Answers

Applied Skills, LW – ZAF

Corporate and Business Law – South Africa (LW – ZAF) June 2021 Answers

Section A

1 Private law consists of legal rules which govern the relationship between the state and its citizens
Public law consists of legal rules which govern the relationship between the state and its citizens. Private law consists of legal rules
which govern the relationship between citizens in their dealings with each other.

2 1 only
Labour legislation only applies to employees, independent contractors are specifically excluded as ‘employees’. An employment
contract must comply with the requirements for a valid contract and it does not have to be in writing.

3 A contract of surety is only valid if it is in writing and signed by or on behalf of the surety
The general rule is that no formalities are required to conclude a contract. However, legislation requires that certain formalities must
be met for certain types of contracts. A surety contract must be concluded in writing and signed by or on behalf of the surety. Apart
from instances where the law requires additional formalities, contracting parties can also require additional formalities.

4 1 and 2
A statutory provision was enacted in the Companies Act, 2008 which permits a court to disregard the separate juristic personality
of a company. This did not, however, replace the common law, as it will still apply especially if the legislative criteria for piercing the
veil have not been met.

5 None of the rights in the Bill of Rights are absolute since rights can be limited in certain circumstances
No human right is absolute, it can be limited in special circumstances. The limitation must take place by law of general application,
it must be reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom.

6 Fault includes intent as well as negligence

The elements of a delict are an act, unlawfulness, fault, causation and damage or injury. Fault includes negligence as well as intent.
Factual causation exists when there is a link between the act and the damage but legal causation exists where there is a sufficiently
close relationship between the wrongdoer’s conduct and its consequences so that such consequences may be imputed to the
wrongdoer.

7 An offer has to be made to a specific person and cannot be made to the general public
An offer must be addressed to a particular person or persons, or in general to an unknown person or to the general public. If the
latter, then it must be ascertainable to whom the offer was addressed. No rights or duties are transferred to the deceased’s estate
unless the offer expressly or impliedly permits acceptance by, or to, the executor of the deceased’s estate.

8 3 only
A minor under the age of seven has no capacity to act and cannot conclude any contract whatsoever. They cannot even conclude a
contract in terms of which they only acquire rights without incurring any obligations (so they cannot accept an offer for a donation).

9 The multiple test is mainly used by courts today where the employment relationship, as a whole, is considered and not just a
single factor such as control or integration
The courts tend to look at the employment relationship as a whole, rather than looking at a single factor such as control or
integration. The multiple or dominant impression test is the test most favoured by the courts.

10 The works of old jurists of Holland are merely persuasive in courts today
The work of old jurists of Holland is still authoritative in the courts today. Roman law, as set out in the Corpus Iuris Civilis, still applies
as a direct source of South African law.

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11 Dismissal based on participating in a protected strike is automatically unfair
Some dismissals are automatically unfair where they infringe a basic human right. The Labour Relations Act 1995 lists these
dismissals and a dismissal concerning a protected strike or protest action as automatically unfair.

12 They are additional terms that may be inserted into a contract

Naturalia help to determine the rights and duties of contracting parties and the effects and consequences of their contracts. They can
generally be excluded by the parties by agreement. Implied terms are by definition part of a contract. They are terms which have not
been expressed in words and they can be incorporated into the contract by way of operation of the law. Incidentalia are additional
terms.

13 Overtime work has to be agreed between both parties and it is limited to ten hours per week
Overtime work should be at 1·5 of the usual rate and overtime on Sundays is not prohibited. As a minimum, an employee is entitled
to four months’ consecutive maternity leave but there is no provision for paid maternity leave. This can be arranged through an
individual or collective agreement. Limited benefits are also available under the employment insurance fund, subject to contributions
being made.

14 A detailed definition is provided, in legislation, as to what constitutes specific or precise information

Inside information is defined in the Financial Markets Act 2012 as being specific or precise information, which has not been made
public, is obtained or learned as an insider, and if it were made public would be likely to have a material effect on the price or value
of any securities listed on a regulated market. There is no definition of what is specific or precise.

15 An emancipated minor has the capacity to conclude certain contracts without the assistance of his or her guardian
An emancipated minor has restricted capacity to contract. However, they do have the capacity to conclude certain contracts without
the assistance of his or her guardian.

