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[2019] ZASCA 29
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Trustees for the time being of Oregon Trust v BEADICA 231 CC and Others (74/2018) [2019] ZASCA 29; 2019 (4) SA 517 (SCA) (28 March 2019)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 74/2018
In
the matter between:
THE
TRUSTEES FOR THE TIME BEING OF
THE
OREGON TRUST
(IT728/1995)
FIRST APPELLANT
SALE’S
HIRE
CC
SECOND APPELLANT
and
BEADICA
231
CC
FIRST RESPONDENT
BEADICA
232
CC
SECOND RESPONDENT
BEADICA
234
CC
THIRD RESPONDENT
BEADICA
235
CC
FOURTH RESPONDENT
NATIONAL
EMPOWERMENT FUND
FIFTH RESPONDENT
Neutral
citation:
Oregon Trust v BEADICA 231 CC
(74/2018)
[2019]
ZASCA 29
(28 March 2019)
Coram:
Lewis ADP and Cachalia, Saldulker, Mbha and Schippers JJA
Heard:
20 February 2019
Delivered:
28 March 2019
Summary:
The enforcement of terms of lease agreements leading to their
termination was not contrary to public policy as being unconscionable
in the particular circumstances of the case.
ORDER
On
appeal from:
Western Cape Division of the High Court, Cape Town
(Davis J sitting as court of first instance, reported
sub nom
Beadica 231 CC & others v Trustees, Oregon Trust & another
2018 (1) SA 549
(WCC)):
(1) The appeal is upheld with the
costs of two counsel.
(2) The order of the Western Cape
Division of the High Court is set aside and replaced with:
‘
(a) The application is
dismissed with costs, including those of two counsel, to be paid by
the applicants jointly and severally.
(b)
The first applicant and all other persons occupying or holding
possession through it of 12 Marais St, Durbanville, Cape Town,
are to
be ejected from the premises within 30 calendar days of the date of
this order.
(c)
The second applicant and all other persons occupying or holding
possession through it of 33 Rosmead Avenue, Claremont, Cape
Town, are
to be ejected from the premises within 30 calendar days of the date
of this order.
(d)
The third applicant and all other persons occupying or holding
possession through it of Unit 9, Lekkerwater Road, Noordhoek,
Cape
Town are to be ejected from the premises within 30 calendar days of
the date of this order.
(e)
The fourth applicant and all other persons occupying or holding
possession through it of 3 Main Road, Hout Bay Harbour, Cape
Town,
are to be ejected from the premises within 30 calendar days of the
date of this order.
(f)
The applicants are to pay the costs of the first respondent’s
counterclaim, jointly and severally.’
JUDGMENT
Lewis
ADP (Cachalia, Saldulker, Mbha and Schippers JJA concurring)
[1]
Mr Shaun Sale ran a business that let tools and building equipment to
builders throughout Cape Town. He ran several outlets
in different
parts of the City and employed managers and other staff at all the
outlets. In due course, and as part of a black
empowerment initiative
by the National Empowerment Fund, he set up a franchising operation.
The premises from which the businesses
were run were in the main
owned by the first appellant, the Oregon Trust, Sale being one of the
three trustees of the trust. The
franchise business was owned by a
close corporation, Sale’s Hire CC (Sales Hire), the second
appellant. Sale is the only
member of Sales Hire. The respondents are
four close corporations, the members of which were formerly employees
of Sales Hire,
with whom Sales Hire entered into franchise
agreements, and Oregon Trust let premises to them in which the
franchised businesses
were run. I shall refer to the respondent close
corporations as ‘the lessees’.
[2]
The lease agreements were entered into between Oregon Trust and the
lessees in May 2011 and commenced running on 1 August 2011:
they were
for a period of five years each. The enforcement of the terms of the
leases is the issue in this appeal and I shall return
to them in
detail later. In brief, at this stage, they would have terminated on
31 July 2016. They all contained options to renew
the leases for a
further five years, on the giving of notice six months before
termination, and subject to the rental for the renewal
period being
agreed. A mechanism for the agreement of rental was set out in each
lease.
[3]
The franchise agreements were concluded in October 2011, and were to
endure for a period of ten years, anticipating, presumably,
the
renewal of the leases. Sales Hire also concluded a cooperation
agreement with the National Empowerment Fund in terms of which
it
acknowledged that the Fund would finance the franchised businesses to
formerly disadvantaged employees of Sales Hire by way
of loans to
operate the franchises. Sales Hire was appointed as the coordinator
of the funding transactions. It undertook to assist
the franchisees
with ‘back office’ functions, to train the franchisees in
the operation of the tool hiring business,
and to support them in
their operations. The franchisees were not party to this agreement
but nothing turns on this.
