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If you have a smartphone, you probably use Whatsapp daily. This handy little app has 1,3 billion monthly active users, but is often controversial – sending your data to Facebook for targeted adverts and friend suggestions, and encrypting communications to lock out cybercriminals but also government agencies investigating terror networks.

Our whatsapp conversations are increasingly being entered into evidence in court proceedings.

A Saudi man reported that he divorced his wife after the app showed that she had received and read his messages, but failed to respond to any of them. This process, known as “blue ticking” in reference to the little blue ticks that show that your message has been displayed on the recipient’s phone, also played a role in a Taiwanese woman’s divorce. She submitted evidence of her husband continually ignoring her messages, and this was accepted as evidence that the marriage had irreparably broken down.

An Italian divorce lawyer reported that evidence of whatsapp messages between spouses and their extra-marital partners was being used in around half of the divorce cases going to trial there.

Closer to home, the country scrutinised emotional whatsapp messages exchanged between murder convict Oscar Pistorius and his victim Reeva Steenkamp, provided as evidence of a tumultuous and emotionally abusive relationship.

Increasingly, even business negotiations may take place via whatsapp. But are these communications legally binding?

The Electronic Communications and Transactions Act of 2002 (ECTA) gives formal legal recognition to transactions concluded by email. The Act obliges courts interpreting its provisions to recognise and accommodate electronic communications in applying statute or common law.

Our law recognises a data message (such as an email or whatsapp message) as adequate in most cases where the law or an agreement requires something to be in writing. Notable exceptions where agreements cannot be concluded electronically include deeds of sale of immovable property, and last wills and testaments – even where an advanced electronic signature is used.

The law or an agreement may also require that a document be signed by a party. The question then arises as to whether one can sign a document via email or whatsapp. This question was recently considered by the Supreme Court of Appeal (SCA), in the case of Spring Forest Trading (SFT) versus Wilberry (W).

W owned car wash equipment, and contracted with SFT to operate car washes at several locations, using its equipment, for which SFT paid W rentals. SFT fell into arrears, and the parties entered into discussions to remedy the situation. A face-to-face meeting was held, after which SFT’s representative emailed W’s representative, recording in writing four proposals which W had offered it. The second proposal was recorded as “Cancel agreement and walk away.” SFT sought confirmation that, if this proposal was pursued, there would be no legal claims by either party.

W’s representative responded by email, confirming that, provided all rental arrears were paid, there would be no legal claims.

SFT then emailed W, advising that it accepted the second offer.

SFT returned the car wash equipment and paid the rental arrears. That might have been the end of the matter. It was not, however – SFT continued to run car washes from the same locations, now renting equipment from W’s competitor – probably not the outcome that W had foreseen.

W rushed to court on an urgent basis, claiming that its agreements with SFT had not been validly cancelled, and seeking an interdict to prevent SFT from operating car washes while it prosecuted a claim for damages. The High Court was sympathetic, and granted an interdict, agreeing that the agreements had not been validly cancelled. The judge deciding the matter found that the agreements – which required consensual cancellations to be reduced to writing and signed by both parties – did not allow for cancellation via an exchange of emails.

SFT appealed this judgment to the SCA. It relied upon ECTA, which states that, where parties to an electronic transaction require an electronic signature, but have not agreed upon the type of electronic signature, then the requirement is met if (1) a method is used which identifies the person and indicates their approval of the information communicated and (2) the method was as reliable as was appropriate for the purposes for which the information was communicated, having regard to all the circumstances. It argued that the consensual cancellation had been reduced to writing in the form of the exchange of emails, and had been signed by the parties when they ended each email by typing their full names.

W disagreed, arguing that (1) the emails were evidence of negotiations but could not constitute an actual agreement to cancel, (2) at best, the emails only referred to the rental agreements and not the master agreement between the parties, and (3) even if ECTA applied, then an advanced electronic signature was required, and this was absent.

The SCA found: (1) the emails clearly amounted to an agreement and not mere negotiations, as the parties reached consensus that they could walk away once arrears were settled and equipment returned, with no further legal consequences and (2) “walking away” could only mean that all agreements would be cancelled.

