm in question. The question can be put as follows:

“But for the defendant’s conduct, would the harm still have occurred?”

The application of the test differs depending on whether the conduct in question
takes the form of positive conduct or an omission:

(a) Positive conduct – a process of hypothetical elimination of the conduct is

applied. The defendant’s positive conduct is “thought away” and if the harm
would not have occurred under the same circumstances but without the
defendant’s conduct a factual causal link exists.

(b) Omission – here a process of hypothetical substitution is used. Lawful

conduct is “thought into” the circumstances of the case in place of the
omission. If the hypothetical conduct would probably have prevented the harm
in question from occurring then the defendant’s omission was a necessary
requirement for the harm and therefore the factual cause of the harm.

For example, in Minister of Police v Skosana 1977 (1) SA 31 (A) Mr Skosana was
involved in a car accident and arrested for being drunk and driving under the
influence. He complained to the police of abdomen pains and there was a delay in
getting him to the hospital. Mr Skosana died for a ruptured bowel and his wife
 139

claimed damages from the Minister of Police. The question was “would Mr Skosana
have lived but for the unreasonable conduct of the police in delaying in getting him to
hospital?”. Positively the hypothetical question is “would Mr Skosana have lived if the
police had acted promptly and reasonably?”.

Legal causation

The legal system cannot hold everybody responsible for every harmful result that
follows their actions, it would not be reasonable or fair to do so. A person is only
responsible for the results that bear a strong or close link his or her actions.

Legal causation as an element of delictual liability is used to restrict liability to those

results that can fairly be ascribed to the defendant’s actions. Different methods exist
to determine whether it would be fair to view the harm in question as sufficiently
closely or narrowly related to the conduct. Some of these methods or tests will be
discussed below:

Adequate causation

Whether the harm adequately relates to the defendant’s conduct can be determined
by asking whether, according to human experience, the harm in question would, in
the normal course of events, have resulted from the defendant’s conduct. The
question is therefore whether the conduct would have the tendency to have the
results in question.

This principle has been explained as follows:

“One considers the particular circumstances of a case and enquires whether

experience show that one can normally expect that the type of conduct in
question has a tendency to produce that particular type of result. If the result
 140

is abnormal, or does not usually follow an event or type of conduct, the

relationship between the event and the result is not adequate”.

Reasonable foreseeability

According to the foreseeability approach the question is whether the defendant

could reasonably have foreseen the results of his or her actions. The approach
does not require that the defendant could have foreseen all the harm that occurs or
the full extent of the harm and it is also not necessary that the precise manner in
which the harm occurs must be foreseeable. What this test requires is that the
defendant must have been able to foresee the general type of harm that eventually
occurs.

In Smit v Abrahams 1994 (4) SA 1 (A) the claimant’s vehicle was damaged in an
accident. The claimant claimed the costs of repair but also loss of income as he used
the vehicle to make deliveries and the claimant could not replace the vehicle. The
court found that the claimant’s financial problems were reasonably foreseeable and
he was therefore entitled to be compensated for the losses he suffered.

The novus actus interveniens

(the new intervening act)

A novus actus interveniens is an independent occurrence after the defendant’s

conduct that causes or materially contributes to the harm that occurs. If such an
intervening act occurs the causal link between the defendant’s conduct and the
claimant’s harm is broken. The intervening occurrence can be the conduct of the
claimant himself or the conduct of an outside party.
 141

Whether an act or occurrence can be viewed as a novus actus interveniens

depends on whether the particular act would be reasonably foreseeable. If the
occurrence was foreseeable it cannot be viewed as an independent occurrence and
the causal link would not be broken.

How do the courts approach legal causation?

The “supple approach”

In a number of criminal cases the courts developed a more flexible approach

based on policy considerations such as reasonableness and fairness. The courts
then also started following this approach in the law of delict. The tests that were
previously used (such as those discussed above) have not been abandoned but are
still used as underlying tests when the circumstances of the particular case
demands it.

The point of departure for the supple approach is that no single test can be applied
exclusively or universally to address all factual situations and to ensure fairness an
adaptable method with combinations of the tests must therefore be followed.
 142

CHAPTER FIVE
WRONGFULNESS

Wrongfulness concerns the question whether the law of delict should intervene
where a person suffers harm because of another’s actions. Wrongfulness is closely
related to the idea that liability for harm can only be ascribed to a defendant who
caused the harm unreasonably.

When determining whether the defendant’s conduct was wrongful a wide range of
general and policy considerations are taken into account.

 General reasonableness

 The legal convictions of the community

 Moral standards (boni mores) are used as standards to determine

wrongfulness.

The type of harm suffered also gives an indication whether the conduct in question
should be viewed as wrongful. Positive actions leading to bodily injury or damage to
property is usually wrongful, as all violation of a person’s property or person by
positive conduct is considered to be prima facie wrongful.
 143

Prima facie can be translated loosely as “at first appearance”. In this context it
means that such conduct would be considered wrongful from the outset unless a
reason exists why the conduct should not be viewed as wrongful. In this regard there
are a number of so-called grounds of justification that serve as defences against
the element of wrongfulness. Some of these grounds of justification will be
discussed below.

In the case of omissions the defendant’s failure to act will only be held as wrongful if
there was a legal duty on the defendant to act positively. In such cases it is the
defendant’s failure to fulfil the legal duty that is viewed as wrongful and thereby
constitutes wrongfulness as element of delictual liability.

An example of policy considerations that are taken into account by courts when
determining whether any particular conduct is unlawful is the social or economic
consequences that would result from assigning liability. If recognising a
particular claim could cause potentially unlimited or indeterminable liability for the
defendant it may be that policy requires that the conduct in question would not be
viewed as unlawful.

An example from case law is Shell and BP SA Petroleum refineries (Pty) Ltd v
Osborne Panama SA 1980 (3) SA 653 (D). The defendant negligently damaged a
docking buoy by crashing into it with a container ship. A company who rented an oil
tanker suffered losses because of the delay the damage caused in unloading their
cargo. The court was unwilling to recognise the claim as the tanker was one of an
undetermined number of similarly placed potential claimants which meant that the
defendant would potentially face undeterminable liability.

Grounds of justification

Grounds of justification are specific circumstances which make the factual violation of
a right or the failure to adhere to a legal duty reasonable and therefore not wrongful.
If these special circumstances are present conduct which would otherwise be viewed
as wrongful will not be viewed as such. Grounds of justification merely entail the
application of the general principle of reasonableness in certain typical situations.
 144

The burden to prove that the requirements for any ground of justification have been
met rests on the defendant.

1. Consent
2. Defence (usually self-defence)
3. Necessity
4. Provocation
5. Statutory authority
6. Acting on an official order
7. Power to discipline
8. Impossibility

Consent

If a person infers that they are willing to suffer harm for a reason that is not illegal or
otherwise wrongful, the causing of the harm by the person who has been given
consent is justified. This ground of justification was explained in Waring & Gillow
Ltd v Sherborne 1904 TS 340 as follows:

“A man who consents to suffer an injury can as a general rule have no right to
complain. He who, knowing and realising a danger, voluntarily agrees to
undergo it, has only himself to thank for the consequences. But ... in order to
render the maxim applicable it must be clearly shown that the risk was known,
that it was realised, and that it was voluntarily undertaken. Knowledge,
appreciation, consent – these are the essential elements.”

The requirements for the defence of consent are:

 The defendant must have intimated in some way that he is willing to suffer or
run the risk of harm. The consenting party must consent in a visible or
obvious manner.
 145

 Consent must be given before the harm has been incurred. The person who
suffers harm can obviously decide afterwards that he or she waives the right
to claim compensation, but this would not be a ground of justification
excluding wrongfulness.

 Consent must be given by a person who is capable of volition (making a

decision). This does not mean that he must have reached have full capacity to
act, but that he must be intellectually mature enough to appreciate the
implications of his acts, to distinguish between right and wrong and to act
accordingly.

 Consent must be given freely and voluntarily.

 The consenting person must have full knowledge of the extent of the possible
prejudice.

 The consent itself must not be wrongful. Consent to detriment or harm will not
be a valid defence if the harm to which the claimant has consented is amoral,
against public policy or against the legal convictions of the community.

If these requirements have been met in a particular set of circumstances conduct

which would otherwise have been deemed wrongful will be justified by consent.

Defence

Defence is present when the defendant directs his actions against another person’s
actual or imminently threatening wrongful act in order to protect his own legitimate
interests or such interests of someone else. The principle here is that it is not
unreasonable for a person to act in defence of a legally recognised interest and for
this reason it will in certain circumstances not be deemed wrongful to cause attacker
harm.
 146

The requirements for this ground of justification are:

There must be a wrongful attack. Defence cannot be used as a ground of

justification if the violation of the claimant’s interests was lawful, for example if the
claimant resists lawful arrest.

The attack must be directed against a legally recognised interest. In most cases
defence is claimed in the event of an attack on bodily integrity or life. Defence of
property interests or dignity can also be justified in certain circumstances.

The attack must be in progress or immediately imminent. If a person merely

anticipates an attack at some stage it would not be justified to use force against a
potential attacker pre-emptively.

The defensive act must be necessary and reasonable to ward off the threat or
attack in question. Harmful means of defence are not justified if the threat could have
been avoided by lesser or non-harmful means.

The defensive act must be directed against the attacker.

In cases where defence is raised as a ground of justification the interests of the

defender does not have to be of the same nature or similar in value as those of the
attacker that are harmed in the process.

However, a disproportionate imbalance (for example where the defender kills the
attacker to prevent an insignificant theft) may indicate that the defensive measures
were unreasonable.
 147

CHAPTER SIX
FAULT

For delictual liability to vest it is not enough that damage must have been caused
unlawfully; the defendant must also be culpable in some way. Fault as an element of
delictual liability entails that the law holds the defendant accountable for damage
caused by his or her unlawful action.

In other words the element of fault requires that the defendant be regarded as
blameworthy. In the law of delict (as in Criminal Law) there are two forms of fault
namely wilful intent and negligence. The nature and requirements for the two
forms of fault will be dealt with in this part of the module.

The type of fault required for the differing actions in delict are as follows:

1) Actio legis Aquiliae (Aquillian Action)

→ Intent or negligence

2) Action for pain and suffering (Germanic action)

 148

→ Intent or negligence

3) Actio Iniuriarium

→ Intent is required in principle

Before it can be said that a person acted intentionally or negligently however it

must first be ascertained whether he or she has the necessary legal capacity to in
fact have culpability. This capacity is called accountability and refers to the ability
to have fault or be blameworthy.

Accountability

Accountability is a prerequisite for a finding that a person can be found

blameworthy and focuses on the person’s mental capacity and his maturity. The
concept refers to a person’s capacity to distinguish between right and wrong and
then to act according to such distinction. In order to ascertain whether a defendant is
accountable two questions have to be answered:

When the delict was committed

1- Did the defendant have the mental capacity to distinguish between right and
wrong and to appreciate the difference?

2- Was the defendant mature enough to act according to his realization of the
distinction between right and wrong?