16 A company resolution is always required to commence business rescue proceedings

Business rescue proceedings can commence by way of a resolution of the board of directors to voluntarily begin the proceedings, or
they can be commenced by way of a court order (applied by an affected person).

17 One high court has to follow the decisions of another high court in all circumstances
The stare decisis doctrine applies in South African law, meaning the ‘decision stands’. South African courts follow a middle course
in this regard, as a court is bound by its own decisions unless, and until, they are overruled by a superior court. There is legislation
to assist in the interpretation of legislation. One high court does not have to follow the decision of another high court as they belong
to different areas of jurisdiction, however, a court will not depart from a decision without good reason.

18 1 and 2 only
Provocation exists when a person is provoked or incited by another’s words or actions to cause harm to the other.

19 Financial institutions have a statutory obligation to identify clients and keep a record of all transactions for at least 10 years
The South African anti-money laundering laws are contained in the Prevention of Organised Crime Act 1998, and the Financial
Intelligence Centre Amendment Act 2007. There is no common law legal duty to report crime in South Africa. The thrust is to place
statutory duties on certain accountable and reportable institutions and individuals. Intentional or negligent non-compliance with
these obligations subjects these institutions or individuals to a real threat of criminal prosecution and potentially large monetary fines
or imprisonment.

20 It is an example of unlawful competition and may concern the using of a competitor’s distinctive mark
‘Passing off’ is the most common form of unlawful competition. The use or imitation of a competitor’s distinctive mark may constitute
passing off. Actual competition is not required. Potential competition will be sufficient.

21 The Bill of Rights only applies to the legislature and the judiciary
The Bill of Rights applies to all law and binds all three branches of Government: the legislature, the judiciary and the executive.

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22 Employers are not allowed to employ any person under the age of 15 years
An employment contract must comply with the requirements for a valid contract and it does not have to be in writing or for a certain
period of time. An employer cannot employ a person under the age of 15. An employer can be a natural or juristic person.

23 They can conclude a pre-incorporation contract

Pre-incorporation contracts are dealt with under the Companies Act 2008. They enable persons, acting as agents, to contract on
behalf of non-existing companies which are yet to be formed. On formation, the company can then ratify the pre-incorporation
contract. Such a contract must be concluded in writing.

24 Cara will be able to claim damages as the additional costs are a direct result of Ben’s breach of contract
A plaintiff is not automatically entitled to damages merely because a breach of contract occurred. Cara must prove that she actually
sustained damages as well as the extent of her loss. The damages must be the direct result of the breach of contract. Even if the
damages were caused by the breach of contract, only such damages may be claimed which were actually foreseen or should
reasonably have been foreseen by the parties at the time they made the contract.

25 2 only
Financial assistance for the acquisition of a company’s securities is regulated in legislation. If a company buys an asset from the
person in order to enable that person to purchase shares in the company, it will depend on the facts whether there was financial
assistance. Factors considered are whether the company needs the asset in its normal business and whether the company paid a
fair price for it.

26 A dismissal based on ‘blowing the whistle’ is an example of an automatically unfair dismissal

Some dismissals are automatically unfair where they infringe a basic human right. The Labour Relations Act 1995 lists these
dismissals and a dismissal due to ‘blowing the whistle’, or making a protected disclosure to certain people or institutions, is listed in
the Act. Failure to renew a fixed-term contract may result in an unfair dismissal. The employee will have to show that the employer’s
conduct has created a reasonable expectation that the fixed-term contract would be renewed.

27 A ‘consumer’ includes a juristic person

Consumer protection legislation has been codified in South Africa and it is clear from the legislation which transactions fall under
‘consumer protection’ and which ones do not. A ‘consumer’ includes a juristic person, to whom goods or services are marketed or
supplied in the ordinary course of a supplier’s business.

28 It can be formed by one or more persons

There is no requirement as to the number of members (minimum or maximum). A private company must have at least one director.

29 A non-executive director is only a part-time director and not an employee of the company
A de facto director will qualify as a director under certain circumstances and will be subject to directors’ duties. Shadow directors
will not always be subject to directors’ duties.

30 1 and 2 only
Directors’ duties have been partially codified in South Africa (as opposed to fully) and the common law still applies. It is thus not an
exhaustive list of duties; the object is to make the law clearer and more accessible. A director, for purposes of s.76 Companies Act
2008 (directors’ duties), includes a member of a board committee, irrespective of whether or not the person is also a member of the
company’s board of directors.

