Contract – KRUGER & CO

Apr 23

0

BFFs no More: The Verbal Agreement That Cost R1 Million

By Kruger & Co | Contract

“My word is my bond.” (Once the motto of 16th-century merchants, adopted by ’90s hip-hop artists, and now tossed around by duelling politicians)

Many people are unaware that there are just a few types of agreement that are valid only if recorded in writing and signed – most notably contracts for the sale, exchange, or donation of land or of any “interest in land”, ante-nuptial contracts (ANCs), and deeds of suretyship.

Outside of those exceptions, all verbal agreements are as valid and enforceable as written ones. Your word really is your bond! So be careful what you agree to verbally – and stick to written agreements whenever there’s a lot at stake. A recent High Court judgment provides a great practical example of those principles at work.

When friends fall out

It’s 2009, and the MD of a long-established Cape Town freight operation is doing business with another business owner. Their relationship develops from a strictly business one into a personal, “best friend” one.

By 2012, they have agreed verbally that the friend will move to Johannesburg to establish a branch of the freight company there as a new director.

Believing that he will now be given a 5% share in the company and be appointed as a director, the friend pays the company R1m to cover the new branch’s start-up funding. But when he asks for his shares, the MD refuses, denying there was ever any agreement to give him equity and telling him that the R1m was just an “at-risk investment”.

The refusal to give him shares, says the friend, is a repudiation (renunciation) of the oral agreement, and he demands that the company now repay his R1m.

The company, through its MD, refuses – “I’ll see you in court,” he says. In the latest (2025) round of litigation, the Court, without a written agreement before it, has to analyse a litany of contradictory evidence to try and work out what exactly had been verbally agreed by the two ex-friends.

Offer someone a carrot and you’ll have to give it to them

The Court was unimpressed with the MD’s version that his friend’s R1m payment was an “at-risk investment” rather than the agreed purchase price of a 5% shareholding. A major factor in that decision was clearly the director’s 2013 email to his friend which included this: “…I have committed to sell you equity…”, reinforced by his evidence that he only changed his mind about parting with shares in 2014.

The nail in the MD’s coffin was no doubt his admission that that he had held out the prospect of his friend becoming an equity partner as “a carrot”. His friend accepted that offer, their oral agreement became binding, and the company must repay the friend his R1m plus interest and costs.

Offer someone a carrot, and our law will hold you to deliver it!

“The bluntest pencil is better than the sharpest memory”

While it seems justice has been done, both the falling out and the court case could have been avoided altogether.

Had the MD and his friend thought the whole thing through properly back in 2012 and asked a lawyer to draw up a proper written agreement for them, it’s highly unlikely that they would, in 2025, still be fighting their way through the courts. Who knows, they might never have come to blows at all and could still be BFFs!

Don’t rely on a “handshake” agreement, even with the best of friends. When the stakes are high, let us help you put it in writing – clearly, enforceably, and with a minimum of fuss.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.

Nov 26

0

Gift or Loan? A Cautionary Tale for the Season of Giving

By Kruger & Co | Contract

“The bluntest pencil is better than the sharpest mind” (Unknown)

The Festive Season is traditionally a time for giving, and it seems a pity to have to mention the hard realities of the law right now. But, as a recent High Court dispute confirms, things can go horribly wrong if the people involved have different notions on whether what’s being given is a gift, or a loan.

“Here’s R400k Ma” – But was it a loan, or a gift?

The setting for this dispute is a small caravan park, with 13 caravan sites, nine flatlets and two chalets, in the resort town of Illovo Beach on KZN’s beautiful South Coast.

The two parties are:

A prospective mother-in-law, part owner of the park, who lives in one of the flatlets.
Her daughter’s fiancé. He and the daughter were living together in the daughter’s separate flatlet at the time.

The fiancé was badly injured in a motorcycle accident, which saw him hospitalized for two weeks and incapacitated for another several months. He was paid R1.8m by the Road Accident Fund.

He used part of his R1.8m to pay his future mother-in-law (he called her “Ma”) three amounts totalling R400,100. And that’s where the dispute arose, with the Ma and son-in-law disagreeing on the nature of the payments:

The fiancé claimed that it was a verbally-agreed loan for a long-term investment, repayable on demand.
His prospective mother-in-law claimed that it was a verbally-agreed donation.

She duly refused to repay the money to the fiancé when he demanded it, and he sued her in the regional magistrate’s court. The onus, it was decided, was on her to prove her version that it was a gift rather than a loan.