When answering these questions it is important to remember that the defendant’s

capabilities are considered subjectively and that accountability is in fact entirely a
subjective concept.
 149

There is a general presumption which operates in our law that all persons (natural
persons as well as legal entities) are accountable with regard to their wrongful
conduct.
However, the law acknowledges that certain personal traits or circumstances may
exclude accountability. There is no closed list of these exclusions but the following
are acknowledged as being circumstances that may exclude culpability:

1- Youthfulness

2- Mental illness

3- Intoxication or similar conditions caused by a narcotic drug

4- Anger as a result of provocation

For the purposes of the course Youthfulness will be discussed in order to illustrate
the working of these exclusions.

Youthfulness
There are three categories where youthfulness may exclude the existence of
accountability:

1. Children younger than seven years (infantes) (0-7 years)

There is an irrebuttable presumption that children in this category are

“without legal capacity” and therefore unaccountable. Therefore
notwithstanding the actual mental capacity of the child, children younger than
seven years are never accountable.

2. Children between the ages of seven and fourteen years (7-14 years)

In this instance a rebuttable presumption operates that the child is

unaccountable. Thus, unless the opposite is proved in any given instance,
the child will be regarded as not legally accountable and not blameworthy.
 150

3. Children between the ages of fourteen and eighteen years (14-18 years)

There is a rebuttable presumption that children in this category are

accountable. Thus, unless the opposite is proved in any given instance,
children in this category are legally accountable and will be held legally
responsible for their wrongful conduct.

In the event that a minor’s accountability has to be established the twofold enquiry as
to mental capacity and maturity discussed above will be applied. In Eskom
Holdings Ltd v Hendricks 2005 (5) SA 503 (SCA) a child of 11 years and 8 months
was seriously injured when he came too close to high tension electrical cables after
he climb a power pylon and then attempted to touch a green coloured transparent
isolator. In the matter the court had to decide whether the child was contributorily
negligent and therefore the question of accountability had to be considered.

In considering whether the child was accountable the court was convinced that the
child realised that he would run a risk by clambering up the power pylon (i.e. that he
could discern between right and wrong). On the evidence the court however
found that actions of the child were typical of the impulsive conduct of children who
became engrossed in their play.

The court therefore found that his conduct, namely the touching of the isolators out
of curiosity, indicated an inability on the part of the child to act in accordance with
any realization he could have had concerning the relevant danger. The finding was
accordingly that ESKOM did not succeed in rebutting the presumption that the child
was unaccountable.

Once it is however established that a defendant is in fact accountable, it still has to

be decided whether fault, or culpability in the form of either intent or negligence is
present.

Intent
 151

The general view is that a person has culpability when he/she intends to cause harm
to another whilst knowing that it is wrong to do so. The investigation as to the
presence of intent is subjective in that the courts have to decide what the defendant
actually had in mind at the point in time when the delict was perpetrated.

There are mainly three forms of Intent, namely:

1. Dolus directus – Direct intent

2. Dolus indirectus – Indirect intent

3. Dolus eventualis – Intent by the acceptance of foreseen consequences, or

Intent by foresight of possibility

Dolus directus – Direct intent

Direct intent exists where the doer’s main objective is to have a certain consequence
occur eg where one person intentionally says something to hurt another’s feelings. It
does however not matter whether the consequences occur in the exact manner as
planned or intended by the perpetrator.

Dolus indirectus – Indirect intent

Indirect intent refers to instances where a person has a certain objective or

consequence in mind with his conduct, but where in order to attain the intended
objective it is foreseeable that another harmful consequence will without doubt also
take place. An example would be where someone breaks a car window in order to
steal the car radio. The damage to the car is not his main objective, but is an
inevitable result if the thief is to attain his main objective.

Dolus eventualis – Intent by foresight of possibility

 152

Intent by foresight of possibility or by acceptance of foreseen consequences is

present where a person has a specific objective in mind and whilst foreseeing the
possibility of a wrongful (albeit not specifically intended) consequence occurring in
the process, he or she reconciles him/herself with such possibility and nonetheless
proceeds with the acting out of his/her planned conduct.

For example: X intends hitting Y by hurling a stone at him whilst Y is standing among
a group of friends. X proceeds to throw the stone, misses Y but hits one of Y’s
friends. Because it was foreseeable that X might possibly miss Y and hit someone
else in the circumstances there will still be Intent in the form of intent by foresight of
possibility.

For intent as form of fault to be proved it will however also be necessary to show that
the defendant was aware that his conduct was wrongful. It is therefore not enough
that a person fixes his intent on a certain consequence; the person must also be
aware of the wrongfulness of the specific consequence. For this reason an error with
regard to the legal position may in certain instances exclude intent as form of
culpability.

How is Intent to be proved

As mentioned the investigation as to the presence of intent is subjective in that the

courts have to decide what the defendant really had in mind. It is of course
improbable that anyone but the defendant himself will really know what the defendant
subjectively thought at the time of the occurrence.

The courts therefore base their findings on deductions by looking at the nature of
the alleged delict and at all the surrounding circumstances of the case. The courts
then accept that intent was present if the most reasonable conclusion that can be
reached from the given facts is that the defendant must have had a blameworthy
state of mind.

Negligence
 153

Other than in the case of intent, (which brings into focus the defendant’s state
of mind), when the law considers negligence the focus is not on the
blameworthiness of the defendant’s state of mind but rather liability is based upon
the law’s censure of the defendant’s conduct. The defendant’s conduct is assessed
and measured against a standard which is acceptable to the community. This
standard is referred to as the fictitious but well known “reasonable person”.

The “reasonable person” represents an embodiment of the community’s

expectation of acceptably sufficient reasonability in man’s daily conduct of his affairs.
In other words the concept of “the reasonable man” represents an objective
standard of conduct which is expected of all persons by giving sufficient
attention to ensure that their conduct is in line with the standard of care
expected by the community. To establish whether a person has acted negligently
the question is posed as to what the reasonable person, in the same situation as the
defendant, would have done. If the defendant’s conduct does not meet the standard,
the conduct will be regarded as unreasonable and legally blameworthy which in turn
will mean that the defendant was negligent.

Hallmarks of the “reasonable person”

The standard of the reasonable person is an expression of what society expects

of its members. It requires a consistent level of care on the part of all persons and
must at the same time be sensitive to a community where people have differing
levels of skill and intellect and which consists of people of varying age groups.

The reasonable person therefore does not possess extraordinary skill or care but
also not a standard of underdeveloped skill, recklessness or thoughtlessness. It is
the standard of the ordinary individual who might take reasonable chances but
who also takes reasonable precautions to protect his/her interests and who expects
the same conduct from others.

A point to remember is that the standard is not that the occurrence of harm should
at all costs have been avoided and that no harm should have resulted. Reasonable
 154

action means that the person should have acted appropriately in the
circumstances, i.e. as a reasonable person would have acted under the same
circumstances. Should damage occur despite the person’s reasonable conduct and
actions that fact will not affect the set standard - the conduct remains reasonable and
the person will not have blame nor incur culpability.

The test for negligence

The test for negligence has been developed through case law and the most cited
example was set out as follows in Kruger v Coetzee 1966 (2) SA 428 (A):
For the purposes of liability culpa (fault or negligence) arises if:

A diligens paterfamilias (reasonable person) in the position of the defendant:

a. Would foresee the reasonable possibility of his conduct injuring
another in his person or property and causing him patrimonial loss;
b. Would take reasonable steps to guard against such occurrence
and

The defendant failed to take such steps.

 155

This test indicates four important matters to be considered or steps which are to
be taken whenever it has to be established whether the defendant’s conduct was
negligent:

1. Firstly a reasonable person should be placed in the position of the defendant.

2. Secondly the situation and circumstances should be assessed to see if a

reasonable person in the position of the defendant would have foreseen the
possibility that damage might flow from his or her action or conduct. If so, the
next question can be considered.

3. Thirdly we must ask whether a reasonable person would have done anything
to prevent the occurrence of harm if the action did proceed. To answer this
question we have to consider the steps available to the defendant under the
circumstances. Thereafter the available steps fall to be adjudged as to their
practicality and reasonability in the circumstances.

4. Fourthly the defendant’s actual conduct is to be compared with how the court
considers a reasonable person would have acted. If it appears that the
defendant did less than that which a reasonable person would have done,
the defendant’s actions or conduct will be held to be under the required
standard and thus negligent.

From this exposition it follows that the test for negligence rests upon two
pillars, namely:

1. The foreseeability of harm

2. The preventability of harm

In essence this means that if the plaintiff can show that the damage was reasonably
foreseeable and reasonably preventable, he or she will succeed in proving fault
in the form of negligence on the part of the defendant.
 156

Foreseeability of harm

The following comments on the requirement of foreseeability was made in the case
of Minister of Safety v Carmichele 2004 (3) SA 305 (SCA) :

“Negligence is not established by showing merely that the occurrence

happened ... or by showing afterwards how it could have been prevented. The
[reasonable man] does not have “prophetic foresight”. After the event, even a
fool is wise. But it is not the hindsight of a fool; it is the foresight of the
reasonable man which alone can determine responsibility.”

It is therefore very important during the consideration of foreseeability to remember

that it is forward-looking test and that it deals with consequences which at the time
are reasonably foreseeable.

Reasonable foreseeability is not by any means a rigid but rather a supple

concept because it depends on the circumstances of every case and the considering
of risk in those actual circumstances.

In connection herewith the courts have however identified a number of broad

guidelines which can be applied:

1. Firstly the extent of the possible harm is used as guideline in order to

establish the foreseeability thereof. Basically the principle here is that the
bigger the extent of the damage which might possibly occur, the more easily it
will be adjudged to have been foreseeable.

2. Secondly the probability of the occurrence of damage is a guideline

indicating that the damage was foreseeable. The higher the probability that
damage would follow the action involved, the more easily it will be found that
the harm was foreseeable.
 157

3. Thirdly the principle of “The foreseeable plaintiff” is sometimes used to

establish foreseeability. The principle here is that if the reasonable person
would not have foreseen the class or category of potentially wronged persons
affected by his action or conduct, the resulting damage will also not be
adjudged to have been foreseeable.

In Bourhill v Young [1943] AC 92 the rider of a motor cycle negligently caused a

collision near a tram station. A pregnant woman in the process of exiting a tram
chanced upon the accident scene and eventually lost the unborn baby as a
consequence of the shock experienced by her when she observed the bloodied
motorcyclist.

The court found that as she was not near enough to the scene at the time of the
occurrence of the collision so as to be directly hit by the motor cycle she was not
within the category of foreseeable plaintiffs and consequently the damage suffered
by her was not reasonably foreseeable.

Preventability of harm

Once we have established that harm was indeed reasonably foreseeable we can
investigate whether such harm could reasonably have been prevented. If a plaintiff
wishes to show that a defendant acted negligently by not taking reasonable
steps to prevent the harm, the plaintiff must not only show that the reasonable
person would have taken steps, but also which specific reasonable measures the
defendant should have taken in order to avoid the damage in the particular
circumstances.

Once again the question as to whether the reasonable person would have taken
steps to avoid the damage depends upon the circumstances of each case. From the
recorded judgments however four basic considerations can be stated which are
 158

held to influence the reaction of the reasonable person in connection with the
preventability of harm:

1. The degree and extent of the risk posed by the wrongdoer’s conduct or
actions; in other words the probability that harm will occur.