[4]
The options to renew the leases were not exercised by any of the
lessees by 31 January 2016. They had purported to exercise
their
options in March 2016, but not in the terms required by the lease and
two of them had made enquiries about purchasing the
leased premises
as well. Oregon Trust had not responded to any correspondence in this
regard save to say that Sale was away and
would respond on his
return. He did not do so. The leases terminated through the effluxion
of time on 31 July 2016. Unsurprisingly
Oregon Trust, through its
attorneys, demanded that the lessees vacate the premises before 1
August 2016, but made its demands only
very late in July.
[5]
On 1 August 2016 the four lessees brought an urgent application, in
the Western Cape Division of the High Court (the high court),
for an
order that they be permitted to remain in occupation of the leased
premises, and that the Oregon Trust be prohibited from
taking steps
to evict them, in each case pending the determination of the question
whether the options to renew the leases had
been validly exercised.
[6]
Oregon Trust brought a counter application for the eviction of the
lessees on the basis that the leases had expired through
the
effluxion of time. The application and counter application were heard
by Davis J. After a consideration of the development
of the law of
contract in South Africa in a constitutional democracy, he issued
orders to the effect that the options to renew
the leases had been
validly exercised; and that the rentals were to be determined in
accordance with the mechanism set out in the
lease agreements. He
also ordered that Oregon Trust was prohibited from evicting the
lessees until 31 July 2021 or earlier in the
event of a breach by any
of the lessees. Davis J gave leave to appeal against his orders on
the basis that his decision turned
on the development of
jurisprudence flowing from the decisions of the Constitutional Court
in
Everfresh Market (Virginia) (Pty) Ltd v Shoprite Checkers (Pty)
Ltd
[2011] ZACC 30
;
2012 (1) SA 256
(CC) and
Botha v Rich NO
[2014] ZACC 11
;
2014 (4) SA 124
(CC) and that the issue ought to
be determined by this court.
[7]
I shall deal with the terms of the agreement, and purported exercises
of the rights to renew them, before considering the judgment
of Davis
J and the conclusions that he reached.
The
terms of the lease agreements
[8]
Each lease contained a clause dealing with the renewal of the lease.
Clause 20, headed ‘Renewal Period’ stated:
‘
20.1 The Lessee shall have the
right to extend the Lease Period by a further period [for five years]
on the same terms and conditions
as set out herein, save as to
rental, provided that the Lessee gives the Lessor written notice of
its exercising of the option
of renewal at least six (6) months prior
to the termination date.
20.2 The rental during the renewal
period shall be mutually agreed to between the Lessor and the Lessee
and reduced to writing at
least three (3) months prior to the
termination date.
20.3 In the event of the Lessor and
the Lessee being unable to reach written agreement of the rental for
the renewal period . .
. then and in such event the rental for the
renewal period shall be determined on the following basis:
. . .’
The
clause then required the appointment of an expert to determine the
rental, and failing the agreement on the expert, the Chairperson
of
the Estate Agency Affairs Board in the Western Cape would be called
on to appoint an expert. The agreement embodied the usual
terms,
including that there could be no variation other than in writing
signed by both parties.
[9]
The lessees did purport to renew their leases in March 2016 (after
the date when they should have done so). The first respondent,
represented by Mr Allistair Fisher, wrote to the Oregon Trust on 29
March 2016. He said:
‘
This letter is a formal request
to propose a renewal on our already existing lease agreement with the
option to purchase.
I trust that this proposal will meet
with your favourable consideration.’
[10]
The third respondent, represented by Mr Donovan Lotter, wrote on 15
March 2016. The letter was headed “Offer to purchase
of
premises/renewal of lease of premises (Sales Hire Noordhoek)
‘
I, Mr D Lotter hereby would
respectfully like to request your consideration of a offer to
purchase premises, situated at . . .
Should you find my offer consideration
favourable, please don’t hesitate to contact me, to discuss
same.
In the interim period, Could you
kindly forward to us the draft of the renewal of premises lease for
Sales Hire Noordhoek, current
lease expiring 31 July 2016.
We will sincerely appreciate your
timeous response to this request, as it is quite urgent.’
[11]
On 3 March 2016 the accountant for the fourth respondent sent an
email to Oregon Trust saying the reason for writing was ‘that
we check thru the lease agreement and saw that the termination date
is 31 July 2016.’ He continued: ‘How soon can you
draw up
a new lease agreement for Gavin (the member of the fourth respondent)
and can you also send me a draft copy for discussion
purposes.’
