The Supreme Court of Appeal recently made a judgment in the Coral Lagoon Investments 194 (Pty) Ltd and another v Capitec Bank Holdings Limited on whether pactum de non petendo in anticipando (a contractual undertaking not to institute any legal action) was applicable in our law.
A pactum de non petendo in anticipando is a contractual principle in terms of which parties conclude an agreement or undertaking not to institute an action against each other.
In 2006 Capitec Bank Holdings Limited (Pty) Ltd “Capitec” concluded a subscription of shares and shareholders agreement with Carol Lagoon Investments 194 (Pty) Ltd “Carol”.
Carol instituted action against Capitec, claiming that Capitec’s prevention of the sale of the shares by Coral led to them having a financial loss of R 1,225 billion.
Capitec asserted that the legal action should be withdrawn because Carol had agreed in a consent agreement not to institute legal proceedings against Capitec.
In interpreting the clauses of a contract, the court has utilised an objective process of attributing meaning to the words used in the document. In addition, the Court considered the context of the document as a whole, regarding the apparent purpose of the terms.
Taking into consideration the above-mentioned contractual interpretation framework the Court found that Carol clearly breached the contractual undertaking not to sue. A pactum is an agreement like any other and gives rise to rights and correlative duties.
In deciding whether the clause was against public policy or not the court made reference to the case of Beadica 231 CC and others v Trustees for the time being of the Oregon Trust and others in which it was held that public policy is the basis on which courts may decline to enforce contractual terms where the terms themselves or its enforcement would be contrary to public policy. In the matter under consideration, the court found that the pactum was consistent with public policy.
It is clear that agreements to ‘not litigate’ are not necessarily unreasonable, subject to the framework mentioned above of consideration and alignment with public policy. The position correlates with the contractual freedom provided by the law of contract in South Africa.
