Planned business laws for South Africa will give government ‘sweeping powers’ over contracts: analysts

Analysts have raised concerns around the National Small Enterprise Amendment Bill and the potentially harmful effect it could have on businesses in South Africa.

The draft bill was published for public comment on 11 December and seeks to change the way government deals with the impact of legislation on small businesses.

It will also regulate relations between small and other enterprises, and to introduce a new dispute-resolution process including the concept of “unfairness” in contractual dealings.

This will be done through the introduction of a new Small Enterprise Ombudsman Service which will act as a support function to the minister.

In an analysis of the bill, the Free Market Foundation pointed to concerns around this Ombudsman Service and the powers it will have.

The bill states that the minister may, on the Ombudsman’s recommendation, prohibit certain practices in relation to small enterprises as being unfair, including the transfer of commercial risk to the weaker party.

The FMF said that abstract values such as “fairness” cannot constitute substantive rules for tribunals to use to intervene in contracts.

“A notion that contracts need not be enforced if they offend against fairness would give rise to legal and commercial uncertainty and undermine the Rule of Law.

“If the parties have agreed contractual terms, the law should not be used to give relief against unfair terms,” it said.

Gary Moore, senior researcher at the Free Market Foundation said that the change is particularly problematic as effectively any contract could be challenged going forward.

“Every contract, no matter how carefully negotiated, would be open to subsequent challenge on the ground that some of its terms were unfair, with inestimable damage to the conduct of business, personal trust and respect for law.

“Imposing these notions of fairness would have the unintended consequence of deterring bigger enterprises from dealing with small ones, the opposite of government policy,” he said.

Moore added that there are already common-law rules applicable in cases of allegedly unequal bargaining power – including interpreting ambiguous contracts as lightly as possible, and rules about duress, undue influence and public policy.

Sweeping powers

The Small Business Institute (SBI) has raised similar concerns, stating that the planned changes will provide sweeping powers for both the minister and a proposed ombud, potentially encroaching on, and overriding, already established civil and contract law in South Africa.

“Defining arbitrarily what constitutes an ‘unfair trading practice’ and granting powers for an ombud to intervene in ‘contractual arrangements or other legal relationships’ between ‘small enterprises’ and ‘any other party’ could well lead to indiscriminate intervention and the potential for ‘ombudpreneurs’ who would not be prevented under the amendments from vexatious or frivolous claims,” said SBI chief executive John Dludlu.

He added that the Amendment Bill would contribute excessively to the ‘already eye-watering amount of red tape’ confronting micro, small, or medium enterprises (SMMEs) and is unlikely to promote the prompt payment of invoices.

Without a regulatory impact assessment, which is in the power of the minister to exercise and indeed require of her fellow cabinet ministers, this is another example of policy on the hoof, said Dludlu.

He said that other potential issues identified in the bill include the fact that there are already a number of ombuds are already available to small business owners, and a lack of specificity around what constitutes a ‘late payment’.


Read: Basic income grant and removal of work experience requirements proposed for people under 35 in South Africa

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Planned business laws for South Africa will give government ‘sweeping powers’ over contracts: analysts