The recent Supreme Court of Appeal (SCA) judgment in Spar Group Ltd v Twelve Gods Supermarket (Pty) Ltd and Others [2025] ZASCA 07 offers critical lessons for businesses in the mining, engineering and construction (“MEC”) sectors. While the dispute arose in the retail environment, the legal principles clarified by the court apply across industries where long-term supply contracts, credit facilities, and subcontracting arrangements are common.
The Core Issue: Discretion to Change Contract Terms
At the heart of the dispute was whether one party could unilaterally alter contractual terms, without consulting its counterparties. The court was asked to determine if such powers were unrestricted or if they had to be exercised according to the principle of arbitrio boni viri (in good faith, reasonably, and for a legitimate purpose).
This principle is vital in MEC contracts, where:
- Owners or EPCM contractors may reserve rights to change project timelines or payment schedules;
- Suppliers may include clauses allowing variation of delivery or credit terms; and
- Employers often rely on discretionary powers in standard-form contracts.
The Court’s Findings
The SCA confirmed that contractual discretion is not absolute. Even where a contract expressly grants one party the right to vary terms, that discretion must be exercised:
- Reasonably – decisions must have a sound commercial basis, not arbitrary or capricious;
- Honestly – free from ulterior motives or bad faith;
- For a proper purpose – aligned with the objectives of the agreement, not to undermine the other party.
The court rejected the attempt to frame the credit changes as new offers of contract. Instead, it held that the parties were in a long-standing contractual relationship, and unilateral variations directly impacted the counterparty’s obligations. Because of this, conduct had to meet the arbitrio boni viri standard, which it failed to do.
Implications for the MEC Sector
1. Credit and Supply Agreements
In mining and construction, contractors often rely on supplier credit terms to maintain cash flow. If a supplier reserves the right to alter those terms, the SCA makes clear that such discretion must be exercised fairly. Abruptly tightening payment terms, particularly without evidence of default, could be unlawful.
2. Variation and Termination Clauses
Standard-form contracts (like FIDIC, NEC, or JBCC) frequently allow one party to vary certain obligations. This judgment reinforces that such powers are limited by reasonableness and good faith, even if not expressly stated.
3. Risk Management
Employers and contractors must ensure that decisions to alter terms (such as reducing subcontractor scope, accelerating works, or changing credit lines) are supported by documented commercial reasons. Failure to do so risks legal challenge and damages.
4. Relationship Dynamics
Long-term projects in the MEC industry depend on trust and predictable arrangements. Using contractual powers as a tool to pressure or “throttle” a partner, as the court found the one party had done, can backfire legally and commercially.
Key Takeaways for MEC Businesses
- Review your contracts: Ensure clauses granting discretionary powers are carefully drafted and consider adding explicit standards (e.g., reasonableness, good faith).
- Document your decisions: Keep records of why variations or restrictions are imposed to demonstrate proper purpose if challenged.
- Engage counterparts: Where possible, consult with affected parties before implementing changes. Courts view consultation as evidence of fairness.
- Avoid weaponising discretion: Using contractual levers to force out or undermine a partner risks invalidation by the courts.
Conclusion
The SCA judgment underscores a principle that resonates strongly in the MEC sector: discretion must be exercised responsibly. Whether adjusting credit terms, varying contract performance, or enforcing compliance, companies cannot act unilaterally without fairness and good faith. For mining, engineering, and construction businesses, where project success often hinges on long-term, trust-based relationships, this is a timely reminder to manage contractual powers with care.