Basic Business Law. Lesson 1. The nature of Commercial Law

Basic Business Law
Lesson 1: The nature of Commercial Law
Since ignorance of the law is no excuse, a businessperson may still be liable for breaking the law even if he
or she was unaware of its content. A good starting point is to learn to understand the legal language used in
these laws and to develop an appreciation for the way in which they come into being, how they operate and
how to avoid the courts altogether through alternative dispute resolution.
1 Common legal concepts
Juristic act
A juristic act is any wilful act that has legal consequences.
• A unilateral juristic act is performed by a single legal person e.g. the making of a will.
• A multilateral juristic act is performed by two or more parties e.g. the making of a contract.
Legal person
A legal person can be a human being (a natural person) or an entity without physical existence (a juristic
person). Juristic persons include business entities like companies, close corporations and banks, special
service entities like universities, the SABC and government commissions and voluntary associations like
churches, clubs, and political parties.
If a natural person is the only director of a company or the only member of a close corporation the natural
person and the company or close corporations will be separate legal persons.
Legal capacity
To have legal capacity, means that a legal person …
• Has rights and duties,
• Can perform juristic acts and
• Sue and be sued as a party to a lawsuit.
Sometimes the legal capacity of a legal person can be lacking or limited and will hinder it in the making of a
contract.
Contract
A contract is an agreement between two or more legal persons which creates one or more obligations
between the parties to the agreement. The basic features of a contract are …
• There must be an agreement or agreements.
• The agreements must create obligations.
• There must be at least two parties to a contract.
• Only the parties to the contract are bound by it.
If an agreement meets all the necessary requirements it is known as a valid contract. An agreement that
does not give rise to obligations because it doesn’t satisfy the requirements is known as a void contract. A
voidable contract is binding on both parties, but is flawed in that one of the parties has the option to set it
aside.
For a contract to be valid it must adhere to the following requirements:
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• The parties to the contract must have contractual capacity.
• There must be an agreement or agreements between the parties.
• The agreement must create obligations.
• The agreement must be certain.
• The agreement must be lawful.
• The agreement must be possible of performance.
• Prescribed formalities must be complied with.
Obligation
An obligation is a legal bond between two legal persons, where the debtor is bound by law to render a
performance of some kind to the creditor. The debtor has the duty to render the performance and the creditor
has an enforceable right to receive it. If the debtor fails to perform then the law will grant the creditor a
remedy against the debtor.
A single contract will often lead to different obligations between the parties e.g. the one party is obliged to
deliver the ordered goods, but the other is obliged to pay the purchase price. This is known as reciprocal
obligations.
Right
We distinguish between a personal right and a real right. The creditor’s right to receive performance is a
personal right against the debtor alone, while a right that can be sustained against any person is a real right,
for example the right of ownership.
Real rights create a legal relationship between a thing (property) and a person, while personal rights create a
legal relationship between two legal persons.
Delict
A delict is any wrongful and culpable act that causes harm of some kind to another person. Wrongful conduct
will be regarded as culpable if the conduct was either intended or the result of negligence.
A crime is a wrongful conduct that is punishable by the state, but delictual damages require the wrongdoer to
pay compensation to the party whose rights were infringed.
Example 1: Criminal vs. Delictual Actions
After an accident, two drivers get out of their vehicles and exchange heated words. Driver 1 gets so angry
that he punches driver 2 in the face and drives of without another word.
The accident is wrongful and culpable, as someone was either wilful or negligent, and so there is a delict. But
the accident can also have a criminal component, for if one (or both) of the drivers drove recklessly or
negligently, such a case can be reported to the police. Most of the time though accidents are dealt with as
delicts and one of the parties will be liable for delictual damages. If the parties cannot agree on the facts the
matter will have to be settled in a civil court.
Slapping someone through the face though is both delictual and criminal. The criminal charge is assault and
if found guilty by a criminal court the fine that is imposed will be payable to The State and the victim of the
crime will not receive any compensation. If the victim wants to seek compensation from the other party he
will have to approach a civil court.
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Unjustified enrichment
Unjustified enrichment refers to the situation where one party benefits at the expense of another without
there being any legal ground for the shift of benefit.
