FACULTY OF BUSINESS &

MANAGEMENT SCIENCES

COMMERCIAL LAW 622

2023
FACULTY OF BUSINESS & MANAGEMENT
SCIENCES

STUDY GUIDE MATERIAL

COMMERCIAL LAW 622

(2nd SEMESTER)

Copyright © 2023
Richfield Graduate Institute of Technology (Pty) Ltd
Registration Number: 2000/000757/07
All rights reserved; no part of this publication may be reproduced in any form or by any means,
including photocopying, without the written permission of the Institution

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 TABLE OF CONTENT
Topics
Section A : Preface
1. Welcome
2. Title of Modules
3. Purpose of Module
4. Learning Outcomes
5. Method of Study
6. Lectures and Tutorials
7. Notices
8. Prescribed & Recommended Material
9. Assessment & Key Concepts in Assignments and Examinations

10.Work Readiness Programme

11.Work Integrated Learning
12.Interactive Learning
Section B: THE LEGAL ENVIRONMENT Page
SECTION B: THE LEGAL ENVIRONMENT 1
TOPIC 1: NATURE OF CONTRACTS OF SALE 1
1.1. Res Vendita 1
1.2. Essential Elements of a contract of sale 1
1.3. Transfer of possession 2
1.4. The price 2
1.5. Sale distinguished from other contracts 2
1.6. Duties of parties in a contract of sale 2
1.7. Formalities 3
1.8. Specials sales 3
1.9. Ownership 4
1.10. Defects of the contract of sale 4
1.11. Court remedies contract of sales 5
1.12. Damages available to the buyer 5
Assessment Questions 6
TOPIC 2: LEASE 9
2.1 Nature of contract of lease 9

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2.2 Essential elements of lease 9
2.3 Formation of lease 10
2.4 Rights and duties of parties to a lease contract 10
2.5 Duties of lessor 11
2.6 Duties of lessee 11
2.7 Rights of the lessor 12
2.8 Rights of the lessee 13
2.9 Lessee’s relationship with the successor of property 13
2.10 Termination of the lease 14
Assessment Questions 15
TOPIC 3. THE NATIONAL CREDIT ACT 18
3.1 Introduction 18
3.2 Objectives of the National Credit Act 18
3.3 The National Credit Act 18
3.4 Application of the NCA 20
3.5 Administrative Bodies of the NCA 22
3.6 The In duplum rule 25
3.7 Collection repayments surrender and debt enforcement 26
Assessment Questions 26
TOPIC 4. THE LAW OF PARTNERSHIP 28
4.1 Characteristics of Partnership 28
4.2 Types of Partnership 28
4.3 Assets and Liabilities 29
4.4 Essential Elements of Partnership 29
4.5 Advantages of Partnership 30
4.6 Disadvantages of Partnership 30
4.7 Partnership and Company Distinguished 31
4.8 Relations of partners to one another 32
4.9 Rights of a Partner 32
4.10 Dissolution of partnership 33
Assessment Questions 34
TOPIC 5. AGENCY AND INSURANCE 35
5.1 Introduction 35
5.2 Trustees, Sellers, Buyers, Distributors and Franchisee 36
5.3 Types of Agency 36
 5.4 Creation of Agency 39
5.5 Rights, Duties, and Liabilities Between Principal &Agent 41
5.6 Agency by Estoppel & Apparent Authority 42
5.7 Ratification 44
5.8 Termination of Agent’s Authority 45
5.9 Insurance 46
5.10 Types of Insurance 46
5.11 Indemnity Insurance 46
5.12 Non-indemnity Insurance 46
5.13 Essential Elements of Insurance 47
Assessment Questions 47
TOPIC 6. ELECTRONIC PAYMENT METHODS 49

6.1 Introduction 49
6.2. The Evolution of the South African Payment Systems 49
6.3. Banker-Customer Relationship 50
6.4. Electronic Payment Systems 50
6.4.1. Electronic Funds Transfers 50
6.4.1.2 Reversal of EFT payments made in error 51
6.4.2. EFTPOS 51
6.4.2.2 Unauthorised use 52
6.4.2.3 Standard form contract’s terms and conditions 52
6.4.2.4 Access devices 53
6.4.3 The Regulation of EFTs 56
6.4.4 Smart Cards and E-Money 61
6.4.5 E-wallet and payments intermediaries 62
6.4.6 The SARB Position on Virtual Currencies 64
6.4.7 Assessment Questions 64
TOPIC 7. LAW OF INSOLVENCY 61
7.1 Introduction 61
7.2 Types of Liquidation 61
7.3 Compulsory Liquidation 61
7.4 Voluntary Liquidation 64
7.5 Misconduct 64
7.6 Priority of Claims 64

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7.7 Dissolution 65
Assessment Questions 66
TOPIC 8: THE LAW OF COPYRIGHT 67
8.1 Works Protected By Copyrights 67
8.2 Literal Works 67
8.3 Artistic Works 68
8.4 Cinematograph films 68
8.5 Copyright in Sounds 68
8.6 Royalties 69
8.7 Copyright in Broadcast 69
8.8 Programme-carrying Signals 69
8.9 Copyright in Computer Programmes 69
8.10 Infringement of Copyrights 69
8.11 Advantages of Copyright 69
8.12 Disadvantages (Anti-copyright) 70
8.13 Remedies for Infringements 70
Assessment Questions 72
TOPIC 9: EMPLOYMENT 73
9.1 Nature of the Contract 73
9.2 Parties to the Contract of Employment 73
9.3 Remuneration 74
9.4 Personnel Services 74
9.5 Services Defined 74
9.6 Effect of the Contract 75
9.7 Comparison between employee and Independent Contractor 79
9.8 Basic Conditions of Employment 79
9.9 Fair Reasons for Dismissal 81
9.10 Misconduct 82
9.11 Unfair Dismissal 86
9.12 Procedures for Resolving Disputes 87
9.13 Occupational Healthy 89
Assessment Questions 91
TOPIC 10: DEFAMATION 92
10.1 Introduction 92
10.2 Defenses 93
 10.3 The problems 94
10.4 Media power and defamation 95
TOPIC11: THE CONSUMER PROTECTION ACTION ACT 107

The consumer protection act? 107

Who is a ‘consumer’? 108
Where to complain 108
TOPIC 12: ADDENDUM 622 (A): ASSIGNMENT 111

TOPIC 13: ADDENDUM 622 (B): WRITING

ASSIGNMENTS

TOPIC 14: ADDENDUM 622 (C): TEST/EXAM PAPER

SAMPLE

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SECTION A: PREFACE
1. WELCOME
Welcome to the Faculty of Business and Management Sciences at Richfield. We trust you will find the
contents and learning outcomes of this module both interesting and insightful as you begin your
academic journey and eventually your career in the business world.

The following lectures will focus on the study units described:

SECTION A: WELCOME & ORIENTATION

Study unit 1: Orientation Programme Lecture 1
Introducing academic staff to the learners by Academic Head. Introduction of
institution policies.
Study unit 2: Orientation of Learners to Library and Students Facilities
Introducing learners to physical structures, Issuing of necessary learning material. Lecture 1

Study unit 3: Orientation on how to use the Commercial Law 622 Study Guide,
Prescribed Textbooks and Recommended Materials Lecture 2

Study unit 4: Discussion on the Objectives and Outcomes of the module

Commercial Law 622 Lecture 2

Study unit 5: Orientation and g u i d e l i n e s t o c o m p l e t i n g

Lecture 3
assignments(included in Topic 12-13)Review and Recap of Study units 1-4

2. TITLE OF MODULES DETAIL

1st Semester

Title of Module: Commercial Law 622

Module Code: CLAW622
NQF Level: Credits: NQF 6: 10 Credits
Mode of Delivery: Contact/ Distance

3. PURPOSE OF MODULE

The purpose of this module is to provide learners with an insight into certain legal aspects pertaining
to business issues and relationship and have a basic understanding of the legal system, formation of
valid contracts, capacity to contract, formalities required for the formation of a valid contract, terms of
a contract, interpretation of a contract, breach of contract, remedies for the breach of contract, transfer
and termination of personal rights.

4. LEARNING OUTCOMES

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On completion of this module the student will be able to:
• Understand South African law of contract in general, i.e. requirements to be valid,
different conditions and terms that needs to be fulfilled. Understand remedies
available.
• Know the meaning of delivery.
• Acquire knowledge of the fundaments of the Law of contract.
• In depth knowledge of a legal contractual relationship and its
consequences.
• Understand the basis of the termination of legal obligations and its significances.

5. METHOD OF STUDY

The sections that have to be studied are indicated under each topic, in this study guide you are
expected to have a thorough working knowledge of the prescribed text book. These form the basis
for tests, assignments and examination. To be able to do the activities and assignments for this module,
and to achieve the learning outcomes and ultimately to be successful in the tests and examination, you
will need an in- depth understanding of the content of these sections in the learning guide, prescribed
book, recommended book, articles placed on Moodle such as lectures by independent experts,
magistrates, advocates, judges, independent legal journals, case laws and legal magazines. In order to
master the learning material, you must accept responsibility for your own studies. Learning is not the
same as memorising. You are expected to show that you understand and are able to apply the
information. You will also be made aware of lectures, tutorials, case studies and group discussions to
present this module.

As a South African student of law, you are advised to use South African statutes, case law and articles
when giving an opinion on a legal solution. Indiscriminate use of foreign law or case law as a foundation
for a legal solution to a problem is not acceptable. This may result in a student being penalised for the
incorrect application of a statute or case law.
Foreign jurisdictions may have similar statutes, e.g. “National Credit Act” it does not mean that you
must apply a foreign statute as a substitute for a South African Act. Students researching on
international websites are advised to apply caution in this regard.

6. LECTURES AND TUTORIALS

Learners must refer to Moodle, or class timetable for details of the lecture and tutorial time tables.
The lecturer assigned to the module will also inform you of the number of lecture periods and tutorials
allocated to a particular module. Prior preparation is required for each lecture and tutorial. Learners
are encouraged to actively participate in lectures and tutorials in order to ensure success in tests,
assignments and examinations.

7. NOTICES

All information pertaining to this module such as tests dates, lecture and tutorial time tables,
assignments, examinations etc. will be displayed on Moodle. Learners must check Moodle on a daily
basis. Should you require any clarity, please consult your lecturer, Campus manager, Head of
department, National programme manager, or administrator on your respective campus.

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8. PRESCRIBED & RECOMMENDED MATERIAL
8.1 Prescribed Material

Heinrich Schulze; Tukishi Manamela; Philip Stroop; Ernst Manamela; Eddie Hurter; Boaz Masuku; Chrizell
Stroop 2019. “General Principles of Commercial Law” 9th ed Claremont. Juta & Co. Ltd.

8.2 Recommended Material

Nagel et al (2021). “Commercial Law”. 5th ed. LexisNexis (Pty) Ltd: Durban

8.3 Independent Research

Students are encouraged to undertake independent research. South African Law is not easily available on
Google. Students are advised not to apply foreign law e.g. foreign statutes and case law in assignments,
tests and examinations. Students are advised to refer to Moodle, under the heading” useful websites”
students will have access to SAFLII. This legal site is free and encompasses a database of case law (by
reference to the various courts), journals and other legal literature which is essential for assignments,
tests and examinations.

8.4 Library Infrastructure

The following services are available to you:

• Each campus keeps a limited quantity of the recommended reading titles and a larger
variety of similar titles which you may borrow. Please note that learners are required to
purchase the prescribed materials.
• Arrangements have been made with municipal, state and other libraries to stock our
recommended reading and similar titles. You may use these on their premises or
borrow them if available. It is your responsibility to keep all library books safe.
• Richfield has also allocated one library period per week to assist you with your formal
research under professional supervision.
• The computers laboratories, when not in use for academic purposes, may also be used
for research purposes. Booking is essential for all electronic library usage.
• Public libraries are divided into subject categories. Students are advised to locate the
correct section by enquiring from municipal staff in advance. The law library may not
always be located in the same building as other libraries. Since municipal libraries
subscribe to further legal databases, students will have greater access to electronic
legal information not easily available to private institutions.

9. ASSESSMENT

Final Assessment for this module will comprise two Continuous Assessment Tests (CAT1 and CAT2),
one written assignment and an examination. Your lecturer will inform you of the dates, times and the
venues for each of these. You may also refer to Moodle and the notice board on your campus or the
Academic calendar which is displayed in all lecture rooms and as well as on the programme handbook
and prospectus
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9.1Continuous Assessment Tests (CAT)

There are two compulsory test for this module, in each semester. Your lecturer will inform you of the
date, time and the venue for this test. You must also refer to Moodle regularly.

9.2 Assignment

There is one compulsory research based written assignment for this module. Your lecturer, and Moodle
will inform you of the question and due date for the assignment. You must also refer to Moodle regularly,
for articles and further research materials that your lecturer may decide to provide you.

9.3 Examination

There is one two-hour examination for each module. Make sure that you diarise the correct date, time
and venue. The examinations department will notify you of your results once all administrative matters
are cleared and fees are paid up.
The final examination covers the entire syllabus and may consist of multiple choice questions, case study,
short questions and essay type questions. This requires you to be thoroughly prepared as all content
matter of lectures, tutorials, all references to the prescribed text and any other additional
documentation/reference materials is examinable in both your tests and the examinations.
The examination department will make available to you the details of the examination (date, time and
venue) in due course. You must be seated in the examination room 15 minutes before the
commencement of the examination. If you arrive late, you will not be allowed any extra time. Your student
registration card must be in your possession at all times during examination.

9.4 Final assessment

The final assessment for this module will be weighted as follows:

CA Test 1
CA Test 2 40
Assignment 1 %

Examination 60%
Total 100%

9.5 Key Concepts in Assignments and Examinations

In assessment and examination questions you will notice certain key concepts (i.e. words/verbs) which
tell you what is expected of you. For example, you may be asked in a question to list, describe, illustrate,
demonstrate, compare, construct, relate, criticize, recommend or design particular information / aspects
/ factors /situations. To help you u n d e r s t a n d exactly what these key concepts or verbs mean so

that you will know exactly what is expected of you, we present the following taxonomy by Bloom,
explaining the concepts and stating the level of cognitive thinking that these terminologies refer to.

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Competence Skills Demonstrated

Observation and recall of information, knowledge of dates, events, places,

Knowledge
knowledge of major ideas, mastery of subject matter.
Question Cues
list, define, tell, describe, identify, show, label, collect, examine, tabulate,
quote, name, who, when, where, etc.

Understanding information,
Comprehension grasp meaning, translate knowledge into new context, interpret facts,
compare, contrast order, group, infer causes, predict consequences
Question Cues
summarize, describe, interpret, contrast, predict, associate, distinguish,
estimate, differentiate, discuss, extend.

Application Use information, use methods, concepts, theories in new situations, solve
problems using required skills or knowledge
Questions Cues
apply, demonstrate, calculate, complete, illustrate, show, solve, examine,
modify, relate, change, classify, experiment, discover

Analysis Seeing patterns, organization of parts, recognition of hidden meanings,

identification of components
Question Cues
analyse, separate, order, explain, connect, classify, arrange, divide, compare,
select, explain, infer

Synthesis
Use old ideas to create new ones, generalise from given facts, relate
knowledge from several areas, predict, draw conclusions
Question Cues
combine, integrate, modify, rearrange, substitute, plan, create, design, invent,
what if, compose, formulate, prepare, generalise, rewrite

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 Evaluation
compare and discriminate between ideas,
assess value of theories, presentations, make choices based on reasoned
argument, verify value of evidence, recognise subjectivity
Question Cues
assess, decide, rank, grade, test, measure, recommend, convince, select, judge,
explain, discriminate, support, conclude, compare, summarise

10. WORK READINESS PROGRAMME (WRP)

In order to prepare learners for the world of work, a series of interventions over and above the formal
curriculum, are concurrently implemented to prepare learners. These include:
• Soft skills
• Employment skills
• Life skills
• End –User Computing (if not included in your curriculum)

The illustration below outlines some of the key concepts for Work Readiness that will be included in your
timetable.

Is in your interest to attend these workshops, complete the Work Readiness Log Book and
prepare for the Working World.

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11. WORK INTEGRATED LEARNING (WIL)

Work Integrated Learning forms a core component of the curriculum for the completion of this programme.
All modules making up of this qualification will be assessed in an integrated manner towards the end of the
programme or after completion of all other modules.
• Prerequisites for placement with employers will include:
• Completion of all tests & assignment;
• Success in examination, payment of all arrear fees;
• Return of library books, etc;
• Completion of the Work Readiness Program

Students will be fully inducted on the Work Integrated Learning Module, the Workbooks & assessment
requirements before placement with employers. The partners in Work Readiness Program (WRP) include:

Good luck with your studies…

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 INTERACTIVE ICONS USED IN LEARNER GUIDES

Writing Activity
Learning Outcomes Study
Read

Glossary
Research

Think Point Interactive

Questions

Review Questions
Questions and
Answers
Case Study Group work

Bright Idea
Multimedia Resource

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 SECTION B
Section B: THE LEGAL ENVIRONMENT
TOPIC 1: NATURE OF CONTRACTS OF SALE Lecture 4
TOPIC 2: : LEASE Lecture 4
TOPIC 3: THE NATIONAL CREDIT ACT Lecture 5-6
TOPIC 4: THE LAW OF PARTNERSHIP Lecture 7
TOPIC 5: AGENCY AND INSURANCE Lecture 8
TOPIC 6: NEGOTIABLE INSTRUMENTS AND OTHER FORMS OF PAYMENTS Lecture 9
TOPIC 7: LAW OF INSOLVENCY Lecture 10
TOPIC 8: : THE LAW OF COPYRIGHT Lecture 11
TOPIC 9: EMPLOYMENT Lecture 12
TOPIC 10: DEFAMATION Lecture 13
T0PIC 11: THE CONSUMER PROTECTION ACTION ACT Lecture 14-16
TOPIC 12: ADDENDUM 622 (A): ASSIGNMENT Lecture 17
TOPIC 13: ADDENDUM 622 (B): WRITING ASSIGNMENTS Lecture 17
TOPIC 14: ADDENDUM 622 (C): TEST/EXAM PAPER SAMPLE Lecture 17

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 TOPIC 1

NATURE OF THE CONTRACT OF SALE

At the end of the topic students should be able to:

• Explain the nature of the contract of sale
• Explain the price
• List the formalities of a written contract
• List and explain the types of sales
• Explain the passing of ownership
• Explain the passing of risk and profit in the res vendita
vendetta
• List and explain the duties of the seller

Study Heinrich Schulze (2014) :P 157-166

1.1 RES VENDITA

This refers to goods/services (corporeal/incorporeal). Sale is a contract whereby one party

(the seller or vendor) undertakes to transfer a thing (the res vendita or merx) or the
possession thereof to the other party (the purchaser) in return for payment of a price by
the latter.

There are two different types of transactions involved, namely;

• Where the merx/good/belonging/ property is transferred from the seller to the buyer
the contract is called a sale.
• Where the transfer of the property is to take place at a future time or subject to some
condition later to be fulfilled the contract is called an agreement to sell (res vendita).
This is an agreement to sell something that will come into existence at a later date.

1.2 ESSENTIAL ELEMENTS OF A CONTRACT OF SALE

To determine whether a contract of sale exist/has been concluded the following must be
present:

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• Agreement to sale – concluding an agreement to sale does not in itself transfer the real
right of ownership from the seller to the buyer.
• Agreement to deliver – Is the basis of legal rights and it raises the duty to pay.
• Agreement on the merx – Parties must agree on the thing being sold.
• Agreement on the particular price – Parties must be in agreement about the precium
(price) to be paid. It must ascertainable or fixed.

1.2 TRANSFER OF POSSESSION

In principle, the seller has a duty to transfer/deliver free and undistributed possession of
the thing (merx) to the other party. So a party may validly sell something he does not
own. But if the owner is the seller of the res vendita, he must also undertake to transfer
ownership to the buyer. If a person knowingly sells an item, which he/she is not the
owner of, without informing the buyer of this, he may be held liable for fraudulent non-
disclosure.

1.3 PRICE

The agreement must have monetary component for the contract to qualify as a sale. The
price need not be entirely in money, also the price must be fixed amount or the parties
must have agreed upon some external method or standard by reference to which the
price can be ascertained. If the parties leave the agreement of a price to a third party and
he refuses or is unable to fix a price, then there is no sale.

1.4 SALE DISTINGUISHED FROM OTHER TRANSACTION

1.5.1 Sale & barter: It’s whereby goods are exchanged for other goods
1.5.2 Sale & expropriation: Occurs when the State, or local authority, forces the sale of land
for public projects.
1.5.3 Sale on consignment: The law of agency, not the law of sale governs goods supplied to
a seller on consignment.

1.6 DUTIES OF PARTIES TO A CONTRACT OF SALE

Duties of the Seller Duties of the Buyer

• To take care of the thing (merx) until it is • To pay the purchase price
delivered. • To pay the seller’s price.
• Duty to deliver the merx to the buyer. • To accept delivery of the merx.
• Receive the purchase price.

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 1.7 FORMALITIES OF A WRITTEN CONTRACT

• A written record of the contract.

• Must include particulars, information and terms.
• Agent’s authority in writing: Where an agent acts on behalf of a person in concluding
certain types of contracts, he must have written authority from his principal empowering
him to act.
• Notarial execution: this is the signature of the contract before a notary public who attests
on the document that it has been executed in his presence.
• Registration: Consists of an entry made in a state register.

1.8 SPECIAL SALES

Cost of insurance freight sales (CIF)

A cost of insurance freight sale is one in which the seller is obliged to ship and insure goods
and invoice them to the purchaser for a sum which includes the price of the goods, the cost
of the insurance and the amount payable under the freight contract.

Free on board (FOB) or Free on rail (FOR)

Where the goods are to be shipped ‘FOR’ or ‘FOB’ the seller is obliged at his own expense
to put the goods abroad a ship for conveyance to the purchaser. The seller is not obliged
to enter into a contract of carriage or insure the goods. The buyer must pay the costs of
the rail-age and insure the goods during transportation.

Sales on approval

This refers to a sale subject to a suspensive condition that the purchaser will be bound only if
he retains the thing for longer than a certain period.

A sale or return

A sale or return is a sale subject to a resolute condition that the sale will lapse and be of no
force and effect if the purchaser returns the thing within a certain period.

Lay-by agreements

The buyer puts down a deposit on the goods, and upon paying the rest of the amount for the
goods within a specified period the buyer takes ownership of the goods.

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Sales in execution

The sale by public auction, of the property of a debtor is pursuant to a judgment of the
court against him. Sales in execution are regulated by the rules of the court and are
conducted by the sheriff of the court.

1.9 OWNERSHIP

Vindication means (rights of the true owner) to recover possession from anyone in whose
possession his or her property is found. The true owner may go to court to obtain an order
dispossessing a possessor of possession of anything that is actually owned by the owner.

Passing of ownership: To find that ownership passed in a contract of sale the following
elements must be proved;
• Seller must have been owner at the time of delivery.
• Seller must have intended to pass ownership to the buyer on delivery.
• Buyer must have intended to acquire ownership at the time of delivery.

1.10. DEFFECTS IN A CONTRACT OF SALE

• A latent defect is a hidden defect which could not be uncovered during a routine
inspection process.
• A patent defect, which is visible during a successfully conducted inspection.
• Latent defects can become a point of contention in liability law.
• Since people can't find these problems until after they buy a product, there can be a
problem for the buyer.

When people buy new products, the understanding is that they buy with an awareness of
any existing defects or problems. This is based on the assumption that if the product had
patent defects, the buyer had the opportunity to refuse the purchase. In the case of latent
defects, the buyer had no way of knowing about the defect because testing techniques
might have been needed to uncover it.

Protection against latent defects is often written into sales contracts, spelling out the
situations in which the seller will be obligated to replace or repair the damaged object
(warranty).

If there is no clause in the contract specifically addressing latent defects, the buyer may have
to take legal action to recover damages from the seller.

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• If the buyer can prove that the seller knew about the defect and did not disclose it, this
indicates misrepresentation. Likewise, if a seller tries to conceal (hide) a patent defect,
this is also misrepresentation.
• If the seller can prove genuine innocence, or can show that the buyer was aware of the
latent defect, the case may be decided in favour of the seller.

The Meaning of "Voetstoots" Is word voetstoots used to effectively describe, the action of
buying something as is, that is just as it stands (just as it is) in whatever condition.
If a property is sold voetstoots the Seller shall not be liable for any defects, patent, latent
or otherwise in the property nor for any damage occasioned to or suffered by the Purchaser
by reason of such defect. The Purchaser admits having inspected the property to his
satisfaction and that no guarantees or warranties of any nature were made by the Seller or
his agent regarding the condition or quality of the property.

The Seller shall not be responsible for any defects latent or patent or any damage resulting
thereof and the Purchaser hereby agrees to accept the (goods) as they stand with all faults.

1.11. COURT REMEDIES CONTRACT OF SALE.

• Rescission
• Damages
• Specific performance

A) Rescission
• Rescission is the abrogation or revocation of a contract.
• It a remedy provided by a court order cancelling the contract.
• The court will then also make orders aimed at restoring the parties to the position they
were in prior to the contract. (restitution in integrin). This means that any money or
goods, etc. which passed from one party to the other will be returned.
• The basis for rescission is generally the breach of a condition of the contract.
• Where the breach relates to a warranty, rescission will not normally be available and the
wronged party will only receive damages
B) Damages
• Is remedy for breach of contract through payment of money, called damages.
• The amount of damages to be paid is the loss that the wronged party could be
expected to suffer as a reasonable consequence of the breach.
• The sum of money is calculated to compensate the wronged party for the loss caused
by the breach of contract.
• The award of damages is to place the wronged party in the same position as they
would have been in if the contract had been properly performed.

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• So, all reasonable steps to ensure that the loss suffered is as small as possible must be
taken by the wronged party (mitigation of damages).

C) Specific Performance

Is action whereby a party to a contract may want to insist that the other party complies
strictly with the contract that has been made. This is called requiring specific performance.

• Where a party is guilty of some "sharp" practice.