She lost the case, largely it seems because she gave contradictory explanations for why the fiancé had given her such a gift. At first, she said it was as a token of appreciation for her not charging him to live in her daughter’s flatlet, for settling some of his medical expenses, and for the care she’d taken of him during his recuperation. But later, she said it was for payment of her legal fees arising out of a dispute with her ex-husband, and a gift, not to her, but to her daughter.

The magistrate accordingly held that she had received not a gift but a loan and ordered her to repay it. Her attempt to appeal to the High Court failed on the basis that she had filed her appeal late without giving good reasons for the delay. Critically, the Court described her prospects for success as “poor” given the above facts.

While this particular case has been decided, the main point is that the whole sorry saga of dispute and litigation could have been very easily avoided…

Gift or loan? Avoid all doubt

There’s nothing like a misunderstanding over money to drive a wedge between friends and/or family. That’s why you should avoid all possibility of confusion and dispute with a written, signed agreement. Clearly state how much is involved, and whether it’s a gift or a loan – and if it’s a loan, specify the arrangements for repayment.

Of course, the more money involved, the more detailed and formal your agreement needs to be. It goes without saying that we are here to assist if you need any advice or help.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.

May 27

0

Contracting with Trusts – Is a Majority Resolution Valid?

By Kruger & Co | Contract, Property, Trusts

“Externally, trustees cannot disagree. In the external sphere the Trust functions by virtue of its resolutions, which have to be supported by the full complement of the Trust body.” (Extract from judgment below)

A recent Supreme Court of Appeal (SCA) judgment provides yet another reminder to tread carefully when contracting with trusts. Your agreements with a trust will be invalid and unenforceable if the trustees acting for the trust weren’t properly authorised to bind the trust.

But must trustee resolutions always be taken unanimously by all of the appointed trustees to be valid, or will a majority decision ever suffice? The SCA addressed that question in the context of a trust seeking to escape from a suretyship which had not been unanimously agreed to and signed by all three trustees acting jointly –

When a majority trustee decision isn’t enough

A creditor sued a property trust for payment under a suretyship given to it by the trust. The trust countered that the suretyship was invalid because the resolution authorising trustees to sign the suretyship was not authorised and signed by all three trustees, but only by two of them.
Indeed, only two of the trustees had attended the trustee meeting at which the suretyship was discussed. The third trustee had not been at the meeting and did not sign either the resolution authorising the suretyship to be signed or the actual suretyship.
The meeting itself was in order, in that the trust deed provided for two trustees to constitute a quorum for meetings. But the deed also provided that a unanimous decision was required for the trust “to conduct business on behalf of and for the benefit of the Trust, and to employ trust property in such business”.
In any event, as the Court put it: “…trustees must act jointly in taking decisions and resolutions for the benefit of the Trust and beneficiaries thereof, unless a specific majority clause provides otherwise” and “Even when the trust deed provides for a majority decision, the resolutions must be signed by all the trustees. (Emphasis added)
As it was neatly put in an earlier High Court decision: “A majority of trustees in office may form a quorum internally at a trust meeting, but can still not externally bind a trust by acting together … It is not the majority vote, but rather the resolution by the entire complement which binds a trust estate. A trust operates on resolutions and not votes.” (Emphasis added)
As only two of the three trustees had acted for the trust in this case, the Court held both the resolution and the suretyship to be invalid and unenforceable.

So, what does that mean for you in practice when contracting with a trust?

Internal trust matters: Internal matters (such as using trust income for the benefit of beneficiaries or administering trust assets) “may be debated and put to a vote, thereafter the voice of the majority will prevail.”

External trust matters: As an outsider however your dealings with the trust will relate to external trust matters (transactions relating to trust property with the outside world such as buying and selling property, signing suretyships and the like) and here unanimity is essential for the trust to be bound. Even when the trust deed allows majority decisions, all the trustees must still participate in the decision-making and all of them must sign a resolution to make it valid externally. Make sure therefore that all trustees signing for the trust have the power to do so per the trust deed and by a valid, unanimous resolution.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Jul 26

0

Can Your 👍Thumbs-Up Emoji or E-Signature Seal a Deal?

By Kruger & Co | Contract

“…data messages or electronic signatures are now recognised in our law as equivalent to a proper basis upon which a written contract can be concluded. Thus, a valid written contract can be concluded electronically.” (Extract from the South African judgment below)

ECTA (the Electronic Communications and Transactions Act) means that you can in many cases create legally binding agreements purely electronically – via email, WhatsApp, social media and the like.

