Barkhuizen v Napier (CCT72/05) [2007] ZACC 5; 2007 (5) SA 323 (CC); 2007 (7) BCLR 691 (CC) (4 April 2007)

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[2007] ZACC 5
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Barkhuizen v Napier (CCT72/05) [2007] ZACC 5; 2007 (5) SA 323 (CC); 2007 (7) BCLR 691 (CC) (4 April 2007)

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IN
THE CONSTITUTIONAL COURT OF SOUTH AFRICA
Case CCT
72/05
[2007] ZACC 5
BAREND PETRUS
BARKHUIZEN Applicant
versus
RONALD STUART
NAPIER Respondent
Heard on : 4 May 2006
Decided on : 4 April
2007
JUDGMENT
NGCOBO J:
Introduction
This application for leave to appeal against a decision of the
Supreme Court of Appeal concerns the constitutionality of a time
limitation clause in a short-term insurance policy.
1
A clause of this nature prevents an insured claimant from
instituting legal action if summons is not served on the insurance
company within the time limit set out in the clause. The applicant
contends that this clause is unconstitutional in that it
violates
the right to approach a court for redress.
Factual
background
The applicant
entered into a short-term contract of insurance with a syndicate of
Lloyd’s Underwriters of London, represented
in this country by
the respondent. In terms of that contract, the applicant was
insured against, among other risks, loss resulting
from damage to
his motor vehicle, a 1999 BMW 328i. On 24 November 1999, the motor
vehicle was involved in an accident resulting
in damage beyond
economic repair. On 2 December 1999, the applicant duly notified
the respondent of the occurrence of the accident
and the resulting
damage and claimed R181 000 representing the sum insured. On 7
January 2000, the respondent repudiated the
claim, alleging that
the motor vehicle had been used for business purposes, contrary to
the undertaking to use it for private
purposes only.
Two years
later, that is on 8 January 2002, the applicant instituted action
against the defendant claiming the sum of R181 000
together with
interest thereon. The summons was met with a special plea,
alleging that the respondent had been released from
liability
because the applicant had failed to serve summons within 90 days of
being notified of the repudiation of his claim.
The special plea
was based on clause 5.2.5 of the contract which provides:
“
if we reject liability for
any claim made under this Policy we will be released from liability
unless summons is served . . . within
90 days of repudiation.”
The respondent
also pleaded over, a plea that is not relevant for present
purposes.
In his
replication, the applicant conceded non-compliance with clause
5.2.5 but alleged that the clause is contrary to public
policy in
that, among other things, it prescribes an unreasonably short time
to institute action and it constitutes an infringement
on the right
of the insured to seek the assistance of a court. What is more,
the applicant alleged that the clause is contrary
to the provisions
of section 34 of the Constitution. That provision, which
guarantees the right of access to court, provides:
“
Everyone has the right to
have any dispute that can be resolved by the application of law
decided in a fair public hearing before
a court or, where
appropriate, another independent and impartial tribunal or forum.”
The
replication did not evoke any further pleading from the respondent.
The decisions of
the courts below
(a) The High
Court
The Pretoria
High Court, which heard the matter in the first instance, was asked
to adjudicate on the special plea only. To this
extent, the
parties agreed on a terse statement of facts recording the
existence of the insurance contract, the occurrence of
the accident
and the submission of the written claim to the respondent on 2
December 1999, the repudiation of the claim on 7
January 2000 and
the institution of legal action on 8 January 2002. And nothing
more.
In argument in
the High Court, the applicant relied only on the argument that
clause 5.2.5 was unconstitutional because it was
inconsistent with
the provisions of section 34 of the Constitution. As the High
Court noted, the applicant did not rely on the
argument that the
clause was contrary to public policy, an argument which was
foreshadowed in the pleadings. As a consequence,
the High Court
did not deal with this argument, but dealt only with the argument
that clause 5.2.5 is inconsistent with section
34.
The High Court
upheld the argument. It found that clause 5.2.5 is inconsistent
with section 34 and made a declaration to that
effect. The High
Court relied, for its conclusion, on the decision of this Court in
Mohlomi v Minister of Defence
.
2
In that case, this Court considered a time limitation provision in
a statute which regulated the institution of proceedings
against
the South African National Defence Force. The impugned provision
required a claimant to give notice of a claim one month
before
issuing summons and gave a claimant six months to sue from the date
of loss. It did not permit condonation of non-compliance
with its
provisions. The Court held that the impugned provision limited the
right of access to court and that this limitation
was not
reasonable and justifiable under section 33(1) of the interim
Constitution, the predecessor of section 36(1).
3
The High Court
accepted that clause 5.2.5 in itself is not a law of general
application within the meaning of section 36 of the
Constitution.
However, it held that the law of general application in this case
was the common law rule that agreements are
binding and must be
enforced (
pacta sunt servanda
). Having found that the
clause is not reasonable and justifiable under section 36, the High
Court declared the clause invalid
and dismissed the respondent’s
special plea with costs.
(b) The Supreme
Court of Appeal
On appeal, the
Supreme Court of Appeal accepted the correctness of the “general
premise” that contractual claims are subject
to the Constitution.
It also accepted that a contractual term that is contrary to
public policy is unenforceable and that public
policy “ . . . now
derives from the founding constitutional values of human dignity,
the achievement of equality and the advancement
of human rights and
freedoms, non-racialism and non-sexism.”
4
However, it found that the evidence placed before it by way of a
stated case was “extremely slim” for it to determine whether
these constitutional values have been impeached. It held that the
High Court’s finding that clause 5.2.5 was unfair was not
self-evident on the record and, moreover, that the evidence did not
warrant such a finding. In this regard it held that:
“
Whether the period is in
fact reasonable, and thus whether the clause is ‘fair’, would
depend, amongst other things, on the
number of claims the insurer
has to deal with, how its claims procedures work, what resources it
has to investigate and process
claims, and on the amount of the
premium it exacts as a
quid
pro quo
for the cover it
offers. Of all this, we know nothing.”
5
The Supreme
Court of Appeal, however, cautioned that the fact that a term in a
contract is unfair or may operate harshly does
not, by itself, lead
to the conclusion that it offends the values of the Constitution.
Here, it emphasised the principles of
dignity and autonomy which
“find expression in the liberty to regulate one’s life by
freely engag[ing] [in] contractual arrangements.”
6
What the Constitution requires of the courts, the Supreme Court of
Appeal held, is that they “employ its values to achieve
a balance
that strikes down the unacceptable excesses of ‘freedom of
contract’, while seeking to permit individuals the dignity
and
autonomy of regulating their own lives
.”
7
The Supreme Court of Appeal further explained that this entails
“that intruding on apparently voluntarily concluded arrangements
is a step that Judges should countenance with care, particularly
when it requires them to impose their individual conceptions
of
fairness and justice on parties’ individual arrangements.”
8
However, the
Supreme Court of Appeal accepted that the constitutional values of
equality and dignity may prove to be decisive
when the issue of the
parties’ relative bargaining positions is an issue. It held that
the critical question is whether the
applicant in effect was forced
to contract with the insurer on terms that infringed his
constitutional rights to dignity and
equality and in a way that
requires the court to develop the common law of contract so as to
invalidate the term in question.
It concluded that it was not
possible to reach any conclusion on this aspect in the light of the
scanty evidence before it.
The evidence
that the Supreme Court of Appeal had in mind was: the short term
insurance products market; the availability of such
products; the
availability of diversity of time limits to those seeking short
term insurance cover; and whether for a person
in the position of
the applicant who, according to the Supreme Court of Appeal,
“travels in a vehicle seemingly appurtenant
to a reasonably
affluent middle-class lifestyle . . . [a] short-term vehicle
insurance is an optional convenience, or an essential
attribute of
life.”
9
It concluded that “without any inkling” in relation to these
matters, “the broader constitutional challenge” based on
constitutional values, “cannot even get off the ground.”
10
I do not
understand the Supreme Court of Appeal as suggesting that the
principle of contract
pacta sunt servanda
is a sacred cow
that should trump all other considerations. That it did not, is
apparent from the judgment. The Supreme Court
of Appeal accepted
that the constitutional values of equality and dignity may,
however, prove to be decisive when the issue of
the parties’
relative bargaining positions is an issue. All law, including the
common law of contract, is now subject to constitutional
control.
The validity of all law depends on their consistency with the
provisions of the Constitution and the values that underlie
our
Constitution. The application of the principle
pacta sunt
servanda
is, therefore, subject to constitutional control.
Addressing the
constitutional challenge based directly on section 34, the Supreme
Court of Appeal held that the Constitution does
not prevent time
bar provisions in contracts where these are entered into freely and
voluntarily. It held that the
Mohlomi
case was not
applicable since, unlike the present case, it dealt with a
pre-existing right to legal redress, namely, compensation
for
injury. If the Supreme Court of Appeal intended to hold that the
broad test announced in
Mohlomi
is not applicable when
considering whether a time limitation term in a contract is
contrary to public policy, for reasons that
appear later in this
judgment, I am unable to agree with this view.
On the meagre
facts set out in the agreed statement of facts, the Supreme Court
of Appeal found that there is no evidence that
the insurance
contract in issue here was not entered into freely and voluntarily.
It accordingly held that there was no breach
of the provisions of
the Constitution. In the event, it upheld the appeal, set aside
the order of the High Court and replaced
it with one upholding the
special plea with costs.
The present
application for leave to appeal is the sequel.
The contentions
of the parties
In this Court,
both in his application for leave to appeal and in argument, the
applicant contended that clause 5.2.5 is contrary
to public policy
and, therefore, unenforceable. In support of this contention,
counsel for the applicant submitted that public
policy represents
the legal convictions of the community. In developing this
argument, it was submitted that these legal convictions
have now
been codified in a set of constitutional values enunciated in the
Bill of Rights. The Bill of Rights, therefore, reflects
public
policy, he argued. Clause 5.2.5 constitutes an unreasonable and
unjustified limitation of the constitutional right of
access to
court, which is guaranteed in section 34. Counsel argued that this
limitation is not reasonable and justifiable under
section 36(1) of
the Constitution and that, therefore, clause 5.2.5 violates public
policy and is unenforceable.
Now this
argument conflates two different arguments. The first argument is
one based on public policy, namely, that clause 5.2.5
is contrary
to public policy because it violates the right of the applicant to
seek judicial redress. This argument does not
rely directly on
section 34 as a separate and independent ground for attacking the
limitation clause. Rather, it relies on section
34 only for the
purposes of determining the content of public policy and
demonstrating that clause 5.2.5 is contrary to public
policy. This
argument, therefore, relies upon section 34 as a reflection of
public policy. The other argument is based directly
on section 34.
This argument contends that clause 5.2.5 limits the rights
guaranteed in section 34 and considers whether such
limitation is
reasonable and justifiable under section 36(1). It is this
argument that was considered and upheld by the High
Court but was
rejected by the Supreme Court of Appeal.
For its part,
the respondent contended that the provisions of section 34 have no
application to constitutional challenges to contractual
terms.
Relying on the decision of the Supreme Court of Appeal, the
respondent submitted that there is no evidence to explain
why the
applicant was unable to comply with clause 5.2.5. The respondent
further submitted that, in any event, the clause is
not
unreasonable because it is not inflexible. The clause, it was
submitted, should be read with the implied term that parties
to a
contract ought to act
bona fide
(in good faith). This
implied provision, so the argument went, rendered the clause
flexible enough to accommodate the circumstance
where the applicant
is prevented by factors beyond his control from complying with the
requirements of the clause.
This case
requires us to determine, as a threshold issue, the proper approach
to constitutional challenges to contractual terms.
The proper
approach to constitutional challenges to contractual terms
The section 34
argument raises the fundamental question of the appropriateness, or
otherwise, of testing a contractual provision
directly against a
provision in the Bill of Rights. This raises the question of
horizontality, that is, the direct application
of the Bill of
Rights to private persons as contemplated in section 8(2) and (3)
of the Constitution. This Court has yet to
consider this issue.
But apart from this, there are further difficulties. Clause 5.2.5,
if found to limit section 34, is not
a law of general application.
It cannot therefore, on its own, be subjected to a limitation
analysis under section 36(1). The
limitation clause contemplates
that only a law of general application will be subject to it. It
is this difficulty that confronted
the High Court in the first
place.
To overcome
this difficulty, the High Court had to find a law of general
application peg on which to hang clause 5.2.5. It found
this peg
in the form of the common law principle of contract that is
expressed in the maxim
pacta sunt servanda
agreements are
binding. The High Court reasoned that the framers of the
Constitution intended the phrase “law of general application”
in section 36 to have a wide meaning. It therefore, held that the
common law principle that agreements are binding is a law
of
general application. Having clothed clause 5.2.5 in the law of
general application garb, the High Court then posed the question
whether parties can, by a term in a contract, agree to limit the
right of access to a court. Here the question, the High Court
reasoned, was whether such a limitation is reasonable and
justifiable under section 36(1). Having found that the limitation
is not reasonable and justifiable under section 36(1), the High
Court found that clause 5.2.5, not the common law principle that
agreements are binding, fell foul of section 34.
But this was
not the end of the difficulties. There was section 172(1)(a) of
the Constitution, which requires a court to declare
“any law or
conduct” that is inconsistent with the Constitution to be
invalid. Clause 5.2.5 is manifestly not “conduct”
within the
meaning of section 172(1)(a). That left the question, whether it
is a “law”. The High Court found that the clause
was a
“regsvoorskrif”, that is, a “law” within the meaning of
section 172(1)(a). It is not clear from the judgment of
the High
Court why, if the clause is not a law of general application for
the purposes of a limitations analysis, it is nevertheless
a “law”
within the meaning of section 172(1)(a).
These
difficulties that the High Court had to overcome, and the manner in
which it dealt with them, in my judgement, cast grave
doubt on the
appropriateness of testing the constitutionality of a contractual
term directly against a provision in the Bill
of Rights. The High
Court accepted that the clause was not a law of general
application. Hanging the clause on the common law
principle of
pacta sunt servanda
does not meet the difficulty. For what
is ultimately found by the High Court to be flawed is not the
common law principle, but
the clause itself. And this clause is,
ultimately, elevated to a “law” within the meaning of section
172(1)(a).
What then is
the proper approach of constitutional challenges to contractual
terms where both parties are private parties? Different
considerations may apply to certain contracts where the state is a
party. This does not arise in this case.
Ordinarily,
constitutional challenges to contractual terms will give rise to
the question of whether the disputed provision is
contrary to
public policy. Public policy represents the legal convictions of
the community; it represents those values that
are held most dear
by the society. Determining the content of public policy was once
fraught with difficulties. That is no
longer the case. Since the
advent of our constitutional democracy, public policy is now deeply
rooted in our Constitution and
the values which underlie it.
11
Indeed, the founding provisions of our Constitution make it plain:
our constitutional democracy is founded on, among other values,
the
values of human dignity, the achievement of equality and the
advancement of human rights and freedoms,
12
and the rule of law.