31 1, 2 and 3
Execution of the contract is the obvious remedy for breach as it attempts to achieve the same result as was originally intended. It
can comprise an order for specific performance, reduced performance or a prohibitory interdict.

32 An ordinary resolution is necessary to liquidate a company voluntarily

A special resolution is required for a voluntary liquidation of a solvent company.

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33 Textbooks have no inherent authority of their own but they may have a persuasive influence in the courts
Roman and Roman-Dutch law play an important role in the development of South African law. The works of old jurists of Holland
are still authoritative in the courts today. South African law is not codified, and textbooks and law journals do not have persuasive
authority per se but they may, if they are methodical or convincing expositions of the law. Foreign law is a persuasive source of law.

34 A contribution made by a partner may be in the form of services or knowledge and skill
A partnership is not a separate legal entity with separate legal personality. It is only in certain instances treated by the law as if it is
a separate legal entity. A change in membership terminates the partnership.

35 A tacit term
A term based on the parties’ true intention, even though not expressed in words, is known as a tacit term. Implied terms are by
definition part of a contract. They are terms which have not been expressed in words and can be incorporated into the contract by
way of operation of the law.

36 A company may not dispose of any of its property during business rescue proceedings
The company may dispose of property, or agree to dispose of property, if it is in the ordinary course of its business, or it is a bona fide
transaction at arm’s length for fair value, which has been approved in advance and in writing by the practitioner or it is a transaction
which is part of an approved business rescue plan.

37 It may contain restrictive conditions on the amendment of its provisions

The memorandum of incorporation may contain restrictive conditions and prohibitions on the amendment of its provisions
(s.15(2)(a)(i) Companies Act 2008).

38 An offer and acceptance can be made tacitly, expressly or by way of conduct

The general rule is that an advertisement or a display in itself does not constitute an offer but rather an invitation to do business.
Consensus can also only exist if the parties are mutually aware of one another’s intentions. All the parties must be aware of their
true agreement. The mere existence of two independent but corresponding intentions cannot create a contract.

39 All public and state-owned companies must appoint a company secretary

All public companies and state-owned companies must appoint a company secretary. A private company, non-profit company and
personal liability company do not need to appoint one, unless otherwise provided in the memorandum of incorporation. A company
secretary must be a permanent resident of South Africa and must remain so while serving as a company secretary. A juristic person
or a partnership may be appointed as a company secretary.

40 1 and 2 only
There is separation of powers in South Africa, with three branches of Government: the legislature, executive and judiciary. The ratio
decidendi means ‘the reasons for the decision’ and incidental remarks made by a judge are known as the obiter dicta.

41 Distributions include a transfer of money or other property as well as the waiver of an obligation
The Companies Act 2008 defines what will qualify as a ‘distribution’. A distribution must be authorised by the company’s board of
directors, unless the distribution is pursuant to an existing obligation of the company or a court order. No shareholder approval is
required.

42 An agreement restraining a person’s freedom to trade is always valid and enforceable

An agreement which misuses the administration of justice is contrary to public policy. An agreement depriving a contracting party
of any, and all, opportunity to defend themselves is void (not voidable). Contracts restraining a person’s freedom to trade are, in
principle, valid and enforceable but will not be enforced if contrary to public policy.

43 The agent must always identify the principal when acting on behalf of their behalf
The agent need not identify the principal. The same person can act as agent and principal simultaneously.

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44 Under the common law an employee has a right not to be victimised in the workplace
Labour legislation contains provisions outlawing victimisation by an employer of an employee for exercising a constitutional or
statutory right, it is not in terms of the common law.

45 A forfeiture clause
A forfeiture clause makes provision for a party who is in breach of contract to lose their right to restitution. The party in breach will
forfeit all performances already rendered in terms of the contract.

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Section B

46 (a) The basic requirements of a partnership (or the essentialia) are that each partner must contribute towards the partnership, the
partnership must have the making of profit as its object, and the business of the partnership must be carried on for the joint
benefit of the partners. Some argue that a fourth requirement should also be mentioned, namely that that contract between the
parties should be a legitimate contract. This is, however, a general requirement for all contracts and not limited to partnership
agreements (see Bester v van Niekerk (1960)).