• The remedy requires the court to supervise and see that the services were properly
performed.
• This is of particular relevance to contracts for the sale of goods.
• Where the goods are rare or have some special quality the court will order specific
performance.

1.12. REMEDIES IN A CONTRACT OF SALE: DAMAGES AVAILABLE TO THE BUYER

The remedies available to the consumers/buyer are;

Seven Basic Contract Questions-

I. Is there a deal?
II. If there is a deal, how do courts enforce deals?
III. If there is a deal, is there any reason for the court not to enforce the deal?
IV. What is it that was the deal? (what did we agree to?)
V. Once we know the deal, did anyone not do what he agreed to do?
VI. If someone didn’t do what he agreed to do, is there any legally recognized excuse? VII.
Does anyone other than the parties who made the deal have legal rights because of the deal?

Contract – Common Law – a promise or set of promises for the breach of which the law gives a
remedy, or the performance of which the law some way recognizes as a duty.

Express Contract – verbal. Based solely on words. Find the deal. Answer Q1 solely from words
of parties

Implied Contract – based at least in part on conduct. Cannot find a deal simply from the words
of the parties.

Quasi Contract – equitable remedy. not contract law – rules of K law have no application at all.

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Since it is an equitable remedy, and equity is about doing what is fair, any time result strikes you
as unfair, you should have a paragraph describing quasi contract.

Bi-lateral and Unilateral Contract –

1. Bilateral – results from an offer that is open as to how it can be accepted. Any
time the offer doesn’t require a particular method of acceptance.
2. Unilateral – kind of contract that results from an offer that requires performance
for acceptance.
3. Basically a bilateral world

Executory – when a K is described as executory – means it has not yet been performed. People
have not yet done what they agreed to.

• Aedilitian, is remedy for breach of an implied warranty against latent defects or

misrepresentation.
• Actio redihibitoria, is whereby the buyer may institution action to return the parties to
their respective positions prior to the contract.
• Actio quanti minoris: the buyer institution action for a reduction in the purchase price,
to the true value of the damaged merx in the condition at delivery. That is the difference
between the price paid and the value.

Damages available to the seller

Where the buyer does not accept delivery (mora creditor’s) the seller has the
following options,
• Specific performance, whereby the buyer is compelled by the court to accept delivery of
the merx.
• Cancellation: the seller may give notice of rescission for non-payment of price.
• Damages, In the case of both two remedies above, the seller can claim damages to
recover money spend in maintaining the merx.

• Explain the passing of ownership of res vendita

Define: Latent Defect
• What is meant by the term Res Vendita?
• Outline the duties of the seller
• Outline the five factors required for the formation of a
contract
• Briefly explain the types of sales

7
•

CASE STUDY 1

Moses v John
John advertises second-hand clothing at a low price, on
condition that it is sold voetsoots. Moses, a market trader,
examines some of the clothes and finds them in a reasonable
condition. He orders 20 shirts for resale. However, he gave one
of the shirts to his son. The shirts are badly torn that most cannot
be resold; the shirt caused skin infections to his son. Advise
Moses.

CASE STUDY 2
Mr. George sees a book displayed in the shelf of a bookshop with
a price tag of R450.00. Mr. George tenders R450.00 on the
counter and asked for the book. The bookseller refuses to sell
the book saying that the book has already been sold to someone
else and there is no other copy in stock.
a) Is the bookseller bound to sell the book to George?
b) Discuss the legal aspects in this case.
c) What are the legal implications if the book had been
stolen before Roland could return to collect It?

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 TOPIC 2
LEASE

After you have read this topic you should be able to:
• Explain the nature of contract of lease.
• Understand the requirements/essential elements of the
contract of lease.
• Explain the rights and obligations of the lessor.
• Explain the rights and obligations of the lessee.
• Understand how the contract of lease can be terminated.

Study Heinrich Schulze - (2020) :P 175-191

A “contract of lease” is a reciprocal contract. That means that both parties have rights and
duties in terms of the contract. Sometimes the contract of lease is also referred to as a
“rental agreement” or contract of letting or hiring.

2.1 NATURE OF A CONTRACT

2.1.1 A contract granting use or occupation of property during a specified period in exchange
for a specified rent.
2.1.2 Contract whereby one parties (the lessor) agrees to give the other (lessee) the
Temporary use and enjoyment of a thing, wholly or in part, in return for
remuneration (the rent).

2.2 THE REQUIREMENTS/ESSENTIAL ELEMENTS OF THE CONTRACT OF LEASE

• The use and enjoyment of a thing.

• Temporary use and enjoyment.
• The rent.
• Formation of the lease contract.

2.2.1 The Use and Enjoyment of a Thing

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•

The contract should confer the full enjoyment of the object of the lease a partial letting
and hiring is permissible. Example - A room in a house may be let or the surface of one
wall may be let for advertising etc.
• Parties must agree on what particular property is going to be let.
• Contract of letting and hiring must confer on the lessee the power to enjoy the object
that is to be let if any of these things are diminished or does not happen the contract
will not exist.

2.2.2 Temporary Use and Enjoyment

In the contract of lease, the lessor makes temporary use and enjoyment of the object
of the lease available to the lessee. The duration of the lease may be indefinite and it
may also be expressed to be at the will of either the lessor or lessee.

2.2.3 The Rent

• The lessee must undertake to pay rent.

• Rent must be a specified sum of money.
• The amount of rent must be certain.
• Parties can agree to a method of how rent is going to be determined or a third person
can determine the rent.
• A market related rent price is accepted as well as a reasonable rent price.

Exception to the General Rule

There exception to the rule is that the rent must be in money that is the rent of
agricultural land, it may consist of a definite quantity or an agreed proportion of the
produce of the property has been let (e.g. I lease my orchard to Jim for a certain portion
of apples produced each season).

2.3 THE FORMATION OF A CONTRACT OF LEASE

• Ordinary rules of contact apply.

• No formalities are required for a valid contract of lease coming into being.
• Long leases have to be registered against the title deeds.
• Some Parliament acts state that the lease of agreement must be in writing e.g.
• The Rental Housing Act 50 of 1999.

2.4 RIGHTS AND DUTIES OF PARTIES TO A LEASE CONTRACT

10
The lessor and lessee may not exclude any important elements from the contract. They
must agree on the time of the hiring etc. Some common law elements may be left out,
if there is any breach of contract they can rely on the basic remedies to terminate or
claim from the contract etc.

2.5 LESSOR HAS FOLLOWING DUTIES:

2.5.1 The Duty to Deliver the Thing Hired to the Lessee

The lessor must put the use and occupation of the object leased at the disposal of the lessee
in such a manner that the lessee is able to enter into undisturbed occupation of it.

2.5.2 The Duty to Maintain the Thing Let in A Proper Condition

The property must not only be delivered in a condition which is reasonably fit for the
purpose for which it is being leased. It must also be maintained in that state allowing
for normal wear and tear.
• If the lessor fails to do this there is a breach of contract.
• If a house is badly damaged because the lessor failed to repair it, the lessee may
terminate the contract but must give the lessor notice of termination the lessee may
demand for reduction in rent.
• If the lessee undertakes him to repair the property she/he can claim the money back
from the lessor or demand a reduction in rent.

2.5.3 The Duty to Ensure the Lessee’s Undisturbed Use and Enjoyment

The lessor must warrant that no one has the right in law to disturb the lessee's use and
enjoyment of the property. The lessor must ensure that the lessee's use and enjoyment
is not disturbed during the period of lease. The disturbance of the lessee may be caused
by the lessor or a third party, for example, if a third party claims to have a superior title
over the leased object.
Discuss disturbances caused by natural disasters? (page 179- Peter Havenga)

2.6 THE DUTIES OF THE LESSEE

2.6.1 The Lessee’s Duty to Pay the Rent:

The payment of rent is an essential element of a contract of lease. Therefore, it may not
be excluded - even by agreement between the parties. The parties to the contract of lease
may, however, agree to alter the common-law rules in respect of, for example, the time
of payment.

11
•

The lessee can commit a breach of duty to pay rent in two ways:
• The lessee can default in payments
• The lessee can refuse to pay or deny paying the rent. (Repudiate)

If the lessee defaults the lessor may:

• Elect to uphold the contract to claim rent.
• May cancel on the contract on the grounds of the lessee’s refusal to pay rent.
• Lessor who cancels the lease may claim the rent that has been accrued up to the time of
cancellation.
• Lessor may use the remedy mora debitoris for repudiation.

Also note that the acceptance by the lessor of a late payment of rent does not
necessarily mean that the lessor has waived the right to insist on prompt payment of
future amounts of rent.

2.6.1. Proper Use and Care of the object of the Lease

The thing let may not be used improperly or unreasonably. It must be maintained in a
good condition and may be used only for the purpose for which it has been leased. E.g. if
Roland rents a house in a residential area from Robertson, Roland is under an obligation
to, among other things, keep the flat neat and clean and he will not, without the
permission of Robertson, be able to use the premises (house) in which, to conduct his
panel beating business.

2.6.2. Proper Use and Care of the Object of the Lease

Upon termination of the lease the lessee must return the lease object or evacuate
premises.
The leased property must be returned in the condition in which it was received except for
deterioration as a result of reasonable wear and tear. The lessee is under the obligation
to restore any damage to the property caused either by himself or herself or by anybody
for whose actions he or she bears responsibility.

2.7. THE RIGHTS OF THE LESSOR

2.7.1. Payment of Rent

The landlord will be entitled to cancel the lease and eject the tenant if the latter breaches
the specified conditions.

2.7.2. The Lessor’s Tacit Hypothec for Unpaid Rent:

12
The lessor or landlord of immovable property (e.g. a house or a flat) acquires a hypothec
over all movables situated on the property as soon as the lessee falls into arrears with
his rent. The hypothec serves as security in respect of such rent. The lessor may rely on
the hypothec only when, and for as long as, the rent is in arrears.
• Hypothec terminates on payment of the arrear rent by the lessee or any other party.
• Termination of lease does not itself mean termination of hypothec. The lessor must
enforce his rights by means of an order of court.

2.7.3. Misuse of the Object of Lease

If a lessee misused the property, there are contractual remedies.

• If the misuse is material, the lessor can cancel the contract and has a claim for damages
suffered.
• If the misuse is not material, the claim is restricted to an action for damages, if any have
been suffered.
• Lessor may obtain an interdict to prevent the lessee from misusing the leased property;
thereafter he must use it in a proper manner.

2.7.4. Return the Property and The End of the Lease

2.8. THE RIGHTS OF THE LESSEE/TENANT

• This is the right to occupy the premises on an ongoing basis, while meeting your
obligations in the lease agreement.
• To be consulted on matters that relate to you as a tenant.
• Warranty against Interference.
• Right to subletting.
• Right to be compensated for improvements made to the property. Sometimes the lessee
wants to make improvements to his house by painting it etc. The parties to the contract
of letting and hiring should agree on the rights of the lessee to remove improvements
and claim compensation if the improvements are not removed. A lessee is allowed to
remove improvements before the termination of the lease provided they can be
removed without leaving the property in a worse condition than it was received, the
lessor can choose to keep the improvements and pay the lessee the expenses incurred
to remove the improvements.

2.9. THE LESSEE’S RELATIONSHIP WITH SUCCESSORS OF PROPERTY

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•

The Maxim “Huur Gaat Voor Koop” –Lease Goes Before Sale

• The lease remains in force on the death of the lessor; the lessor’s estate is simply
substituted as lessor.
• If a lessor of immovable property sells the property, the general rule is that the
purchaser is bound by the lease in accordance with the maxim “huur gaat voor
koop” which means hire takes precedence over sale.
• The person to whom such property has been transferred is bound by the contract
of lease, existing in respect of the property. The purchaser cannot evict the lessee
but is obliged to abide by the terms of the lease provided the lessee continues to
pay rent due under the lease.

2.10. THE TERMINATION OF THE LEASE

Termination by effluxion of time:

If a lease is for a fixed period or until the occurrence of a specified event, the obligations
arising from it automatically come to an end when the period ends or the event occurs.

Termination by notice

If a contract is indefinite and the rent is payable monthly the obligations flowing from
it can be terminated by notice given by the lessor or lessee. A reasonable notice is that
when a lease is going to expire, then the lessor gives the lessee a reasonable time to re-
let the premises or the lessee a reasonable time to find new premises. A notice of
termination becomes effective only if it comes to the actual knowledge of the other
party.

Termination by extinction of the Lessor’s title

It is not a requirement for a contract of lease, that the lessor should have a valid title to
the object of the lease. If the extinction of a title does not terminate the obligations
created by the contract of lease but it does end the lease if the parties had intended, it
to do so or if the lessor cannot give the lessee undisturbed enjoyment of the thing
because his title has ended they may lead to the termination of an obligation by
supervening impossibility of performance.

Termination by death

Lease terminated by the death of the lessor or lessee if the contract says so, in other cases
the rights and duties of the deceased lessor or lessee pass to heirs of that party on his death.

14
Termination by insolvency
The liquidator may terminate a lease of movable or immovable property before a
general meeting is convened to obtain the sanction of the members or creditors of the
company for certain matters.

• Explain the nature of contract of lease.

• Outline the essential elements of the contract of lease.
• Explain the rights and obligations of the lessee.
• Explain how the contract of lease can be terminated

15
•

What is a lease?

Lease is a contractual agreement under which one party,

referred to as the lessor, owner of a particular asset, grants
the right of use of this asset to a second party, referred to
as the lessee for a particular period and under a particular
repayment schedule. After the expiry of the validity period
of the lease agreement, the lessee may become owner of
the leased assets.

What is a lease agreement?

The lease agreement is an agreement by virtue of which the

lessor grants to the lessee the right to use a particular asset
for compensation for an agreed period. Agreements for
leasing an asset, which include a clause entitling the lessee
to acquire the ownership over the asset under particular
terms and conditions (lease agreements with purchase) are
also treated as lease agreements.

What are the types of leasing?

The most popular types of financing are the finance- and the
operative leasing. Recently the so-called Fleet Management
– management of vehicle fleets is a service that is sought
increasingly often.
• Finance leasing – a form of financing, where the client
uses a fixed asset in exchange for payment, and after the
expiry of the leasing contract the client may acquire the
asset. The finance leasing further divides into:
• Open end – with the option for acquisition of the asset
at the end of the leasing contract – grants the client the
option to choose whether to pay the remaining value of
the asset, thus becoming owner of the lease asset, or to
renounce this right;
• Closed end – where the title transfer at the end of the
lease contract is obligatory;
• Closed end and VAT deferral - where the title transfer at
the end of the lease contract is obligatory.
• Reverse Leasing – in this type of leasing the supplier and
the client are one and the same person. It is usually used
with the purpose of freeing necessary financial
resources.
• Inventory Leasing – special form of finance leasing,

16
 where the inventory reserves of a trading company may
be financed.
• Operative leasing – a type of rental contract, where the
client uses the asset in exchange for rent for a certain
period of time and after its expiry, the client returns the
asset to the Lessor.
• Fleet management – a type of leasing contract, where
besides the purchase of a vehicle, the Lessor also takes
care of the management and maintenance of the client’s
vehicle fleet.

Is it possible to apply for lease if there is a bank credit?

The lease is used for the acquisition of the required

equipment, without affecting in any way any granted bank
credit financing the working capital of the company.

What is the purpose of the down payment?

The down payment is payable upon the conclusion of the

lease agreement and functions as the lessee’s participation
with own funds. It is a percentage of the value of the leased
asset. No interest is accrued on it and it is payable upon
signing the lease agreement; its payment is a precondition
for its coming into effect.

17
•

TOPIC 3
THE NATIONAL CREDIT ACT

After you have read this topic you should be able to:
• Understand the aim of the national credit act (NCA).
• Explain the application of the Act.
• Explain the nature of contract.
• Discuss the rights of consumer’s/credit providers according
to NCA.
• Explain the content of the agreement.
• Explain regulations of terms of credit agreements.
• Discuss the rights and duties of the guarantor/provider.

3.1 INTRODUCTION
The Usury Act, 73 of 1968 and the Credit Agreements Act, 75 of 1980, has been the
cornerstone of consumer credit in South Africa for the last thirty years. The
abovementioned acts have now been replaced by one piece of legislation, the National
Credit Act (“NCA”), 34 of 2005 enacted by the Parliament of the Republic of South Africa,
assented to by the President on 15 March 2006 “The regulations of the Act took effect on 1
June 2006. The rest of the Act was put into operation on the 1st of June 2007.

National Credit Act: Act No. 34 Of 2005.

The purposes of this Act is to promote and advance the social and economic welfare of
South Africans, promote a fair, transparent, competitive, sustainable, responsible,
efficient, effective and accessible credit market and industry, and to protect consumers.

The Act establishes a National Credit Regulator, to carry out education, research, policy
development, and registration of industry participants, investigate serious complaints,
and ensure enforcement of the Act.

3.2 OBJECTIVES OF THE NATIONAL CREDIT ACT

To promote a fair and non-discriminatory marketplace for access to consumer credit

and for that purpose to provide for the general regulation of consumer credit and
improved standards of consumer information;
• to promote black economic empowerment and ownership within the consumer credit
industry;

18
• to prohibit certain unfair credit and credit-marketing practices;
• to promote responsible credit granting and for that purpose to prohibit reckless credit
granting;
• Establishing equilibrium in the consumer-credit provider relationship;
• Education of consumers;
• Protection of consumers;
• to provide for debt re-organization in cases of over-indebtedness;
• to regulate credit information;
• to provide for registration of credit bureau, credit providers and debt counselling services;
• to establish national norms and standards relating to consumer credit;
• to promote a consistent enforcement framework relating to consumer credit;
• to establish the National Credit Regulator and the National Consumer
• Tribunal, to repeal the Usury Act, 1968, and the Credit Agreements Act,1980; and to
provide for related incidental matters.”

3.3 THE NATIONAL CREDIT ACT.

Interpretation: This Act must be interpreted in a manner that gives effect to the purposes set
out below.

Purpose and application

Purpose of Act:
Is to promote and advance the social and economic welfare of South Africans, promote a
fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible
credit market and industry, and to protect consumers, by:
• promoting the development of a credit market that is accessible to all South Africans, and
in particular to those who have historically been unable to access credit under sustainable
market conditions;
• ensuring consistent treatment of different credit products and different credit providers;
• encouraging responsible borrowing, avoidance of over-indebtedness and fulfilment of
financial obligations by consumers; and
• discouraging reckless credit granting by credit providers and contractual default by
consumers;
• promoting equity in the credit market by balancing the respective rights and
responsibilities of credit providers and consumers;
• addressing and correcting imbalances in negotiating power between consumers and
credit providers;

19
•

• addressing and preventing over-indebtedness of consumers, and providing mechanisms

for resolving over-indebtedness based on the principle of satisfaction by the consumer of
all responsible financial obligations;
• providing for a consistent and accessible system of consensual resolution of disputes
arising from credit agreements.

3.4 APPLICATION OF THE NCA (WHO DOES THE ACT APPLY TO?)

Broadly, the Act applies to every credit agreement between parties dealing at arm’s length
and made within, or having an effect within, the Republic, except a credit agreement in
terms of which the consumer is;
• a juristic person whose asset value or annual turnover, together with the combined asset
value or annual turnover of all related juristic persons, at the time the agreement is made,
equals or exceeds the threshold value determined by the state.
• this Act applies to a credit guarantee only to the extent that this Act applies to a credit
facility or credit transaction in respect of which the credit guarantee is granted;
• a juristic person is related to another juristic person;

In particular, the NCA applies to credit agreements with all consumers entered into after
01 June 2007, and to entities such as close corporations, companies, partnerships and
trusts, whose asset value or annual turnover is below R1 million. This new legislation will
affect you if you are applying for any of the following types of products:

• Overdrafts
• Credit cards
• Instalment agreements
• Mortgages
• Financial leases

Consumer rights

Credit bureaus: The Act gives consumers the right to access and challenge their credit record
and information held by credit bureaus. In addition, all information that the credit bureaus
keep about the consumers is regulated.

Language: Consumers have the right to receive documents in plain and understandable
language and they may also request a document in any one of two official languages.

20
Marketing Practices

• The Act aims to put a stop to misleading advertising around credit, credit products and
facilities, and the cost of credit.
• Negative option marketing (whereby an agreement will automatically come into existence
unless an offer is specifically declined) is not allowed
• Phrases like “no credit checks”, “free credit”, and “guaranteed loans” cannot be used.
• Marketing of credit at the consumer’s home or workplace is prohibited without the
consumer’s consent.
• Consumer choices must be obtained and kept as a record.

Pricing

All new credit agreements need to disclose interest rates, fees and additional charges and also
subject interest rates charged to a maximum rate of interest that may be allowed.
These cost controls prohibit interest or other costs in excess of those prescribed rates. Add-on
costs for insurance are prohibited.
All costs must be advised in advance and the consumer has the right to arrange insurance
directly, rather than pay the credit provider to do so, and to choose to arrange his or her own
insurance policies.

Applying for credit under the NCA

• Pre-agreement: The credit provider must provide the consumer with a pre- agreement,
containing the main features of the proposed agreement and a quotation of the costs. This
pre-agreement is valid for 5 days and gives consumers an opportunity to shop around for
the best deal.

• Credit assessment: The consumer will be required to provide certain information in order
for the lender to assess affordability. This may include a detailed statement of income and
costs, a household budget and details of other credit commitments.

• Credit bureaus: The Act requires the credit provider upon entering or amending or
terminating a credit agreement to report the transaction to a credit bureau.

Records of application: Credit providers will be required to keep records of all applications
for credit, credit agreements and credit accounts for a prescribed time.

21
•

• Payment of accounts: A consumer may pre-pay any amount owing at any time, and fully
pay out the account at any time without penalty, except in the case of mortgage bonds
32or agreements in excess of R250 000, which are subject to a termination charge of not
more than three months’ interest.

• Spouse’s written consent: For marriages in community of property, the Matrimonial

Property Act, following from a consequential amendment made by the NCA, requires the
written consent of the spouse, when one spouse applies for credit.

• Over-indebtedness and reckless lending: The Act aims to promote responsible credit
granting and use. To achieve this, when a customer applies for credit, a credit provider
would need to check whether the consumer can afford the credit because if no check is
done or if it can be shown that the consumer clearly could not afford to repay the credit
agreement, it could be alleged that the credit provider has granted the credit recklessly,
with severe consequences to that credit provider.

During this affordability assessment, the onus is on the consumer to fully and truthfully
answer any request by the credit provider for information. In the case where a consumer gets
into too much debt, a debt counselling service is offered.

Complaints:

The National Credit Regulator will monitor credit providers and their compliance with the Act
and regulations. A National Consumer Tribunal is established to adjudicate in a wide variety of
applications, and to conduct hearings into complaints.

1.5. ADMINISTRATIVE BODIES OF THE NCA

The NCA establishes various administrative bodies, institutions and individuals, whose
purpose it will be to regulate credit in South Africa and who may make statutory orders to
ensure that the NCA is complied with.

The four vital role players established by the NCA are:

• The National Credit Regulator;
• The National Consumer Tribunal;
• Debt Counsellors; and
• Consumer Courts.
The duties of these bodies and the powers conferred upon them is discussed at length in the
NCA.
The Credit Provider – Consumer Relationship

22
The NCA has as an underlying purpose and aim to regulate the relationship between the
consumer and credit provider and confers a majority of rights upon the consumer
to ensure that the “main purpose” of the NCA, to protect consumers, is met.

A consumer is defined in the NCA as:

• the party to whom goods or services are sold under a discount transaction, incidental credit
agreement or instalment agreement;
• the party to whom money is paid, or credit is granted, under a pawn transaction;
• the party to whom credit is granted under a credit facility;
• the mortgagor under a mortgage agreement;
• the borrower under a secured loan;
• the lessee under a lease, not for immovable property;
• the guarantor under a credit guarantee;
• The party who receives money or credit under any other credit agreement.

A credit provider is described in the NCA as:

• the party who supplies goods or services under a discount transaction, incidental
agreement or instalment agreement;
• the party who extends credit under a credit facility;
• The mortgagee under a mortgage agreement;
• the lender under a secured loan;
• the lessor under a lease, not for immovable property;
• the party to whom an assurance or promise is made under a credit guarantee;
• the party who advances money or credit under any other credit agreement;
• any person who acquires the rights of a credit provider under a credit agreement, whether
it be a credit grantor or cessionary.

The rights of consumers are:

• The right to apply for credit and non-discrimination;

• The right to information in official language;
• Rights in respect of consumer credit information – A credit provider must advise a debtor
before adverse information is reported to a credit bureau and the affected person may
challenge it. Any person may inspect a credit bureau, the national credit register held by
the National Credit Regulator or any file or information concerning him and may challenge
the accuracy of such information. The credit bureau, credit provider or the National Credit
Regulator must investigate the challenge to its information and remove the same if it is
unable to find credible evidence in support of their information.

23
•

• The right to be protected against the marketing practices of credit providers;

• The right to be indemnified against lost cards;
• The right to documentation;
• The right to privacy and confidentiality;
• The right to apply for debt review and re-arrangement of obligations as a result of over
indebtedness;
• The right of cooling-off;
• The right to settle an account and to make prepayments;
• The right to surrender goods;
• The right to receive statements of account;

Some of the rights of credit providers/grantor are:

• The right to assess a consumer’s credit worthiness and refusal to grant credit;
• The right to enforce or terminate an agreement, subject to the provisions of the NCA;
• The right to suspend or close a credit facility, subject to the provisions of the NCA;
• The right to enforce remaining obligations on a consumer after the attachment and sale of
goods;
• The right to obtain a copy of the letter of guarantee or contract of guarantee;
• and any other documents in relation to the loan transaction;
• The right to seek advice from your lawyer before signing the contract of guarantee.
(Nevertheless, you will have to pay the legal fees yourself)
• The right to information on the outstanding balance of the account of the borrower with
the financial institution subject to the borrower’s consent.
The right to call upon the borrower to pay off the loan to release you from all your liabilities
under the guarantee. This right can be exercised at any time and even upon the borrower
to pay the debt. However, this right may be subject to the terms and conditions of the loan,
which may vary from customer to customer
• The right to be indemnified by the borrower for any payment made to the financial
institution.