13
And the Bill of Rights, as the Constitution proclaims, “is a
cornerstone” of that democracy; “it enshrines the rights
of all
people in our country and affirms the democratic [founding] values
of human dignity, equality and freedom.”
14
What public
policy is and whether a term in a contract is contrary to public
policy must now be determined by reference to the
values that
underlie our constitutional democracy as given expression by the
provisions of the Bill of Rights. Thus a term in
a contract that
is inimical to the values enshrined in our Constitution is contrary
to public policy and is, therefore, unenforceable.
In my view,
the proper approach to the constitutional challenges to contractual
terms is to determine whether the term challenged
is contrary to
public policy as evidenced by the constitutional values, in
particular, those found in the Bill of Rights. This
approach
leaves space for the doctrine of
pacta sunt servanda
to
operate, but at the same time allows courts to decline to enforce
contractual terms that are in conflict with the constitutional
values even though the parties may have consented to them. It
follows therefore, that the approach that was followed by the
High
Court is not the proper approach to adjudicating the
constitutionality of contractual terms.
Public policy
and the right of access to court
Section 34,
the provision in the Constitution that guarantees the right to seek
the assistance of courts, proclaims that “[e]veryone
has the
right to have any dispute that can be resolved by the application
of law decided in a fair public hearing before a court
. . . .”
15
Our democratic order requires an orderly and fair resolution of
disputes by courts or other independent and impartial tribunals.
16
This is fundamental to the stability of an orderly society. It is
indeed vital to a society that, like ours, is founded on
the rule
of law.
17
Section 34 gives expression to this foundational value by
guaranteeing to everyone the right to seek the assistance of a
court.
When we had
occasion to consider section 34, we alluded to these matters
saying:
“
Section 34 is an express
constitutional recognition of the importance of the fair resolution
of social conflict by impartial and
independent institutions. The
sharper the potential for social conflict, the more important it is,
if our constitutional order
is to flourish, that disputes are
resolved by courts. As this Court said in
Lesapo
:
‘
The right of access to court
is indeed foundational to the stability of an orderly society. It
ensures the peaceful, regulated
and institutionalised mechanisms to
resolve disputes without resorting to self-help. The right of
access to court is a bulwark
against vigilantism, and the chaos and
anarchy which it causes. Construed in this context of the rule of
law and the principle
against self-help in particular, access to
court is indeed of cardinal importance.’”
18
Section 34
therefore not only reflects the foundational values that underlie
our constitutional order, it also constitutes public
policy.
Our common law
has always recognised the right of an aggrieved person to seek the
assistance of a court of law. Courts have long
held that a term in
a contract which deprives a party of the right to seek judicial
redress is contrary to public policy. The
one occasion which comes
to mind when this was said is in
Schierhout v
Minister of
Justice
.
19
On that occasion the Appellate Division, as the Supreme Court of
Appeal was then known, held that:
“
If the terms of an agreement
are such as to deprive a party of his legal rights generally, or to
prevent him from seeking redress
at any time in the Courts of
Justice for any future injury or wrong committed against him, there
would be good ground for holding
that such an undertaking is against
the public law of the land.”
20
Terms in a contract
that deny the right to seek the assistance of a court were
considered to be contrary to public policy and thus
contrary to the
common law.
21
Under our
legal order, all law derives its force from the Constitution and is
thus subject to constitutional control. Any law
that is
inconsistent with the Constitution is invalid. No law is immune
from constitutional control. The common law of contract
is no
exception. And courts have a constitutional obligation to develop
common law, including the principles of the law of contract,
so as
to bring it in line with values that underlie our Constitution.
When developing the common law of contract, courts are
required to
do so in a manner that “promotes the spirit, purport and objects
of the Bill of Rights.”
22
Section 39(2) of the Constitution says so.
23
All this is, by now, axiomatic.
24
Courts are equally empowered to develop the rules of the common
law to limit a right in the Bill of Rights “provided that
the
limitation is in accordance with section 36(1).”
25
The proper
approach to this matter is, therefore, to determine whether clause
5.2.5 is inimical to the values that underlie our
constitutional
democracy, as given expression to in section 34 and thus contrary
to public policy.
Should the
applicant be permitted to raise the public policy argument in this
Court?
Counsel for
the respondent submitted that the applicant should not be permitted
to rely on the public policy argument because
this argument was
being raised for the first time in this Court. It was neither
considered by the High Court nor by the Supreme
Court of Appeal, so
the argument went. The applicant did not dispute the fact that the
public policy argument, now pursued in
this Court, was not raised
in the argument in the courts below but contended that it was
nevertheless raised in the pleadings.
It is not
entirely accurate to say the Supreme Court of Appeal did not
consider the public policy argument. It did. And what
it said
must be understood in the context of the manner in which the public
policy argument was raised before it. The public
policy argument
appears to have been run together with the argument based on the
direct infringement of section 34. But even
if it is accepted that
the public policy is being raised for the first time in this Court,
the point raised on behalf of the
respondent cannot succeed.
The mere fact
that a point of law is raised for the first time on appeal is not
in itself sufficient reason for refusing to consider
it. If the
point is covered by the pleadings, and if its consideration on
appeal involves no unfairness to the other party against
whom it is
directed, this Court may in the exercise of its discretion consider
the point.
26
Unfairness may arise where, for example, a party would not have
agreed on material facts, or on only those facts stated in the
agreed statement of facts had the party been aware that there were
other legal issues involved. It would similarly be unfair
to the
other party if the law point and all its ramifications were not
canvassed and investigated at trial.
27
Here the
parties agreed on the facts to be placed before the trial court in
the light of the pleadings. The public policy argument
is
foreshadowed in the applicant’s replication which alleges that
the time limitation clause is contrary to public policy in
that:
(a) it allows a claimant an unreasonably short time to issue
summons; (b) it violates the common law right to approach
a court
for redress; (c) the time limitation does not pursue a legitimate
purpose; and (d) it takes away the right of a claimant
to approach
a court for redress if the summons is not served within 90 days.
He then concludes by alleging that the clause violates
both public
policy and section 34.
28
In these
circumstances, the respondent can hardly suggest that he would not
have agreed to the stated facts had he been aware
that the point
was to be raised in argument. Nor can he suggest any unfairness
arising from the fact that the point and all
its ramifications were
not canvassed and investigated at trial. The parties here were
content to have the issues of law raised
in the pleadings decided
on facts agreed upon. This Court is, therefore, in the same
position in which the High Court was in
so far as the determination
of these issues is concerned. All the facts that the parties
considered sufficient for the determination
of the law points,
raised in the pleadings, are before us.
The point
taken by the respondent must therefore be rejected.
In these
proceedings we are concerned with an application for leave to
appeal. While there can be no question that this application
raises a constitutional issue, the question which we must determine
is whether it is in the interests of justice to grant leave
to
appeal. A consideration of what is in the interests of justice
involves the weighing-up of the relevant factors, including
the
prospects of success.
29
It is clear from the above that the issues raised by the applicant
are important constitutional issues which warrant consideration
by
this Court. I conclude therefore, that it is in the interests of
justice to grant leave to appeal.
I now turn to
the question whether clause 5.2.5 is contrary to public policy and
thus unenforceable.
Does public
policy tolerate time limitation clauses in contracts between private
parties?
The main
thrust of the argument presented on behalf of the applicant was
that the clause limits the applicant’s right to seek
judicial
redress in court and thus offends public policy. That the clause
limits the right of the applicant to seek judicial
redress cannot
be gainsaid. What is also apparent from the clause is that it does
not deny the applicant the right to seek judicial
redress; it
simply requires him to seek judicial redress within the period it
prescribes failing which the respondent is released
from liability.
It is in this sense that the clause limits the right to seek
judicial redress.
The question
whether public policy tolerates time limitation clauses in
contracts must be considered in the light of the fact
that time
limitations are a common feature both in our statutory and
contractual terrain. Their effect is the same whether they
occur
in a statute or a contract. They deny the right to seek the
assistance of a court once the action gets barred because
an action
was not instituted within the time allowed. This is true of all of
them, regardless of the amount of time they allow.
These clauses
therefore limit the right to seek judicial redress.
Yet their
importance cannot be gainsaid. In
Mohlomi,
in the context
of a statutory time limitation provision, this Court recognised the
importance of limiting time during which litigation
may be
launched:
“
Rules that limit the time
during which litigation may be launched are common in our legal
system as well as many others. Inordinate
delays in litigating
damage the interests of justice. They protract the disputes over
the rights and obligations sought to be
enforced, prolonging the
uncertainty of all concerned about their affairs. Nor in the end is
it always possible to adjudicate
satisfactorily on cases that have
gone stale. By then witnesses may no longer be available to
testify. The memories of ones whose
testimony can still be obtained
may have faded and become unreliable. Documentary evidence may have
disappeared. Such rules prevent
procrastination and those harmful
consequences of it. They thus serve a purpose to which no exception
in principle can cogently
be taken.”
30
I can conceive
of no reason either in logic or in principle why public policy
would not tolerate time limitation clauses in contracts
subject to
the considerations of reasonableness and fairness. What is also
relevant in this regard is that the Constitution
recognises that
the right to seek judicial redress may be limited in certain
circumstances where this is sanctioned by a law
of general
application in the first place, and where the limitation is
reasonable and justifiable in the second. The Constitution
thus
recognises that there may be circumstances when it would be
reasonable to limit the right to seek judicial redress. This
too
reflects public policy.
Counsel for
the applicant did not contend otherwise. He submitted that,
firstly, on its face, the period of 90 days is so manifestly
unreasonable that it offends public policy; and secondly, the
clause is unreasonable because it insists on compliance with its
provisions regardless of the circumstances. There was some debate
in this Court on what is the proper test for determining whether
a
time limitation clause in a contract is contrary to public policy.
Counsel for the applicant urged this Court to apply the
test
announced in
Mohlomi
. Counsel for the respondent contended
that
Mohlomi
does not apply in this case. I had better deal
with this aspect first.
The applicable
test
In
Mohlomi
,
this Court had to consider the constitutional validity of a time
limitation contained in section 113(1) of the Defence Act 44
of
1957. That provision required legal action to be instituted within
six months from the time when the cause of action arose
and also
within that time required a month’s prior notice before the
commencement of legal action. The provision was challenged
on the
ground, among others, that it was inconsistent with section 22 of
the interim Constitution, the equivalent of section
34. The Court
held that consistency with the right of access to court, “depends
upon the availability of an initial opportunity
to exercise the
right that amounts, in all the circumstances . . . to a real and
fair one.”
31
This test, the Court added, “lends itself to no hard and fast
rule which shows . . . where to draw the line.”
32
In general,
the enforcement of an unreasonable or unfair time limitation clause
will be contrary to public policy. Broadly speaking,
the test
announced in
Mohlomi
is whether a provision affords a
claimant an adequate and fair opportunity to seek judicial redress.
Notions of fairness, justice
and equity, and reasonableness cannot
be separated from public policy. Public policy takes into account
the necessity to do
simple justice between individuals.
33
Public policy is informed by the concept of ubuntu. It would be
contrary to public policy to enforce a time limitation clause
that
does not afford the person bound by it an adequate and fair
opportunity to seek judicial redress.
In my
judgement, the requirement of an adequate and fair opportunity to
seek judicial redress is consistent with the notions of
fairness
and justice which inform public policy. There is no reason in
principle why this test should not be applicable in determining
whether a time limitation clause in a contract is contrary to
public policy.
There is one
matter which arises from the decision of the Supreme Court of
Appeal, which requires attention. In concluding that
Mohlomi
is not applicable in this case, the Supreme Court of Appeal found
that, unlike in
Mohlomi
34
and
Moise v Greater Germiston Transitional Local Council
,
35
the applicant had no claim outside of the contract. The Supreme
Court of Appeal relied on
Geldenhuys and Joubert v Van Wyk
36
which dealt with the time bar applicable in claims against the Road
Accident Fund where the defendant is unidentifiable. The
Supreme
Court of Appeal reasoned as follows:
“
In such cases, injured
victims by definition have no remedy, since they do not know and
cannot trace the wrongdoer who inflicted
their injury. The
legislation therefore creates a right of recourse against the Fund
where no enforceable right existed before;
but limits the right at
inception by requiring that it be enforced within a shortened time
period. In
Geldenhuys
&
Joubert
this court
accordingly rejected the argument that the legislative time-limit
unfairly restricts the claimant’s right, since this
misconceives
its nature. The Fund is not a wrongdoer, and the claimant is not
its victim.”
37
(Reference omitted.)
And it continued:
“
The plaintiff’s right to
insurance cover arose from his contract with the defendant, which in
creating his right stipulated at
its inception that a claim, to be
enforceable, had to be instituted within 90 days of repudiation.
The access to courts provision
of the Bill of Rights does not
prohibit this.”
38
In my view,
the distinction drawn by the Supreme Court of Appeal is somewhat
narrow and formalistic. It does not take sufficient
account of the
fact that at least since
Nino Bonino v De Lange
,
39
our courts have recognised that contracting parties may not prevent
one another from having disputes arising from the contract
resolved
by a court of law. If the term of a contract provides an
impossibly short period of time for the dispute to be referred
to a
court of law, that term will be contrary to public policy and
unenforceable. This is because our Constitution recognises
the
importance of disputes being resolved by courts and independent
tribunals. The fact that the time limitation clause arises
in the
contract that confers the right does, in my view, negate this
result.
I accept that
there is a conceptual difference between a statute which introduces
a limitation on the period within which a pre-existing
right may be
prosecuted and a contract which establishes rights and time periods
within which those rights must be prosecuted.
That conceptual
difference, however, cannot have the consequence suggested by the
Supreme Court of Appeal. Such a consequence
would undermine the
importance of the right of access to courts. In each case, of
course, the question will be whether the contract
contains a time
limitation clause which affords a contracting party an adequate and
fair opportunity to have disputes arising
from the contract
resolved by a court of law. In approaching this question, a court
will bear in mind the need to recognise
freedom of contract but the
court will not let blind reliance on the principle of freedom of
contract override the need to ensure
that contracting parties must
have access to courts.
The
determination of fairness
There are two
questions to be asked in determining fairness. The first is
whether the clause itself is unreasonable. Secondly,
if the clause
is reasonable, whether it should be enforced in the light of the
circumstances which prevented compliance with
the time limitation
clause.
The first
question involves the weighing-up of two considerations. On the
one hand, public policy, as informed by the Constitution,
requires,
in general, that parties should comply with contractual obligations
that have been freely and voluntarily undertaken.
This
consideration is expressed in the maxim
pacta sunt servanda
which, as the Supreme Court of Appeal has repeatedly noted,
40
gives effect to the central constitutional values of freedom and
dignity
.
Self-autonomy, or the ability to regulate one’s
own affairs, even to one’s own detriment, is the very essence of
freedom
and a vital part of dignity. The extent to which the
contract was freely and voluntarily concluded is clearly a vital
factor
as it will determine the weight that should be afforded to
the values of freedom and dignity. The other consideration is that
all persons have a right to seek judicial redress. These
considerations express the constitutional values which must now
inform
all laws, including the common law principles of contract.