There is of course both risk and opportunity here. On the one hand, the old hassles of printing everything out and signing reams and reams of paperwork have become unnecessary, even undesirable, for many transactions (but not all – take advice in doubt). Remember to keep proof of everything.

But be careful what you e-agree to!

On the other hand, beware the risks! We tend to focus more on what we’re agreeing to when it involves reading and signing printed documents, and when everything is electronic it’s a lot easier to gloss over details, and to underestimate the importance of subject matter. Particularly, perhaps, in a social media environment, where things often evolve at pace and with an air of informality.

Let’s start our discussion off with a recent High Court confirmation of the binding nature of electronic signatures.

An e-signature binds a debtor to a R1.5m deal

A bank sued a debtor who, it said, had electronically signed a credit agreement to buy a R1.5m BMW X5 motor vehicle and then defaulted on instalment payments.
Sued for damages and for return of the vehicle, the debtor countered by denying that he had entered into a valid electronic contract. He said his brother-in-law/employer had purchased the car in his name and had signed the agreement electronically.
The bank, however, produced evidence (including recorded telephone conversations between the debtor and its call centre) to support its claim that the electronic signature was indeed the debtor’s.
Commenting that “…data messages or electronic signatures are now recognised in our law as equivalent to a proper basis upon which a written contract can be concluded. Thus, a valid written contract can be concluded electronically”, the Court held that the debtor had indeed concluded the contract, and that the bank was entitled to cancel it, demand return of the car, and claim damages.

Can a “Thumbs-Up” 👍 emoji bind you to a contract?

A Canadian Court recently made international news after holding that a👍thumbs-up emoji constituted approval of a contract (a sale of flax), thus creating a valid contract.

The buyer in that matter had texted to the (proposed) seller an image of a purchase contract, along with the message: “Please confirm flax contract”, and the seller had responded with a 👍thumbs-up emoji. When sued for failing to deliver per the contract, the seller claimed never to have accepted the contract – all the emoji meant, he said, was that he would think about it. However, on the particular facts of this matter, the Court concluded that the emoji had indeed signified the seller’s acceptance of the contract. The seller must now pay the buyer Can$82,200.21 (almost R1.2m at date of writing) in damages for breach of contract.

But would the result have been the same in a South African court? It seems logical that it would, provided of course that in the particular context of the matter the emoji clearly meant “I accept” and not perhaps “got it, will come back to you with an answer” or something similar.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Jun 27

0

Verbal Agreements – Not Much Good, But Lots of Bad and Ugly

By Kruger & Co | Contract

“The Good, The Bad, and The Ugly” (Spaghetti Western, 1966)

A common myth – one that can get you into a whole lot of trouble if you aren’t alive to it – is that verbal contracts are not legally enforceable in South Africa. The opposite is true. With very few exceptions, our law will hold you to all your agreements, whether oral or written.

What verbal agreements aren’t binding?

Not many. Only a few types of agreement must be in writing to be fully valid, the most common being contracts for the sale, exchange, or donation of land or of any “interest in land”, ante-nuptial contracts (ANCs); and deeds of suretyship.

So, watch what you say!

Firstly, although our laws of contract are complex, with many exceptions and “ifs and buts”, at the most basic level the only requirements for a binding contract are an “offer” and an “acceptance” of that offer. So, watch what you say! Make an offer to someone else, or accept another person’s offer, and that little voice at the back of your mind telling you “Don’t worry, you aren’t actually tying yourself into anything here” is very likely to be (a) totally wrong and (b) getting you into a whole lot of trouble.

The danger – a little bit of Good, but mostly Bad and Ugly

Of course, verbal agreements do have their benefits – they’re quick, easy, and cost-free. We enter into little give-and-take deals with others in our daily lives without a second thought and with not a drop of ink in sight. And that’s absolutely fine for the little things. But contracting orally is a terrible idea when the stakes are high –