[12]
Oregon Trust did not respond to any of these letters, save that an
employee wrote to one of the lessees stating that Sale was
away and
would deal with it on his return. On 22 July 2016, Oregon Trust’s
attorneys wrote to Fisher of the first respondent
stating that it had
not complied with clause 20 of the lease agreement in that it had not
given notice of its intention to renew
it on six months before its
termination date. They notified Fisher ‘to vacate the property
on or before 31 July 2016’.
[13]
The same letter was sent to Mr D T Porter of the third respondent,
but only on 25 July 2016. The second and fourth respondents
were
treated slightly differently. They were notified on 29 July 2016 that
the Oregon Trust was amenable to meeting to discuss
a new agreement
for the lease of the premises on 10 August 2016, and was willing to
let the premises to them on a month to month
basis until a new
agreement was negotiated. A response was required by 31 July 2016.
Neither of the respondents replied to that,
but became party to the
application issued on 1 August 2016 for an order that they had
validly extended their leases.
The
approach of the high court
[14]
The lessees conceded that if the court were to enforce the strict
terms of the leases they would have no case and Oregon Trust
would be
entitled to evict them from their premises. But they argued that
contract law had become ‘infused’ with the
notions of
fairness and Ubuntu: that the leases had to be considered together
with the franchise agreement for each franchisee,
and the broader
purpose of both the franchise and lease agreements had to be
considered as the context. That context was one where
Sales Hire had
undertaken to the NEF that it would support the franchisees in their
tool hire operations; that the franchises would
endure for 10 years,
and that it had thus been intended by Sales Hire, Oregon Trust and
the lessees that the agreements of lease
would also run for ten
years. They relied in this regard on the decision of
Botha v Rich
NO
(above) para 46:
Nkabinde
J said:
‘
The principle of reciprocity
falls squarely within this understanding [referred to in
Everfresh
,
above] of good faith and freedom of contract, based on one’s
own dignity and freedom as well as respect for the dignity
and
freedom of others. Bilateral contracts are almost invariably
cooperative ventures where two parties have reached a deal involving
performance by each in order to benefit both. Honouring that contract
cannot therefore be a matter of each side pursuing his or
her own
self-interest without regard to the other party’s interests.
Good faith is the lens through which we come to understand
contracts
in that way. In this case, good faith is given expression through the
principle of reciprocity and the
exceptio non adimpleti
contractus
.’
[15]
The context of the statement by Nkabinde J was that Mrs Botha had
bought immovable property from a trust, the purchase price
being
payable in instalments. The contract provided that the trust was
entitled to cancel in the event of Botha’s breach,
and to
retain payments already made. Botha had paid three-quarters of the
price when she fell into arrears. The trust sued for
cancellation and
eviction. She raised the defence that
s 27
of the
Alienation of Land
Act 68 of 1981
provides that any purchaser who is in default, but who
undertakes to pay the full price, and to register a bond over the
property
in favour of the seller to enable that, is entitled to
demand transfer of the property on the registration of the bond. She
had
tendered to register a bond over the property and to pay the
price. But she did not tender to pay the arrear instalments nor any
other charges on the property. The trust demanded payment of all
arrears.
[16]
When she made a tender to pay all arrear charges, the trust did not
accept it but sued for an order that the contract had been
cancelled
and that Botha be evicted. She counterclaimed for an order compelling
the trust to transfer the property to her. The
trust succeeded in the
trial court and on appeal to a full court of the Northern Cape
Division. She applied to the Constitutional
Court for leave to appeal
and succeeded on appeal even though she had not ever again tendered
to pay arrear charges, accumulating
over six years, and remained in
breach of the contract. The Constitutional Court said (para 49):
‘
[T]o deprive Ms Botha of the
opportunity to have the property transferred to her under
s 27(1)
and
in the process cure her breach in regard to the arrears, would be a
disproportionate sanction in relation to the considerable
portion of
the purchase price she has already paid, and would thus be
unfair
.
The other side of the coin is, however, that it would be
equally
disproportionate
to allow registration of transfer, without
making that registration conditional upon payment of the arrears and
the outstanding
amounts levied in municipal rates, taxes and service
fees. Accordingly an appropriate order in this regard will be made.’
(My emphasis.)
[17]
The decision has been severely criticized, and I shall return to the
published comments made about it. For the moment it is
significant to
note that Davis J took the dictum in para 49 to mean that the
Constitutional Court had ‘invoked the principle
of
proportionality to determine whether, in such a case, the sanction
claimed by the seller was proportionate to the consequence
of the
breach.’ (Para 35.)
[18]
Davis J considered the following circumstances to be relevant
considerations in determining that the ‘sanction’
of
termination and eviction was disproportionate to the failure by the
lessees properly and timeously to renew the leases.
