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Report No. 199

Section 1(3): Preventing unfairness:

Preventive action is proposed in section 1(3)

"1(3) where the High Court is satisfied, for the application of any organization or any body or person, that a person has embarked, or is likely to embark, on a course of conduct leading to the formation of contracts or terms which are unreasonable, unconscionable or oppressive, it may, by order, prescribe or otherwise restrict, the terms upon which that person may enter into contracts of a specified class"

Section 2: Guidelines to Court: Substantive

Among the 'substantive' guidelines in section 2 which a Court may take into account for judging whether a contract or term is unreasonable, unconscionable or oppressive, are the following:

"2 (a) ... ... ...

(b) whether the goods or services in question could have been obtained elsewhere without the term objected to;

(c) any prices, costs or other expenses that might reasonably be expected to have been incurred if the contract had been concluded on terms and conditions other than those on which it was concluded:

provided that a Court shall not find a contract or term unreasonable, unconscionable or oppressive for the purposes of this Act solely because it imposes onerous obligations on a party; or the term or contract does not result in substantial or real benefit to a party; or a party may have been able to conclude a similar contract with another person on more favourable terms or conditions;

(d) ... ... ...

(e) ... ... ...

(f) ... ... ...

(g) whether one sided limitations are imposed on the right of recourse of the party against whom the term is preferred.

(h) ... ... ...

(i) whether the manner in which a term states the legal position that applies is one-sided or misleading;

(j) whether the party preferring the term is authorized to make a performance materially different from that agreed upon, without the party against whom the term is proferred in that event being able to cancel the contract by returning that which has already been performed, without incurring any additional obligation;

(k) whether prejudicial time limits are imposed on the other party;

(l) whether the term will cause a prejudicial transfer of the normal trade risk to the party against whom the term is preferred;

(m) whether a term is unduly difficult to fulfill or imposes obligations or liabilities on a party which are not reasonably necessary to protect the party;

(n) whether the contract or term excludes or limits the obligations or liabilities of a party to an extent that is not reasonably necessary to protect his or her interests;

(o) whether there is a lack of reciprocity in an otherwise reciprocal contract;

(p) whether the competence of the party against whom the term is proferred to adduce evidence of any matter which may be necessary to the contract or the execution thereof is excluded or limited and whether the normal incidence of burden of proof is altered to the detriment of the party against whom the term is proferred;

(q) whether the term provides that a party against whom the term is proferred shall be deemed to have made or not made a statement to his detriment if he or she does or fails to do something, unless

(i) a suitable period of time is granted to him or her for the making of an express declaration thereon and

(ii) at the commencement of the period, the party proferring the term undertakes to draw the attention of the party against whom the term is proferred, to the meaning that will be attached to his or her conduct;

(r) whether a term provides that a statement made by the party proferring the term which is of particular interest to the party against who the term is proferred, shall be deemed to have reached the party against whom the term is proferred, unless such statement has been sent by prepaid registered post to the chosen address of the party against whom the term is proferred;

(s) whether a term provides that a party against whom the term is proferred shall, in any circumstances absolutely and unconditionally forfeit his or her competence to demand performance;

(t) whether a party's right of denial is taken away or restricted;

(u) whether the party proferring the term is made the judge of the soundness of his or her own performance, or whether the party against whom the term is proferred is compelled to sue a third party first before he will be able to act against the party proferring the term;

(v) whether the term directly or indirectly amounts to a waiver or limitation of the competence of the party against whom the term is proferred to apply set off;

(w) whether to the prejudice of the party against whom the term is proferred, the party proferring the term is otherwise placed in a position substantially better than that in which the party proferring the term would have been under the regulatory law, had it not been for the term in question;

(x) the degree to which the contract requires a party to waive rights to which he or she would otherwise be entitled;

(y) ... ... ...

(z) any other fact which in the opinion of the Court should be taken into account.

Section 3: Applicability of the Act

So far as the applicability of the Act is concerned, the provision of section 3(1) state that (subject to subsection (2)), the provision apply to all contracts concluded after the commencement of this Act and between all contracting parties.

Sub-section (2) of section 3 excludes

(a) contractual acts and relations which arise out of or in connection with the Labour Relations Act (60 of 1995) or which arise out of the application of that Act;

(b) contractual acts which arise out of or in connection with or out of the application of the Bills of Exchange Act (Act 34 of 1964);

(c) contractual acts to which the Companies Act (Act 61/63) or the Core Companies Act (Act 69 of 1984) apply or which arise out of the application of these Acts;

(d) contractual terms in respect of which measures are provided in international treaties to which the Republic of South Africa is a signatory and which depart from the provisions of this Act."

Section 3(3): Overriding effect:

section 3(3) otherwise give overriding offer to the Act. It says that any provision on contractual term purporting to exclude the provisions of this Act or to limit the application thereof, shall be void.

Section 3(4): Act binding on State:

section 3(4) is important. It says that the 'Act shall be binding upon the State'. This is consistent with the principle laid down by Courts in several cases that the State should be an ideal for others to follow.

Section 4: Subsequent change in circumstances:

One other new innovation in the South African Bill is as to the 'effect of subsequent change in the circumstances'. After considerable discussion that normally the conditions obtaining at the contract alone be taken into account, the SA Law Commission made an important exception to this principle when it stated in section 4 that the exception is not to be given effect to if it become 'excessively onerous' as opposed to 'more onerous'. It says:

"Section 4: Taking into account circumstances which existed at the time of the conclusion of the contract and the effect of a subsequent change of circumstances.-

(1) In the application of this Act, the circumstances which existed at the time of the conclusion of contract shall be taken into account and a party is bound to fulfill his or her obligations under the contract even if performance has become more onerous, whether because the cost of performance has increased or because the value of the performance he or she receives has diminished.

(2) If, however, performance of the contract becomes excessively onerous because of a change of circumstances, the parties are bound to enter into negotiations with a view to adapting the contract or terminating it, provided that -

(a) the change of circumstances occurred after the time of conclusion of the contract, or had already occurred at that time but was not and could not reasonably have been known to the parties; and

(b) the possibility of a change of circumstances was not one which could reasonably have been taken into account at the time of conclusion of the contract; and

(c) the risk of the change of circumstances is not one which, according to the contract, the party affected should be required to bear.

(3) If the parties fail to reach agreement within reasonable period, the Court may -

(a) terminate the contract at a date and on terms to be determined by the Court, or

(b) adapt the contract to distribute between the parties in a just and equitable manner, the losses or gains resulting from the change of circumstances; and

(c) in either case, award damages for the loss suffered through the other party refusing to negotiate or breaking off negotiations in bad faith."

Section 5: Admissibility of evidence

As to the type of evidence that can be adduced, section 5 deals with "admissibility of evidence to assist in the interpretation of a contract".

"section 5: Whether or not the words of the contract appear to be ambiguous, evidence of what passed during negotiations between the parties and after the execution of the contract and surrounding circumstances, is admissible to assist in the interpretation of any contract."

The above provisions proposed in the Bill accompanying the 1998 Report of the South Africa Law Commission indeed contain certain special features not found in other countries.



Unfair (Procedural and Substantive) Terms in Contract Back




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