Pacta Sunt Servanda: A Cornerstone Of Contractual Certainty In South African Law

Introduction

The principle of pacta sunt servanda, Latin for “agreements must be kept”, is a foundational tenet of contract law, embodying the idea that contracts, freely and voluntarily entered into, must be honoured and enforced. In the dynamic realm of South African jurisprudence, this principle finds constant reaffirmation and scrutiny, especially in complex commercial contexts. This article explores recent case law that illustrates the persistent relevance and nuanced application of pacta sunt servanda, particularly where the sanctity of contract comes into tension with fairness, public policy, and evolving standards of legal interpretation.

Contracts permeate daily life, from retail transactions to intricate commercial agreements. Yet, despite their ubiquity and significance, contractual terms, particularly standard terms and conditions (STCs), are often glossed over by signatories. This carelessness, whether born of ignorance or misplaced trust, has real legal consequences. The adage pacta sunt servanda reminds us that courts will generally hold parties to the bargains they strike, irrespective of whether they have read or fully understood the small print.

This article interrogates the operation of this doctrine in recent South African case law, focusing on Schenker South Africa (Pty) Ltd v Fujitsu Services Core (Pty) Ltd and Ndebele and Another v Industrial Development Corporation of South Africa and Others, each of which underscores different dimensions of contractual enforcement and the legal ramifications of agreed terms.

The Principle of Pacta Sunt Servanda

The principle of pacta sunt servanda is well established in South African contract law. As the Constitutional Court noted in Barkhuizen v Napier 2007 (5) SA 323 (CC), contractual autonomy and certainty are essential to a functioning legal and economic order. The courts must, as a general rule, enforce lawful agreements unless considerations of public policy, now informed by constitutional values, dictate otherwise. Thus, while contracts remain the product of private negotiation, their enforcement is a matter of public law.

Schenker South Africa (Pty) Ltd v Fujitsu Services Core (Pty) Ltd

This case provides a compelling example of how exemption clauses in a contract can override delictual liability. Schenker, a logistics company, had transported valuable goods on behalf of Fujitsu, which were subsequently stolen by a Schenker employee from the SAA cargo warehouse at OR Tambo International Airport. Fujitsu sued in delict, seeking to hold Schenker vicariously liable for its employee’s theft.

At first instance, the High Court sided with Fujitsu, reasoning that the theft was not committed in the execution of the contract and thus fell outside the protective scope of the STCs. However, on appeal, the Supreme Court of Appeal (SCA) reversed this decision. It held that the contractual provisions, particularly clauses 17, 40, and 41, expressly excluded liability for any claim of whatsoever nature, whether in contract or delict, arising out of non-delivery or misdelivery of goods.

The SCA’s interpretation was guided by the plain and expansive language of the exemption clauses, noting:

“The phrases ‘of whatsoever nature’ and ‘howsoever arising’… are sufficiently wide… to draw into the protective scope of the exemption the deliberate and intentional acts of the employees of Schenker.”

The judgment reinforces the principle that contractual terms, once agreed upon, are binding and will be enforced according to their plain meaning—even when the result may seem harsh. Importantly, the case illustrates the dangers of underestimating or overlooking standard contractual provisions, particularly in high-value commercial transactions.

Ndebele and Another v Industrial Development Corporation of South Africa and Others

In Ndebele, the High Court was confronted with a challenge to the enforcement of a call option clause in a shareholder’s agreement. The IDC had advanced a R57 million loan to Odiweb (Pty) Ltd. Upon default, the IDC exercised its contractual right to acquire a majority share in Odiweb. The applicants, Ndebele and Emvelo (Pty) Ltd (Odiweb’s holding company), sought to invalidate this action, contesting the enforceability of the call option.

The Court declined to interfere with the contractual provisions, choosing instead to uphold the sanctity of the agreement. Strydom J explicitly referenced pacta sunt servanda, noting that it remained the “holy cow” of contract law, and declined to “slaughter” it, thereby reinforcing judicial deference to clear contractual arrangements. The judgment affirms that unless a contract is illegal or contrary to public policy, it will be enforced strictly according to its terms.

Implications and Observations

These cases reflect a consistent judicial commitment to contractual certainty. However, they also raise critical questions about fairness and the scope of contractual limitations. Notably:

• Delictual Claims and Contractual Limitations: The Schenker case confirms that parties cannot sidestep exclusion clauses by recharacterising claims as delictual. Where an agreement covers both contractual and delictual liability, courts will honour such stipulations, provided they are clear and unambiguous.
• Fairness and Public Policy: In Ndebele, the Court acknowledged the harsh consequences of the agreement but ultimately upheld its enforceability, highlighting the judiciary’s reluctance to interfere absent compelling public policy considerations.
• Due Diligence: Both judgments emphasise the importance of reading and understanding contract terms. This applies equally to laypersons and sophisticated parties, such as corporations with legal departments.

Conclusion

The maxim pacta sunt servanda remains a linchpin of South African contract law. It promotes legal certainty and respects the autonomy of contracting parties. However, its application is not without challenges, especially where the enforcement of a contract leads to outcomes that appear unjust or inequitable. The courts continue to tread carefully, balancing the need for certainty with the imperatives of fairness and constitutional values.

Nonetheless, the current state of the law demands vigilance and informed decision-making by those entering into contracts. In a legal environment where the fine print may determine the fate of multimillion-rand disputes, the importance of expert legal advice cannot be overstated. Before signing on the dotted line, parties should seek professional review and counsel, because in law, as in life, agreements must be kept.

For further assistance, consult an attorney at SchoemanLaw.