Certainty is a bedrock principle of South African contract law. Once parties have entered into a contract, they are bound by its terms. Courts have consistently upheld this principle, reminding us that "our law does not recognise the right of a court to release a contracting party from the consequences of an agreement duly entered into by him merely because that agreement appears to be unreasonable."[1]
While our jurisprudence has at times wavered in tone, the higher courts have sought to anchor the law of contract in predictability, cautioning against judicial interference based on abstract moral ideals. As reaffirmed by the Supreme Court of Appeal:
"[A]lthough abstract values such as good faith, reasonableness and fairness are fundamental to our law of contract, they do not constitute independent and substantive rules that courts can employ to intervene in contractual relationships. These abstract values perform creative, informative and controlling functions through established rules of the law of contract. They cannot be acted upon by the courts directly. Acceptance of the notion that judges can refuse to enforce a contractual provision merely because it offends their sense of personal fairness will give rise to legal and commercial uncertainty. After all, it has been said that fairness and justice, like beauty, often lie in the eye of the beholder."[2]
The Constitutional Court has echoed this approach:
"Public policy demands that contracts freely and consciously entered into must be honoured," "a court may not refuse to enforce contractual terms on the basis that the enforcement would, in its subjective view, be unfair, unreasonable or unduly harsh," and "[t]he application of the common law rules of contract should result in reasonably predictable outcomes, enabling individuals to enter into contractual relationships with the belief that they will be able to approach a court to enforce their bargain."[3]
Enter section 12B: a statutory shift in the rules of engagement
Against this doctrinal backdrop, section 12B of the Petroleum Products Act (PPA) introduces an unusual policy intervention. It states:
"12B. Arbitration.—(1) The Controller of Petroleum Products may on request by a licensed retailer alleging an unfair or unreasonable contractual practice by a licensed wholesaler, or vice versa, require, by notice in writing to the parties concerned, that the parties submit the matter to arbitration."
This provision shifts the terrain. It invites scrutiny of contractual practices on the basis of fairness and reasonableness — concepts that, under common law, are not freestanding grounds to challenge a contractual term.
Where contracts in the petroleum industry are negotiated in commercially complex environments, often reflecting unequal bargaining power, section 12B raises fundamental questions:
- Can a retailer challenge a contract it freely entered into — potentially years later — simply because a provision is now perceived as "unfair"?
- What is the standard of fairness in this context, and how should it be measured?
- How far can arbitrators go in reinterpreting or rewriting contractual arrangements under the guise of correcting unfair practices?
Self-standing contractual protections already exist
Our legal system already protects parties from egregious abuse in contract through doctrines such as fraud, misrepresentation, duress and public policy. These common law mechanisms set clear and relatively high thresholds for invalidating a contract or part thereof. Section 12B, however, overlays this settled landscape with broad evaluative concepts that are not clearly defined in the statute (or, generally, within our law).
These protections have doubtless influenced our law's acceptance that it is not unlawful to cause economic harm to, or even inflict economic ruin on, a counterparty, particularly in the context of a competitive economy. It is, moreover, inevitable that in negotiating contracts, parties will seek to secure the best terms to protect their interests, but may have to make compromises and ultimately accept terms which are (or may become) commercially unfavourable.
Applying "fairness" and "reasonableness" within this landscape represents a challenging proposition, given the vagaries associated with these nebulous terms.
What is 'unfair or unreasonable'? The industry still lacks clarity
Because section 12B arbitrations are confidential, there is little publicly available jurisprudence to guide the industry. While certain issues — such as termination of a retailer's use-right over a wholesaler's premises, equipment or intellectual property — have been raised by retailers as grounds for invoking section 12B, there remains little clarity on what constitutes an “unfair or unreasonable" contractual practice.
Examples where section 12B has been invoked include:
- Disputes over whether a wholesaler is required to pay a retailer any compensation when terminating the retailer's use-right;
- The fairness of evictions following contract termination (or in the face of disputed terminations);
- The equitable application of exclusivity clauses or sole-supply obligations.
Given that many retail fuel agreements reflect a use-right conferred by the wholesaler — often terminable on notice — the mere exercise of this contractual right should not, without more, become a ground for an "unfairness" complaint.
A cautious path forward: protecting certainty without ignoring power imbalances
While section 12B arguably seeks to rebalance relationships within a regulated industry where disparities in power are real, it must not become a mechanism for
post hoc renegotiation or for undermining the principle of
pacta sunt servanda.
It is suggested that:
- Arbitrators should avoid the temptation to re-engineer contracts in pursuit of subjective fairness;
- The broader aim should be to preserve the integrity and predictability of commercial agreements, while offering relief in truly egregious cases;
- It should be recognised that retailers and wholesalers have autonomy to negotiate their contracts, and neither party is compelled to do business with the other if terms cannot be agreed;
- The threshold for intervention under section 12B should be a high one, and the enquiry should be rooted in objectively unjust practices that are so commercially one-sided or egregious that they could only represent a material distortion of bargaining power.
Conclusion: the rule of law must outweigh the rule of sympathy
Section 12B's fairness and reasonableness standards should not be misunderstood as an invitation to re-litigate commercial regrets. If certainty in contracts is diluted, the cost will not only be borne by petroleum companies, but by an industry that thrives on long-term infrastructure investment, risk allocation and trust in enforceable agreements.
Investor confidence — both domestic and international — hinges on the predictability and enforceability of commercial contracts. Infrastructure-heavy sectors such as fuel retail require significant capital outlays, often recouped only over extended timeframes through stable, contract-based returns. If investors perceive that contractual rights can be easily unravelled through vaguely defined standards of fairness, or that arbitrators may rewrite commercial terms post hoc, they may view the sector as too risky. This erodes appetite for investment, delays development timelines, and may increase the cost of capital. In a country where infrastructure expansion is critical to economic growth and energy security, legal uncertainty in a regulated industry may send the wrong signals to markets already alert to political and regulatory volatility.
To preserve both fairness and commercial coherence, decision-makers must resist the allure of subjective justice in favour of principled, measured interventions. In the world of petroleum — as in law — not all that feels unfair is unlawful.