On (3), the court examined ECTA in more detail, finding that:

  • a data message could unquestionably satisfy the requirement that an agreement be in writing;
  • an advanced electronic signature was only required where imposed by law, and not in private agreements: it involved an elaborate and strict application process, for accredited products and services only. The parties did not deal in such products or services;
  • between private parties who required a signature, a standard electronic signature would suffice.

W argued that the recordal of a party’s full names at the end of an email did not meet the ECTA requirements for an ordinary electronic signature – there was no reliable method to identify the parties and indicate their approval of the information communicated.

The court disagreed, pointing out that courts have always taken a pragmatic approach to signatures, and required that a signature authenticates a signatory’s identity, without insisting on specific forms. In appropriate cases, a witness touching the pen while a magistrate made a mark on her behalf, had been accepted as a valid signature. The typed names identified the parties, were logically connected with the information that preceded them, and satisfied the ECTA requirements for an ordinary electronic signature.

The appeal was accordingly upheld, and the interdict against SFT set aside.

Had the parties not appended their names or another form of signature to their emails, however, the requirement that a consensual cancellation be signed by both parties would not have been met, and the purported cancellation would have been ineffective.

In summary, electronic communications via email, whatsapp and other means are increasingly relied upon in commerce. Parties engaging in electronic communications in business matters should be aware that these communications may feel casual but can be legally binding upon them. Where a party is negotiating by text or email but intends for any resultant agreement to be written up and signed on the printed page before it will be binding, this should be spelled out clearly – before an “in principle” agreement is reached. Failure to do so can mean that a party is bound by the terms set out in the text exchange, while other pertinent clauses the party may have wished to insist upon will be excluded.

While email and text are convenient, in cases such as the one above, the presence or absence of a signature can have far-reaching and costly implications. When emails and texts are intended to have legal consequences, a party would be wise to ensure that these communications still fulfill all legal requirements – such as a full signature where one is required. Had the parties’ representatives ended their emails with an unsigned greetings (“Best”) or an initial for shorthand (“C”), the outcome of the case may have been quite different – and a business potentially ruined in the process.

Mediation: 3 leading misconceptions

Few clients request mediation of their attorney, and few attorneys advise their clients to consider mediation.

Our clients often approach us when they feel that they have exhausted rational dialogue, and the relationship with the other party has completely broken down. A perceived “soft option” like mediation can be unattractive.

“Hierarchy of needs” psychologist Abraham Maslow famously said “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” We in the legal profession are as guilty of this as anyone. Our first thoughts turn to letters of demand, summonses and interdicts – not open, frank discussions with our client’s opponent about their needs and interests. Having been trained to sift through our clients’ instructions to identify rights and obligations, and what is actionable in law, we pay little enough attention to our own client’s deeper interests, needs and feelings.

As attorneys, we often view the emotional content of what our clients tell us as irrelevant – a hindrance in getting to the facts. After weeks, months or years of effort, we may achieve all that we led our clients to hope for, vindicating their rights and forcing the other party to discharge its duties, with costs. Yet our clients may be left with a sense of hollow victory – their real needs and interests, which we dismissed as irrelevant at the very first consultation, were not addressed.

Many attorneys and clients have had a taste of mediation through the conciliation phase of employment disputes before the CCMA or bargaining councils. We approach the conciliation hearing prepared to persuade the conciliator that we are in the right and should give less, and that the other party is in the wrong and should give more. The conciliator, in turn, with a towering pile of case files to deal with in the course of the day, has little time to uncover the real needs and interests at play. She may instead focus on sussing out the parties’ price – how much or how little money must change hands between the parties to get this matter finalised and out of the system, so that she can move onto the next matter?

While mediation is to be formally provided for within the South African court system as an optional alternative to litigation, misconceptions and mistrust abound. Yet, done well, mediation is a powerful tool for transforming disputes. In this article, we consider three leading misconceptions about mediation that may prevent people from making use of this tool.

