Coral Lagoon Investments 194 (Pty) Ltd and Another v Capitec Bank Holdings Limited

In 2006, Capitec Bank Holdings Limited, Coral Lagoon Investments 194 (Pty) Ltd (wholly owned by Ash Brook Investments 15 (Pty) Ltd), and other parties concluded a subscription agreement to promote broad-based black economic empowerment (B-BBEE) objectives. Under the agreement, Coral subscribed for 10 million ordinary shares (CPI shares) in Capitec at R30 per share, representing a 12.21% stake, with R285 million leveraged financing from the IDC. The subscription agreement contained selling restrictions aimed at keeping the shares in black shareholders' hands, including clause 8.3, which the parties understood to require Capitec's consent for share sales. In 2017, Coral sought to sell 3,360,830 CPI shares to Petratouch (Pty) Ltd. Capitec consented subject to certain conditions, embodied in a written consent agreement. Clause 7.1.6.2 of this agreement provided that the appellants (and related entities) shall not directly or indirectly institute any legal proceedings against Capitec wherein they seek to use or rely upon the 2017 Petratouch Transaction or any part thereof (a pactum de non petendo anticipando – an agreement not to sue). In 2019, Capitec for the first time indicated that clause 8.3 did not actually require its consent for share sales. In June 2020, the appellants instituted action against Capitec claiming damages of R1.225 billion on the basis that, but for Capitec's conduct, Coral would not have concluded the 2017 Petratouch Transaction at a 52% discount to market value. Capitec applied to the Western Cape High Court to compel withdrawal of the 2020 action, arguing it breached the pactum. The appellants counter-claimed that the pactum was contrary to public policy.

• Whether clauses 7.1.6.1 and 7.1.6.2 of the consent agreement constitute enforceable undertakings not to sue (pactum de non petendo) or mere warranties
• Whether the 2020 action instituted by the appellants breached clause 7.1.6.2 by using or relying upon the 2017 Petratouch Transaction
• Whether specific performance (withdrawal of the 2020 action) is an appropriate remedy for breach of a pactum de non petendo
• Whether a constitutional right under section 34 of the Constitution (access to courts) can be waived or voluntarily not exercised
• Whether enforcement of the pactum is contrary to public policy, particularly in light of section 34 of the Constitution and the B-BBEE context

The appeal was dismissed with costs on an attorney and client scale, including the costs of two counsel. The order of the Western Cape High Court directing the appellants to withdraw the 2020 action was upheld.

The binding legal principles established are: (1) A pactum de non petendo anticipando (agreement not to sue in anticipation) is valid in South African law and can operate in perpetuity without being limited to a specific period or contingency. (2) Specific performance is an appropriate and enforceable remedy for breach of a pactum de non petendo, including an order compelling withdrawal of litigation instituted in breach of such agreement. (3) The interpretation of contractual clauses must be approached holistically, considering text, context and purpose simultaneously, with substance prevailing over terminology. A clause labeled a "warranty" may constitute an enforceable undertaking depending on whether it was intended to create obligations and afford rights and remedies. (4) Parties to a contract who freely and voluntarily agree not to exercise their constitutional right of access to courts under section 34 of the Constitution do not "waive" that right but rather choose not to exercise it. Such an agreement is enforceable unless its enforcement would be contrary to public policy. (5) In assessing whether enforcement of a contractual term is contrary to public policy, courts must balance constitutional values with the principle that freely and voluntarily undertaken contractual obligations should be honored. Relevant factors include: equality of bargaining power, sophistication of parties, legal representation, whether terms were understood and accepted as fair and reasonable, legitimate purpose of the restriction, and whether the restriction is limited and reasonable in scope. (6) No special rules or exceptions apply to contracts concluded in furtherance of B-BBEE objectives; such contracts are subject to ordinary contractual principles. Creating special rules would increase risk of contracting with historically disadvantaged persons and undermine B-BBEE objectives.

The Court made the following non-binding observations: (1) Formulations in previous cases emphasizing time limitation or contingency aspects of a pactum de non petendo cannot be said to mean that such features are requirements for a pactum to be valid. (2) Agreements not to litigate are not necessarily unreasonable, and most settlement agreements routinely include such provisions. (3) While the Court noted that Capitec's understanding of clause 8.3 of the subscription agreement (that it did not require Capitec's consent for share sales) had been recently affirmed by the SCA in another case, this was not determinative of the issues in the present appeal. (4) The Court observed that at the time of the 2017 Petratouch Transaction, both parties shared the belief that Capitec's consent was legally required, which informed the context in which the pactum was agreed. (5) The Court noted without deciding that the concept of "waiver" of constitutional rights may not be apt at all in relation to constitutional rights generally, acknowledging this as "a topic for another day" following Lufuno. (6) The Court remarked that the appellants' status as BEE shareholders was irrelevant to the public policy assessment, reinforcing that no special treatment should be afforded to such contracts. (7) The Court observed that clause 7.2 of the consent agreement expressly preserved the appellants' right to sue Capitec for breach of the consent agreement itself, showing the limitation was narrow and reasonable.

This case is significant for establishing that: (1) A pactum de non petendo anticipando (agreement not to sue) operating in perpetuity is valid and enforceable in South African law. (2) Such agreements can be enforced through specific performance requiring withdrawal of litigation, not merely through damages. (3) Constitutional rights under section 34 (access to courts) can be voluntarily limited by informed, freely negotiated contractual arrangements between parties with equal bargaining power, provided enforcement is not contrary to public policy. (4) No special rules or heightened protection apply to contracts concluded in the context of B-BBEE transactions; such contracts are assessed according to ordinary contractual principles. (5) Courts will assess public policy challenges to contractual terms using the Barkhuizen framework, considering factors including: equal bargaining power, legal representation, sophistication of parties, fairness of terms, legitimate purpose of restriction, and whether the restriction is limited and reasonable. (6) In interpreting contractual clauses, substance prevails over terminology – a clause labeled a "warranty" may in fact be an enforceable undertaking depending on text, context and purpose. The judgment reinforces the constitutional values of freedom of contract, dignity and autonomy while maintaining the principle of perceptive restraint in public policy invalidation of contracts.