Proposed enterprise legal guidelines for South Africa will give the federal government intensive powers over contracts: analysts

Analysts have raised concerns about the National Small Enterprise Amendment Bill and its potentially harmful effects on businesses in South Africa.

The bill was released for public comment on December 11th and aims to change the way the government deals with the impact of the legislation on small businesses.

It will also regulate relationships between small and non-business enterprises and introduce a new dispute settlement procedure that incorporates the concept of “injustice” in contractual dealings.

This will be done through the introduction of a new small business ombudsman service, which will serve as a support function to the minister.

In an analysis of the bill, the Free Market Foundation highlighted concerns about this ombudsman service and the powers it will have.

The bill states that, on the recommendation of the Ombudsman, the minister can prohibit certain practices relating to small businesses as unfair, including transferring trade risk to the weaker party.

The FMF said that abstract values ​​like “fairness” cannot constitute material rules for tribunals to intervene in contracts.

“The idea that contracts do not need to be enforced when they violate fairness would create legal and economic uncertainty and undermine the rule of law.

“If the parties have agreed terms and conditions, the law should not be used to crack down on unfair terms,” ​​it said.

Gary Moore, senior researcher at the Free Market Foundation, said the change was particularly problematic because effectively any contract could be challenged in the future.

“Any contract, no matter how carefully negotiated, can later be challenged as some of its terms are unfair and immeasurably damaging to business management, personal trust and compliance with the law.

“Imposing these principles of fairness would have the unintended consequence of discouraging larger companies from dealing with small businesses, contrary to government policy,” he said.

Moore added that in cases of allegedly unequal bargaining power, common law rules already apply – including the easiest possible interpretation of ambiguous contracts, as well as rules on coercion, improper influence and public order.

Sweeping forces

The Small Business Institute (SBI) has raised similar concerns, stating that the proposed changes will give both the Minister and a proposed Ombud full powers that may encroach on and override civil and contract law already established in South Africa.

“The arbitrary definition of ‘unfair commercial practice’ and the granting of powers for an ombud to intervene in ‘contractual arrangements or other legal relationships’ between’ small businesses’ and ‘any other party’ could well lead to indiscriminate interference and the potential of ‘ . Ombudpreneurs who would not be deterred from making angry or frivolous assertions by the changes, ”said John Dludlu, CEO of SBI.

He added that the amending law would unduly contribute to the “already overwhelming red tape” faced by micro, small and medium-sized enterprises (SMEs) and that it is unlikely to encourage immediate payment of bills.

With no regulatory impact assessment that the minister can do and actually ask her cabinet counterparts to do, this is another example of politics on the hoof, Dludlu said.

He said that other potential problems identified in the bill are the fact that small business owners already have a number of ombuds at their disposal and that there is a lack of specificity on what constitutes “late payment”.

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