Misconception #1: Mediation cannot succeed when the parties’ relationship and/or communication is poor.

A skilled mediator can transform the dynamic between the parties – at least for the duration of a mediation session. She is able to establish trust and rapport with both parties. She may set and gently enforce ground rules which hold the space for each participant to be treated with dignity and respect. She models constructive communication, reframing where necessary to remove the sting of unhelpful criticism and blame which hinder listening. By ensuring that each party is heard, and feels heard, the mediator de-escalates tension and prepares the ground for engagement with the real issues.

Misconception #2: A mediation is like a mini-trial. The mediator listens to both sides and decides who is right. One side wins and the other loses.

A mediation is not the same of an arbitration, or a trial. The mediator does not sit between the parties as a referee and hear evidence, and the mediator does not make binding decisions. The mediator invites the parties to tell their stories, helps them identify the real issues at stake, and facilitates a collaborative process through which the parties may be able to find solutions. Any outcome is only by agreement between the parties. The entire process is voluntary, and the parties retain control over the process.

Misconception #3: Mediation is a form of negotiation. The parties have to compromise, and at best both parties win a little and lose a little.

In negotiations, parties tend to harden their positions and engage in power games to try to get as much as possible while giving as little as possible.

A skilled mediator will assist the parties in looking above and beyond their narrow positions, and seeing the bigger picture. She will help the parties properly understand their own needs and motivations in the dispute, and the other party’s needs and motivations. Rather than inching towards a compromise in the middle ground, the mediation process can transform the parties’ understanding of the dispute, and open avenues for resolution that might otherwise not have been discovered.

A skilled mediator will facilitate a creative problem-solving process, to enable the parties to explore solutions that address both parties’ interests to the greatest extent possible. These interests often go beyond the obvious legal issues, and a more holistic and satisfying solution is possible.

With skill, time and effort, the parties may leave the mediation with an abiding sense of satisfaction, having been heard, having listened, and having taken ownership of the dispute and of its resolution. This takes place with the support and guidance of the mediator, who brings a unique and valuable skill-set to bear on the parties’ process.

Rose Attorneys offers mediation services, with a special focus on divorce mediation.

In any divorce proceedings, a dialogue facilitated by a mediator can bring matters to a quicker and more peaceful resolution than proceeding at once to issuing summons and exchanging proposals via attorneys and court documents.

Especially where a divorcing couple must co-parent in future, a mediation process can be invaluable. While litigating tends to harden positions and further damage the parties’ relationship, mediation offers the possibility of reducing tensions, and building new foundations for a constructive future co-parenting relationship.

If you are interested in more information about divorce mediation, contact Camilla Rose at camilla@roseattorneys.co.za or 074 697 2048.

 

The enforcability of restraints of trade

Employing a key staff member can feel like risky business. They will get to know your clients, your systems, your “tricks of the trade”. All well and good: you want your staff to be well-liked by your customers, and knowledgeable and effective in their work. But what if, having accepted your training and support to become a true asset to your organisation, your employee leaves and goes to work for your competition? Can you include clauses in your employment contract to prevent this?

A well-known labour law consultancy certainly hoped so when they employed Mr DJ in 2014. His employment contract included extensive confidentiality and restraint of trade clauses, which the Labour Appeal Court adjudicated upon last week.

After about 15 months’ employment, DJ resigned to take up employment with an employer’s organisation who competed with the consultancy to offer similar services to similar clients. His employment contract restrained him in perpetuity from disclosing any client lists, trade secrets of other company information received from the consultancy during his employment. It went on to restrain him from having any interest in any other entity providing similar services to the consultancy, engaging in any similar transactions with any of the consultancy’s clients, or in any way poaching the consultancy’s staff, for a period of 3 years after his resignation, throughout two provinces of South Africa.

The consultancy immediately drew DJ’s attention to the above restraints, and alerted him to their view that he was about to breach his obligations by taking up employment with the employers’ organisation. DJ disagreed that the two organisations were in competition with one another, but nevertheless undertook not to contact any of the consultancy’s clients to attempt to lure their business away.

