Additional Clauses for Sole Agency Agreement Providing as to Contracts Concluded on behalf of the Principal and also as to Purchase by Agent on Own Behalf
The law of agency in South Africa is predominantly regulated by
common law, and the Consumer Protection Act, 2008 (“CPA”). There
are further requirements imposed by legislation in South Africa which
relate to specific transactions and in particular those concluded by
agents.
Common law still remains the primary regulator of the law of agency
in South Africa.
The Common Law
The common law recognizes two “types” of relationships between
agent and principal, namely, a relationship of representation and a
relationship of mandate.
In a relationship of representation, the agent is entitled to perform
juristic acts on behalf of the principal, and, as such, acts as the
representative of the principal. In order to do this, the agent requires
authority to so act, which may arise from:
(a) a unilateral grant of authority from the principal (express, tacit
or implied); or
(b) by operation of law.
The extent to which the agent may incur legal obligations on behalf of
the principal depends on the extent of authority granted.
A relationship of mandate involves a bilateral contract in which one
person (the mandatory), undertakes to perform some lawful task on
behalf of another (the mandator). The mandatory may be
remunerated, and the obligation to remunerate depends on the
contract of mandate between the mandator and mandatory. As a
general proposition, the mandatory is not the mandator’s
representative and therefore does not have the authority to incur
legal obligations on behalf of the mandator.
The role of the mandatory is thus limited to bringing about an
opportunity for the principal to enter into, vary, or terminate a contract
or a contractual obligation but the mandatory does not do so on the
principal’s behalf.
Modern commercial transactions are predominantly concluded
through representation agency relationships, as such the law detailed
below refers to the law governing such relationships unless the
context indicates otherwise.
Any agency relationship must not contemplate conduct by the agent
that is against the law, immoral or contrary to public policy. To the
extent that an agreement contemplates such conduct, it will be void.
The common law distinguishes between general and special agents.
A general agent is an agent who is authorized to act for a principal in
all transactions of a particular nature, or in all matters concerning a
particular business, or in all transactions that the principal could
perform personally. On the other hand, a special agent is an agent
who is engaged by a principal for a particular transaction or a
specific, limited purpose. Once this purpose has been achieved, the
agent’s authority will automatically terminate.
The CPA
The definition of “franchise agreement” under the CPA is broad
enough in scope and includes the type of transactions and
contractual terms which are sometimes included in agency and
distribution agreements.
Thus an agency agreement may, if certain restrictive provisions are
imposed on an agent, constitute a “franchise agreement” as
contemplated by the CPA. As such, provisions which allow the
principal/supplier to dictate and impose inter alia business conditions
and reporting obligations on an agent/distributor, could find
themselves in a deemed franchise relationship and in turn attract
additional obligations to their agents/suppliers in turn.
Formal Requirements
Certain additional requirements are required for specific transactions
under the applicable governing legislation. In terms of the Alienation
of Land Act, 1981 in order to alienate land via an agent, the agent
must have authority in writing. Furthermore, the actual alienation of
land must be contained in a deed of alienation signed by the parties
thereto (or the agents with written authority). If either of the above
requirements are not met, the purported alienation is void.
The General Law Amendment Act, 1956 which governs suretyship
agreements, holds that no suretyship agreement will be valid unless it
is concluded in writing. However, the authority of the agent to
conclude such an agreement need not be in writing.
If an agreement does not fall within the aforementioned categories,
the principal may confer authority to the agent either orally or in
writing and the agent may conclude any agreement, within the
authority conferred, either orally or in writing.
However, it is advised, for any transaction, that both the conferring of
authority and the agreement be reduced to writing in a formal
agreement. This allows for the principal to clearly define the extent of
the agent’s powers as well as the terms of the appointment in a
manner which substantially reduces the risk of a potential dispute.
Individual/Corporate Entity
An agent may be either an individual or legal entity. In light of the
broad definition of an “employee” under the South African Labour
Relations Act, it is important that the formal agreement which gives
rise to the agency relationship plainly illustrates that the relationship
between the parties is one of principal/agent and not
employer/employee.
Exclusive/Non-Exclusive
There are no restrictions on the ability of a principal to appoint an
agent on an exclusive or non-exclusive basis. If this issue is not dealt
with in the agency agreement, the agent will be deemed non-
exclusive.
Given that the essence of an agency agreement is the conferral of
the principal’s peculiar powers onto an agent, the principal is entitled
to determine the extent and exclusivity of the powers so conferred.
Duties of an Agent
The agent has a number of obligations towards the principal when
performing under the agreement.
The agent must ensure that they personally carry out the terms of
their agreement with the principal. The agent is not entitled to
delegate the task to another without the principal’s consent. Any
permitted delegation will not give rise to privity of contract between
the principal and the sub-agent, although the sub-agent will still owe
fiduciary duties to both the principal and agent separately.
Conferral of Authority
Authority can be conferred from the principal to the agent in three
ways:
(a) expressly granted;
(b) tacitly granted; or
(c) implied by law.
Authority can be expressly granted orally or in writing, except where
legislation specifically says that authority must be granted in writing.
Authority may also be tacitly granted if a grant of authority can be
inferred from the principal’s words, conduct and the surrounding
circumstances.
Termination
Formal Requirements:
The authority of an agent may be terminated in the following ways:
(a) the source of the authority ceases to exist;
(b) performance;
(c) effluxion of time;
(d) principal’s death, insanity, insolvency;’
(e) the agent’s death or insanity;
(f) the special relationship granting authority ends;
(g) if authority derives from a contract, via the ordinary rules of
contract governing termination; and
(h) through revocation or renunciation.
The relationship of principal and agent terminates when both parties
have fulfilled all their obligations, either entirely or substantially.
The Common Law
The South African common law places great emphasis on privity of
contract, affording the parties the right to contract on their own terms,
within the confines of public policy. To this end, a valid and binding
contract is created when agreement is reached, orally or in writing, on
the basic terms of the agreement at hand. The common law does not
provide for distribution agreements specifically. Instead, the general
principles of contract apply to distribution agreement .
The Consumer Protection Act
The CPA seeks to provide protection to “consumers” from abuse by
“suppliers.”
As a general point of departure, the CPA imposes certain formalities
in respect of all transactions that qualify as being subject to the CPA.
This includes that all agreements must be in writing and must to be
written in plain and understandable language. In the context of
distribution agreements, plain and understandable language would
be that which is understood by people within the industry, of average
literacy skills and minimal experience.
The CPA further prohibits unfair, unjust and unreasonable terms, and
prevents the supplier from requiring a consumer, or other person to
whom goods or services are supplied at the direction of the
consumer;
(a) to waive any rights;
(b) assume any obligation; or
(c) waive any liability of the supplier, on terms that are unfair,
unreasonable or unjust.
Furthermore, such terms may not be imposed as a condition of
entering into a contract. As such, any terms in an agreement,
including those terms relating to price and definition of the main
subject which are in breach of the above terms, would be subject to
legal challenge by the relevant consumer.
In addition, there are four types of clauses which must be brought
to the attention of the consumer in a conspicuous manner. These
include:
(a) exemption clauses;
(b) assumption of risk clauses;
(c) indemnity clauses; and
(d) acknowledgements of fact clauses.
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