A contract is essentially an agreement entered into by two or more persons with the intention of creating a legal obligation. The legal framework surrounding contractual law enables persons to transact business and exchange resources, should the law uphold their agreement and if it is required, enforce them.
For an agreement to be recognized as a valid and legally binding contract, it must meet the following requirements:
- Consensus: the parties must have intent in their minds which matches all material aspects of their agreement;
- Capacity: the parties must have the necessary legal capacity to contract;
- Formalities: wherein exceptional cases, a requirement exists, that the agreement should be in a specific format which is in writing and signed, these formalities must be respected.
- Legality: the agreement must be lawful, which means it cannot be prohibited by law or common law;
- Possibility: the undertaken commitments must be performed when the agreement is entered, and
- Security: the agreement must have definite or determinate content so that the commitments can be enforced.
In March 2021, Eskom elected to cancel its five-year contract with Econ oil. The significance behind the matter is that Econ Oil is South Africa’s first black female-owned oil supplier. The reason for Eskom’s cancellation was purely related to the fact that there were questionable issues surrounding the contract, one such issue being the inflated prices being charged to Eskom as opposed to the lower prices of alternative companies.
In March 2020, Econ Oil referred the dispute to arbitration where the adjudicator found it in Econ’s favour. Eskom was ordered to pay a sum of ZAR 21 million for damages due to the unfulfillment of its valid and binding contract with Econ. Eskom, however, opposed the adjudication process, stating it was irregular and instituted an application requesting the court to suspend the dispute resolution process. The court, with careful evaluation, granted the interdict in favour of Eskom.
Although the adjudicator ruled in favour of Econ Oil awarding the sum of ZAR 21 million, Econ Oil cannot enforce the adjudicator’s award pending the outcome of the court hearing on the merits of the matter in its entirety. Surely once the provisions of the contract are subject to the scrutiny of the Court, certain of the alleged irregular provisions therein will start to present themselves.
Should you need any legal assistance regarding interpreting a contract and/or advice with respect to the same, do not hesitate to contact us at BBP Law Inc.