The second
question involves an inquiry into the circumstances that prevented
compliance with the clause. It was unreasonable
to insist on
compliance with the clause or impossible for the person to comply
with the time limitation clause. Naturally, the
onus is upon the
party seeking to avoid the enforcement of the time limitation
clause. What this means in practical terms is
that once it is
accepted that the clause does not violate public policy and
non-compliance with it is established, the claimant
is required to
show that, in the circumstances of the case there was a good reason
why there was a failure to comply.
It follows, in
my judgement, that the first inquiry must be directed at the
objective terms of the contract. If it is found that
the objective
terms are not inconsistent with public policy on their face, the
further question will then arise which is whether
the terms are
contrary to public policy in the light of the relative situation of
the contracting parties. In
Afrox
, the Supreme Court of
Appeal recognised that unequal bargaining power is indeed a factor
which together with other factors, plays
a role in the
consideration of public policy.
41
This is a recognition of the potential injustice that may be
caused by inequality of bargaining power. Although the court found
ultimately that on the facts there was no evidence of an inequality
of bargaining power, this does not detract from the principle
enunciated in that case, namely, that the relative situation of the
contracting parties is a relevant consideration in determining
whether a contractual term is contrary to public policy. I endorse
this principle. This is an important principle in a society
as
unequal as ours.
I accept that
there may well be time limitation clauses that are so unreasonable
that their unfairness is manifest. A clause
I have in mind is one
that requires a claimant to give notice of a claim and to sue
within 24 hours of the occurrence of the
risk insured against.
Having regard to the information that needs to be obtained, and the
steps that need to be taken before
a written claim can be submitted
and legal proceedings instituted, it would not require any
additional information to conclude
that the clause is so
unreasonable that its unfairness is manifest. There may be other
examples of time limitation clauses which
give claimants subject to
them too short a time to institute legal proceedings that they are
tantamount to an outright denial
of the right to seek judicial
redress.
The first
question therefore is whether clause 5.2.5 falls within this
category of time limitation clauses.
Is clause 5.2.5
so manifestly unreasonable that it offends public policy?
In
Mohlomi
,
the Court found two flaws in the provision in issue which
together rendered it unconstitutional. The first was that it gave
claimants
“too short a time”
42
to give notice in the first place and to sue in the second. This,
the Court held, limited the right to seek judicial redress.
43
The second flaw was that the provision was inflexible. It
insisted on strict compliance with its requirements no matter how
harsh this may have turned out to be in a given case.
44
This, the Court found, rendered the provision unjustifiable under
section 33(1) of the Interim Constitution.
45
Thus, too short a time to give notice (one month) and to sue (six
months), and the inflexibility of the provision, rendered
section
113(1) of the Defence Act unconstitutional.
Relying on the
reasoning in
Mohlomi
,
counsel for the applicant
contended that the period of 90 days allowed by clause 5.2.5 was
too short a time to sue. The fact
is that the period of 90 days
began to run once the claim had been lodged with and repudiated by
the insurance company. At this
stage, the applicant not only knew
what his cause of action was, but he also knew the identity of the
defendant as well as the
amount of his claim. All that remained
was for the applicant to issue summons against the respondent.
This he could do either
himself or through a lawyer as he
eventually did. Thus the moment the 90-day period began to run,
the applicant had all the
information that was necessary to sue.
It is clear that 90 days is not a manifestly unreasonable period
comparable to the 24
hour period described above. The question
remains whether, considering the circumstances of its conclusion,
it still violates
public policy.
We are
concerned here with a contract between the applicant and the
respondent. The reasonableness or otherwise of the period
allowed
by the clause must be assessed by reference to the circumstances of
the parties. In
Mohlomi
, this Court observed that the
harshness of the statutory provision in issue there must be
assessed in the light of the realities
that prevail in our country,
the realities that our history has bequeathed to us. And as this
Court observed, this is:
“
. . . a land where poverty
and illiteracy abound and differences of culture and language are
pronounced, where such conditions isolate
the people whom they
handicap from the mainstream of the law, where most persons who have
been injured are either unaware of or
poorly informed about their
legal rights and what they should do in order to enforce those, and
where access to the professional
advice and assistance that they
need so sorely is often difficult for financial or geographical
reasons.”
46
Indeed, many
people in this country conclude contracts without any bargaining
power and without understanding what they are agreeing
to. That
will often be a relevant consideration in determining fairness.
This Court
must however operate on the basis of the evidence that was
presented to the High Court and that is now before us.
There is no
admissible evidence that the contract was not freely concluded,
that there was unequal bargaining power between
the parties or that
the clause was not drawn to the applicant’s attention. There is
nothing to suggest that the contract was
not freely concluded
between persons with equal bargaining power or that the applicant
was not aware of the clause. On the contrary,
the indications are
that he was aware of the time limitations. The contract required
him to submit a written claim with the
respondent within thirty
days of the accident but he submitted his written claim within at
least eight days of the accident through
his insurance broker.
In these
circumstances, I am unable to conclude that the 90-day period
allowed to the applicant to sue is so unreasonable that
its
unfairness is manifest and that therefore its enforcement would be
contrary to public policy.
The
inflexibility argument
The other flaw
that the Court found in the statutory provision involved in
Mohlomi
was that it was inflexible in that it insisted on strict compliance
with its provisions regardless of how harsh this may have
turned
out to be in a given case. Relying on this aspect of
Mohlomi
,
counsel for the applicant submitted that the clause is inflexible
in that it requires the applicant to comply with it no matter
how
harsh this may be. The respondent countered this argument by
submitting that the clause must be read with the implied term
that
all parties to a contract must act
bona fide
. This means,
it was argued, that if non-compliance with the time limitation
clause is due to no fault on the part of the claimant,
the
insurance company may not invoke the time bar clause. This renders
the clause flexible, so it was argued.
The inquiry is
not whether the clause is inflexible. The inquiry is whether in
all the circumstances of the particular case,
in particular, having
regard to the reason for non-compliance with the clause, it would
be contrary to public policy to enforce
the clause. This would
require the party seeking to avoid the enforcement of the clause to
demonstrate why its enforcement would
be unfair and unreasonable in
the given circumstances. Thus insisting on compliance with a
90-day time bar clause against a
claimant who, shortly after
repudiation lapsed into a coma and came round six months later,
would no doubt be unfair and its
enforcement would be contrary to
public policy. By contrast, insisting on compliance with a 90-day
time bar clause against a
claimant who deliberately neglected to
comply with it, would not be unfair.
While it is
necessary to recognise the doctrine of
pacta sunt servanda,
courts should be able to
decline the enforcement of a time
limitation clause if it would result in unfairness or would be
unreasonable. This approach
requires a person in the applicant’s
position to demonstrate that in the particular circumstances it
would be unfair to insist
on compliance with the clause. It
ensures that courts, as the Supreme Court of Appeal put it,
“
employ [the Constitution
and] its values to achieve a balance that strikes down the
unacceptable excesses of ‘freedom of contract’,
while seeking to
permit individuals the dignity and autonomy of regulating their own
lives.”
47
And this entails,
the Supreme Court of Appeal explained,
“
that intruding on apparently
voluntarily concluded arrangements is a step that judges should
countenance with care, particularly
when it requires them to impose
their individual conceptions of fairness and justice on parties’
individual arrangements.”
48
This is a
sound approach.
Thus if a
court finds that a time limitation clause does not afford a
contracting party a reasonable and fair opportunity to approach
a
court, it will declare it to be contrary to public policy, and
therefore invalid. To the extent that the Supreme Court of
Appeal
appears to have held otherwise, that dictum cannot be supported.
49
Public policy
imports the notions of fairness, justice and reasonableness.
Public policy would preclude the enforcement of a
contractual term
if its enforcement would be unjust or unfair. Public policy, it
should be recalled “is the general sense
of justice of the
community, the boni mores, manifested in public opinion.”
50
Thus where a claimant seeks to avoid the enforcement of a time
limitation clause on the basis that non-compliance with it was
caused by factors beyond his or her control, it is inconceivable
that a court would hold the claimant to such a clause. The
enforcement of the time limitation clause in such circumstances
would result in an injustice and would no doubt be contrary to
public policy. As has been observed, while public policy endorses
the freedom of contract, it nevertheless recognises the need
to do
simple justice between the contracting parties. To hold that a
court would be powerless in these circumstances would be
to suggest
that the hands of justice can be tied; in my view, the hands of
justice can never be tied under our constitutional
order.
The
contentions by the parties on the question whether clause 5.2.5 is
enforceable regardless of how unfair or unjust this might
be in a
given case, raises difficult and complex questions concerning the
development of the common law of contract, in particular,
the need
to extend the application of the common law legal principles that
seek to achieve justice and fairness to time limitation
clauses.
For instance,
common law does not require people to do that which is impossible.
This principle is expressed in the maxim
lex non cogit ad
impossibilia
– no one should be compelled to perform or
comply with that which is impossible. This maxim derives from the
principles of
justice and equity which underlie the common law.
Over the years the maxim has become entrenched in our law and has
been applied
to avoid time bar provisions in statutes. The
occasion that comes to mind when this was done was in
Montsisi v
Minister van Polisie
.
51
In
Montsisi
,
the Appellate Division held that the principle expressed by the
maxim
lex non cogit ad impossibilia
applied to a statutory
time bar provision contained in section 32(1) of the Police Act 7
of 1958. The case concerned a plaintiff
who sued the Minister of
Police for damages for unlawful assault alleged to have been
committed upon him by police while he was
being detained in terms
of section 6 of the Terrorism Act 83 of 1967. The court held that
it was impossible for the plaintiff
to comply with the provisions
of section 32(1) while he was in detention, and that therefore the
expiry period provided for in
section 32(1) did not run against him
so long as he was in detention.
52
The court
reasoned as follows:
“
Dit behoef geen betoog dat
dit onbillik sou wees indien iemand, vir wie dit vanweë sy
aanhouding ingevolge art 6 van die Wet
op Terrorisme onmoontlik was
om aan die vereistes van art 32(1) te voldoen, sy reg om vergoeding
te eis weens onregmatige dade
wat tydens sy aanhouding teenoor hom
gepleeg is, ontsê sou word omdat hy nie aan die vereistes van
art 32(1) voldoen het
nie. Die Wetgewer het met art 32(1)
klaarblyklik nie beoog om 'n persoon wat meen dat hy 'n eis teen die
Minister het, sy eis
te ontneem nie, maar wel dat hy daardie eis, op
straf van verval, binne die betreklik kort tydperk van ses maande ná
die
ontstaan van sy eisoorsaak moet instel. Hierdie Hof het , soos
reeds gesê, in
Hartman v Minister van Polisie
waar art
32(1) teen die eis van 'n minderjarige opgewerp is, beslis dat die
bepalings van art 13(1)(a) van die Verjaringswet nie
op die termyn
van ses maande wat in art 32(1) bepaal word, van toepassing is nie,
maar het terselfdertyd gesê (op 499A) dat
hy hom nie uitspreek
oor die vraag of daar in 'n geval soos dié wat in
Magubane
v Minister of Police
voorgekom het spesiale oorwegings kan wees
wat nie in
Hartman v Minister van Polisie
aanwesig was nie.
(Die
Magubane
-saak was 'n geval soos die onderhawige: 'n
spesiale pleit ingevolge die bepalings van art 32(1) is teen die
eiseres opgewerp nadat
dit vir haar, vanweë haar aanhouding,
onmoontlik was om aan die vereistes van die artikel te voldoen.)
Die vraag ontstaan nou of daar
bevind kan word dat, hoewel die minderjarige eiser in
Hartman v
Minister van Polisie
nie ʼn antwoord op 'n spesiale pleit
ingevolge art 32(1) gehad het nie, die appellant in die onderhawige
geval wel kan sê
dat sy eis deur die artikel belet word nie.
Ek het tot die gevolgtrekking gekom dat wel so bevind kan word, en
wel in die lig
van die algemene oorwegings wat die spreuk
lex non
cogit ad impossibilia
ten grondslag lê (
D
50.17.185:
impossibilium nulla obligatio est)
en wat inhou dat iemand se
versuim om 'n verpligting na te kom wanneer dit vir hom onmoontlik
was om dit na te kom, hom nie tot
sy nadeel toegereken word nie.”
53
(Footnotes omitted.)
The principle
enunciated in
Montsisi
has since been recognised and, where
appropriate, applied.
54
The other
common law principle that is relevant is the requirement of good
faith which the respondent submitted should be implied
in this
case. To counter the argument that the clause is inflexible and
insists on compliance even when this would be unjust,
counsel for
the respondent submitted that the contract in issue here is subject
to an implied term requiring the parties to act
bona fide
.
As I understand the argument, the requirement of good faith will
preclude the respondent from insisting on compliance with
the time
limitation clause when it will be unjust to the applicant. Good
faith, the argument went, is implied as a matter of
law. Reading
clause 5.2.5 subject to the requirement of good faith, the clause
takes account of the reasons for non-compliance
and does not insist
on compliance with its provisions when this would be unjust to the
applicant. Counsel for the applicant submitted
that the requirement
of good faith is not part of our law.
The
requirement of good faith is not unknown in our common law of
contract. It underlies contractual relations in our law.
55
The concept of good faith was considered by the Appellate Division
in
Tuckers Land and Development Corporation v Hovis
,
albeit in the context of whether the doctrine of anticipatory
breach should be grafted into our law. The court was concerned,
in
particular, with whether the doctrine of anticipatory breach
relates to a breach of an existing obligation. The court observed
that in Roman law, courts generally had wide powers to complement
or restrict the duties of parties, and to imply contractual
terms
in accordance with the requirements of justice, reasonableness and
fairness. The concepts of justice, reasonableness and
fairness
constitute good faith. After examining Roman and Roman-Dutch law
authorities on the application of the concept of
bona fide
,
the Court observed:
“
On principle this meant that
the courts should have had wide powers to read into a contract any
term that justice required. But
apparently they did not exercise
these powers. According to De Blécourt-Fischer
Kort
Begrip van het Oud-Nederlands Burgerlijkrecht
7
th
ed
para 193 the recognition of contracts generally as being
bonae
fidei
‘
leidde niet tot een
vrymoedig toepassen van het beginsel der
judicia bonae fidei.
Er bestaat neiging, om, bij de uitlegging van hetgeen
overeengekomen was, zich te houden aan hetgeen partijen hadden
bepaald
en er zo min mogelijk van af te wijken’.
The courts did, however, imply,
as a matter of law, those terms that had been accepted in Roman law
usually to flow from the
bona fides
involved in the
judicia
bonae fidei
. The need was apparently not then felt to
complement these to any significant extent. But, as
Van Warmelo
points out, a community’s concept of what
bona fides
(in
the sense of reasonableness, justice and equity) prescribes may in
time change.”
