In the matter of SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren and Others 1964 (4) SA 760, the standard non-variation clause, known as “the Shifren clause”, was recognised by the Supreme Court of Appeal.

The Shifren clause is an entrenchment clause and in principle binds parties to the provision that a written contract may only be amended if certain formalities are complied with.  Mostly, in practice, amendments are only allowed if effected in writing and signed by all parties to the contract.  Although the Shifren clause is included in most commercial contracts in circulation today, the principle underlying the clause has been subjected to legal challenges and judicial deliberation.  In the matter of Brisley v Drotsky 2002 (4) SA 1 (SCA), for example, the Supreme Court of Appeal extensively deliberated on whether or not the contractual inclusion of the Shifren clause is against public policy.

In the Brisley judgment it was reiterated by Judge Cameron, as he then was, that all South African law should comply with the provisions of the Constitution and that any law inconsistent therewith, including the law of contract, is invalid.  The judgment also reiterated the duty on the court to promote the spirit, purport and objects of the Bill of Rights when developing the common law.  In this regard the learned Judge recognised that, there may be circumstances where an agreement will not be enforced because the object it seeks to achieve is contrary to public policy, Furthermore, it was stated that the values of dignity, equality and freedom require the courts to employ perceptive restraint when considering whether the enforcement of a contract should be declined.  This, said the learned Judge, is because contractual autonomy is part of freedom and informs the constitutional value of dignity.  In conclusion, it was stated by the learned Judge that:

The Constitution requires that its values be employed to achieve a careful balance between the unacceptable excesses of contractual freedom, and securing a framework within which the ability to contract enhances rather than diminishes our self-respect and dignity. The issues in the present appeal do not imperil that balance.

In 2010, the full bench in Nyandeni Local Municipality v Hlazo 2010 (4) SA 261 (ECM) held that:

“Public policy (as underpinned by constitutional norms) dictates that the Shifren principle, which holds that a contractual nonvariation clause is valid and effectively entrenches both itself and all other terms of the contract against oral variation, should be relaxed so as to bar a party from relying on it where it was invoked for purposes other than the vindication of legitimate rights.”

In this matter the essential question the Court had to answer, was whether the enforcement of the Shifren principle is contrary to public policy.  In arriving at the aforesaid question, the Court firstly recognised the general rule that, in addition to the requirement of fraud or deceitful conduct, there may be circumstances under which a contract will not be enforced because it is contrary to public policy.

The Court distinguished between the situation where a term of a contract is challenged as a result of it being unconstitutional and where it is challenged as a result of it being in conflict with public policy.  In the latter case, the court found, the concept of public policy “is informed by the underlying values and principles of the Constitution and it is in this sense only that the constitutional order is relevant” whereas in a direct constitutional challenge the constitutional right must first be identified and then be found to be limited by “a law of general application”.  This distinction may seem over technical but it is important as the test in each of the scenarios will differ.

In order to answer the question as to whether the enforcement of the Shifren principle is contrary to public policy, the court had determined the content and meaning of the concept of public policy.  In doing so, the court inter alia referred to the judgment of the Constitutional Court in Barkhuizen v Napier 2007 (5) SA 323 (CC) wherein the following was expressed:

‘What public policy is and whether a term in a contract is contrary to public policy must now be determined by reference to the values that underlie our constitutional democracy as given expression by the provisions of the Bill of Rights. Thus a term in a contract that is inimical to the values enshrined in our Constitution is contrary to public policy and is, therefore, unenforceable.’

The court stated that the values enshrined in the Constitution do not only include human dignity, equality and fairness, but also the substantive right to fairly resolve disputes. Although, as the court found, the concept of fairness “runs like a golden thread through the Bill of Rights”, it is used as an adverb or adjective and is not an independent or substantive constitutional right. As a result a contract does not automatically offend public policy just because it may operate unfairly.

The court was of the opinion that, although a contract term itself may not be contrary to public policy it may have such effect in particular circumstances when it is used to escape the consequences of fraudulent conduct.  Accordingly, the test is to determine public policy at the time a court is requested to enforce the relevant term.

Although the Shifren principle, is firmly entrenched in our law, in appropriate cases the demands and the requirements of public policy may justify a departure therefrom.  The effect hereof is that, although the parties may be under the impression that a written contract may not be varied through an oral amendment, the contrary may be true if the enforcement of the non-variation clause will be against public policy.

Andries Stander is a Director at Barnard Incorporated Attorneys in Centurion.

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