(b) This question asks candidates to analyse the problem scenario and to consider whether the parties concluded a valid
partnership. The main object of the parties must be to procure patrimonial benefit. This benefit is usually referred to as ‘profit’.
It seems the object of the partnership in question is to make a profit. The business to be carried on for joint benefit is another
requirement. Ann, Ben and Chris will share in the profits and losses equally. This requirement has therefore been met. Each
partner must make a contribution to the partnership or give a binding undertaking to make a contribution. The contribution
may, for instance, be money, corporeal or incorporeal things (for instance copyright), expertise or labour. A contribution can
also consist of a combination of different types of contributions, for example, labour and money. There is no specific restriction
on the type of contribution which must be delivered as long as it has commercial value. The nature of the contributions
may also differ from partner to partner. The contribution must be exposed to the risk of the undertaking. If a person makes
a contribution on condition that it will be returned to them even if the enterprise fails, that contribution will not meet the
requirement of the essentialia. Ann contributes R15,000 to the enterprise on the understanding that R10,000 will be repaid to
her. Her contribution is thus R5,000 and this is the amount which is subject to the risk of the undertaking. If the full amount
of her contribution were to be repaid to her, that would not have qualified as a contribution because she would then have
been a creditor of the enterprise. Ben’s contribution is in the form of labour and this will qualify as a valid contribution. Chris’s
contribution consists of his expertise (and also of labour) which can also qualify as a contribution. It would thus appear that
the agreement is a partnership.

47 (a) Parties are normally bound to perform any promise which they have contracted to undertake. Some statements, however, may
induce someone to enter into a contract, yet the statements do not form part of the contract. Such pre-contractual statements
are called representations, to distinguish them from statements which become terms of the contract.

(b) This question invites candidates to indicate whether Courtney has committed a fraudulent, negligent or innocent misrepresentation
and what the consequence of that will be.

Parties are normally bound to perform any promise which they have contracted to undertake. A misrepresentation (which
can be innocent, intentional or negligent) is a false statement of fact and is made by one of the parties to a contract with the
aim of inducing the other party to enter into the contract. Giving an honest opinion or estimate does not usually constitute a
misrepresentation. Misrepresentation does not exclude consensus between the parties. A contract is therefore not void in the
case of a misrepresentation. Misrepresentation may, however, result in the contract being voidable since it is improper to obtain
consensus in this manner.
Considering these types of misrepresentation in line with the circumstances of the question, it is evident that Courtney cannot
be accused of fraudulent misrepresentation in that she ‘honestly confused’ the ‘Super Stitcher 150’ with the ‘Super Stitcher
500’ and therefore did not have the intention to misinform David. It is equally apparent that Courtney cannot claim that her
case was a case of innocent misrepresentation as there are no reasonable grounds to justify her error. She was a specialist
salesperson of sewing machines, and it is not unreasonable to expect such a person to have known the difference between
the two models of sewing machines. Courtney would appear to be liable in negligent misrepresentation and David will base
his claim for damages on delictual principles and may claim damages irrespective of whether he decides to uphold or rescind
the contract. Damages are also calculated on the basis that the deceived party must be placed in the position they would have
been in if the misrepresentation had not been made.

48 (a) All distributions fall under the definition of ‘distribution’ in the Companies Act 2008 and can be divided into three categories,
namely a transfer of money or other property, the incurrence of an obligation and the forgiveness or waiver of an obligation.

(b) There is no definition provided in the Companies Act 2008 for ‘dividend’; when one uses this term it refers to a distribution by
a company of profits of the company. A distribution (i.e. also the payment of a dividend) must be authorised by the company’s
board of directors (shareholder approval is not required), unless the distribution is pursuant to an existing obligation of the
company or a court order. This is not the case in this set of facts, so board authorisation will be needed. The memorandum
of incorporation cannot validly impose any prohibitions, conditions or requirements relating to distributions. The company’s
board must not make any proposed distribution unless it has applied the solvency and liquidity test and it has acknowledged,
by resolution, that it has reasonably concluded that the company will still satisfy the test immediately after completion of the
proposed distribution. The board of Cathedral Construction Ltd will have to comply with the above before they can authorise
the distribution (payment of dividends). Based on the facts, they will not be able to satisfy the solvency and liquidity tests as
it is not clear that the assets, fairly valued, will be equal to, or will exceed, their liabilities and it is stated that they will not be
able to pay the company’s debts as they become due in the ordinary course of business. If they do make this distribution, then
the directors will be held liable (joint and several under s.77(6) Companies Act 2008).

