Contract Law

• Citation: 2021/2022 YSAL 322
• Published date: 14 April 2023
• Pages: 322-363
• Author: Kuschke, B.
• Date: 14 April 2023

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1. INTRODUCTION

This chapter addresse s important case law on the extent of t he duty of

good faith, following upon the 2020 Beadic a judgment. The chapter also

examines judgments con firming t he recent developments related to the

application of the principles and rules of inter pretation of contracts and

the binding natur e of standard terms and condition s. The chapter covers

the determination of contract ual performance by a t hird party, and the

right of such a third-part y valuer to amend or withdraw its determination.

The chapter addresses matters co ncerning the conclusion of contract s

via tender proceedings, applications for self-review by a state organ, a nd

applications by one state organ for review of the conduct of another state

organ. Important questions on whet her a disappointed tenderer may sue for

delictual damages, and t he award of costs against the state, were addressed

by the Constitutional Court (CC). The long saga of University of Johannesburg

v Auckland Park Theological Seminary on the ce ssion of rights that are delectus

persona final ly ended with the CC finding i n favour of the university. With

regard to breach of contract and remedies, the c hapter considers case law

relating to specif ic performance, the effect of repudiat ion of a contract,

and its subsequent cancellation. Fin ally, three cases on the term ination of a

contractual obligation by notice, merger and waiver are disc ussed.

2. LEGISLATION

No legislation was passed during t he period under review.

Contract LawContract Law

Birgit Kuschke*

* BLC LLB (UP) LLD (UNISA); Attorney, Notary and Conveyancer of the High Court of

South Africa; Lecturer, Department of Private Law, Akademia. ORCID: https://orcid.org/

0000-0003-3355-8599.

2021/2022 YSAL 322

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CoNtrACt LAW 323

3. CASES

3.1 GOOD FAITH

The duty of good faith during the cont ract lifecycle is stil l a recurring

topic in South African cas e law. In Capitec Bank Holdings Limited v Coral

Lagoon Investments 194 (Pty) Ltd1 the court was called upon to address the

question whether a duty of good faith can be a n independent source of a

binding contractual o bligation. In this matter, the court con firmed the

decision in Beadica 231 CC v Trustees, Oregon Trust2 and provided more

clarity on contractua l challenges brought before the cour ts. The court

examined at length t he interpretation of contractua l provisions regulati ng

the consequences upon a sale of sha res by shareholders that could lead

to a contravention of the company’s BEE obligations. Aspects of this

interpretation are ana lysed in section 3.2 of this chapter.

The court upheld the appeal after consideri ng the past conduct of the

parties, the application of the parol evidence rule, and busi ness efficacy in

the interpretation of the agre ement. This case il lustrates the contractual

gymnast ics that some parties wil l use to challenge or avoid simply

worded contractual obligations. The fir st appellant, Capitec Bank Holdings

Limited, the first resp ondent, Coral Lagoon Investments, and the second

respondent, Ash Brook Investments, concluded a subscription of shares a nd

shareholders’ agreement in December 20 06. Pursuant to the subscript ion

agreement, Coral subscribed for, and Capitec Holdings issued, ten mil lion

ordinary shar es to Coral. In exchange, Coral allotted a nd issued shares to

Ash Brook to constitute it as the sole ordina ry shareholder of Coral. This

was done to enable CapitecHoldings to increase its black shareholding, a nd

thereby maintain its BEE statu s in order to comply with the Broad-Based

Black Economic Empowerment Act.3

Regiments Capital held a 59.82% interest in Ash Brook. In August 2019,

Regiments Capital, and various part ies related to it (t he Regiments parties),

Coral and the third re spondent, the Transnet Second Defined Benef it Fund

(the fund), entered into a settlement agreement. The set tlement agreement

required Regiments Capital and the Regiments fu nd managers to pay

the fund a sett lement amount of R500 million, toget her with interest, in

settlement of the fund’s claims agai nst the Regiments parties. Those clai ms

arose from litigation in stituted by the fund agai nst the Regiments part ies.

The fund alleged t hat the Regiments partie s had defrauded the fund

and sought to recover monies for the benefit of the fu nd’s members. The

settlement amount was to be fu nded by the loan of 810230 Capitec Holdings

shares by Coral to a wholly owned subsidiary of Regi mentsCapital, K2019.

1 2022 (1) SA 100 (SCA).

2 2020 (5) SA 247 (CC).

3 53 of 2003. See para 1.

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YeArbooK oF south AFrICAN LAW

324

This company would then sell the se shares to the fu nd, and then cede its

rights to the proceeds of the sa le to Coral, thereby attempting to bypass any

contractual requi rements as agreed upon by Capitec Holdings and Coral in

the subscription agreement.4 The bal ance of the purchase price payable for

the shares was to be paid by the fu nd to an account nominated by Coral.5

The appellant’s case was that cl 8.3 in the subs cription agreement

contained a condition that requ ired the consent by Capitec for the sale of its

shares.6 Clause 8.3 read as follows:

Save for the provisions of the Facil ity Letter, should [Coral] sell,

alienate, donate, exchange, encu mber, or in any manner endeavour to

dispose (‘sold’) any of the [Capitec] Holdings Shares to any entity or

person who, in [Capitec] Holdings’ opinion, does not comply with the

BEE Act and Codes, [Capitec Holdings] will determi ne the number of

[Capitec] Holdings Shares sold and [Coral] will with in 30days aft er

requested thereto by [Capitec] Holdings acquir e an equal number of

[Capitec] Holdings shares and cause same to b e registered in [Coral’s]

name.7

This clause requ ired Coral, upon a sale of its shareholding in Capitec that, in

the opinion of Capitec Holdings, endangered the latter’s BEE status, to make

whole Coral’s shareholding of Capitec Holdings by repurchasing the same

number of shares in Capitec Holdings. However, the wording of this clause

did not stipulate that Capitec Holdings’ consent was a requireme nt for the

conclusion of such a sale of shares, nor was it a suspensive condition for the

enforceability of such a sale.

Upon an attempt by Coral to alienate the shares, Capitec refu sed to

provide its consent. In September 2019, Coral and Ash Brook brought an

urgent application in the Gauteng Division of the High Court, Johan nesburg,

seeking a declaration order, inter alia, that the withholding by Capitec

Holdings of its approval or consent for the disposal of the sha res pursuant

to the settlement agreement was u nreasonable in accordance wit h its

contractual dutie s.8 In other words, Capitec Holdings’ refusal was in bre ach

of its express contractual duties of good fait h,9 and in the alternative, a

breach of its common-law duties of goodfaith. In addition, mandatory relief

4 Keeping in mind the common-law principle that a seller is not required to be the owner

of the goods to conclude a valid contract of sale. Such a seller may conclude an obligationary

agreement of sale. Yet due to the nemo plus iuris rule, the seller cannot transfer ownership unless

the seller had ownership to pass to another by way of a real agreement.

5 Para 2.

6 Cl 3.1.4 of the subscription agreement.

7 The words in square brackets were added by the court for clarity.

8 Cl 13.7 of the subscription agreement.

9 Cl 13.11 of the subscription agreement.

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