Our not-so-sharp memories: As the old proverb warns us: “The bluntest pencil is better than the sharpest memory”. It’s a human trait for us to “hear what we want to hear”. And to remember what we want to remember. You and the other person could well, in all innocence, come away from exactly the same discussion with totally different ideas and memories of what you actually agreed to.Next thing you know you’re both in court, swearing to the truth of your own versions and leaving it to a judicial officer to try and decide whose recollection is the more accurate. That decision could go either way.Record what you agree to, for all to see.
The fraud risk: Worse, if your opponent isn’t above stretching the truth a little (or a lot!) you have the same problem but magnified. Make it difficult for a dishonest party to wriggle out of an agreement – or to misrepresent its terms – by recording it in black and white.
Proof: Which brings us to the question of proof. With an oral agreement it is your word against theirs. At best, you may be lucky enough to have a witness available to support your version, but such a witness may or may not have a good memory and high credibility. That can never match up to the evidential weight of a “signed, sealed and delivered” contract.
Certainty and Dispute: Let’s bring that all together under the heading of “certainty”. Although written contracts aren’t perfect – our courts are regularly faced with disputes over them – there’s a lot less room for misinterpretation, uncertainty, and dispute when you can stand up in court waving a signed piece of paper rather than saying “As I recall it…”

An end note on electronic contracts

This is a whole other topic on its own, but bear in mind that since the arrival on the scene of the ECT (Electronic Communications and Transactions) Act you can often contract electronically via email, WhatsApp, and the like. There’s both a warning there (“be careful what you agree to electronically!”) and an opportunity (“paper, pen and ink not always needed!”). Take professional advice in any doubt. Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Oct 26

0

Exemption Clauses in Contracts – Fine Print Can Void Them

By Kruger & Co | Contract

“… he did not think that he was binding himself ‘to all sorts of fine print that I can’t even read’.” (Extract from judgment below, describing evidence given by the customer during the trial)

For suppliers of goods or services, incorporating a strong, clearly worded exemption clause (a clause excluding or restricting your liability to the customer) into your contracts is an essential part of risk management. Just be aware of the restrictions that our laws place on them.

As a recent Supreme Court of Appeal (SCA) judgment shows, your first hurdle in enforcing a disputed exemption clause could be to convince a court that the consumer did in fact contract on the basis of that condition –

“In fine print” and “not conspicuously legible” – so not part of the contract

A shipping company agreed to transport from America to South Africa an overhauled aircraft engine.
It failed to make delivery to its customer after the engine was destroyed in transit in the U.S. The shipment had not been insured, and the shippers told the customer that according to their terms and conditions for ocean freight shipments, they were only liable to pay US $500 (about R6,000 at the time) per shipment.
The customer was having none of that and sued the shipper in the High Court for the engine’s full replacement value of R386,140-30. The shipper relied on a series of wide-ranging clauses, incorporated in its standard trading conditions, which limited its liability.
The High Court ordered the shipper to pay up on the basis of consumer protections contained in the Consumer Protection Act (CPA) which make it compulsory to word exemption clauses “in plain language” and to draw them “to the attention of the consumer … in a conspicuous manner…”.
The shipper appealed to the SCA, which, in dismissing the appeal, held that it was not necessary to consider the CPA question because the customer hadn’t contracted on the basis of the standard trading conditions in the first place. The customer regarded his contract as formed by an initial exchange of emails, and only afterwards was he asked to sign a credit application in order to open an account. As he did not require credit, he regarded all that as merely a matter of formality to capture his details and allocate him an account number.
The shipper, held the Court, did not explain to the customer that the credit application contained provisions that excluded or limited the shipper’s liability for loss or damage. “Furthermore, the standard trading conditions and the relevant clauses which [the shipper] seeks to rely on appear in fine print, and are not conspicuously legible. They appear on the second and third pages of the credit application, which can only be read with extreme difficulty and concentrated effort. Importantly the credit application was sent without the conditions being attached and were described by [the shipper] as needing to be completed so that ‘we can start the process’.” (Emphasis supplied).
The shipper must pay up in full, plus interest and (no doubt substantial) costs.

As a supplier, if you want your exemption clause to be accepted in court …

In addition to a general inclination by our courts to consider the principles of ubuntu, fairness, good faith and public policy when interpreting contracts, bear in mind the CPA’s requirements (summarised above) and the need to incorporate your exemption clause clearly and unambiguously into your contract before it is concluded.

As a consumer, read the fine print!

“Education is when you read the fine print. Experience is what you get if you don’t.” (Pete Seeger)

Although, as is clear from the above, you might be able to circumvent an exemption clause, our law will generally hold you to all the terms and conditions of your agreements. The safest course therefore will always be to heed the old legal principle “caveat subscriptor” (“let the signer beware”), so read the fine print, and in any doubt take professional advice before you sign anything!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Sep 28

0

Friends and Lovers: Before You Lend Out Your Car…

By Kruger & Co | Contract, Family Law, General Interest

“Neither a borrower nor a lender be” (Shakespeare)

This is a case of a “love relationship” gone wrong but the principles of vehicle ownership apply to any situation in which you lend a motor vehicle to anyone else.

