Roazar CC v The Falls Supermarket CC

Roazar CC (the appellant) owned a shopping centre in Northmead, Benoni, and leased premises to The Falls Supermarket CC (the respondent) which operated a Spar Supermarket. There were three separate but linked lease agreements concluded on the same day between the parties for the same premises and period. The main agreement provided for rental to Roazar, while two ancillary agreements provided for cash payments to individual members of Roazar. The Falls alleged the ancillary agreements were sham agreements to avoid income tax, while Roazar stated they were for internal bookkeeping purposes. On 2 February 2016, The Falls wrote to Roazar proposing to renew the lease for a further five years. On 31 March 2016, Roazar's attorneys responded that the lease had terminated on 29 February 2016 through effluxion of time, and that The Falls had failed to give proper notice under clause 3.5 and had breached the lease by failing to pay full rental under the ancillary agreements. Roazar gave notice for The Falls to vacate by 30 April 2016. The Falls alleged it had been discussing renewal since 2014 and had several meetings in January 2016. Roazar applied for eviction on 24 May 2016. The Falls opposed, denying arrear rentals and disputing the ancillary agreements. Roazar stated that in light of The Falls' allegations of fraud, it had no intention of ever leasing to The Falls again.

• Whether The Falls exercised its right of renewal within the contractual time period
• Whether clause 3.5 required notice of intention to renew or conclusion of renewal terms one month before expiry
• Whether Roazar was entitled to terminate the contract by giving one month's notice under clause 3.7
• Whether the contract could be terminated without entering into good faith negotiations
• Whether there was an enforceable duty to negotiate in good faith in the absence of a deadlock-breaking mechanism
• Whether the common law should be developed to recognize the validity of an agreement to negotiate in good faith where there is no deadlock-breaking mechanism
• Whether it would be contrary to public policy or ubuntu to allow termination without good faith negotiations

1. The appeal was upheld with costs including the costs of two counsel. 2. The order of the high court was set aside and substituted with an order evicting The Falls and all persons occupying through it from the premises, with authority for the Sheriff to forcibly evict if they did not vacate within 30 days, with authorization to utilize the South African Police Service if necessary. The Falls was ordered to pay the costs of the application, including costs of two counsel.

The binding legal principles established are: (1) An agreement to negotiate in good faith is generally not enforceable in the absence of a deadlock-breaking mechanism. (2) Where parties have expressly agreed to a termination mechanism (such as termination on notice if negotiations fail), that mechanism must be given effect and courts should not override it by imposing an additional requirement of good faith negotiations. (3) Payment of existing rental pending negotiations and the option to terminate do not constitute deadlock-breaking mechanisms because they do not resolve the impasse between parties. (4) The principle of pacta sunt servanda requires that parties be held to their bargain, including agreed termination provisions. (5) In commercial contractual relationships, it is not competent for a court to import a term not intended by the parties simply on the basis of ubuntu, particularly where such a term would override an express contractual right of termination. (6) Courts will not coerce a lessor to conclude a lease agreement with a tenant it no longer wishes to have as a tenant, as this would be contrary to public policy. (7) Contract interpretation must give effect to the language used in light of ordinary rules of grammar and syntax, in context of the agreement as a whole, and its apparent purpose to give commercially sensible meaning.

The court made several important obiter observations: (1) The court assumed for purposes of the eviction application that all three agreements (including the ancillary agreements) were valid, noting that if The Falls' version about the agreements being tax avoidance schemes was correct, then all three agreements would be tainted as the rental in the main agreement was allegedly understated to perpetuate fraud. (2) The court noted that it cannot be open to The Falls to choose which agreements to enforce and which to disregard. (3) The court acknowledged the observations in the minority judgment in Everfresh Market Virginia v Shoprite Checkers regarding development of the common law, and the obiter remarks in the majority judgment about the potential for developing the common law to incorporate ubuntu, good faith, and other constitutional values into contract law. (4) The court cited with approval academic commentary by Carole Lewis highlighting the practical difficulties courts would face in enforcing good faith negotiation duties: courts cannot make contracts for parties, cannot decide what terms should be, cannot easily assess equality of bargaining power, and would face insurmountable difficulties in determining whether parties negotiated in good faith or how long such negotiations should continue. (5) The court noted the ongoing litigation between the parties regarding the validity of the ancillary agreements and Roazar's allegations that The Falls had made vitriolic and defamatory allegations of fraud against it. (6) The court suggested that if The Falls had taken steps to add value to Roazar's property, a claim based on unjustified enrichment might have been a more appropriate avenue than seeking to enforce continued negotiations.

This case is significant in South African contract law for several reasons: (1) It clarifies the limits of enforcing duties to negotiate in good faith, confirming that such duties are generally not enforceable in the absence of deadlock-breaking mechanisms. (2) It addresses the question of whether the common law should be developed under section 39(2) of the Constitution to enforce good faith negotiation duties even without deadlock-breaking mechanisms, and declines to do so based on practical difficulties and policy considerations. (3) It affirms the principle of pacta sunt servanda (sanctity of contract) and the importance of parties being held to their bargain, particularly where they have expressly agreed to termination mechanisms. (4) It limits the application of ubuntu in commercial contractual relationships, holding that ubuntu cannot be used to import terms not intended by the parties or to override express contractual termination rights in purely business transactions. (5) It reinforces that courts will not coerce parties to continue contractual relationships, particularly in commercial contexts where the relationship has broken down. (6) The judgment emphasizes the importance of certainty in contractual relationships and the difficulties courts would face in assessing whether parties have negotiated in "good faith" or for how long such negotiations must continue.