Going back to basics with regards to contracts, the prerequisites for a contract to be valid (such as consensus, formalities, free will and/or intent, possible performance, good faith, lawfulness and certainty) appear to be simple and the remedies (such as specific performance, cancellation and damages) apparent. However, when it comes down to enforcing the contract or implementing remedies, there is more than meets the eye.
Legal proceedings by the aggrieved party to enforce remedial action must be instituted in a forum with jurisdiction to adjudicate thereon. A court will have jurisdiction if the defendant (party against whom the proceedings are instituted) either resides or carries on business in the court’s area of jurisdiction or if the whole cause of action arose within the court’s jurisdiction. If the aggrieved party is situated in Cape Town, for example, and the party against whom the aggrieved party institutes proceedings is situated in Johannesburg, the aggrieved party will have to institute proceedings in a court in Johannesburg, unless that party can prove that the whole of the cause of action arose in Cape Town.
In order for a court to have jurisdiction on the basis that the whole cause of action arose within its area of jurisdiction, the aggrieved party must prove that the contract was entered into in that jurisdiction, performance had to take place in that jurisdiction and the breach of contract took place in that jurisdiction.
If the contracting parties conclude the contract in each other’s presence (inter praesentes), it is effortless to establish the place of conclusion. With regards to the ‘place’ where a contract is concluded, the general rule that has crystallised in South African law is that the area where an offer was accepted is deemed to be the place where the contract was concluded. For example, if the offer was made (by the offeror) and accepted (by the offeree) in Cape Town, then the contract was concluded in Cape Town.
However, in modern times technology and telecommunications have drastically replaced the traditional inter praesentes approach for concluding contracts. Contracting parties rely on the convenience of reaching an agreement via a telephone call, an email or by post. This inter absentes approach is mostly relevant where the contracting parties are not in the same area when the contract is concluded. These circumstances may appear to be convenient, however when it comes down to determining jurisdiction the contracting parties often find themselves between a rock and a hard place.
Where, for example, the offeror is situated in Cape Town and the offeree is based in Johannesburg, the question arises whether the contract was concluded in Cape Town or Johannesburg
If an offer is made by post (by sending a proposal letter), the contract is deemed to be concluded in the place where acceptance of the offer was affected. Against the background of the abovementioned factual setting, the offer would have been posted from Cape Town to Johannesburg. If the offeree responds to the offer by sending an acceptance letter to the offeror, then the contract would be deemed to have been concluded in Cape Town upon the acceptance letter reaching the offeror.
In contrast to the above, a different approach is upheld when a contract is concluded by means of a telephone call. In the case of Tel Peda Investigation Bureau (Pty) Ltd v Van Zyl (4) SA of 1965 the question of where the cause of action (breach) arose and which court should have jurisdiction was scrutinised. In this case the Defendant (offeror) was based in Johannesburg and the Plaintiff (offeree) was based in East London when the parties concluded a contract over the telephone. According to the facts at hand, the Defendant was in breach of contract – therefore the Plaintiff proceeded to sue the Defendant in East London (due to the fact that it was of the view that the cause of action arose in East London). However, the Defendant made the averment that the court in East London did not have jurisdiction to hear the matter, due to the cause of action not wholly arising in the East London court’s jurisdiction.
Section 28(1)(d) of the Magistrates Court Act provides a court will have jurisdiction in respect of any person, whether or not he resides, carries on business or is employed within the district, if the cause of action arose wholly within the district. The phrase “cause of action” is described as every fact which is material to be proved to entitle the plaintiff to succeed and every fact which the defendant would have the right to traverse. In this case the Defendant filed a special plea claiming lack of jurisdiction. The Defendant argued that the contract came to existence in Johannesburg as opposed to East London (in which event the Johannesburg court would have jurisdiction). The special plea did not succeed in the Magistrates court, as the court was of the view that the Plaintiff accepted the offer in East London and therefore the cause of action arose in East London. The Defendant appealed against the Magistrate’s finding and the Appeal court subsequently overruled the Magistrate’s decision, finding that where a contract is concluded by means of a telephone call, the acceptance of the offer instantly becomes known to the offeror (over the telephone), hence the contract is concluded in the area where the offeror is based at that point in time. The Appeal court found that the contract has indeed been concluded in Johannesburg and the special plea should have been upheld.
When one considers all of the above, it is clear that contracting parties should be vigilant with regards to which area and/or court would have jurisdiction in the event that a cause of action arises. If the parties are clear on where the contract was concluded, where the cause of action arose and which court has jurisdiction then the litigation process on a breach of contract becomes streamlined.
Chantal Smith is a candidate attorney at Barnard Incorporated in Centurion.
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