Spotlight: breach of contract claims in South Africa

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Breach of contract claims

i Types of breach

South African law recognises four different types of breach.

Late performance or mora

A party is in mora when:

1. the debt is due and enforceable, but performance is not delivered on time;
2. the breach is due to their fault; and
3. the performance remains objectively possible.

Repudiation

Repudiation is behaviour by a party that clearly and unequivocally indicates that the party is not going to honour its obligations under the contract and does not intend to be bound by the contract.¹⁷ It occurs when:

1. there is conduct indicating a refusal to perform;
2. there is no justification for refusal to perform; and
3. the other party has performed.

The innocent party must decide whether it intends to accept the repudiation and cancel the contract, or hold the breaching party to the contract (in which case the innocent party must also indicate that it is willing to perform).¹⁸ The innocent party may claim for any damage it has suffered, regardless of this election.

Prevention of performance

This breach occurs in instances where a party makes performance of the obligations under the contract impossible. The requirements for such a breach are as follows:

1. the performance must be objectively impossible; and
2. the breaching party must be at fault.

Defective performance

This occurs when defective performance is delivered by a party to the contract. The party alleging that a breach has occurred bears the onus of proving, on a balance of probabilities, that the other party has breached the contract.

Defences to enforcement

i Void contracts

Certain formalities must be met before a valid, binding contract can be said to have been formed. One of the most common ways that defendants seek to avoid the enforcement of contractual obligations is to argue that there is no valid contract.

The following consequences arise in the event that the formalities are not met:

1. the contract is unenforceable; and
2. any performance already made must be returned.

The following defences to the enforcement of contracts are most common.

No contractual capacity

To reach consensus, all parties to the contract must have the necessary capacity to understand the nature of the contract and the consequences of entering into the contract. Examples of circumstances that negate contractual capacity include:

1. intoxication: it is not always the case that an intoxicated person does not have contractual capacity; this is often decided on the facts of each case;
2. mental illness: a mentally ill person is not automatically presumed to lack contractual capacity (this must be determined on the facts), unless they have been officially declared mentally ill; and
3. minors: the age of majority in South Africa is 18 years. Anyone below this age does not have full contractual capacity, and minors below the age of seven years have no contractual capacity.

Illegality

Illegal contracts are not capable of enforcement. A contract may be illegal owing to contravention of a statute or the common law.

Statutory illegality

Statutory illegality does not always lead to the invalidity of the contract; this depends on the intention of the statute itself. If the statute is not clear, it is necessary to ascertain the intention of the legislature by interpreting the specific statutory provision.¹⁹

Common law illegality

A contract is contrary to common law where it contravenes public policy and is contrary to the 'good moral standards' of society.²⁰

Historically, there has been controversy regarding the application of concepts such as good faith, reasonableness and fairness. In Barkhuizen v. Napier,²¹ the Constitutional Court had held that good faith is 'not a self-standing rule, but an underlying value that is given expression through existing rules of law'.²²

However, in Beadica 231 CC and Others v. Trustees for the time being of the Oregon Trust and Others,²³ the Constitutional Court acknowledged that the consideration of public policy in the context of the law of contract is rooted in the Constitution. The Constitutional Court held that constitutional rights apply indirectly to contracts, as well as the enforcement of contractual terms, and a careful balancing act is required to determine whether a contractual term or its enforcement would be contrary to public policy.

Uncertainty

If the terms of a contract are not certain (or ascertainable), the contract will be void for vagueness. As long as performance is ascertainable (e.g., if performance can be determined by the application of a formula or method), the contract will not be void for vagueness.

In the case of Southernport Developments (Pty) Ltd v. Transnet Ltd,²⁴ it was held that a contract where the parties agree to negotiate a second contract is not void for vagueness if there is a 'deadlock breaking mechanism' in the event that the parties cannot reach agreement on the second contract.

Impossibility

There are three types of impossibility in South African law:

1. objective impossibility: this means that performance would be impossible for everyone;
2. subjective impossibility: this occurs when performance is possible for some people but not for the debtor specifically; and
3. legal impossibility: this occurs when parties are prevented from performing by virtue of a statute or legal rule (however, the contract is not necessarily illegal).²⁵

A contract can only be avoided by a defendant in the event that there is an objective impossibility that exists prior to entering into the contract.

In some instances, performance becomes impossible after the contract has been entered into. This does not mean that the contract is void; however, such circumstances do lead to other remedies that are dependent on who bore the risk at the time that the impossibility occurred.

Non-compliance with formalities

Formalities in respect of contracts can be prescribed by statute or self-imposed. Non-compliance with those formalities will usually render the contract null and void.

Suspensive conditions have not been met

A contract will not come into existence unless the suspensive conditions to which it is subject have been met. A suspensive condition may also be waived by the party for whose benefit the clause was inserted.

Exceptio non adimpleti contractus

This defence allows an innocent party to a reciprocal contract to withhold performance to force a guilty party, who has breached the contract, to perform properly.²⁶ In the event that the guilty party brings a claim against the innocent party, the innocent party may raise the exceptio as a defence.

Prescription or time-barring of contractual claims

South African law recognises a prescription period or time limitation period of three years for the enforcement of an ordinary debt. A defendant can, therefore, raise the defence that a claim has prescribed after the lapse of three years from the date when the debt arose.

What exactly is meant by the word 'debt' has been a subject of debate over the years. A claim for damages, for example, can no longer be enforced after a period of three years has lapsed from the date that the damage was suffered.

It has, however, been recently held that a claim for return of property is not a debt that is subject to prescription.