A gentlemen's agreement is simply defined as an agreement between parties which is not intended to create legal obligations. Its is an informal and legally non-binding agreement between 2 or more parties.
It is often oral although it can also be written. The terms of the agreement are agreed upon between the parties by mutual consent and performance relies on the honour of the parties.
In differenriating between a gentleman agreement and a contractual agreement, regard must be had to the intention of the parties. The question to ask is, was the agreement meant to have contractual effect? In the case of KPMG Chartered Accountants versus Securefin Ltd (2009) the court observed that in determing whether an agreement is simply a gentlemen's agreement or a contractual agreement, one must look into the context and content of the agreement. It is only when one understands what the parties meant and intended that one can take an agreement as a gentlemen's agreement and not a contractual agreement.
A gentlemen's agreement is not meant to be enforced through the court or through legal proceedings. One of the industries that have always preferred utilising a gentlemen's agreements rather than contractual agreements is the diamonds industry. The sophisticated traders have always preferred to set their own terms of trade complete with sanctions, reliefs, ways of solving disputes, rules of operations, rights and duties of parties. Their disputes are resolved between the parties but not through litigation or arbitration.
The court will give regard to the nature of an agreement before agreeing with the argument that an agreement was simply a gentlemen's agreement. In the case of Absa Bank Ltd, the court held that a contractual agreement can only be regarded as enforceable if it makes commercial sense or has business efficacy, otherwise, it will simply be a gentlemen's agreement and therefore not enforceable.
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