Agreements to Negotiate: A Contemporary Analysis

JurisdictionSouth Africa
Citation(2017) 28 Stell LR 308
Date27 May 2019
Published date27 May 2019
Ryan David McKerrow
BComm (Hons) LLB LLM
Candidate Attorney, Baker McKenzie
1 Introduction
Our common law regards agreement s to negotiate, absent a deadlock-
breaking mechanism, as being void for vagueness. This position ha s been
well established and nds sup port i n much of the case law on the issue.
Nevertheless, the traditional common-law approach predates the advent of the
Constitution of the Republic of South Af rica, 1996 (“Constitut ion”) and, as
acknowledged by the Constitutional Court in Everfresh Mar ket Virginia (Pty)
Ltd v Shoprite Checkers ( Pty) Ltd (“Everfresh”),1 may require development
in order to embody the values under pinning our constitutional disp ensation
ad eq ua te ly. 2 Th is article intends to address the question of whether t he time
has nally come for such development to take place and, if so, how it can be
In this endeavour, part 2 of the a rticle traces domestic case law on
agreements to negotiate. Par t 3 goes on to explore foreign law on the issue.
This is followed, in par t 4, by an investigation into the question and potent ial
means of common-law development. Part 5 concludes the an alysis.
2 A survey of our case law on agreeme nts to negotiate
In the matter of P remier, Free State v Firechem, Free State ( Pty) Ltd
(“Firechem”)3 the appellant had sent the respondent a let ter pur porting to
accept the respondent’s tender for the supply of certain items to the Free
State p rovince. The letter specied that such acceptance was subject to the
condition that the parties negotiate a further contra ct relating to the deliver y
of the items in quest ion. In an ensu ing dispute, the Supreme Court of Appe al
(“SCA”) found that this condition amounted to an unenforceable agreement to
negotiate.4 In del ivering its judgment , the court cited Sche epers v Vermeulen5
and Putco Ltd v TV & Radio Guaran tee Co (Pty) Ltd
6 as authority for the
principle that “[a]n a greement that the parties will negotiate to conclude
2 Paras 37-38 and 69.
4 Para 35.
(2017) 28 Stell LR 308
© Juta and Company (Pty) Ltd
another agreement is not enforceable, becau se of the absolute discretion
vested in the part ies to agree or disagree”.7
Prior to Firechem, in the matte r of Letaba Sawmills (Edms) Bpk v Majovi
(Edms) Bpk (“Letaba Saw mills”),8 the Appellate Division was required to
pronounce on the validity of an option to renew a lease at a rental amount to
be negotiate d between the parties. While acknowledgi ng the pr inciple later
applied in Firechem, the cou rt nevertheless found the option to be valid and
enforceable on the basis t hat the contract envisaged ar bitration as a dea dlock-
breaking mechanism , thereby curing the option clau se of what would
otherwise have been fat al vagueness.9
A si milar approach was adopte d in the subsequent case of Southernport
Developments (Pt y) Ltd v Transnet Ltd (“Southernport Developments”)10
where the SCA was tasked with determining the validity of an agreement to
negotiate the terms of a fut ure lease. Here the court differentiated t he matter
before it from Firechem, noting that u nlike in Firechem, but as with the case
of Let aba Sawmills, the agreement it was called upon to c onsider envisaged
arbitration as an effective means of break ing any potential deadlock between
the negotiating part ies.11 The importa nce of this differentiation was explicitly
recognised in the c ourt’s nding that:
“[W]hat elevates this agreement to a legally enforceable one and distinguishes it from an agreement
to agree is the dispute resolution mechanism to which the parties have bound themselves … The nal
and binding nature of the arbitrator’s decision renders certain and enforceable, what would otherwise
have been an unenforceable preliminary agreement.”12
Referring to the judgment of Kirby P i n the Australia n case of Coal Cliff
Collieries (Pty) Ltd v Sijehama (Pt y) Ltd (“Coal Cliff Collieries”),13 the
court in Sou thernport Develop ments identied three classes of agreements
to negotiate. The rst class entails an agr eement which the pa rties intend to
be legally binding. This occu rs in cases such as Le taba Sawm ills, where a
third party is empowered to set tle any impasses that m ay a rise duri ng the
course of negotiat ions, thereby enabling t he enforcement of the agr eement.14
The second class e ntails an agreement which ca n be interpreted by reference
to a “readily ascertainable ext ernal stand ard” which re nders the agreement
enforceable.15 The nal class includes agreements such as the one in Firechem
which, by their natur e and context, are too uncertain to b e enforced.16
Having identied the agreeme nt before it as fal ling into the rst of the
foregoing classes, the court in Southernport Developments we nt on to not e tha t
7 Premier, Free State v Fire chem, Free State (P ty) Ltd 2000 4 SA 413 (SCA) para 35.
9 773-776.
11 Paras 9 and 11.
12 Par a 17.
14 Letaba Saw mills (Edms) Bpk v Majovi ( Edms) Bpk 1993 1 SA 768 (A) para 16; Coal Cliff Collieri es (Pty)
Ltd v Sijehama (P ty) Ltd (1991) 24 NSWLR 1 26E-27B.
15 Letaba Saw mills (Edms) Bpk v Majovi (E dms) Bpk 1993 1 SA 768 (A) para 16; Coal Cliff Collierie s (Pty)
Ltd v Sijehama (P ty) Ltd (1991) 24 NSWLR 1 26E-27B.
16 Letaba Saw mills (Edms) Bpk v Majovi ( Edms) Bpk 1993 1 SA 768 (A) para 16; Coal Cliff Collieri es (Pty)
Ltd v Sijehama (P ty) Ltd (1991) 24 NSWLR 1 26E-27B.
© Juta and Company (Pty) Ltd

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