A widely-held misconception is that if you are the registered owner of a car, it is yours and you are the owner. Not so, as a recent High Court judgment aptly illustrates –

The registered owner unable to reclaim “her” car

In what must at the time have seemed like a straightforward agreement between two people “in a love relationship”, a woman agreed to lend her lover a vehicle which she bought from a finance company under a loan agreement.
They had agreed verbally that he could use the vehicle for his personal use and would repay her for loan instalments, insurance, licencing, servicing, traffic fines and the like.
When the relationship soured, the woman asked the Court for an order returning the vehicle to her as owner.
Although there was no dispute that she was indeed registered as owner of the vehicle, the Court dismissed her application on the basis that, whilst possession of a vehicle’s registration papers is prima facie (“at first view”) proof of ownership, it is never conclusive proof of ownership. Nor is any change of ownership required to be registered for transfer to take place. So in this case the registration papers did not prove ownership, the actual owner being the finance company.
This is different to the position with land, where registration of ownership in the Deeds Office proves ownership and is necessary for transfer of ownership. That no doubt is the origin of the myth that being registered as the owner of a car proves that you are the owner – an incorrect and dangerous assumption.
The woman was accordingly not the owner of the vehicle, rather the finance house was the owner in terms of the lease agreement which provided that it retained ownership until all amounts due under the agreement had been paid in full.
End result – the ex-lover keeps the car, for now at least.

Lessons for lending out cars…

Should you decide to lend out your car, make sure to do it under a written agreement – the parties in this case were lucky that they could agree on the terms of their verbal agreement as our law reports are replete with bitter and expensive litigation over what everyone said and who agreed to what verbally.
Include a term spelling out clearly your rights to recover possession of the vehicle. The woman in this case would have been in a far stronger position if the parties had agreed that, even if the man held up his end of the bargain to pay for all the loan instalments and other expenses, the woman still retained the right to reclaim the vehicle if their relationship ended (she still wouldn’t have sued as owner, just to enforce the agreement).
For life partners and cohabiting couples this is yet another reminder that there is no such thing as a “common law marriage” in our law. There are no automatic marital or other rights attaching to your relationship and applicable when the relationship ends, so entering into a full cohabitation agreement is the only way to safeguard both your and your partner’s financial and personal rights.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Jun 26

0

Electronic Signatures in Property and Other Transactions

By Kruger & Co | Contract, Property, Wills and Estate Planning

“To sign a document means to authenticate that which stands for or is intended to represent the name of the person who is to authenticate” (quoted in the case below)

We all know that verbal agreements, although fully binding for most types of transaction, are a recipe for uncertainty and dispute. It’s not just a question of trust – even if no one is deliberately dishonest about what was agreed, innocent misunderstandings are common. We have a natural tendency to hear what we want to hear and to remember what we want to remember, and a properly-drawn written agreement avoids that.

So even when a written and signed document isn’t required it is always wise to insist on one. Note that the parties themselves can require a document to be in writing and signed. Or it could be required by law – the most common examples of the latter are property sale agreements, wills, suretyship agreements, ante-nuptial contracts, and credit agreements (there are other less common examples – take professional advice in doubt).

But that’s not always easy to achieve, and the COVID-19 lockdown in particular has highlighted the challenges of getting everyone together for an old-fashioned original “paper and ink” signing session. Even when social distancing is no longer required and ceases to be the norm in society, the convenience and benefits of being able to sign documents remotely (whether you and the other party/ies are in different houses, cities, countries or even different continents) are obvious.

Firstly, when is a digital agreement “in writing”; and can property sales and wills be electronic?

Fortunately our law, in the form of the ECTA (Electronic Communications and Transactions Act) recognises the general validity of digital documents. A “document or information” is “in writing” if it is –

“In the form of a data message; and
Accessible in a manner usable for subsequent reference.”

As a result, perfectly valid and enforceable agreements are now often entered into online, by email, WhatsApp and the like.

Note that there are some specific exceptions where a physical (“wet ink on paper”) as opposed to an electronic format is still required – most commonly property sale agreements, “long” (10 or more years) leases and wills (there are others – take advice in doubt).

Secondly, is “signature” always required?

Formal “signature” isn’t always essential as the ECTA provides that if the parties to an electronic transaction don’t specifically require an electronic signature, “an expression of intent or other statement is not without legal force and effect merely on the grounds that –

It is in the form of a data message; or
It is not evidenced by an electronic signature but is evidenced by other means from which such person’s intent or other statement can be inferred.”

