NBS Boland Bank v One Berg River Drive and Others; SB Deeb and Another v ABSA Bank Ltd; AL Friedman v Standard Bank of South Africa Ltd

Three consolidated appeals before the Supreme Court of Appeal concerned the validity of clauses in mortgage bonds that empowered the mortgagee bank to unilaterally increase the interest rate payable by the mortgagor. In the courts a quo, differing conclusions were reached: one court held such a clause invalid for vagueness as it allegedly conferred an unfettered discretion on the bank; another implied limitations tied to market conditions and the Usury Act; and a third held the discretion valid but limited by prevailing banking practice, granting summary judgment against the mortgagor. The mortgagors contended that allowing a bank to unilaterally determine interest rendered the contract void for uncertainty.

Appeal (1) was upheld and the mortgage bond clause declared valid; the contrary order of the court a quo was set aside. Appeals (2) and (3) were dismissed. All unsuccessful parties were ordered to pay costs, including the costs of two counsel.

This is a leading South African authority on contractual discretions, particularly in banking and loan agreements. It definitively established that unilateral interest rate variation clauses in mortgage bonds are not per se invalid and clarified the scope of the arbitrium boni viri principle. The case harmonised South African law with comparative modern legal systems and curtailed earlier High Court decisions that treated such clauses as void for vagueness.