56
The court
accordingly concluded that:
“
It could be said that it is
now, and has been for some time, felt in our domain, no doubt under
the influence of the English law,
that in all fairness there should
be a duty upon a promisor not to commit an anticipatory breach of
contract, and such a duty has
in fact often been enforced by our
Courts. It would be consonant with the history of our law, and also
legal
principle, to construe this as an application of the wide
jurisdiction to imply terms conferred upon by the Roman law in

respect of the
judicia bonae fidei
.
It would not then be inapt to say, elliptically, that the duty
flows from the requirement of
bona fides
to which our contracts
are subject, and that such duty is implied in law and not in fact.
It is interesting to note that according
to Willston Law of Contract
3rd ed para 1337A the German law has developed along somewhat
similar lines (and cf De Wet and Van
Wyk (op cit at 152-3)).”
57
As the law
currently stands, good faith is not a self-standing rule, but an
underlying value that is given expression through
existing rules of
law.
58
In this instance, good faith is given effect to by the existing
common law rule that contractual clauses that are impossible
to
comply with should not be enforced. To put it differently: “Good
faith . . . has a creative, a controlling and a legitimating
or
explanatory function. It is not, however, the only value or
principle that underlies the law of contracts.”
59
Whether, under the Constitution, this limited role for good faith
is appropriate and whether the maxim
lex non cogit ad
impossibilia
alone is sufficient to give effect to the value of
good faith are, fortunately, not questions that need be answered on
the facts
of this case and I refrain from doing so.
While there is
a compelling argument for the proposition that both the maxim
lex
non cogit ad impossibilia
and the requirement of good faith
should be applicable to the enforcement of time limitation clauses,
the applicability of these
common law principles will depend on the
reason advanced for non-compliance. In the view I take of the
facts, it is not necessary
to reach any firm conclusion on whether
the maxim
lex non cogit ad impossibilia
and the requirement
of good faith may be applied to the enforcement of a time
limitation clause.
The difficulty
in the present case is that the applicant has not furnished the
reason for the non-compliance with the time clause.
He waited for
two years after the defendant had repudiated his claim before
instituting legal proceedings. On the face of it,
there is nothing
in his particulars of claim which suggests why he had to wait for
such a long period. If the applicant had
been prevented by factors
beyond his control from complying with clause 5.2.5, one would have
expected this fact to have been
pleaded. We are left to speculate
on the reason for non-compliance. Without those facts, it is
impossible to say whether the
enforcement of the clause against the
applicant would be unfair and thus contrary to public policy.
Indeed without those facts,
our decision on the constitutional
issue raised may not be decisive of the litigation and might prove
to be purely academic.
But this has
consequences for the appeal. In the result, without facts
establishing why the applicant did not comply with the
clause, I am
unable to say that the enforcement of the clause would be unfair or
unjust to the applicant. For all we know he
may have neglected to
comply with the clause in circumstances where he could have
complied with it. And to allow him to avoid
its consequence in
these circumstances would be contrary to the doctrine of
pacta
sunt servanda
. This would indeed be unfair to the respondent.
Given the fact
that the case must be adjudicated on the basis of the stated facts,
the question whether it would be unfair to
enforce clause 5.2.5
must be determined on the basis of the stated facts. These facts
do not disclose any reason for non-compliance
which would render
the enforcement of clause 5.2.5 unjust and unfair. On the facts
presented, the conclusion that the enforcement
of clause 5.2.5
would not be unjust to the applicant, is unavoidable. It follows
therefore that the special plea was well taken.
In his
dissenting judgment, Sachs J deals with a range of issues and
concerns, including standard form contracts, actual and implied
consensus, public policy, the significance of small print in
written contracts and the power imbalance between insurers
supported
by legal expertise and people without expertise. I share
many of his concerns and sentiments.
Pacta sunt servanda
is
a profoundly moral principle, on which the coherence of any society
relies. It is also a universally recognised legal principle.
But,
the general rule that agreements must be honoured cannot apply to
immoral agreements which violate public policy. As indicated
above, courts have recognised this and our Constitution re-enforces
it. Furthermore, the application of
pacta sunt servanda
often raises the question whether a purported agreement or pact is
indeed a real one, in other words whether true consensus was
reached. Therefore the relevance of power imbalances between
contracting parties and the question whether true consensus could
for that matter ever be reached, have often been emphasised.
The facts of
this case simply do not require us to consider these issues. What
is more, these issues were never raised in the
pleadings and could
not, therefore, have been anticipated by the parties in the
formulation of their statement of agreed facts.
In these
circumstances it is not appropriate to deal with them.
For all these
reasons, the appeal must be dismissed.
This is not a
case where an order for costs should be made. The applicant has
raised important constitutional issues relating
to the proper
approach to constitutional challenges to contractual terms. The
determination of these issues is beneficial not
only to the parties
in this case but to all those who are involved in contractual
relationships. In these circumstances, justice
and fairness
require that the applicant should not be burdened with an order for
costs. To order costs in the circumstances
of this case may have a
chilling effect on litigants who might wish to raise constitutional
issues. I consider therefore that
the parties should bear their
own costs, both in this Court and in the courts below.
Order
In the event,
an order is now made in the following terms:
Leave to
appeal is granted.
The appeal is
dismissed.
Madala J, Nkabinde
J, Skweyiya J, Van der Westhuizen J and Yacoob J concur in the
judgment of Ngcobo J.
MOSENEKE DCJ:
I have had the
distinct benefit of reading the elegantly reasoned judgment of my
colleague Sachs J. I respectfully concur in
the outcome he
proposes. Like him, I would uphold the appeal, dismiss the
respondent’s special plea and remit the matter to
the High Court
for the final adjudication of the applicant’s claim.
I have also
read the strongly reasoned majority judgment prepared by my
colleague Ngcobo J. Whilst I agree with the majority
judgment in
some respects, I regret that I am unable to embrace its reasoning
and primary conclusion that the impugned time bar
clause does not
violate public policy because the agreed facts do not show that it
is unfair to the applicant. This conclusion
Ngcobo J reaches by
holding that the facts do not disclose any reason for
non-compliance that would render the enforcement of
the time bar
provision unjust and unfair. In his view, the onus is upon the
party seeking to avoid the harshness of a time limitation
clause to
show that the contractual provision is contrary to public policy in
the sense that it does not afford an adequate and
fair opportunity
to seek judicial redress.
In my view,
the fault line in the reasoning of the majority judgment lies in
the way it frames the enquiry into whether a contractual
provision
offends public policy. The judgment advocates that the consistency
of a contractual term with public policy must be
assessed by
reference to the circumstances and conduct of the parties to the
contract. In this particular case, the judgment
goes on to hold
that “the fairness or otherwise of the clause must therefore be
assessed by reference to the circumstances
of the applicant.”
1
This preferred
subjective yardstick has prompted a fulsome enquiry into: (a)
whether the applicant is poor or illiterate; (b)
whether he was
unaware of his rights; (c) whether he had access to professional
advice; and (d) whether he was impeded by financial,
educational or
geographical reasons from meeting the deadline set by the time bar.
In the same vein, much has been made of the
fact that he is a
software developer and drives a new BMW 328i, which in the words of
the Supreme Court of Appeal is “a vehicle
seemingly appurtenant
to a reasonably affluent middle-class lifestyle.”
2
The majority judgment also notes that the applicant lodged his
claim with the insurance company promptly after the motor collision
that saw his motor vehicle damaged beyond repair, thereby implying
that he could have issued summons well within the 90-day

prescriptive period. In effect, the applicant’s personal
attributes and station in life played a decisive role in the
determination
of the majority judgment that the time bar clause is
fair and just and thus accords with public policy.
In my view,
the enquiry must be characterised differently. The appropriate
test as to whether a contractual term is at odds with
public policy
has little or nothing to do with whether the party seeking to avoid
the consequences of the time bar clause was
well-resourced or in a
position to do so. The question to be asked is whether the
stipulation clashes with public norms and
whether the contractual
term is so unreasonable as to offend public policy. In the context
of this case, the question to be
posed is whether the provision
itself unreasonably or unjustifiably limits the right to seek
judicial redress. Ordinarily, the
answer should not rest with the
peculiar situation of the contracting parties, but with an
objective assessment of the terms
of their bargain.
The proper
approach would be to look at the time bar stipulation itself within
the context of the entire agreement with a view
to assessing
whether it evinces a tendency or reasonable likelihood to deprive
the claimant of the right to approach the courts
for redress. When
one weighs whether a contractual term is at variance with public
policy, it matters little, or perhaps matters
not, what the
personal attributes of the party seeking to escape the results of
the time bar are. It is not inconceivable that
the personal and
social station of the claimant may have some bearing on the public
policy evaluation, but ordinarily it is not
decisive. It is the
likely impact of the impugned stipulation that should be
determinative of what public notions of fairness
may tolerate.
Courts
emphasise that it is the
tendency
of the clause to deprive
the respondent of his right to judicial redress, which should be
scrutinised for reasonableness. Public
policy cannot be determined
at the behest of the idiosyncrasies of individual contracting
parties. If it were so, the determination
of public policy would
be held ransom by the infinite variations to be found in any set of
contracting parties. In effect, on
the subjective approach that
the majority judgment favours, identical stipulations could be good
or bad in a manner that renders
whimsical the reasonableness
standard of public policy.
The issue
whether the peculiar situation of contracting parties should enter
the equation in assessing a contractual term, which
is said to
offend public policy, is neither novel nor free from controversy.
But it is, by now, well settled. In fact, judicial
opinion on the
issue has a century long pedigree and was recently confirmed by the
unanimous Supreme Court of Appeal judgment
of
Bafana Finance
Mabopane v Makwakwa and Another.
3
A few examples
should suffice. In
Sasfin (Pty) Ltd v Beukes
,
4
the court was called upon to determine whether certain provisions
of a cession concluded by a medical practitioner in favour
of a
finance house were contrary to public policy. Smalberger JA made
it clear that what is important is the likely effect of
the
contractual term complained of and not the personal characteristics
of the party seeking to escape the oppressive stipulation.

Referring to the impugned stipulation of the cession, he states:
“
Clause 3.4.2 is couched in
very wide terms. It gives Sasfin
carte blanche
in regard to
the sale of Beukes’ book debts. It is open to abuse, and the
likelihood of undue prejudice to Beukes exists if
its terms are
enforced. As stated in
Eastwood v Shepstone (supra)
, it is
the tendency of the proposed transaction, not its actually proved
result, which determines whether it is contrary to public
policy.”
5
Following on
several divergent decisions, a unanimous Appellate Division in
Ex
Parte Minister of Justice: In re Nedbank Ltd v Abstein Distributors
(Pty) Ltd and Others and Donelly v Barclays National Bank
Ltd
6
re-endorsed the approach laid down in
Sasfin
7
on how to assess terms said to be contrary to public policy. The
court had to decide whether a clause, which provides for a
conclusive proof certificate of the amount of indebtedness under a
suretyship, is contrary to community notions of fairness.
The
Appellate Division reiterated the approach in the following words:
“
The identity of the creditor
(and, for that matter, the debtor) is to my mind irrelevant to the
validity or otherwise of a conclusive
proof clause. Were that ever
to be allowed to be a relevant consideration, we would soon find
ourselves in the legal quagmire
so graphically and correctly
described by a full bench of the Cape Provincial Division in
Standard Bank of SA Ltd v Wilkinson
1993 (3) SA 822
(C).”
8
In
Standard
Bank of SA Ltd v Wilkinson
,
9
a full court of the Cape High Court, dealing with an attack on the
validity of a suretyship on the grounds of public policy,
remarked
that:
“
If once clauses come to be
judged . . . against the purpose of the contract, its setting and
the relationship between the parties,
creditors will come to be
faced by a multiplicity of defences by ‘recalcitrant debtors’
and sureties seeking to have their
agreements, freely and
voluntarily entered into, declared
contra bonos mores
. It
will, we fear, give rise to a plethora of litigation based upon the
‘last resort’ defence of public policy. It will also
no doubt,
in such event, produce the many conflicting decisions on individual
clauses that presently exist.”
10
Lastly, in
Bafana Finance
,
11
the Supreme Court of Appeal unanimously emphasised that whether a
clause is inimical to public policy will depend upon whether
it
evinces a
tendency
rather than
proved results
to
deprive another contracting party of the right to approach the
Court for redress.
12
Whilst there
is often merit in contextual analysis, it is clear that contractual
terms should not be tested for their consistency
to public norms by
merely observing the peculiar situation of contracting parties.
The enquiry must rather focus on the arrangement
that the
stipulation contemplates, on its impact on the parties, whoever
they may be, on its tendency or likely outcome and ultimately,
on
its fairness between the parties as measured against public notions
of fairness. This approach is particularly apposite in
our
constitutional setting. Trite as it is that our constitutional
values allow individuals the dignity and freedom to regulate
their
affairs, they also require that bargains, even if freely struck,
may not steer a course inimical to public notions of equity
and
fairness, which are now sourced from constitutional values. To
defeat a complaint that a contractual term offends public
policy by
holding that the complainant has not shown individual unfairness
is, in effect, to extol the
laissez faire
notions of freedom
of contract
at the expense of public notions of
reasonableness and fairness.
I am therefore
in agreement with Sachs J who holds that courts are obliged to find
relevant objective factors that might provide
pointers towards
public policy compliance in relation to terms limiting access to
courts. And Sachs J does so admirably by looking
first at the time
bar provision itself within its full contractual setting. He
meticulously examines other ancillary documents
which provide
valuable clues on the likely manner in which the insurance
agreement was concluded.
Here, I pause
to record that the facts in the stated case itself may be terse.
Yet to the pleadings are attached the voluminous
insurance
agreement and ancillary correspondence which form part of the
pleadings and may be rightly looked at in disposing of
the special
plea. Indeed clause 5.2.5, on which the special plea is founded,
does not appear in the stated case and can only
be reached by
reference to the pleadings.
Sachs J
correctly concludes that the contract of insurance in this case is
a standard form contract or a contract of adhesion,
which on its
very face, claims copyright on the contract form. I did not
understand the respondent to contend that the contractual
terms,
other than the schedule that contains the particulars of the
applicant and his motor vehicle, were adapted or customised
to suit
the applicant.
Thereafter,
Sachs J rightly seeks guidance from international responses to
contracts of adhesion and in particular, from the United
Nations
instruments and developments in the United Kingdom and South
America. He examines proposals of the South African Law
Reform
Commission on the reviewability of unfair terms in contracts and on
legislative reform in the area of consumer protection.
Sachs J
provides a survey of academic opinion and thereafter points to
far-reaching statutory reform on prescriptive periods
for diverse
claims as indicative of burgeoning public policy on reasonable
limitation of actions. Lastly, Sachs J turns to the
specific time
bar in this case and correctly finds it offensive to public policy
as it unreasonably limits the right to an adequate
and fair
opportunity for legal redress entrenched in section 34 of the Bill
of Rights. I agree. Below I proffer a few additional
reasons.
