Contracting parties cannot escape the enforcement of a contract on the basis of the terms being contrary to public policy unless they can prove that the terms are so unfair, unreasonable or unjust in the circumstances that a court should intervene. The Constitutional Court reaffirmed that although constitutional values such as Ubuntu, reasonableness and fairness are fundamental to our law of contract, they do not constitute free-standing rules that courts can employ to intervene in contractual relationships.
The applicants in Beadica v Trustees of the Oregon Trust were four close corporations that entered into franchise agreements with the second respondent, Sale’s Hire CC, for a period of ten years. The applicants operated their businesses from premises leased from Oregon Trust (‘the trust’). The initial lease periods were five years with an option to renew for a further five years. In terms of the lease agreement, the option to renew had to be exercised in writing, at least six months prior to the termination of the initial lease period. The applicants failed to exercise their renewal options within the agreed time, and sought to exercise the option after the notice period had expired. On this basis, the Trust demanded that the applicants vacate the leased premises at the expiry of the initial period.
The franchise agreements gave Sale’s Hire an election to terminate the franchise agreements in the event that the applicants were ejected from premises leased from the trust. The applicants’ businesses would suffer total collapse in the event that Sale’s Hire exercised its contractual power to terminate the franchise agreements.
The applicants applied to court for an order declaring that their renewal option had been validly exercised, and prohibiting the trust from evicting them. The applicants argued that strict enforcement of the renewal clause of the lease agreements would be contrary to public policy, or unconscionable in the circumstances of this case because it would result in a total collapse of their businesses.
The Constitutional Court held that a party who seeks to avoid the enforcement of a contractual term is required to demonstrate good reason for failing to comply with the term. The clauses containing the options to renew, which the applicants sought to avoid, were written in simple and uncomplicated language and there were no circumstances which prevented the applicants from complying with them. The inference drawn by the court was that the applicants had simply neglected to comply with the renewal clauses. Thus, the applicants failed to show good cause for failure to comply with the contractual term.
The court stated that the ‘harsh outcome alone, absent an explanation for failure to comply with the terms of the renewal clauses, [did not] constitute a sufficient basis to hold that the enforcement of the clauses would be contrary to public policy’. It is only where a contractual term, or its enforcement, is so unfair, unreasonable or unjust that it is contrary to public policy that a court may refuse to enforce it.