In South African private M&A transactions, a Sale and Purchase Agreement (SPA) typically distinguishes between clauses effective on the Signature Date (e.g., Interpretation, Conditions Precedent (CPs), or suspensive conditions, Confidentiality) and substantive clauses activated only upon fulfillment or waiver of CPs by the Longstop Date (e.g., Sale, Purchase Price, Warranties).
CPs are conditions agreed upon by the parties that must be satisfied, or waived, before the transaction closes. CPs are typically attributed to a specific party, but some can be mutually applicable. Failure to satisfy a CP by the Longstop Date typically results in the transaction automatically lapsing without liability to the parties.
A recent Supreme Court of Appeal (SCA) judgment in Remo Ventures & Others v Cecil van Zyl and Others (Case no 1262/2022) [2024] ZASCA 09 (26 January 2024; https://lnkd.in/ggTiPksd), underscores the importance of the SPA clearly specifying which clauses will continue to survive (for example, Arbitration) despite the fact that the SPA falls away due to non-fulfillment the CPs.
In this matter, notwithstanding the non-fulfilment of the CPs, the parties acted under the belief that the Sale of Shares Agreement was still in force and valid and continued to implement it. Subsequently, the parties concluded an Arbitration Agreement and proceeded with arbitration proceedings. The SCA found that the arbitration agreement was void as the non-fulfilment of the CPs rendered the sale of shares agreement a nullity and, as a consequence, the revised arbitration agreement, a nullity as well.
We can only presume that the SPA read with the revised Arbitration Agreement (to the extent necessary) did not contain a provision to the effect that the arbitration provisions would survive the non-fulfillment of the CP’s.