(a) The lessees were unsophisticated
business people who did not understand the contractual provisions and
their niceties and implications.
(b) The purpose of the whole scheme
and the cooperation agreement with the NEF was to promote black
economic empowerment (BEE) and
the full participation by previously
disadvantaged individuals in the economy. The application of the
strict terms of the contracts
would have been inimical to the
empowerment project.
(c) The NEF had supported the lessees
and had provided supporting affidavits to the effect that they had
complied with their obligations
under the franchise agreements,
repaying their loans timeously. The franchisees would inevitably lose
their businesses if they
were to be evicted.
(d) The leases were tied to the
franchise agreements, and, said Davis J, it was envisaged when the
respective agreements were concluded
that because the franchise
agreements would endure over 10 years that the leases would
effectively be of the same duration –
hence the right to renew
the leases for a further five years. The two agreements, he held,
‘are inextricably bound to each
other’ (para 40).
[19]
Davis J continued (para 40):
‘
If honouring a contract is not
merely a matter of each side pursuing his or her own self- interest
with regard to the other party’s
interest and that is not the
exclusive lens through which our contract law should be evaluated,
then, in order to promote a more
nuanced focus, it must follow that
the relief sought by the applicants should be granted. To contend
that such a conclusion would
undermine legal certainty is to take a
somewhat myopic view of the history of contract law. To repeat the
point made by Wessels
JA in
Weinerlein [Weinerlein v Goch
Buildings Ltd
1925 AD 282
at 292]:
“
The commentators put it thus:
As a general proposition your claim may be supported by a strict
interpretation of the law, but it
cannot be supported in this
particular case against your particular adversary, because to do so
would be inequitable and unjust,
for it would allow you, under the
cloak of the law, to put forward a fraudulent claim. . . .”’
It
will be recalled that
Weinerlein
was an instance where the
court invoked the
exceptio doli
to allow for a claim for
rectification. Few other instances of the successful invocation of
the
exceptio doli
followed, and in 1988 Joubert JA (Jansen JA
dissenting) declared its death:
Bank of Lisbon and South Africa
Ltd v De Ornelas
1988 (3) SA 580
(A). There have been attempts to
revive it, especially in the light of the Constitutional Court
judgment in
Barkhuizen v Napier
[2007] ZACC 5
;
2007 (5) SA 323
(CC), which I shall discuss briefly later. Davis J did not purport to
invoke the
exceptio doli
in this matter. It could not be said
that Oregon Trust had attempted to use clause 20 of the lease
agreements for a purpose not
intended or in any way dishonest. It
relied on the words of the contract and there was no suggestion made
by the lessees that Oregon
Trust was not being honest – only
that it was relying on the strict application of the contract
unfairly.
[20]
The apparent basis upon which Davis J found that the lessees were
entitled to relief appears in two forms in different paragraphs.
Counsel for all parties were unable to say which constituted the
basis for the decision. I discern two bases. He said (para 42):
‘
In this case I find that the
sanction was disproportionate
because the contracts signed
maximized the interests of both parties and this meant that they
intended ensuring that the franchise
agreements be underpinned by the
lease agreements. It does not follow that this conclusion implies
that in every case a court will
dispense with the strictures of a
legal rule with the consequence that all or “most litigants
will not turn to courts if
they are uncertain of the law that will be
applied to their decisions” [a quotation from M Wallis
“Commercial Certainty
and Constitutionalism: Are they
Compatible’
2016 (133)
SALJ
545
at 567] (my emphasis).
This
principle appears to be derived from
Botha
– a court
will not impose a disproportionate sanction for breach of contract.
[21]
The second basis appears in para 43:
‘
[U]ntil 1988 courts operated at
various times, on the basis that in exceptional cases the
exceptio
doli
could be invoked. How much more so should the prism of the
normative framework of the Constitution not provide judges with some
residual basis by which to examine the substance of an agreement and
to conclude that the sanction which might follow a strict application
of a formal rule is and of itself insufficient to justify the relief
sought, when the key intention of the parties can be clearly
divined
from as in this case, the substance of the two agreements read
together. The Constitution demands an audit of all law and
that
demand cannot be defended by the idea that legal certainty will be
compromised.’
[22]
And in para 44:
‘
Legal certainty is a
shibboleth, if it is meant to imply that inevitably there is one
right answer that stares litigants in the
face, so much so that there
is never a risk that an opposite conclusion may not be reached by a
court. . . .
[I]n this case, when the very idea of
the transaction was to promote the interests of historically
disadvantaged applicants to participate
fully in the economy and to
be embraced not simply as political but economic citizens in terms of
agreements which were entered
into for this purpose, more is surely
required to justify the respondent’s case than that applicants,
without the requisite
business knowledge, requested a renewal of
their leases in a form which should have been more precise and should
have been submitted
within the specified dates.’
