Courts are often confronted with contractual disputes in particular the enforcement or non-enforcement thereof.

The general rule is that courts judge contractual disputes based on the notion of pacta sunt servanda, meaning, parties should honor their obligations made in terms of agreements, irrespective of whether such obligations are onerous or biased toward one party. The courts consider each case on merit.

The Supreme Court of Appeal in the case of Brisley v Drotsky 2002 4 (SA) 1 (SCA)provided some guidance and expressed that the notion of pacta sunt servanda is not “written in stone” and may be altered provided that, the contract was entered into voluntarily by the parties and which are reasonable, must be enforceable.   In exceptional cases, the Court take into consideration   fairness, reasonableness, and good faith. 

In Botha and Another v Rich NO and Others [2014] ZACC, the Constitutional Court had to determine when a clause would be unenforceable due to being contrary to the public policy.   Consideration will be given to whether the relevant clause was drafted in good faith, reasonable or fair given the circumstances. 

How isi ‘reasonableness’ determined and what constitutes unreasonable conduct? 

In Beadica 231 CC and Others v Trustees for the time being of the Oregon Trust and Others [2020] ZACC 13, the court considered the language of the contractual terms to determine whether to set aside a contract and to refuse enforcement of contractual terms based on public policy grounds (e.g., unreasonableness). 

The court held that contractual terms were “in simple, uncomplicated language, which an ordinary person could reasonably be expected to understand”. Therefore, the applicants failed to prove how the enforcement of the clauses would be contrary to public policy. 

  In the matter of Botha and Another v Rich NO and Others [2014] ZACC the Court held that good faith and freedom of contract is understood as using the “principle of reciprocity”. This meant to avoid being “contrary to public policy” (good faith, reasonableness, and fairness), it must be mutually beneficial to the contracting parties or have reciprocating rights and obligations. 

In the case of Mohamed’s Leisure Holdings (Pty) Ltd v Southern Sun Hotel Interests (Pty) Ltd (183/17) [2017] ZASCA 176 the court considered whether the enforcement of a contractual clause would be so clearly unreasonable or unfair to the extent that it would be contrary to public policy, by bearing in mind the objective terms of the contract, as well as the circumstances of the parties. 

The court in Mohamed’s Leisure Holdings (Pty) Ltd further held that: “The fact that a term in a contract is unfair or may operate harshly does not by itself lead to the conclusion that it offends the values of the Constitution or is against public policy.”

 In conclusion it is not clear what ‘reasonableness’ means or what constitutes unreasonable conduct. Each case is evaluated on its own merit and various aspects – such as the social factors applicable to parties and bargaining powers of each party – are considered.  The courts engage in a weighing up of the notion of pacta sunt servanda and the values of public policy in determining whether to enforce or not to enforce contracts/contractual terms.

By

Lethabo Qoza-Msiza | Junior Associate

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