Example 2: Unjustified Enrichment
Contractor Carl agrees with homeowner Henry to build him a new garage. They agree that Henry will pay for
the material on delivery, but that he will only pay Carl for his labour on completion of the Job. Before the roof
is constructed something happens that prevents Carl from finishing the job.
Carl is in breach because he didn’t complete the job as agreed, but Henry has been enriched as he now has
a partially completed garage in his property. It would be completely unjust if Henry now refuses to pay Carl
for his labour just because he didn’t complete the job as agreed. Therefore Henry will have to pay Carl for
the work that he completed.
2 Civil Proceedings
In a civil case the party who sues is called the plaintiff and the party being sued is called the defendant.
Step 1: The plaintiff causes the issuing of a summons informing the defendant that an action has been
instituted against him. The summons must set out the particulars of the claim and the relief sought.
Step 2: The defendant wanting to defend the case then delivers a plea, setting out the nature and grounds of
the defence. If the defendant has a counterclaim, he will deliver a statement of his counterclaim with
his plea.
Step 3: After the time for delivery of pleadings has expired, the action will proceed to trial. At the trial legal
arguments can be presented and evidence will be heard.
If the parties agree on the facts, then the matter will proceed as an application and not as a trial and the
parties will be revered to as the applicant and the respondent.
3 South African Courts
In South Africa the courts are independent from government and subject only to the constitution and the law.
The constitution and the law are applied impartially and without fear, favour or prejudice by the courts and no
person or organ of the state are allowed to interfere with the functioning of the courts.
3.1 The structure of South African courts
All courts, except for the Constitutional court, are classified as either a high court or a lower court and as
either an ordinary court or a special court.
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The Constitutional Court
Table 1.1: The structure of South African courts
Ordinary Courts
Special Courts
Higher Courts Lower Courts Higher Courts Lower Courts
• The Supreme
court of appeal
• Magistrate courts • Labour courts
• Children’s
court
• Short process courts • Court for tax appeals
• The high courts
• Small claims court
• Courts of headmen
and chiefs
• Court of the
commissioner of
patents
• Commercial court
• Maintenance
court
• Family court
• Competition appeal
court
• Consumer affairs
appeal court
• Land claims court
3.2 The hierarchy of South African courts
The Constitutional Court is the highest court in the country. Any decision by the Constitutional court will be
binding on all other courts. Judgements by the Supreme Court of Appeal will be binding on all other courts
except the Constitutional Court, while judgements by any of the High Courts will be binding on Magistrate
Courts and other lower courts.
3.2.1 The Constitutional Court
The Constitutional Court decides constitutional matters and related issues, including any issue involving the
interpretation, protection and enforcement of the constitution e.g. where it finds a law inconsistent with the
constitution it will declare such a law or part of it invalid.
The Constitutional Court has the final say on whether a matter falls within its jurisdiction or not. It sits mainly
as an appeal court, has jurisdiction throughout the country and its judgements binds all other courts.
It is located in Johannesburg and consists of a Chief Justice, a Deputy Chief Judge and nine other judges.
Any matter before the Constitutional Court must be heard by at least eight judges.
3.2.2 The Supreme Court of Appeal
The Supreme Court of Appeal is purely an appeal court that has to decide appeals against decisions of the
ordinary and special higher courts. It has no original jurisdiction.
It is the highest court in the country in all matters except constitutional matters and parties can appeal to the
Constitutional Court regarding a ruling by the Supreme Court of Appeal on a constitutional matter. This court
can also declare a law invalid, but such a ruling will have to be confirmed by the Constitutional Court before it
takes effect.
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The Supreme Court of Appeal is located in Bloemfontein and consists of a President, a
Deputy President and a number of appeal judges. The number of appeal judges
depends on the legislative matter before the court and the discretion of the President of the court.
3.2.3 The High Courts
There are presently 13 high courts in the country with geographical jurisdiction. A high court can hear any
original criminal or civil case that arises within its territorial boundaries or any maritime claim. The higher
courts can also hear appeals against, and review the decisions, of lower courts within its jurisdiction.