Thirdly, how can you sign a document electronically?

Where “signature” is required, the ECTA recognises the concept of “electronic signatures” (defined as “data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature”. They are valid except in cases where either a law (like the laws relating to property sales etc mentioned above) or the parties themselves require actual physical signatures.

An electronic signature can take many forms. Where it is required by the parties but they haven’t agreed on a particular type of electronic signature to be used, it is valid if –

“A method is used to identify the person and to indicate the person’s approval of the information communicated; and
Having regard to all the relevant circumstances at the time the method was used, the method was as reliable as was appropriate for the purposes for which the information was communicated.”

That definition will often be wide enough to include names on email messages, scanned images of physical signatures and the like. But remember the parties can specify what formats are and aren’t allowed, plus our courts may well look at all the circumstances of a case and decide for example that an actual manuscript signature is required even when transmitted electronically (see for example the “R804k” judgment discussed below).

“Advanced” electronic signatures

This is a concept of authentication designed to make an electronic signature more reliable and it is used when a law requires signature for specified documents or transactions but doesn’t require another particular type of signature.

For example the Deeds Registries Act requires documents like the Power of Attorney to Transfer Property to be signed, and that can be done either physically or electronically – but if electronically the electronic signature must be an advanced one. The Credit Agreements Act provides other good examples.

Even when not specifically required, a big advantage of advanced electronic signatures is that they are presumed to be valid. That means anyone attacking one would have to prove its invalidity and not the other way round.

Security and fraud; with an R804k example

Cyber criminals are as always waiting to pounce so all the normal warnings in regard to electronic communication apply here, with the added need to ensure that electronic documents cannot be altered after completion/signature.

A recent example of “forged electronic signatures” is an online fraud that went horribly wrong for a firm of financial advisers who were sued for R804,000 when their client’s Gmail account was hacked by fraudsters –

Using the investor’s authentic email credentials, the fraudsters sent three emails to the financial advisers instructing them to transfer a total of R804,000 to the fraudster’s accounts. Two of the emails ended with the words: ‘Regards, Nick’ while the third ended with ‘Thanks, Nick’.
The financial advisers made the transfers and the investor sued them on the grounds that they had paid out contrary to the written mandate he had given them which stipulated that ‘All instructions must be sent by fax to [011 *** ****} or by email to [***@***.co.za] with client’s signature.’
The financial advisors argued that they had complied with the mandate in that the email endings “Regards, Nick” and “Thanks, Nick” were valid electronic signatures in terms of ECTA.
The SCA (Supreme Court of Appeal) however upheld the High Court’s ruling that the financial advisors were liable. They had not complied with the mandate which “requires a ‘signature’ which in every day and commercial context serves an authentication and verification purpose … The word ‘electronic’ is conspicuously absent from the mandate … The court below cannot be faulted for concluding that what was required was a signature in the ordinary course, namely in manuscript form, even if transmitted electronically, for purposes of authentication and verification.”

Play it safe – have your lawyer draw and manage your agreements for you to minimise this sort of risk, and ask also about using an external service provider for secure, authenticated and verifiable electronic document signing and storage. If you do come to blows with the other party down the line, the integrity and evidential value of your electronic documents and signatures could be make-or-break.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Apr 27

1

Leases, Contracts and COVID-19: What is Force Majeure?

By Kruger & Co | Contract, Litigation, Property

The COVID-19 crisis has changed everything. Our personal lives have been upended and our businesses hit hard.

And with many businesses operating out of leased premises, a great many landlords and tenants are asking themselves what happens if the crisis leaves a tenant unable to pay the agreed rental.

What follows is of necessity a general guide only – professional advice specific to your case is essential here.

Tenants – your risk

As always “With Great Change comes Great Opportunity”, but if you aren’t able to very quickly find and exploit a viable new opportunity you may well struggle to pay your rental.

Don’t just stop paying rental! Failing to pay rental on time means breaching your lease, and if you do that you face cancellation, legal action for recovery of outstanding rental, damages claims for breach (substantial if your lease has a long time to run and your landlord struggles to re-let) and calling up of your personal suretyships (exposing you to loss of all your personal assets, house etc).

Bottom line – take professional advice before you just stop paying!

