Tu es pardonné … it’s a French thing

French lawmakers allow their citizens the right to make a mistake.

“Ignorance of the law is never an excuse”. The old adage known the world over and the principle ingrained in our minds by many a poorly written television show. While this may not (always) be the case, one country has taken it further and actually codified the reverse thereof, albeit with limited application.

The French, fed up with bureaucracy, red-tape and their civil administration departments, have been handed a lifeline in the form of a new law passed by their National Assembly in January 2018.

This “droit a l’erreur” has been hailed as a major stepping stone towards fruitful co-operation between the administration and the administered. Its aim is to increase the level of trust between the government and its citizenry.

The basic premise of the law is that a person dealing with a governmental administrative institution is afforded the right to make a mistake in their dealings with that institution, without penal repercussions. Examples of such mistakes may include certain transactions such as submitting an incorrect tax return, making a mistake on an application for a grant, passport or permit or even a donation to your church.

In our country, there are limited areas where such a mistake will be tolerated by an administrative institution. If one takes the likes of the South African Revenue Service, the Department of Home Affairs, or the Road Traffic Management Corporation into account, many South Africans have suffered as a result of a mistake made while dealing with these institutions, particularly with regard to fines of both a criminal and administrative nature.

The South African Revenue Service has attempted to lessen the red tape involved in their processes, particularly when it comes to the average Joe, with the rolling out- and streamlining of the e-filing service, together with the Request for a Correction (RFC) form. This RFC is, however, not always available to be used in certain circumstances (once an audit has begun, for example) or still results in a penalty being levied (or a crime committed) for the use of the RFC or the making of the mistake in the first place – and this only being if you brought the mistake to the attention of the Service before they noticed it.

In the case of the new French law, a citizen may make a mistake and cannot be penalised for it provided that that mistake was made in good faith and that the citizen is not a repeat offender. So in most instances the government will forgive the first mistake that is uncovered by itself (not necessarily brought to its attention) provided that the citizen honestly made that mistake.

The real wonder of this new French law though is that, unlike our administrative institutions, the burden of proof regarding the actions of the citizen shift to the government. Thus, it is the burden of the administration to prove that the citizen wilfully acted in bad faith should it wish to take on the mistake.

While there are still be many exclusions to which the law will not apply and which will not be of interest to, it is refreshing to see a state administration making progressive strides at building trust with its people.

By Dylan Lowe
dylanl@dyason.co.za

Time to rethink contractual claims for consequential damages

Most commercial agreements these days contain clauses limiting parties’ liability and subsequently the ability of parties to institute any claims for damages based on contractual breaches.

These limitation clauses generally read as follows:

Neither party shall be liable to the other party for any consequential, indirect, special or incidental damage, whether foreseeable or unforeseeable, regardless of the form or cause of action, whether in contract or delict of for restitution and whether based on this agreement.  

Sometimes the only and/or most prominent damages that companies suffer as a result of a breach of contract is a loss of clients and subsequent profit and is it important to legally determine whether loss of profit constitutes direct, indirect, general or special damages as stipulated – and excluded from liability – in the above contract clause.

In Lavery and Co. Ltd v Jungheinrich 1931 AD 156 the court distinguished as follows between general and special damages:

general damages” as damages that flow naturally and generally from a breach of contract and which the law presumes that the parties thought would result from such a breach of contract; and

“special damages” as damages that, although caused by the breach of the contract are ordinarily regarded in law as being too remote to be recoverable, unless the parties were entering into the contract actually contemplated such damages would likely be caused from a breach of the contract and agreed that the defaulting party will be liable in the event of such breach.

The primary reason for the conclusion of the majority of commercial agreements is to provide services against a fee to gain profit from rendering these services. These types of losses are referred to as “direct” losses and described as “not unlikely“ or foreseeable in Hadley v Baxendale 91854) 9 Ex Ch 341 and Heron ii [1969] 1 AC 350. Courts have recognised that loss of profits arising from a breach of contract can either be a direct loss or an indirect loss, depending on the circumstances, including the nature of the contract and the nature of the breach (Fujitsu v IBM, [2014] EWHC 752 (TCC) and Polypearl Limited v E. on Energy Solutions Limited [2014] EWHC 3045 (QB)).

In Fujitsu v IBM the court had to decide whether an exclusion clause effectively excluded IBM’s liability for all loss of profit (direct and indirect) or for “indirect” loss of profits only. The clause stipulated as follows:

Neither party shall be liable to the other under this sub-contract for loss of profits, revenue, business, goodwill, indirect or consequential loss or damage…

The court ruled that the clause excluded liability of all loss of profit, not just the “indirect” kind and if the parties were of the intention to exclude indirect loss of profit only, they should have made their intentions in this regard clear.

