Introduction
The Constitutional Court (CC) revisited its stance on the judicial enforcement of contractual terms in the Beadica 231 CC and Others v Trustees for the time being of the Oregon Trust and Others (CC) case, to clarify its position post the Barkhuizen v Napier 2007 decision.
This analysis delves into the Beadica case, shedding light on how far a court can intervene in the enforcement of contractual terms.
In the Beadica case, four parties entered into franchise agreements with the respondent, agreeing to operate a franchise business for a decade.
The agreements stipulated that franchisees must operate from an approved location leased by the Trust, with the respondent having the option to terminate the agreement if the franchisees were ejected from the approved location. The applicants, however, failed to provide written notice of their intention to renew the lease within the stipulated six-month period. Consequently, the Trust demanded their eviction. The applicants challenged the renewal clause, arguing that strict enforcement would contravene public policy.
Barkuizen Judgment
Referring to the Barkhuizen case, Theron J outlined a two-stage inquiry in paragraph 37 of the judgment. The first stage involves assessing the reasonableness of the clause itself, while the second stage involves determining, in specific circumstances, whether enforcing the clause would be against public policy. The onus lies on the party seeking non-enforcement to demonstrate why it would be unfair and unreasonable. Theron J also addressed the divergence in approaches between the Supreme Court of Appeal (SCA) and the CC regarding judicial control of contracts.
The disagreement centred on whether abstract values of fairness and reasonableness could directly invalidate or refuse to enforce contractual terms.
Before reaching the core inquiries, the court clarified the divergence of approaches between the SCA and CC regarding the judicial control of contracts. The ‘divergence’ is said to centre on the role of abstract values of fairness and reasonableness in South African contract law and whether these values could directly invalidate or refuse to enforce contractual terms.
Theron J held that there was an agreement between the CC and the SCA that abstract values do not provide a free-standing basis on which a court may interfere in contractual relationships. Their application is governed by the rules of contract law, including the rule that a court may not enforce contractual terms where the term or its enforcement would be contrary to public policy.
Public Policy
In resolving the matter, the court assessed whether the applicants had proven that enforcing the renewal clauses would be against public policy in the specific circumstances. Theron J, at para 91, emphasized that a party seeking to avoid enforcing a contractual term must show a good reason for non-compliance. The applicants argued that enforcing the renewal clause would hinder the black economic empowerment initiative.
However, Theron J found no circumstances preventing compliance and concluded that the applicants simply neglected to adhere to the clause. Consequently, the court held that the applicants failed to demonstrate that enforcing the clause would be against public policy, leading to the dismissal of the case.
The CC had the opportunity to advance the doctrine of judicial control of contractual terms enforcement and clarify its approach post the Barkhuizen decision. In South African law, such control has primarily been exercised through the lens of public policy.
The key principle is that contracts freely entered into must be honoured, aligning with the pacta servanda sunt principle, which the court noted in para 92 upholds the constitutional values of freedom and dignity. However, in the new constitutional framework, pacta servanda sunt is not the sole or most important principle in judicial control of contracts. Public policy now encompasses a broader range of constitutional values, requiring a careful balancing exercise when determining if enforcing contractual terms would contravene public policy in specific circumstances (see para 87).
Conclusion
While parties have the freedom to determine contract terms, the court retains the authority to invalidate terms that, when incorporated or enforced, go against public policy. Contact an expert at SchoemanLaw Inc. to assist you today.
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