Beadica 231 CC and Others v Trustees for the time being of the Oregon Trust and Others

The applicants are four close corporations that entered into franchise agreements with Sale's Hire CC to operate Sale's Hire franchised businesses for 10 years. The applicants operate from premises leased from the Oregon Trust. The members of the applicants are former employees of Sale's Hire who acquired their businesses through a black economic empowerment initiative financed by the National Empowerment Fund. The lease agreements had an initial 5-year period with an option to renew for a further 5 years, provided written notice was given at least 6 months prior to termination (by 31 January 2016). The applicants failed to give timeous written notice - one provided no notice, while three purported to exercise renewal options during March 2016, after the notice period had elapsed. In July 2016, the Trust demanded that the applicants vacate the premises. The franchise agreements gave Sale's Hire the right to terminate if the applicants were ejected from the approved locations, which would result in the collapse of the applicants' businesses.

• Whether the enforcement of the renewal clauses in the lease agreements would be contrary to public policy in the circumstances of this case
• The proper constitutional approach to the judicial enforcement of contractual terms
• The public policy grounds upon which a court may refuse to enforce contractual terms
• The role of fairness, reasonableness, good faith and ubuntu in the law of contract
• Whether enforcement would be contrary to the constitutional value of equality given the failure of a black economic empowerment initiative
• The onus on parties seeking to avoid enforcement of contractual terms on public policy grounds

Leave to appeal granted. Appeal dismissed with costs, including costs of two counsel. The Supreme Court of Appeal's order dismissing the application and directing eviction was upheld.

Where a party seeks to avoid enforcement of a contractual term on public policy grounds, that party bears the onus to demonstrate: (1) that the term itself is unreasonable (first stage of Barkhuizen test); or (2) if the term is reasonable, that enforcement would be contrary to public policy in the particular circumstances, including by providing adequate explanation for non-compliance with the term (second stage). Abstract values of fairness, reasonableness, good faith and ubuntu do not operate as autonomous, free-standing grounds for refusing enforcement, but rather inform public policy determinations and the development of common law rules. These values must be applied through established doctrines and rules of contract law. Public policy is rooted in the Constitution and its objective value system. Where constitutional values or rights are implicated, a careful balancing exercise is required - pacta sunt servanda is not privileged over other constitutional values. The failure of a black economic empowerment initiative, without more, does not render enforcement contrary to public policy where there is no adequate explanation for non-compliance with clear contractual terms. Courts must exercise the power to invalidate or refuse to enforce contracts on public policy grounds with appropriate restraint, but not to the extent that they fail to give proper weight to constitutional values.

The majority judgment notes that whether good faith should operate as a self-standing rule remains an open question not decided in Barkhuizen. The judgment clarifies that Botha v Rich must be understood in its statutory context (the Alienation of Land Act) and did not establish a general principle that disproportionality is a ground for refusing enforcement. The majority emphasizes that constitutional values have an essential role in developing new common law doctrines, which must be done incrementally as facts require. The dissenting judgments contain extensive obiter discussion on: the role of ubuntu as a substantive constitutional value in contract law; the synthesis between commercial certainty and constitutional values; the objective standards that can be derived from German law (particularly Article 138(2) BGB) for determining when enforcement is contrary to public policy (disproportionate exchange, prejudice to disadvantaged party, inequality in protective ability); and how good faith can inform the development of common law rules beyond public policy invalidation, particularly in relaxing the principle of reciprocity. Froneman J suggests good faith could be given more concrete content through requirements of proportionality, prejudice and inequality in bargaining power.

This judgment provides important clarification on the role of constitutional values, particularly fairness, reasonableness, good faith and ubuntu, in the enforcement of contracts. It addresses the perceived divergence between the Constitutional Court and Supreme Court of Appeal, finding the approaches are more aligned than previously thought. The judgment reaffirms that abstract values do not operate as free-standing rules but inform public policy and the development of the common law. It emphasizes that pacta sunt servanda is not privileged over other constitutional values - a careful balancing is required. The decision confirms that parties seeking to avoid contractual terms on public policy grounds bear the onus to explain their non-compliance and demonstrate unfairness. The judgment is significant for contract law generally and for contracts in the context of transformation and black economic empowerment specifically. The dissents highlight ongoing debates about the proper role of ubuntu and constitutional values in private law, and the appropriate balance between contractual certainty and substantive fairness in South Africa's transformative constitutional order.