Landlords – your balancing act

As a landlord you have a very delicate balancing act – on the one hand you won’t want to lose even half-reasonable tenants at a time when finding new ones is going to be problematic. One wonders for example how many small businesses will now either fail entirely or be forced to cut costs. And how many others, having had an enforced period of “working from home”, will now be reconsidering the whole concept of leasing separate office space at all.

On the other hand of course you need to cover your ongoing costs, which probably means enforcing payment of rent. That in turn means understanding your legal position – for example does your tenant now have an excuse to cancel the lease without penalty? If so, you lose a tenant without recompense. But if your tenant is still bound by the lease, you are free (if you wish – long-term support of your tenant may still be your best option) to demand full payment, then to reduce your losses by cancelling, evicting, executing against the tenant’s assets and calling up personal suretyships.

What about “force majeure” or “impossibility of performance”?

“Force majeure” (a French legal term meaning “superior force”) is an event, either due to “natural causes” (earthquakes, cyclones and so on) or to “human agency” (war, riots, legislation and the like) that makes it impossible to comply with the lease.

We really are sailing into uncharted waters here with worldwide debate over whether or not this pandemic is indeed a case of force majeure. There is bound to be a great deal of litigation before we can be certain whether or not the crisis (particularly the declaration of a national state of disaster and the lockdown period) will be accepted by our courts as a “force majeure” event. If it is, many tenants will argue that their failure to pay rental is not a breach of lease but rather a lease-destroying “supervening impossibility of performance”.

So where do you stand? There are two main scenarios to consider –

What does the lease say? The onus of proving a force majeure is on the tenant trying to escape from the lease, and the first thing for both parties to check is what the lease says.
Many leases have a clause that deals with a tenant’s inability to occupy premises as a result of damage to or destruction of the premises which won’t apply here, but some leases do have specific force majeure clauses. If yours has such a clause you are bound by whatever it says so check whether a pandemic or government order to cease business might fall under the clause, and if so what results and remedies are specified.
What must the tenant prove if there is nothing in the lease? If there is no force majeure clause in your lease, our common law applies. Your problem here is that there are a lot of grey areas involved and every case will be different, so what follows is just a general and non-exhaustive guide.
A tenant would have to prove not only that the impossibility caused a loss of beneficial occupation (entitling the tenant perhaps to a rebate of rental for the lockdown period, or perhaps frustrating the lease altogether) but in all probability also that it is –

“Unforeseeable with reasonable foresight”. In this regard we may well hear arguments along the lines of “the emergence of the coronavirus and its impacts were neither unexpected nor improbable”. Could such an argument prevail? Only time will tell.
“Unavoidable with reasonable care”.
An absolute as opposed to a probable impossibility. “The mere likelihood that performance will prove impossible is not sufficient to destroy the contract.”
An absolute not a relative impossibility. “If I promise to do something which, in general, can be done, but which I cannot do, I am liable on the contract”.
Not the fault of either party. “A party who has caused the impossibility cannot take advantage of it and so will be liable on the contract.”
The “contrary common intention of the parties” could override the defence of impossibility. Consider any representations made by either party to the other that may be relevant.

Moreover our courts have held that “In each case it is necessary to ‘look to the nature of the contract, the relation of the parties, the circumstances of the case, and the nature of the impossibility invoked by the defendant, to see whether the general rule ought, in the particular circumstances of the case, to be applied’.”

That’s all fertile ground for expensive and draining litigation, at a time when neither of you is likely to have an appetite for either.

Which brings us to…

A practical template for negotiation

Take this advice from Roman lawyer and statesman Cicero over two millennia ago: “Agree, for the law is costly”.

So if you are a tenant, rather than just stopping rental payments and then having to fight it out through the legal system, ask your landlord to agree to a win-win compromise that will limit both short-term and long-term damage to your respective businesses.

Draw up a checklist including matters such as –

Do you or your landlord have any sort of insurance cover for this sort of disaster?
If you want to cancel the lease entirely, consider whether, if the protections of the Consumer Protection Act are available to you (see below*) it might pay you to give your 20 business days’ notice and pay the “reasonable cancellation penalty” the landlord is entitled to demand. (*You need to take advice on this – leases between “juristic persons” such as companies and trusts in particular are excluded from this particular protection).
Alternatively consider what you can offer the landlord to accept your cancellation without a fight.
If you want to continue in the premises, make sure that your failure to pay on time is specifically recorded as not being a breach of the lease.
Decide whether you will ask for a full rental holiday, or a rental reduction. For how long? The better a tenant you have been, the more incentivized your landlord is going to be to help you stay in place. Offering an extension of the lease – if it ties in with your long-term planning – could help a lot with that.
If you run into a brick wall there, think of proposing that the arrears not be written off but rather just be deferred until your business is back up on its feet. Specify when payment of arrears will be made, what if any interest will be charged and so on.
If the tenant is a corporate entity and you signed a personal suretyship for it, don’t forget to specifically cover that aspect in your agreement.
Remember to include in your agreement what happens to any deposit the landlord may be holding from you.
If you agree on a new or amended lease, think of including a professionally-drawn force majeure clause (or check an existing clause for possible update).