[23]
While referring to the application of the
exceptio doli
, Davis
J does not take that defence any further. And although referring to
the difficulties expressed by other courts and writers
in allowing
hard cases to make uncertain law, he did not engage with them. Davis
J (para 41) cited the following passage from the
Wallis paper (at
566):
‘
[W]e must accept that the
courts cannot resolve every case that excites the sympathies of
judges, or lays hold upon the judicial
mind as raising issues of
unfairness, in favour of the party the judges perceive to have been
unfairly treated. It is the nature
of law and the judicial process
that it is required to draw lines and define boundaries and sometimes
cases that fall on the wrong
side of the line will be of such a
nature as to excite the sympathy of the judges. They are, after all,
human. Sometimes, but only
occasionally, they will prompt a
reconsideration of existing law and some development. But if the
court makes this the determinative
factor it fails to discharge an
obligation that lies at the heart of the rule of law. A rule of law
based solely on the exercise
of judicial discretion and a sense of
reasonableness and fairness may be no rule at all.’
[24]
The Wallis caution was sounded by this court previously in
Bredenkamp
& others v Standard Bank of South Africa Ltd
[2010] ZASCA 75
;
2010 (4) SA 468
(SCA). After analysing the judgments of the
Constitutional Court in
Barkhuizen v Napier
, Harms DP said in
Bredenkamp
(para 39):
‘
A constitutional principle that
tends to be overlooked, when generalized resort to constitutional
values is made, is the principle
of legality. Making rules of law
discretionary or subject to value judgments may be destructive of the
rule of law.’
This
principle was reinforced in
Potgieter v Potgieter NO
[2011]
ZASCA 181
;
2012
(1)
SA 637
(SCA) where Brand JA, after referring to
Bredenkamp
and
other cases decided along these lines in this court, said (para 34):
‘
[T]he reason why our law cannot
endorse the notion that judges may decide cases on the basis of what
they regard as reasonable and
fair, is essentially that it will give
rise to intolerable legal uncertainty. That much has been illustrated
by past experience.
Reasonable people, including judges, may often
differ on what is equitable and fair. The outcome in any particular
case will thus
depend on the personal idiosyncrasies of the
individual judge. Or, as Van den Heever JA put it in
Preller &
others v Jordaan
1956 (1) SA 483
(A) at 500, if judges are
allowed to decide cases on the basis of what they regard as
reasonable and fair, the criterion will no
longer be the law but the
judge.’
Public
policy and
pacta sunt servanda
[25]
In the high court Davis J did not refer to
Bredenkamp
in his
judgment, despite its binding force. (The statement of Kriegler J in
Ex parte Minister of Safety and Security: In re S v Walters
[2002] ZACC 6
;
2002
(4) SA 613
(CC) paras 60 to 61, that the decisions of this court bind
the High Court, is still good law.) Harms DP pointed out that the
principle
of
pactum sunt servanda
, although fundamentally
important in the law of contract, is not a ‘holy cow’ –
para 37. It is, however, as Ngcobo
J said in
Barkhuizen
(para
87), ‘a profoundly moral principle, on which the coherence of
any society relies.’ Ngcobo J continued:
‘
It is also a universally
recognized legal principle. But, the general rule that agreements
must be honoured cannot apply to immoral
agreements which violate
public policy.’
[26]
The reason for the continued application of the principle embodied in
the maxim
pacta servanda sunt
is the need for certainty in
commerce – what Davis J termed a ‘shibboleth’ (as I
understand it, a principle that
is not in practice adhered to, or
that is out of date). By certainty I do not mean that there is a risk
that a court will interpret
a contract differently from a party, as
Davis J suggested. I mean that the parties will know what their
contract means and that
they are entitled to rely on its terms,
unless they are against public policy or their enforcement would be
unconscionable.
[27]
The continued application of the
pacta servanda sunt
principle,
and the importance of the principle, are demonstrated in two recent
decisions of this court:
Mohamed’s Leisure Holdings (Pty)
Ltd v Southern Sun Hotel Interests (Pty) Ltd
[2017] ZASCA 176
;
2018 (2) SA 314
(SCA) and
Roazar CC v The Falls Supermarket CC
[2017] ZASCA 166
;
2018 (3) SA 76
(SCA). In
Roazar
Tshiqi
JA enforced a clause entitling a lessor to cancel a lease and to
evict the lessee. The lessee had argued that there was a
duty imposed
on the parties to negotiate the terms of a new lease. The court
rejected the notion that there was an obligation to
negotiate in good
faith, cogently explaining why this was unenforceable where no
deadlock- breaking mechanism had been agreed (paras
20 to 23).