The consultancy was not satisfied, and launched urgent proceedings  to interdict DJ and the employers’ organisation concerned, from entering into an employment relationship. The consultancy expressed the fear that DJ would take unfair advantage of his knowledge of its clients, pricing and business strategies, and abuse the strong relationships he built up with its clients to lure them away. DJ denied having any special access to the consultancy’s business strategies, saying that he had learned these before starting work for it and that the information was in any event readily available on the internet. He aso denied having any special bond with any of the consultancy’s clients.

The Labour Court was not satisfied that there was special, confidential information in DJ’s possession which could be abused to the detriment of the consultancy. Neither was it satisfied that DJ had been shown to enjoy especially close relationships with the consultancy’s clients. The consultancy had not proven that it had any protectable interest, and to enforce the restraint would be unreasonable as against DJ and only have the effect of stifling competition.

The consultancy approached the Labour Appeal Court with an appeal against this decision. It complained that DJ had entered employment with it as a blank slate, and had only become a valuable asset worthy of being head-hunted by its competitors, as a result of the training and resources it had invested in him. It argued that it was unfair to allow such an employee, who had signed a restraint when accepting employment, to go over to a competitor who would reap the benefits of this investment.

The Appeal Court noted that restraints of trade are enforceable unless they are proven to be unreasonable. Their reasonableness is determined by balancing the need for parties to comply with their contractual promises and the right to freely exercise one’s trade or occupation. A restraint would only be reasonable if it protected an interest worthy of protection, such as confidential information and trade secrets, or customer and trade connections. For information to be confidential it had to be useful, restricted to a small number of people, and have economic value to the employer. Customer or trade connections could be protectable if they were of such a nature that the employee could induce such connections to follow him or her to a new employer. An interest in preventing competition was not in itself protectable.

The employer’s protectable interest had to outweigh the employee’s interest in being economically productive. It stated that an employee cannot be restrained from taking away and using his or her skills, experience and knowledge, even if these were acquired chiefly through the employer’s training of the employee. These skills were not the property of the employer.

The Appeal Court found that DJ had been a relatively junior employee and had lacked access to truly confidential information. The forms he used for his work were freely available on the internet. He had no access to sensitive financial information or business strategies.  DJ’s evidence was that he only handled the simplest of tasks for clients and that he had no ongoing relationships with any clients such that they felt an attachment to him. He had no role in recruiting clients at either organisation.

As no protectable interest had been proven, the Appeal Court noted that it was unnecessary to weigh up the interests of the parties. DJ was entitled to pursue his career unfettered by the clear language of the restraint he had concluded with the consultancy.

Restraints of trade remain contested territory, with the enforceability of restraints coming down to the circumstances of individual cases. In general, they are of most use in the case of absolutely key personnel only, and should not be concluded with employees simply to fetter their career path and keep them from joining the competition.

Exiting the exit agreement: a departing employee’s claims of coercion and duress

It happens with some regularity that an employee refers a dismissal dispute to the CCMA, and the employer arrives at the hearing bearing a termination agreement with the employee’s signature. In it, the employee agrees to resign from employment, often in return for some benefit such as an extra month or two’s pay, or the privilege of leaving honourably rather than being dismissed and incurring a disciplinary record for serious misconduct. The employee will usually concede that they signed the agreement, but argue that they were bullied into it. The CCMA commissioner will advise them that the agreement is binding until set aside by the Labour Court on solid grounds, such as duress, and close their file.

In the recent matter of Gbenga-Oluwatoye versus Reckitt Benckiser SA, an employee went as far as approaching the Labour Court and, thereafter, the Labour Appeal Court, in his quest to get out of a termination agreement he admitted signing with the employer.

The employee was approached by a headhunter while employed in a lucrative position with a large multinational. He later left his lucrative position, but actively concealed this from the headhunter, negotiating a generous sign-on bonus on the false basis that he was losing a handsome shareholding by leaving the large multinational to join the employer. In short, he deceived and defrauded the new employer.