A credit provider is prohibited from granting credit to consumers recklessly. Before granting
credit a credit provider must assess the consumer’s credit worthiness and ability to repay the
credit. A credit agreement will be reckless if the credit provider failed to do a proper
assessment or if it was assessed that the consumer cannot afford the credit applied for, but
the credit provider proceeded with granting the same despite this.

It is important to note that if an agreement is reckless, it does not automatically mean that
a consumer is over indebted. A competent court must make that assessment and based upon
their findings, the court must make the appropriate decision, whether it be to set aside any

24
or all the obligations of a consumer under a credit agreement or whether to merely suspend
same until such a time that the debtor’s debts are restructured as per the courts direction.

If a consumer’s obligations under a credit agreement are suspended by a court, the

consumer is not obligated to perform at all during such a period of suspension and may the
credit provider not charge any fee, charge or interest during this period.

After the suspension period the status quo is restored, but can the credit provider not recover
or attempt to recover any fees, charges or interest for the suspended period.

Apart from the above, the NCA also prescribes that only certain items may be debited from
the consumer’s account and recovered by the credit provider and must be done in
accordance with the provisions of the NCA.

3.6. THE IN DUPLUM RULE

The common law in duplum rule holds that “interest stops running when the unpaid interest
equals the outstanding capital.” Confirmation that this ancient Roman doctrine was part of our
law was eventually settled in the case of LTA Construction Bpk v Administrator, Transvaal 1992
(1) SA 473 (A).

The NCA enacts the in duplum rule into legislation in Section 103(5) but the NCA takes the
definition further than the common law definition of the in duplum rule, specifying that not
only interest stops running when the unpaid interest equals the outstanding capital, that
initiation fees; Service fees;
• Credit insurance;
• Default administration charges; and collection costs should be included, together with the
interest in an aggregate amount which should not exceed the principal debt.

This is another example of the NCA going too far when there was sufficient protection for
debtors in the common law in duplum rule.

Particularly by including collection costs, which are the legal or debt collector’s costs incurred
in getting payment from the debtor. This means in a long drawn out and costly collection
matter, which could be the result of the debtor frustrating the collections process, the chart
will get less another version if and when the interest and legal costs exceed the principal
debt.

25
•

Consumer Credit Agreements

Unlawful credit agreements: If a credit agreement is unlawful in terms of this section, despite
any provision of common law, any other legislation or any provision of an agreement to the
contrary, a court must order that:
• The credit agreement is void as from the date the agreement was entered into;
• The credit provider must refund to the consumer any money paid by the consumer under
that agreement to the credit provider.

Rescission and Termination of Credit Agreements

Consumer’s right to rescind credit agreement A consumer may terminate a credit

agreement within five business days after the date on which the agreement was signed by
the consumer, by-
• delivering a notice in the prescribed manner to the credit provider; and
• tendering the return of any money or goods, or paying in full for any services, received by
the consumer in respect of the agreement.
When may the consumer terminate the agreement: The consumer may terminate a credit
agreement at any time by paying the settlement amount to the credit provider. Termination
of agreement by credit provider: A credit provider may terminate a credit agreement before
time provided a consumer is in default under a credit agreement, close that credit facility by
giving written notice to the consumer at least ten business days before the credit facility will
be closed.

3.7. COLLECTION, REPAYMENT, SURRENDER AND DEBT ENFORCEMENT

• Consumer’s or guarantor’s right to settle an agreement: A consumer or guarantor is
entitled to settle the credit agreement at any time.
Early payments and crediting of payments: At any time, without notice or penalty, a
consumer may prepay any amount. A credit provider must credit each payment made
under a credit agreement owed to a credit provider under a credit agreement.
• Surrender of goods: A consumer under an instalment agreement, secured loan or lease-
may give written notice to the credit provider to terminate the agreement; and if-the goods
are in the credit provider’s possession, require the credit provider to sell the goods; or,
return the goods that are the subject of that agreement to the credit provider’s place
of business during ordinary business hours.
Credit, means- a deferral of payment of money owed to a person, or a promise to defer
such a payment; a promise to advance or pay money to or at the direction of another
person;

26
 Credit agreement, is agreement constitutes a credit agreement for the purposes of this Act
if it is- a credit facility, as described in the NCA.
• A credit transaction, as described in subsection a credit guarantee, as described in
subsection or any combination of the above.
Credit facility, means an agreement that meets all the criteria set out in section.
Credit guarantee, means an agreement that meets all the criteria set out in Act.
Pawn transaction, means an agreement, irrespective of its form, in terms of
• one party advances money or grants credit to another, and at the time of doing so, takes
possession of goods as security for the money advanced or credit granted; and
• either- (i) the estimated resale value of the goods exceeds the value of the money provided
or the credit granted, or
• (ii) a charge, fee or interest is imposed in respect of the agreement, or in respect of the
amount loaned or the credit granted; and
• the party that advanced the money or granted the credit is entitled on expiry of a defined
period to sell the goods and retain all the proceeds of the sale in settlement of the
consumer’s obligations under the agreement;

Outline purpose and objectives of the NCA.

Discuss the limitations of a credit provider/grantor where

a creditor defaults.

Discuss the duties of a credit grantor.

State the in duplum rule at common law. What is the
development and importance of this rule under
legislation?
What are the rights of a consumer under the NCA?

27
•

TOPIC 4
THE LAW OF PARTNERSHIP

After you have read this topic you should be able to:
• Explain the legal nature of a partnership
• Understand the basic requirements of a partnership
• Understand the termination or dissolution of a partnership

4. INTRODUCTION

Partnership means a formal agreement between two or more parties that have agreed to work
together in the pursuit of common goals or
A Partnership is an association of between two more people who are contractually bound to
one another to operate a joint, profit-generating business.
Each partner contributes money, goods or services to a fund, agreeing that any profits made
will be shared between the partners as per their contract. A Partnership is quite cheap to set
up, as it does not have to be legally registered (at the Registrar of Companies). The State only
requires that stamp duty be paid in connection with the Partnership agreement, and this is
minimal.
4.1 CHARACTERISTICS OF PARTNERSHIP
• Each partner must make a contribution to the Partnership
• It does not have a juristic personality separate from the partners.
• Each partner can bind the Partnership
• If the Partnership's estate is sequestrated; the estates of the partners can follow unless the
partners undertake to pay the debts of the Partnership.
• The profits and net assets are usually distributed amongst the partners on dissolution of
the Partnership in proportion of their respective interests.
The life of the Partnership is not separate from the lives of the partners
(so if one partner dies, leaves or is declared personally insolvent the Partnership becomes
null and void)
On dissolution, the assets are liquidated, creditors are paid and partners must stand in for any
shortfall.
• The Partnership is not a "person" for tax purposes and is not taxed as a company would be.
• There are no statuary audit requirements.

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4.2 TYPES OF PARTNERSHIP

4.2.1 General/ordinary Partnership: partners liable jointly and severable for the debts of a
Partnership.
4.2.2 Anonymous (sleeping) Partnerships: the anonymous partner is not known to the public
and liable to the partners for the pro rata share.
4.2.3 Commanditarian Partnership: the partner en commandite is purely a financial
participant with a restricted liability-similar to a shareholder in a company. He shares
in the profits and losses, but his liability is restricted to his specific contribution or an
agreed amount.

4.3 ASSETS AND LIABILITIES

• As much as a Partnership is quick and easy to set up, and has benefits in terms of the
taxes one has to pay, for example, there is also a down side to this. The partners are co-
owners of the Partnership's assets and are all personally liable for the liabilities of the
business, but with a right to recover a proportionate share from the other partners.
• Should the business fail, creditors must initially try to recover monies against the
business's assets. Then, if any amount is left unpaid after the Partnership has been
sequestrated and all assets sold, a creditor can claim against the personal assets of the
individual partners.
• If the Partnership is declared insolvent by a court, every partner (except an anonymous
partner, a partner en commandite or a partner who gives security for the payment of
debts) must also be sequestrated at the same time. This means that not only could you
lose your business, but that you and your family could lose all your personal finances and
assets as well.

4.4 ESSENTIAL ELEMENTS OF PARTNERSHIP

4.4.1 Voluntary Agreement: The first element shows the voluntary contractual nature of
partnership. A partnership can only arise as a result of an agreement, express or
implied, between two or more persons. Where there is no agreement there is no
partnership.
4.4.2 Sharing of Profits of a Business: It also lays down that the existence of a business is
essential to a partnership. Business includes any trade, occupation or profession. If
two or more persons join together to form a music club it is not a partnership because
there is not business in this case.
4.4.3 Mutual Agency: It states that persons carrying on business in partnership are agents as
well as principals. The business of a firm is carried on by all or by any one or more of
them on behalf of all. Every partner has the authority to act on behalf of all and can,
by his actions, bind all the partner of the firm, each partner is the agent of the others

29
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in all matters connected with the business of the partnership. The law of partnership
has therefore been called a branch of the law of agency.
4.4.4 It must be carried on for the purpose of earning profits which would be divided amongst
the partners, in the agreed way or ratio.
4.5 ADVANTAGES OF PARTNERSHIP BUSINESS

• Larger Amount of Capital: In partnership several partners can collectively furnish the
business a greater quantity of capital funds than a single proprietor could provide.
• Ease in Establishment: The partnership business is fairly easy to organize as compared to
the limited liability companies.
• Personal Interest of Every Partner is Business: Since every partner is liable for not only his
own actions but also for those of other partners, he is concerned about every move made
by the business. This creates a sense of responsibility and a sort of personal interest in
every partner.
• Division of Risk: In partnership, the risk in divided between all the partners.
• Credit standing: Since more than one person are owners of the business, the creditors
have good reason to believe that the partnership debts will be paid off in full according to
the agreed terms.

4.6 DISADVANTAGES OF PARTNERSHIP BUSINESS

• Unlimited Liability: Each partner has an unlimited liability for all the partnership debts.
This if one partner becomes insolvent, the other solvent partners have to pay his hare of
loss.
• Difficulty in Transfer of Share: A partner cannot sell his interest in the firm nor can
partner succeed to partnership without the consent of all other partners.
• Managerial Difficulties: The partnership form of business may delay some important
decisions until all the partners are present on the spot for discussion and consultation.
Moreover, interruption into the day-to-day affairs by every partner may cause injury to
the firm and create trouble in executing and discharging the firm’s policies and duties.
• Limited Life: It is broken up at the death or withdrawal of any partner, or at his becoming
insane or bankrupt.
• Joint Ownership: Since there is no separate entity of partnership in the eyes of law, the
property of the firm is held in joint names of all the partners.
• Limitation of Funds: Although more funds can be raised by a partnership in comparison
to sole proprietorship, these may not be sufficient for establishment of a large enterprise
for which a limited liability company can be appropriate.

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4.7 PARTNERSHIP' AND 'COMPANY' DISTINGUISHED.
The main points of difference between a partnership and a company are given in a tabular form
as follows:

PARTNERSHIP COMPANY
1. A partnership is not a distinct legal person, 1. A company is a distinct legal person
but is made of the persons composing it.
2. Creation of a Partnership is purely a 2. Creation of Company involves elaborate
matter of agreement between the parties legal formalities.
such an agreement need not even be in
writing.
3. In a firm partner cannot transfer his 3. Shares in a Company (especially, in a
interest with the consent of the other public Company) are generally freely
partners. transferable.
4. Each partner is prima facie the agent of 4. Shareholders in a Company are not the
others, and can bind them by his contract agents of one another
made in the course of business of the
partnership.
5. Each partner is liable in full for the debts 5. The liability of Company’ shareholders
of the firm.
6. A partner cannot contract with his firm. 6.
7. Partners may make any private 7. Arrangements in regard to Companies are
arrangements among themselves. For regulated by law and statute for
instance a partner may
8. A firm having no separate legal existence, 8. A company on the other hand can be a
cannot be shareholder of company. Shareholder of another company.

9. The death or retirement of a partner 9. Death or retirement of a shareholder does

dissolves a firm. not dissolve the company.

10. Property may be the common property
of partners.
11. Restrictions contained in a partnership
deed will
not affect third parties, who are not aware
of such restrictions.
10. The property of the company belongs to
the company and not to its members.
11. On the other hand restrictions in the
Articles of a Company affect third parties
also.

12. A firm cannot sue and be sued in its
own name.
13. Decree against a firm can be
executed against the partners.
14. Registration is optional.
12. A company can sue and be sued in its
own name.
13. A judgement against a company may
not be executed against its shareholders.
14. Registration is compulsory.

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4.8. RELATION OF PARTNERS TO ONE ANOTHER
4.8.1 To carry on the business of the firm to the greatest common advantage:

If fiduciary relationship means anything, I cannot conceive a stronger case of

fiduciary relations than that which exists between partners. Their mutual
confidence is the life blood of the concern. It is because they trust one another that
they are partners in the first place; it is because they continue to trust one another
that the business goes on.

4.8.2 A partner cannot make secret profit at the expense of the firm.

In one English case a partner of a firm of sugar refiners was entrusted to buy sugar for the stock
(which he had bought earlier at a lower price) at the prevailing market price, making a
considerable profit on the transaction. In a suit filed by other partners, it was held that he was
bound to account for such profit and that the firm was entitled to that profit.

4.8.3 To be just and faithful to each other.

In practice, it means that all the endeavours of partner must be directed towards securing
maximum profit for the firm, thus, where a partner was authorized to sell property of the firm
for 6000 pound and he sold it for a much higher price and concealed the excess price, he was
held bound to share it with his co- partner. (Dunne V English). This is a fundamental duty
imposed upon partners by the Act, and cannot be excluded by a mutual agreement to the
contrary.

4.8.4 Duty to render true accounts and full information is also imposed upon a partner.

This duty of a partner is based on the principle of Uberrimae fidei (utmost good faith), and calls
upon partners to make full and frank disclosures of all facts affecting the affairs of the firm.

4.8.5 Duty to indemnify for loss caused by fraud:

Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the
business of the firm.

4.9 RIGHTS OF A PARTNER

4.9.1 Every partner has a right to take part in the conduct of the business;
4.9.2 Every partners shall have the right to express his opinion before the matter is
decided, but no change may be made in the nature of the business without the consent
of all the partners; and

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4.9.3 Every partner has a right to have access to and to inspect and copy any of the books of
the firm.
4.9.4 Right to have access to books. - every partner has a right to have an access to, and inspect
and copy, any of the books of the firm. A partner need not exercise this right personally,
but may have the accounts inspected by his agent, as for instance, by his accountant.

4.10 DISSOLUTION OF PARTNERSHIP AND DISSOLUTION OF PARTNERSHIP FIRM

The term dissolution means coming to an end or discontinuation. The dissolution of the firm
implies a complete breakdown of the partnership relation among all the partners. Dissolution
of the partnership (owing to retirement, death or insolvency of a partner), merely involves
change in the relation of the partners but it does not end the firm; the partnership would
certainly come to an end but the firm, the reconstituted one might continue under the same
name. So the dissolution of the partnership may or may not include the dissolution of the firm
but the dissolution of the firm necessarily means the dissolution of the partnership. On
dissolution of the firm, the business of the firm ceases to exist since its affairs are would up
by selling the assets and by paying the liabilities and discharging the claims of the partners.
The dissolution of partnership among all partners of a firm is called dissolution of the firm.

Dissolution by Agreement:
• A firm is dissolved in cases;
• all the partners give consent or;
• as per the terms of the partnership agreement.

Compulsory dissolution: A firm is dissolved compulsorily in the following cases;

• When all the partners or all excepting one partner becomes insolvent or of unsound mind.
• When the business becomes unlawful.
• When all the partners excepting one decide to retire from the firm.
• When all the partners or all excepting one partner die.
• A firm is also dissolved compulsorily if the partnership includes any provision regarding the
happening of the following events;
• expiry of the period for which the firm was formed,
• completion of the specific venture or project for which the firm was formed.

Dissolution by notice: In case of a partnership at will, the firm may be dissolved if any one of
the partner gives a notice in writing to the other partners.
Dissolution by Court: A court may order a partnership firm to be dissolved in the following
cases:
• When a partner becomes of unsound mind

33
• When a partner becomes permanently incapable of performing his/her duties as a partner,
when a partner deliberately and consistently commits breach of agreements relating to the
management of the firm;
• when a partner’s conduct is likely to adversely affect the business of the firm; when a
partner transfers his/her interest in the firm to a third party;
• When the court regards dissolution to be just and equitable.

Distinction Between Dissolution of Partnership and Dissolution of Partnership Firm

You have already studied that on the occasion of admission, retirement and death existing
partnership comes to an end, but the business of the firm continues under a new agreement.
When a firm decides to wind up its business operations under any of the circumstances
mentioned, it stands dissolved. Dissolution of a partnership firm is different from the
dissolution of a partnership. Dissolution of a firm means that the firm closes its business and
comes to an end. Dissolution of a partnership means termination of old partnership
agreement and a reconstitution of firm due to admission, retirement and death of a partner.
In dissolution of a partnership the remaining partners may agree to carry on the business under
a new agreement.

• Explain the legal nature of a partnership

• Outline the basic requirements of a partnership
• Discuss the termination or dissolution of a partnership

Problems.
Martin and Henry are partners for seven years, Martin taking
no active part in the business. After the expiry of seven years,
Henry continues the business in the same name and with the
property of the firm, without giving any account to Martin. Is
Martin entitled to a share in the profits of the business?

In the above circumstances, the partnership is not dissolved

and Martin is entitled to participate in the profits on the same
terms as those of the original agreement. A case in point is
Parson v Hayward - (1862) 4 D.F.J. 474)

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 TOPIC 5.
AGENCY AND INSURANCE

By the end of this chapter and the relevant readings you should
be able to:
• Define the term ‘agent’
• Explain how an agency is created
• Explain the duties of the agent
• Understand the duties of the principal
• Discuss the scope of the agent’s authority
• Outline ways by which agency may be terminated
• Explain the indemnity insurance
• Understand risk
• Explain non – disclosure

5.1 INTRODUCTION
Agency is defined an agent as ‘any person who happens to act on behalf of another. An agency
relationship is formed between two parties when one party (the agent) agrees to represent
another party (the principal). A principal-agent relationship is fiduciary, meaning it is based on
trust. Normally, all employees who deal with third parties are considered agents. As such, an
agency relationship is governed by employment law.

If P (the principal) instructs A (the agent) to act in the purchase of goods from T (the third party
seller) in the sale of those goods, the contract of sale that is made by A is enforceable between
P and T. In general, A has no liability to either P or T on that contract: where a person contracts
as agent for a principal the contract is the contract of the principal, and not that of the agent;
and, prima facie, at common law the only person who may sue is the principal, and the only
person who can be sued is the principal.

Three Relationships

A T

There are three parties: P, A and T, and three relationships:

• the relationship between P and A

35
• the relationship between A and T
• the relationship between P and T

The picture may be more complex than this because T is likely to use an agent and the agents
of P and T may be permitted to use sub-agents. Furthermore, one party may be simultaneously
agent and principal under a contract of sale on credit; S (seller) reserved title in the goods and
required B (buyer) to account to S for the proceeds of any resale of those goods. This meant
that on resale B was an agent for S and under an obligation to account for the resale proceeds,
but B was also a principal in relation to the new buyer.

An agent who acts outside the authority granted by the principal will be in breach of the
contract (if there was one) by which the principal appointed the agent, but, in spite of this,
the principal may be bound to the third party. This is because the authority with which the
agent has been clothed by the principal determines the relationship between the principal
and the third party. That is, the principal will be liable to the third party if the principal
represented that the agent was acting within their authority (apparent authority).

This means that the question of whether or not the principal is bound to a third party does
not depend on the actual authority granted by the principal to the agent. It depends on the
apparent authority of the agent (also known as the ostensible authority of the agent).

The apparent authority is that authority which the agent appears to possess because of
representations made by the principal to the third party.

If the third party knows the limits of the agent’s actual authority, there is no difficulty and
the apparent authority will be the same as the actual authority of the agent. However, the
third party will, usually, not know the terms of appointment of the agent and must rely on
the apparent authority.

5.2 TRUSTEES, SELLERS, BUYERS, DISTRIBUTORS AND FRANCHISEES

It is worth distinguishing between an agent and a trustee, a seller or buyer, a distributor and
a franchisee.

5.2.1 Trustee

Even if it can be said that a trustee exercises powers on behalf of the beneficiaries, which is
doubtful, a trustee does not bring the beneficiaries directly into legal relations with third
parties: it is the trustee who holds the legal interest in the trust property and who enters
into the transactions.

The role of the agent and trustee may, however, be mixed: an agent may hold the property
of the principal or the third party on trust, and a trustee may also be an agent.

36
5.2.2 Sale

The distinction between an agent and a seller is sometimes difficult to establish. In theory it is
straightforward. If A sells to T on behalf of P, A is an agent. But if A buys from P and resells to T,
there are two different sale contracts: (i) P sells to A (ii) A sells to T. Was it the intention of A and
P that A act as agent or as buyer? This must often be determined by the circumstances: e.g. was
the relationship such that A was under an obligation to account to P for any money received?
Was A paid a fee or commission or did A retain the profit from the sale to T? But none of these
may be decisive. The use of the word ‘agent’ by the parties will not mean that the person is an
agent because this is a matter of law: ‘the test is ultimately one of substance rather than form.

5.2.3 Distributorship and franchise

It is commonplace to see a business advertising itself as ‘agent’ for a supplier, but often this does
not amount to an agency in the legal meaning of the word. Someone who has a distributorship
or a franchise agreement with a supplier may have agreed not to sell another supplier’s goods,
but this does not in itself create an agency. Normally, the distributor or franchisee is a principal
who sells a particular brand of product (e.g. Volkswagen cars) or runs a business developed by
the franchisor. The consumer, who buys goods from either type of business, enters into a
contract with the immediate seller and not with the original supplier or franchiser. Whether
someone is an agent or a principal will depend on the particular circumstances: for example,
was it the intention of the parties that goods supplied would be resold by the recipient acting
as principal, or that the goods would be sold on behalf of the principal.

Summary

The key characteristics of an agency are:

• the agent acts on behalf of another (the principal) so;
• that the principal is bound and can sue or be sued by;
• the third party on the contract made by the agent.
• the agent is not liable on the contract between the,
• Principal and the third party.

5.3. TYPES OF AGENT

5.3.1. General agent and special agent

A general agent acts for a principal in the ordinary course of that agent’s business; a special
agent has authority only for a particular purpose that is not part of the ordinary course of
business for such an agent. A solicitor would be general agent if authorised to undertake a
range of legal work for a client, but a special agent if only authorised by the client to sell a
house.
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5.3.2 Factor and mercantile agent

A factor is an agent who is entrusted with the possession of goods or documents of title to goods
and who is allowed to sell them in the factor’s own name as in the principal’s name. The factor
has generally been superseded by the mercantile agent. A mercantile agent is an agent who, in
the customary course of business, has authority to sell or to consign goods for sale, or to buy
goods, or to raise money on the security of goods.

The general rule is that handing over goods or documents of title to another does not give that
person authority to sell, so that anyone buying the goods will not acquire good title: handing
over a car to a mechanic for repair does not constitute an authority to sell the car. A disposition
by a mercantile agent is an important exception to this general rule.

Where a mercantile agent is in possession of goods or documents of title with the consent of
the owner (even if that consent is later revoked but the goods or documents are not returned),
and the agent, acting in the ordinary course of business as a mercantile agent, sells or raises
money on the security of those goods, that disposition will be valid ‘as if he were expressly
authorised by the owner of the goods to make the same’, as long as the third party acts in
good faith and without notice of a lack of authorisation, while the Factors Act provides the
third party with rights in the goods so disposed, it does not exempt the mercantile agent from
liability to the owner of goods for any breach of authority.

The status of mercantile agent arises from undertaking one or more dispositions and not by
virtue of pursuing a particular profession or occupation. A mercantile agent must conduct a
business of dealing in goods: a shop assistant sells goods in the course of the business of
another (the shop owner) and, therefore, is not a mercantile.

5.3.3 Broker

A broker negotiates contracts between a buyer and a seller without having possession of the
goods or the documents of title. Produce brokers are key players in the commodity markets and
exchanges. Some act for both buyers and sellers by virtue of the custom of particular markets.

5.3.4 Commission agent

A commission agent (or commission merchant) buys or sells goods on behalf of the owner, but
does not establish a contractual relationship between the owner and the third party. The
commission agent acts as principal in the contract with the third party. Nevertheless, this agent
owes to the owner all the duties of an agent to a principal.

In a sale the agent is liable to the third party (the buyer) for breach of the implied terms
as to quality. In a purchase of goods, the agent is liable to the third party (the seller) for
the price, but is not liable to the principal for the quality of the goods.
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5.3.5 Del credere agent

A del credere agent indemnifies the principal against loss incurred by the third party’s breach of
contract in respect of payment, although not in respect of any other breach. An exporter, who
is uncertain about the financial status of a foreign buyer, might find such a guarantee attractive,
although the modern tendency is to obtain a confirmation from a confirming house or to rely
either on a documentary credit, under which a bank pays the seller on the presentation of
certain documents (see Chapter 8), or on credit guarantees, which provide that in the event of
the buyer failing to pay the guarantor will be liable.

5.4 CREATION OF AGENCY

There is a distinction between the creation of the agency and the authority that an agent has to
act on behalf of the principal, although the two issues are necessarily tangled together since the
creation of an agency will involve conferment of authority.

An agency may be created by:

5.4.2 Express or implied agreement

Express or implied agreement between the principal and agent where there is a representation
by the principal to the third party that the agent has authority (agency by estoppel) where the
principal ratifies an act by someone who, without authorisation, purported to undertake that
act as an agent of the principal where there is an agency of necessity where the agency arises
under statute, such as, when an unpaid seller exercises the right to resell under Sale of Goods.

5.4.3 Consent

Typically, an agency is established by consent of both the principal and the agent (but not
always). Normally, it will take the form of a contract, although this is not necessary; acting out
of friendship and without payment does not preclude the existence of an agency. The consent
may also arise by virtue of the principal’s ratification after the agent has entered into the
transaction. Where the agency is created by agreement between the principal and the agent no
formalities are normally required. The appointment may be made orally or inferred from
conduct of the principal showing consent to the agency. The agent’s acceptance can be express
or may be inferred, as where actions behalf of the principal can only be explained by the
existence of an agency.

