A very important principle in the law of contracts is the principle of contractual freedom. This principle entails that parties to a contract can, in general, agree on any terms. When parties then enter into a contract, the further principle of pacta sunt servanda, requires that the parties honour the terms of the contract. As a result, where a party then fails to honour the terms of the contract, the other party can confidently approach a court for relief in order to compel the recalcitrant party to comply with its obligations in terms of the contract.
Notwithstanding the aforesaid, if a contract is however found to be contra to public policy, the courts will not enforce the terms agreed upon between the parties. Likewise, even when a contract itself or a clause in a contract is not against public policy, but the manner in which a party rely on the clause and give effect to such clause is considered to be against public policy, the court will not sanction such conduct and may refuse to enforce the terms in question. It must however be clear that the said conduct is indeed against public policy.
The position was very well explained by the Supreme Court of Appeal in the matter of Juglal NO v Shoprite Checkers (Pty) Ltd where the court found in paragraph 12:
Because the courts will conclude that contractual provisions are contrary to public policy only when that is their clear effect (see the authorities cited in Sasfin (Pty) Ltd v Beukes 1989 (1) SA 1 (A) at 8C–9G) it follows that the tendency of a proposed transaction towards such a conflict (Eastwood v Shepstone 1902 TS 294 at 302) can only be found to exist if there is a probability that unconscionable, immoral or illegal conduct will result from the implementation of the provisions according to their tenor. (It may be that the cumulative effect of implementation of provisions not individually objectionable may disclose such a tendency.) If, however, a contractual provision is capable of implementation in a manner that is against public policy but the tenor of the provision is neutral then the offending tendency is absent. In such event the creditor who implements the contract in a manner which is unconscionable, illegal or immoral will find that a court refuses to give effect to his conduct but the contract itself will stand.
Where a party implemented a contractual provision in a manner that is against public policy by doing it pertinently unconscionable a court should come to the assistance of the “innocent” party.
An example of a clause which may open the doors for misuse and unconscionable conduct, is the so-called “termination for convenience clause”. This clause often finds its way into contracts and essentially allow one or both parties to the contract to terminate the contract at any time without any liability for damages which the other party might suffer as a result of the termination. Such a clause therefore grants a party the right to terminate the contract purely because it wishes to do so. For example, where a franchisor therefore realises that a franchisee runs a very successful business, that franchisor can, on a prima facie reading of the clause, terminate the agreement with the franchisee and take over the franchisee’s business.
Conduct such as the aforesaid, however, will not pass muster with our courts. Even though a contract may grant a party the right to terminate the contract at its own discretion, there must still exist a substantial reason for that party to terminate the agreement. A court will refuse to give effect to the conduct of a party terminating a contract simply at a whim and without substantial reasons for such termination. When a party is faced with such a termination, the termination should immediately be addressed as it, if it continues, may constitute a repudiation by the terminating party.
When a party is faced with convenient termination of a contract by the other party, such party should therefore immediately obtain legal advice and/or assistance to ensure that the pitfalls of the election whether to accept the repudiation or not is avoided.
Andries Stander is a director at Barnard Incorporated in Centurion.
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