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IS AN AGREEMENT TO AGREE VALID IN SOUTH AFRICA?

In law firm Eversheds' newsletter (www.eversheds.co.za) this interesting article appeared which all tenants should take note of.  The answer to the question “Is an agreement to agree valid in South Africa” is, for now, no.  In the future, maybe. Late last year, the Constitutional Court was called upon to decide a case in which a tenant, Everfresh, was given an option to renew a lease subject to agreement being reached on rental. Shoprite, the landlord, contended that no binding right of renewal was created because an option to renew the lease at a rental to be agreed upon was unenforceable. The High Court where the matter commenced had held that, even if there had been an enforceable agreement to negotiate in good faith, it was too uncertain to enforce, as it could never be determined whether that offer was made in good faith, absent a readily ascertainable external standard. When an application to appeal to the SCA was refused by the High Court, Everfresh approached the Constitutional Court directly for leave to appeal to it. To go directly to the Constitutional Court requires there to be “exceptional circumstances.” It contended that the law of contract should be refashioned by the importation of a requirement of good faith – as the judges put it, they had to consider whether ‘this court should intervene to infuse the law of contract with constitutional values.’

Four judges found merit in the argument of Everfresh and decided that they should hear the application and refer the matter back to the High Court for consideration. In coming to their decision they held that a common law principle, which renders an agreement to negotiate in good faith enforceable, is more consistent with the Constitution than one that does not and that it cannot be said to be inconsistent with the sanctity of contract and the moral denominator of good faith. They said that the enforceability of agreements to negotiate in good faith accords with and is an important component of the process of the development of a new Constitutional contractual order.

The majority of seven judges refused the application. This was because of the manner in which Everfresh conducted its case which had ‘mutated over time.” There are indications in the majority judgement that, had Everfresh properly pleaded and conducted its case, they would have agreed with the minority. In passing, the majority mentioned that the underlying notion of good faith in contract law, that agreements seriously entered into should be enforced (pacta sunt servanda) and the value of Ubuntu, may tilt the argument in Everfresh’s favour. A change in the law is inevitable. This would be in accordance with section 39(2) of our Constitution which requires the courts to develop the common law in accordance with the spirit, purport and objectives of the Bill of Rights. This will create interesting times for lawyers and clients.

 
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IS AN AGREEMENT TO AGREE VALID IN SOUTH AFRICA?
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Date: 17-19 May 2012
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