Agreements to Negotiate: A Contemporary Analysis

• Jurisdiction: South Africa
• Published date: 27 May 2019
• Date: 27 May 2019
• Citation: (2017) 28 Stell LR 308
• Author: Ryan David McKerrow
• Pages: 308-335

AGREEMENTS TO NEGOTIATE: A

CONTEMPORARY ANALYSIS

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”),1may require development

in order to embody the values under pinning our constitutional disp ensation

adequately.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

effected.

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 agreements to negotiate

In the matter of Premier, 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 Guarantee Co (Pty) Ltd

6 as authority for the

principle that “[a]n a greement that the parties will negotiate to conclude

1 2012 1 SA 256 (CC).

2 Paras 37-38 and 69.

3 2000 4 SA 413 (SCA).

4 Para 35.

5 1948 4 SA 884 (O) 892.

6 1985 4 SA 809 (A) 828I.

308

(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 matter of Letaba Sawmills (Edms) Bpk v Majovi

(Edms) Bpk (“Letaba Sawmills”),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 (Pty) 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 the matter

before it from Firechem, noting that u nlike in Firechem, but as with the case

of Letaba 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 (Pty) Ltd (“Coal Cliff Collieries”),13the

court in Southernport Developments 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 occurs in cases such as Letaba Sawmills,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 Developmentswe nt on to not e tha t

7 Premier, Free State v Fire chem, Free State (P ty) Ltd2000 4 SA 413 (SCA)para 35.

8 1993 1 SA 768 (A).

9 773-776.

102005 2 SA 202 (SCA).

11Paras 9 and 11.

12Par a 17.

131991 24 NSWLR 1.

14Letaba Saw mills (Edms) Bpk v Majovi ( Edms) Bpk1993 1 SA 768 (A) para 16; Coal Cliff Collieri es (Pty)

Ltd v Sijehama (P ty) Ltd (1991) 24 NSWLR 1 26E-27B.

15Letaba Saw mills (Edms) Bpk v Majovi (E dms) Bpk1993 1 SA 768 (A) para 16; Coal Cliff Collierie s (Pty)

Ltd v Sijehama (P ty) Ltd (1991) 24 NSWLR 1 26E-27B.

16Letaba Saw mills (Edms) Bpk v Majovi ( Edms) Bpk1993 1 SA 768 (A) para 16; Coal Cliff Collieri es (Pty)

Ltd v Sijehama (P ty) Ltd (1991) 24 NSWLR 1 26E-27B.

AGREEMENTS TO NEGOTIATE 309

© Juta and Company (Pty) Ltd