In Tarentaal Centre Investments (Pty) Ltd v Beneficio Developments (15/2025) [2025] ZASCA 38 (8 April 2025) (“Tarentaal”), a recent judgment handed down by the Supreme Court of Appeal, the Court considered whether interest charged on a loan between two commercial entities of substance was exorbitant.
The interest charged as per the formal agreements entered into between the parties was at a rate of 1% per week, capitalised monthly. It was common cause that the agreements were entered into between the parties without duress or fraud.
The crisp issues for analysis by the Court dealt with the common-law principles of stare decisis (binding precedent), pacta sunt servanda (sanctity of contract) and “perceptive restraint”.
Stare Decisis
The Court dealt first with the principle of stare decisis and favourably quoted the following dictum issued by the Appellate Division in 1938, namely:
“The ordinary rule is that this Court is bound by its own decisions and unless a decision has been arrived at on some manifest oversight or misunderstanding, that there has been something in the nature of a palpable mistake, a subsequently constituted Court has no right to prefer its own reasoning to that of its predecessors – such preference, if allowed, would produce endless uncertainty and confusion. The maxim stare decisis should, therefore, be more rigidly applied in this the highest Court in the land, than in all others”.
Pacta Sunt Servanda
The Court then dealt with the maxim pacta sunt servanda. The Court referred in this regard to AB and Another v Pridwin Preparatory School and Others [2018] ZASCA 150 (“Pridwin”).
- In Pridwin the Supreme Court of Appeal “pronounced the following principles that govern judicial discretion to invalidate or refuse to enforce contracts that are contrary to public policy: public policy demands that contracts freely and voluntarily entered into must be honoured;
- a court will declare invalid a contract that is prima facie inimical to a constitutional value or principle, or otherwise contrary to public policy; (c) where a contract is not prima facie invalid but its enforcement in particular circumstances is, a court will not enforce it; (d) a party who assails the contract or its enforcement bears the onus to establish the facts; (e) a court will use the power to invalidate a contract or not to enforce it, sparingly, and only in the clearest of cases in which harm to the public is substantially incontestable and does not depend on the idiosyncratic inferences of a few judicial minds; (f) a court will decline to use this power where a party relies directly on abstract values of fairness and reasonableness to escape the consequences of a contract because they are not substantive rules that may be used for this purpose”.
Smith JA, having cited the above, went on to deal with the doctrine of “perceptive restraint” which has been, he held, repeatedly espoused by the Supreme Court of Appeal.
In terms of this principle, Smith JA held that courts must use the power to invalidate a contract or not to enforce it, sparingly, and only in the clearest of cases. In short, the principle of pacta sunt servanda was viewed by the Court as a fundamental protective mechanism for the sanctity of commercial transactions only to be disturbed by unusual circumstances.
The Caveat: Perceptive Restraint
The Court then dealt with a caveat which was set out in Beadicia 231 CC and Others v Trustees of the time being of the Oregon Trust and Others (CCT109/19) [2020] ZACC 13 (“Beadicia”).
In Beadicia, the Constitutional Court held that:
“[i]n our new constitutional era, pacta sunt servanda is not the only, nor the most important principle informing the judicial control of contracts. The requirements of public policy are informed by a wide range of constitutional values.
There is no basis for privileging pacta sunt servanda over other constitutional rights and values. Where a number of constitutional rights and values are implicated, a careful balancing exercise is required to determine whether enforcement of the contractual terms would be contrary to public policy in the circumstances”.
From this quotation it is clear that there is some tension between the rulings of the Constitutional Court and the Supreme Court of Appeal regarding the implementation of the common-law principles of pacta sunt servanda as read with “perceptive restraint”.
Notwithstanding, the Constitutional Court was of the view that such differences are more perceived than real and that the principle of pacta sunt servanda gives effect to the “central constitutional values of freedom and dignity” and that in general, “public policy requires that contracting parties honour obligations that have been freely and voluntarily undertaken” (Beadicia at para 90).
The Court unanimously held that, in the circumstances before it, that the appellants were sophisticated businesses and had entered into contracts of loan without duress or any aspect of fraud. The fact that an interest rate agreed upon might be considered to be on the high side is not a matter for a Court at a later stage to set-aside or alter. The Court accordingly held that there were no reasonable prospects that a Court of Appeal would find for the appellants and refused its application in terms of section 17(2)(f) for leave to appeal.
Common-Law Principal Considerations
Finally, the Court considered the question as to whether the common-law should be further developed so as to incorporate a different or broader interpretation which in some fashion incorporated an extended inclusion of public policy, and concluded that no Court of Appeal would find any rationale for such further development.
This case is an important affirmation of the continued importance of the three common-law principles, stare decisis¸ pacta sunt servanda, and “perceptive restraint”.