2. The degree of seriousness of the possible results should the risk become
reality.

3. The social usefulness of the defendant’s actions.

4. The burden of obviating the risk of damage; i.e. the costs and effort of
preventive steps.

In order to assess preventability we therefore weigh up the risk and possible extent
of the foreseeable harm against the social usefulness of the actions and the burden
posed by the implementation of the measures which would have prevented the harm.
If the extent of the risk and the seriousness of the harm outweigh the
usefulness and burden, we must come to the conclusion that a reasonable person
would have taken the steps to avoid the harm. If the usefulness and burden however
weigh more than the extent and degree of seriousness of possible harm, the
reasonable person would not have taken the preventative steps. In such a case it
will not be expected from the defendant to take such steps.

Circumstances and factors indicating the required standard of care

In applying the test for negligence the following circumstances may play a role when
the standard of care against which the conduct of a defendant is to be measured has
to be considered:

General practice or conduct

If a defendant acts according to the generally accepted practice followed in a

given set of circumstances it will usually be considered as constituting sufficient care.
 159

General practice serves as an indication of what will be considered reasonable

conduct in the circumstances. A defendant may therefore escape liability by
showing that his conduct complies with the generally accepted practice in the
community.

General practice is not always conclusive because a reasonable person will not
follow outdated or otherwise unreasonable practices. The ultimate basis for
establishing negligence still remains the question as to whether a reasonable person
would in the circumstances have acted otherwise.

Reasonable assumption of reasonable conduct from others

As a rule it is reasonable (and thus not negligent) to act on the assumption that
other persons will on their part comply with the standard of the reasonable person. In
other words a reasonable person will expect that other people will also conduct
themselves as reasonable persons.

A person may therefore assume that other motorists will comply with the rules of
the road or that things like elevators, sidewalks and shop floors are in good condition
and safe for general use.

If unreasonable conduct by someone else is however foreseeable the assumption

will no longer be reasonable and the reasonable person should then take the
necessary steps in order to avoid the danger. Where for instance it is clearly evident
that a motorist is not going to stop at a traffic sign one may no longer rely on the
assumption that he will.

Sudden danger and error of judgment

 160

In principle the law does not expect that a person who is unexpectedly called
upon to act speedily in the face of impending danger should act according to
the normal standard of due care. In sudden danger or emergency it cannot be
expected that people will think rationally about all the consequences of their
conduct. The courts will take into account that certain activities require a measure of
experience and skill in order to handle dangerous situations which may arise during
such activities.

For example: motorists should have the skill and ability to handle the possibility of
accidents on the road (which naturally usually occur unexpectedly). The test once
again remains how a reasonable person would have acted in the given
circumstances when confronted by the sudden danger.

Passing the test of the following three requirements will indicate compliance with the
reasonable person standard in situations of sudden danger:

1. The situation must have been one of impending or imminent danger.

2. The said danger must not have been caused by the defendant’s own
negligence.

3. The defendant must not have acted unreasonably in the circumstances.

Non-compliance with a statutory prescription

An Act or Regulation (laws) may prescribe a standard of conduct for a given

situation. Non-compliance with such a prescription is not in its own a final measure
of establishing that a person was negligent, but it will be a strong indicator of such
as well as a factor which will be taken into account by the court.
 161

Handling of dangerous items or control over dangerous circumstances

Where someone handles goods or items which are in themselves dangerous, or

where he or she is in control of a dangerous situation, a greater degree of care is
expected of such a person.
Examples of dangerous items or situations taken out of court decisions include: the
handling of loaded weapons, transport of dangerous criminals, slippery floors in
supermarkets, and swimming pools in the vicinity of young children.

Danger to children

It is expected that people will act with a higher degree of care and alertness when
there are children nearby. Children are known for acting impulsively and
unpredictably and it is therefore expected of the reasonable person to take this into
account and to take precautionary measures to avoid causing injuries to children.

CHAPTER SEVEN
VICARIOUS LIABILITY

Vicarious liability is a form of blameless liability whereby employers are held liable
for the unlawful actions of their employees in certain circumstances.

The general rule is that employers are vicariously liable for employees’ delicts when
committed in the course and scope of their employment with the employer. The
 162

employer is then jointly liable together with the employee to compensate the person
who suffered the damages.

Apart from the fact that vicarious liability can be justified on moral grounds, the
reason why the law will hold employers liable for the delicts of their employees is the
fact that in the context of the employment relationship the employer creates a risk for
his own benefit.

The combination of risk and benefit for the employer which exists where the
employer uses another’s services for own profit makes it fair to hold the employer co-
liable. Vicarious liability also creates an incentive for employers to provide for and
ensure safety.

The conditions for vicarious liability are:

1. An employment relationship or a relationship closely resembling it must exist

between the employer and the employee at the time of the delict.

2. The delict must be committed by the employee whilst he/she is acting in the
course of, and within the scope of the limits of, the employment relationship.

An employment relationship or a relationship related thereto must exist

Vicarious liability emanates from all kinds of employment relationships, including

those of skilled or professional employees who might be acting with a fair measure of
independence.

Who will qualify as an Employee

The courts differentiate between employment contracts and contracts with

independent contractors for the purposes of vicarious liability. This is by reason
of the fact that, regarding the nature of the work as well as the manner in which the
work is to be executed, an employee falls under the control of the employer. In the
case of contracts with independent contractors the worker is generally not
 163

subject to the control of the person who pays for the work, and it is therefore more
difficult to justify vicarious liability in such a situation.

The presence or absence of this type of control or direction is not conclusive on its
own but is regarded as one of several indicators of the existence of an actual
employment relationship. All the circumstances under which the work is done are
considered to establish whether a relationship which is close enough to an
employment relationship in fact exists so as to invoke vicarious liability. Other
important indicators which have been identified in case law include:

1. The nature of the work being done.

2. The manner of payment (payment of weekly/monthly wages as opposed to a
fixed tariff or commission).
3. The employer’s right of dismissal.
4. Whether there is economic or social interdependence between the worker
and the person sought to be held vicariously liable.
5. Whether the person doing the work forms an integral part of the business
entity involved.
6. Authority to give instructions.
7. Paid holidays, membership of medical- or pension schemes and other
benefits.
8. Whether fixed working hours are prescribed.
9. Use of the employer’s premises or equipment.

These pointers are considered separately and all of them do not need to be
present in order to result in the existence of an employer/employee relationship for
the purposes of vicarious liability.

Independent contractors

In general the employer of an independent contractor is not vicariously liable for

the unlawful acts (delicts) of the contractor. It is important to note however that a
defendant cannot escape vicarious liability merely by recording in a contract that a
person is appointed as an independent contractor. If the relationship is in reality
 164

that of normal employment the Courts will focus on the true state of affairs
regardless of the terms of such a contract.

The courts will establish the liability of an employer for damages caused by an
independent contractor according to the normal rule that a person should
exercise the degree of care necessitated by the specific circumstances. This
means that the Court must consider factors such as the nature and scope of the
danger involved, the degree of expertise of both employer and contractor, as well
as any reasonable and practical measures available to the employer in order to avoid
the danger.

In Langley Fox Building Partnership (Pty) Ltd v De Valence 1991 (1) SA 1 (A),
Langley Fox was a construction company who made use of a sub-contractor to put
up scaffolding and the claimant suffered damages from the negligent positioning
of the scaffolding. The question was whether Langely Fox was liable for the negligent
acts of the sub-contractor. The court set out the following considerations:

In my opinion … there are three broad questions which must be asked, viz:

(1)   would a reasonable man have foreseen the risk of danger in

consequence of the work he employed the contractor to perform? 

(2)   would a reasonable man have taken steps to guard against the danger?

(3)   were such steps duly taken in the case in question?

Only where the answer to the first two questions is in the affirmative does a
legal duty arise, the failure to comply with which can form the basis of liability.

The liability of the employer of an independent contractor therefore depends on

whether the circumstances are of such a nature that the principal still retains the duty
to ensure the safety of third parties regardless of the fact that the work is being
done by the contractor. This primary or direct liability cannot be avoided by
delegating it to the sub-contractor. The delict must be committed by the employee
whilst acting in the course and scope of the employment relationship.
 165

Broadly speaking employees act within the limits of their employment conditions
when they execute tasks authorized by their employers even if they execute the task
according to an unauthorized method. The problem arises when employees
execute an act which we can describe as being contrary to or deviating from the
tasks for which he/she has been employed. If the employee totally disengages
him/herself from the employer’s tasks, i.e. becomes involved with activities totally
unrelated to, or not in furtherance of the employer’s work and as a result causes
damage to an innocent third party, the employer is not liable.

To establish whether an employee in the above circumstances acted within or

outside of the limits of his or her employment the courts apply a standard test which
was set out below in Minister of Police v Rabie 1986 (1) SA 117 (A). In this case
Van der Westhuizen was employed by the Minister of Police as a mechanic and
worked in the vehicle mechanical department. Van der Westhuizen however, when
off-duty and in plain clothes wrongfully arrested Rabie and detained him in prison.
Rabie then claimed damages from the Minister of Police for this wrongful behaviour.
The question before the court was “did van der Westhuizen act in the course and
scope of his employment”? The court applied the following test:

“It seems clear that an act done by a servant solely for his own interests and
purposes, although occasioned by his employment, may fall outside the
course or scope of his employment, and that in deciding whether an act by
the servant does so fall, some reference is to be made to the servant's
intention. The test is in this regard subjective. On the other hand, if there is
nevertheless a sufficiently close link between the servant's acts for his
own interests and purposes and the business of his master, the master
may yet be liable. This is an objective test.”

From this excerpt it is clear that the test is twofold:

Firstly it must be considered what the employee’s subjective state of mind was
when he executed the given action. Here the question is whether the employee
intended to further only his own interests by the action or whether the intention (at
least partly) was still to serve the interests of the employer.
 166

The second part of the test is aimed at establishing whether a sufficiently close link
exists between the employee’s action and the interests or the business of the
employer. This part of the test is objective. Here it is important to note that the
employer may be liable for actions which, even though not explicitly authorized by
the employer, are closely enough related to tasks or objectives which were indeed
authorized.

Thus: if the actual deed can be regarded as a way to execute the authorized action
the employer can still be held vicariously liable albeit that it was executed in an
unauthorized manner.

An employer can therefore be liable even where the employee acted exclusively in
his/her own interests or for his/her own purposes in a situation which was made
possible by his or her employment.

Factors which will be taken into account by the court in order to gauge whether
there is a close enough relationship between the wrongful act of the employee
and the employment relationship, are:

1. The time and place of the action in relation to the duties as per the terms of
the employment relationship.

2. The use of the employer’s property or equipment by the employee.

3. The measure in which the employer may have authorized or prohibited the
employee’s actions.

4. The measure in which the respective interests of the employer and employee
were served by the damaging actions.

5. Whether there is a pre-existing relationship between the plaintiff and the

employer which has it as a given that safety and security are relied upon (eg
between a bank and a client).
 167

6. Whether the unlawful act of the employee realized a potential risk created by
the employer by entrusting the work to the employee. (For instance the
employment of a “bouncer” by a night club owner).

Once again not all these factors will in all cases be relevant but they serve as
pointers as to how the courts will go about establishing what the relationship between
the employee’s harmful action and his or her employment is.

CHAPTER EIGHT
PROFESSIONAL LIABILITY

A person whose profession or trade requires special knowledge or skill must

not only take reasonable care but must also have adhere to the standard of
 168

competence that can be expected from a person who claims to have such
knowledge or skill. The general test for negligence is therefore adapted to address
situations where special knowledge or skill is required.