Some months into his employment with the new employer, the employee’s misconduct came to light. He was suspended pending a disciplinary hearing,  and then summarily dismissed. On receipt of his termination letter, the employee approached the employer requesting a “softer exit”. He offered to repay the money over time, in exchange for the employer delaying action to revoke his work permit and housing allowance. The employer agreed, and the employer expressed his gratitude for the humanity shown him.

A termination agreement was then drawn up in draft form. The employee was unwilling to sign the first draft, but agreed to sign a second draft. The agreement recorded that it was in full and final settlement of any claims between the parties, and that it was entered into voluntarily without any coercion or pressure. The employee agreed, in the agreement, that he waived any right to approach the CCMA and Labour Court arising in any way from his employment and the termination agreement.

A week later, however, the employee brought an urgent application to the Labour Court, for an order setting aside the termination agreement and reinstating him into his employment. He argued that the agreement was against public policy and that he had been coerced into signing it through fear of losing his work permit and housing and other allowances.

The Labour Court was unsympathetic. It had regard to the fact that the employer had a legal entitlement to dismiss the employee summarily on account of his serious misconduct, and also the fact that the agreement had been further negotiated after the employee had been dissatisfied with the first draft. There were no facts to indicate that he signed the agreement only as a result of duress by the employer.

The employee was unrelenting, and took the matter further to the Labour Appeal Court, on appeal.

The Labour Appeal Court pointed out that, in order to get out of an agreement on the basis of duress, intimidation or improper pressure had to be proven of such magnitude that the purported consent of the signatory was no true consent. There had to be actual violence or a fear caused by the threat of a considerable evil. The threat had to be unlawful or against the morals of the community.

Although the Court did not point this out, it goes without saying that the loss of a work permit and of allowances due to termination of employment by resignation or by summary dismissal for gross misconduct, are lawful and reasonable consequences. They cannot be construed to be unlawful or against the morals of the community.

The Court did point out that, while everyone has the constitutional right to seek redress through the courts, this right could be limited in reasonable circumstances. Parties were free to limit this right in their free contractual dealings. The Court found that the employee was an experienced, senior managerial employee, who would understand the import of what he was agreeing to. Clauses limiting the right of redress were standard in termination agreements, and of practical value.

Finally, the Court point out that it had no power to set aside agreements simply because they appeared to be unfair.

The Court accordingly upheld the termination agreement, and dismissed the employee’s application with costs.

Caveat subscriptor – “signer, beware!” – is a well-worn legal maxim for good reason. All parties should be slow to sign any agreement unless they are completely satisfied with the terms, and should be aware that by signing an agreement they trigger important legal consequences which cannot be easily evaded. In the absence of compelling evidence of significant unlawful pressure, a party who foolishly signs an unfair or prejudicial agreement, will be held to its terms.

 

 

 

Employee or independent contractor?

The question whether someone is an employee or an independent contractor is one which the courts and CCMA have had to consider time and again over many years.

The issue continues to crop up in legal disputes, because an independent contractor does not have the rights and protections of an employee.

The point is usually raised as a “jurisdictional” issue, which means that a decision-maker handling a dispute must decide the issue before they are entitled to consider the main dispute. This can be decisive in an unfair dismissal or similar dispute. If a person who claims unfair dismissal is not an employee but an independent contractor, then there is no question of unfair dismissal, and the legal dispute will not be considered further in that form. An independent contractor must instead rely upon the terms of the contract, in much the same way that businesses enforce contracts between them.

The Labour Court examined the question again recently, when a radio DJ approached the CCMA with an unfair dismissal dispute. The CCMA found that he had not shown that he was an employee, and refused to consider his claim of unfair dismissal. He approached the Labour Court and argued that the CCMA’s ruling was wrong, asking the Court to compel the CCMA to consider his unfair dismissal claim.

The Labour Court ultimately agreed with the CCMA that the facts showed that the DJ was not an employee.

Various aspects of the matter did suggest that the DJ might possibly have been an employee. His contract referred to a monthly salary, and salary reviews, for example.

