INTRODUCTION

Within the framework of South African contract law, provisions that require parties to negotiate unresolved terms at a later stage, often referred to as “agreements to agree”, remain a point of contention. These clauses raise significant questions about enforceability, particularly when one party withdraws from good faith negotiations. Recent judicial developments, culminating in the Makate v Vodacom (Pty) Ltd judgment, have clarified the legal consequences of such arrangements.

This article provides an overview of the current legal position and explores whether a contractual obligation to negotiate in good faith can be upheld.

WHAT IS AN AGREEMENT TO AGREE?

An agreement to agree generally represents a preliminary commitment between parties to engage in future negotiations regarding specific contract terms. These provisions often appear in heads of agreement or memoranda of understanding, where full consensus cannot be reached at the outset.

Disputes commonly arise when one party refuses to engage in further dialogue, leaving the agreement incomplete. The critical legal question that arises is whether the duty to act in good faith during these negotiations becomes an enforceable obligation, especially where no mechanism exists to break a deadlock.

JUDICIAL INTERPRETATION AND CASE LAW

Letaba Sawmills (Edms) Bpk v Majovi (Edms) Bpk [1992] ZASCA 195; 1993 (1) SA 768 (A): This judgment established a foundational principle that agreements to negotiate are not inherently unenforceable, provided there are safeguards such as arbitration or expert determination to resolve a failure to agree. The court’s endorsement of a structured negotiation process laid the groundwork for recognising enforceable good faith obligations under certain conditions.

Premier, Free State v Firechem Free State (Pty) Ltd [2000] (4) SA 413 (SCA): In contrast, the Firechem case reaffirmed that open-ended promises to negotiate without a fallback provision lack legal force. The court held that unconstrained discretion where parties may simply choose not to agree undermines contractual certainty and renders such clauses void for vagueness.

Everfresh Market Virginia (Pty) Ltd v Shoprite Checkers (Pty) Ltd [2011] ZACC 30: In this case the Constitutional Court was presented with an opportunity to introduce broader constitutional values such as fairness and Ubuntu into contract law. Although the application was ultimately dismissed, the judgment acknowledged the evolving nature of contract law and the potential relevance of good faith as a constitutional value. Justice Yacoob, in particular, emphasized the importance of developing the common law in alignment with constitutional principles.

Makate v Vodacom (Pty) Ltd [2016] ZACC 13; 2016 (6) BCLR 709 (CC); 2016 (4) SA 121 (CC): The Makate decision marked a significant shift. The Court held that Vodacom’s refusal to engage in genuine negotiations contravened a binding obligation to do so. This case confirmed that, where parties have committed to future engagement with sufficiently defined parameters, courts may enforce the duty to negotiate earnestly and in good faith.

PRACTICAL IMPLICATIONS IN DRAFTING:

The current legal position affirms that clauses requiring future negotiation are enforceable when complemented by a defined process or resolution mechanism. The Letaba principle and Makate decision highlight the need for precision in contract drafting to ensure that parties cannot indefinitely delay or avoid good faith negotiations.

Without a structured deadlock-breaking clause, as in Firechem, such provisions risk being dismissed outright. Nonetheless, Everfresh signals an openness by the Constitutional Court to consider constitutional values when assessing fairness and bargaining conduct in private contracts.

CONCLUSION

Agreements to agree should not be dismissed as vague or unenforceable by default. When drafted with clarity and supported by procedural safeguards, they can reflect legitimate commercial expectations and hold parties accountable to negotiate in good faith.

Legal drafters and practitioners are encouraged to adopt a forward-looking approach infusing contractual frameworks with mechanisms that promote transparency and trust while aligning with constitutional ideals. In the spirit of Makate and Everfresh, contracts are not merely transactional tools but also reflections of equitable conduct and mutual respect.