The relationship between professional persons and their clients are primarily of a
contractual nature. The courts accept that such contractual relationships include a
tacit term that reasonable care and competence will be applied by the
professional. The relationship can also give rise to a delictually enforceable duty
with the same content. A professional person or expert can also be liable to third
parties in situations where misrepresentations, negligent advice or faulty
workmanship affects such third parties.

This expectation of a reasonable standard of specialised knowledge, competence

and skill is applied to members of established professions such as medical doctors,
legal advisors, accountants and auditors as well as other specialised professions
such as bankers, investment advisors and so forth.

Experts and the standard of care expected for reasonable conduct

If a defendant has specialised knowledge and skill because of training or experience

we expect a higher standard of care than that of average persons when the
defendant is acting within his field of expertise. The courts would for example
measure the conduct of a medical doctor against the standard of reasonable medical
practitioner in the same circumstances. The standard of the reasonable expert is
similar to that of the reasonable person in all respects except that the measure of
applicable knowledge and skill is ascribed to the reasonable person.

The courts use the “general level of skill and diligence possessed and exercised at
the time by the members of the branch of the profession to which the practitioner
belongs” (Van Wyk v Lewis 1924 AD 438) to assess whether the particular expert’s
conduct adheres to the standard of care required. We can therefore take the specific
 169

branch of the relevant profession to which the expert in question belongs into
account when negligence is assessed.

The test for negligence in cases where professional skill or knowledge is

concerned has two components:

1. Whether the defendant possesses the required knowledge and skill.

2. Whether the defendant exercised the required care and diligence.

The first part of the test refers to the principle that it is negligent to voluntarily become
involved in a potentially dangerous endeavour or activity if you do not possess the
knowledge and skill that is usually required to fulfil the duties that is associated with
such an activity.

In Durr v ABSA Bank Ltd 1997 (3) SA 448 (SCA) the following was said in this
regard:

“It is not negligent to be a lawyer. But those who undertake to advise clients
on matters including an important legal component do so at their peril if
they have not informed themselves sufficiently on the law”

The second part of the test measures the conduct of the expert in question against
the conduct that would be expected of a person with the required knowledge and skill
in the particular circumstances. An error in judgment can indicate negligence, but
some errors in judgment can be reasonable, for example in emergency situations or
dangerous circumstances (such as an urgent and intricate emergency medical
operation).

On the other hand, a judgment error that is the result of a lack of the necessary
measure of knowledge, skill or competence would constitute negligence. Generally
accepted practice that is followed in a particular profession or field of expertise can
 170

also indicate the nature and extent of acceptable care and preventative measures in
some situations.

For example, in Lillicrap Wassenaar and Partners v Pilkington Brothers (SA) P/L
1985 (1) SA 495 (A) Lillicrap was a firm of structural engineers who designed a glass
factory for Pilkington Bros who were glass manufacturers. The plans and
construction however did not comply with the required standards and Pilkington were
able to seek damages from Lillicrap for not providing the necessary knowledge and
skill.
 171

CHAPTER 1
LAW OF INSOLVENCY

Ordinarily someone is deemed to be insolvent if he is unable to pay his debts. Although

this is not incorrect, it is not the test that the courts have adopted to determine whether
someone is indeed insolvent. Venter v Volkskas Ltd 1973 (3) SA 175 (T) (as confirmed
in Ex parte Harmse 60
2005 (1) SA 323 (N) 325) laid down the following test: The court
must ask itself whether the liabilities of the debtor exceed his assets.

The mere fact that a person's liabilities exceed his assets does, however, not mean that
legal consequences will follow from this factual situation. A formal order of a
competent court is necessary for legal consequences to flow from this situation.
This order is known as a sequestration order and, therefore, is the formal declaration
that a debtor is insolvent.

The purpose of a sequestration order is to bring about a proper distribution of the

assets of the debtor among his creditors. The assets of the debtor are liquidated61 and
the proceeds are distributed among his creditors in terms of a fixed formula and in a
particular order. A sequestration order, furthermore, brings about a meeting of
creditors. The effect is that the creditors are viewed as a group and that the individual
interests of the creditors are viewed as secondary to the interests of the creditors as a
group.

If a debtor’s estate is not sequestrated, any one of his creditors can obtain judgement
against him for outstanding monies and his assets can be sold in execution and the
proceeds used to settle the debt. That would mean that that particular creditor’s claim
would be extinguished but that all other creditors’ debts would still not be paid. That
would also mean that that particular creditor would be advantaged in relation to the
others. A sequestration order can prevent this from happening.

60
“Legal consequences” refer amongst other things to the effect it has on somebody’s contractual capacity
(i.e. the capacity to conclude juristic acts without assistance such as concluding contracts) and thus also his
obligations towards creditors.
61
Liquidation means that the assets are converted into cash (i.e. that it is sold for cash).
 172

What is being sequestrated?

It is not the debtor who is sequestrated but his estate. The estate of a debtor consists of
all his assets and all his liabilities. The courts have held, however, that a person who
only has liabilities does have an estate that can be sequestrated. However, that would
only be the case in the event of compulsory sequestration (see 2.2(iii) & 2.2.2 infra).

Where parties are married in community of property, and the liabilities of one spouse
exceed his assets, the common estate of the parties is sequestrated even if one of them
has a separate business. Where a partnership is sequestrated (e.g. auditors practising
in partnership), the partnership as an entity is sequestrated as well as the separate
estates of the individual partners (auditors) as the partnership (the business) is not an
independent juristic person. Note that partnerships are to be distinguished from juristic
persons such as companies. Companies or close corporations which become
insolvent are not sequestrated but are liquidated by virtue of the Companies Act or the
Close Corporation Act in conjunction with the Insolvency Act.

This aspect will not be dealt with in this course. In short, liquidation of a company can be
made through application by court by a creditor (so-called compulsory liquidation), or
it can be done voluntary after a special resolution of shareholders. If a company is in
financial difficulty and there is a possibility that it can be rescued from its debts, it can
be placed under financial rescue.

Whose estate can be sequestrated?

The estate of any natural person can be sequestrated. The estates of partnerships,
deceased persons and those who are unable to take care of their own affairs (e.g.
prodigals, mentally incapacitated and people whose contractual capacity is affected) can
also be sequestrated. The estate of any institution that can hold property in its own
name, that can incur liabilities and that is not a legal person (such as a trust, for
example) can be sequestrated.
 173

Where is a person's estate sequestrated?

Only the High Court as a general rule has jurisdiction (the capacity) to decide on
insolvency matters. A specific division of the High Court will have jurisdiction to hear an
application for a sequestration order of a debtor's estate in the following instances:

1. If the debtor has his domicile62 within the court's jurisdiction.

2. If the debtor owns property within the court's jurisdiction or he is entitled to property
within the court's jurisdiction on the date when the application for the sequestration of
the debtor's estate is lodged with the registrar of the court.

3. if the debtor had usually resided or conducted business within the jurisdiction of the
court within a period of 12 months prior to the lodging of the application for
sequestration.

CHAPTER 2
62
A person is domiciled in a particular jurisdiction of the court when he is residing within that area with the
intention of remaining there indefinitely.
 174

THE SEQUESTRATION OF A DEBTOR'S ESTATE

The Insolvency Act 24 of 1936 (hereafter "the Act") creates two possibilities for the
estate of a debtor to be sequestrated, viz by means of voluntary surrender or by means
of compulsory sequestration.

Voluntary surrender

Sec 3(1) of the Act enables the debtor or his authorised agent to apply for the
sequestration of his estate. If it concerns the estate of a deceased person the
appropriate person to bring the application will be the executor of the estate. The
curator bonis of a person who is unable to look after his own affairs will have to bring
the application on his behalf. If it is the estate of a partnership that wants to be
sequestrated the application will have to be brought by all the partners. Where parties
are married in community of property both of them will have to bring the
application.

Requirements for a successful application for voluntary surrender

A court may grant an order for voluntary surrender if it is satisfied63 that:64

i) The estate of the insolvent is indeed insolvent;

ii) The debtor has sufficient assets to cover the sequestration costs65;

iii) In terms of sec 6(1) the sequestration must be to the advantage of the
creditors as a group;

iv) Certain formalities have been complied with.

63
The words “may” and “if it is satisfied” imply that the court has a discretion to grant such an order.
64
Note that all these requirements have to be met.
65
These costs include the Master’s costs, the costs of the application, curator fees and other liquidation
costs.
 175

i) The first requirement is that the estate of the debtor has to be

insolvent. He also has to draft a statement of affairs. In this statement of
affairs he lists the value of all his assets and liabilities. (The requirements
for the statement of affairs are discussed in (iv) below.) The court,
however, is not bound by the valuations as contained in the statement.

ii) Secondly the court has to be satisfied that the debtor has sufficient
assets in the free residue to cover the sequestration costs. Sec 2 of
the Act defines the "free residue" as that portion of the estate that is not
subject to a right of preference due to a special bond, tacit hypothec,
pledge or right of retention. The court has to refuse the application should
the free residue be insufficient to cover the sequestration costs.

iii) The third requirement merely means that the application will not
succeed should the debtor be unable to show that the surrender of
his estate will be to the advantage of his creditors. In general this
means that there has to be some pecuniary advantage for the creditors
should the application be granted. (This entails that they have to receive a
dividend at least. The amount of such dividend, will depend on the
circumstances of each case and how the creditors feel. Generally
speaking, a reasonable advantage would be 20-22 cents in the Rand.)

iv) The last requirement is that the court has to be satisfied that certain
statutory requirements (formalities) have been complied with. The
first one is that the debtor has to publish a notice of surrender. It has to be
published in the Government Gazette and a newspaper that is distributed
in the magisterial district where the debtor resides, or if he conducts
business, in the district where he mainly conducts business.
 176

This notice has to be in accordance with form A of schedule 1 to the Act and must
contain the name, address and occupation of the debtor, the date and division of the
High Court where the application will be made and where and when the statement of
affairs can be inspected. The notice has to be published not more than 30 days prior to
the date of the application and not less than 14 days before the date of the
application.

The notice has to be published in a daily or weekly paper. The debtor, furthermore, has
to send a copy of the notice to every creditor whose address he knows or can as certain.

The statement of affairs that has to be lodged has to contain certain information like a
balance sheet, a list of immovable property, the value thereof and whether any mortgage
bonds have been registered against it, a list of movable property and their value, stock in
trade and their cost price, a list of all debtors with their details, a list of all creditors with
the details of each claim and whether any security is held for the claim and, finally,
certain personal details of the debtor, e.g. whether his estate has been sequestrated
before.

The statement of affairs has to be completed in duplicate and lodged with the Master's
office. Should there not be a Master's office one copy has to be lodged with the office
of the magistrate of the district. The statement can be inspected for a period of 14 days.66

Thereafter the Master or the magistrate (depending on the circumstances) will issue a
certificate in which it will be stated that the statement was lodged for inspection. This
statement will then be filed with the registrar of the court prior to the hearing of the
application for voluntary surrender.

66
Dates are being calculated by excluding the first day but including the last.
 177

Consequences of publication of notice

Certain consequences flow forth from the publication of the notice. In the first instance,
sales in execution of the debtor's assets are stayed. This means that assets that have
been attached in terms of an attachment order may not be sold in execution unless the
person in control of the sale could not have known about the notice in terms of sec 5(1).