However, the radio station for which the DJ had presented a show, had referred to him in all documentation as an independent contractor rather than an employee, and he had failed to challenge this. This suggested that he had been under no illusion that he was an employee.

He furthermore delivered invoices to the radio station for his “salary”, via a close corporation, which had other employees whom he paid to assist him with his radio show.

The Court indicated that the most important decisive factors to consider were whether the DJ was economically dependent on the radio station, whether he was subject to the radio station’s supervision and control, and whether he formed an integrated part of the radio station’s organisation.

The Court found that, although the DJ did not pursue other commercial activities outside of his work for the radio station, this was because he chose not to, and he was not truly economically dependent on the radio station. He was contractually entitled to pursue other work for non-competitors of the radio station, although he did not pursue it.

The Court found further that the DJ enjoyed extensive control over the number of hours he spent preparing his radio show, and also over show content, and was not truly under the supervision and control of the radio station as an employee would be.

Finally, although the DJ was issued with business cards and branded clothing by the radio station, this was not indicative that he was an employee, but was merely to facilitate marketing of the radio show.

Anyone approaching the CCMA should be prepared to lead evidence to show that they are an employee, in case this point is challenged. Employees should be alive to the impact that decisions about the wording of contracts and arrangements for payment may have on their status and rights. Someone who is truly an employee should not lightly agree to a scheme whereby they invoice for fees via a company, for tax or other reasons, as they may unwittingly affect the nature of their relationship and the protections they enjoy. The courts seldom assist persons in “having their cake and eating it too”.

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Making sense of legalese: the “whole agreement” clause

Almost any agreement you sign will conclude with a number of paragraphs, written in dense legalese, and often printed in very small letters. These concluding paragraphs are not only scarcely legible – they are scarcely comprehensible to most laypeople. Lawyers refer to these clauses as the “boilerplate” clauses, as they tend to appear at the end of most contracts and to be fairly standardised.

One such paragraph which one finds in most agreements is the “whole agreement” clause. This clause specifies that “This agreement constitutes the whole agreement between you and us on the subject-matter thereof” – or something similar.

This clause may seem fairly innocuous – but it is extremely important.

In the course of reaching an agreement, many things may be said. One party may make claims about the performance or quality of its product or service. The other party may share information about its needs and requirements. Having seemingly reached agreement on what is needed and whether the product or service offered is suitable, the parties often then sign a standard agreement which records little or nothing that was discussed by them. Owing to the “whole agreement” clause, however, it is assumed that anything of importance to the parties has been recorded in the written agreement – and that anything not recorded is not material and should not be relied upon.

For example, I may visit a cell phone service provider, and explain that I need a mobile service with consistent, quality connectivity to Italy, as I have many clients there. The consultant who assists me assures me that I will never have any problems with my line to Italy with their service. I agree to sign up for a mobile contract, and am provided with a standard form agreement which mentions nothing about connectivity to Italy, and likely limits what the service provider is required to make available to me, and excuses it from liability for my losses due to any connectivity issues that might arise on their side. Should I later discover that I am receiving terrible call quality to Italy, I will be limited to enforcing what is recorded in the contract, owing to the “whole agreement” clause.

While the Consumer Protection Act prohibits the making of false or misleading claims to consumers, it places the onus on me to seek a court order addressing the consequences of any such claim should a dispute later arise. This involves a considerable expenditure of time and money which is best avoided.

It is therefore of the utmost importance that any matters which are important to you and which you wish to be able to rely upon, must be recorded in writing in your agreement.

Should you be provided with a standard form agreement, you have every right to cross out clauses which you do not agree with, or to add clauses which you wish to include. However, the other party must initial these changes to indicate acceptance of them. Merely crossing out or adding clauses alone does not mean that the other party is bound by these changes.

A service provider who makes promises or claims in good faith should have no difficulty in recording these promises or claims in your agreement. If they balk at doing so, then their words should be approached with a great deal of caution.

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Decoding Legalese: Part 1 SEVERABILITY

Most written agreements end off with a number of “boilerplate” clauses, being the small print that is usually glossed over. These are standardised clauses which deal with general matters and appear in most contracts, regardless of whether the specific agreement concerns a simple sale of apples or the manufacture of jet planes worth billions of rands.