Normally, no formalities are required for the creation of an agency, when determining whether
an agency has come into existence and what authority the agent has, the court will refer to the
intention of the agent and the principal. That intention is discovered objectively, that is, by
considering the appearance created by their words and actions.

39
The degree of control exercised by one party (the alleged principal) over the other (the alleged
agent) may suggest the existence of an agency. However, with some agents the principal’s
control is limited because the way in which they undertake their activities is dictated by the
rules and custom of their business; for example, much of the work of stockbrokers is determined
by the rules of the exchange within which they operate. So an alleged principal’s lack of total
control does not necessarily indicate that there is no agency relationship.

For an agency in the full sense of the word to exist the agent must have some degree of
autonomy, otherwise the agent performs merely ministerial functions, that is, the agent
acts almost mechanically and without any exercise of discretion. Although someone who
acts on behalf of another in a purely ministerial way is, in a general sense, an agent, the
nature of their obligations and the relationship with the principal is quite different from
the sort of agent with which we are concerned, that is, one with some autonomy and
discretion.

That the parties did not intend to create an agency may be suggested by the fact that the person
carrying out the functions is paid through profit earned in trading rather than through
commission, or is entitled to fix the price of the goods being sold, or retains money received
from sales. Yet, such matters are not conclusive since a principal can consent to an agent making
a profit or entering into personal contracts with buyers. Even if the principal is not aware that
the agent is making a profit and so cannot have consented, this alone cannot be determinative
of the existence of the agency since that would enable the agent to define the existence of the
agency unilaterally: it would be the same as saying that no agency exists if the alleged agent
breaches what would otherwise constitute his or her fiduciary duty (the obligation not to make
a secret profit or to undertake other business that conflicts with the interests of the principal).

If the parties do put their agreement into a contractual document, it is likely to be decisive in
forming a court’s view of the parties’ intention.

5.4.4 Power of attorney

It is common place to appoint an agent by executing a power of attorney, if only because this
overcomes practical difficulties the agent might have in establishing their authority to the
satisfaction of third parties. The Enduring Powers of Attorney permits a power of attorney that
will continue in spite of the subsequent mental incapacity of the donor, although in that
situation the Attorney (that is, the agent) must not act (subject to certain exceptions) until the
power of attorney has been registered by the court. Under the Act the attorney and third parties
are entitled to protections in certain situations where the power of attorney proves to be invalid
or is revoked.

Summary

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Normally, an agency will be established by consent of both parties. The parties can create the
agency by a written agreement (for example, power of attorney), but it is also possible to
imply the existence of the agency from the spoken words or the conduct of the parties.

5.5 RIGHTS, DUTIES, AND LIABILITIES BETWEEN PRINCIPAL AND AGENT

An agent owes certain duties towards his/her principal and a principal owes certain duties
towards his/her agent.

The scope of an agent’s duty to the principal is determined by:

The terms of the agreement between the parties, and extent of the authority conferred
obligations of loyalty to the interests of the principal.

AN AGENT’S PRIMARY DUTIES ARE:

• Act on behalf of and be subject to the control of the principal;

• Act within the scope of authority or power delegated by the principal;
• Discharge his/her duties with appropriate care and diligence;
• Avoid conflict between his/her personal interests;
• To be honest and show good faith;
• Not to acquire any material benefit from a third party in connection with transactions;
conducted or through the use of his/her positions as an agent.
• to act with the care, competence, and diligence normally exercised by agents in similar
circumstances;
• to take action only within the scope of the his/her actual authority;
• to comply with all lawful instructions received from the principal;
• to act reasonably and to refrain from conduct that is likely to damage the enterprise
Principal.

An agent is liable to a principal when he/she acts without actual authority, but with apparent
authority. An agent is liable to indemnify a principal for loss or damage resulting from
his/her act.

A principal owes certain contractual duties to his/her agent.

A PRINCIPAL’S PRIMARY DUTIES TO HIS/HER AGENT INCLUDE:

• To compensate the agent as agreed;

41
 • To indemnify and protect the agent against claims, liabilities, and expenses incurred in
discharging the duties assigned by the principal.
• To reimburse the agent for any expenses properly incurred.

Because of the fiduciary relationship, a principal owes his/her agent a duty of good faith and
fair dealing. However, a principal can be relieved of contractual obligations by an agent’s
prior breach of contract.

A principal has a duty to act in accordance with the express and implied terms of any contract
between a principal and an agent.

When an agent acts within the scope of actual authority, the principal is liable to indemnify the
agent for payments made during the course of the relationship irrespective of whether the
expenditure was expressly authorized or merely necessary in promoting the principal’s
business.

5.6 AGENCY BY ESTOPPEL AND APPARENT AUTHORITY

In ordinary business dealings the contractor at the time of entering into the contract can in
the nature of things hardly ever rely on the “actual” authority of the agent.

This is simply because the third party will not have access to the terms on which the agent
has been appointed. The third party, therefore, relies on a perception as to the authority of
the agent, that is, the agent’s apparent authority.

Apparent (or ostensible) authority is ‘the authority of an agent as it appears to others

Apparent authority arises where:

The principal (or someone acting with the actual authority of the principal) represents to the
third party that the agent is authorised to undertake the transaction which the agent and the
third party subsequently conclude. The agent did not purport to make the agreement as
principal, the third party was induced to enter into the transaction in reliance upon that
representation the third party altered their position to their detriment.

Where there has been such a representation, the principal will be prevented from denying
the existence of the agency (agency by estoppel) and will be bound in so far as the agent’s
act came within the authority that the agent was represented by the principal as possessing
(the agent’s apparent authority). The result is that the principal may be bound to a third
party even though:

• the agent does not have actual authority, or

• the agency agreement has ceased, or

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• the agent acts beyond the actual authority granted by the principal.

In other words, the agency here is based on estoppel and not the consent of the principal.
Nevertheless, the third party can enforce the contract against the principal even though the
agent did not have actual authority.

Where someone has been represented as having authority to act as agent for the principal,
that person possesses the usual authority of such agents despite any restrictions imposed by
the principal on the agent.

5.6.2 Representation by the principal

In order to be bound by the apparent authority of the agent, the principal must
Have represented to the third party that the agent had the necessary authority to conclude the
transaction on behalf of the principal and the third party must have a reasonable belief that
the agent had such authority. In general, if the representation as to authority comes from the
person purporting to be an agent.
The principal will not be bound to the third party, although the bogus agent may be liable to
the third party for breach of the warranty of authority.

The representation may be by words or by actions, including a course of dealings. Usually,

silence or inaction will not amount to a representation, unless there is a duty to say something.

For example; L said nothing after his wife entered into a contract for the sale of his house. The
buyers later incurred various expenses in contemplation of completion. L was estopped by his
silence from denying the authority of his wife to sell.

This unusual case illustrates another point. To establish apparent authority, the third party
must have relied on the representation of the principal. Normally, this will be evidenced by the
third party entering the contract. In this situation it would seem that the third party would be
required to have acted to their detriment.

5.6.3 Representation by the agent

Another difficulty is that, because a company must act through agents, representations as to
the authority of those agents must come from one of the company’s agents. If the
representation comes from the same agent as later makes the transaction, then, generally, the
principal is not bound. But there is nothing to prevent the principal from endowing that agent
with authority (actual or apparent) to make representations about the agent’s own authority
to act in the transaction for the principal.

5.7 RATIFICATION

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Requirements for ratification

The principal may be bound where they ratify a transaction entered into by someone who
purported to act as their agent. This is not apparent authority because the agent cannot
represent their own authority. If the third party decides to go ahead with the transaction, they
take a risk that the purported agent has authority or that the principal will ratify the
transaction, because unless there is actual authority or ratification the principal will not be
liable on the contract made by the purported agent.

There are various reasons why a principal might ratify such a transaction: the principal may
be happy with the deal, or may be unhappy with the transaction but decide to ratify it to
maintain commercial reputation or to preserve the reputation of the agent. However, in
determining if there has been ratification, the motive of the principal is irrelevant. There are
a number of requirements for valid ratification.
At the time of the relevant act, the agent must have intended to act on behalf of the principal.

Such intention is gathered from the terms of any contract and surrounding circumstances. The
purported agency must be revealed to the third party at the time of the transaction.

There can be no ratification where A makes the contract as principal The identity of the
principal need not be disclosed, ‘but there must be such a description of him as shall amount
to a reasonable designation of the person intended to be bound by the contract.

The third party must believe that the person with whom they are dealing has authority to
act for another. Where the agent states that the ‘contract’ is subject to ratification, this does
not fall within the doctrine of ratification because it amounts to saying there will be no
contract until the principal has given approval.

The principal must be competent to enter the contract at the time it was made. For instance,
did the company have authority under its constitution to do this act?

The principal must be competent at the time of ratification: for example, if P is an enemy alien
they cannot ratify, even if at the time of the contract P was not an enemy alien. Since
ratification relates back to the moment of the original act, there is an argument for looking
solely at whether the principal was competent at that time, but, of course, a principal who lacks
competence (such as a company that has been wound up or a person who has lost mental
capacity) would not be able to signify ratification.

No formalities need be observed for a valid ratification. The principal will only be held to have
ratified if they did so with full knowledge of the facts, although there will be ratification if it is
clear that the principal is willing to adopt the act whatever the circumstances. Ratification can
be expressed or implied from conduct as long as the intention to ratify is clear and
unequivocal: e.g. where the principal sues the third party on the contract. An authorised agent

44
can ratify and there seems no reason why a purported ratification by an agent, who had no
authority to ratify, cannot itself be ratified.

Effect of ratification

Ratification puts the parties into the position they would have been in had the act been
authorized from the outset: ‘ratification when it exists is equivalent to a previous authority.
The principal can sue or be sued by the third party.
The agent will not be liable to the principal for excess of authority nor to the third party for
breach of warranty of authority. The agent may be entitled to be indemnified by the principal
for any liability incurred. It is suggested that, while ratification normally relieves the agent
from personal liability to the principal, the principal might be able to ratify without waiver of
the breach of duty by the agent.

Since ratification puts the parties into the same position as if the act had been authorized from
the outset, then logically it relates back to the moment of the original contract.

Example; S accepted an offer from L on behalf of B but without B’s authority. L later
withdrew the offer and only then did B ratify. It was held that the contract was binding on
L. No real reasoning was provided for this other than that ratification meant ‘the agent’ is
put in the same position as if he had had authority to do the act at the time the act was done
by him.

5.8 TERMINATION OF AGENT’S AUTHORITY

There are many ways to terminate an agency relationship. Once the relationship is
terminated, the agent no longer has authority to act for the principal. The principal is
required to inform third parties (that dealt with the agent) that the agency relationship has
been terminated. Ways to terminate an agency relationship include:

• Lapse of time: If the parties agree to set a time period for the agency relationship, the
agency relationship terminates when the time period passes. For example, you hire a
person to be your agent for one year. After one year passes, the agency relationship
automatically terminates unless you extend it.
• Purpose achieved: Some agents are hired to achieve a certain purpose. Once that
purpose is achieved, the agency relationship is automatically terminated (but you can
extend it). A prime example is when professional sports players hire an agent to only
negotiate contracts.

• Mutual agreement: Both parties can agree to terminate the relationship. If both parties
agree to part ways, the reason for the termination does not matter.

45
• Certain events: An agency relationship will automatically terminate upon the
occurrence of certain events. Such events include death, insanity, or bankruptcy of
either the principal or agent. A court of law will usually step in and terminate the agency
relationship if one of the parties refuses to do so. Both parties may also specify
particular events that can cause termination.

5.9 INSURANCE:

An insurance contract is one between insurer and an insured, by which an insurer, undertakes
to give the insured a sum of money in return for the payment of a premium if a specified
uncertain event occurs on the insured object.

5.10 TYPES OF INSURANCE CONTRACTS

Insurance serves to protect the formation, preservation and development of the insured’s
estate against risks. In practice one effects insurance by contributing to a fund to which other
persons are exposed to the same risks, contribute as well. The law recognizes two types of
insurance contract, namely indemnity insurance and non-indemnity insurance contracts.

5.11 INDEMNITY INSURANCE:

• It is whereby the insurer undertakes to compensate the insured for an actual loss he/she
may suffer in the future.
• The amount the insurer will pay is uncertain at the time the policy is issued.
• The event must happen first before the insurer can quantify the amount of the loss
suffered, e.g. fire, theft, etc.

5.12 NON-INDEMNITY INSURANCE:

• The insurer undertakes to pay an agreed specified amount on the occurrence of a certain
event.
• The amount payable in not related to the extent of loss suffered.
• The amount payable is determined at the time the policy is issued, e.g. life, educational etc.

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5.13 ESSENTIAL ELEMENTS OF A CONTRACT OF INSURANCE
The contract comes into existence on the agreement of the following essential terms as:

5.13.1 The article/s (object/s) insured.

The insured must prove an insurable interest existed at the time the event occurred in
order to prove loss. An insurable interest exists whenever a particular event causes
person damage. Only those who have an insurable interest can recover on the policy
and then only to the extent to which that insurable interest is damaged or lost. Insurable
interest refers to in insurance context to loss or damage.

5.13.2 The risk (hazard) insured-The occurrence of an uncertain future event, e.g. car
accident, or death.
5.13.3 The amount of the premium - obligation of the insured to pay a premium

5.13.4 Obligation of the insurer to pay a sum of money or its equivalent

5.13.5 Circumstances affecting the risk

5.13.6 The time period for which cover extends

5.13.7 Good Faith

• The duty of disclosure is based on the maxim (doctrine) that insurance is a contract of
utmost good faith (uberrimae fides).
• Duty of disclosure is relevant to two documents completed by the insured namely;
The proposal form and the claim form.
A material fact relating to disclosure is one that affects the decision to issue the insurance
policy, or affects the decision in regard to the premium be charged. Usually the decision
rests with the court who applies the reasonable person’s test in assessing materiality of
facts relating to disclosure.

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1. What is an agency?
2. Discuss the different types of agency.
3. explain how an agency is created
4. Discuss the duties of the agency and duties of the
principal
5. Explain agency by estoppel and apparent authority.
6. Explain ratification in detail.
7. Indicate whether the following are examples of
indemnity or no indemnity insurance:
7.1 Simphiwe buys a car for R50 000. Simphiwe insures the car
for R50 000. 7.2 Julia’s husband, Bill dies in a car accident. Julia
she discovers that she is to receive R100 000 in terms of an
insurance policy which Bill had taken out on his own life. This
is example of insurance.

Mr. Riba is 50 years old with 4 children working a well-paying

job and has bought a new car, and he also has a house in
Mamelodi. Mr Riba loves his family a lot and he has heard
about insurance but he does not know how it operates. He
has approach you doing Commercial Law. He wants help on
how the insurance works and which insurance can he take.

Discuss the law of insurance based on the case.

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 TOPIC 6
ELECTRONIC PAYMENT METHODS
At the end of the topic the student will be
knowledgeable about the different forms of
electronic payments, their requirements and
their individual applications. The student will
be able to apply the most effective form of
payment recovery, applicable in different
financial circumstances.
The topic covers the legal ramifications to
the digital forms of financial monetary
exchange, that is dominating the market.

Heinrich Schulze; Tukishi Manamela; Philip Stroop; Ernst Manamela; Eddie Hurter; Boaz
Masuku; Chrizell Stroop 2019. “General Principles of Commercial Law” 9th ed Claremont. Juta &
Co. Ltd P455

6.1. Introduction
The use of electronic payment systems is actively encouraged by banks and other financial institutions
because they are cost effective and they easily facilitate transactions allowing for a more competitive
market through expanded customer choice. Customers are equally eager to use these payments
systems, as they save time, are easy to use, cost effective and in most instances a far more secure
payment option than carrying large sums of cash.

6.2. The Evolution of the South African Payment Systems

The South African Payment System facilitates both the exchange of money and the transfer of value
through a system of debits and credits.

With a transfer of value system, payment usually has two basic steps that either be initiated by the
debtor or the creditor. The party initiating the process will give a payment instruction to a financial
institution which holds the funds. The financial institution will transfer the funds to the beneficiary’s
account at the same or another institution. Where it is the debtor who initiates the process to transfer
funds to the beneficiary (make payment) it is referred to as a credit transfer and the funds are

49
‘’pushed’’ through the payment system from the debtor to the creditor. Example of this would include
stop orders and internet banking payments. However, where it is the creditor who initiates the
process, an instruction is given to the financial institution to collect payment from the debtor. This is
referred to as a debit transfer where the funds are ‘’pulled’’ through the system into the creditor’s
account. Example of these types of transactions include the collection of a cheque or debit orders.

With a paper-based payment instruction, the instruction is completed on paper, in words and figures
and is authenticated by a signature. The completed document must, however, be physically
transferred between parties and /or their respective financial institution to obtain payment. This is
not so with electronic payment instructions where the instruction to transfer or release the funds is
given via electronic means and authentication takes place through a variety of electronic inputs such
as passwords and account numbers.

The payment instruction received (either paper-based or electronic) are the given effect by the
respective financial institution, through a mandated system of electronic debits and credits that result
in a multilateral set-off of claims. This takes place in one of two ways, either there is a bilateral set-off
between the banks themselves (regulated by inter-bank agreements) or a batch of transactions are
routed through a clearing house system for a multilateral set-offs between the banks. The South
African clearing house agreements and inter-bank agreements that regulate this system are
confidential and not available to the public. (Rosen v Barclays National Bank Ltd 1984 (3) SA 974 (W);
KwaMashu Bakery Ltd v Standard Bank of South Africa Ltd 1995 (1) SA 337 (9)).

Therefore, electronic transfers of value systems are not only used by customers or consumers but also
within the inter-bank clearing system.

6.3. Banker-Customer Relationship

In general, the relationship between a bank and its customer is a complex multidimensional
relationship that could include contracts such as a mandate, loan for use, depositum and deposit
taking.

The general consensus, however, is that the nature of the banker-customer relationship in credit
transfers is based on a contract of mandate. Each service provided by a financial institution to its
customer will also have specific terms and conditions of use attached to it (for example, the terms and
conditions for using internet banking)

The Code of Banking Practice is an agreement that South African banks subscribe to, wherein they
accept the jurisdiction of the banking adjudicator and agree to abide by the adjudicator’s rulings
should there be conflict between a bank and its customer. However, according to the Code’s provision
it is not enforceable in a court of law, may not be used to interpret the legal relationship between a
bank and its customer and may not be used to establish a tacit contract, term or trade usage.

6.4. Electronic Payment Systems

6.4.1. Electronic Funds Transfers
6.4.1.1 Introduction
The UNCITRAL Legal Guide on Electronic Funds Transfers discusses EFT’s as encompassing both credit
and debit transfers where the instruction initiating the value transfer are completed either wholly or
partially via electronic means.

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South Africa has not enacted any definitive legislation dealing specifically with electronic funds
transfers (EFT’S) and therefore the legal relationships between the parties involved are regulated by
the general principles of contract law, the terms of the respective individual agreements relating to
the service provided, the South African Code of Banking Practice 2012 and legislation of more general
application such as the National Credit Act 34 of 2005, the Consumer Protection Act of 2008 and the
Electronic Communications and Transaction Act, 25 of 2002.

An access device would typically be a card, code other means of access to an account or any
combination thereof that may be used to initiate the EFT. An access device becomes an accepted
access device when the consumer request and receives, sign, uses the access device to transfer money
between accounts or to obtain money, property or services. This would include but is not limited to:

(a) Point-of sale (POS) transfers

(b) Automated teller transfers (ATM)
(c) Transfers initiated by telephone or mobile cellular phone
(d) Internet banking; and
(e) Direct deposits or withdrawals of funds using any of the above methods
6.4.1.2 Reversal of EFT payments made in error
The EFT payment is complete when the funds are unconditionally credited to a beneficiary’s account
resulting in the discharge of the underlying obligation for which the payment order was given. It has
been held that when a bank account has been credited with a payment amount that it is prima facie
evidence of the completed transaction. However, according to the court in Standard Bank of South
Africa Ltd v Oneanate Investments (Pty) Ltd (in liquidation) [1998 (1) SA 811 (SCA) 823] this does not
mean that in particular case one is precluded from looking behind such entries to discover the state
of affairs.

It may, however, be difficult to find a ‘’specific overt action’’ signifying the moment that the bank has
decided that the credit entry is final or unconditional and therefore irreversible. What is clear is that
if payment is complete it cannot be reversed or cancelled.

According to the standard-form agreements, once authorization for an EFT has been given by a client
of a bank and a payment completed, the EFT cannot be countermanded or reversed without first
obtaining the consent of the recipient.

With an incorrect payment, for example to the wrong beneficiary or an incorrect amount, the only
option available for a payer is to claim the amount directly from the beneficiary recipient on the
grounds of unjustified enrichment. Therefore, if there was a mistake, the payer has to notify the
recipient of the erroneous payment and if the recipient refuses to refund the amount, apply for a court
order for a refund of the money. In the light of international trends, a strong argument can be made
that there is a duty on banks to match account numbers with the names of beneficiaries.

6.4.2. EFTPOS
6.4.2.1 Introduction
The EFTPOS payment system is technology that allows suppliers of goods or services to accept access
devices such as cards, debit or credits, to facilitate payments with funds directly debited from the
customer’s account and credited to the beneficiary’s account, once the transaction is processed.

The EFTPOS transaction can be described as follows:

51
 (a) The supplier’s swipe or waves a card or other access device through or over an EFTPOS
electronic terminal.
(b) The cardholder/payer chooses the account from which payment must be made.
(c) The cardholder/payer enters the card PIN.
(d) The EFTPOS terminal encrypts the PIN (so it is secure) and allocates a transaction number.
(e) The EFTPOS terminal connects to a network and sends the transaction detail electronically
(including merchant number, terminal number, transaction number and encrypted PIN) to
the appropriate financial institution, where the information submitted is verified.
(f) The financial institution then either accepts or declines the transaction based on criteria
such as there being sufficient funds available, that the correct PIN was entered, et criteria,
and communicates this information back to the EFTPOS terminal.
(g) If the transaction is accepted, money is directly debited from the cardholder’s account and
confirmation of the transaction will appear on the receipt, as well as on the cardholder’s
bank statement.
The main distinction between an EFTPOS credit card transaction and an EFTPOS debit card transaction
is that with the former, a cardholder has the option to pay the outstanding balance on the card in full
or in instalments to the issuer, while payment with a debit card is a full and intermediate payment to
the supplier.

6.4.2.2 Unauthorized use

The South Africa Code of Banking Practice 2012 is another valuable resource when there are disputes
about these types of transactions or the standard-form contract’s term and conditions.

6.4.2.3 Standard form contract’s terms and conditions

6.4.2.3.1 Responsibility for losses
After you have informed us that a cheque book, savings accounts book, card or electronic purse has
been lost or stolen or that someone else knows your PIN, password or other unique means of personal
identification, we will take immediate steps to prevent these from being used to access your account.
You will be liable for all losses, if you acted fraudulently, you may also be reliable for losses, if you
acted negligently or without reasonable care and this has caused or contributed to losses. This may
apply if you fail to follow the safeguard set out in the paragraph above.

Furthermore, you may be liable for losses if you have not informed us as soon as reasonably
practicable after you discover or believe that your secret codes or devices, if any, for accessing the e-
banking services have been compromised, lost or stolen, or that unauthorized transactions have been
conducted on your account.

6.4.2.3.2 Off-line EFTPOS

In the off-line EFTPOS transaction, the supplier is not directly linked to the system and is therefore
unable to verify that the customer has sufficient funds or credit available for the transaction. For this
reason, the contract between the supplier and the financial institution will authorize the supplier to
accept purchases by means of EFTPOS, up to a specific, limited ceiling amount and the bank will ensure
that these amounts are paid. However, if the transaction amount exceeds this pre-determined limit,
the supplier must first obtain authorization (for example telephonically) from the bank. The bank’s
duty to pay the supplier will also depend on the supplier adhering to prescribed security procedures

52
such as comparing signatures on the card with that which appears on the transaction record and cross-
checking the card used in the transaction against the database of stolen, lost or compromised cards.

6.4.2.4 Access devices

6.4.2.4.1.1 Credit cards
In South Africa the credit card as an instrument of payment takes one of two forms. The first is a credit
card issued directly by a supplier. (With these types of credit cards there are only two parties involved,
namely, the card issuer (supplier) and the cardholder and these cards may only be used within the
designated supplier’s chain of affiliated stores. The card issuer grants credit directly to the cardholder
for the purchases made and these transactions are therefore regulated by the National Credit Act 34
of 2005.

The second form of credit card involves a minimum of three parties: the cardholder, the card issuer
(bank/other financial institution) and the supplier (merchant). In simple terms the issuer pays the
supplier for the cardholder’s purchases and the cardholder repays the issuer these amounts either in
instalments or in full at a later date. These card issuers in turn belong to international issuer
organizations like Visa or MasterCard. Visa and MasterCard do not actually issue card themselves, but
they operate the computer systems that process transactions on their network. Both make money by
charging fees to banks that issue MasterCard or Visa branded cards.

Most credit cards operate in terms of a direct payment-obligation scheme which is established through
standard-form contracts. In the three-party credit card transaction there are two separate contractual
relationships present, that is, one between the card issuer and the supplier and another between the
card issuer and the cardholder.

6.4.2.4.1.2 Unauthorized use

The standard-form contracts between the issuer and the cardholder usually set out each party’s legal
position in the event of unauthorized use of the card. As these may differ from issuer, the following
appears to be the generally accepted arrangement:

(a) The cardholder carriers the risk and is responsible for transaction completed with the lost,
stolen or compromised card up to and until such time as the issuer is informed of the loss,
theft or compromise.
(b) The issuer carries the risk of unauthorized expenditure on the card until such time as the
suppliers have been informed of this fact.
6.4.2.4.2 ATM transactions
6.4.2.4.2.1 Introduction
Automatic teller machines or ATMs have been described as bank vaults for the dispensing of money,
but these electronic terminals are directly connected to the bank’s computer system and have
developed to facilitate a wide variety of banking and other transactions such as cash withdrawals,
deposits, inter-account transfers, account payments, purchases of airtime to access mobile cellular
phone or data services, informational functions such as current balances on an account and account
statement’s.