In Polypearl Limited v E. on Energy Solutions Limited the court similarly had to determine whether the following clause excluded liability for all loss of profit or for indirect loss of profit only:

Neither party will be liable to the other for any indirect or consequential loss, (both of which include, without limitation, pure economic loss, loss of profit, loss of business, depletion of goodwill and like loss) howsoever caused (including as a result of negligence) under this agreement, excepts as so far as it relates to personal injury or death caused by negligence.

Polypearl argued that their lost profits on the shortfall were a direct loss and the court agreed. The Court ruled that the clause excluded liability for indirect/consequential loss of profits and not direct loss of profits.

Generally a company’s loss of profit flows naturally from the other party’s breach of contract and that both parties could easily contemplate a loss of such profit upon breach of the contract by either party. Sometimes a party’s breach of contract probably also results from their desire towards greater profit, confirming the profit making goal of the agreement. Under these circumstances a company’s lost profit should accordingly constitute general damage as per the above distinguished terms, as well as a direct loss of profit as per the above case law. The above quoted clause only exclude the recovery of special damages, which leaves general damages open for recovery. On the same basis no damages for loss of profit in respect of potential clients can be claimed, as such damages constitute indirect damages. Courts will generally uphold and give effect to the literal meaning of a clause that has been negotiated between experienced business parties, provided that the clause is clear, unambiguous and not open to more than one meaning and not drafted so widely that a party’s obligations are effectively robbed of contractual force.

In the South African matter of Cirano Investments 307 (Pty) Ltd v Execujet Aviation (Pty) Ltd decided on the Johannesburg High Court on 22 March 2014 the court held in respect of the calculation of contractual damages that:

The fundamental rule in regard to the award of damages for breach of contract is that the suffered should be put in the position he would have occupied had the contract been properly performed, so far as this can be done by payment of money and without undue hardship to the defaulting party. (Victoria Falls & Transvaal Power Co. Ltd v Consolidated Langlaagte Mines Ltd., 1915 AD 1 and Novick v Benjamin 1972 (2) SA 842 (AD).)

In DaimlerChrysler Motors Co., LLC v Manuel 362 S.W. 3d 160, 181 (Tex. App. – Fort Worth 2012 no pet.) the court held that direct damages are profits lost on the contract self-

Lost profits that represent the benefit-of-the-bargain measure of damages required to restore the plaintiff to the economic position he would have enjoyed if the contract had been performed are “direct” damages when shown to be “conclusively presumed” to have been foreseen by the parties as a usual and necessary consequence of a breach.

If parties honour their contractual agreement with each other, the service rendering party would make considerable profit from the rendering of such services to various clients. These profits are foreseeable by both parties, as is the loss of profit brought about by any breach of contract. It thus seems that this loss of profit constitute direct damages.

In conclusion: in a recent New York Court of Appeals judgement – Biotronik AG v Conor Medsystems Ireland Ltd 2014 WL 1237154 (NY 27 March 2014)  – the court held that the lost profit arising from a collateral contract with a third party constituted general (direct) damages and was not exempted by a “consequential damage” exclusion clause. In this case the court also referred to the above discussed matter of Hadley v Baxendale where the general “rule” under English law for the recovery of damages following breach of contract was set down. Recoverable damages are those either (i) arising naturally or directly from the breach of contract, or (ii) within the contemplation of the parties at the time they made the contract. Other losses are irrecoverable as too remote. The English courts have made it repeatedly clear that an exclusion of “indirect or consequential loss” does not exclude “loss of profit” that arises directly and naturally from the breach, that is loss of profits that a reasonable business person would expect to flow from such breach in the usual course of events (Saint Line v Richardsons Westgarth & Co Ltd [1940] 2 KB 49 and British Sugar Projects Limited (1997) 87 BLR 42.).

The agreement in Biotronik v Conor Medsystems contemplated the resale of stents and the contractual price was benchmarked against the resale price. On this basis, the contemplation of collateral relationships was found to be the very essence of the contract. The court held that this meant that lost profits were the “direct and probable result of a breach and thus constituted general damage”. As general damage, the losses could be claimed by Biotronik because they were not excluded by the exemption clause.