Should a person sell assets in contravention of sec 5(1) that sale will be void. If
ownership, however, have already passed, the asset can only be reclaimed if the
purchaser was mala fide.

Secondly, a curator bonis may be appointed to take care of the estate. The notice
can later also be seen as an act of insolvency should certain requirements not be met or
the debtor does not act in accordance with the notice. (See compulsory sequestration
2.2.1 (vi) infra.) In terms of sec 7(1) the notice may only be withdrawn with the consent
of the Master.

Finally, the notice lapses if the court does not grant the sequestration order, or if the
notice is properly withdrawn, or if the debtor does not bring his application within 14 days
of the date of the sequestration application as published in his notice.
 178

Compulsory Sequestration

The creditors of the debtor may also apply to have the estate of the debtor sequestrated.
When a creditor applies he has to satisfy 3 requirements before the court will grant his
application. He will have to prove that:

i) he has locus standi. This means that he has to have a liquidated claim67 of at
least R100 to bring the application. Should two or more creditors bring the
application they should have a combined liquidated claim of at least R200 against
the debtor;

ii) in terms of sec 9(1) the debtor has to be insolvent or must have committed an
act of insolvency (see 2.2.1); and

iii) there must be reason to believe that sequestration will be to the advantage of all
the creditors (see 2.2.2).

Proof of Insolvency

It usually is quite difficult for a creditor to prove that a debtor is insolvent. The legislature
introduced sec 8 into the Act to alleviate the burden on the creditor. Sec 8 creates 8
situations that are known as acts of insolvency.

Should a creditor be able to prove that a debtor committed any of these 8 acts there will
be a rebuttable presumption that the debtor is insolvent.
The acts are as follows:

Sec 8(a) determines that a person commits an act of insolvency if he departs from the
RSA or stays away from the country or leaves his dwelling or otherwise absents himself
with the intention of evading or delaying payment of his debts. The mere absence or
departure does not suffice since it may have no link with his debts.

67
A liquidated claim is a claim for an amount of money which is certain and stems from an order of court, an
agreement (e.g. a contract or compromise) or otherwise.
 179

In terms of sec 8(b) a person commits an act of insolvency if a court has given judgment
against him and he fails to satisfy the judgment on demand or he fails to indicate
sufficient
disposable property to satisfy the judgment, or it appears from the sheriff’s68 return69 that
he could not find sufficient disposable property to satisfy the judgment. In effect there are
two acts of insolvency although the second one is dependent of the first.

The first act is where the sheriff of the court serves the written of execution on the
judgment debtor and he can't satisfy it or he fails to indicate sufficient disposable
property to satisfy the judgment against him. Should the sheriff be unable to find the
judgment debtor the second act is created.

Should the sheriff be unable to find sufficient disposable property in the absence of the
debtor the debtor commits an act of insolvency. In both instances the act of insolvency is
proved by means of a nulla bona return that is drafted by the sheriff. The nulla bona
return refers to the report which the sheriff drafts, in which he/she indicates that no
sufficient disposable property could be found.

"Disposable property" means any property that can be attached and be sold in
execution even if that property is situated in another area. It includes movable and
immovable property as well as corporeal and incorporeal property. Immovable property
subject to a mortgage bond is not disposable property unless the applicant is the first
mortgagee.

In terms of sec 8(c) a person commits an act of insolvency if he disposes of property or

attempts to dispose of property that prejudices his creditors or would prejudice them or
that prefers one creditor above the others or would prefer one above the other.

68
A sheriff is an official of the court who has to serve (deliver) court processes (documents) and also is the
one who has to attach assets in terms of an order of attachment.
69
A return is a document which the sheriff of the court reports on the assets he found and which he attached.
 180

Two acts of insolvency are also present in this instance.

In the first place the section deals with the situation where there is an actual disposition
of property that prejudices creditors or prefers one above the others and secondly an
attempt to dispose of property that would prejudice creditors or would prefer one
above the others. In both cases the effect of the disposition or attempted disposition is
important.

“Disposition” in terms of sec 2 means any transfer or abandonment of rights to

property and includes a sale, lease, mortgage, pledge, payment, release, compromise,
donation or any contract providing therefore. There has been case law in terms whereof
suretyship will also constitute a disposition.

In terms of sec 8(d) a person commits an act of insolvency if he removes property or

attempts to remove property with the intention of prejudicing his creditors or to prefer one
above the others. Here the effect is not important but the intention of the person who
removed the property is crucial.

In terms of sec 8(e) a person commits an act of insolvency if he makes, or offers to

make, any arrangement with any of his creditors for releasing him wholly or in part
from his debts. If a person asks an extension or denies the amount owed it will not be an
act of insolvency in terms of this section. There has to be an express or implicit indication
that the debtor cannot pay the full amount of the debt.

In terms of sec 8(f) a person commits an act of insolvency if he fails to lodge a

statement of affairs with the Master after publication of his notice of voluntary
surrender that has not lapsed or been withdrawn (see 2.1.2. supra); or he lodges a
statement that is incorrect or incomplete in a material respect; or he fails to apply for
voluntary surrender on the date mentioned in the notice before it lapses or is withdrawn.

One of the most commonly committed acts of insolvency is regulated by sec 8(g). In
terms of this section a person commits an act of insolvency if he notifies any of his
creditors in writing that he is unable to pay any or all of his debts.
 181

The last act of insolvency is regulated by sec 8(h). In terms of sec 34 of the Act, a dealer,
who wants to dispose of his business, goodwill or assets of the business, and that
sale is not in the ordinary course of that business, has to publish a notice of the intended
disposal in the Government Gazette. The effect of this is that all debts immediately
become due and payable. Should the debtor be unable to pay these debts it will be an
act of insolvency according to sec 8(h).

It is important to note that the National Credit Amendment Act of 2014 amended the
Insolvency Act so that a debtor who applied for debt review will not be deemed to have
committed a deed of insolvency.

Reason to believe that the sequestration will be to the advantage of all the creditors

 The burden of proof is lighter than in the case of voluntary surrender.

 A creditor will have to show that the sequestration of his debtor's estate will be more
advantageous than maintaining the status quo, e.g. assets that have been removed
and could be found or certain dispositions that could be set aside. (See VII infra).
That would lead to a situation where a creditor could receive a greater dividend than
otherwise would have been the case.
 182

CHAPTER 3
EFFECT OF SEQUESTRATION ON THE ESTATE OF THE INSOLVENT

In terms of sec 20(1)(a), the insolvent loses control over his estate once a
sequestration order has been granted. The estate will vest in the Master and then in the
trustee of the insolvent estate.

Property that fall in the insolvent estate

All the property of the insolvent on the date of the sequestration of his estate as well as
property that he receives during the course of his insolvency form part of his insolvent
estate.

“Property” according to see 2 of the Act means all movable and immovable property in
the RSA. It also includes all contingent rights except those of a fideicommissary heir or
legatee.70 Movable property means any property that is not immovable and includes
e.g. a liquor licence.

Property inherited by the insolvent during his formal insolvency will also fall into the
insolvent estate. A term in a will that stipulates that the inheritance of an insolvent will not
form part of his insolvent estate is of no effect.

Also where parties are married in community of property and one spouse inherits
property and the will stipulates that the inheritance will form part of the heir's separate
estate, that inheritance will form part of the insolvent estate. It is, however, possible to
appoint a substitute and also possible for an heir to repudiate71 the inheritance.

If the heir whose estate has been sequestrated does not accept the inheritance (thus,
he/she repudiates the inheritance), such inheritance will not form part of the
insolvent estate.

70
A legacy is an inheritance of a specific nature such as a number of shares or a farm, whilst a
fideicommissum stipulates that the farm is to go to the deceased’s son and after the son passes, the farm
must go to the grandson.
71
“Repudiate” means that the heir does not accept the inheritance.
 183

Assets excluded from the insolvent estate

In terms of sec 82(6) the clothes, linen, household furniture, tools and other means
of subsistence as determined by the creditors are excluded from the insolvent
estate. Sec 23(9) provides that the insolvent may retain for his own benefit any
remuneration for services rendered after the sequestration of his estate. Sec 23(5),
however, qualifies this provision in that any surplus income may be attached by the
trustee of the insolvent estate. Surplus income is any income that the insolvent receives
from his employment/profession and that is not needed for the maintenance of himself or
his dependents.

Sec 63 of the Long-term Insurance Act 52/1998 also excludes benefits in terms of an
insurance policy under certain circumstances. Should the insolvent or his/her spouse be
the insured life, the benefits in terms of the policy or the assets bought with the proceeds
of the policy will be excluded from the insolvent estate. 72 The policy, however, had to be
in existence for at least three years.

Should assets be bought with the proceeds of the policy they are to be bought within 5
years of obtaining the benefit of the policy for them to be exempt. Should an insolvent be
the beneficiary in terms of a policy and he is still alive, the proceeds of that policy will be
exempt for the duration of his insolvency on condition that he remains alive. Should the
beneficiary pass away, the inheritance would fall back into the insolvent estate.

However, should the beneficiary of an insurance policy die and his estate is sequestrated
but he is survived by a spouse, child, parent, or step-child, that policy will not form part of
his insolvent estate. Again the policy had to exist for at least 3 years.

Sec 23(7) of the Act provides that the insolvent may retain for his own benefit any
pension due to him in terms of services rendered by him. It is not clear whether this
includes amounts paid to him prior to the sequestration of his estate.

Sec 23(8) provides that the insolvent may retain for his own benefit any compensation
received for loss or damages suffered before or after the sequestration of his estate due
72
This is a new amendment to the Act. Until 2014, only R50 000 was exempt.
 184

to defamation or personal injury. Personal injury is not only physical harm suffered but
includes the infringement of the insolvent's personality rights.

Various other benefits are excluded by specific legislation from the insolvent estate. The
Compensation for Occupational Injuries and Diseases Act 130/1993 excludes any
amount paid out already or that still has to be paid out. The benefits for a miner as well
as benefits received in terms of the Unemployment Insurance Act 30/1966 are also
exempted. In marriages out of community of property subject to the accrual system, the
accrual does not form part of the insolvent estate. In general, trust property and trust
funds are also exempt should the trustee's estate be sequestrated. (E.g. if funds are
held in their trust account by an attorney or estate agent who is sequestrated.)

CHAPTER 4
 185

EFFECT OF INSOLVENCY ON THE LEGAL POSITION OF THE INSOLVENT

Capacity to contract

In general there is no effect on the insolvent’s capacity to enter into contracts for the
insolvent. The Act does, however, contain certain limitations on his contractual capacity
to protect his creditors. In terms of sec 23(2), an insolvent may not enter into a
contract that purports to dispose of property of his insolvent estate. (See 2.2.1. (iii)
for definition of “dispose”.) It is further provided that the insolvent needs the written
consent of his trustee to enter into a contract that adversely affects or that could
adversely affect his estate or the contribution to his estate.

A contract wherefore the insolvent has the capacity to enter into or wherefore he had
consent to enter into is valid. The mere fact that the contract is valid does not necessarily
mean that the insolvent is authorised to enforce it. Only if there is a statutory provision
that enables the insolvent to enforce the contract may he do so. In the absence of
statutory authority the trustee would be the authorised person to enforce the contract.

