By Duncan Wild

The respondents in the this matter are the trustee’s of the JJW Hendriks Trust (“the Trust“) that owned certain property in De Aar. In November 2003 the Trust sold the property to the first respondent, Lorraine Botha (“Botha“) and the parties entered an agreement in accordance with the Alienation of Land Act 68 of 1981 (“the Act“). Of particular relevance, the parties agreed that section 19 of the Act would apply to the agreement, this section provides that the seller my terminate the contract only if: she has notified the purchaser of a breach and called upon the purchaser to rectify the breach in no less than 30 days, and the purchaser has failed to rectify the breach. The agreement stipulated that the purchase price was to be R240,000 and would be paid in installments of R4,000 a month.

In September 2008, after Botha failed to pay the monthly installments, and to insure the property, a letter of demand was sent by the Trust, giving Botha 30 days to rectify the breach, and indicating that faling rectification the contract would be cancelled. Botha did not respond. On 23 February 2009, a notice of cancellation was sent to Botha.

On 3 March 2009, Botha offered to pay the balance of the purchase price, but the Trust did not respond.

Three questions were before the High Court, the first was whether the 23 February letter constituted a proper notice of cancellation, second, was the cancellation clause contrary to public policy and so unconstitutional, and finally, whether the letter of 3 March 2009 affected the cancellation.

Analysing the notice of cancellation and the contract, the Court found the 3 February letter was a proper cancellation.

Turning to the issue of the public policy, the Court evaluated the clause against the test set out by the Constitutional Court in Barkhuizen v Napier 2007 (5) SA 323 (CC), which explains the the public policy of South Africa is enshrined in the Constitution, and where the enforcement of contractual provision would be unfair in light of the provisions of the Constitution it would be considered contrary to public policy.

The Court emphasised that it is important in undertaking this evaluation whether the contractual terms were freely entered into, and that the important to protect the principle of freedom of contract. Considering the contract in question, the Court emphasized that this was a standard termination clause and there was no allegation that the clause was unknown, or that the the bargaining power was uneven between the parties. The Court emphasized that it is not against public policy for a party to freely enter into a contract that has terms that might operate to its detriment. The cancellation provision operates to protect the Trust in the circumstances, and on the conditions, it sets out. The Court therefore found that the terms were not contrary to public policy.

In the Constitutional Court, Botha argued  that the term is unfair primarily because 80% of the purchase price had been paid by the time of the termination and it would be unfair to enforce the clause in the circumstances.  The Trust argues that Botha can bring a claim for restitution of the amounts paid, but has not done so in this case, and it is permissible for a court to consider the issues separately.

In terms of the final question, the Court found that the 3 March letter was an offer, after the contract had been terminated, and was not accepted, and thus had no effect.