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BASIC PRINCIPLES OF CONTRACTS A. 1.

INTRODUCTION A binding legal agreement, with legal consequences, can either be concluded verbally or recorded in writing. 2. Certain agreements however (such as those dealing with the transfer of immovable property), required by legislation to be reduced to writing. 3. The disadvantage with the verbal agreement is that there is often uncertainty as what the parties in fact agreed, or meant to agree. Employees must however be cautious, in that certain of their conduct may be perceived as resulting in a valid and legally binding agreement, the effects of which are often difficult to undo. 4. For a valid agreement to occur, one contracting party must make an offer to the other, which the other party then accepts. The offer is only capable of being accepted, if the party making the offer in fact had the intention to conclude an agreement. This intention can be ascertained either from the wording used by the offeror, or by his conduct. 5. When an offer is accepted, a binding commercial agreement comes into being. If the

acceptance is however conditional, (such as where the statement is made I do not agree to pay you R 100.00, but rather would be prepared to pay you R 80.00), then such constitutes a counter-offer which the initial offeror is either capable of accepting, or rejecting. If the counter-offer is accepted, a valid and binding agreement comes into existence based on the counter-offer as accepted. 6. Naturally, both the offeror and the accepting party must have the necessary authority to conclude a contract on behalf of their principles. Thus, and for example, the Kumba Framework Authority Policy Guideline sets in place certain authority levels, which identify who in the organization may conclude binding agreements on behalf of Kumba Iron Ore or Sishen Iron Ore Company. The fact that the authority level has however been exceeded is not necessarily the end of the matter. If the person, who acts on behalf of the principle, represents to the other contracting party that he does in fact have such authority, the Courts may accept such deemed authority for purposes of concluding an agreement. Employees must thus be very cautious to determine their own authority levels upfront, before making any representations to any third parties. 7. Certain agreements come into operation even if there has not been express acceptance. This relates to the so-called ticket cases. The most well known of such situations is the exclusion of liability frequently found at the entrance to the mines, or parking lots. In these

cases, notices are generally issued that state that a person indemnifies the other party from any harm, should the party elect to either access the Mine, or park their vehicle in the parking lot. Such is deemed to be an offer to the person, which offer can either be accepted or rejected. Acceptance of the offer occurs where the person then enters the mine, or parks the vehicle in the parking lot. 8. Where the parties themselves stipulate that the agreement will be subject to the completion of certain formalities, those formalities must be met, failing which no valid agreement comes into place. Thus, and for example, where the parties expressly record that the finalisation of a valid and binding agreement is subject to the conclusion of a written agreement that is to be signed between the parties, the failure to sign an agreement means that no valid and binding agreement has come into being. 9. An agreement may also be subject to certain conditions. The two most common conditions are conditions precedent, and resolutive conditions. A condition precedent (also known as a suspensive condition) suspends the operation of the agreement until the conditions have been met. The most common suspensive conditions are those conditions that require prior Board approval, prior approval of expenditure, or the delivery of certain documentation (such as a due diligence) before the agreement comes into operation. A resolutive condition is one where the contract comes into being, but is capable of being terminated if one of the listed events occurs. The most common of these resolutive conditions, in modern commercial agreements, is the clause that stipulates that the contract will terminate if one party commits an act of insolvency, breaches of confidentiality provision and the like. Such resolutive conditions as mentioned above can also take the form of entitling a party to terminate the agreement. Termination of the agreement is however generally associated with notice periods and the ability of the defaulting party to remedy, whereas resolutive conditions have the effect that the contract is terminated with immediate effect, should one of those conditions occur. 10. Where parties have concluded an agreement which is subject to conditions, it is critical for employees to monitor the fulfilment (or lack thereof) of these conditions, as a failure to do so may have significant financial impact on the Company. So, and for example, if a suspensive condition has been included in the agreement, and the Company then expends considerable capital in developing the subject matter of the agreement further, such capital may be entirely lost if the fulfilment of suspensive conditions are not properly monitored to ensure compliance. 11. In order for a valid and binding commercial agreement to come into play, there has to be certainty on, at the very least, the following;

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The mes x: this is the subject matter of the agreement, normally the item either sold, or the service to be delivered. If there is no certainty on this issue, the contract will be unenforceable;

11.2

The price: certainty on the price must be achieved. This certainty is either set out upfront, or can be subject to certain objectively quantifiable factors (e.g. linked to CPIX or other escalation figures).

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Contract terminology also frequently refers to tacit or implied terms. An implied term is a term that is nominally absent from the agreement, but is a term that any reasonable person, in the position of the contracting parties, would have immediately associated with the agreement. Trade usage is the most common of these implied terms. A tacit term is a term that is implied from the facts, generally having regard to surrounding circumstances.

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If there is a dispute as to a contractual provision, it is important to note that extraneous evidence cannot be introduced. Accordingly, and in resolving a dispute, the intention of the parties is ordinarily not considered by the Courts, and no evidence in this regard can be led. The contract is what is stated in the commercial agreement as signed between the Parties. The Court will interpret such terms in the ordinary grammatical sense, and will avoid hearing any evidence regarding the intention of the Parties. For this reasons, it is critical that precise and clear language is used, and that such language properly conveys the intention of the Parties at the time that the agreement is concluded.