[28]
In
Mohamed
the parties had entered into a lease in 2001 and it
had been renewed, such that the lease had run for many years. It
required the
lessee to pay its rental by the 7th of each month.
Failure to comply with this obligation would entitle the lessor to
cancel the
lease and repossess the property. In June 2014, through an
error, the lessee’s bank failed to pay one month’s
rental.
The lessor gave notice of this to the lessee but said that
should it occur again it would not give notice but would cancel. In
October 2014 the bank paid the rental into the wrong bank account.
The lessor gave notice to the lessee to vacate the premises,
despite
the fact that the breach was cured thereafter. In the court a quo,
the lessee had argued that in the circumstances the
reliance on the
right to cancel, where the default was through no fault of the
lessee, was manifestly unreasonable and contrary
to public policy.
The court a quo upheld the defence, considering that the principle
that agreements should be honoured was no
longer good law.
[29]
On appeal to this court, the court found that the breach clause was
not itself contrary to policy; there had been equality
of bargaining
power in so far as the parties were concerned; timely performance had
been possible (the lessee should have monitored
the performance of
its bank) and the agreement had been entered into freely. The appeal
was thus upheld and the lessee was ordered
to vacate the premises.
[30]
Mathopo JA, writing for the court, said (para 21) that what had to be
decided was whether the ‘implementation’
of the breach
clause was manifestly unreasonable or unfair ‘to the extent
that it is contrary to public policy’. This,
he said, called
for a ‘balancing act and weighing up of two considerations,
namely the principle of
pacta sunt servanda
and the
considerations of public policy, including of course constitutional
imperatives’.
[31]
Mathopo JA cited a passage in
Sasfin (Pty) Ltd v Beukes
1989
(1) SA 1
(A), in which the majority held that a term that was
unconscionable would not be enforced. Smalberger JA, for the
majority, referred
(at 8I-9A) to the judgment of Innes CJ in
Eastwood
v Shepstone
1902 TS 294
at 302:
‘
Now this Court has the power to
treat as void and to refuse in any way to recognise contracts and
transactions which are against
public policy or contrary to good
morals. It is a power not to be hastily or rashly exercised; but when
once it is clear that any
arrangement is against public policy, the
Court would be wanting in its duty if it hesitated to declare such an
arrangement void.’
[32]
Smalberger JA continued (at 9A-C):
‘
No court should therefore
shrink from the duty of declaring a contact contrary to public policy
when the occasion so demands. The
power to declare contracts contrary
to public policy should, however, be exercised sparingly and only in
the clearest of cases,
lest uncertainty as to the validity of
contracts result from an arbitrary and indiscriminate use of the
power. One must be careful
not to conclude that a contract is
contrary to public policy merely because its terms (or some of them)
offend one’s individual
sense of propriety and fairness.’
The court in
Sasfin
referred
also (at 9G-H) to the statement of Stratford CJ in
Jajbhay v
Cassim
1939 AD 537
at 544 that ‘public policy should
properly take into account the doing of simple justice between man
and man’.
[33]
But as Mathopo JA held in
Mohamed
, following Harms DP in
Bredenkamp
, the Constitutional Court in
Barkhuizen
did
not introduce a principle that the enforcement of a valid term must
‘be fair and reasonable even if no public policy consideration
found in the Constitution or elsewhere is implicated’ (
Mohamed
para 25 and
Bredenkamp
para 50). Had it been otherwise,
said Harms DP, Ncgobo J would not have said in
Barkhuizen
,
para 57):
‘
Self-autonomy, or the ability
to regulate one’s own affairs, even to one’s own
detriment, is the very essence of freedom
and a vital part of
dignity. The extent to which the contract was freely and voluntarily
concluded is clearly a vital factor as
it will determine the weight
that should be afforded to the values of freedom and dignity. The
other consideration is that all
persons have a right to seek judicial
redress.’