Considering that the above is based on English and American law which only have persuasive power in South African courts, the current position in South African law still is that loss of profits, revenue and business are special damages and not general damages and therefore can only be recovered if the test in Lavery and Co. Ltd v Jungheinrich (discussed above) is met. In addition, most contracts have an exclusion for consequential, indirect, special or incidental damage, whether foreseeable or unforeseeable, etc. The language in these exclusion clauses is deliberately tailored to cast its net wide and leads credence to the interpretation that loss of profits is excluded.

But the recent global developments discussed above, beg us to rethink consequential damages and a party’s ability to institute a claim for it.

By Marietjie Botes
marietjie@dyason.co.za
Twitter: @marietj72675939

Labour Court Hands Down R1 Million Fine For Contempt Of Court

In the case of Betafence South Africa (Pty) Ltd v NUMSA & Others 2016 the employees of Betafence embarked on a strike without issuing a strike notice. Betafence immediately approached the Labour Court on an urgent basis to interdict the strike. Before the application could be heard, Betafence and the representing Union, NUMSA agreed on the terms of a Court order which suspended the strike with immediate effect and time limits were agreed upon for both parties to file affidavits in the Labour Court application.

In complete disregard of the above the employees proceeded with their strike and Betafence approached the Labour Court to have NUMSA and the striking employees held in contempt of the above court order.

Legal and factual issues

The Betafence’s argument for the contempt order was that the strike embarked upon by the employees was unprotected resulting from their failure to comply with the provisions of section 64(1)(b) of the Labour Relations Act. Furthermore, that the provisions of section 65(3)(a)(i) of the Labour Relations Act precluded a party from embarking on strike action where they are bound by collective agreement which regulates the issues in dispute.

The right to strike entrenched in section 23(2)(c) became limited by virtue of the provisions of section 65 of the Labour Relations Act. Based on the settlement agreement concluded, with time limits stipulated, which was made an order of court, nothing contained therein precluded the striking employees from exercising their rights in terms of other various forums in accordance with the Bargaining Council’s Dispute Resolution Policy.

Contempt of court

The Labour Court said that the pre-requisites for making any contempt of court ruling are that there must have been a court order and the court order must have been properly served on the parties bound by it and that there must have been non-compliance with the court order.

One of the terms of the order in the case under discussion was to suspend the strike in respect of which the employees did not comply with. It was conceded by Betafence that NUMSA attempted several times to have the employees comply with the court order but to no avail. The court referred to North West Star (Pty) LTD (Under Judicial Management) v Serobatsre and another in which the court clearly stipulated that a person cannot say “I don’t like this court order; it is wrong; therefore I will not comply with it.”

Furthermore, the court expressed disapproval of the above conduct and stated that:

         An observation that needs to be made in this Court is that employees, especially in the face of a strike interdict, routinely disregard the orders of this court for no reason other than that they simply do not like them. This contemptuous approach towards orders of this court is in some or most instances, aggravated and/or encouraged by Unions, their officials and/or shop stewards. In some instances, as in this case, employees refuse to even heed the advice of their union representatives and leaders. In the latter instance, and where unions even confirm in papers before the court that employees have indeed refused to heed court orders, the invariable conclusion to be reached is that the non-compliance by the employees was indeed both wilful and mala fide.”

The employees expressed how frustrated they were by the conduct of Betafence for not finding a resolution to the issues at hand, justifying their actions and of being in contempt of the court order. The court found this t be no excuse and held that “no amount of frustration with the employer’s alleged conduct can mitigate this level of contempt towards court order”.

The Court placed great emphasis on the effect that non-compliance with court orders has on the Rule of Law and held that:

This level of contempt has reached a point where if unchecked, the rule of law will become meaningless. In the end, anarchy and mayhem, which normally characterised most industrial actions we have witnessed, will become the new normal. This cannot bode well for our constitutional democracy, and only a stern approach by the courts can stop this slippery slope.

Notwithstanding the above, the employees were interdicted from engaging in any unlawful or violent action. Despite the criminal case having been opened regarding their behaviour, the employees filed affidavit denying having engaged in violent protests.

Order of the court

The court held that they were satisfied that Betafence had established the requirements for the final relief it sought.

The employees did not follow the proper procedures by embarking on a strike in terms of the Labour Relations Act. The strike remained unprotected in terms of section 65 read together with section 64 of the LRA. Their Constitutional Right to strike is limited by virtue of non-compliance with section 64 of Labour Relations Act.

Therefore, the Court found the employees in contempt of the court order which warranted, in the Court’s view, a heavy penalty and consequently the employees were fined R1 000 000-00 (One Million Rand) which was suspended for a period of 24 months provided they were not found in contempt of the final Order made by the Court.

By Avela Makunga
avela@dyason.co.za