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49 (a) Directors’ duties are partially codified in the Companies Act 2008. Sections 75 and 76 list the duties of directors. The Act does
not, however, provide for a complete codification. The common law is therefore still applicable. The result of this is that there is
a great deal of overlap between the statutory duties and the common law duties. It is also not always clear whether a common
law duty is still relevant or not.

(b) This question concerns the duty of care, skill and diligence. Section 76 Companies Act 2008 has partially codified the duty
of care and skill. A dual test is applicable when considering whether a breach of the duty of care, skill and diligence occurred
or not. A director is accordingly liable to the company for loss caused by their failure to carry on the business with the degree
of care and skill which may reasonably be expected from a person of their knowledge and experience. The question is thus
whether a reasonable person with Eddy’s expertise would have done the same in his position. The objective test now has a
subjective element in that the general knowledge, skill and experience of that particular director in question (Eddy) are taken
into consideration. The objective standard can never be reduced/lowered, based on the subjective standard. The objective
standard is still the minimum standard required. Based on this, Eddy may be liable as he breached the duty of care, skill and
diligence by not paying the supplier in a timeous manner on more than one occasion.

50 (a) Section 424 Companies Act 1973 renders liable all persons, not only directors, who ‘knowingly’ participate or acquiesce in the
fraudulent or reckless conduct of a company.

(b) Section 424 Companies Act 1973 (which is still applicable) may be used to impose personal liability on any person who
knowingly participate or acquiesce in the fraudulent or reckless conduct (i.e. not just on directors). This section empowers a
court to hold the directors of a company personally liable for the debts of the company where the business of the company
was carried on recklessly with the intent to defraud creditors. The remedy provided by s.424 supplements the common law
remedies available against wrongdoers who cause injury by their intentional or negligent acts. In Philotex (Pty) Ltd v Snyman
(1998), the creditors successfully used s.424 against directors. In this case, the directors of a company allowed the insolvent
company to keep on trading to create a good impression of the company group. In Ex parte Lebowa Development Corporation
Ltd (1989), it was suggested that obtaining credit for a company without disclosing the risk that the company might not be in
a position to repay the loan or that the terms of repayment might not necessarily be honoured, may indeed amount to fraud on
the creditor, even if the company’s representative honestly believed the risk was not great. It would thus appear that a strong
case can be made for holding John and Kael personally liable for the debts of Hotel Group (Pty) Ltd. It would appear that the
two of them should be held liable as they carried on trading after it was clear that they ought to have known that there was no
reasonable chance of the company avoiding insolvent liquidation.

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Applied Skills, LW – ZAF
Corporate and Business Law – South Africa (LW – ZAF) June 2021 Marking Scheme

Section A

1–45 One or two marks per question, total 70 marks.

Section B

46 (a) One mark for listing the basic requirements of a partnership, up to a maximum of two marks.

(b) One mark for each relevant point made on whether a valid partnership was concluded. A maximum of four marks can be
awarded.
(Total 6 marks)

47 (a) One mark for each relevant point made relating to the differences between a ‘representation’ and a ‘term’. A maximum of two
marks can be awarded.

(b) One mark for explaining whether Courtney has committed a fraudulent, negligent or innocent misrepresentation, to a maximum
of three marks and one mark for indicating the consequences.
(Total 6 marks)

48 (a) One mark for explaining the meaning of ‘distribution’. A maximum of two marks can be awarded.

(b) One mark for explaining whether or not a dividend can be declared in these circumstances. A maximum of four marks can be
awarded.
(Total 6 marks)

49 (a) One mark for explaining the concept of a ‘partial codification of directors’ duties’, to a maximum of two marks.

(b) One mark for explaining whether Eddy has breached his duty of care, skill and diligence. A maximum of four marks can be
awarded.
(Total 6 marks)

50 (a) One mark for mentioning that the section applies to all persons who ‘knowingly’ participate or acquiesce in the fraudulent or
reckless conduct of a company and another for mentioning that it does not only apply to the directors, a maximum of two marks
can be awarded.

(b) One mark for each relevant point as to whether the parties will be liable under s.424 Companies Act 1973, a maximum of four
marks can be awarded.
(Total 6 marks)

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