Out-Law News 2 min. read

South African ruling shows how oral agreements can be binding

The governing party in South Africa has been ordered to pay around $6 million to a supplier of promotional banners during the 2019 national election campaign.

The African National Congress (ANC) had argued that it was not liable for invoices concerning the manufacture and sale, and installation and removal, of the banners. However, the South Gauteng High Court in Johannesburg ruled that the ANC was bound by an oral agreement with Ezulweni Investments in relation to those services.

Johannesburg-based Muhammed Somrey and Nombasa Mazwai of Pinsent Masons said the ruling confirms how oral agreements can be binding based on doctrines in South African law.

The issue reached the South African courts for a ruling after the ANC failed to pay invoices it had been sent by Ezulweni in relation to the banners supplied. The ANC’s case was based on its belief that the agreements reached with Ezulweni were not binding on it because they had been agreed by individuals who were not authorised to conclude agreements on behalf of the ANC. The ANC argued that a contract would only have been concluded with it once there was approval by the party’s treasurer-general and after a purchase order had been produced.

The ANC took issue with a prior finding of a judge of the South Gauteng High Court who had determined that the ANC and Ezulweni had entered into a valid oral agreement. A full bench of three judges heard the ANC’s appeal before the court but rejected its arguments.

However, the appeal court said that even if it was wrong about the validity of the oral agreement, it would still have held that the agreement between ANC and Ezulweni was valid on the basis of the principles of estoppel and ostensible authority.

Somrey said: “The principles of estoppel and ostensible authority are seminal principles in the law of contract and law of agency because they bind a party, who acted in a representative capacity, to a contract if their own conduct, by action or omission, justified the other party’s belief that authority existed.”

In this case, the court considered it relevant that there was no communication from the ANC to Ezulweni that the individuals who had engaged with Ezulweni did not have the authority to bind the ANC. It also found that the conduct of the ANC had indicated that it had accepted the contract as binding, which it said entitled Ezulweni to hold the ANC to the representation of authority created.

Somrey said: “The High Court decision is an important reminder that the application of the principles of estoppel and ostensible authority are not only limited to written agreements but also extend to oral agreements thus, a party to an oral agreement can be estopped from escaping the legal obligations that flow from the agreement.”

“It also highlights the need to communicate clearly whilst negotiating agreements and to ensure clarity on what is being agreed, and to act consistently and in accordance with that agreement. The court, in this case, was unwilling to accept arguments on the non-existence of an oral agreement where there were representations and facts to the contrary, and where the conduct of the party attempting to resile from the agreement was inconsistent with those arguments,” he said.

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