Certain elements are required in order for a valid contractual agreement to take place. One such element is that there must be a consensus or a ‘meeting of the minds’ between the contracting parties. Where a party has entered a contract or otherwise been induced to enter a said contract as a result of false representation by the other party, this amounts to misrepresentation.
The duty of disclosure varies in each jurisdiction. In South African law there is no general duty of disclosure. The uncertainty surrounding whether there is a duty to disclose in South African law has spread to other areas of a contract. Misrepresentation, and the corresponding liability, is often regarded as only occurring when a positive act has been committed by a contractor in order to induce the other party to enter into the contract.
Despite this, however, there are certain contracts categories in other industries which are treated differently. Contracts with a seemingly higher duty of disclosure relate to insurance and agency. Such contracts ought to be negotiated in ‘utmost good faith’. When compared to a sale agreement, a contracting party who has specific knowledge that can impact whether the transaction will be concluded or not, has no duty to disclose such information to the other contracting party. As can be seen, the lack of distinct and unambiguous legislative intervention creates uncertainty amongst the parties of a contract regarding whether this duty exists in South African law or not.
The importance of entering into a contract while being aware of all the material facts, as well as equipped with all the necessary information to validly consent to the transaction, cannot be overemphasized. However, it is still possible for people to be lulled into a false sense of security due to any fraudulent misrepresentation on the part of the other contracting party, or as a result of his or her silence.
It is imperative to gain clarity for laypersons as to when a party cannot remain silent and is required to speak, and more importantly when the failure to do so will result in liability. South Africans who do not have a specialised knowledge of the law of contract enter into various agreements on a ‘good faith’ basis daily.
These agreements are the centre of South African culture, and are founded on the basis that all parties involved will negotiate and contract with good intentions and on good faith and ubuntu.
The importance of good faith and ubuntu in a contract, especially in a society as unique as ours, was observed and regarded as vital by the Constitutional Court. In spite of this acknowledgement, there has been no proper development of the common law as to implement these concepts into our law. The ‘good faith’ concept, while ever so helpful, was adopted along with its shortfalls as its ambiguity and vagueness was never clarified.
It is thus important for a contracting party to seek sound legal advice before contracting. To avoid any of the above mentioned issues while ensuring a well-rounded contract; we offer to clients a full range of commercial agreements dealing with issues such as leases, sales (immovable, movable and incorporeal), companies & associations, trusts, securities, arbitrations and mediations.