[34]
The issue remains one of public policy, therefore, as was found in
Mohamed’s
. This court held that there were no policy
considerations that rendered the lease unenforceable. Most recently,
this court in
A B v Pridwin Preparatory School
[2018] ZASCA
150
;
2019 (1) SA 327
(SCA) has set out the principles governing
private contracts and public policy as follows (para 27):
‘
The relationship between
private contracts and their control by the courts through the
instrument of public policy, underpinned
by the Constitution, is now
clearly established. It is unnecessary to rehash all the learning
from our courts on this topic. It
suffices to set out the most
important principles to be gleaned from them:
(i)
Public policy demands that contracts freely and consciously
entered into must be honoured;
(ii)
A court will declare invalid a contract that is prima facie
inimical to a constitutional value or principle, or otherwise
contrary
to public policy;
(iii)
Where a contract is not prima facie contrary to public policy,
but its enforcement in particular circumstances is, a court will not
enforce it;
(iv)
The party who attacks the contract or its enforcement bears
the onus to establish the facts;
(v)
A court will use the power to invalidate a contract or not to
enforce it, sparingly, and only in the clearest of cases in which
harm to the public is substantially incontestable and does not depend
on the idiosyncratic inferences of a few judicial minds;
(vi)
A court will decline to use this power where a party relies
directly on abstract values of fairness and reasonableness to escape
the consequences of a contract because they are not substantive rules
that may be used for this purpose.’ (Footnotes omitted.)
[35]
Thus although fairness and reasonableness inform policy they are not
self- standing principles. And there are competing policy
considerations, in particular, the need for certainty in commerce.
Professor Dale Hutchison in a paper entitled ‘From bona
fides
to Ubuntu: the quest for fairness in the South African Law of
Contract’ 2019
Acta Juridica
(not yet published)
describes the competing considerations as ‘the most burning
issue in the modern South African law of contract’.
The
competing goals of certainty and fairness give rise to what he terms
‘intractable problems in contract law’. Hutchison
writes:
‘
Certainty
is a rule of law concern in commercial dealings: contracts being
planned transactions, the application of the law must
produce
predictable outcomes. On the other hand, unless these outcomes are
generally considered acceptable by fair and reasonable
people in the
particular context, contract law will lose its legitimacy.’
[36]
Referring to the decision of this court in
Bank of Lisbon
, and
the academic criticism of it that followed, Hutchison writes that a
‘differently composed majority’ of this court
in
Sasfin
struck down a contract that was unconscionable and inequitable.
The facts were unusual. Beukes, an anaesthetist, had executed a deed
of cession in favour of the bank, Sasfin, that effectively placed the
bank in control of Beukes’s professional earnings for
life, and
did not afford him the right to terminate this situation. Smalberger
JA found that this was ‘clearly unconscionable
and incompatible
with the public interest’ (at 13H). But he did warn that the
power to strike down a contract as being contrary
to policy should be
exercised sparingly, a caution echoed by Cachalia JA in
Pridwin
.
[37]
Davis J in the high court in this matter did not explicitly rely on
policy considerations in tailoring the termination clause
in the
leases in question. He relied, as I have said, on the concept of
disproportionality expressed in
Botha
(para 42 of his
judgment). The decision in
Botha
is described by Hutchison (op
cit) as ‘embarrassingly poor’. The problem with that
finding, and the decision in
Botha
, is described by Wallis (op
cit p 557):
‘
What is of greater importance
is that the court [in
Botha
] simply put on one side, and by
its decision negated, the contractual rights of the seller. It did so
apparently because of its
view that it would be “disproportionate”
for Ms Botha’s default to result in her losing the opportunity
to acquire
the property. Why that was so was not explained. But there
is now a decision by the Constitutional Court that a person who
breaches
their contract and is faced with the legitimate contractual
termination thereof may resist cancellation by saying that,
notwithstanding
the terms of the contract, in their particular
circumstances, that is a disproportionate response to their breach.
But, if that
is so, we can never know when a cancellation will be
legitimate and when not. How is a party to know, when faced with a
default
by the other party, whether they are entitled to invoke and
pursue their contractual remedies? How does a lawyer advise a client
wanting to know its remedies for contractual breach?’
[38]
Quite so. The notion that a sanction for breach, or failure to comply
with the terms of a contract, agreed on by the parties
is
disproportionate and therefore unenforceable, is entirely alien to
South African contract law. And to recognize it would be
to undermine
the principle of legality. That does not mean that a sanction that is
contrary to public policy, or that is unconscionable
in the
circumstances, is to be enforced. The question is really one that
centres on policy – the legal convictions of the
community,
rooted now in the Constitution. What policy considerations were at
play in this matter?
The
policy considerations in issue
[39]
There is nothing inherently offensive in the renewal clauses in the
leases. The leases would have terminated had the lessees
not been
given the option to renew them. The only limitation on that right was
that it had to be exercised in a particular manner
and by a
particular date. The requirement of six months’ notice is
eminently reasonable, given that the lessees and Oregon
Trust would
have to agree on the rental to be paid, or appoint an expert to
determine the future rental of all the premises. And
in the absence
of agreement, Oregon Trust would have to find new tenants. It was
open to the lessees to renew timeously and by
giving proper notice.