53
These transactions are initiated by an access device, usually a card, such as a credit card, cheque card
or ATM card and authorized with a PIN input. Through a series of prompts and inputs from the
cardholder the transaction is completed, a printout of the transaction receipt is produced and the card
returned. As with the EFTPOS system, ATMs may either be an online or an off-line system.

The system facilitated via ATMs is very similar in its basic operation to the EFTPOS system, but the
legal nature of the transaction concluded depends on the nature of the ATM service accessed and the
access device used to initiate the transaction.

With the bank debit, cheque or ATM cards the standard terms of use contracts stipulate that when
the correct PIN is entered it is considered to be the customer’s mandate and effect will be given to the
instruction.

Therefore, as with credit cards, the cardholder carries the risk and is responsible for transactions
completed with a lost, stolen, or compromised card up to and until such time as the issuer or financial
institution is notified of the loss, theft, or compromise. Most cards are issued with ‘’lost card’’
protection insurance and cardholders have the right to dispute transactions with the issuing bank.

6.4.2.4.2.2 Internet, mobile cellular phone and telephone banking (electronic

banking)
With internet, mobile cellular phone and telephone banking, the services of a bank are accessible from
virtually anywhere in the world. The customer can access statements, check balances, transfer funds
between accounts, pay accounts, trade in shares, obtain information or additional services and
correspond with the bank at any time. The convenience of this type access to a bank is obvious to
most. However, it is also a service that carries a number of risks for users.

The customer/user of this system is granted electronic access to these services by agreeing to
standard-form contracts, paying the relevant fees and being issued with a set of access codes, security
procedures and security data. In most instances the electronic inputs required include an account
number or user number, password and/or a customer selected PIN (CSP) to identify the user.
Thereafter the bank has a system of email or SMS notification with one-time passwords for customers,
to inform them that the account has been accessed, that transactions have been processed through
their accounts or to authorize a transaction to be processed through the account.

In the standard-form contract for internet, mobile cellular phone or telephone banking services a
customer can expect to see the following types of clauses:

(a) The bank will act on an instruction that appears to have been sent from the customer.
(b) The customer cannot cancel or withdraw any instruction given, payments cannot be
reversed or cancelled even if it is a repeat of the same payment or into the wrong account.
(c) The customer must look after all access codes, keep them secret and inform the bank
immediately if so, else has gained access to these codes.
(d) The customer must always run up to date security software and implement the bank’s
additional security features to guard against fraud and theft.
(e) The customer must not use any public device such as a computer at an internet café to
access the accounts.

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6.4.2.4.2.3 Fraud, phishing and other unauthorized activities
(a) Phishing scams
According to the Ombudsman for Banking Services ‘’phishing fraud involves fraudulent emails sent
to unsuspecting bank customers in an effort to extract the customers confidential internet banking
credentials from them. The e-mail addresses used by fraudsters often seem genuine, as the sender
address implies that it was sent from a legitimate financial institution, whilst it is not’’.

This type of fraud is an attempt to lure the reader of the email into providing confidential
information either by replying to the message sent or by luring them to click on hyperlinks to a
fraudulent website (closely resembling that of the websites of legitimate institution) that
encourages the victim to disclose his/her bank account number, PIN and password and also
randomly generated once-off passwords (one-time passwords (OTPs) or random verification
numbers (RVNs)

The senders of these messages usually don’t know a specific individual or company bank. They
send large volumes of e-mails randomly and by chance they are able to lure a response from an
unsuspecting victim. If the victim responds to such an e-mail by entering details or merely clicks
on the hyperlink provided in the e-mail, a pop-up window will appear requesting them to enter
their confidential internet banking access details. This window usually appears to be the bank’s
legitimate website but it is not.

The fraudster can view the information entered on the false website which is then used to access
the bank’s genuine internet banking website and the victim’s internet banking profile. Within
seconds a new beneficiary is loaded. This will often then trigger a randomly generated once-off
password (OTP/RVN) which is sent to the customer’s mobile cellular phone or email address. The
customer, unknowingly, enters this randomly generated once-off password (OTP/RVN) as well [for
an elaborate and different version of this type of fraud see the facts in Roestoff v Cliff Dekker
Hofmeyer Inc 2013 (1) SA 12 (GNP) where it is also held that stolen money that is paid into the
bank account of a bona fide third party cannot be claimed from the third party using the rei
vindicatio.]

In some instances, the randomly generated once-off passwords (OTP/RVN) are intercepted by
means of a ‘’SIM swap’’ being performed on the customers mobile cellular phone account. Once
the fraudsters have access to the victims account, the money is siphoned off into numerous
accounts and withdrawn as quickly as possible. The process of ‘’SIM swapping’’ occurs when the
fraudsters obtain a replacement SIM card on a particular mobile cellular phone number from the
service provider. The applicant will usually argue that he/she lost his/her SIM card or that it was
damaged. As soon as the duplicate replacement SIM card is issued, the fraudsters can intercept
the communications from the bank using once-off passwords (OTP/RVN). [Vander Bijl 2009 SA
Merc Lj 159, Nashua Mobile (Pty) Ltd v GC Pale CC t/a Invasive Plant Solutions 2012 (i) SA 615
(GSJ).]

(b) Key-logging
Key-logging makes use of either software or hardware to record all the keystrokes entered on a
particular computer keyboard. Details of the keystrokes are saved to a file on the computer’s hard
drive where the attacker can retrieve it, either through hacking into the computer or the key logger
will automatically send the file containing the information to the attacker’s anonymous e-mail
address.

55
The software is installed by hacking into the computer and installing the software or by
encouraging a victim to open an e-mail attachment that triggers a download and installation of
the key-logger software.

Hardware key-loggers are unit that are usually installed in the keyboard or its cable and look
similar to common computer equipment. The information collected is then processed and linked
to the victim’s banking profile.

(c)The bank’s approach

According to paragraph 9.3 of The Code of Banking Practice that banks undertake to ‘’provide
reliable banking and payment systems services and take reasonable care to make these services
safe and secure’’.

6.4.3 The Regulation of EFTs

6.4.3.1 Introduction
According to Bankserv Africa (the largest clearing house in South Africa) it processed a total of 67
million credit and debit card transactions at point-of-sale terminals (EFTPOS) and 30 million ATM
transactions during December 2010. In the same period, it also processed over 65 million other
EFTs.

6.4.3.2 Electronic Communications and Transactions Act 25 of 2002

6.4.3.2.1 Transactional provisions
The ECT Act took effect in South Africa in 2002 and it applies to any electronic transaction or data
message [section 4 (1)].

A data message is data generated, sent, received or stored by electronic means and includes voice
where it is used in an automated transaction and a stored record [sections 1 and 4 (1)].

As regards the formation and validity of an agreement, section 11 of the ECT Act pertinently gives
legal recognition to data messages and stipulates that a data message is not without legal force
and effect merely on the grounds that it is wholly or partly in the form of a data message. Working
in tandem with this, section 22 (1) of the ECT Act confirms that legal effect will be given to a
contract concluded by means of data messages. Thus, all electronic transactions and data
messages are given full legal recognition in the Act, which would include all electronic financial
transactions, debit and credit transfers or EFTs.

In most instances EFTs and other electronically concluded financial transactions would be
automated transactions in section 20 of the ECT Act. An automated transaction is an electronic
transaction conducted or performed, in whole or in part, by means of data messages (electronic
representations of information in any form) which are generated, sent, received or stored by
electronic means and include voice (where it is used in an automated transaction and a stored
record) in which the conduct or data messages of one or both parties are not reviewed by a
natural person in the ordinary course of such a natural person’s business or employment [section
1].

56
6.4.3.2.2 Section 20 of the ECT Act reads as follows:
6.4.3.2.2.1 In an automated transaction-
(a) An agreement may be formed where an electronic agent performs an action required by law
for agreement formation;
(b) An agreement may be formed where all parties to a transaction or either one of them uses
an electronic agent;
(c) A party using an electronic agent to form an agreement is, subject to paragraph (d),
presumed to be bound by the terms of the agreement irrespective of whether that person
reviewed the actions of the electronic agent or the terms of the agreement;
(d) A party interacting with an electronic agent to form an agreement is not bound by the terms
of the agreement unless those terms were capable of been reviewed by a natural person
representing that party prior to agreement formation;
(e) No agreement is formed where a natural person interacts directly with the electronic agent
of- another person and has made a material error during the creation of data message and
(i) The electronic agent did not provide that person with an opportunity to prevent or correct
the error;
(ii) That person notifies the other person of the error as soon as practicable after that person has
learned of it;

(iii) That person takes reasonable steps; including steps that conform to the other person’s
instruction to return any performance received, or, if instructed to do so, to destroy that
performance; and

(iv)That person has not used or received any material benefit or value from any performance
received from the other person.

6.4.3.3 Consumer protection provisions

Chapter VII, section 42 (i) of this Act states that the consumer protection provisions only apply to
electronic transactions. However, in order to accurately determine the scope of the consumer
protection provisions of Chapter VII a person must read section 42 together with the rest of the
chapter, whereupon it becomes clear that the chapter only applies to electronic transactions
where one party is a consumer. Thus, the scope of application hinges on the definitions or
interpretations of the terms ‘’electronic transaction’’ (discussed above) and ‘’consumer’’.

The definition of a consumer is fundamental in determining who warrants protection under most
consumer protection legislation and thus Chapter VII defines a consumer as ‘’any natural person
who enters or intends entering into an electronic transaction with a supplier as the end-user of
the goods or services offered by that supplier’’ [section 1]

This definition excludes the operation of the consumer protection provisions in the following
electronic transactions:

(a) All business-to-business (B2B) transaction where, for example, services are supplied to
juristic persons.
(b) Certain business-to-consumer (B2C) transaction where the consumer is a natural person but
not the end-user of services acquired.

57
The consumer is also a person who intend entering into an electronic transaction, in other words,
consumers who merely browse a website with the intention of possibly entering into a transaction are
also entitled to the protection offered by Chapter VII of the ECT Act. This in turn, is important to a
supplier because, for example, it dictates how and where the information, which has to be displayed,
is placed on a website.

The consumer protection provisions of the ECT Act place four main duties on a supplier of goods and
services for sale, hire or exchange by way of an electronic transaction. These duties are to;

(a) Disclose the listed minimum information to online consumers [section 43(1) (a)- (r)];
(b) Provide an opportunity to the consumer to review, correct and withdraw from the electronic
transaction [section 43 (2)];
(c) Provide a secure payment system [section 43 (5); and
(d) Execute the order within 30 days of receiving the order unless otherwise agreed [section 46
(1)- (3)].
From a funds transfer point of view it is important to note that the Act requires a supplier to utilize a
sufficiently secure payment system. The determination of a sufficiently secure payment system is a
factual question that has to be answered by examining the general technological security standards
used at the time of the transaction, for the specific types of transaction employed in the specific
industry.

6.4.3.4 Consumer Protection Act 68 of 2008

In essence, the Consumer Protection Act regulates the marketing of goods and services to consumers
with specific focus on the relationships, transactions and agreements between the suppliers, retailers,
service providers and other intermediaries’ and the consumer. The main commercial activities
affected are ‘’transactions’’ and ‘’marketing’’.

According to section 5 (1), this Act applies to every transaction occurring in South Africa and includes
the promotion, performance or supply of goods or services, the goods and services themselves as well
as goods or services in South Africa and the transaction that they enter into with the consumers
(natural persons and small to medium sized juristic persons who do not exceed the R2 million
threshold) will fall within the ambit of the Act.

Therefore, many of the services provided by a bank or financial institution], such as the provision of
debit or credit cards and electronic banking, discussed in the preceding paragraphs, exclude from its
ambit are any banking services, related or similar financial services that constitute advice or
intermediary services as defined and regulated under the Financial Advisory and Intermediary Services
Act 37 of 2002 [section 1 definition of services].

This means that for example section 48 of the Consumer Protection Act which provides that a supplier
of goods or services may not make use of unfair, unreasonable or unjust contract terms would be
applicable to funds transfer terms and conditions. [For a comprehensive discussion of this Act see
chapter 41.]

6.4.3.5 The Protection of Personal Information Act 4 of 2013 (POPIA)

This legislation aims to protect personal information that is processed by public and private
individuals and to ensure that the processing of personal information takes place according to the
internationally accepted data protection principles and that there is adequate enforcement to

58
ensure compliance. Parties that process personal information will be required to conform to the
provisions of the Act within one year from the commencement of such provisions [section 114.]

In essence the Act applies to the processing of personal information by public and private bodies. A
responsible party must comply with the eight data protection conditions set out in sections 8-25. If a
party is processing so-called special information then there are additional rules that need to be
adhered to [see section 26-35].

Although the Act as a whole has far reaching implications for the banking and payments sector, the
most important provisions are the provisions relating to security in sections 19 to 22 and the provisions
on ‘’unlawful acts in connection with an account number’’ in sections 105 to 106.

The seventh data protection condition relates to the security safeguards that need to be in place when
personal information is processed and requires the processing party to treat information as
confidential and to ensure it is not disclosed to anyone else.

This is a condition that is aimed at preventing accidental personal information leaks (data breaches)
and responsible parties are going to have to evaluate their internal organizational as well as their
technical systems to ensure that personal information is kept secure, not accidentally exposed,
altered, damaged, accessed or lost. This would include developing and implementing policies on the
storage, access and transfer of information.

Section 19 requires responsible parties to secure the integrity of personal information in its possession
or under its control. The measures that POPIA requires responsible parties, to use in order to safeguard
the integrity of information comprises of:

(a) Identifying all reasonably foreseeable internal and external risks to personal information in
its possession or under its control;
(b) Establishing and maintaining appropriate safeguards against the risks identified;
(c) Regularly verifying that the safeguards are effectively implemented; and
(d) Ensuring that the safeguards are continually updated in response to new risks or deficiencies
identified.
When implementing these measures, the responsible party must consider generally accepted
information; security standards; practices and procedures which may apply within a given industry or
profession.

Where information processing is delegated or outsourced it is still up to the responsible party to

ensure that the information is processed with the knowledge of the data subject and that the
information is kept confidential. There needs to be a written contract between the responsible party
and an operator/ person acting under authority that ensures that the processing takes place within
the security, measures and requiring notification of any possible security breaches [sections 20-21].

Should the security measures implemented be compromised or there are reasonable grounds to
believe that the personal information may have been accessed or acquired by any unauthorized
person, section 22 requires the responsible party to send notification to the Regulator and to the data
subject (so affected), unless they cannot be identified. The notification must be sent as soon as
reasonably possible after the breach considering the needs of any law enforcement agencies or any
measures reasonably necessary to determine the scope of the compromise and to restore the integrity
of the responsible party’s information system. This notice must be in writing; communicated to the
data subject; in at least one of the following ways: mailed to the data subjects last known physical or

59
postal address; sent by e-mail to the data subjects last known e-mail address; placed in a prominent
position on the website of the responsible party; published in the news media; or in any other way as
may be directed by the Regulator; and provide sufficient information to allow a data subject to take
proactive measures against the potential consequences of the data breach, including (if possible) the
identity of the unauthorized person who accessed or acquired the on information. The Regulator may
also direct the responsible party to publicize the breach in any manner if there are grounds to believe
that the publicity would protect the data subjects affected.

For the data subject (consumer) the POPIA holds the advantage that in terms of section 99 the data
subject or the Information Regulator may institute a civil action for damages for a breach of any
provisions of the Act. The section provides for strict liability in that the subject does not have to prove
either intent or negligence.

Chapter 11 of the Act contains two further sections that relate to ‘’unlawful acts in connection with
an account number’’. These provisions have a direct impact on the electronic payments industry.

An ‘’account number’’, for purposes of sections 105 and 106, means any unique identifier that has
been assigned (a) to one data subject only; (b) jointly to more than one data accesses to his/her or its
own funds or to access credit facilities or which enables a data subject, referred to in (b), to access
joint funds or to access joint credit facilities.

The first is section 105 which states that: ‘’ (1) A responsible party who contravenes the provisions of
section 8 insofar as those provisions relate to the processing of any account number of a data subject
is, subject to subjections (2) and (3), guilty of an offence.’’ In other words, the responsible party who
unlawfully processes personal information in contravention of the eight responsible conditions of the
Act is guilty of an offence if the contravention is of a serious or persistent nature and likely to cause
substantial damage or distress to the data subject or if the responsible party should have known that
there was a risk that the contravention would occur, or that such contravention would likely cause
substantial damage or distress to the data subject and they have failed to take reasonable steps to
prevent the contravention [POPIA section 105 read with section 8].

A responsible party may raise as a defence that he or she taken all reasonable steps to comply with
the conditions for lawful processing [POPIA section 105 (4)].

The second is section 106 which states that a person who knowingly or recklessly, without the consent
of the responsible party obtains or discloses an account number of a data subject; or procures the
disclosure of an account number of a data subject for another person, is guilty of an offence.

The defences that may be raised for the offences in section 106 include that the obtaining, disclosure
or procuring of the account number was necessary for the prevention, detection, investigation or
proof of an offence; was required or authorized in terms of the law or in terms of a court order; and
that the person acted in the reasonable belief that he or she was legally entitled to obtain or disclose
the account number or, as the case may be, to procure the disclosure of the account number to the
other person; that he or she acted in the reasonable belief that they would have had the consent of
the responsible party if the responsible party had known of the obtaining, disclosure or procuring and
the circumstances or it, or in the particular circumstances the obtaining, disclosing or procuring was
in the public interest [POPIA section 106(2)].

A person, who sells or offers to sell an account number that they have obtained in contravention of
section 106 (I), is also guilty of an offence [POPIA section 106(3)-(5)].

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It would seem as if these offences are aimed at protecting data subjects from the so-called ‘’419’’
scams, incidents of phishing or pharming or other unauthorized incidents where account numbers are
obtained unlawfully but the offence is wider than these incidents as a person who recklessly has access
to the information is captured in the net as well.

6.4.4 Smart Cards and E-Money

6.4.4.1 Introduction
Products that store monetary value vary significantly in their forms, varieties and access methodology,
which has led to a plethora of descriptive terminology such as stored value cards, store of value
products, stored value accounts, electronic money (e-money), and mobile money. However, the
common denominator in all is that value is stored, either like cash on a physical device (offline) or via
a remote central server accessible by an access device (online).

Stored value services or devices are systems where prepaid monetary value is electronically stored,
either offline on smart cards or other devices, where, as with cash, if it is lost or stolen it cannot be
replaced or it can be stored online on a centralized system where account balances and a record of
transactions are kept and access is via mobile phone, internet or other access device. These can be for
a single use where the device cannot be reloaded with value or it may be for continuous use where
reloading is possible. Although a prepaid card and a debit card share the same requirements for a
positive balance for a transaction, a prepaid card is usually, but not always, associated with a non-
bank entity, while a debit card is usually associated with debits from a bank account.

These stored value products include mobile phone airtime or data recharge voucher, gift cards issued
by retailers, wages or payroll cards, government benefit cards (social security or pension payments),
transport cards (for example Gautrain), telecommunication, parking as well as loyalty or incentive
cards. They are designed to be comparable to bank accounts and can in some instances fulfil many
basic banking functions. The most popular physical device used to store value is the so-called smart
card.

For stored value products it is important to note that the Consumer Protection Act has strict provisions
relating to:

(a) Trade coupons and similar promotions [ section 34];

(b) Consumer loyalty programmes where in terms of section 35 it is stated that loyalty credits
are a legal medium of exchange;
(c) Prepaid certificates, card, credit, voucher or similar device where under section 63 (I) the
aforementioned does not expire until the earlier of the data on which its full value has been
redeemed, or three years after the date on which it was issued or at the end of a longer
extended period];
(d) Prepaid services and access to service facilities [ section 63-64); and
(e) A supplier to hold and account for the consumer’s property in terms of section 64. The
section states that where the supplier is in position of any prepayment, deposit, membership
fee or other money, the supplier may not treat that property as being the property of the
supplier.
6.4.4.2 Smart cards
A smart card is a plastic card embedded with a computer chip that stores and transacts using data that
is processed within the card’s chip- either a memory chip or a microprocessor. The card data is utilized
via a reader that is part of the computing system. Smart cards are generally considered to provide a

61
greater security and to provide tamper-proof storage of data. Smart cards are used in a number of
daily activities.

Smart card is defined according to how the card data is read and written or the type of chip implanted
within the card and its capabilities. The most commonly issued smart card is the so-called contact card
where electrical contact located on the outside of the card connect to a card reader when the card is
inserted. This connector is bonded to the encapsulated chip in the card. However, contactless cards
are also available and these employ a radio frequency (RFID) between card and reader without
physically inserting the cards into a reader. Instead, the card is passed (waved) over the exterior of the
reader.

6.4.4.3 E-money
Electronic money is a digital equivalent of cash, stored on an electronic device or remotely at a server.
There was some uncertainty as to the extent to which E-money could be accommodated in the existing
financial and banking regulatory framework in South Africa and for this reason the South African
Reserve Bank published its final position paper on E-money in 2009.

The position paper defines e-money as ‘’monetary value represented by a claim on the issuer. This
money is stored electronically and is issued on receipt of funds, is generally accepted as a means of
payment by persons other than the issuer and is redeemable for physical cash or a deposit into a bank
account from the issuer on demand’’.

The legal nature of money requires that the Banks Act 94 of 1990 protect the general public and
regulate the circumstances under which a person can accept money or a deposit from another person.
Therefore, the position paper prescribes that only South African registered banks may issue E-money.
However, section 52 of the Banks Acts does allow other non-bank entities to offer payment-related
services so long as it is in conjunction with a registered bank.

The position paper further requires that deposits of E-money be held in separately identifiable E-
money accounts for each holder and that the onus is on the bank (as the issuer of E-money) to ensure
that all relevant banking regulatory legislation is complied with. The bank must also ensure that the
public are made sufficiently aware of the conditions of use for E-money accounts, the liability of the
bank, and what recourse the holders of the E-money would have in relation to the bank in respect of
any losses suffered.

6.4.4.4. Payment Intermediaries and Virtual Currencies

Electronic Payment Intermediaries may issue so-called ‘’private electronic currencies’’ or they may act
as electronic payment processors. The private currencies are those issued by commercial entities for
redemption within their own commercial eco-system or which may be exchanged with national
currencies. The most common example would be loyalty or reward currencies such as ‘’frequent flyer
miles’’ from airlines.

6.4.5 E-wallet and payments intermediaries

6.4.5.1 PayPal, Google Wallet and Apple Pay
For the electronic payment processor type of intermediary the most prominent example would be
PayPal who act as a digital wallet through which payments are routed.

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PayPal users store their credit card or bank account details on the PayPal server or they prepay
amounts into their virtual PayPal Account (E-wallet). When a purchase is made or money is sent to
another account holder, PayPal directly debits a user’s bank account, credit card or virtual PayPal
balance for the amount and credits the recipient beneficiary account with the same amount. The
payment made does not reveal the sender/payer’s banking details to the recipient i.e. those details
are kept secure in the PayPal system. PayPal allows customers to send or receive and hold funds in at
least 26 currencies worldwide but not all the services offered by PayPal are fully functional in South
Africa and there are country specific requirements for the use of PayPal in South Africa.

For aggrieved consumers PayPal offers ‘’Buyer Protection’’ as a clause of its user agreement for items
not received and items that are ‘significantly not as describes’. There are eligibility requirements, but
if eligible and PayPal users are fully reimbursed on condition that they follow the required procedures.
For payments made in error the only recourse is to contact the recipient and obtain a refund.

Other examples include Google Wallet and the newer Apple Pay. Both these services make use of Near
Field Communication (NFC) technology [NFC is a contactless bi-directional technology that allows
payments through NFC enabled point of sale devices or between individuals with two NFC enabled
phones that are in close proximity to one another. It is facilitated through specific NFC chips embedded
in devices] for payments and are marketed as a more secure means of payment. Since the actual card
is not shown to the beneficiary, the user does not reveal their name, card number or security code
when paying. Payment is made when the user holds a mobile device near the contactless NFC reader
and either uses a finger print or a PIN to confirm the transaction.

The South African Reserve Bank Position Paper on Virtual Currencies define a virtual currency (VC) as
‘’a digital representation of value that can be digitally traded and functions as a medium of exchange,
a unit of account and/or a store of value, but does not have legal tender status’’ [South African Reserve
Bank Position Paper on Virtual Currencies No 2of 2014].

They further categorize VC’s as either centralized or decentralized and convertible or non-convertible.

(a) Convertible VC’s have an equivalent value in real currency and can be exchanged back and
forth for real currency such as Bitcoin;
(b) Non-convertible VC’s are centralized to a particular virtual community and cannot be
exchanged for rea currency such as ‘’World of War Craft Gold’’;
(c) Centralized VC’s have a single administrating authority (administrator) who issues the
currency, establishes the rules for use, maintain a central payment ledger and has authority
to redeem the currency (withdraw it from circulation). The exchange rate for a convertible
virtual currency may be either floating i.e. determined by market supply and demand or
pegged at a set value measured in flat currency or other real-world store of value such as gold
or a basket of currencies.
(d) Decentralized VC’s (also known as Crypto currencies) are distributed, open source,
mathematically based peer-to-peer (P2P) virtual currencies that are protected by
cryptography. They have no central administrating authority and no central monitoring or
oversight. Crypto currency relies on public and private cryptography keys to transfer value
with each transfer being cryptographically signed.
In 2012, Bitcoin was the only decentralized convertible VC available. However, by April 2015 there
were around 500 with the numbers steadily rising. Derivatives or alternatives to Bitcoin are commonly
referred to as ‘’Altcoins’’ i.e. alternative coins.