Examples include clauses about severability, the whole agreement, variation, disputes, jurisdiction and so on.
These clauses are often clumsily drafted in high legalese. For the sake of covering all bases, they may go on much longer than is strictly necessary.
This series of updates seeks to decode the legalese in some of the most common boilerplate clauses.
Towards the end of most agreements, one comes across words to the following effect under the heading “SEVERABILITY“:

Except as expressly provided to the contrary herein, each paragraph, clause, term, and provision of this AGREEMENT, and any portion thereof, shall be considered severable. If for any reason, any provision of this AGREEMENT is held to be invalid, contrary to, or in conflict with any applicable present or future law or regulation by any Court in any proceeding between the parties, that ruling shall not impair the operation of, or have any effect upon, such other portions of this AGREEMENT as may remain otherwise intelligible, which shall continue to be given full force and effect and bind the parties hereto.

The effect of this clause is, in a nutshell, that if any part of the agreement is found to be invalid, it will not result in the entire agreement being invalid. Instead, the invalid part will be ignored as if removed from the agreement, and the rest of the agreement will stand.

For example, we might agree:1. I shall purchase ten apples from you every week for a year.

2. I shall pay you R3,00 per apple.

3. If I fail to pay for any single apple, then you may cause the words “bad debtor” to be tattooed in large black capital letters across my forehead.

4. The clauses of this agreement are severable, one from the other.

Clause 3 would be found to be against public policy (that is, morally repugnant and socially undesirable) and thus unenforceable. However as the clauses are expressly severable one from the other, you could still enforce your right to payment against me. The failure of clause 3 would not mean that the agreement fell away in its entirety and you were left out of pocket.

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Decoding legalese – part 2: “entire agreement” clauses

This series of updates seeks to decode the legalese in some of the most common “boilerplate” clauses commonly found at the end of contracts.

Another very common clause is the “ENTIRE AGREEMENT” clause, which is generally along the following lines:

This agreement constitutes the entire agreement between the parties, and supercedes all agreements and arrangements between the parties, whether written or oral, express or implied, relating to the subject-matter of this agreement. Each party accepts that it is relying entirely on the terms set out in this agreement and not on any pre-contract statement, representation or misrepresentation made by or on behalf of the other party except to the extent, if at all, specifically set out in this agreement. 

When selling a product or marketing a service, a good many grandiose claims may be made regarding quality and results. These are seldom later incorporated into the contract as terms. With a standard “whole agreement” clause in a contract, the buyer is generally deprived of the right to require that those claims be lived up to. The clause has the result that anything the parties may actually have agreed upon, but which is not written down in the contract, is null and void.

For example, before I buy a lawnmower, the salesperson tells me that “this machine is so fast and effective, it will cut your garden maintenance time in half!” I am thrilled, sign the paperwork (including a “whole agreement” clause) and rush home to try out my new purchase. While I find that the lawnmower does in fact work just fine, it works the same as any other mower and does not, in fact, cut my garden maintenance time in half. Nowhere in the agreement with the salesperson did we record the salesperson’s promise, and so in general it is excluded from the agreement and unenforceable. I must live with my purchase.

There will be some exceptions under the Consumer Protection Act, which forbids misleading statements by suppliers and enables consumers to cancel transactions in some cases where they have been misled, but this Act only applies to certain transactions. Even where the Act applies, proof of the misleading statement will be very difficult if it was not recorded in writing.

In general, therefore, it is essential to ensure that any important promises made, are written into the contract. On a pre-printed standard form, additional clauses written in by hand and initialled by both parties are perfectly valid and binding. If a supplier makes a promise, they ought not to have any difficulty in formalising the promise. If they are reluctant, it is probably worth questioning their sincerity and therefore weighing up the transaction very carefully before committing.

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Impossibility of Performance in the Workplace

Imagine that you own an optometry practice located in a busy shopping mall. A fellow tenant of the mall accuses your employee of theft, and the management of the mall bans your employee from ever setting foot in the mall again. She can no longer enter your office at the mall without being ejected by mall security.