As the
majority judgment does, I hold that the two-part test in
Mohlomi
,
13
on whether a provision affords a claimant an inadequate and fair
opportunity to seek legal redress, applies in this case. The
first
part relates to whether the impugned term is too short, first to
give notice and next to sue. The second part probes whether
the
stipulation is inflexible and requires strict compliance, whatever
the circumstances.
I accept that
the special plea has to be decided on the stated case, sparse as
the facts may be. In this regard, the facts must
be understood
within the context of the pleadings and, in particular, the
insurance agreement and other annexures. However,
I do not accept
that the facts are not enough to adjudicate the special plea of
prescription and the replication that the contractual
provision is
inimical to public policy.
For my part,
the impugned time bar clause, clause 5.2.5, fails the test laid
down in
Mohlomi
on both counts. The clause is unreasonably
short and it is manifestly inflexible. It is couched in certain
and explicit terms.
The claimant must serve summons within 90 days
of repudiation. If this is not done, the insurer is released from
liability.
The clause irreversibly takes away, in an unreasonably
short time, the right of action of the insured and, in that way,
denies
the insured a reasonable opportunity to have the dispute
decided by an independent tribunal.
The period is
unreasonably short on several grounds. First, to require a
claimant to find litigation funds, appoint an attorney,
cause
counsel to be briefed and issue and serve summons within a period
of 90 days of repudiation of the claim, is unreasonable
and
unconscionable. The likely impact or tendency of this brief time
bar is to release the insurer from liability to its considerable
financial gain and to the irreparable prejudice of the insured.
Second, it is
not clear what legitimate purpose is served by this unseemly haste.
Once the claimant has given timeous notice
of an intention to
claim, the insurance company is afforded the opportunity to
investigate the claim and to preserve evidence
for trial. One must
wonder why this one-sided rush is necessary to protect the
interests of the insurance company. The likely
harm to the insured
that the provision wreaks seems disproportionate to the interest
the insurance company seeks to protect.
In other words, the
prejudice that the clause visits on claimants is disproportionate
to the conceivable benefits that it confers
on the insurance
company.
Third, the
attenuated time bar is not reciprocal. The insurance agreement
does not contain any time bar to the insurer’s right
of action
against the insured. It may repudiate the claim when it chooses
and any claim it may have against the insured seems
to be limited
only by the three-year prescription period of general application.
Fourth, at
least since the advent of our democracy, Parliament seems to have
adopted a new approach to ameliorate the consequence
of time
limitation clauses in statutes. Here I have in mind the
Institution of Legal Proceedings against certain Organs of State
Act.
14
Its declared purpose is to regulate and harmonise the periods of
time within which to institute legal proceedings against certain
organs of State and to give notice of such proceedings. Under
section 2(2)(b),
15
debts which became due after the commencement of this statute are
governed by Chapter III of the Prescription Act.
16
The effect of
this is that the prescription period for delictual debts against
the State organs, governed by the Institution of
Legal Proceedings
against certain Organs of State Act, is now three years. This is
in line with the prescription period that
pertains to delictual
debts in general. The period within which legal proceedings may be
instituted against State organs has
therefore been extended to
three years.
17
In addition, the notice of such proceedings must now be given
within six months from the date on which the debt became due.
18
What is more,
a court is empowered to condone non-compliance with the notice
provision if it is satisfied, among other things,
that good cause
exists for the failure to give timeous notice, and the organ of
State was not unreasonably prejudiced.
19
This statute therefore permits account to be taken of the
claimant’s fault, or the lack of it as well as prejudice suffered
by the State, or the absence of it. In my view, these statutory
trends in prescription of delictual claims against the state
and
private entities are indicative of the boni mores.
In the present
matter, the impugned time bar clause, on its terms, does not
provide for extension of time on good cause shown,
and is
enforceable whatever the reason is for failure to comply. In other
words, the clause may be enforced however unfair or
unjust its
consequences may be. In this Court, the respondent contended that
the time limitation is not an absolute defence
to an insurance
claim brought out of time because, at common law, the applicant has
remedies that may be invoked to escape its
oppressive consequences.
The respondent relied on the doctrine of good faith and the common
law maxim that the law does not
require people to do the
impossible. However, given the view the majority judgment takes
that the facts are
insufficient, it does not find it necessary to reach a firm
conclusion on whether the maxim relating to impossibility and the

requirement of good faith may be applied to the enforcement of a
time limitation clause. In effect, the majority judgment does
not
decide whether the clause is inflexible because there are no facts
to show why the applicant did not comply with the time limitation.
It seems clear
that the respondent’s contention that there are common law
defences which could render the time bar clause flexible
is, at
best, of no practical value in this case. This argument is an
after-thought. It was never pleaded or argued in the High
Court or
the Supreme Court of Appeal. It amounts to a belated invitation to
this Court to develop the common law. In any event,
the common law
qualification that the respondent seeks to have read into the
stipulation flies in the face of the respondent’s
actual conduct,
which is that the special plea is sufficient to destroy the
applicant’s claim. In my view, the clause means
what it says.
If the summons is not served within 90 days of repudiation of the
claim, the insurer is released from liability.
The clause is, on
its face, unreasonable and unjust. It denies the applicant a
reasonable and adequate opportunity to seek
legal redress and is
therefore at odds with public policy.
OfREGAN J:
I have had the
pleasure of reading the judgment prepared in this matter by Ngcobo
J. I concur in the order he proposes and in
the reasoning in
support of that order as it appears in paragraphs 1-72 and
paragraphs 84-91. In my view, the discussion in
paragraphs 73-83
is not necessary for the decision in this case. As Ngcobo J
explains in paragraph 84, there are no facts on
the record to
establish that it was either impossible for the applicant to issue
summons within the period of 90 days as required
by the contractual
time period or to establish that it would, for any other reason, be
unfair to enforce the time limitation
clause against him. In the
absence of any facts to this effect, there is, in my view, no need
for this Court to consider in
what circumstances a court may, in
terms of the principles of contract, decline to enforce a time
limitation clause against a
particular applicant based on the
defences of impossibility or good faith. That difficult question
can stand over for decision
in an appropriate matter. I
accordingly respectfully decline to consider the issues discussed
in paragraphs 73-83 of Ngcobo
J’s judgment. For the rest,
however, I am in agreement with his judgment.
MOKGORO J concur in
the judgment of Moseneke DCJ.
SACHS J:
The facts in
this case are as scanty as the relevant bundle of contractual terms
are voluminous and the legal implications vast.
The parties are
the applicant, Mr Barkhuizen, and Mr Napier, representing an
insurance broking company, Hamford (Pty) Ltd (Hamford).
They
agreed on a statement of facts in the Pretoria High Court in the
following spartan terms:
“
The applicant was at all
relevant times insured by Hamford. On 24 November 1999 the
applicant’s insured motor car, a BMW with
registration number JSM
825 GP, was involved in a motor car accident. He duly informed the
insurer of the event on 2 December 1999.
On 7 January
2000 Hamford repudiated the claim of the applicant in writing. On 8
January 2002 the applicant served the particulars
of his claim on
Hamford.”
The time
periods were of particular importance because Hamford relied on a
provision in one document in the bundle to the effect
that if they
rejected liability for any claim, they would be released from
liability unless summons was served on them within
90 days of
repudiation. They entered a special plea dependent on the
enforcement of this provision. When compared with the
normal
prescription period for launching contractual claims, 90 days is
undoubtedly a very short obligatory period for the institution
of
legal proceedings. But the primary question, in my opinion, is not
whether Mr Barkhuizen was obliged to show on the facts
of the case
that this time period operated in practice unfairly against him.
The basic issue, I believe, is whether, objectively
speaking, and
taking account of the fact that the clause relied upon was
contained in a standard form document annexed to but
not forming an
intrinsic part of what appears to have been the actual negotiated
terms of the contract, the enforcement of the
time-bar would be
consistent with public policy in our new constitutional
dispensation.
This raises
the issue of whether and to what extent concepts of consumer
protection require that received notions of sanctity
of contract be
revisited. Should considerations of public policy in our present
constitutional era compel courts to refuse to
give legal effect to
an imposed, onerous and one-sided ancillary term buried in a
standard form contract that unilaterally and
without corresponding
advantage, limits the enjoyment of an important constitutionally
protected right, namely, that of access
to court? In my view, the
stated facts when coupled with the bundle of contractual documents
contained in the Particulars of
Claim, are sufficient to enable
this Court to pronounce without further evidence on the public
policy issues raised.
In this
respect I feel that the enquiry made by Ngcobo J with regard
to the fairness of the provision did not go far enough.
In my
view, what contractual fairness in the light of the Constitution
requires is a special examination of the provenance of
the time-bar
and not just an analysis of whether Mr Barkhuizen has shown that he
was in fact treated unfairly by its operation.
The question is
whether the fairness that public policy demands, permits the
invocation at all by Hamford of the clause. In
my view the answer
can be found without further evidence. No question of onus arises.
The documents speak for themselves.
The
actual contractual arrangements
In considering
the appropriate manner in which to evaluate the time-bar, it is
impossible to avoid going through the tedious process
of examining
the four documents before this Court which are said to establish
the contractual arrangements in which it appears.
There has been
no suggestion from either party that there are any other relevant
factors bearing on these arrangements, though
it does appear from
the documents that what was involved was a renewal of an insurance
policy previously entered into.
The first
document:
In a letter dated 22 October 1999 Hamford indicates
that it has successfully maintained their premiums on the
Homesecure policy
without increase since 1996, but unfortunately,
due to the increase in motor vehicle accidents and costs of
repairs, it has no
alternative but to nominally increase the
insurance premiums on motor vehicles from 1 December 1999. The
letter goes on to say:
“
Please ensure that provision
is made for a revised monthly premium of R528.81 to be debited on 1
December 1999. Kindly note that
any endorsements on your policy
before 1 December 1999 might have an effect on the premium.
Enclosed is a new Schedule of
Insurance and revised policy wording including excess payments which
become effective on 1 December
1999. Please read your Schedule and
ensure that you are aware of and comply with the security
requirements.
Should you have any queries
with regard to the above, please contact your Broker or Hamford.
Thank you for your valued
support in the past and be assured of our best attention in the
future.
Yours faithfully,
Lynford Clarke
Director”
The second
document:
On 1 November 1999 Hamford Underwriting Department
wrote to the applicant as follows:
“
Policy Number: PL001318/98
We have revised your policy as
requested by yourself and have pleasure in attaching an updated
schedule for your records.
Kindly check the schedule and
ensure that all the details contained therein are correct. Should
you not advise us to the contrary
within 14 days of date hereof, it
will be assumed to be correct.
Ensure that you are aware of
and comply with the security requirements as listed on the schedule.
Please note that cover is subject
to compliance with the
requirements.
Vehicles have to be inspected
before cover will incept. Should you reside in the Pretoria,
Johannesburg or surrounding areas, the
vehicle inspection must be
performed by our own inspector. Please contact Pat Davies at
[number provided] or our office to arrange
an appointment.
Please do not hesitate to
contact your broker should you have any queries.
Kind Regards
HAMFORD UNDERWRITING
DEPARTMENT”
The third
document:
The attached schedule runs to four pages.
1
It is clear from its terms that it is intended to set out all the
key terms agreed to by the parties. In Section 5a on the
third
page under the heading “Motor Vehicles”, it sets out
information of special relevance to this case. This relates to
the
sum insured, the premium and details of the car. Opposite the word
“Cover” appears the word “Comprehensive”. Opposite
the
word “Requirements” it reads “1. Approved Tracking Device . .
. 2. Vehicle Inspection Report”. At the bottom of
the page is a
column headed “Loadings” under which the word “No” appears
next to the words “[Under] 25 Years Old”,
“Motor Only” and
“Business Use”, respectively. Another column headed
“Discounts” has the word “Yes” next to
“Tracking Device”,
and “No” next to “Lady Driver”, “Advanced Driver” and
“[Over] 55 Years Old”, respectively.
2
On the last page is a signature for and on behalf of Hamford.
Right at the end is a box headed “Schedule of Cancelled
Sections/Items”,
which refers to a car radio, CD shuttle, lap
tops and FAH 770 GP.
Before
considering the fourth and last document I note three points. The
first is that it appears from the documents themselves
that the
negotiations were largely if not completely conducted by
correspondence, and that these three contractual documents
were
prepared and signed by Hamford, with the terms being based on
information provided by the applicant, recorded by Hamford
and
intended to be binding if Hamford was not advised to the contrary
within 14 days. The second is that no time limitation
for bringing
proceedings is referred to in these three documents. And the third
is that no mention whatsoever is made of any
further document to be
regarded as part of the contract, that is, the correspondence does
not refer to an attached contract of
re-insurance with Lloyd’s,
the fourth document included in the bundle. I now turn to consider
the status of that fourth document.
The fourth
document:
The fourth document is a printed document of 29
pages, each headed with the word “Lloyd’s” under which is
stamped the
words “Hamford: Sertifikaat van Versekering”.
3
Below that on the covering page the following appears:
“
Underwritten at LLOYD’S
This is to certify that certain
Underwriters at LLOYD’S OF LONDON (whose names and proportions
underwritten by them shall be supplied
on application and
hereinafter collectively called the Insurer) have granted Hamford
(Pty) Ltd authorisation under Contract (which
bears the Seal of the
Lloyd’s Policy Signing Office) to grant insurance in accordance
with this Policy wording.
HAMFORD (PTY) LTD shall act as
underwriting manager of LLOYD’S OF LONDON and shall issue
quotations, policies and pay claims Insured
in accordance with its
mandate from LLOYD’S OF LONDON.
Signed on behalf of the Insurer
and Hamford (Pty) Ltd:
L.R. Clarke
Managing Director
IMPORTANT: Carefully examine
this policy
Immediately on receipt please
examine this Policy and if it is not in accordance with your
Application kindly return it at once
to the office of issue.
Immediate notification must be
given to Hamford (Pty) Ltd of any changes which may affect the
Insurance provided by this Policy.”
The
first page is headed “What to do in the event of a motor
accident”, and sets out in small print various responsibilities
of
the insured emphasising the importance of reporting. Then follow 27
pages in equally small print. They are grouped in eight
sections,
each with its own format and extensive headings, clauses,
sub-clauses, many written in dense legal language. Only one
portion
is to some degree highlighted: in the General Section at the
beginning it deals with cancellation, and stands out slightly
from
the rest of the text because it is in bold type.
On the fourth
page in a section headed “General”, the first five lines
purport to state the contractual relationship between
the Insured
(whose name is not given) and the Insurer. They read:
“
The Insurer agrees to insure
the Insured, where he holds insurable interest in the property, in
respect of the insured events subject
to all the terms, exceptions
and conditions contained herein or endorsed hereon upon the payment
and acceptance of the premium
as specified in the Schedule for the
period of insurance. The proposal form completed by the Insured
shall be the basis of this
option . . . of the Insurer by payment,
replacement, reinstatement or repair.”