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Bitcoins BTC can be acquired through payment for goods or services, purchasing BTC at a Bitcoin
exchange (in South Africa this is a facilitated by Ice Cubed [https://www.ice3x.com] and BitX
[https://bitx.co- where according to this website the current exchange rate (16-07-2015) for BTC in
South Africa is I BTC= R3919.00], exchange Bitcoins with another person and earning them through
‘’Bitcoin mining’’. Bitcoin mining is a process where new Bitcoins are generated by a competitive and
decentralized process involving individuals who are rewarded by the network for their services. Bitcoin
miners process transactions and secure the network using specialized hardware and software and
receive payment in new Bitcoins.

6.4.6 The SARB Position on Virtual Currencies

The focus of the SARB Position on Virtual Currencies No 2 of 2014 is on decentralized convertible VC’s
(DCVC’s) because they were designed to create a currency which is entirely controlled by its users,
removes costly intermediaries (commercial bank) from the transacting process and have the entire
system open and available to the general public (in block chains). DCVC’s remove central banks and
other monetary authorities, commercial banks and licensed money remitters from the payment
process. The roles played by these entities are performed and controlled by users of the DCVC’s as a
collective. This includes money creation (a central bank function), safe keeping of deposits, transacting
ability and cross-border funds movements irrespective of possible exchange controls. DCVC’s tend to
be traded between users with a high degree of anonymity.

Review Questions
1.The consumer protection provisions of
the ECT Act place four main duties on a
supplier of goods and services for sale,
hire or exchange by way of an electronic
transaction. List these duties.

2. How does the South African Reserve

Bank Position Paper on Virtual
Currencies define a virtual currency
(VC).

3. Explain how the randomly generated

once-off passwords (OTP/RVN) are
intercepted by means of a ‘’SIM swap’’
being performed on the customers
mobile cellular phone account.

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 Topic 7
Law of Insolvency

After you have read this topic you should be able to:

• Understand the voluntary surrender

• Explain compulsory sequestration

Study Heinrich Schulze (2020) P515

7.1. INTRODUCTION

• Insolvency means the inability to pay one's debts as they fall due.
• Is a determination by an Insolvency/bankruptcy court that a person or business cannot raise
the funds to pay all of his/her debts?
• The court will then "discharge" (forgive) some or all of the debts, leaving those creditors
holding the bag and not getting what is owed them, a such a business/individual will be
liquidated.

Liquidation (or "winding up") is a process by which a company’s existence is

brought to an end and the assets and property of the company redistributed.

7.2. TYPES OF LIQUIDATION

The law classifies liquidations into two types: or compulsory (by a court order).

7.2.1. Compulsory (by a court order/ creditors' liquidation) or;

7.2.2. Voluntary (which is by a shareholders’ resolution)

7.3 COMPULSORY LIQUIDATION (BY COURT ORDER)

The parties who are entitled by law to petition for the compulsory liquidation of a company,
a petition may be lodged with the court for the compulsory liquidation of a company by:

65
• the company itself
• any creditor who establishes a prima facie (on its first appearance/at first sight) give
evidence
• contributories
• State etc.

7.3.1 Grounds

This process starts with an application to the court alleging that one or more of the
required grounds exist. There grounds upon which one can apply for a compulsory
liquidation to enable an application to the court for an order to compulsorily wind-up
the company are:
• the Company has so resolved
• the Company was incorporated as a public company, and has not been issued with a trading
certificate (or equivalent) within 12 months of registration
• it has not commenced business within the statutorily prescribed time
• (normally one year) of its incorporation, or has not carried on business for a statutorily
prescribed amount of time
• the number of members has fallen below the minimum prescribed by statute
• the company is unable to pay its debts as they fall due
• it is just and equitable to wind up the company
In practice, the vast majority of compulsory winding-up applications are made under one of
the last two grounds.

NB: An order will not generally be made if the purpose of the application is to enforce
payment of a debt which is bona fide disputed.

7.3.2 The order

• Once liquidation (turning them into cash), commences dispositions of the
• company's property are generally void, and litigation involving the company is generally
restrained.
• Upon hearing the application, the court may either dismiss the petition, or make the order
for winding-up.
• The court may dismiss the application if the petitioner unreasonably refrains from an
alternative course of action.
• The court may appoint an official receiver, and one or more liquidators, and
• has general powers to enable rights and liabilities of claimants and contributories to
be settled.
• Separate meetings of creditors and contributories may decide to nominate a person
for the appointment of liquidator and possibly of supervisory

66
• Liquidation committee.
Applications may be brought on a number of grounds, the most important being that the
company is unable to pay its debts. There are a number of factors that the court will take
into account when deciding whether or not to make a compulsory liquidation order. The
court has discretion as to whether or not to make the order.

7.3.3 The procedure for liquidation

The liquidation process is as follows:

• A liquidator is appointed, either by the company shareholders passing a resolution

(voluntary liquidation) or by the Court making an order (compulsory liquidation). The
liquidator collects the assets of the company (including uncalled capital;
• that is, amounts unpaid on shares) and pays the creditors in order of priority.
• The liquidator distributes any surplus funds to the shareholders.
• The Company is then formally dissolved.

7.3.4 What are the consequences of liquidating a company?

The main consequences of the company being liquidated are as follows:
• The Company no longer has the power to dispose of its property.
• The Company may carry on business only for the limited purpose of completing the
liquidation process.
• The powers of the company directors come to an end when a liquidator is appointed.
• A liquidation order operates as a notice of dismissal to all of the company’s employees.
Note, however, that if an employee is on a fixed-term contract and is required under this
contract to be given a period of notice, then a liquidation order will breach this and the
employee will be entitled to damages.
• When an application is made for a court-ordered liquidation, the court may stay or
restrain any proceedings against the company as the court sees fit. When a liquidator is
appointed, no person can begin or continue legal proceedings against the company or in
relation to its property, unless the liquidator agrees or the court permits it.

7.4 VOLUNTARY LIQUIDATI ON (BY SHAREHOLDERS’ RESOLUTION)

• Voluntary liquidation refers to the process whereby the shareholders appoint a

liquidator, who is then answerable to the creditors or shareholders.
• It is not necessary to make any application to the court for this; however, the
liquidator may apply to the court for directions and the court has power to remove a
liquidator.

67
 • A voluntary liquidation may also by commenced by the board of directors if an event
specified in the company’s constitution has occurred.
• Voluntary liquidation may be in one of two forms, depending on whether or not the
company is solvent. If the company is solvent the shareholders can supervise the
liquidation.

However, if the company is insolvent, the creditors may take control of the
liquidation process by applying to the court. The court will require proof of
solvency or insolvency to determine this matter.

Where a voluntary winding-up of a company has begun, a compulsory liquidation order

is still possible, but the petitioning contributory would need to satisfy the court that a
voluntary liquidation would prejudice the contributories.

In addition, the term liquidation is sometimes used when a company wishes to divest
itself of some of its assets. This is used, for instance, when a retail establishment
wishes to close stores. They will sell to a company that specializes in store liquidation
instead of attempting to run a store closure sale themselves.

7.5 MISCONDUCT

The liquidator will normally have a duty to ascertain whether any misconduct has
been conducted by those in control of the company which has caused prejudice to
the general body of creditors. In appropriate cases, the liquidator may be able to
bring an action against errant directors or shadow directors for either wrongful
trading or fraudulent trading.

The liquidator may also have to determine whether any payments made by the
company or transactions entered into may be voidable as a transaction at an
undervalue or an unfair preference.

7.6 PRIORITY OF CLAIMS

The main purpose of a liquidation where the company is insolvent is to collect in the
company's assets, determine the outstanding claims against the company, and satisfy

those claims in the manner and order prescribed by law.

• The liquidator must determine the company's title to property in its possession.
• Property which is in the possession of the company, but which was supplied under a valid
retention of title clause will generally have to be returned to the supplier.

68
• Property which is held by the company on trust for third parties will not form part of the
company's assets available to pay creditors.
• Before the claims are met, secured creditors are entitled to enforce their claims against the
assets of the company to the extent that they are subject to a valid security interest.
• In most legal systems, only fixed security takes precedence over all claims
Claimants with non-monetary claims against the company may be able to enforce their
rights against the company. For example, a party who had a valid contract for the
purchase of land against the company may be able to obtain an order for specific
performance, and compel the liquidator to transfer title to the land to them, upon
tender of the purchase price.
After the removal of all assets which are subject to retention of title arrangements,
fixed security, or are otherwise subject to proprietary claims of others, the liquidator
will pay the claims against the company's assets. Generally, the priority of claims on
the company's assets will be determined in the following order:
1. Liquidators costs
2. Creditors with fixed charge over assets
3. Costs incurred by an administrator
4. Amounts owing to employees for wages/superannuation Payments owing in respect of
workers' injuries
5. Amounts owing to employees for leave
6. Retrenchment payments owing to employees
7. Creditors with floating charge over assets
8. Creditors without security over assets
7.7. DISSOLUTION
• Having wound-up the company's affairs; the liquidator must call a final meeting of the
members (if it is a members' voluntary winding-up), creditors (if it is a compulsory
winding-up) or both (if it is a creditors' voluntary winding-up).
• The liquidator is then required to send final accounts to the Registrar and to notify
the court. The company is then dissolved. However, in most jurisdictions, the court has
discretion for a period of time after dissolution to declare the dissolution void to enable
the completion of any unfinished business.
1. Discuss compulsory sequestration and voluntary
surrender in its entirety?
2. Discuss unlawful Competition?

69
LIQUIDATION SEEN AS FAIR AS MUSIC FIRM LOSES ITS TUNE.
Sources from business report Wednesday 18/11/2009 the star
Something’s gone horribly wrong at Reliable Music Warehouse,
with record
Giant Gallo Paying for its blood as it owes the company R23 million
Two former employee of the company told the paper that they
hadn’t even been paid their last salaries when they left the
company.
One employee said” Reliable was technically insolvent last
November, but the group hand managed to ward off Gallo for a
number of months before things started falling apart.”

An urgent application for the company was brought before the

Johannesburg High Court last Friday, after Gallo wanted a court
order issued for the court sheriff to strip the company of its assets.
John Cameron, an attorney for property group New

Order Investments also brought the application for the liquidation

of the company before the court, as Reliable Owed New Order
Investments money too.
1) Discuss the processes and procedures for liquidating Reliable
Music Warehouse. (15 marks)
2) What are the consequences of liquidating Reliable Music
Warehouse? (10 marks).

70
 TOPIC 8
LAW OF COPYRIGHT

LEARNING OUTCOMES
After you have read this topic you should be able to:
▪ Understand the works protected by copyrights
Explain infringement of copyrights

Introduction
Copyright is protected in South Africa through international Agreements, the Copyright
Act No 98 of 1978, the Registration of Copyright in Cinematograph Films Act No 62 of
1977, as well as other legislations related to enforcement of copyright or affecting
copyright protection.

Copyright is a set of exclusive rights granted to the author or creator of an

original work, including the right to copy, distribute and adapt the work.
Copyright does not protect ideas, only their expression or fixation.

Copyright protection is provided for the lifetime of the author and 50 years from the
end of the year in which the author dies (or the author who dies last in the event of co-
authored works).

8.1 WORKS ELIGIBLE FOR COPYRIGHT.

Subject to the provisions of this Act, the following works, if they are original, shall be
eligible for copyright— literary works; musical works; artistic works; cinematograph
films; sound recordings; broadcasts; programme-carrying signals; published editions;

8.2 NATURE OF COPYRIGHT IN LITERARY OR MUSICAL WORKS.

Copyright in a literary or musical work vests the exclusive right to do or to authorize

the doing of any of the following acts in the Republic:
▪ Reproducing the work in any manner or form;
▪ Publishing the work if it was hitherto unpublished;
▪ Performing the work in public;
▪ Broadcasting the work;

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 ▪ Causing the work to be transmitted in a diffusion service, unless such service transmits
a lawful broadcast, including the work, and is operated by the original broadcaster;
▪ Making an adaption of the work; doing, in relation to an adaptation of the work, any
of the acts.

8.3 NATURE OF COPYRIGHT IN ARTISTIC WORKS.

Copyright in an artistic work vests the exclusive right to do or to authorize the doing of any
of the following acts in the Republic:

▪ Reproducing the work in any manner or form; publishing the work if it was
hitherto unpublished; including the work in a cinematograph film or a television
broadcast; causing a television or other programme, which includes the work, to be
transmitted in a diffusion service, unless such service transmits a lawful tele- vision
broadcast, including the work, and is operated by the original broadcaster;
▪ making an adaptation of the work; doing, in relation to an adaptation of
▪ the work, any of the acts specified

8.4 NATURE OF COPYRIGHT IN CINEMATOGRAPH FILMS.

Copyright in a cinematograph film vests the exclusive right to do or to authorize the doing
of any of the following acts in the Republic:
• Reproducing the film in any manner or form, including making a still photograph;
• causing the film, in so far as it consists of images, to be seen in public, or, in so far as
it consists of sounds, to be heard in public;
• broadcasting the film;
• causing the film to be transmitted in a diffusion service, unless such service transmits
a lawful television broadcast
• making an adaptation of the film;

8.5 NATURE OF COPYRIGHT IN SOUND RECORDINGS.

Copyright in a sound recording vests the exclusive right to do or to authorize the doing of
any of the following acts in the Republic:
▪ making, directly or indirectly, a record embodying the sound recording; letting,
▪ or offering or exposing for hire by way of trade, directly or indirectly, a reproduction of the
sound recording;
▪ broadcasting the sound recording; causing the sound recording to be
transmitted in a diffusion service, unless that service transmits a lawful
broadcast, including the sound recording, and is operated by the original
broadcaster;
▪ communicating the sound recording to the public.

72
▪ ROYALTIES: In the absence of an agreement to the contrary, no person may
broadcast, cause the transmission of or play a sound recording without payment of
a royalty to the owner of the relevant copyright.
▪ The owner of the copyright who receives payment of a royalty in terms of this section
shall share such royalty with any performer whose performance is featured on the
sound recording in question and who would have been entitled to receive a royalty in
that regard

8.6 NATURE OF COPYRIGHT IN BROADCASTS.

Copyright in a broadcast vests the exclusive right to do or to authorize the doing of any of
the following acts in the Republic:
• Reproducing, directly or indirectly, the broadcast in any manner or form, including, in the
case of a television broadcast, making a still
• rebroadcasting the broadcast;
• causing the broadcast to be transmitted in a diffusion service, unless such service is operated
by the original broadcaster.

8.8 NATURE OF COPYRIGHT IN PROGRAMME-CARRYING SIGNALS.

Copyright in programme carrying signals vest the exclusive right to undertake, or to
authorize the direct or indirect distribution of such signals by a distributor to the general
public or any section thereof in the Republic, or from the Republic.

8.9 NATURE OF COPYRIGHT IN COMPUTER PROGRAMS.

Copyright in a computer program vests the exclusive right to do or authorize the doing of
any of the following acts in the Republic:
▪ Reproducing the computer program in any manner or form; publishing
the computer program if it was hitherto unpublished; performing,
▪ the computer program in public;
▪ broadcasting the computer program.

8.10 INFRINGEMENTS OF COPYRIGHT

Infringement- An infringement is defined as the unauthorized making, using, selling,
importing or otherwise any product or process as outlined by any one of the claims of
a patented invention. It is enforceable through the courts or an act that disregards an
agreement or a right;
1. Copyright shall be infringed by any person, not being the owner of the copyright, who,
without the license of such owner, does or causes any other person to do, in the
Republic, any act which the owner has the exclusive rights to do or to authorize.
2. Copyright shall be infringed by any person who, without the license of the owner of the
copyright and at a time when copyright subsists in a work:

73
• imports an article into the Republic for a purpose other than for his private and domestic
use;
• sells, lets, or by way of trade offers or exposes for sale or hire in the
Republic any article;
• distributes in the Republic any article for the purposes of trade, or for any other purpose, to
such an extent that the owner of the copyright in question is prejudicially affected; or
• acquires an article relating to a computer program in the Republic,

The copyright in a literary or musical work shall be infringed by any person who
permits a place of public entertainment to be used for a performance in public of the
work. Where the performance constitutes an infringement of the copyright in the
work litigations can be instituted against the offender and the court can award the
following remedies.

8.11 ADVANTAGES OF COPYRIGHTS.

• Identity
• Revenue
• Registration is required prior to filing suit.
• Statutory damages. Copyright law provides for statutory damages of infringement, but
only if the copyright was registered prior to the infringement
• Attorney’s Fees
• Authorship and creativity: The concept of "author" thus naturalized a particular
process of knowledge production where the emphasis on individual contribution and
individual ownership takes precedence over the concept of "community knowledge
Intellectual property rights regime, argues that authors would have no incentive to further
create, and that artists cannot produce new works without an economic incentive.

8.12 ANTI-COPYRIGHT ARGUMENTS

• Intellectual monopoly: In the case of both patents and copyright, from the point
of view of economics, there are two ingredients in the law: the right to buy and sell
copies of ideas, and the right to control how other people make use of their copies.

• Non-scarcity: Some argue that copyright is invalid because, unlike physical

property, intellectual property is not scarce and is, they claim, a legal fiction created by
the state.
That is, infringing on copyright, unlike theft, does not deprive the victim of the original item,
and so enforcement of copyright law constitutes aggression on the part of the state.
• Information technology related arguments: People argues that copyright law
simply seems unable to cope with the Internet, and hence is obsolete. In contrast,
others have pointed out that Google Books blocks-out large sections of those same

74
books, which incentivizes purchases, and supports the legitimate interests of rights
holders.

• Freedom of knowledge: anti-copyright arguments in the name of "freedom

• of knowledge" and argue that knowledge should be "shared in solidarity" They
perceive "freedom of knowledge" as a right, and/or as fundamental in realizing the right
to education, which is an internationally recognised human right, as well as the right to
a free culture and the right to free communication.

8.13 REMEDIES
There are different remedies applicable to copyright infringement. Apart from the
criminal liability, which may arise from infringing copyright, a number of civil-law
remedies are available.

Damages
• The measure of damages is the depreciation of the value of the copyright caused by
the infringement.
• If the Defendant did not know and has no reason to believe that copyright subsisted in
the work the Claimant is not entitled to damages.
• The court has the power to award ‘additional damages’. In doing so it will consider the
flagrancy of the infringement and any benefit accruing to the Defendant by reason of
the infringement. Account of profits of an award to the Claimant of the profits that the
Defendant wrongfully made from exploiting the copyrighted work.
• Valuable remedy where the profit made by the Defendant exceeds the damages
suffered by the Claimant.
• Claimant can opt for an account of profits as an alternative to damages (but court
makes ultimate decision whether Claimant should have this remedy), and if Claimant
does, court still has discretion to award additional damages.
• Search order
• Delivery up of infringing articles
• Interdict
• Destruction of infringing articles
• Seizure of infringing copies
• Additional damages
• Litigation: is the process of taking a case through court.
• Forfeiture and destruction of pirated goods to be applied at the end of the court
proceedings

75
 REVIEW QUESTIONS
1. Discuss the works that are
protected by copyrights?
2. Discuss the infringements of
copyrights?
3. Distinguish infringement of copyrights
and remedies for infringements
4. Enumerate any ten works protected by
copyrights
Discuss reasons for and against copyrights
4.

76
 TOPIC 9
EMPLOYMENT

LEARNING OUTCOMES
After you have read this topic you should be able to:
▪ Explain the nature of the contract.
Understand effect of the contract.

In this chapter the following are important: Nature of an Employment Contract, Effect of a
contract.

9.1 NATURE OF THE CONTRACT

Employment is a contract whereby one party (the employee), in return for payment of
remuneration by the other (the employer), puts his personal services at the disposal
of the employer in such a way that the employer is entitled to define his duties and, at
least to some extent, to control the manner in which he discharges them.

9.2 PARTIES TO THE CONTRACT OF EMPLOYMENT

Nowadays there are statutory limits on a person’s freedom to employ
whenever he wants.

• In terms of the Employment Equity Act, 1998, a person may not unfairly discriminate,
directly or indirectly, against an applicant for employment in any employment policy or
practice on one or more grounds – race, colour, gender, sex, marital status, sexual
orientation, age, disability, religion, HIV status, political opinion, and language.

• The Employment Equity Act provides further that every designated employer must, to
achieve employment equity, implement affirmative action measures for people from
designated groups (i.e. black people, coloured’s, and Indians- women and people with
disabilities).
• In terms of the Basic Conditions of Employment Act, 1997, a person may not employ a child
• Who is under 15 years of age or under the minimum school-leaving age in terms of any
law, if this is 15 or older (s43 (1).

77
• In employment that is inappropriate for a person of that age or which places at risk the
child’s wellbeing, education, physical or mental health, or spiritual, moral or social
development (s 43 (2)).
• “Child” for these purposes, means a person less than 18 years of age (s1).
• In certain circumstances, an employer may be ordered to re-employ a former
• Employer, for instance, where the employee reasonably expected his fixed-term contract
to be renewed.

9.3 REMUNERATION
The remuneration will usually consist in money but in the absence of any statutory
provision to the contrary, it may be in goods, or partly in money and partly in goods.
An agreement in terms of which one party places his personal services at the disposal
of the other in return for being allowed to occupy the others property is an in nominate
contract, not one of the employment.

The amount of the remuneration need not be fixed: it suffices if it is agreed that the
employee will receive as remuneration a percentage of the profits. At common law,
the parties are free to agree on any amount of remuneration, but nowadays statutory
measures fix minimum wages in respect of many trades and occupations.
Differentiation in the amount of the wage on the basis of factors unrelated to expertise
or work performance (e.g. race or gender) is prohibited by statute (e.g. s 6 of the
Employment Equity Act, 1998).

9.4 PERSONAL SERVICES

The agreement does not have to spell out the employee’s duties in detail, but the parties
must at least reach agreement on the type of work, which he is to perform, e.g. that
he is to be lorry driver or a domestic worker.

9.5 SERVICES DEFINED AND CONTROLLED BY THE EMPLOYER

In principle, for the contract to one of the employment, the employer should be entitled
to prescribe to the employee, not only what he should do (and when and where), but
also how he should do it.
• Works for one employer only;
• Works in premises owned or controlled by the employer and according to working hours
fixed by the employer
• Is a member of the employers’ organization (e.g. has a staff number)?
• Receives for his services a salary or wage of which at least a portion is fixed and not
dependent on productivity.
• Has deductions taken out of his remuneration ((PAYE) tax, UIF etc.) by the
employer

78
 • Is a member of and contributes to schemes established for employees (e.g.
pension, medical aid, and accident schemes) to which the employer also
contributes?
• Receives paid annual and sick leave.

9.6 EFFECT OF THE CONTRACT

9.6.1 Duration
Where the parties have agreed, expressly or tacitly, on the period of their
contract, or that the contract will continue until terminated by notice, it
endures for the agreed period or until notice is duly given, as the case may
be. If the parties do not agree on a definite period for which the contract is
to continue and make no provision for the giving of notice, the contract
continues until terminated by notice given by either party. (See below for
the notice required to terminate the contract.)

9.6.2 Duties of the Employer

• The duty to pay the employee his remuneration
• The duty to receive the employee and retain him
• The duty to provide safe working conditions
• The duty not to discriminate against the employee
• Duty not to interfere with employee statutory rights
• The duty to employ affirmative action measures
• The duty to supply employee with written particulars of employment
• The duty to inform employee of his rights
• The duty to keep prescribed records
• The duty to make certain payments on termination
• The duty to provide a certificate of service.

9.6.3 Duties of the Employee

• To enter into service of the employer
• To work competently and without negligence
• To obey all reasonable and lawful commands
• To act in good faith

79
 Employee
Lawful authority to Under a contract of service, the
command payer usually has the right to
direct the way in which the work
is done. Of course, where the
nature of the work involves the
professional skill or judgment of
the worker, the degree of
control over the manner of the
performance is diminished.
What is important is the lawful
authority to command that rests
with the payer.
How the work is Tasks are performed at the
performed request of the employer. The
worker is said to be working in the
business of the payer.
Risk An employee bears little or no
risk. An employee is not
exposed to any commercial risk.
This is borne by the employer.
Further, the employer is
generally
Independent contractor
The hallmark of a contract for
services is that the contract is
one for a given result. The
contractor works to achieve the
results in terms of the contract.
The contractor works on her/his
own account, i.e. a plumber.
An independent contractor
enters into a contract for a
specific tasks or series of tasks.
The contractor maintains a high
level of discretion and flexibility
as to how the work is to be
performed. However, the
contract may contain precise
terms as to materials used and
methods of performance, and still
be one for services.
An independent contractor
stands to make a profit or loss on
the task. She or he bears the
commercial risk. The
Contractor bears the
responsibility and liability
80
 responsible for any loss
resulting from poor work.
For any poor work or injury
sustained in the performance of
the task. Generally, a contractor
would be expected to carry
her/his own insurance policy.

Place of A worker under contract of service A contractor on the other hand

performance will generally perform the tasks on will generally provide all their
the payer's premises. own assets and may work at a
number of locations.

Hours of work An employee generally works

standard or set hours. An independent contractor
generally sets their own hours of
work.

Leave entitlements An employment contract will Generally, an independent

generally provide annual leave, contract would not contain leave
long service leave, sick leave provisions (although mere non-
and other benefits and payment does not simply make
allowances. the contract one for services).

Remuneration
An employee is generally paid Payment to an independent
an hourly rate, piece rates or contractor is based upon the
award rates. performance of the contract.

Expenses An employee is generally An independent contractor is

reimbursed for expenses incurred responsible for their own
in the course of employment. expenses.

Appointment An employee is generally An independent contractor is

recruited through an advertisement likely to advertise their services
by the employer. to the public at large.

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Delegation An employee has no inherent right
to delegate tasks to another.
However, there may be a power to
delegate some duties to other
employees
An independent contractor may
delegate all or some of the tasks to
another person and may employ
other persons.

Equipment Plant and equipment is usually The contract usually specifies who
provided by the employer. is to provide the plant and
equipment. This is usually the
responsibility of the contractor.

Scheduling of work An employer determines or The work would be performed

controls the time frame within in accordance with agreed schedules
which the work is to be and consistent with the obligations
performed. under the contract.

Expectation of An employee usually has an A contractor is usually engaged for

work ongoing expectation of a specific task.
work.

Method of An employer usually pays an A contractor usually invoices

payment employee according to an the person who engages them
award or employment for their services
agreement.