Obviously, in these circumstances, you are relieved from the duty to employ the employee concerned, and you simply terminate her contract – right? Wrong.

Our case law indicates that cases such as these – known as “supervening impossibility of performance” cases – must be treated as cases of incapacity. Cases of incapacity include instances where an employee becomes sick or injured, and therefore unable to perform their work, in whole or in part, and on a temporary or permanent basis.

The law sets out duties with which the employer must comply in such cases. In essence, the law expects the employer to accommodate and assist an employee who is incapacitated. The extent to which this must be done depends on the facts of each case. Where the incapacity arose in the course of the employee’s employment – for example a shop assistant falls off a ladder while packing goods on shop shelves, and injures herself – more is expected from the employer. More is also expected from a large employer who has “deep pockets” and can better afford to be generous.

In some cases, the period for which the employee cannot work is short, and the employer can do without the employee or get by through hiring a temporary replacement.

If, in the circumstances, the employee will be prevented from working for a period which is unreasonably long, the employer cannot simply dismiss and replace the employee, but must first consider all options short of dismissal. This might include, in the case of the optometrist’s employee, transferring her to another branch located outside of the mall from which she was banned. It might include adapting the employee’s work circumstances – for example,  providing seating to an employee who would normally be required to work standing – or adapting the employee’s duties to accommodate her incapacity. It might also involve providing the employee with alternative work if this is available – and as a last resort before dismissal a demotion might be justified.

It may well be that, having investigated all of these options together with the employee, there is no alternative to dismissal. Then the employer can rest assured that he or she has treated the employee fairly and that the resultant dismissal will be both substantively and procedurally fair. In the absence of taking the trouble to investigate these options, however, any dismissal is likely to be both substantively and procedurally unfair, and ultimately prejudicial to both parties.

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Making sense of Contracts – Presumptions in the Interpretation of Contracts

Presumptions are aids for obtaining clarity when reading and applying the terms of written contracts. They originate from what is known to happen in the ordinary course, and generally promote outcomes that are fair and reasonable. As contracts often leave things unsaid, presumptions help to close gaps. Presumptions apply in the absence of compelling considerations indicating that they should  not apply in a specific case.

These are the six most important presumptions relied upon when contracts are interpreted. They underline the importance of clear, careful and thoughtful drafting whenever an agreement is reduced to writing.

1. Words used in contracts, are used in their normal, ordinary sense

This includes a presumption that, where the parties are involved in a specific business or trade, the words used in their contract are used in the sense usually understood in that business or trade.

The exceptions will be when the context makes it clear that the parties intended a different meaning, or where applying the ordinary meaning would have absurd results.

2. The parties have chosen the words used in their contract carefully, and those words express their intention precisely and exactly

3. Where a particular word or expression is used more than once in a contract, that word or expression has the identical meaning throughout the contract

The exception will be where the context clearly indicates otherwise, or where applying a consistent meaning would lead to absurd or unjust results.

For example, where “the house” refers to 1 Quality Street in clause 1 of a lease agreement, the term “the house” should not be used in clause 5 to refer to a different property, unless clause 5 clearly specifies that the term has a different meaning in that clause, and specifies that meaning.

4. Different words and expressions used in a contract indicate different meanings (this is the corollary of the presumption above)

For example, one should not use different terms such as “the house”, “the property” and “the premises” in different clauses all to indicate the same thing, such as 1 Quality Street. In interpreting the contract one must assume that “the house” means something different to “the property”, which in turn means something different to “the premises”, or otherwise the drafters would have used the same term.

5. The contract contains no superfluous words and no purposeless terms

It is assumed that everything to be found in a contract, is there for a reason and with a specific purpose. For that reason, every word and expression in a contract must be taken account of and given effect to, unless no sensible meaning can be extracted from the word or expression used.

6. There are no omissions

The parties are assumed to not have left out of the contract any words which should have been inserted, that is the contract is assumed to be complete and comprehensive.

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