The leases may not have been between Oregon Trust and sophisticated
business people (as the lessees suggested
and Davis J found), but the
representatives of the lessees had all operated franchises, and had
previously been store or regional
managers. They were not ignorant
individuals. They may not have fully appreciated the niceties of the
law, but they knew that they
had to give notice – they
attempted to do so after the notice period had elapsed.
[40]
In
Barkhuizen
, the Constitutional Court had to determine
whether the failure by an insured to comply with a time limitation
clause in the insurance
contract should non-suit him. In considering
whether the time limitation was enforceable, Ngcobo J, for the
majority, said (para
85):
‘
[W]ithout facts establishing
why the applicant did not comply with the clause, I am unable to say
that the enforcement of the clause
would be unfair or unjust to the
applicant. For all we know, he may have neglected to comply with the
clause in circumstances where
he could have complied with it. And to
allow him to avoid its consequence in these circumstances would be
contrary to the doctrine
of
pacta sunt servanda
. This would
indeed be unfair to the respondent.’
[41]
That is equally true in this matter. The lessees have not disclosed
why they did not give notice of their intention to renew
the leases
by 31 January 2016. If they had advanced reasons why they did not
comply, we would be better able to assess whether
enforcement of the
renewal clauses was, in the circumstances, unconscionable.
[42]
Oregon Trust argues that the effect of the orders of the high court
(to permit the lessees to occupy the premises for a further
period of
five years) was that new contracts were made for the parties by the
court. That is in my view correct, and we should
not endorse the
approach. No consideration of public policy permits the making of
contracts for parties by a court.
[43]
The lessees, on the other hand, argue that termination of the leases
was not favoured by public policy because it would result
in the
collapse of the franchised businesses and that would derail an
empowerment initiative for previously disadvantaged individuals.
The
termination of the leases appeared to have no benefit for the lessor
since the lessees had paid their rental and had not defaulted.
And
Oregon Trust had not indicated that any of the premises was available
for hiring by other lessees.
[44]
That argument ignores the fact that it was the lessees, through non-
compliance with the renewal clause, who jeopardized their
businesses.
If they had at least attempted to explain why they had failed to give
notice timeously, policy considerations might
have been relevant.
They have advanced as their principal policy consideration that Sale
was not bona fide: as a trustee of Oregon
Trust and the member of
Sales Hire, he was determined to close down their businesses.
[45]
This argument is not founded on any facts. The Oregon Trust and Sales
Hire are different legal entities. If Sale was indeed
the controlling
mind of both entities, which was not established on the papers, his
motive, if he had any, is not relevant. In
any event, Sale denied
that he had any intention of destroying the lessees’
businesses. It is his version that we must accept
since there is
nothing inherently implausible in it.
[46]
In the circumstances I conclude that there are no considerations of
public policy that render the renewal clause of the leases
unenforceable. The demand for compliance with their terms was not
unconscionable. The leases terminated on 31 July 2016 through
the
effluxion of time. When the lessees brought their urgent application
on 1 August 2016 the leases had expired. There was no
basis on which
to resuscitate them. The appeal must accordingly succeed.
[47]
In the result the following order is made:
(1) The appeal is upheld with the
costs of two counsel.
(2) The order of the Western Cape
Division of the High Court is set aside and replaced with:
‘
(a) The application is
dismissed with costs, including those of two counsel, to be paid by
the applicants jointly and severally.
(b)
The first applicant and all other persons occupying or holding
possession through it of 12 Marais St, Durbanville, Cape Town,
are to
be ejected from the premises within 30 calendar days of the date of
this order.
(c)
The second applicant and all other persons occupying or holding
possession through it of 33 Rosmead Avenue, Claremont, Cape
Town, are
to be ejected from the premises within 30 calendar days of the date
of this order.
(d)
The third applicant and all other persons occupying or holding
possession through it of Unit 9, Lekkerwater Road, Noordhoek,
Cape
Town are to be ejected from the premises within 30 calendar days of
the date of this order.
(e)
The fourth applicant and all other persons occupying or holding
possession through it of 3 Main Road, Hout Bay Harbour, Cape
Town,
are to be ejected from the premises within 30 calendar days of the
date of this order.
(f)
The applicants are to pay the costs of the first respondent’s
counterclaim, jointly and severally.’
___________________
C
H Lewis Acting Deputy President
APPEARANCES
For
Appellants: J Muller SC, with him H L du Toit (Heads also prepared by
S Rapaport)
Instructed
by: De Klerk & Van Gend Inc., Cape Town McIntyre Van der Post,
Bloemfontein
For
1st to 4th Respondents: B J Manca SC, with him G G M Quixley
Instructed
by: ME Mohammed Attorneys-at-law, Athlone
For
5th Respondent: No appearance
Instructed
by: Dentons South Africa, Cape Town