A
multitude of provisions appear in the following 22 pages, dealing
with terms covering such diverse themes as the meaning of headnotes,
loss or damage arising out of computers not being compliant with the
year 2000, averaging, automatic inflation margins, war and
nuclear
risks. Much space is taken up with “Special Exclusions”.
If one pages
through these 22 pages diligently, on the fourth page one comes
across several headings, the fourth of which reads:
“Claims
Procedures and the Requirements”. After stating that
notification of an event likely to give rise to a claim must
be
given as soon as possible and the claim submitted within 30 days,
eight further procedural requirements are stipulated. Then
follows
a sub-heading “Requirements”. Three are listed on this page.
At the top of the fifth page are four more provisions,
including
the one at the heart of this litigation. Clause 5.2.5 reads:
“
If we reject liability for
any claim made under this Policy we will be released from liability
unless summons is served on Lloyd’s
SA or Hamford (Pty) Ltd within
90 days of repudiation.”
More
than 20 pages of small print in single space follow, covering a vast
range of topics, much of it relating to matters such as
sea-craft
that could have no bearing on the relationship between the applicant
and the insurer. Finally, at the foot of the 29
th
page
the reader is informed as follows:
“
Copyright © 1997. The
contents and layout of this document remains the sole and exclusive
property of Hamford (Pty) Ltd and
no part of it may be reproduced,
stored in a retrieval system or transmitted in any form or by any
means, electronic, mechanical,
photocopying, recording or otherwise,
without the prior written permission of Hamford (Pty) Ltd.”
Reading the
four documents together establishes that the negotiated terms
between the parties are contained in Document 3, the
Schedule, and
not in Document 4, the self-entitled Certificate of Insurance.
Furthermore, none of the documents are signed
by the insured, and
although Documents 1 and 2 (the letters signed on behalf of
Hamford) draw attention to the Schedule, they
do not refer to the
Certificate of Insurance. Document 2 invites the applicant to
peruse Document 3, the Schedule, and states
that if he does not
advise to the contrary within fourteen days, the details will be
assumed to be correct. The applicant’s
attention is then
specifically drawn to the need for compliance with security
requirements and the importance of his vehicle
being inspected.
The fourth
document does not appear to have been discussed by the parties.
Presumably, however, it had been attached in the previous
year to
the negotiated documents. I will assume in favour of the insurer
that the applicant was aware of its existence and of
the fact that
in some rather vague way the relationship between the insurer and
Lloyd’s as reflected in it had a bearing on
his relationship with
Hamford. Yet not only was it not signed by him, there is no
evidence from Hamford that its provisions
were drawn to his
attention. It was in fact a prolix, dense and hard to read example
of a standard form contract, sometimes
referred to as a contract of
adhesion, and copyrighted to boot.
Standard
form contracts
Standard form
contracts are contracts that are drafted in advance by the supplier
of goods or services and presented to the consumer
on a
“take-it-or-leave-it” basis, thus eliminating opportunity for
arm’s length negotiations.
4
They contain a common stock of contract terms that tend to be
weighted heavily in favour of the supplier and to operate to limit
or exclude the consumer’s normal contractual rights and the
supplier’s normal contractual obligations and liabilities. Not
only is the consumer frequently unable to resist the terms in a
standard form contract, but he or she is often unaware of their
existence or unable to appreciate their import. Onerous terms are
often couched in obscure legalese and incorporated as part
of the
“fine print” of the contract.
As it is
impracticable for ordinary people in their daily commercial
activities to enlist the advice of a lawyer, most consumers
simply
sign or accept the contract without knowing the full implications
of their act. The task of endlessly shopping around
and wading
through endless small print in endless standard forms, would be
beyond the expectations that could be held of any
ordinary person
who simply wished to get his or her car insured. What the insured
in fact looks for is a reliable insurer that
offers what he or she
thinks are reasonable terms as regards cover and premiums. Indeed
to expect the would-be purchaser of
short-term insurance to seek
full legal advice on every term in the standard form contract would
both require that the expense
of the premium be exceeded many times
over, and result in the absurdity of the short term of the cover
expiring before comprehensive
clarity on each and every provision
was obtained.
Standard form
contracts, such as the one in the present case, undoubtedly provide
benefits for those who produce and rely on them.
In the context of
mass production of goods and services, the use of standard forms
gave rise to the most significant new phenomenon
in the practice of
making contracts in the twentieth century— the application of
mass contracts to consumer transactions.
5
For a business dealing with consumers, lawyers devised printed
contracts which purported to govern exclusively the business
relationship between the parties.
6
Standard form contracts are thus ordinarily the product not of
negotiations but of the employment of legal teams by sellers
of
goods and services to serve their interests. In a business
context, such a standard form contract preserves the wisdom of
the
in-house lawyers about the best way in which to handle recurrent
problems of negotiation and performance.
In many
consumer and business transactions, the contract will be concluded
on the basis of a printed document which purports to
contain all
the terms of the contract.
7
In some cases the printed document will be signed by both parties,
but often it is merely handed over or posted at the time
of the
formation of the contract.
8
Some doubt has been expressed about the validity of such standard
forms to count as contracts at all.
9
The process often resembles an imposition of will rather than
mutual consent to an agreement, so these transactions have been
described as contracts of adhesion.
10
The use of
standard forms responds to two economic pressures. They reduce the
transaction costs of contracting by making available
at no extra
cost a suitable set of terms. In addition, the printed forms
permit senior management of a firm to control the contractual
arrangement made by subordinate sales staff. For these reasons, it
makes sense to permit the use of standard forms, but to control
the
content of the terms of the contracts.
11
The legal status
of standard form contracts
A strong case
can be made out for the proposition that clauses in a standard form
contract that are unreasonable, oppressive or
unconscionable are in
general inconsistent with the values of an open and democratic
society that promotes human dignity, equality
and freedom. Davis J
has presented the argument in the following terms:
“Like the concept of
boni
mores
in our law of
delict, the concept of good faith is shaped by the legal convictions
of the community. While Roman-Dutch law may
well supply the
conceptual apparatus for our law, the content with which concepts
are filled depends on an examination of the legal
conviction of the
community — a far more difficult task. This task requires that
careful account be taken of the existence of
our constitutional
community, based as it is upon principles of freedom, equality and
dignity. The principle of freedom does,
to an extent, support the
view that the contractual autonomy of the parties should be
respected and that failure to recognise such
autonomy could cause
contractual litigation to mushroom and the expectations of
contractual parties to be frustrated.
But the principles of equality
and dignity direct attention in another direction. Parties to a
contract must adhere to a minimum
threshold of mutual respect in
which the ‘unreasonable and one-sided promotion of one’s own
interest at the expense of the
other infringes the principle of good
faith to such a degree as to outweigh the public interest in the
sanctity of contracts’.
The task is not to disguise equity or
principle but to develop contractual principles in the image of the
Constitution. . . .
In short, the constitutional
State which was introduced in 1994 mandates that all law should be
congruent with the fundamental values
of the Constitution.
Oppressive, unreasonable or unconscionable contracts can fall foul
of the values of the Constitution. In
accordance with its
constitutional mandate the courts of our constitutional community
can employ the concept of
boni
mores
to infuse our
law of contract with this concept of
bona
fides
.”
12
(References omitted.)
I should add
that the legal convictions of the community should not be equated
with the convictions of the legal community. The
doctrine of
sanctity of contract and the maxim pacta sunt servanda have through
judicial and text-book repetition come to appear
axiomatic, indeed
mesmeric, to many in the legal world. Their virtue if applied in
an unlimited way is not self-evident, and
their reach, if not their
essence, have come to be severely restricted in open and democratic
societies. This has happened over
several decades through the
overlapping effects of consumer protection struggles, scholarly
critiques, legislative interventions
and creative judicial
reasoning. The jurisprudential pedestal on which it once
imperiously stood has been singularly narrowed
in the great
majority of democratic societies.
13
Our new constitutional order, I believe, further attenuates its
one-time implacable application.
These broad
considerations provide an important backdrop against which public
policy in the present matter has to be viewed.
More directly,
there appear to be three specific factors which in combination
raise serious questions about the enforceability
on public policy
grounds of the specific standard form clause in the present matter.
The first is
that an expressly guaranteed constitutional right is engaged,
namely the right to have a dispute between the parties
resolved by
a court.
14
This is an area where public and private law meet. The courts are
there precisely to ensure that legal disputes are not settled
through self-help but through recourse to an impartial tribunal.
Indeed, the courts have developed the law of contract over
the
centuries because they have been relied upon to hold the balance
between the parties and establish appropriate norms and
standards
for regulating their respective rights. The special significance
of the right of access to the courts will be dealt
with later.
Secondly, the
area of activity relates to matters of considerable public concern.
Insurance for car users is not a luxury but
part and parcel of
every-day life, a virtual necessity for many vehicle owners. The
insurance industry deals with members of
the public who come off
the streets and place their faith in the solvency, efficiency,
probity and integrity of the insurers.
Insurance companies compete
on aspects concerning cover, no-claim bonuses and premiums, not on
the basis of what appears in
the small print. Its public service
character is reflected in self-regulation as an industry, and the
appointment of an Ombudsman.
Insurance thus has become a necessity
for large sections of our society— it is not a personal
indulgence. The insurance industry
is highly organised and large
insurance companies play a major role in public life. The public
interest in promoting fair dealing
in insurance contracts so as to
protect relatively vulnerable individuals contracting with large,
specialist business firms,
is accordingly strong.
In this
respect legal tradition, if unmodified, will frequently lag well
behind social and commercial reality. As Rakoff pointed
out in an
influential article,
15
“freedom of contract” has long been defined in terms of the
separation of the market and the state, private and public law;
at
its fullest reach, it is the doctrine of laissez faire. But to use
such a framework to deal with contracts of adhesion, is
to err both
in valuing highly a claim to freedom that is inapposite, and to
overlook the elements of liberty that are actually
at stake. Far
from enforcement of the organisation’s standard form terms
furthering fundamental human values, the standard
document grows
out of and expresses the needs and dynamics of the organisation.
He explains that:
“
Emphasis on the standard
analysis . . . obscures the manner in which individual freedom
really is at stake. A conception of contractual
freedom modelled on
the opposition between individual and state is inadequate in
industrialized, organized and institutionalized
society.
Institutions other than the state can and do dominate the individual
within the framework of private law as ordinarily
conceived. . . .
What the courts should say is that enforcing boilerplate terms
trenches on the freedom of the adhering party.
Form terms are
imposed on the transaction in a way no individual adherent can
prevent, and a major purpose and effect of such
terms is to ensure
that the drafting party will prevail if the dispute goes to court.
The adhering party is remitted to such justice
as the organization
on the other side will provide. . . . [T]he use of contracts of
adhesion enables firms to legislate in a
substantially authoritarian
manner without using the appearance of authoritarian forms.”
16
(Footnote omitted.)
I would add
that this is not to say that once we recognise that the legal
enforcement of standard form terms provides the basis
for
domination of this sort, we are pushed toward the conclusion that
such terms should be completely unenforceable. Such a
conclusion
would be over-robust. If business firms play an important part in
public life, and if their ability to do so relies
significantly on
the use of standard forms, some degree of use of the forms is
sustainable. I will suggest later that what is
required is neither
a blanket acceptance of standard form terms, nor a blanket
rejection, nor an ad hoc determination by each
judge in accordance
with his or her personal predilections as to what is fair or not.
What is needed is a principled approach,
using objective criteria,
consistent both with deep principles of contract law and with
sensitivity to the way in which economic
power in public affairs
should appropriately be regulated to ensure standards of fairness
in an open and democratic society.
More specifically it calls for
examination of the “tendency” of the provision at issue and the
extent to which, in the context
of the contract as a whole, it
vitiates standards of reasonable and fair dealing that the legal
convictions of the community
would regard as intrinsic to
appropriate business firm/consumer relationships in contemporary
society.
Thirdly, the
clause in question appeared in a classic example of a standard form
contract. Unlike other leading cases that have
been litigated on
in recent years, where the challenged clause was one of which both
parties were aware at the time of contracting,
but was sought to be
struck down because of its extortionate character,
17
the clause in the present case was not signed by Mr Barkhuizen, but
buried in a voluminous add-on document. On the face of it
the
actual bargain struck between the parties was contained in the
letter sent by Hamford to the applicant, and the Schedule
that
accompanied it. These two documents convey what the parties
actually agreed to. The Certificate of Insurance with Lloyd’s
in
which Clause 5.2.5 can be found, was sent to him in circumstances
not clear from the record. It contains endless provisions
in a
font sufficiently small to reduce the costs of the paper used while
simultaneously discouraging any reasonable person from
ploughing
through it. Clause 5.2.5 sought unilaterally and without giving Mr
Barkhuizen any corresponding benefits, to impose
onerous terms on
him that he had apparently not knowingly agreed to, and to restrict
the ordinary rights he would have had to
seek enforcement of his
claim under the law of contract.
In my view, it
is the combination of these three factors that characterises this
case and establishes the specific matrix in which
it must be
evaluated. Of particular relevance is the enforceability or
otherwise of terms which might technically be brought
within what
is referred to as “the contract”, but which did not form part
of the actual consensus or real agreement between
the parties. The
potential unreasonableness in the eyes of the community, leading to
a possible finding of violation of public
policy, lies in holding a
person to one-sided terms of a bargain to which he or she
apparently did not actually agree, in respect
of which there is
nothing to indicate that his or her attention was drawn and the
legal import of which a reasonable person in
his or her position
could not be expected to be aware.
18
It is
appropriate at this stage to consider the relevance, if any, of the
fact that the applicant was not a poor and illiterate
person likely
to be bamboozled by any complex legal document. Standard form
contracts by their very nature have standard effects.
The fact is
that one-sided clauses, the existence or import of which the
consumer is likely to be largely or totally unaware,
hit the
computer-literate owner of a relatively new BMW who buys online,
with the same impact as they do the owner of the jalopy
close to
the scrap yard, who signs with a thumbprint.
19
It is not only the indigent and the illiterate who in practice
remain ignorant of everything the document contains; the fact
that
consumer protection is specially important for the poor does not
imply that it is irrelevant for the rich. The rich too
have
rights. They have the same entitlement as everybody else to fair
treatment in their capacity as consumers. If, in our
new
constitutional order, the quality of public policy, like the
quality of mercy and justice, is not strained, then the wealthy
must be as entitled to their day in court as the poor.
The questions
before us, then, are as follows: does public policy, propelled by
the letter and spirit of our Constitution, regard
received notions
of contract law as encapsulated in the notion of sanctity of
contract, to be inviolate and unchanging? Does
it countenance a
person being bound by onerous terms even though they were
unilaterally attached to the actual bargain made?
To what extent
does public policy in an open and democratic society require that
the service-provider who authored such provisions
show that these
terms were specifically drawn to the consumer’s attention? How
central to public policy is the fact that these
terms attenuate a
constitutionally protected right in a manifestly one-sided way?