A contract that the insolvent may not enter into will be voidable should he enter into
one. Should the contract be set aside, restitution will have to take place. There is some
protection for a bona fide party who entered into a contract with the insolvent.

In terms of sec 24(1), if a person who was not aware of the insolvent's insolvency or
could not have been aware that his estate has been sequestrated gave value for the
performance (property) the disposition of that property will be valid. Property in this
context means property obtained by the insolvent after the sequestration of his estate
and which forms part of his insolvent estate.

Capacity to earn a living

 186

In principle the insolvent is free to follow any profession. Sec 23(3), however, places
some restrictions on this general principle. In terms of this section the insolvent needs
the written consent of his trustee to carry on the business of a trader 73 (that is a general
dealer or a manufacturer), or to be employed in such a business, or to have a direct
or indirect interest in such a business.

S v Van der Merwe 1980 (3) SA 406 (NC) defines what a general dealer is in the
absence of a definition in the Act.74 The insolvent, furthermore, may not hold certain
positions, e.g. he may not be the trustee of an insolvent estate and he needs the
consent of the court to be a director of a company or to participate in the management
of a close corporation of which he is a member. He is also not allowed to be a member
of Parliament.

CHAPTER 5
EFFECT OF SEQUESTRATION OF A PERSON'S ESTATE ON THE ESTATE
OF HIS/HER (SOLVENT) SPOUSE WITH WHOM HE/SHE IS MARRIED OUT
OF COMMUNITY OF PROPERTY
73
A trader is defined as someone who carries on a trade, business or undertaking where goods (movable
and immovable) are sold or bought, traded in or manufactured in order to be sold or exchanged for other
goods or where building operations are effected.
74
A general dealer is a dealer who trades in a fixed and known place in all kinds of goods and not only in
one type or a few types of goods.
 187

In earlier times (when women were not substantially economically active) it often
happened that men transferred their assets to their wives if they expected the
sequestration of their estates. It was extremely difficult for the trustee to prove fraud
and that the transactions were simulations. 75 Sec 21 of the Act was introduced to make
the burden on the trustee lighter. The effect of sec 21 is that the estate of the solvent
spouse also vests in the trustee of the insolvent spouse. The burden of proof is now on
the solvent spouse to show that the assets are indeed his/hers. This spouse has to
apply to court or to the trustee to have her/his assets released.

Sec 21(13) defines "spouse" in fairly broad terms and includes people of the opposite
sex who live together as husband and wife. By implication persons of the same gender
who have entered into a civil union or marriage by virtue of the Civil Unions Act 17 of
2006 will also qualify as a spouse.

Should the solvent spouse commit an act of insolvency at a time that his/her assets
are vested in the trustee of the insolvent spouse and his/her creditors apply for the
sequestration of his /her estate the court may postpone that application of the
creditors or make an order that is fair in terms of sec 21(11).

The court will issue such an order if the solvent spouse has applied or will apply for
the release of her assets or some assets have been released since the sequestration
order and he/she is capable to pay his/her debts.

The solvent spouse may be prejudiced by the loss of his/her property although this
loss is not permanent. In terms of sec 21(10) a spouse may apply to court for release of
the assets and the court may (during the sequestration order) issue an order that the
assets of the solvent spouse will not vest in the trustee of the insolvent or issue an order
in terms whereof the vesting is postponed.
The court will issue such an order if the solvent conducts a separate business or if
he/she can show that he/she would be seriously prejudiced by immediate vesting. The
solvent spouse, however, will have to show that the interests of the creditors of the
insolvent spouse are protected in respect of the property.

If a spouse can show that his/her assets fall under one of these categories, the trustee
75
These are transactions that appear to be legitimate donations but are actually made to dispose of assets in
the estate.
 188

of the insolvent spouse has to return these assets to the solvent spouse in terms of sec
21(2). The assets that have to be returned are assets that belonged to the solvent
spouse prior to the marriage or before 1 October 1926; assets obtained in terms of an
ante-nuptial agreement; assets obtained during the course of the marriage with valid title
against the creditors of the insolvent estate; assets obtained in terms of sec 63 of the
Long-term Insurance Act; or any assets obtained with the proceeds of the above-
mentioned four categories of property.

In terms of sec 21(3), the trustee of the insolvent estate may only sell the assets that
purportedly belong to the solvent spouse with the consent of the court if that spouse is in
the RSA and the trustee is capable of ascertaining his/her address. He must first
notify the solvent spouse of his intention and wait six weeks, and he must publish a
notice in the Government Gazette and in a paper where the solvent spouse resides or
carries on business.

CHAPTER 6
EFFECT OF SEQUESTRATION ON CONTRACTS ENTERED INTO BEFORE
SEQUESTRATION AND WHICH ARE INCOMPLETE

The general principle is that contracts entered into before sequestration of the insolvent's
 189

estate are not terminated by sequestration of the insolvent's estate but that they
continue. All the rights and obligations in terms of the contract are transferred to the
trustee of the insolvent estate. The trustee has an election whether he wants to continue
with the contract or whether he wants to repudiate it. The election has to be exercised
within a reasonable time.

The general principles of the law of contract will be applicable depending on the
situation. Where neither party has performed, the trustee may only demand
performance if he offers performance. If the insolvent has performed but the other party
has not, the trustee may either demand performance or reclaim the insolvent's
performance. If the other party has performed but the insolvent has not and the trustee
decides to cancel the contract, the other party will only have a concurrent claim
against the insolvent estate. (See 8.3 for what is a concurrent claim.)

The problematic cases are those where the other party has partially performed prior
to the sequestration of the insolvent's estate and the trustee requests him to complete
his performance after the sequestration of the insolvent's estate. The question arises
what the other party may claim from the trustee.

The answer depends on whether the performance is severable or not. Whether

performance is severable or not depends on the nature of the performance and the
intention of the parties. Should the performance be severable, the other party has a
concurrent claim for the performance that he rendered before the sequestration of the
insolvent's estate and a right of preference for the post-sequestration performance.
Should the performance not be severable, the other party has a full claim for his "pre"-
and "post"-sequestration performance.

Exception to general principles

There are certain contracts that do terminate automatically upon the sequestration of
the insolvent's estate. A contract of mandate is automatically terminated if the estate of
the mandator is sequestrated. If it is the mandatory who is insolvent it has no effect on
 190

the contract of mandate.

Effect of sequestration on other specific contracts

Lease Agreements (immovable and movable goods)

Sec 37 of the Act is applicable where it is the estate of the lessee that has been
sequestrated. In terms of sec 37(1), the lease agreement will continue although the
trustee has an election whether he wants to continue the lease or not. According to sec
37(2), the lease will terminate after a period of 3 months from the date of appointment
of the trustee if he fails to notify the lessor within that time that he intends to continue
the contract.

In terms of sec 37(5), a provision in terms of a lease agreement in terms whereof the
lease will automatically terminate upon the sequestration of either party's estate is void.
When the rent is in arrears, the lessor obtains a tacit hypothec over the movable goods
on the premises, which means that when the lessee’s estate is sequestrated, the lessor
will share in the proceeds as a secured creditor.

If it is the estate of the lessor that has been sequestrated the common law applies. In
terms of the common law the lease will continue. Should the trustee sell the leased
premises, the purchaser will be bound by the lease agreement in terms of the "huur gaat
voor koop" maxim. If there is an older real right registered over the leased premises,
such as a mortgage76 for example, the trustee probably may cancel the lease. The
trustee must first offer the premises with the lease. Should the highest offer not be
sufficient to satisfy the claim of the mortgagee the trustee will offer it free of the
lease. The lessee then has a concurrent claim for the damages that he suffered due to
the cancellation of the lease.

Credit agreements

Credit agreements are regulated by the common law but also by virtue of statute
depending on the circumstances of the case.

In the case of credit sales which are regulated by the common law, the seller will
merely receive a concurrent claim towards the estate of a sequestrated buyer. If it is
the estate of the seller that has been sequestrated, the trustee must collect the
76
See Section B for the definition of mortgage.
 191

outstanding instalments.

In the case of instalment agreements which are regulated by statute according to the
National Credit Act 34/2005, the Act defines instalment agreements as contracts in
respect of movable property that is sold against payment of a sum of money at a future
date, or in whole or in part in instalments over a period in the future and interest, costs
and fees are payable. The purchaser does not become owner at delivery but once
the last instalment has been paid; alternatively the purchaser can become owner on
condition that the credit grantor retains the right to repossess the goods if the buyer does
not perform its contractual obligations.

If the purchaser in terms of an instalment agreement is insolvent, sec 84 of the Act will
be applicable. The seller receives a hypothec over the asset that was sold and thereby
secures the outstanding balance. This means that he is a secured creditor. The seller
may request the trustee to return the asset to him.

If the asset has been returned by the insolvent within one month of the sequestration of
his estate the trustee may request the seller to return the asset to the buyer’s estate
against payment of the outstanding balance according to sec 84(2).

However, if the seller is insolvent the common law will apply. The trustee has an
election whether to continue with the contract or not. Should he decide to cancel the
contract, the purchaser has a concurrent claim for the instalments already paid and he
must return the asset.

Contract of sale for immovable property

Sec 35 of the Act applies if the estate of the purchaser of immovable property is
sequestrated. The trustee has an election to continue with the contract. Should he
decide to cancel the agreement, he loses the instalments that have been paid already.
The seller will have a concurrent claim for damages suffered as a result of the
cancellation of the contract. Should the trustee fail to exercise his election, the seller
may notify him in writing to make his election. Should he not receive a reply within 6
 192

weeks he may approach the court for an order that sets aside the contract of sale and
that the property must be returned to him.

If the seller is insolvent the Alienation of Land Act of 1981 will apply in some cases.
This Act will apply if the sale is of property for residential purposes, the purchase price
is payable in 2 instalments or more and over a period of longer than one year. If these
requirements are met, the purchaser may demand immediate transfer or he can claim
as a preferent creditor.77

Contract of sale for movable property for cash

These are contracts entered into prior to sequestration and in terms whereof the
purchase price is payable at delivery but on such date the price has not been paid. If
the purchaser is insolvent sec 36 of the Act applies. It allows the seller to reclaim the
property if he notifies the purchaser/trustee/Master within 10 days of delivery that he is
reclaiming the property. Should the trustee dispute his right to reclaim the property the
seller has to institute legal action against the trustee within 14 days of receiving the
notice of the trustee.

77
See ch 8 for the ranking of creditors.
 193

CHAPTER 7
PRE-SEQUESTRATION DISPOSITIONS THAT CAN BE SET ASIDE

The interests of the creditors are one of the most important features of the Act. These
interests are protected by various means. One of the most important ways in which these
interests is protected is the fact that the trustee may apply to court to set aside
certain dispositions made by the insolvent prior to the sequestration of his
estate.78 The purpose of this is to reclaim the disposed asset or the value thereof. This
will then fall into the insolvent estate.

A “disposition” in terms of sec 2 means any transfer or abandonment of rights to

property and includes a sale, lease, mortgage, pledge, delivery, payment, release,
compromise, donation or any contract with such effect. The conclusion of a suretyship
agreement is a disposition as well. However, according to case law, the repudiation
of an inheritance or insurance benefits does not qualify as a disposition for purposes
of the Act.

