De Lange v Absa Makelaars (Edms) Beperk

Johan de Lange was employed by Absa Makelaars (ABSA) as a broker from 1995 to 2001. The parties concluded a written contract of employment effective from 1 September 2000. Clause 16.6 of the contract stipulated that the company was not liable for loss or damage suffered as a result of intentional or negligent incorrect or incomplete advice given by the employee, and if the company was held liable and paid such damages, it would have a right of recovery against the employee if the company was of the opinion that it was legally liable. During his employment, De Lange gave financial and investment advice to various clients, including Mr Loubser (claim 4) and Mr and Mrs Honiball (claim 10). Both clients later claimed they suffered losses due to De Lange's allegedly incorrect advice. ABSA conducted investigations through its employees (Van Reenen for Loubser's claim and Joubert for the Honiballs' claim) and decided to compensate the clients. Importantly, ABSA did not contact De Lange or afford him an opportunity to give his version of events before making these decisions and paying out R81,208.55 to Loubser and R188,809.77 to the Honiballs. ABSA then sued De Lange to recover these amounts under clause 16.6. The parties agreed that claims 4 and 10 would serve as test cases. The high court found in favour of ABSA, and De Lange appealed.

• Whether clause 16.6 of the employment contract contained a tacit term requiring ABSA to afford De Lange a hearing before forming an opinion that it was legally liable to clients
• Whether the audi alteram partem principle was incorporated into the contract through a tacit term
• The proper test for importing tacit terms into a contract
• Whether ABSA's discretion under clause 16.6 to form an opinion that it was 'legally liable' had to be exercised arbitrium boni viri (with the judgment of a fair-minded person)
• Whether the tacit term, if it existed, applied only when the broker was still employed by ABSA

1. The appeal succeeded with costs. 2. The order of the high court was set aside and replaced with: 'Claims 4 to 15 are dismissed with costs.'

A tacit term will be imported into a contract where, applying the officious bystander test, the court is satisfied that the parties would necessarily have agreed upon such a term if it had been suggested to them at the time of contracting. The test requires consideration of: (1) the express terms of the contract; (2) the surrounding circumstances under which it was entered into; and (3) the subsequent conduct of the parties. Where a contract grants one party the power to form an opinion that creates liability for another party, and that power could result in potentially unlimited liability, a tacit term requiring procedural fairness (including affording the affected party a hearing before the decision is made) will be imported to ensure the contract functions efficiently and fairly. Specifically in this case, clause 16.6 of the employment contract contained a tacit term requiring ABSA to: (1) take into account all relevant facts, including the circumstances prevailing when the advice was given and the broker's version of events; and (2) respect the audi alteram partem principle by giving the broker the opportunity to present his side before forming an opinion that ABSA was legally liable to a client. This tacit term is not limited to situations where the broker remains employed by the company, but applies equally after termination of employment.

The court made several observations without deciding them conclusively: 1. The court noted the distinction in South African law between arbitri (arbitrators performing quasi-judicial functions) and arbitratores (valuers or estimators), but found this classification exercise not determinative, stating that even valuers may in given circumstances have to hear both sides by virtue of a tacit term. 2. The court acknowledged that the high court's approach - that ABSA's discretion had to be exercised arbitrium boni viri (with the judgment of a fair-minded person) and that courts would not interfere unless the decision was unreasonable, improper, irregular or incorrect causing obvious unfairness - but did not need to fully explore this framework given its finding on the tacit term. 3. The court noted Van Schalkwyk's concern (in his email to Le Roux) that a court considering ABSA's claim against De Lange would likely take into account ABSA's failure to obtain the broker's explanation and 'possibly hold this fact against' ABSA, and that the broker might provide a good explanation meaning ABSA paid the client unnecessarily. 4. The court observed that typical parties to a commercial agreement are assumed to be 'men of affairs, contracting on an equal and honest footing, without hidden motives and reservations' when applying the officious bystander test.

This case is significant for South African contract law, particularly in the employment context, as it: 1. Affirms and applies the 'officious bystander test' for importing tacit terms into contracts, requiring that parties would necessarily have agreed to the term if suggested at the time of contracting. 2. Establishes that principles of natural justice (specifically audi alteram partem) can be incorporated into commercial and employment contracts through tacit terms where fairness and efficient operation of the contract require it. 3. Demonstrates that courts will impart tacit terms to prevent potentially unfair exercise of contractual powers, particularly where one party can unilaterally create liability for another. 4. Clarifies that the absence of express procedural safeguards in a contract does not preclude the court from finding such safeguards exist as tacit terms based on the parties' presumed intentions and the need for fair dealing. 5. Provides guidance on when courts will look beyond express contract terms to consider surrounding circumstances, the parties' subsequent conduct, and internal company documentation to determine contractual intent. 6. Reinforces the principle that even after termination of employment, employers must act fairly when seeking to enforce post-employment contractual obligations.