And what weight does public policy attach
to the reality that the
person negatively affected cannot in the circumstances reasonably
be expected to have understood the
provision to constitute an
obligation actually undertaken by him or her under the contract?
To answer these questions it is
necessary to look at the manner in
which contract law has evolved over the centuries in relation to
the central issue of mutual
consent lying at the heart of
contractual obligation. Freedom of contract has been said to lie
at the heart of constitutionally
prized values of dignity and
autonomy.
20
Yet the evolution of contract law suggests that the notion of
sanctity of contract has been used to undermine rather than

reinforce true volition.
The evolution of
contract law: from actual to imputed consensus
The right, and
power, to make a contract evolved over time to become a central
part of the bundle of legal rights that constituted
legal
personality.
21
Indeed, as Maine demonstrated in the nineteenth century, the
emergence of the concept of contract as a means of organising

relationships between people, was seen as marking the maturity of a
legal system.
22
The historical movement from “status to contract”, in his
famous phrase, was not only vital, it was inevitable. The making
of contracts was an aspect of freedom. It is not surprising,
therefore, that the common law, which historically was a powerful
tool in the evolution of political freedom, should adopt the
attitude that the less interference with an individual’s exercise
of the right and power to contract, the better. As Atiyah has
shown, this attitude of the common law vis-à-vis contract
was intrinsically bound up with the economic doctrine of laissez
faire.
It presupposed freedom to contract or not to
contract, and non-interference by the courts under the governing
principles of the
law of contract. What gave a particular
character to contract law, however, was the development of the
notion that consent to
contractual terms could be inferred
objectively.
Atiyah
explains the process in the following terms:
“When we turn to
contract law itself, the decline in the importance of consent, or
free choice, is manifest in a variety of ways.
I need not dilate on
the extensive use in modern times of standardised written contracts
which are drawn up by one party and merely
presented for signature
to the other. This phenomenon has been much written about and is
now widely acknowledged to involve substantial
derogations from the
consensual model of contract. Frequently one party has little
effective choice in the matter at all, and
neither reads nor
understands, nor in any real sense agrees to the terms contained in
such standard documents. But it is worth
pausing to ask how such
documentary contracts ever came to be accepted as possessing the
validity of genuine agreements. Given
the importance attached to
the element of consent in the classical model of contract, how was
it that the judges were able to conceive
of such written documents
as contractual?”
23
His answer is
that when faced with written documents, the courts in practice
looked less for signs of genuine agreement, and insisted
more on
the external conduct of the parties. Once the document could be
treated as contractual, it made the task of the courts
so much
easier; the dispute could be solved by looking at the terms in the
document, and there would be no need to go into the
broader and
more difficult questions involved in searching for “implications”,
or trying still more broadly to find a just
solution to the
dispute.
24
In recent
decades, however, more emphasis has been placed on restoring a
truly consensual approach. This has come about not because
judges
have been prepared to overturn settled principles of the common law
in order to dispense “palm tree justice”. As
Fridman
explains,
25
a prime factor in this evolution may well be the greater interest
of the State, ie society at large, in the regulation of private
arrangements. A contract may no longer be of concern solely to the
parties. The public in general may be concerned with the
consequences of such arrangements, whoever the parties and whatever
the subject-matter of the arrangement. “Our more liberal,
democratic and egalitarian society,” he states, “places more
emphasis upon the achievement of just result than on the
maintenance
of technical doctrine derived from precedents that
stretch back several centuries.”
26
Prolix
standard form contracts undermine rather than support the integrity
of what was actually concluded between the parties.
They
unilaterally introduce elements that were never in reality
bargained for, and that had nothing to do with the actual bargain.

It may be said that far from promoting autonomy, they induce
automatism. The consumer’s will does not enter the picture at
all. Indeed, it could be contended that the question has moved
from being one of whether judges should impose their own subjective
and undefined preferences in this field, to one of whether their
own vision has become so clouded by anachronistic doctrine as
to
prevent them from seeing objective reality.
A distinction
needs to be drawn, then, between those aspects of the contract
where the minds concerned actually met, and a range
of surrounding
provisions that were never discussed at all, but that, like Mount
Everest, were just there. Little wonder that
such provisions
characteristically appear in small print.
27
Their objective is not to record negotiated terms but to be as
un-prominent as possible so as to provide the least possible
distraction from finalising the contract, while securing the
greatest obligatory reach for the consumer and the most-reduced
prospect of liability for the provider. Thus, while businesspeople
can get their lawyers to scrutinise the small print with
professional lenses and advise accordingly, ordinary consumers
cannot be expected to do the same. The result is that much of
the
contract is in reality not a record of what was agreed upon but a
superimposed construction favouring one side. In my view,
to treat
mass-produced script as sanctified legal Scripture is to perpetuate
something hollow and to dishonour the moral and
philosophical
foundation of contract law. It certainly does not promote the
spirit of openness central to our new constitutional
order.
I now turn to
consider the significance of these historical and philosophical
considerations for the issue of unenforceability
of contracts that
go against public policy, as animated by the Constitution, in South
Africa.
Public
policy in South African contract law
As the
majority in the Supreme Court of Appeal held in
Sasfin
28
the interest of the community or the public are of paramount
importance in relation to the concept of public policy. Agreements
which are clearly inimical to the interests of the community,
whether they are contrary to law or morality, or run counter to
social or economic expedience, will accordingly, on the grounds of
public policy, not be enforced.
The Court
cited as authority what Innes CJ said in
Eastwood v Shepstone
:
“
Now this Court has the power
to treat as void and to refuse in any way to recognise contracts and
transactions which are against
public policy or contrary to good
morals. It is a power not to be hastily or rashly exercised; but
when once it is clear that
any arrangement is against public policy,
the Court would be wanting in its duty if it hesitated to declare
such an arrangement
void. What we have to look to is the tendency
of the proposed transaction, not its actually proved result.”
29
It
went on to add that no court should therefore shrink from the duty
of declaring void a contract contrary to public policy when
the
occasion so demands—
“
The power to declare
contracts contrary to public policy should, however, be exercised
sparingly and only in the clearest of cases,
lest uncertainty as to
the validity of contracts result from an arbitrary and
indiscriminate use of the power. One must be careful
not to
conclude that a contract is contrary to public policy merely because
its terms (or some of them) offend one’s individual
sense of
propriety and fairness.”
30
In
grappling with this often difficult problem, the judgment continued,
it must be borne in mind that public policy generally favours
the
utmost freedom of contract, and requires that commercial
transactions should not be unduly trammelled by restrictions on that
freedom. A further relevant, and not unimportant, consideration was
that “public policy should properly take into account the
doing of
simple justice between man and man”.
31
More recently
the Supreme Court of Appeal was called upon to deal with the
implications for public policy of a contractual term
that inhibited
access to the courts. In
Bafana Finance
32
Cachalia AJA, writing for a unanimous Court, said:
“
That a court may not enforce
an agreement because the objective it seeks to achieve is contrary
to public policy is firmly part
of our law. And in this
determination ‘public policy’ is anchored in the founding
constitutional values which include human
dignity, the achievement
of equality and the advancement of human rights and freedoms.
. . . .
[O]ur Courts have had no
difficulty in declaring contracts contrary to public policy where
their
tendency
. . . is to restrict or prevent a person from
vindicating his or her rights in the courts. Thus in
Schierhout
v Minister of Justice
Kotze JA stated:
‘
If the terms of an agreement
are such as to deprive a party of his legal rights generally, or to
prevent him from seeking redress
at any time in the Courts of
Justice for any future injury or wrong committed against him, there
would be good ground for holding
that such an undertaking is against
the public law of the land.’
. . . .
There can be no doubt that the
tendency
of the clause [in the present matter] is to deprive
the respondent of his right to approach the court for redress from
his parlous
financial position. To deprive or restrict anyone’s
right to seek redress in court, as the cases cited above make clear,
is
offensive to one’s sense of justice and is inimical to the
public interest.”
33
(Footnotes omitted.) (Emphasis in the original.)
While
establishing the importance of contractual terms being compliant
with public policy, these cases do not in themselves indicate
whether, or to what extent, standard form contracts raise public
policy concerns. I will accordingly seek to establish relevant
objective factors that might provide pointers to what public policy
requires with regard to standard form contracts in general,
and to
terms limiting access to court in particular. I will look at the
following: international practice with regard to the
status and
reviewability of standard form contracts; research done and
proposals made by the South African Law Reform Commission
(SALRC),
34
leading to the recent publication of the Consumer Protection Bill;
academic opinion; and relevant statutory provisions regarding
prescription and time limits for the bringing of civil proceedings.
Guidance
from international practice
In considering
the standards of contractual behaviour required by public policy in
South Africa, attention should be paid to the
manner in which
standard form contracts are being dealt with in other open and
democratic societies.
35
As Collins points out, one of the foremost general challenges for
legal regulation of markets during the twentieth century was
the
requirement to limit the advantages which businesses could obtain
against consumers by deploying standard form contracts.
36
This has been a world-wide concern.
The SALRC has
stated that “public policy . . . is more sensitive to justice,
fairness and equity than ever before.”
37
It added that—
“
With the rise of the
movement towards consumer protection in the early seventies, it
became the generally accepted view in most
Western countries that
neither specific legislation dealing with certain types of contract
nor the traditional techniques of control
through ‘interpretation’
of contractual terms were sufficient, and that legislative action
was required to deal with contractual
unconscionability on a more
general level. Such laws have been enacted in Denmark, Sweden,
Norway, France, the Federal Republic
of Germany, the Netherlands,
and Australia as well. They are all based on the principle of good
faith in the execution of contracts.”
38
The United
Kingdom standard form contracts are governed by a consumer
protection statute of 1977
39
and Article 3 of the European Council Directive on Unfair Terms in
Consumer Contracts,
40
which provides:
“
A contractual term which has
not been individually negotiated shall be regarded as unfair if,
contrary to the requirement of good
faith, it causes a significant
imbalance in the parties’ rights and obligations arising under the
contract, to the detriment
of the consumer.”
This broad
provision is restricted in its scope by Article 4(2):
“
Assessment of the unfair
nature of the terms shall relate neither to the definition of the
main subject matter of the contract nor
to the adequacy of the price
and remuneration, on the one hand, as against the services or goods
supplied in exchange, on the other,
insofar as these terms are in
plain intelligible language.”
Collins
observes, however, that when attention is focused on ancillary
terms, the conception of fairness undergoes a shift. Instead
of
fairness being measured against a fair price, usually the ordinary
market price, the criterion of assessment becomes one of
a mixture
of balancing reciprocal ancillary obligations and conformity to
reasonable expectations. The idea of balance suggests
that an
advantage obtained in ancillary terms, such as an exclusion of
liability or a fixed measure of damages for breach, should
be
matched by corresponding benefits to the other party. Conformity
to reasonable expectations suggests that the ancillary terms
should
not deviate from a reasonable package of terms for transactions of
that type unless the parties have expressly negotiated
the point.
The courts are not permitted, then, to uphold a challenge to the
fairness of a contract on the ground that the main
subject matter
of the contract represented a poor bargain. For challenges to
ancillary terms, however, a combination of the
ideas of balance of
advantage and conformity to reasonable expectations will suffice.
41
It appears
that a number of South American countries have also enacted
legislation since 1990 providing for consumer protection
against
unfair contracts similar to legislation existing in so-called first
world countries. According to the SALRC these statues
were heavily
influenced by the Mexican Consumer Protection Law
of 1975
and the
Brazilian Consumer Protection Code
of
1990, as well as
Spanish and French consumer protection
law.
42
It is
noteworthy, too, that in the case of long-term international
commercial transactions reasonableness rather than purely formal
compliance is regarded as the yardstick against which duties of
requisite good faith are tested. This renders the issue of good
faith one of discretion and understanding, rather than one of
formalistic principles.
43
What is reasonable depends on the circumstances of the case and
the normative inquiry of how one should conduct oneself. The
process is not a mechanical one of interpreting the parties’
intentions in light of formalistic principles. Rather, it is
more
an attempt to determine what is deemed to be proper conduct.
Nassar explains that:
“
Acknowledging
a duty to cooperate, in situations where it is thought to best serve
the contractual relationship and its goals, moves
the contractual
model away from a classical conceptualization — where individuals
are free to conduct their businesses as they
please, their
agreements being the only self-imposed limitation — towards a
relational one. Under the latter conceptualization,
one is expected
to conduct his affairs in conformity with an existing set of values,
or what one may call a code of conduct. As
is the case with the
general standard of good faith, reasonableness, as opposed to
honesty, requires sincere efforts to further
the contractual
relationship and achieve its goals. By falling short of the
behavioural standards required under the circumstances,
one can wind
up in breach of his contractual obligations, regardless of whether
one has acted in bad faith — that is, dishonestly.
The criterion
to test the reasonableness of questioned activity is whether the
conduct conforms to reasonable business judgment.
A party’s
motivations for his conduct do not affect the determination of the
standard of good faith performance.”
44
The last word
in this section belongs to an observation by the Hong Kong Law
Commission that sums up much of the relevant argument:
“
As Lord Atkin put it,
‘finality is a good thing but justice is better’. Certainty is
a pragmatic rather than a principled consideration
craved by lawyers
so that they can advise their clients upon their rights. We do not
belittle certainty, but we do not feel it
is paramount. Certainty
in this context is sometimes sought to be justified by the principle
of sanctity of contract, that a party
must abide by his agreement.
This assumes of course that a piece of paper signed by that party is
truly his agreement. But in
reality that party has not genuinely
consented to the terms on that paper, which are in standard form and
have not been read (or
been expected to be read) by him, let alone
been the subject of negotiation. The principle of sanctity of
contract carries conviction
only if there is a contract in the sense
of a full-hearted agreement which is the result of free and equal
bargaining. Unfortunately,
in modern life, there is rarely the time
or the opportunity for such bargaining; it has been replaced by the
convenient form and
the standard clause.”
45
Official
proposals for statutory reform in South Africa on consumer
protection
The whole
question of the reviewability of allegedly unfair terms in
contracts has been subjected to extensive research by the
SALRC.
46
Its conclusion was that the common law as it was being applied was
inadequate for providing appropriate remedies in relation
to
contract terms that were unconscionable, oppressive or
unreasonable. In its Report
47
it pointed out that opinion had shifted substantially since the
time (1981) when Professor Hahlo of the University of Witwatersrand
could write—
“
Provided a man is not a
minor or a lunatic and his consent is not vitiated by fraud, mistake
or duress, his contractual undertakings
will be enforced to the
letter. If, through inexperience, carelessness or weakness of
character, he has allowed himself to be
overreached, it is just too
bad for him, and it can only be hoped that he will learn from his
experience. The courts will not
release him from the contract or
make a better bargain for him. Darwinian survival of the fittest,
the law of nature, is also
the law of the market-place.”