The effect of the setting aside of the disposition is regulated in sec 32. In terms of sec
32(3) the trustee may reclaim the asset or the value of the asset at the time of the
disposition or at the time of setting aside whichever is greater.

Dispositions without value

Sec 26 grants the authority to a court to set aside a disposition that was made without
value.79 The important feature here is the fact that there was no obligation on the
insolvent to make the disposition. The disposition can be set aside if the disposition was
made more than 2 years before sequestration and immediately thereafter the liabilities of
the insolvent exceeded his assets.

78
Note that these dispositions are not void but merely voidable.
79
Without any reasonable counter performance.
 194

In this case the burden of proof is on the trustee to show that the liabilities exceeded
the assets. If the insolvent made the disposition less than 2 years before the
sequestration of his estate and the beneficiary cannot prove that the insolvent's assets
still exceeded his liabilities immediately after the disposition, the court may set aside
that disposition.

We are dealing here with dispositions made without value. If the beneficiary gave
value for the disposition, sec 26 will not be available for the trustee. Value is not
necessarily monetary value. There will usually be value if the receiver of the disposition
gave some form of counter-performance.

Sec 27 creates an exception to sec 26. If the disposition was made in terms of an
ante-nuptial contract the beneficiary may retain the disposition. There are, however,
certain requirements that have to be met.

The disposition had to be an immediate benefit (i.e. made within 3 months of

conclusion of the marriage),80 it had to be made in good faith and the ante-nuptial
contract must have been registered at least two years before the sequestration of the
insolvent's estate. Dispositions by a man to his wife or child to be born from the
marriage are of relevance here.

Voidable preference

Often a debtor pays one of his creditors shortly before the sequestration of his estate.
The consequence of this is that that creditor is preferred above the other creditors. The
aim of sec 29 is to ensure that all the creditors are treated equally.

In terms of sec 29 the court may set aside a disposition made by the insolvent within
6 months before the sequestration of his estate or a disposition made within 6 months
before his death if the estate is insolvent, if the effect of the disposition was that one
creditor was preferred above another and immediately after the disposition the liabilities
of the debtor exceeded his assets.

80
That means that in the case of movable goods, it has to be delivered within 3 months of the date of
marriage, and in the case of immovables, registration has to take place within 3 months of the date of
marriage.
 195

The beneficiary may, however, retain the disposition if he can prove that the
disposition was in the ordinary course of business and that the insolvent did not intend
to prefer him above the other creditors.

The beneficiary must first show that the disposition was in the ordinary course of
business. The test that the courts have laid down is that one should ask oneself whether
solvent persons would, in the ordinary course of business, act in the same manner as
the parties in the relevant transaction. If the answer is "yes" the disposition was in the
ordinary course of business. The intention of the parties is not important and an objective
test is used. In some cases one will not look at business in general but at the customs of
a specific business where specific or special customs exist.

The beneficiary must also prove that the insolvent did not intend to prefer him above
the other creditors to retain the disposition. A subjective test is used in this case and a
person will have to look at the motive with which the insolvent made the disposition. A
person will probably also look at whether the insolvent contemplated the sequestration of
his estate.

If he did contemplate the sequestration of his estate and he nevertheless proceeded

with the disposition one can assume that he intended to prefer the creditor to whom he
made the disposition. Should the creditor be able to show that the insolvent did not
contemplate the sequestration of his estate or that his dominant motive was not to
prefer him he would succeed in proving that there was no intention to prefer him.

Undue Preference

In terms of sec 30 the court may set aside a disposition made by the insolvent if the
disposition was made at a time where the liabilities of the insolvent already exceed his
assets and the insolvent intended to prefer that creditor above the others. The estate of
the insolvent must have been sequestrated thereafter. The burden of proof is here on
the trustee and the burden of proof is a difficult one.
 196

The courts have adopted a test to make this burden lighter. If the trustee can prove
that the insolvent contemplated sequestration and he nevertheless made the
disposition, one can deduce that he intended to prefer that creditor.

Undue preference differs from voidable preference in a few respects. In the first
place, no time limitation applies for a disposition that is an undue preference.
Secondly, the person's liabilities must have exceeded his assets at the time of the
disposition to be an undue preference. Thirdly, there is no defence for the creditor
at an undue preference and, finally, the intention with which the disposition was
made is important at undue preferences whereas the effect of the disposition is
important at voidable preferences.

Collusion

Sec 31 provides that a court may set aside a disposition if the insolvent colluded with
another person to dispose of the insolvent's assets that caused prejudice to the debtor's
creditors or that one creditor was preferred above the others. The trustee will have to
prove that both parties were aware of the debtor's insolvency and that the
disposition caused prejudice to the creditors or that one was preferred above the
others.

If a person colluded with the debtor there are certain consequences for him. In terms of
sec 31 (2) he will have to pay damages for any harm suffered by the estate, a fine can
be imposed on him and if he is a creditor, he will lose his claim against the insolvent
estate.

Voidable disposal of business

Where a dealer disposes of his business or its assets outside the normal course of
business or as security for the payment of debts, notice must be given in the
Government Gazette and in two English and two Afrikaans local newspapers, failing
which the disposition will be void for a period of six months following thereon. If the
dealer’s estate is sequestrated within six months thereafter, the disposition will also
be void against the trustee.
 197

CHAPTER 8
CREDITORS

There are 3 categories of creditors, secured, preferent creditors and concurrent

creditors.

Secured creditors

They are creditors who have a form of security for their claims.81 The security grants
them preference over certain assets in the estate. Examples of security are special
mortgages, the lessor's hypothec and a pledge. The claims of the creditors are
satisfied with the proceeds of the assets over which they have security. In terms of sec
89(2) they have a choice whether they want to rely only on their security or not. If they
only rely on their security and the proceeds of the asset over which they have security
are not sufficient to satisfy their claims, they have no concurrent claim in respect of
the balance.

Various securities
Special mortgage bonds

Special mortgage bonds are mortgage bonds over immovable property, a special notarial
bond over specified movable property in terms of the Security by Means of Movable
Property Act 57/1993 or a special notarial bond over specified movable property and
that has been registered in Natal before 7 May 1993.

Sec 88, however, protects the ordinary creditors against certain mortgages. In terms
of sec 88 (except in the case of “kustingsbriewe”) 82 a mortgage bond will not confer a
preference if the estate of the debtor is sequestrated within 6 months of registration of
the mortgage bond in the deed's office, the debt for which it was granted had been
incurred more than 2 months before lodging the mortgage and the debt was previously
unsecured.

81

See Section B for the different forms of security.

82
See Sec B 2.1
 198

Lessor and credit provider’s hypothecs

A lessor who is owed rental has a hypothec over all the movable property that the lessee
brings onto the leased premises. A credit provider in the case of an instalment
agreement also has a hypothec on the goods that have been sold.

Preferent creditors
These creditors have a preference to the free residue. (See 2.1.1 (ii) for the definition
of free residue.) Their position is regulated by secs 96-102 of the Act. They are paid in
a specific order. In terms of:

 section 96 the first creditors to be paid will be for funeral and deathbed expenses

(if any) to a maximum of R300.

 section 97 the costs of sequestration costs. 83

 section 98 the costs of execution,84

 section 98A, the salaries/wages of employees that are limited to three months’

salary or a certain maximum amount

 section 99 Taxes, including VAT, workmen’s compensation & income tax.

 section 101 taxes on profits (eg partnership)

 section 102 creditors whose claims are secured by general notarial bond or a

special bond (outside Natal) and which bond had been registered before 7 May

1993.

Concurrent creditors
Should there be any money left in the free residue after the preferent creditors had been
paid the concurrent creditors will be paid. They are all equal.85 Thus, if there are not
sufficient funds in the free residue to satisfy each claim in full, each creditor will receive a

83
These include, amongst others, the costs and fees of the sheriff, Master, curator bonis, trustee
etc.
84
These include taxed costs.
85
“Equal” does not mean that they all have equal claims or that they will all receive the same
amount. It simply means that they will all be treated equally and that they will not be paid
according to a particular ranking where one creditor’s claim will precede the claim of another
creditor.
 199

pro rata (proportional) share of his claim.

CHAPTER 9
MEETINGS OF CREDITORS AND PROOF OF CLAIMS

A number of meetings are held after the estate of the debtor has been sequestrated. At
these meetings the creditors of the insolvent will prove their claims, elect a trustee
and give directions to the trustee in respect of the winding-up of the estate. In principle
there are four types of meetings, viz the first, second, special and general meeting.

First Meeting

As soon as the Master has received the final sequestration order of the insolvent he
must immediately convene the first meeting of the creditors. He must do so in terms of
sec 40(1) of the Act and must publish a notice in the Government Gazette. The purpose
of this meeting is to enable the creditors to elect a trustee and to prove their claims
against the insolvent estate. The notice has to appear in the Gazette at least 10 days
before the meeting and must contain the time and place of the meeting in terms of sec
40(2).

Second meeting

After the first meeting and the appointment of the trustee the Master must determine a
date for the second meeting in terms of sec 40(3)(a). The purpose of the second meeting
is to enable the creditors to prove their claims, to receive the trustee's report on the state
of the estate and to give directions to him on the administration of the estate. Although
the Master fixes the date of the meeting, the trustee will convene it. He must publish a
notice in the Government Gazette as well as in one or more (Afrikaans and English)
papers in the district where the insolvent resides or where his principal place of business
is.

Special meetings

i) The meeting can enable creditors to prove their claims. The creditors who request
this meeting must tender the costs for this meeting.

ii) The meeting can also be used to interrogate the insolvent in terms of sec 42(2).
 200

The trustee must first obtain the consent of the Master or if a creditor who has
proved his claim requests it. The trustee must once again publish a notice in the
Government Gazette.

General meetings

In terms of sec 41 the trustee may convene a general meeting at any stage. He will do
so if he receives instructions on any matter concerning the administration of the estate.
This will be the case where the directions given at the second meeting do not cover a
specific issue. He is also obliged to convene one if the Master directs him to do so or
if ¼ of the creditors in value who have proved their claims request it. A general
meeting is also convened to consider an offer of composition.

Proof of claims

A creditor may in principle only share in the proceeds of the insolvent estate or vote on
issues concerning the administration of the estate if he has proved a claim against the
insolvent estate. Certain creditors like the employees of the insolvent do not have to
prove their claims.

The Act lays down certain requirements for the proving of claims. In the first place the
creditor has to depose to an affidavit that corresponds with Form C or D in the first
schedule of the Act. The creditor has to set out the facts upon which his claim is based;
the nature and details of the claim; whether the claim was obtained by means of cession
after the initiation of the sequestration process and the nature and details of any
security that the creditor is holding.

The affidavit and supporting documents (eg. receipts) have to be lodged with the
chairperson of the meeting at least 24 hours before the meeting. The Master or a
person appointed by him or the magistrate of the district or a person appointed by him
will usually be the chairperson. If the documents are not lodged timeously the creditor
may not prove his claim at a meeting unless the chairperson is of the opinion that it
was not the fault of the creditor that the documents were not lodged timeously.

The other creditors, the trustee and the insolvent or their agents may now inspect these
documents. The creditor is not obliged to attend the meeting if he lodged his documents
timeously but it is advisable to do so should there be questions regarding his claim or
 201

there is opposition against his claim. In terms of sec 44(7) the chairperson may
interrogate a creditor in respect of his claim. Should the creditor refuse to be interrogated
he may lose his claim.