Taxation An employee pays PAYG tax A contractor usually deals with

which the employer pays on her/his own tax.
behalf of the employee.

An employee is usually an
Relationship to A contractor's work is usually an
integral part of the employer's
the business accessory to the business.
business
Ability accept A full-time employee is usually A contractor can accept as many
other work restricted to work for the one contracts as they wish.
employer during normal business
hours.

Right to refuse An employee does not have the A contractor usually agrees to the
work right to continually refuse a tasks beforehand. The contract
reasonable task. governs the tasks that must be
performed.

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 9.7 COMPARISON BETWEEN EMPLOYEE AND INDEPENDENT
CONTRACTOR

9.8 THE BASIC CONDITIONS

The basic conditions of Employment Act regulate in some detail the employee’s duty to
render continuous service.

9.8.1 Ordinary Working Hours

An employer may not require or permit an employee to work more than
• 45 hours in any week; and
• Nine hours in any day if the employee works for five days or fewer in a week or
• Eight hours in any day if the employee works on more than five days in a week.

9.8.2 Meal Intervals

An employer must give an employee who works continuously for more than five hours a meal
interval of at least one continuous hour.
1) During the meal interval the employee may be required or permitted to perform only
duties that cannot be left unattended and cannot be performed by another employee.
2) An employee must be remunerated
a) For a meal interval in which the employee is required to work or is required to be
available for work; and
b) For any portion of a meal interval that is in access of 75 minutes, unless the employee
lives on the premises at which the workplace is situated.
3) For the purposes of subsection (1), work is continuous unless it is interrupted by an
interval of at least 60 minutes.
a) An agreement in writing may reduce the meal interval to not less than 30 minutes.
b) Dispense with a meal interval for an employee who works fewer than six hours on a
day.

9.8.3 Overtime
An employer may not require or permit an employee to work overtime except in accordance
with an agreement;
To work more than:
• Three hours overtime a day; or
• Ten hours overtime a week.
• An employer must pay an employee at least one and a half times the employee’s wage
for overtime worked.

9.8.4. Work on Sundays

An employee must pay an employee who works on a Sunday at double the employee’s
wage for each hour worked, unless the employee ordinarily works on a Sunday, in which

83
 case the employer must pay the employee at one and a half times the employee’s wage
for each hour worked. If an employee works less than the employee’s ordinary shift on
a Sunday and the payment that the employee is entitled to in terms of subsection (1) is
less than employee’s ordinary daily wage, the employer must pay the employee the
ordinary daily wage. An employer must grant paid time off within one month of the
employee becoming entitled to it. An agreement in writing may increase the period
contemplated by paragraph to 12 months.

9.8.5 Work on Public Holidays

An employer may not require an employee to work on a public holiday except in
accordance with an agreement.
If a public holiday falls on a day on which an employee would ordinarily work, an employer
must pay –
An employee who does not work on the public holiday, at least the wage that the
employee would ordinarily have received for work on that day; An employee who does
work on the public holiday – At least double the amount referred in paragraph (a); or
If it is greater, the amount referred to in paragraph (a) plus the amount earned by the
employee for the time worked on that day.
If an employee works on a public holiday on which the employee would not ordinarily
work, the employer must pay that employee an amount equal to— The employees daily
wage; plus
The amount earned for the work performed that day, whether calculated by reference to
time or any other method.
An employer must pay an employee for a public holiday on the employee’s usual pay
day
If a shift worked by an employee falls on a public holiday and another day, the whole
shift is deemed to have been worked on the public holiday, but if the greater portion of
the shift was worked on the other day, the whole shift is deemed to have been worked
on the other day.

9.8.6 Annual Leave

An employee (other than one in category C: s 19) is entitled to 21 consecutive days of
annual leave on full pay after each ‘annual leave cycle’ (i.e. employment by the same
employer for 12 consecutive months) (s 20 (1) – (3)). This is qualified in two respects.
• The employer may reduce the 21-day period by the number of occasional leave on full pay
which he grants to the employee at the latter’s request during the leave cycle (s 20
(7)).
• The 21-day period must be extended by one day for each public holiday which falls within
the period and which would otherwise have been an ordinary working day for him (s 20 (8).

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 9.8.7Vicarious Liability
Although not a duty as such visa-versa an employee, it is important to mention that, in
terms of the common law, an employer can be held liable by a third party for the
unlawful or delictual acts performed by its employees during the course and scope of
their duties. These are however, various prerequisites for various liabilities:

A contract of employment- there must be a contract of employment between the employer

and the employee at the time of the act or mission.

Unlawful conduct- the employee must, by the act or conduct, have committed the unlawful
act. The act or mission must comply with the requirements of a delict.

Employee acted in the course or scope of employment- the employee must have acted
in the course of his or her duties, not merely on the business of the employer. But if the
employer is vicariously liable and the employee has been negligent, for example, the
employer may have a right of recourse against the employee.

9.9 FAIR REASONS FOR DISMISSAL

1. A dismissal is unfair if it is not carried for a fair reason and in accordance with a fair
procedure, even if it complies with any notice period in a contract of employment or in
legislation governing employment.
2. Whether or not a dismissal is for a fair reason is determined by the facts of the case,
and the appropriateness of dismissal as a penalty. Whether or not the procedure is fair
is determined by referring to the guidelines set out below.
3. The Act recognizes grounds on which a termination of employment might be legitimate.
These are:
a. the conduct of the employee,
b. the capacity of the employee, and
c. the operational requirements of the employer's business.

Paragraph (2) of the Code issued by NEDLAC points out those dismissals for operational
requirements is categorized as ‘no fault’ dismissals. In other words, it is not the
employee who is responsible for the termination of employment. Because
retrenchment is ‘no fault’ dismissal and because of its human cost, the Act places
particular obligations on an employer, most of which are directed toward ensuring that
all possible alternatives to dismissal are explored and that the employees to be
dismissed are treated fairly.

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 Guidelines for unfairness
A decision to dismiss for operational reasons is regarded as unfair if the decision is mala
fide, i.e. is not based on any commercial rationale; retrenchment is not the only
reasonable option in the circumstances.

Procedural Fairness
Paragraph (3) of the Code says that as soon an employer contemplates a reduction of
his workforce through retrenchment or redundancies (i.e. before he reaches any
decision in his regard); he must start a process of consultation. Section 189(1) provides
that the employer’s first duty is to consult any person whom he is required to consult in
terms of a collective agreement. If there is no collective agreement, the employer must
consult: a work place forum, or if there is none, any registered trade union whose
members are likely to be affected by the dismissals, or there is no such trade union, the
employees likely to be affected by the proposed dismissals or their representatives
nominated for that purpose. The parties must attempt to reach consensus on
appropriate measures to avoid dismissals, minimize the number, change their timing, or
mitigate their adverse effects. The parties must also try to agree on the method for
selecting the employees to be dismissed and the payment of severance pay (S 189(2) 0).

In cases where the dismissal is not automatically unfair, the employer must show that
the reason for dismissal is a reason related to the employee's conduct or capacity, or is
based on the operational requirements of the business. If the employer fails to do that,
or fails to prove that the dismissal was effected in accordance with a fair procedure, the
dismissal is unfair.

9.10. MISCONDUCT

Disciplinary procedures prior to dismissal

1. All employers should adopt disciplinary rules that establish the standard of conduct
required of their employees. An employer's rules must create certainty and consistency
in the application of discipline. This requires that the standards of conduct are clear and
made available to employees in a manner that is easily understood. However, some rules
or standards maybe so well established and known that it is not necessary to
communicate them.
2. The courts have endorsed the concept of corrective or progressive discipline.
This approach regards the purpose of discipline as a means for employees to know and
understand what standards are required of them. Efforts should be made to correct
employees' behaviour through a system of graduated disciplinary measures such as
counselling and warnings.

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 3. Formal procedures do not have to be invoked every time a rule is broken or a standard
is not met. Informal advice and correction is the best and most effective way for an
employer to deal with minor violations of work discipline. Repeated misconduct will
warrant warnings, which themselves may be graded according to degrees of severity.
More serious infringements or repeated misconduct may call for a final warning, or other
action short of dismissal. Dismissal should be reserved for cases of serious misconduct or
repeated offences.

Dismissals for misconduct

1. Generally, it is not appropriate to dismiss an employee for a first offence, except if the
misconduct is serious and of such gravity that it makes a continued employment
relationship intolerable.

Examples of serious misconduct, subject to the rule that each case should be judged on
its merits, are;

o gross dishonesty or o wilful damage to the property of the employer,

o wilful endangering of the safety of others,
o physical assault on the employer, a fellow employee, client or customer and
o gross insubordination.

Whatever the merits of the case for dismissal might be, a dismissal will not be fair if it does
not meet the requirements of law.

2. When deciding whether or not to impose the penalty of dismissal, the employer should
in addition to the gravity of the misconduct consider factors such as the employee's
circumstances (including length of service, previous disciplinary record and personal
circumstances), the nature of the job and the circumstances of the infringement itself.

3. The employer should apply the penalty of dismissal consistently with the way in which
it has been applied to the same and other employees in the past, and consistently as
between two or more employees who participate in the misconduct under
consideration.

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Guidelines in cases of dismissal for misconduct

Any person who is determining whether a dismissal for misconduct is unfair should consider-

• whether or not the employee contravened a rule or standard regulating

conduct in, or of relevance to, the workplace; and
• if a rule or standard was contravened, whether or not- o the rule was a valid or
reasonable rule or standard; o the employee was aware, or could reasonably be
expected to have been aware, of the rule or standard;
• the rule or standard has been consistently applied by the employer; and
• dismissal was an appropriate sanction for the contravention of the rule or
standard.

Incapacity: Poor work performance

Probation

a) An employer may require a newly-hired employee to serve a period of probation before the
appointment of the employee is confirmed.
b) The purpose of probation is to give the employer an opportunity to evaluate the employee’s
performance before confirming the appointment.
c) Probation should not be used for purposes not contemplated by this Code to deprive
employees of the status of permanent employment. For example, a
practice of dismissing employees who complete their probation periods and replacing them
with newly-hired employees, is not consistent with the purpose of probation and
constitutes an unfair labour practice.
d) The period of probation should be determined in advance and be of reasonable duration.
The length of the probationary period should be determined with reference to the nature
of the job and the time it takes to determine the employee’s suitability for continued
employment.
e) During the probationary period, the employee’s performance should be assessed. An
employer should give an employee reasonable evaluation, instruction, training, guidance or
counselling in order to allow the employee to render a satisfactory service.
f) If the employer determines that the employee’s performance is below standard, the
employer should advise the employee of any aspects in which the employer considers the
employee to be failing to meet the required performance standards.
g) The period of probation may only be extended for a reason that relates to the purpose of
probation. The period of extension should not be disproportionate to the legitimate
purpose that the employer seeks to achieve.

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 h) An employer may only decide to dismiss an employee or extend the probationary period
after the employer has invited the employee to make
Representations and has considered any representations made. A trade union
representative or fellow employee may make the representations on behalf of the
employee.
i) If the employer decides to dismiss the employee or to extend the probationary period, the
employer should advise the employee of his or her rights to refer the matter to a council
having jurisdiction, or to the Commission.
j) Any person making a decision about the fairness of a dismissal of an employee for poor work
performance during or on expiry of the probationary period ought to accept reasons for
dismissal that may be less compelling than would be the case in dismissals effected after
the completion of the probationary period.

• After probation, an employee should not be dismissed for unsatisfactory performance unless
the employer has-
• given the employee appropriate evaluation, instruction, training, guidance or counselling; and
• After a reasonable period of time for improvement, the employee continues to perform
unsatisfactorily.
• The procedure leading to dismissal should include an investigation to establish the reasons
for the unsatisfactory performance and the employer should consider other ways, short of
dismissal, to remedy the matter.
• In the process, the employee should have the right to be heard and to be assisted by a trade
union representative or a fellow employee.
Incapacity: Ill health or injury

Incapacity on the grounds of ill health or injury may be temporary or permanent.

• If an employee is temporarily unable to work in these circumstances, the employer should

investigate the extent of the incapacity or the injury.
• If the employee is likely to be absent for a time that is unreasonably long in the
circumstances, the employer should investigate all the possible alternatives short of
dismissal.
• When alternatives are considered, relevant factors might include the nature of the job, the
period of absence, the seriousness of the illness or injury and
• the possibility of securing a temporary replacement for the ill or injured employee.
• In cases of permanent incapacity, the employer should ascertain the possibility of securing
alternative employment, or adapting the duties or work circumstances of the employee to
accommodate the employee's disability.

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Guidelines in cases of dismissal arising from ill health or injury

Any person determining whether a dismissal arising from ill health or injury is unfair should
consider-

a) whether or not the employee is capable of performing the work; and b) if the employee is
not capable -

i. the extent to which the employee is able to perform the work;

ii. the extent to which the employee's work circumstances might be adapted to
accommodate disability, or, where this is not possible, the extent to which the
employee's duties might be adapted; and
iii. the availability of any suitable alternative work.

9.11. UNFAIR DISSMISSAL

The LRA distinguishes between those dismissals, which are automatically unfair, and those,
which are unfair if the employer failed to prove that the dismissal is fair. The basic principle
inherent in an unfair dismissal is that there has been an infringement of a basic human right.

Forms of Dismissal
The LRA has identified specific forms of dismissal:
• Termination with or without notice when the employee has committed a serious breach of
contract, it may be possible in terms of common law for the employer to terminate the
contract without notice, but in terms of the LRA termination must be fair.
Failure to renew a fixed-term contract of employment the employee will have to show that
the employer’s conduct has created a reasonable expectation that the fixed term contract
would be renewed, conduct such as a previous renewal or the assurances of such a renewal may
create such an expectation.

• Termination due to pregnancy in terms of the BCEA a female employee is entitled to four
consecutive month’s maternity leave. In defining what ‘dismissal’ is, includes the refusal to
allow an employee to resume work after she has either taken maternity leave, or when she
was merely absent from work during the permitted period of maternity leave. Such a refusal
will constitute a dismissal.

• Selective employment usually happens during retrenchments where the employer agrees
to re-employ the retrenched workers if economic circumstances improve. The employer
thereafter re-employs some of the previously retrenched employees but not all. Those that
were refused employment can allege dismissal.

• Constructive dismissal is when the employee terminates the employment relationship,

because the employer made continued employment intolerable.
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• The employer acts in contravention of freedom of association in dismissing an employee.
The employee is dismissed for participating in a protected strike or protest action
• The employee is dismissed for refusing to provide replacement labour where other
employees are on a protected strike.
• The employee is dismissed to compel him or her to accept a demand made by the employer.
• The employee is dismissed for exercising his/her rights granted by the LRA against the
employer.

9.12. PROCEDURES FOR RESOLVING DISPUTES ARISING OUT OF UNFAIR DISMISSALS

Dispute resolution process flow

Disciplinary hearing

CCMA/Bargaining council
Conciliation

Arbitration

Labour Court

Labour Appeal Court

The Labour dispute resolution

The labour dispute resolution system can involve four bodies:
• Bargaining councils
• The commission for Conciliation, Mediation and Arbitration
• Labour Court
• Labour Appeal Court

There are 2 steps in the labour dispute resolution system

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Step1: Conciliation
The aggrieved employee must first refer the dispute to the appropriate bargaining council or the
CCMA. There a conciliating Commissioner attempts to assist the parties, by means of mediation,
to resolve the dispute between them. Should conciliation fail to settle the matter, the aggrieved
party may take the dispute to step 2.

Step 2: Arbitration, Labour Court or Industrial action

If the dispute is one of interest (such as a wage dispute) step 2 could be industrial action (a
strike).
If the dispute is one of rights (such as an unfair dismissal) step 2 comprises:
• Arbitration at the CCMA or bargaining council Or
• A hearing at the Labour Court

Disputes dealt with at the Labour Court

If conciliation fails to resolve the dispute of right the employee can only refer to the Labour Court
matters relating to:
• Freedom of association -Unfair discrimination
• Dismissal relating to: Unfair retrenchment
• Strikes
• The employee’s refusal to accept an employer’s demands regarding a matter of interest
• The employee exercising his rights in terms of the Labour Relations Act
• The employee’s pregnancy
• A transfer of a business as a going concern

Penalties awarded by the Labour Court The labour

court can order you to:
• Reinstate an unfairly dismissed employee
• Pay the employee compensation up to a maximum of 24 months’ Remuneration in certain
cases.
• Stop discriminating against employees
• Comply with affirmative action requirements

9.13. OCCUPATIONAL HEALTH AND SAFETY AMENDMENT ACT NO. 181 OF 1993
To provide for the health and safety of persons at work and for the health and safety of persons
in connection with the use of plant and machinery; the protection of persons other than
persons at work against hazards to health and safety arising out of or in connection with the
activities of persons at work, to establish an advisory council for occupational health and safety;
and to provide for matters connected therewith.

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Employment Equity Act, 1998
Simply repealing the relevant discriminatory laws and practices cannot redress this Act
originated from the belief that the severe disparities in employment and income left by
apartheid. The stated purpose of the Act is to achieve equity in the workplace by: Promoting
equal opportunity and fair treatment in employment through the elimination of unfair
discrimination

The Implementation of Affirmative Action measures in intended redress the disadvantages in

employment experience by designated groups, in order to ensure their equitable
representation in all occupational categories and levels in the workforce (s2).

9.14 BASIC CONDITIONS OF EMPLOYMENT ACT

The purpose of the Act is to advance economic development and social justice by fulfilling the
primary objects of this Act, which are:
• To give effect to and regulate the right to fair labour practices conferred by section 23(1) of
the constitution
• To give effect to obligations incurred by the Republic as a member state of the International
Labour Organization

Skills Development Act

The purpose of this Act:
• To develop skills of the South African workforce
• To increase the levels of investment in education and training in labour market and to
improve the return on that investment.
• To encourage employers to use the workplace as an active learning environment, to provide
employees with the opportunity for new entrants to
• the labour market to gain work experience etc.
• To encourage workers to participate in student ship and other training programmes.
• To provide and regulate employment services
• To assist work-seekers to find work, retrenched workers to re-enter the labour market,
employers to find qualified employees.

REVIEW QUESTIONS

1. Discuss the various grounds of dismissal

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 CASE STUDY
Roland is very poor and wants any job that anyone would give him. A local shopping canter

100 allows him to collect shopping trolleys in return for tips.

However, they made him to sign a contract stating that he is an independent contractor.
One day a woman named Anastasia employed by a distributor, DHL was making a delivery
at the shopping centre. After delivery, she drove her car and parked it at the customers’ bay
so that she could buyer her groceries.

DHL had strictly instructed all its drivers not to engage in any personal business during the
course of their everyday duties. Anastasia went in, bought her grocery and as she was
reversing she knocked Roland and broke his leg. The shopping centre tells Roland that
because he cannot walk, he is out of job.

Write an essay using the following as guidelines

• Define employment
• Advise to Roland with regards to his rights as an independent contractor
• Legal actions he should take; o against the shopping centre, and o against Anastasia if
any?
• The concept of vicarious liability.

3. Draw the dispute resolution flow

4. Explain the 2 steps in the labour dispute resolution system?

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 TOPIC 10
DEFAMATION

LEARNING OUTCOMES
After you have read this topic you should be able to:
• Understand Defences
• Explain the problems
• Understand media power and defamation

10.1 INTRODUCTION
Generally, defamation is a false and unprivileged statement of fact that is harmful to someone's
reputation, and published "with fault,". In other words, it is a false accusation of an offense or
a malicious misrepresentation of someone's
words or actions. The basic idea of defamation law is simple. It is an attempt to balance the
private right to protect one's reputation with the public right to freedom of speech. Defamation
law allows people to sue those who say or publish false and malicious comments.

There are two types of defamation.

• Oral defamation – (called slander) for example comments or stories told at a meeting or
party.
• Published defamation – (called libel) for example a newspaper article or television
broadcast. Pictures as well as words can be libellous.
• Anything that injures a person's reputation can be defamatory. If a comment brings a
person into contempt, disrepute or ridicule, it is likely to be defamatory.
• You tell your friends that the boss is unfair. That's slander of the boss.
• You write a letter to the newspaper saying a politician is corrupt. That's libel of the
politician, even if it's not published.

• You say on television that a building was badly designed. That's libel due to the
imputation that the architect is professionally incompetent, even if you didn't mention
any names.

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• You sell a book that contains defamatory material. That’s spreading of defamation The
fact is, nearly everyone makes defamatory statements almost every day. Only very rarely does
someone use the law of defamation against such statements.

10.2 DEFENCES

When threatened with a defamation suit, most people focus on whether or not something is
defamatory. But there is another, more useful way to look at it. The important question is
whether you have a right to say it. If you do, you have a legal defence.

If someone sues you because you made a defamatory statement, you can defend your speech
or writing on various grounds. There are three main types of defence:
• What you said was true
• You had a duty to provide information
• You were expressing an opinion.

For example:
• You can defend yourself on the grounds that what you said is true.
• If you have a duty to make a statement, you may be protected under the defence of
"qualified privilege." For example, if you are a teacher and make a comment about a
student to the student's parents -- for example, that the student has been naughty -- a
defamation action can only succeed if they can prove you were malicious. You are not
protected if you comment about the student in the media.
• If you are expressing an opinion, for example on a film or restaurant, then you may be
protected by the defence of "comment" or "fair comment," if the facts in your
statement were reasonably accurate.
• There is an extra defence if you are a parliamentarian and speak under parliamentary
privilege, in which case your speech is protected by "absolute privilege," which is a
complete defence in law. The same defence applies to anything you say in court.
• The same basic defences apply throughout Australia, although the things you have to
prove to apply them may differ. For example, in some Australian states, truth alone is
an adequate defence. In other states, a statement has to be true and in the public
interest -- if what you said was true but not considered by the court to be in the public
interest, you can be successfully sued for defamation.
What can happen?
• You can be threatened with a defamation suit. You might receive a letter saying that unless
you retract a statement, you will be sued. There are numerous threats of defamation. Most
of them are just bluffs; nothing happens. Even so, often a threat is enough to deter someone
from speaking out, or enough to make them publish a retraction.

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 • Proceedings for defamation may be commenced against you. This is the first step in
beginning a defamation action. Statements of claim, writs or summons shouldn't be
ignored. If you receive one, you should seek legal advice.
• The defamation case can go to court, with a hearing before a judge or jury.
• However, the majority of cases are abandoned or settled. Settlements sometimes
include a published apology, sometimes no apology, sometimes a payment, and
sometimes no payment. Only a small fraction of cases goes to court.

10.3 THE PROBLEMS

There are several fundamental flaws in the legal system, including cost, selective application
and complexity. The result is that defamation law doesn't do much to protect most people, but
it does operate to inhibit free speech.

Cost.
If you are sued for defamation, you could end up paying tens of thousands of dollars in legal
fees, even if you win. If you lose, you could face a massive pay out on top of the fees. The cost
of legal advice, mean that most people never sue for defamation. If you don't have much
money, you don't have much chance against a rich opponent, whether you are suing them or
they are suing you. Cases can go on for years. Judgments can be appealed. The costs become
enormous. Only those with deep pockets can pursue such cases to the end.
The result is that defamation law is often used by the rich and powerful to deter criticisms. It is
seldom helpful to ordinary people whose reputations are attacked unfairly.

Unpredictability.
People say and write defamatory things all the time, but only a very few are threatened with
defamation. Sometimes gross libels pass unchallenged while comparatively innocuous
comments lead to major court actions. This unpredictability has a chilling effect on free speech.
Writers, worried about defamation, cut out anything that might offend. Publishers, knowing
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how much it can cost to lose a case, have lawyers go through articles to cut out anything that
might lead to a legal action. The result is a tremendous inhibition of free speech.

Complexity.
Defamation law is so complex that most writers and publishers prefer to be safe than sorry, and
do not publish things that are quite safe because they're not sure.
Judges and lawyers have excessive power because outsiders cannot understand how the law will
be applied. Those who might desire to defend against a defamation suit without a lawyer are
deterred by the complexities.

Slowness.
Sometimes defamation cases are launched years after the statement in question. Cases often
take years to resolve. This causes anxiety, especially for those sued, and deters free speech in
the meantime. As the old saying goes, "Justice delayed is justice denied."

In Australia, a common sort of defamation case brought to silence critics is political figures suing,
or threatening to sue, media organisations. The main purpose of these threats and suits is to
prevent further discussion of material damaging to the politicians. Other keen people who sue
are police and company directors. People with little money find it most difficult to sue. In the
United States, there are hundreds of cases where companies sue individuals who oppose them.

10.4 MEDIA POWER AND DEFAMATION

One of the best responses to defamatory comments is a careful rebuttal. If people who make
defamatory comments are shown to have gotten their facts wrong, they will lose credibility.
But this only works if people have roughly the same capacity to broadcast their views.

Only a few people own or manage a newspaper or television station. Therefore, it is difficult to
rebut prominent defamatory statements made in the mass media. Free speech is not much use
in the face of media power. There are cases where people's reputations have been destroyed
by media attacks. Defamation law doesn't provide a satisfactory remedy. Apologies are usually
too late and too little to restore reputation, and monetary pay-outs do little for reputation.

Most media organisations avoid making retractions. Sometimes they will defend a defamation
case and pay out lots of money rather than openly admit being wrong.

Media owners have resisted law reforms that would require retractions of equal prominence to
defamatory stories.

By contrast, if you are defamed on an electronic discussion group, it is quite easy to write a
detailed refutation and send it to all concerned the next hour, day or week. Use of defamation
law is ponderous and ineffectual compared to the ability to respond promptly. This suggests

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that promoting interactive systems of communication, as an alternative to the mass media
would help to overcome some of the problems associated with defamation.

