Essence

Ubuntu complications: Importing unintended terms into a lease agreement in the absence of any deadlock-breaking mechanism is fraught with problems.  The parties consciously bound themselves to a lease agreement providing that each party could terminate it on one month’s notice in the absence of agreement on the renewal terms.  The court found it difficult to conceive how, in a purely business transaction, it can rely on ‘ubuntu’ to import an unintended term to deny the other party the right to rely on the contractual terms to terminate it.

Judgment

Roazar CC v Falls Supermarket CC (232/2017) [2017] ZASCA 166 (29 November 2017).  Allowed the appeal and set aside the order of Klaaren AJ in the high court.

Judges

Tshiqi JA (Majiedt JA and Plasket, Mokgohloa and Mbatha AJJA concurring)

Significance

The judgment at para [20] cites this authority with approval.

“On page 94 Lewis concludes by saying:

‘[T]he principle that agreements should be honoured is but one of the values that must be assessed in determining whether a contract does not conform to public policy. “Reasonable people”, irrespective of any philosophical or political bent, might disagree whether any particular value judgment was “correct”. But the primacy of different principles may differ in each case. There is, however, one principle that I would suggest is always paramount. The parties should know what their bargain is. That is invariably just and fair.
In my view, while there may be different understandings of what is fair or reasonable, and their importance may differ depending on the particular parties, there is little room for doubt that parties should know what their contract says. Each should be entitled to rely on it unless it offends any of the tenets of public policy, including the values embedded in the Constitution. No one can rely on a general duty to bargain in good faith. It is illusory’”.

Summary

Discussion by GilesFiles
Court summary

Contract – whether contract can be terminated without entering into negotiations – duty to negotiate in good faith – appellant not obliged to renew lease agreement – application for eviction upheld – not competent for court to import term not intended by parties simply on the basis of ubuntu.

Related legislation
Quotations from judgment
[19] A development of the common law in order to compel parties to negotiate in good faith even in circumstances where there are no deadlock-breaking mechanisms is not without complications. In Bredenkamp & others v Standard Bank of South Africa Ltd 2010 (4) SA 468 (SCA) this court found it difficult to countenance the fairness of imposing on a Bank the obligation to retain a client simply because other banks are not likely to accept that entity as a client. The appellants were unable to find a constitutional niche or other public policy consideration justifying their demand. It found that there was no ‘unjustified invasion of a right expressly or otherwise conferred by the highest law in our land’. The court said that the Bank had a contract, which was valid, and that gave it the right to cancel. It further said that the termination did not offend any identifiable constitutional value and was not otherwise contrary to any other public policy consideration. The court highlighted important considerations that militate against tampering with the notion of sanctity of a contract between two parties. It said in para 65:

‘I do not believe it is for a court to assess whether or not a bona fide business decision, which is on the face of it reasonable and rational, was objectively ‘wrong’ where in the circumstances no public policy considerations are involved. Fairness has two sides . . .’

In para 56 it said:

‘The appellants’ argument is in many respects circuitous, self-destructive and, in any event, without merit. They accept that in terms of the valid agreement the bank was entitled to terminate without any cause, but they ask for an order that the bank may only terminate on good cause. This would require a tacit term or the development of the common law, both of which they eschew. But, they say, in this case the Bank cannot close the account with a bona fide reason because of consequences to them that cannot be laid at the door of the bank.’

[20] Carole Lewis, a member of this court, but wearing the academic cap in ‘The uneven journey to uncertainty in contract’ (2013) 76 THRHR 80 highlights some of the fundamental difficulties that a high court would have to deal with if asked to determine whether a party has negotiated in good faith. She says on page 92:

‘What would a high court, faced with parties who cannot agree on a material term of their contract, do to determine the dispute? It cannot make a contract for them. It cannot decide what future rental should be. Can it even decide whether their bargaining power is equal, given that they may be large corporate entities? And does equality of bargaining power depend on the parties’ monetary worth or their negotiating skills or their political or business influence?’

With reference to Everfresh Lewis says:

‘How could a court develop the common law in this regard? How would it enforce a duty to negotiate in good faith and precisely what does that mean? Does a failure even to discuss future rental amount to bad faith? I think not. If a court were to order parties to agree on a term, and they could not, would they be in contempt of court? And how would one determine who, if anyone, was at fault? How could Everfresh, in this matter, even rely on the expectation of renewal of the lease where there was no basis upon which to proceed? If it means simply talking, what is the point, given that Shoprite had decided that it did not wish to renew its lease with Everfresh? And that it had commercial reasons not do so, including a necessary renovation of the premises.

Perhaps Everfresh could have shown that it had taken steps to add to the value of Shoprite’s property such that it was entitled to a claim based on unjustified enrichment. That, in my view, is probably the only avenue available to a court in assessing whether the enforcement of the right to terminate the lease is contrary to public policy, assuming that the term embraces fairness and reasonableness, the values most commonly referred to when dealing with constitutional issues in relation to contract.’

On page 94 Lewis concludes by saying:

‘[T]he principle that agreements should be honoured is but one of the values that must be assessed in determining whether a contract does not conform to public policy. “Reasonable people”, irrespective of any philosophical or political bent, might disagree whether any particular value judgment was “correct”. But the primacy of different principles may differ in each case. There is, however, one principle that I would suggest is always paramount. The parties should know what their bargain is. That is invariably just and fair.

In my view, while there may be different understandings of what is fair or reasonable, and their importance may differ depending on the particular parties, there is little room for doubt that parties should know what their contract says. Each should be entitled to rely on it unless it offends any of the tenets of public policy, including the values embedded in the Constitution. No one can rely on a general duty to bargain in good faith. It is illusory’

[21] The facts in the present matter are a clear illustration of the complications highlighted by this court in Bredenkamp and by Lewis in her article.[22] The Falls does not state how long the negotiations were required to take place and the contract is silent on this issue. It also does not state what criterion would be used to determine whether either of the parties was negotiating in good faith. What it says, however is that the negotiations to conclude renewal terms of the agreement commenced as early as 2014, but that the negotiations did not bear fruit because it refused to pay the rental due in terms of the two ancillary agreements. This version seems to suggest that the period of approximately two years was not long enough and that the fact that Roazar wished to be paid money due in terms of the two ancillary agreements must be said to show bad faith on its part. It is however not clear how the court should have determined what period of negotiations would have been fair and what criterion should have been used to measure whether Roazar was indeed negotiating in bad faith as alleged.[23] What is however clear is that the parties consciously bound themselves to a contract that provided that each party could terminate it on one month’s notice in the event that there was no agreement on the renewal terms. If the version of The Falls that the negotiations had been going on since 2014 is accepted, it must also be accepted that Roazar on the one hand persistently wished to enforce the terms of the two ancillary agreements whilst The Falls on the other, has persisted in its refusal to align itself with the two ancillary agreements. In that instance it would have to be concluded that the parties have been at loggerheads for a period of approximately two years on a material term of the contract. It is not clear, in the absence of a deadlock-breaking mechanism how much longer the impasse would have to continue before the parties would be held to have negotiated in good faith. In this case it is clear, however that the negotiations have come to an end without an agreement having been reached.