The chairperson considers the claim and may refuse or allow it in terms of sec 44(3).
Should it be refused the creditor may prove it at the next meeting or approach the court
(sec 44(3)). The chairperson may only interrogate the creditor regarding the claim and
may not consider any other evidence and may not call any other witnesses either.

The acceptance of the claim by the chairperson is provisional because the trustee
may still dispute it. After each meeting the chairperson must hand over each claim that
has been proved as well as the supporting documents to the trustee who will then
investigate the claim. If the trustee disputes a claim he must notify the Master and
furnish reasons. He must also notify the creditor concerned who has to approach the
Master within 14 days with reasons why the claim has to be allowed. The Master may
allow the claim, refuse it or even lessen the claim. If he refuses the claim or lessens it
the creditor may approach the·court.
 202

CHAPTER 10
THE TRUSTEE

The trustee is elected at the first meeting of creditors. The Master may however
refuse the elected person. Certain people may not act as trustees of insolvent estates.
One has to distinguish between people who are absolutely prohibited of being trustees
(i.e. they may never be trustees) and people who are relatively disqualified (i.e. they
are only disqualified in respect of certain insolvent estates).

People who are absolutely prohibited are those who are insolvent themselves, a minor or
a person's whose legal capacity is restricted, a person who resides outside the RSA, a
company or any other legal person like a close corporation, a former trustee who has
been disqualified in terms of sec 72 of the Insolvency Act. Sec 72 concerns the
unlawful retention of money or he unlawful use of assets. People who have been
convicted of fraud, theft or perjury and sentenced to imprisonment without the option
of the fine are also absolutely incapable of being trustees. A person, who at any stage
was party to an agreement with a creditor or a debtor, in terms whereof he undertook
(when he acts as trustee) to give an advantage to them to which they are not legally
entitled, is incapable of acting as trustee as well. A person, who has by means of
misrepresentation or reward of a person induced or tried to induce that person to vote
for him as trustee, may also never act as trustee.

Certain people are only prohibited to act as trustees of specific insolvent estates. A
person who is related within 3 degrees of the insolvent (in blood or marriage) may not
be trustee of that estate. The uncle of A will therefore not be able to be the trustee of A's
estate. A person with an opposing interest than the other creditors may not be the
trustee and neither may the accountant or auditor that acted as such for the insolvent
in the preceding 12 months of the date of sequestration. In terms of sec 55 an agent of a
creditor who is authorized to vote on behalf of the creditor at a meeting may not be the
trustee of that estate.
 203

Duties and powers of the trustee

The trustee must collect and preserve the assets in the insolvent estate so that he
can sell it at a later stage and distribute the proceeds of the sale under the
creditors. The trustee must always act independently and the interests of the creditors
must always be of paramount importance. Sec 19 provides that the sheriff must make an
inventory of all the insolvent's assets. The trustee must then take control of all the
movable assets etc of the insolvent. The trustee must also publish a notice in the
Government Gazette of his appointment. In this notice he must also request the debtors
of the insolvent estate to pay their debts at a time and place as provided in the notice
(sec 77).

The trustee does not have an automatic right to continue with the business of the
insolvent. He needs the consent of the Master or the creditors. It may also only be
temporary until the business is liquidated. This will be done to retain the goodwill
attached to the business or the business has to be continued to sell it as a going concern
at a later stage. The goal may therefore not be to make a profit.

His duties include the investigation of the insolvent estate, open various accounts
and report to the creditor after the completion of his investigations. This report is
delivered at the second meeting and includes the assets and liabilities of the insolvent,
the reasons for the insolvency, any statutory contraventions by the insolvent, if he has
continued the business of the insolvent and anything concerning the administration of the
estate for which he needs the directions of the creditors.
 204

CHAPTER 11
DISTRIBUTION OF ASSETS AND VARIOUS ESTATE ACCOUNTS

At the second meeting the creditors will determine how the assets will be sold. If
not, the trustee may sell it at a public auction or by public tender. If the insolvent has an
interest in a close corporation it can be sold to the close corporation or to the other
members. The trustee will also draft the following accounts:

Liquidation account

This account will set out the monies received and spent by the trustee. If it is not a
final account the unsold assets must be listed, any outstanding debts due to the estate
and reasons why this has not been done yet. If it is the sequestration of a partnership
separate accounts must be drafted for the partnership and the individual partners. The
account is often divided into an encumbered assets section and an unencumbered
assets section.

Trade Account

In terms of sec 93 this account has to be drafted if the business of the insolvent had
been continued. In this account the value of the stock-in-trade has to be listed, the
daily receipts and any payments related to the business and the results of the
continuance of the business.

Distribution account

This account sets out how the proceeds of the assets will be distributed.

Contribution account

If there are not sufficient funds to pay the sequestration costs the concurrent creditors
and the secured creditors who are entitled to share in the free residue must pay the
balance of the costs. If the proceeds of a secured asset is not enough to cover the initial
costs the secured creditor must pay those costs.
 205

When accounts have to be furnished

In terms of sec 91 the trustee has 6 months within which he must furnish the Master
with the various accounts. If he cannot furnish a final liquidation account within 6 months
he must furnish a periodical one every 6 months. If he cannot furnish an account
within the stipulated period he must apply for an extension in terms of sec 109(1).

The Master inspects the accounts and if he approves them it can be inspected at his
office or at the office of the magistrate of the district where the insolvent resided or
carried on business before his insolvency. Notice has to be given in the Government
Gazette and in an Afrikaans and English paper in the district where the insolvent resided
or carried on business. The accounts are open for inspection for a period of 14 days
from the date of publication in the Government Gazette. This period enables an
interested party to lodge complaints against the accounts. If there are no complaints,
or there were complaints but they have been settled, the Master will confirm the
accounts in terms of sec 112. The confirmation is final and the accounts may then only
be re-opened with the court's consent. Notice will then be given in the Government
Gazette of the confirmation and the trustee will then proceed to divide the estate.
 206

CHAPTER 12
COMPOSITION

Composition is an agreement between the insolvent and his creditors in terms

whereof the creditors accept partial payment of their claims as full and final settlement of
their claims. Common law and statutory composition are possible. The common law
composition is not attractive, however, since it has to be accepted by all the creditors.

Statutory composition
Sec 119(1) provides that the insolvent may make an offer of composition to his trustee
at any stage after the first meeting of the creditors. The trustee will consider the offer and
if he is of the opinion that the creditors will accept, he will notify them of the offer and
convene a general meeting for the creditors to vote on the issue. If he refuses to
notify the creditors of the offer, the insolvent may approach the Master that the offer has
to be presented to the creditors.

Provisions of the composition

In principle the composition may contain any provisions. There are, however, certain
statutory limitations. If there is any security the nature thereof must be given. The
composition may not contain a provision that would confer an advantage to a creditor
to which he would not have been entitled had the estate been distributed in the ordinary
manner. A provision in terms whereof the composition is dependent on the
rehabilitation of the insolvent is of no effect.

Acceptance of the composition

The composition must have been accepted by a 75% majority in number and value of
all the creditors who have proved their claims. The decision had to be taken in good faith
to be valid.

Effect of composition
All the creditors are bound by the composition, even those who had not proved their
claims. If there is a provision that the assets of the insolvent will be returned to him,
effect to that provision must be given. The solvent spouse will also receive his assets
back. The trustee must draft a liquidation and distribution account in terms of sec 123(2).
The insolvent may also apply for his rehabilitation on condition that the composition has
to provide for payment of at least 50c in the Rand for every concurrent claim that has
 207

been proved.
CHAPTER 13
REHABILITATION

Rehabilitation ends the formal insolvency of a person. The insolvent, however, does not
have a right to be rehabilitated and the court will always have a discretion whether it
wants to issue a rehabilitation order or not.

Automatic rehabilitation

In terms of sec 127 A(1) a person will be automatically rehabilitated after the expiry of 10
years from the date of sequestration unless the court decides that a person will not be
automatically rehabilitated.

Rehabilitation within 10 years

The Act creates certain situations that enable the insolvent to apply for rehabilitation
before the 10 year period expires.

Composition of at least 50c in the Rand

If a composition in terms whereof the insolvent will pay each concurrent creditor at least
50c in the Rand for each claim that has been proved and the insolvent has received a
certificate from the Master that the creditors have accepted the composition and that
payment has already been made, the insolvent may apply immediately for his
rehabilitation (sec 124(1)).

No claims proved after 6 months from the date of sequestration

The insolvent may apply after 6 months from the date of sequestration of his estate for
rehabilitation on the following conditions. No claims had to be proved against his estate
in those 6 months; he has not been convicted of any offence due to his fraud in respect
of his insolvency or in respect of any offence in terms of sec 132, 133 or 134; and his
estate has not been sequestrated before.
 208

Full settlement of all proved claims

In terms of sec 124(5) the insolvent may apply at any time after the Master has approved
and confirmed a distribution account that provides for the full payment of all proved
claims including interest as well as the sequestration costs.

Lapse of certain statutory prescribed periods

If none of the 3 above-mentioned situations are present, the insolvent has to wait for a
period of at least 4 years before he may apply for his rehabilitation unless the Master
recommends a shorter period. This 4 year period is subject to the following periods in
terms of sec 124(2). Take note that these periods can only extend the 4 year period and
cannot shorten it.

i) At least 12 months have to have lapsed from the date of confirmation of the first
account of the trustee in terms of sec 124(2)(a); or

ii) If his estate had been sequestrated previously, 3 years have to lapse from the
date of confirmation of the first account of the trustee in terms of sec 124(2)(b); or

iii) If he has been convicted of any fraudulent act in respect of his insolvency or
because of a contravention of sec 132, 133 or 134, 5 years have to lapse from the
date of his conviction in terms of sec 124(2)(c).
 209

The discretion of the court

As mentioned above, the insolvent has no right to be rehabilitated and the court always
has a discretion to make an order it deems to be appropriate. From case law it seems as
if the courts will issue one of the following orders if an insolvent applies for rehabilitation.

13.4.1 In the first place the court may postpone the application for further information or
to show its displeasure with the insolvent's conduct.

13.4.2 The court may secondly grant rehabilitation but make it subject to certain
conditions. This will only be done in exceptional cases that justify such an order.

13.4.3 The court may refuse the application, e.g. in cases where the insolvent
conducted his business in a reckless manner or he did not keep proper books of
account.

13.4.4 The final order that a court may issue is an unconditional rehabilitation order.

Consequences of rehabilitation

The insolvency of the insolvent comes to an end when he is rehabilitated. All disabilities
are lifted and all his pre-sequestration debts are extinguished except those that were
incurred due to his fraud in terms of sec 129(1). The estate of the insolvent does not re-
vest in him unless the composition provides therefore or where his rehabilitation is based
upon the fact that no claims have been proved within 6 months of the date of
sequestration.

Declaratory orders

An application for rehabilitation is often accompanied with a request that the court has to
declare that certain assets belong to the insolvent. The court does not have a discretion
to grant assets to the insolvent that in terms of the Act belong to the insolvent estate.
This order merely confirms existing rights, e.g. assets that belong to the insolvent in
terms of the Act or assets to which the trustee and the creditors waived their rights.