REVIEW QUESTIONS
1. Define the term defamation
2. Describe two kind of defamation
3. List the different types of defamation
4. Discuss the problems associated with defamation

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 TOPIC 11
THE CONSUMER PROTECTION ACTION ACT

LEARNING OUTCOMES
 The Consumer Protection Act
 Who is a ‘Consumer’?
 What are Consumer Rights?
 Consumer Rights No. 1: to 9 according to the Consumer
Protection Act No. 68 of 2008 was signed on 24 April 2009
understand them and enforce them

11.1 THE CONSUMER PROTECTION ACT?

11.1.1 The Consumer Protection Act, No. 68 of 2008 was signed on 24 April 2009. It aims to:
• Promote a fair, accessible and sustainable marketplace for consumer products and
services;
• Establish national norms and standards to ensure consumer protection;
• Make provision for improved standards of consumer information, to prohibit certain
• unfair marketing and business practices;
• Promote responsible consumer behaviour;
• Promote a consistent legislative and enforcement framework, related to consumer
transactions and agreements;
• Establish the National Consumer Commission; and

11.1.2 Who may lodge consumer complaints?

• An individual;
• An authorized person acting on behalf of another;
• A person acting as a member or in the interest of an affected group or class; or
• A person acting in the public interest (amicus curiae/leave of tribunal or court association,
acting on the interests of its members).

11.1.3 The Consumer Protection Act applies to the following:

• Every transaction occurring within the Republic of South Africa;
• Promotion or supply of any goods and services occurring within the Republic; and
• Goods or services that are supplied or performed, in the Republic, in terms of transactions
mentioned in the Act.
11.1.4 The Act is not applicable in respect of:
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 • Goods or services promoted or supplied to the state;
• Industry-wide exemption being granted to regulatory authorities;
• Credit agreements, in terms of the National Credit Act, but not goods or services;
• Services under employment contracts;
• Agreements giving effect to collective bargaining agreements; and
• Agreements giving effect to bargaining agreements (Section 213 of the Labour Relations
Act).
•
11.2. WHO IS A ‘CONSUMER’?
Consumers are persons to whom goods or services are marketed, who have entered into
transactions with suppliers, users of particular goods or recipients / beneficiaries of services.

Consumer Rights
The Bill of Rights enshrines the rights of all South Africans – including consumer rights. The
Consumer Protection Act further outlines these key consumer rights, of which all South African
consumers should be aware. These include the following:

Consumer Right No. 1: Right to Equality in the Consumer Market and Protection against
Discriminatory Marketing Practices

• right to free and unlimited access to goods and services

• right to high-quality goods and services
• right to fair pricing of goods and services
• right to lodge complaints

Consumer Right No. 2: Right to Privacy

• right to restrict unwanted direct marketing
• right to discontinue receipt of direct marketing at any time

Consumer Right No. 3: Right to

• select the supplier of The choice
• cancel or renew a fixed-term agreement
• request pre-authorization for repairs or maintenance services
• cancel direct marketing contracts within the cooling-off period
• cancel advance reservations, bookings or orders
• choose or examine goods, even after purchase and delivery
• return goods and seek redress for unsatisfactory services
• retain and not pay for unsolicited goods or services

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 - Consumers have the right to return unsolicited goods or services, at the risk and
expense of the suppliers.
- Consumers are entitled to retain unsolicited goods or services after 20 business days.

Consumer Right No. 4: Right to Disclosure of Information including right to information in plain
and understandable language

• The right to disclosure of prices of goods and services

• The right to product labelling and trade description
Producers, suppliers and importers are required to disclose the presence of any genetically
modified ingredients, in compliance with international and South African laws and regulations.

NB! A trade description refers to the name of the producer, the product’s number, quantity,
measure, etc.

NB! A trade mark refers to the intellectual property of the goods produced/supplied, as per the
Trade Marks Act, No. 194 of 1993.
The right to clear disclosure of reconditioned or grey market goods

NB! Parallel/grey goods are goods intended for sale in one national market, but imported from
their original destination for sale in another market; for example, goods intended for China, sold
in South Africa.
• The right to sales records
• The right to disclosure by intermediaries
• The right to identification of deliverers, installers and others

Consumer Right No. 5: Right to Fair and Responsible Marketing:

• The right to protection against bait marketing

• The right to protection against negative option marketing
• The right to protection against direct marketing
• The right to protection in catalogue marketing
• The right to protection in terms of trade coupons and similar promotions
• The right to protection in customer loyalty programmes.

NB: Customer loyalty programmes are loyalty credits or awards, which are a legal medium of
exchange when offered or tendered as consideration for any goods or services offered, or
transactions contemplated, in terms of such loyalty programmes/credits/awards.

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Consumer Right No. 6: Right to Fair and Honest Dealing including,
• Right to protection against unconscionable conduct
NB! Unconscionable conduct refers to behaviour that is unethical or improper.
• Right to protection against false, misleading or deceptive representations
• Right to protection against fraudulent schemes and offers
• Right to protection against pyramid and related schemes
• Right to assume that suppliers are entitled to sell goods

• Procedure for sales by auction

- Suppliers are required, when auctioning goods or products in lots and unless
otherwise stated, to auction lots separately, via separate transactions.
- Auctioneers are required to close auctions by visibly or audibly announcing their
completion.
- Auctioneers should give notice that a sale by auction is subject to a reserved or upset
price, and the right to bid by or on behalf of the owner/auctioneer.

• The right to changes, deferrals and waivers, and substitution of goods

• The right to protection against over-selling and over-booking
- Suppliers are not permitted to accept payment or other consideration for any goods
or services, if:
- They have no intention of supplying those goods or providing those services; and
- They intend to supply goods that are materially different from the goods or services,
for which payment was accepted.
- Suppliers are required to honour the supply of goods or services on specified dates,
times and other particulars, if committing to such arrangements in reservations or
bookings.
- Consumers have the right to demand refunds for full amounts paid in respect of
commitments or reservations, together with interest, at prescribed rates, from the
dates of payment until the dates of reimbursement.
Consumer Right No. 7: Right to Fair, Just and Reasonable Terms and Conditions. Among others
the following;
• right to protection against unfair, unreasonable or unjust contract terms
• right to obtain notice for certain terms and conditions
• right to obtain free copies of agreements/contracts
• right to refuse prohibited transactions, agreements, and terms or
• conditions
• right to approach the Court to ensure fair and just conduct, terms and
• conditions
Consumer Right No. 8: Right to Fair Value, Good Quality and Safety

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The right to demand quality service
• The right to safe, good quality goods
• The right to implied warranty of quality
• The right to a warranty on repaired goods
• Warranties are null and void if consumers are found to be misusing or abusing goods or
property, while under warranty.
• The right to receive warnings on the fact and nature of risks
• The right to recovery and safe disposal of designated products or components
• The right to have products monitored for safety and/or recalled
• The right to claim damages for injuries caused by unsafe/defective goods

Consumer Right No. 9: Right to Accountability from Suppliers

• The right to protection in lay-bye agreements
• The right to protection with regard to prepaid certificates, credits and vouchers, and
access to prepaid services and service facilities

11.3. WHERE TO COMPLAIN

The Consumer Protection Act aims to promote consumer activism, by making provision for the
accreditation of consumer groups tasked with lodging complaints on behalf of consumers, as well
as making available support for activities, such as consumer advice, education, publications,
research and alternative dispute resolution through mediation or conciliation.

As such, the Act gives rise to the establishment of the National Consumer Commission, a body
assigned to investigate consumer complaints, as well as the National Consumer Tribunal is
responsible for the adjudication of violations and transgressions of the National Credit Act and
the Consumer Protection Act.

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 TOPIC 12 ASSIGNMENT

FACULTY OF BUSINESS AND MANAGEMENT SCIENCES

ASSIGNMENT COVER SHEET
Name & Surname: ______________________ ICAS No: _________________________
Qualification: __________________ Year: _______ Module Name: _____
Specialization: _________________________ Assignment Due Date: _______________
ID Number: __________________ Date submitted: __________ Semester: _______________

MARK EXAMINER’S MODERATOR’S

ASSESSMENT CRITERIA REMARKS
ALLOCATION MARK MARKS
MARKS FOR CONTENT
QUESTION 1.1 20
QUESTION 1.2 20
QUESTION TWO 20
QUESTION THREE 15
QUESTION FOUR 15
TOTAL 90
MARKS FOR TECHNICAL ASPECTS
1. TABLE OF CONTENTS 2
Accurate numbering according to
the numbering in text and page
numbers
2. LAYOUT AND SPELLING 3
Font – Calibri 11
Line Spacing -1.5
Margin should be Justified
3. REFERENCE 5
According to the Harvard Method
TOTAL MARKS 10
TOTAL MARKS FOR ASSIGNMENT 100
EXAMINER’S COMMENTS

MODERATOR’S COMMENTS

Name of the Examiner : __________________ Name of the Moderator: __________________

Signature of Examiner: __________________ Signature of Moderator: __________________
Date : ___________________ Date: ____________________

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Instructions and guidelines

NB: 1. Candidates are advised to read the guidelines in the study guide.
2. Assignment questions are on page 3 and 4.
3. For reference use prescribed, recommended books and other resources you may come across.
4. Correct Harvard referencing carries (5 Marks).

The purpose of an assignment is to ensure that the student can:

• Use methods of enquiry and research in a disciplined field.

• Interpret and evaluate the text.

• Have a sound understanding of key principles and theories, rules and awareness.

• Solve unfamiliar problems using correct procedures as well as investigate and critically analyse
information and report thereof.

• Present and communicate information reliably and coherently.

Instructions and guidelines for writing assignments

1. Use the correct cover page provided by the institution.

2. All essay type assignments must include the following structure:
2.1. Table of contents
2.2. Introduction
2.3. Main body with subheadings
2.4. Recommendations and Conclusions
2.5. Bibliography
3. The length of the entire assignment must have a minimum of 10 pages. Typed with font size 11
Calibri. 1.5 spacing.
4. The quality of work submitted is more important than the number of assigned pages.
5. Copying is a serious offence which attracts a severe penalty and must be avoided at all costs. If any
student transgresses this rule, the lecturer will retain the assignments and ask the affected students
to resubmit a new assignment which will be capped at 50%.
6. Use the Harvard referencing method.
7. Please note that these guidelines do not apply to quantitative subjects like Accounting and Statistics.

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 Reward for leaders in customer
service
• Winning companies display an authentic commitment towards their customers
and are ethically honourable, writes Lynette Dicey

• Business Day

• 17 Nov 2022

The Ask Afrika Orange Index is the broadest service excellence benchmark in SA, measuring
customer satisfaction, emotional satisfaction and loyalty.
The index, which has been tracking customer experience and the changing trends and expectations
since 2001, recognises companies that show exceptional performance across client experience
metrics, such as servicing and problem resolution, and provides a benchmark against which
organisations can measure themselves.
“This year’s winning companies succeeded in delivering a consistent service experience with every
engagement,” explains Andrea Rademeyer, founder and CEO of Ask Afrika.
“Similarly, their various customer channels enable a consistent service experience.”
Companies that do well as far as customer service is concerned are typically clientcentric in design,
easily accessible and deliver on their promises both in terms of product and service, she adds.
“Winning companies tend to display an authentic commitment towards their customers and are
ethically honourable: they adjust depending on the contextual societal changes, understand the role
their industry plays in the lives of their customers and pivot to align themselves with the changing
needs of their customer base. They make it easy for customers to engage with them from the first
point of contact, demonstrate value for money and understand the importance of making continuous
investments in customer relationships.”
Ultimately, Rademeyer says, companies that lead in customer service know what their customers
value in service engagements and they deliver a superior performance on what matters most.
So, who exactly are this year’s Orange Index winners?
Discovery Bank moved up from fourth place in 2021 to first place this year in the banking
sector………….

In the long-term insurance category Discovery Life took top honours while Auto & General
Insurance won the short-term insurance category.
Among automotive firms, Toyota takes pole position.
Clicks, which has grown from humble beginnings into a household name with an expanding
network of more than 840 stores and 670 pharmacies, won the pharmacies category………...
Woolworths Food won the food retail category while Woolworths Home won the home and décor
category.
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Bestmed Medical Scheme, the fourth largest open medical scheme and the largest self-administered
medical scheme in the country, won the medical aid companies’ category. Denelle Morais,
marketing and communication manager at Bestmed, says that receiving this accolade for the second
time and being runner-up for many years is testament to the business’s commitment to quality
service and healthcare. “Our ‘Personally Yours’ approach to delivering services adds value for our
members and is a winning formula for us.”
Elmarie Jooste, the executive responsible for corporate services and wellness, says that after a
challenging time in the industry for all medical schemes, this award is a testament to the
perseverance and passion of its employees.
“As a scheme, we understand that benchmarking provides valuable insight to support its
‘Personally Yours’ services. It is part of Bestmed’s quality management process to improve
member experiences and how we manage daily operations.”
Food Lover’s Market won the butcheries category. Simon Parker, GM of Butcheries for the Food
Lover’s Market Group, says: “We’re geared to offer value and quality. We take the range of meat
products we offer seriously as we understand our customers love to have a varied meat experience.
With more than 700 individual meat items, Food Lover’s Market offers the widest meat retail in
SA, designed to appeal to all palettes and preferences.”
Other winners include Mica in the building retail category; H&M in the clothing stores category;
McDonald’s Delivery Service in the fast food delivered category; Burger King in the fast
food/takeways category; Rocco Mamas in the franchise restaurant category; Dove’s Group in the
funeral/ burial services category; Afrihost Internet in the Internet Service Providers category;
Browns Jewellery in the jewellery and watches category; Tops in the………….

QUESTIONS
One of the statutory yardsticks in ensuring customer satisfaction and emotional satisfaction is
the Consumer Protection Act 68 of 2008. Assume that you have been employed by The Ask
Afrika Orange Index as a legal administrator, and since The Ask Afrika Orange Index recognises
companies that show exceptional performance across client experience metrics, explain to a
prospective candidate,a business that is competing at The Ask Africa Index,the customers right
to goods and services that are of good quality and safe. Advise the candidate of the customer’s
right to the right to fair value, good quality and safety as specified in the Consumer Protection
Act 68 of 2008 under the following topics.

1.1. Implied warranty of quality (section 56(1) (20)

1.2 Harm caused by defective goods (20)

2.Evaluate the transactions that fall outside the scope of the application of the Consumer
Protection Act. During your discussion list four companies from the aforementioned
passage and explain why the chosen companies could possibly fall outside the ambit
of the Consumer Protection Act. (20)

3.Assess Expiry and renewal of fixed term as indicated in section 14 of the Consumer
Protection Act. (15)

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4. The Ask Afrika Orange Index is the broadest service excellence benchmark in SA, measuring
customer satisfaction, emotional satisfaction and loyalty. Consumer legislation in South Africa has
entrenched this attitude by empowering consumers.
“…a consumer may rescind a transaction resulting from any direct marketing without reason or
penalty by notice to the supplier in writing, or another recorded manner or form, within….”
(section 16 of the Consumer Protection Act). Explain Cooling-off Right in terms of section 16 of
the Consumer Protection Act. (15)

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 TOPIC 13
ADDENDUM 622 (B): WRITING ASSIGNMENT

TUTORIAL LETTER 1

WRITING ASSIGNMENTS

students

There is no doubt that writing assignments is one of the most effective ways of learning.
However, it is a task which intimidates students because they have not been given adequate
instructions and practice in how to prepare and write assignments.

You learn best when you are confident and relaxed. After you study this tutorial letter, we hope
you will be more confident and do your very best in your assignments.

WHAT IS AN ASSIGNMENT?

An assignment is defined as a formal piece of writing on a set theme or topic between 2000 to
4000 words in length. Sometimes an assignment may comprise of two or three topics.

The length of the assignment is stipulated for two important reasons:

• To make sure you have enough scope to answer the question fully
• To give you practice in producing concise, relevant answers.
Students who are new to assignment writing are alarmed at the number of words. However,
students soon discover that finding enough words is not difficult. Instead the problem becomes
one of exercising discipline needed to keep the assignment within the number of words allowed.
A practical tip:

Do not waste time counting every word in your assignment; your tutor will certainly
not do so. The approximate number of words on a page is 250 words. So if your
assignment requires 750 words, you will produce 3 pages of facts related to your
question.

WHY WRITE AN ASSIGNMENT?

Assignment writing helps you to develop the ability to express and communicate your ideas. It
does not mean that you must:
Cut and paste information from the internet
• Copy information word for word from textbooks, journals, and student guides.
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 • Plagiarising information (stealing other people’s information and passing it off as your
own)

• Writing assignments requires concentrated attention and a determined attempt at

understanding because you have to use the information to construct and argument.
• When you write and submit an assignment, you enter into a dialogue with your lecturers
and this lessens the feeling of isolation which all distance students have to cope.
• Assignments give your lecturer the information he needs to diagnose any learning
difficulties early in the course. Hence it is most important that you submit your
assignments on time and get prompt feedback so that you do not repeat the same
mistakes in future assignments. WHAT MUST I DO?

The wise student will then read all the information related to the question and write in his own
word what he understands about the question. This reading is called research. You read a lot
about the topic and use the information to answer the question.

SCORING HIGH MARKS

Your lecture/tutor marks your work based on the following criteria:

• Understanding of the topic

• Presenting your arguments in keeping with the demands of the question
• Referencing your information obtained from textbooks, internet and journals
• Conclusions
• Overall presentation of the assignment
PREPARING TO WRITE THE ASSIGNMENT

1. Start to prepare early- too often students put off thinking about the assignment until the
very last moment. This is an invitation to:
• Panic
• Cheating (plagiarising, copying, fabricating, stealing etc.)
• Scoring low marks

2. Long before you begin to write your assignment you must have:

• Collected all necessary information required to answer the question

• Understood what is required from the question- what does it tell you to do?

2.1 Discuss type of questions- such questions are assessing your ability to see all the different
and conflicting aspects of a topic.

Practical tip:
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First you present one point of view of an author, then you present the views of another author
on the same point and finally you give your considered view on the topic.

EXAMPLE:
Question: Discuss the importance of apples in a healthy eating plan.

ANSWER: According to Madiba (2012: 5) apples are very food for building health teeth. Singh
(2013:78) is of the same opinion when he says” an apple a day keeps the doctor away”. However,
while I agree with the above writers, my experience with apples is not pleasant as I always
experience diarrhoea after eating apples. NOTE: You must show your source of information and
the exact page number from you obtained the information. This is known as referencing.

2.2 Evaluate type of questions- these questions require you judge the value of the statement.

EXAMPLE:

Evaluate the benefits of apples in the diet.

In this type of question, you have to decide:

• how far the statement is true
• how far it is false and
• Does it highlight an important aspect of the topic?
ANSWER: Madiba (2012:5) and Singh (2013:78) believe that apples are good for health. While
this is true, apples do not necessarily agree with many people because of the high acid content
as well as the high roughage content.

Practical tip: Very often you must criticize these statements by saying what is good and what
is bad about the statement in the light of the question. Note in all cases you must refer to
some write to support your discussion/answer.

2.3 Give an account of or describe type of questions – this type of question requires you to
give the necessary and relevant information. Students find this a difficult type of
question to answer because of the choices one has to make. What do I select and what
do I leave out?

2.4 Outline type of questions – in these types of questions you are specifically asked to
concentrate on the MAIN points and AVOID getting bogged down in superfluous detail.
COLLECTING THE INFORMATION (RESEARCH)

Your next step is to collect all the material for your assignment. Collecting information must be
seen as a search for those ideas that you can interpret and apply to the topic.

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Practical tip: assignments are NOT only a repetition of large chunks of information from the
student guide, or the internet. The student has to rely on his own thinking and opinions about
the views expressed by the writers on the topic and express them. In this way there is NO RIGHT
AND WRONG ANSWER. The student is given marks according to his interpretation of the
question.

Although writing assignments means using and building on the ideas of other writers, it can be
creative exercise because the approach you adopt and the use you make of those ideas is
WHOLLY YOUR OWN.

TWO MISTAKES TO AVOID:

• The mistake of writing wholly in your own words

• The mistake of lifting words, phrases and chunks from textbooks without acknowledging
them (reference)
QUOTATIONS

If you decide to quote directly from a book, you must have a good reason for doing so. Do not
make your quotations appear as isolated afterthoughts just to impress your lecturer. All
quotations must flow and be part of the argument. They must not stick out like a sore thumb.

When used, they must be brief and to the point and must be absorbed in the discussion so that
it serves a useful purpose. Always collect the details of the author, the title of the textbook, date
of publication, publisher, and the page number from where the information was obtained.

WRITING STYLE

An assignment communicates your thoughts to the lecturer. So always aim for clarity and
simplicity. Do not write anything that you, yourself do not understand. Every word that you use
must contribute to the statement you are making.

VOCABULARY

Short, simple words are often the clearest and most exact. Avoid using the same word
repeatedly within a short space. Always refer to a good dictionary to select the most appropriate
words. This process will help you develop your own vocabulary.

OBJECTIVITY
Writing objectively means you avoid the use of slangs and chatty colloquial phrases. Unless you
are explicitly asked to express an opinion, it is better to avoid using the first personal pronoun.
If you find yourself writing “I feel…” or “I think…” try to find a less subjective form of expression.
You can use one of the following:

• “It could be argued…….”

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 • “It seems…”
• “It is apparent that…. “
• “In the writer’s view…”

SENTENCES

It is usually best to keep sentences short. Some variation is advisable in order to avoid a jerky,
disjointed style. Irrespective of the style, clarity and ease of communication are most important.

PARAGRAPHS

A paragraph consists of a number of sentences all of which relate to central idea or theme. It is
advisable to indicate early in the paragraph what the paragraph focuses on. This is often
referred to as the “topic sentence”. All each paragraph is a separate unit of meaning; it must
connect smoothly with the preceding and following paragraphs.

The following connecting words and phrases can help you to do this:

• However,…….
• Moreover …
• Further …
• Therefore …
• In view of………
CONCLUDING REMARKS

After you have read and understood the above information, you are advised to go back to an
assignment you have already completed and mark your own work in the light of the knowledge
you have acquired. This practice will make you more aware of your strong and weak points.
Thereafter, you will slowly begin to gain confidence of relying on your own intelligence in
interpreting assignments and adopting your own academic writing style.

On behalf of the academic department (BEMS/MICT/MLA) I wish you every success in your
academic endeavours.

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 TOPIC 14

RICHFIELD GRADUATE INSTITUTE OF TECHNOLOGY (PTY) LTD

HIGHER EDUCATION AND TRAINING
FACULTY OF BUSINESS & MANAGEMENT SCIENCES
DEPARTMENT OF LAW AND ECONOMICS
COMMERCIAL LAW 622

Q
NATIONAL FINAL EXAMINATION - QUESTION PAPER
NATIONAL FINAL EXAMINATIONS
DATE: OCTOBER 2022 DURATION: 3 HOURS
EXAMINER: Mr. R. DEVCHANDER MODERATOR: Mr. E. HLENGWA

NUMBERS QUESTIONS MARKS TIME IN MINUTES

SECTION A: MULTIPLE CHOICE QUESTIONS COMPULSORY
1 Question One 20 30
SECTION B: SHORT QUESTIONS COMPULSORY
2 Question 2.1 10 20
Question 2.2 10 20
Question 2.3 10 20
Question 2.4 10 20
Question 2.5 10 20
SECTION C: ESSAY/ CASE STUDY COMPULSORY
3 Question Three 30 50

PLEASE NOTE THE FOLLOWING:

The question paper consists of 3 sections.
a) Section A is compulsory, the student is required to complete all MCQs.
b) Section B Short questions compulsory.
c) Section C Essay /Case Study compulsory.

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SECTION A: MULTIPLE CHOICE QUESTIONS COMPULSORY (20 MARKS)

(Mcqs Questions can be taken from the question banks that is

available)
SECTION B: SHORT QUESTIONS (50 MARKS)

2.1 Determine the types of common law defects a person may witness in a contract of sale. (10)

2.2 Assess whether pamphlets, catalogues and advertisements are generally meant to be taken seriously
as offers to enter into contracts. (10)

2.3 Mary is a domestic worker that lives in a near rural area called Engonyameni in Durban. She has
worked as a domestic worker for nearly 15 years, when she started work 15 years ago she used to
earn about R 1 500 per month. However, her wage has increased over the years to reach her current
salary of R 7 000 per month. Mary now wants to take further steps in her life which is to extend her
family house as the number of people in her family has increased. Mary goes to the bank to get a loan
that she can afford to pay back within the term which will be determined by the bank but she gets
rejected on the basis that she lives in a near rural area and she is a domestic worker.
In light of the above circumstances explain the purpose of the National Credit Act, 34 of 2005. (10)

2.4 Elucidate Res Vendita and the essential elements of a contract of sale? (10)

2.5 Briefly explain the impact of the National Credit Act 34 of 2005 (N.C.A) on debtors, credit
providers and consumers. (10)

SECTION C: CASE STUDY (30 MARKS)

3.1 Read the following case study and answer the questions that follow.

Mr Gossip Naidoo works for Fhala Fhala bank Ltd in Durban. Fhala Fhala bank specialises in dealing with
forex. Mr Gossip Naidoo works in the IT department of Fhala Fhala bank. He has access to all electronic
payments that pass through the bank. Mr Gossip Naidoo’s neighbour Cyril Gamalosa is a farmer and owns

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a small but thriving farming entity, on the outskirts of Durban. He also drives an old Renault that is badly
in need of panel beating and polish.

One day Gossip Naidoo notices an electronic funds transfer of 4 million Rands from Cyril’s business to a
creditor. He immediately orders an investigation by the forensic team of Fhala Fhala bank into the source
of the funds. The forensic team cleared Cyril’s funds as being legitimate capital generated in the normal
course of business.

The findings of the forensic team agitated Gossip Naidoo. After work he discussed the funds transfer with
his wife Mrs Nosey Parker Naidoo. Mrs N.P. Naidoo shared the following information with her colleagues
on her chat group.

1.That Cyril Gamalosa had 4 million USD in his business bank account.

2. That Cyril Gamalosa paid a creditor the 4 million dollars on a certain date.

3.That the transaction was handed over to the forensic team at Fhala Fhala bank Ltd.

4. That the forensic team at Fhala Fhala bank cleared the funds as being legitimate.

Cyril’s personal information is published in the community newspaper and now appears in the public
domain.

In relation to Cyril’s recent experience as indicated above, confer with Cyril Gamalosa the impact of The
Protection of Personal Information Act 4 of 2013 (POPIA) on the electronic payment
industry. (30)

END OF EXAMINATION

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