Escaping the ‘Shifren Shackle’ Through the Application of Public Policy: An Analysis of Three Recent Cases Shows Shifren is not so Immutable after All

By | 5th December 2015

Nearly five decades ago, and in the wake of debate in legal circles, the Shifren principle found its way into our law pursuant to the Appellate Division decision in SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren. In terms of this principle, ‘contracting parties may validly agree in writing to an enumeration of their rights, duties and powers in relation to the subject-matter of a contract, which they may alter only by again resorting to writing’. This is achieved by way of the so-called ‘non-variation clause’ which is typically worded in a formulaic way, in order to entrench both itself and all the terms of the contract against oral variation, along the following lines: ‘no variation of this agreement shall be of any force or effect unless reduced to writing and signed by the parties to this agreement’. The Appellate Division in Shifren upheld the validity and enforceability of such a clause and in so doing effectively made a policy decision necessitated by the paradox inherent in a non-variation clause. On the one hand, it limits contractual freedom by curtailing the parties’ ability to change their minds and alter the contract, but on the other hand, this limitation is itself a manifestation of the parties’ contractual freedom pursuant to which they, by prior design, agreed to this limitation in order ‘to enhance certainty in their future dealings and to minimise disputes between them.’ The Shifren principle represents an endorsement of the latter view and in formulating it, a unanimous Appellate Division purportedly put an end to the debate regarding the effectiveness of such clauses.

The debate may have ended, but not, it would seem, the controversy: to date, the Shifren principle ‘remains controversial’. This is because in practice, its application frequently leads to harsh and unjust results as it allows a party to go back on his or her word, notwithstanding the other party’s good faith reliance on it. As Lewis notes, ‘what appears fair at first glance may later appear to be unduly burdensome.’ McLennan, writing in 2001, went so far as to criticise the principle for allowing a ‘suppression of the truth’ and called for its abolition, stating that, ‘[e]ven if there ever had been any justification for the non-variation clause, it has no place in the modern law of contract.’ However, the Shifren principle remains very much alive and well, with non-variation clauses making an appearance in almost every modern contract – particularly since the dawn of the era of mass standard-form contracting. The clause certainly has its worth and it is submitted that McLennan’s strong assertion, with respect, perhaps does not take into adequate consideration the benefits of this clause in our current commercial world. As Bosielo J has remarked:

“It seems to me that the fundamental reason why parties would, in their own wisdom, elect to embody a non-variation clause in their contracts, is to protect themselves and try avoid the uncertainty and serious pitfalls which go hand in glove with oral agreements concomitant with serious evidentiary hurdles which may prove difficult and costly to scale.”

The principle does therefore have its benefits and it has thus been consistently reaffirmed by our courts; albeit with the proviso introduced by the Supreme Court of Appeal in 1998 that ‘a non-variation clause curtails common law freedom to contract and must hence be restrictively interpreted.’ The Shifren principle therefore need not be abolished, as McLennan suggested. Instead, the question is how the courts ought best to mitigate its frequently inequitable effects. In 2002, in Brisley v Drotsky, the Supreme Court of Appeal had to consider this question in a challenge to the Shifren principle on constitutional grounds. The court unanimously reaffirmed this ‘die-hard’ addition to our law, but (particularly) through the separate concurring judgment of Cameron JA, opened the door to the possibility of loosening the ‘Shifren shackle’. Cameron JA predicted that the appropriate tool to mitigate potential hardship caused by Shifren would be the age-old doctrine of public policy in its new constitutional guise. He noted:

“It is not difficult to envisage situations in which contracts that offend these fundamentals of our new social compact will be struck down as offensive to public policy. They will be struck down because the Constitution requires it, and the values it enshrines will guide the courts in doing so.”

This prediction has come to pass. In this article, I discuss three recent cases which illustrate a loosening of the Shifren shackle through the application of the tenets of public policy as now informed by the Constitution. In each case, the court refuses to enforce a non-variation clause on the basis that to do so would offend public policy. Each case arises out of a distinct contractual setting: (i) Nyandeni Local Municipality v Hlazo concerns an employment contract; (ii) GF v SH arises in the family law context and concerns a written maintenance agreement; and (iii) Steyn v Karee Kloof Melkery (Pty) Ltd concerns, inter alia, a sale of business agreement concluded in a commercial setting. I focus, in particular, on the Nyandeni judgment in so far as it represents precisely the kind of judicial ‘activism and ingenuity’ in fine-tuning public policy as an instrument of ‘judicial control over contractual enforcement’ that our jurisprudence – particularly that of our apex courts – has thus far been so desperately lacking.

Before turning to discuss these cases, I proceed to canvass by way of background, the Supreme Court of Appeal’s endorsement of the Shifren principle and the attempts of the lower courts to circumvent it on ‘dubious grounds’ by employing various technical doctrinal devices. I illustrate how the string of failed attempts to employ the notion of good faith as an independent basis on which to refuse to enforce contractual terms that operate harshly (such as the non-variation clause), has revived the flexible ‘overarching corrective doctrinal control mechanism’ of public policy in its constitutional guise to mitigate injustice in contract. The net result has been an incremental loosening of the Shifren shackle. These cases collectively reveal judicial reasoning in line with the ‘dictates of experimental constitutionalism’ and a concomitant striking of the requisite balance between a range of competing considerations such as pacta sunt servanda and the need for commercial certainty, versus the need to ensure good faith and equity in contract. The Nyandeni judgment, in particular, represents an answer to Sachs J’s call in Barkhuizen v Napier to ensure that, the common law, under the impulse of the values of our new constitutional order…shoulder[s] the burden of grappling in its own quiet and incremental manner with appropriate legal regulation to ensure basic equity in the daily dealings of ordinary people.

The trio of cases under discussion epitomises an effort on the part of the high courts to build on the foundations laid in Barkhuizen. In this trio, the courts develop the common-law of contract on non-variation clauses through the application of public policy, as informed by the Constitution. More specifically, the analysis of the cases illustrates how the second leg of the public policy test as formulated in Barkhuizen has enabled the courts to mitigate the harsh effects of the Shifren principle by taking account of the particular circumstances of the parties at the time of enforcement of the non-variation clause.

Download the full article as published in the Speculum Juris journal here.

Citation: Kohn, L ‘Escaping the “Shifren shackle” through the application of public policy: An analysis of three recent cases shows Shifren is not so immutable after all’ (2014) 1 Speculum Juris 74