A party can appeal directly to the constitutional court if not satisfied with a ruling by a high court on a
constitutional issue, but all other appeals have to be directed to the Supreme Court of Appeal.
Each high court is composed of a Judge President and as many judges as the State President may
determine. Civil cases will normally be presided over by a single judge, criminal cases by a judge and two
assessors and appeal cases by two judges.
3.2.4 Lower Courts
South Africa is divided into magisterial districts that are served by magistrate’s courts. These courts has
limited original jurisdiction to hear criminal and civil cases. In civil cases the amount of the claim is limited to
R300 000-00 unless the parties to the case consent that the amount is increased.
Short process courts have the same powers as magistrate courts, but may dispense with certain procedures
if the parties agree to it. No appeals against this court’s judgements are permitted.
Small claims courts can deal with matters where the claim amount is limited to R12 000-00 and only natural
persons are allowed to institute proceedings.
4 The sources of SA law
The different components that make op the law is known as the sources of law. The following can be
regarded as the sources of South African law:
• The Constitution
• Legislation
• Roman Dutch Law
• Judicial Precedent
• Custom
• Customary Law
• Persuasive sources
4.1 The Constitution
The Constitution is the supreme law of the country and any law or conduct inconsistent with it is invalid.
Chapter 2 of the Constitution describes the fundamental rights of all citizens and include the following rights.
• The right to life
• Privacy
• Equality
• Freedom of expression
• Human dignity
• Freedom of association
• Freedom
• Freedom of trade and occupation
• Security
• Freedom to own property
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The State is obliged to respect, protect, promote and fulfil the bill of rights, which
regulates the relationship between the state and its citizens.
These rights are not absolute, but can be qualified and limited under certain circumstances. For example; the
right to freedom is limited in the case of prisoners because they had done something that disqualifies them
from exercising the right in the same way as other citizens.
A court may declare any law passed by government or any conduct by a government official invalid if it
conflicts with the bill of rights and is not saved by a limitation clause.
The Constitution can only be amended by parliament if a special majority of two thirds can be obtained in the
National Assembly. If the proposed amendment affects the provinces, then it must be passed by six of the
nine provinces in the National Council of Provinces.
Example 3: Human rights
The right to Freedom of expression and the right to Privacy can sometimes be at odds.
Reporter Richard believes that it is in the public interest to know if politicians and public figures are behaving
inappropriately and therefore the right to freedom of expression should be held in higher regard.
Politician Peter believes that politicians and public figures are only human and if they behave inappropriately
in their private capacity, it is nobody’s business.
4.2 Legislation
The formal rules of law that’s drafted by a competent law making body are known as legislation. It takes
precedence over all other laws with the exception of the Constitution. Parliament is a competent law making
body and will follow the following process to create new laws or change old once:
Step 1: The Drafting of a Green Paper
This discussion document is drafted by officials from the relevant state department to stimulate public debate
and get input from society.
Step 2: The Publishing of a White Paper
After considering public comment, officials draft a policy document that is presented to the Cabinet. If
Cabinet approves the policy it is published in a “White Paper” that sets out the broad policy of the
government on the issue.
Step 3: The Drawing up of a Draft Bill
Officials prepare a draft bill for the minister of the department which is presented to cabinet again. After being
approved by cabinet the draft bill is sent to the State Law Advisors to ensure that it is consistent with other
legislation and rewritten in legal language. After this the bill is printed and given a number.
Step 4: The Introduction of the Bill
The bill is introduced to parliament by the person tabling it and a short debate is held where a member of
each political party briefly sets out that party’s view on the bill.
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Step 5: Discussions by Parliamentary Committee
The bill is referred to a parliamentary committee consisting of members of the different
political parties where it is discussed in detail. The committee consults experts, consider submissions and
public comments, and proposes amendments to the bill.
Step 6: The Second Reading of the Bill in Parliament
The bill is presented to parliament again and another opportunity for debate is given.
Step 7: The Passing of the Bill
If a majority of parliament votes for the bill it is passed and presented to the President for his assent and
signature. Once he has signed the bill it is published in the Government Gazette.
