This blog entry continues from the writer's previous post "The fairness in contract dilemma: should a court of law apply its own sense of justice?" dated 10 October 2019 following a further decision by the SCA on this topic which again confirmed its view that the role of good faith is not a basis on which to allow a court to interfere with clear contractual terms.[2]
The Supreme Court of Appeal (commonly abbreviated as "SCA") has been confronted with a slew of recent cases in which litigants have argued that our common law needs to be developed so as to enable a competent court to, despite clear contractual terms to the contrary, strike out or temper overly onerous provisions on an equitable basis. Such cases have been put forward on the argument that the constitutional values of ubuntu and good faith need to be infused into the South African law of contract to develop our common law. The SCA has consistently dismissed these arguments and has been reluctant to introduce uncertainty in contractual dealings.
SCA's latest stance on the matter
In the recent case of Liberty Group Limited and Others v Mall Space Management CC t/a Mall Space Management (644/18) [2019] ZASCA 142, Mall Space Management accepted a verbal mandate to act as an agent of the Liberty Group to market and manage various promotion events in exhibition courts and other designated promotional spaces at the shopping centres co-owned by the Liberty Group.[3] Subsequently, the Liberty Group issued five days' notice of termination of its mandate to Mall Space Management after it failed to properly account for rental income it had received.
At common law a mandate may be terminated at will by the principal unless otherwise agreed that a minimum period of notice of termination is required. Mall Space Management disputed the validity of the notice of termination on the basis that the constitutional values of ubuntu and good faith, and required that at least 6 months' written notice be given in order to terminate its mandate despite the position at common law.
In the Mall Space case, Zondi JA quoted the following with approval by Brand JA from the South African Law Journal:
"… imprecise and nebulous statements about the role of good faith, fairness and equity, which would permit idiosyncratic decision-making on the basis of what a particular judge regards as fair and equitable, are dangerous. They lead to uncertainty and a dramatic increase in often pointless litigation and unnecessary appeals. Palm-tree justice cannot serve as a substitute for the application of established principles of contract law."[4]
Conclusion
Contracting parties must ensure their agreements are properly drafted and provide for clear and predictable outcomes and remedies in the event of breach. Our courts have consistently adopted the position that they will not interfere in contractual relationships freely and lawfully entered into between parties, despite overly onerous terms in the opinion of a disputing party. A court will not remedy a "bad deal" on such basis alone unless there is a substantive legality issue such as the agreement being contrary to public policy.
An agreement should properly deal with implementation aspects and should try to be self-policing insofar as safely possible to help minimise room for protracted disputes and litigation. For instance, clearly defined payment terms and/or milestones, pledge and/or escrow arrangements, security deposits, deadlock-breaking mechanisms and similar provisions can help avoid a contracting party being left in an untenable position without any relief other than to try seek court interventions on tenuous grounds.
[1] According to Wikitionary at https://en.wiktionary.org/wiki/palm_tree_justice.
[2] Available at https://www.swart.law/post.aspx?id=51 or on LinkedIn using the following link: https://www.linkedin.com/pulse/fairness-contract-dilemma-should-court-law-apply-its-own-steven/.
[3] Case available at http://www.saflii.org/za/cases/ZASCA/2019/142.html.
[4] See para [31] citing Juta 2009 Volume 126 p 71 "The role of good faith, equity and fairness in the South African Law of Contract: The influence of the common law and the Constitution".