Tsogo Sun Ebhayi (the appellant’s predecessor) and Transnet concluded a first agreement in 1998 concerning the development of a casino and related facilities on Transnet-owned properties, subject to Tsogo Sun obtaining a casino licence. In 2000 they concluded a second, ‘bridging’ agreement regulating what would occur if the licence application failed. Clause 3.1.2 provided that if Tsogo Sun failed to obtain the licence, it would have an option for three years to lease the properties (or portions thereof) on terms to be negotiated in good faith, failing which disputes would be referred to arbitration whose decision would be final and binding. Tsogo Sun’s licence application failed. Southernport Developments, as successor, alleged that Transnet failed to negotiate in good faith and sought an order compelling negotiations and arbitration. Transnet excepted to the particulars of claim, contending that there was no agreement on essential terms of a lease and that the second agreement was an unenforceable agreement to agree. The High Court upheld the exception, and Southernport appealed to the Supreme Court of Appeal.
The appeal was upheld with costs. The order of the High Court was set aside and replaced with an order dismissing Transnet’s exception with costs, including the costs of two counsel.
The case is a leading South African authority confirming that an agreement to negotiate in good faith is enforceable where it is linked to a binding dispute-resolution mechanism such as arbitration. It clarifies the essential elements of a lease and affirms that uncertainty may be cured by delegation to an arbitrator. The judgment distinguishes unenforceable agreements to agree from enforceable preliminary agreements with adequate certainty.