Courts against legal certainty?

Courts against legal certainty?

By Belinda van der Vyver and Jerome Veldsman

On the facts, Beadica 231 CC and Others v Oregon Trust and Others, a judgment of the High Court, Cape Town on 16 November 2017, dealt with the late exercise of options to renew lease agreements.  But the judgment deals more with the conflict between:

  •      –     legal certainty, in particular the enforcement of contractual obligations; and
  •      –     a judicial sense of reasonableness, fairness, and good faith, despite the terms of a contract.

In the words of the Judge: “Legal certainty is a shibboleth, if it is meant to imply that inevitably there is one right answer that stares litigants in the face, so much so that there is never a risk that an opposite conclusion may not be reached by a court.”

The four applicants, respectively, entered into franchise agreements with Oregon Trust (the franchisor), and also leased premises from Oregon Trust (the lessor) from which they conducted the franchised businesses (Sales Hire outlets, renting out builders’ equipment and tools).  The franchise agreements were for ten years (from 1 August 2011), and the lease agreements were for five years (also from 1 August 2011), with the franchisees having an option to renew the lease agreements for another five years, provided the lessees, respectively, gave written notice of their exercise of the option to renew by latest 31 January 2016.

31 January 2016 came and went, without any of the lessees giving written notice of exercise of the option.  In March 2017, the lessees (kind of) gave notice purporting to exercise the options to renew.  The lessor did not respond.  Shortly before the end of July 2016, the lessor informed the lessees that they could either (1) continue to rent the properties on a month-to-month basis, whist the parties negotiated a new lease agreement, or (2) vacate the relevant properties by the end of July 2016.

The lessees then applied to Court for an order declaring that the late notices to exercise the options to renew served as valid exercise of the renewal options.  The lessees succeeded.

Factors the Judge considered in favour of the lessees included that they were historically disadvantaged and not sophisticated business men.  It is difficult to extract from the judgment the legal basis on which the lessees succeeded, as there is a disjunction between the actual evidence and the basis for the finding.  Seemingly, the Judge regarded the lessees as having breached the lease agreements (by not giving timeous notices to renew), and the lessor then cancelling the lease agreements.  In such circumstances, the sanction claimed by the lessor (cancellation) was disproportionate to the consequences of the breach, and the Judge declared that the options to renew the lease agreements had been validly exercised.

It seems that, in the real world, the lessor wished to negotiate better terms for itself, and wished to use the lessees’ failure to exercise the renewal options timeously as its “big stick” in the negotiation.  Had the judgment dealt with the actual facts, it may have set an interesting precedent.  However, now the judgment merely introduces uncertainty into the many of thousands of existing options to renew lease agreements.

As an aside, the term “shibboleth” has a Biblical origin; the term is used once in the book of Judges.  The Israelites used the term (meaning the part of a plant containing grains) as a “code word” to catch out Ephraimites, who pronounced the term differently, and were then summarily executed.  The term has different meanings in modern usage; one of which is in economics: pejoratively to label a term or concept valued by one group, but regarded as empty of real meaning by others.  Perhaps the Judge used the term to have latter meaning.

Also in this issue:

More quotes from Elizabeth Warren

“I accept” on the internet

So long and thanks for all the business

Switched at birth

A different take on franchising

The baker must bake