PODCAST | Spotlight on top court ruling on ubuntu in commercial contracts
Here's what the Constitutional Court's recent judgment means for the C-suite and others
Welcome to the first episode of our new Business Law & Tax podcast, hosted by editor Evan Pickworth.
In this episode, he speaks to ENSafrica chairperson Prof Michael Katz; Prof Dale Hutchison, who is the head of the internal research unit at ENSafrica, and Julius Oosthuizen, joint head of the corporate commercial department at ENSafrica, about the concept of ubuntu in commercial contracts – a topic on which the Constitutional Court has provided much-needed clarity.
What does this mean for the C-suite and others? We zone in on how to tailor commercial contracts in future to avoid disappointment.
The power of a court to strike down, or refuse to enforce, a contract that it considers to be unfair, unduly harsh or unreasonable has been controversial in SA law for some time. An unequivocal judgment of the Constitutional Court on the issue was sorely needed, and it presented itself recently in the case of Beadica CC v Trustees for the time being of the Oregon Trust.
In this case, the National Empowerment Fund had entered into an agreement with a franchisor, Sale’s Hire CC, to fund the acquisition of franchise businesses by former long-time senior employees of Sale’s Hire, as a broad-based black economic empowerment initiative.
The employees established close corporations that concluded 10-year franchise agreements with Sale’s Hire, as well as lease agreements with the Oregon Trust, of which Mr Sale (the sole member of Sale’s Hire) was a trustee.
The leases were for a period of five years, with a renewal option for a further five years, which (as is usual in such contracts) had to be exercised in writing no later than six months before the expiry of the first lease.
The lessees failed to exercise their renewal rights timeously and were subsequently given notice to vacate the premises shortly before the expiry of their leases.
In the court's precedent-setting judgment, a majority of seven to three ruled against the lessees, providing clarity on the treatment of fairness, public policy and ubuntu in determining the validity of commercial contracts.
However, it also highlights that a careful balancing act is required: the principle that contracts freely entered into must be honoured is not the only – nor even the most important – principle informing the judicial control of contracts.
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