Step 8: Commencement of the Act
The act becomes law from the date stipulated in the Government Gazette
4.3 Roman-Dutch Law
The early Dutch settlers brought their law to South Africa and applied in the local courts. Although some of
their laws are now out-dated, our courts still look at the writings of the seventeenth- and eighteenth-century
Dutch jurist for guidance.
4.4 Judicial Precedent
Previous court decisions are an important source of law. Sometimes existing law does not deal specifically
with the issue before the court who has to decide a matter. For example; the first domain name was
registered in 1985, but the first laws to regulate domain names only came into being in 2003 in the United
States of America. During this time the only principles to guide the courts were the judgements by other
courts on these matters.
The reason for the decision is known as the ratio decidendi and a court is obliged to follow the ratio
decidendi of a higher court. Courts are expected to follow the ratio decidendi of an equal or lower court as
well if the legal issues are the same.
Some of the legal statements made by a judge in passing down judgement are not reasons for the decision
and is known as obiter dictum. Courts in later cases are not obliged to follow such comments, but in practice
they are considered.
4.5 Custom
For a custom to become a legal rule it must be certain and reasonable, established for a long time and
observed by the community in which it applies.
In different spheres of business there are different trade usages and these trade usages will be regarded as
legal binding rules by the courts. E.g. an account holder with a bank will be expected to pay interest at the
current overdraft rate if he overdraws on his account.
4.6 Customary Law
Many African communities have unwritten rules that apply to their respective cultures and/or religions. These
unwritten customary laws are considered by the courts in matters concerning members of these
communities. E.g. customary marriages have the same legal protection as other marriages.
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4.7 Persuasive sources
Where a court is confronted with an issue that is not covered by the binding sources of
law described above it can look to other sources like laws and cases in other countries for guidance.
5 Alternative dispute resolution
Alternative dispute resolution refer to those dispute resolution processes and techniques that aim to allow
disagreeing parties to come to an agreement before a law suit is made and include negotiation, conciliation,
mediation, arbitration and collaborative law. The main benefits of alternative dispute resolution processes are
that they are faster and cheaper than court processes
5.1 Negotiation
Negotiation is part and parcel of the contract formation process where the parties to the contract will
negotiate the terms and conditions of the contract in order to reach consensus.
However, when parties to a contract are in disagreement as to the interpretation of the terms and conditions,
negotiation is the first technique used to resolve the conflict. Discussions take place among the parties only,
although they may choose to appoint professional negotiators.
The aim of this type of negotiation is to reach a compromise benefiting all involved in the discussion.
5.2 Conciliation
Conciliation is more formal than negotiation, but less formal than mediation. The parties bring their dispute to
a neutral third party, a conciliator, to settle their dispute.
The conciliator meets with the parties separately and attempts to lower the tension between them. This is
done by improving the communication, interpreting issues, providing technical assistance and exploring
possible solutions.
The aim of conciliation is to bring about a negotiated settlement.
5.3 Mediation
Mediation is more formal than conciliation and is more structured. A mediator helps two or more parties to
reach an agreement by facilitating rather than directing the process. The process is private and confidential
and participation is voluntary.
The mediator will help the parties to identify common ground and to focus on their needs rather than their
rights. He or she must keep the balance of power between the sides at all times and will therefore remain
impartial and not express his or her own views.
Mediation is not binding on the parties, but a contract is usually drawn up to assure that the parties keep to
the agreement.
5.4 Arbitration
Arbitration is more formal than mediation and can be seen as a private judicial hearing and so the parties
may give evidence, call and question witnesses and make concluding arguments. It differs from a court
process in that the legal formalities are kept to a minimum.
The arbiter listens and investigates the claims of both parties and decides on the final settlement (the
arbitration award). The outcome of the arbitration will be binding on the parties and will end the dispute
between them.
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5.5 Collaborative law
Collaborative law is a voluntary legal process that applies to separating couples. The
aim is to avoid the uncertain outcome of court and reach an agreement that is in the best interest of the
parties and their children.
The process is made binding with the signing of a participation agreement.
You can research the roles of the CCMA, AFSA and the SALRC to get a better understanding of how
alternative dispute resolution works in South Africa.
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