Beyond leases – force majeure and contracts generally

Although this article specifically addresses landlords and tenants, the general principles of “force majeure” and “impossibility of performance” apply to all contracts and might in some cases entitle you to delay or avoid contractual obligations beyond lease agreements. Take professional advice specific to your circumstances!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Feb 25

0

Watch What You Say on WhatsApp – The Case of the R20m Lottery Win and the R1m “Offer”

By Kruger & Co | Contract

“Engage brain before hitting send” (Anon)

WhatsApp comes with a host of business and personal benefits, and its use is growing exponentially here as in the rest of the world. Which brings us to a possible downside – binding yourself to a legally-enforceable agreement without really meaning to.

First principles: Offer + Acceptance = Contract

What makes for a binding contract? In the most simplistic sense, all you need is for one person to make an offer and for another to accept that offer.

There are of course many other requirements – consensus ad idem (‘true agreement’ or ‘meeting of minds’), lawfulness, capacity to contract, compliance with any formalities, certainty of terms, possibility of performance and the like. Lawyers and legal academics love to wax lyrical on the finer ins-and-outs of these and of related concepts like “quasi-mutual assent” (more on that below, it’s actually an important concept), but the core principle applicable in the vast majority of cases remains this: Offer + Acceptance = Contract.

And of course, with only a few exceptions (such as property sales, wills and ante-nuptial contracts), even verbal agreements are fully binding, and the binding effect of electronic messages has been established both by legislation (most importantly the ECTA or Electronic Communications and Transactions Act) and by a series of modern court decisions.

A R20m lottery windfall and a R1m WhatsApp “offer”

A father was paying R1,000 p.m. child maintenance to the mother of one of his seven children.
Shortly after becoming the lucky recipient of a National Lottery windfall in the form of a prize of R20.8m, he met with the mother, told her that his health had deteriorated, that he could no longer be employed (by SARS) and that he would get about R600,000 in pension benefits.
He offered R100,000 out of these pension benefits in full and final settlement of his child maintenance obligations, which the mother accepted and which was paid to her for the child’s benefit.
At a meeting with the maintenance officer he denied having won R20m but the mother, after getting proof of his win, sent a WhatsApp message to the effect that she knew about it. He replied – also on WhatsApp – “if I get 20m I can give all my children 1m and remain with 13m.I will just stay at home and not driving up and down looking for tenders”.
The mother sued the father for R900,000 on the basis that he had contracted to pay her R1m and had only paid R100,000. The father denied liability, saying that his WhatsApp message was just to “get rid of” the mother and that he had no intention to make an offer to contract.

When is an “offer” not an offer? The “intention to contract” factor

The mother won in the High Court but lost on appeal to the Supreme Court of Appeal (SCA), which held that the father wasn’t bound because on the facts his message was a denial of having won R20m and it “related what [he] could possibly do in the hypothetical future event of him receiving R20 million. It set out what the [he] might do if he received R20 million … the message clearly did not contain an offer that could on acceptance thereof be converted into an enforceable agreement.”

On the facts of this case, the father “subjectively had no intention to contract and the message did not suggest otherwise.” His “morally reprehensible conduct” lost him his claim for legal costs, but it did not affect his lack of intention to contract. So in this case our WhatsApping father is off the hook and gets to keep his R1m.

But… before you hit send

On slightly different facts his WhatsApp message could easily have been held to have been a valid offer, binding him on acceptance. For example, the concept of “quasi mutual consent” which we mentioned above, means that even if you don’t actually intend to make a binding offer, our law can hold you to it if your actions or conduct lead the other party “as a reasonable person” to believe that you did intend to enter into a contract. So you may not intend your message to be a real offer but if the recipient reasonably thinks it is, you are in trouble.

The lesson for us all is this – all users of electronic communications, whether via WhatsApp, Facebook, email or any of the many other electronic messaging channels open to us, face the very real danger of inadvertently making a promise in haste which down the line a court will hold us to.

Think before you message!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.