48
In modern
contract law, the Report stated, a balance had to be struck between
the principle of freedom of contract, on the one
hand, and the
counter-principle of social control over private volition in the
interest of public policy, on the other. Its
view was that there
was a need to legislate against contractual unfairness,
unreasonableness, unconscionability or oppressiveness
in all
contractual phases, namely at the stages when a contract comes into
being, when it is executed and when its terms are
enforced.
It
acknowledged that the main objection to the said proposal was based
on the uncertainty argument.
49
This argument was a straightforward one: the main aim of a
contract is to regulate the future relationship between the parties
as regards a specific transaction. The very foundation of contract
law was to create certainty, to protect the expectations
of the
parties, to secure to each the bargain made. That was why the idea
of contract, based on autonomy of the will of freedom
of contract,
was the very basis of all commercial and financial dealings and
practices, from the simple supermarket purchase
to the most
involved building contract. If a court was given a review power,
it meant in practical terms that the court could
re-make the
contract, relieve one party of his or her obligations, wholly or
partly, and to that extent frustrate the legitimate
expectations of
the other party. One would not know, when concluding a contract,
whether or not that contract was going to be
re-written by a court,
using as its yardstick vague terms such as “good faith”,
“fairness”, “unconscionability”.
The
Commission, however, was not persuaded by these arguments. It
accepted that any change effected by the proposed legislation
would
produce a measure of legal uncertainty and consequent litigation,
at least in the short term, when many contracts might
be
challenged.
50
The Commission was nevertheless of the view that this was a price
that must be paid if greater contractual justice was to be
achieved; that certainty was not the only goal of contract law, or
of any other law; and lastly, in any event, that the fears
provoked
by the proposed Bill were exaggerated in the light of the
experience of countries that had already introduced such

legislation.
51
The Commission
consequently recommended the enactment of legislation addressing
the issue.
52
Unreasonableness, unconscionability or oppressiveness should be
the yardstick, and guidelines should be included in the proposed
legislation. The Commission concurred with the view, however, that
a court would apply more flexible criteria when a contract
concluded by so-called business people was being considered, than
would be the case where other contracting parties were involved.
53
To my mind,
the findings of the Commission and the publication of the draft
Bill provide strong evidence that public policy has
moved radically
away from automatic application of standard form contracts towards
a more balanced approach in keeping with contemporary
constitutional values. What public policy seeks to achieve is the
reconciliation of the interests of both parties to the contract
on
the basis of standards that acknowledge the public interest without
unduly undermining the scope for individual volition.
Academic
opinion
Few issues
seem to have united academic commentators as much as a jointly
perceived need to ensure that courts refused on grounds
of public
policy to enforce contracts, or contractual terms, that were unfair
or unconscionable. Aronstam’s book published
in 1979
54
was the precursor of a great body of literature calling for the
updating of contract law in this respect.
55
Leading writers on contract law commented on the unfairness of the
manner in which standard form contracts operated.
56
The judgment of the Supreme Court of Appeal which is being
appealed against in this Court,
57
observes the dismay amongst many academic commentators at the
failure of that Court to develop the common law in a more robust
manner so as to deal with perceived unfairness.
58
It must be granted that it would be self-referential and
inconclusive to take the views of academics as to what the legal

convictions of the community are, as evidence of what actually
constitutes these convictions. Nevertheless, taken with the other
indices mentioned in this part of the judgment, I believe that the
near-unanimity of scholarly opinion on the need for fairness
in
contracts, at the very least reinforces the approach that I am
developing, and is manifestly in keeping with the constitutional
values of human dignity, equality and freedom.
Statutory
regulation as an indicator of public policy in respect of time
limits
In determining
the legal convictions of the community attention should also be
paid to the manner in which the legislature has
dealt with
appropriate time periods with regard to when civil claims
prescribe, as well as time limits for the institution of
proceedings against the State. The declared purpose of the
Institution of Legal Proceedings Against Certain Organs of State
Act,
59
as stated in its preamble, is to regulate and harmonise periods of
time within which to institute legal proceedings against certain
organs of State and to give notice of such proceedings. Under
section 2(2)(b), debts which became due after the commencement
of this statute are governed by Chapter III of the Prescription
Act.
60
The effect of this is that the prescription period for delictual
debts against the State organs governed by the Act is now three
years. Similarly the Road Accident Fund Act
61
provides for prescription of a claim after three years in a case
where the identity of the driver or owner of a motor vehicle
has
been established,
62
and after five years where the claim has been lodged in terms
specified by the Act.
63
It is doubtful whether public policy would not require us to look
askance at the ability of large private firms that dominate
the
short-term insurance industry unilaterally to impose onerous rules
against consumers, when these rules are forbidden to State
organs
dealing with public funds in the public interest.
The
enforceability of Clause 5.2.5
Bearing in
mind the above indicators as to what the legal convictions of the
community are in relation to consumer protection
generally, and the
status of one-sided terms in standard form contracts in particular,
I turn to consider the enforceability
of Clause 5.2.5 in the light
of public policy as currently infused with constitutional values.
This Court has
on different occasions upheld appeals from decisions of the Supreme
Court of Appeal on the ground that that Court
had failed to take
due account of the duty to develop the common law so as to promote
the spirit, purport and objects of the
Bill of Rights.
64
In the present matter however, Cameron JA, writing for a unanimous
court, forcefully underlined the principle that—
“[T]he courts will invalidate agreements offensive to public
policy, and will refuse to enforce agreements that seek to achieve
objects offensive to public policy. Crucially, in this calculus
‘public policy’ now derives from the founding constitutional
values of human dignity, the achievement of equality and the
advancement of human rights and freedoms, non-racialism and
non-sexism.”
65
Given
this clear awareness of the duty, I would ordinarily be reluctant to
cavil at the evaluation made by the Supreme Court of
Appeal of how
best to fulfil that duty and ensure that the common law is imbued
with, rather than alien to, constitutional values.
Because of the
line of reasoning he followed, however, Cameron JA did not in the
end find it necessary to consider the possible
effect of the Bill
of Rights on the enforceability of Clause 5.2.5. He held that the
applicant had no rights at all that needed
to be viewed through the
optic of the Constitution, summarising his reasoning as follows:
“On the evidence before us, there is nothing to suggest that the
plaintiff did not conclude the contract with the insurer freely
and
in the exercise of his constitutional rights to dignity, equality
and freedom. This leads to the conclusion that constitutional
norms
and values cannot operate to invalidate the bargain he concluded.
That bargain contained at its heart a limitation of the
rights it
conferred. The defendant’s plea invokes that limitation, and
there is nothing before us to gainsay its defence.”
66
While respecting
the elegance of the reasoning, I cannot support it.
As I see it,
the bargain did not in reality contain at its heart a limitation of
the rights it conferred. At its heart was an
agreement that
covered the use to which the car could be put, the damage to be
insured against and the premiums to be paid.
Possibly because of
the manner in which the matter was argued, Cameron JA did not deal
with what I believe to be the most salient
feature of the
contractual arrangement in dispute in this matter, namely, that the
time-bar was contained in an ancillary clause
buried in the dense
standard form text of the added-on Lloyd’s Certificate of
Insurance. Indeed, Clause 5.2.5 was as
far removed as one
could get from the heart of the contract, obscurely located in the
fourth document of the bundle annexed to
the Particulars of Claim.
It appears not to have been part of the actual bargain concluded,
and not to be a provision of the
kind which a reasonable car-owner
renewing an insurance policy could be expected to read, let alone
digest.
Thus, after
having followed due procedures in reporting the accident, the
applicant undoubtedly had a right given to him under
the contract
and buttressed by section 34 of the Constitution, to sue Hamford
for the damage to his car. The matter at issue,
then, is the one
posed by virtue of the laconic pleadings to be resolved as a matter
of law: in the light of the importance that
considerations of
public policy, now animated by section 34 of the Constitution, give
to the right of access to court, should
Mr Barkhuizen’s right to
proceed with his claim be taken away at all by Clause 5.2.5 which
was tucked away in the small print
of the added-on Certificate of
Insurance?
It is not, of
course, the smallness of the print itself that is significant,
though its minimalism may be symptomatic of a deeper
malady.
Whether small print is legally innocuous or legally obnoxious will
depend not so much on the font as on the subject
matter. Thus,
absent evidence to the contrary, one may assume that even when in
small print, provisions which clearly and directly
define the
extent of the risk and hence influence the premium to be charged,
merely record what has actually been agreed upon
between the
parties. In the present agreement, the Schedule contains boxes to
be filled in so as to distinguish insured drivers
on grounds of age
and gender, and whether the insured vehicle is used for business or
private purposes only. It is in a document
provided to Mr
Barkhuizen at a time when he was invited to consider the terms.
One may fairly infer that the information recorded
is descriptive
of the bargain actually struck. There is nothing intrinsically
unreasonable or hostile to the consensual nature
of contract law in
an open and democratic society, in the idea of determining the
premium on grounds which the insurer may believe
are statistically
or actuarially significant, to which both parties have agreed and
in respect of which no question of offensive
stereotyping or
demeaning profiling arises.
67
In the case of
Clause 5.2.5, however, the position is different. And this is not
because it is in small print, nor merely because
it bears harshly
on the applicant. Its enforceability is open to challenge because
on its face it—
was contained in a standard form document;
was not part of the actual terms on which reliance was placed by
the parties when the agreement was reached;
was prepared with legal expertise on behalf of insurers who
specialise in handling insurance claims and routinely engage in

litigation, for use on a general basis in relation to people
usually without legal expertise and who in the ordinary course of
events could not be expected to get a legal opinion on the document
in which it appears;
wholly favours the party that drafted it without any apparent
reciprocal benefit for the insured;
lies buried obscurely in the small print of an exceptionally long,
dense and structurally inelegant certificate of insurance
apparently sent on to the insured after negotiations had been
completed;
is not highlighted in the text so as visually, and in keeping with
internationally accepted standards of consumer protection,
to bring
the consequences of non-compliance to the attention of the insured
at the time the contract was entered into;
similarly, is not accompanied by a requirement that its import be
timeously brought to the attention of the insured at the moment
of
repudiation, when the time period begins to run against the insured
who stands to be prejudiced by non-compliance with its
provisions;
is for a time period less than ten per cent of that in respect of
which either an ordinary contractual claim, or else a claim
against
the Road Accident Fund, would prescribe;
has the effect of significantly limiting a right to have a dispute
settled by a court, a right long recognised by the common
law and
now guaranteed as a fundamental right by the Constitution;
is not subject to express qualifications in case of impossibility
or difficulty of compliance, nor apparently permissive of

condonation where considerations of justice would require that its
harshness be tempered by prolongation of the time;
impacts in an unbalanced way, not generally permitted in open and
democratic societies, on the relationship between insured and
insurers in respect of an activity of considerable public interest;
and finally,
when invoked does not simply limit or qualify the insurance claim,
but wipes the claim out altogether, enabling the insurer to
keep
the premium, while the insured loses the right to find out if he or
she should in fact have been paid for the damage done
to his car.
Taken
together, as they must be, I believe that these factors establish
convincingly and on an objective basis, and without more
being
required, that Clause 5.2.5 in and of itself offends against public
policy in our new constitutional dispensation and should
not be
enforced.
Conclusion
Given the
scale of injustice in our past, it is not surprising that the theme
of consumer protection has not loomed as large in
this country as
it has in other parts of the industrialised world. Yet just as the
best should not be the enemy of the good,
so the worst should not
be the friend of the bad. As our society normalises itself, issues
that were once relatively submerged
now surface to claim full
attention. In this way achievement of the larger constitutional
freedoms enables us to attend to and
develop the smaller freedoms
so necessary for enabling ordinary people to live dignified lives
in an open and democratic society.
People should not feel that
arcane, lawyer-made and highly technical rules beyond their ken,
leave them with a sense of having
been cheated out of their rights
by the big enterprises with which they perforce have to do
business. And as long as government
and the legislature continue
to be preoccupied with major questions of social transformation,
and only now begin to tackle consumer
protection in a comprehensive
way, the common law, under the impulse of the values of our new
constitutional order, is called
upon to shoulder 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.
I would hold,
then, that in the particular contractual circumstances of this
case, considerations of public policy animated by
the Constitution
dictate that the time-bar clause in question limiting access to
court, should not be enforced, and that the
insured should not be
deprived of his right to proceed with his claim on the merits. On
this basis, and leaving open for future
consideration whether
onerous and unilaterally imposed terms in standard form contracts
of adhesion should in general be regarded
as offensive to public
policy in our new constitutional dispensation, I would uphold the
appeal and dismiss the special plea.
LANGA CJ:
I concur in
the judgment of Ngcobo J, with the exception of one matter on which
I prefer not to express an opinion at this time.
To the extent
that Ngcobo J’s judgment holds that the only acceptable approach
to challenging the constitutionality of contractual
terms is
indirect application under section 39(2),
1
I disagree. While I agree that indirect application may ordinarily
be the best manner to address the problem, I am not convinced
that
section 8 does not allow for the possibility that certain rights
may apply directly to contractual terms or the common law
that
underlies them. Fortunately, I find it unnecessary to decide the
matter at this time as, to my mind, what public policy
requires in
this case is exactly the same as what a direct application of
section 34 would demand. Indeed, the distinction
between
direct and indirect application will seldom be outcome
determinative. I would therefore prefer not to preclude the

possibility that the Bill of Rights may, in some circumstances,
apply directly to contracts.
For
the Applicant: Advocate K Hopkins instructed by Rynhart
Kruger Attorneys.
For the Respondent: Advocate PG Cilliers and Advocate S Odendaal
instructed by Cilliers Reynders Inc.
1
The
decision of the Supreme Court of Appeal is reported as
Napier
v Barkhuizen
2006 (4) SA 1
(SCA);
2006 (9) BCLR 1011
(SCA).
2
[1996] ZACC 20
;
1997
(1) SA 124
(CC);
1996 (12) BCLR 1559
(CC).
3
Section
36(1) of the Constitution provides:
“
The
rights in the Bill of Rights may be limited only in terms of law of
general application to the extent that the limitation is
reasonable
and justifiable in an open and democratic society based on human
dignity, equality and freedom, taking into account
all relevant
factors, including—
(a) the nature of the right;
(b) the importance of the purpose of the limitation;
(c) the nature and extent of the limitation;
(d) the relation between the limitation and its
purpose; and
(e) less restrictive means to achieve the purpose.”
4
Above
n 1 at para 7.
5
Id
at para 10.
6
Id
at para 12.
7
Id
at para 13.
8
Id.
9
Id
at para 15.
10
Id
at para 16.
11
Carmichele
v Minister of Safety and Security and Another (Centre for Applied
Legal Studies Intervening)
[2001] ZACC 22
;
2001 (4) SA 938
(CC);
2001 (10) BCLR 995
(CC) at paras 54-6;
Price
Waterhouse Coopers Inc and Others v National Potato Co-operative Ltd
2004 (6) SA 66
(SCA);
2004 (9) BCLR 930
(SCA) at para 24;
Afrox
Healthcare Bpk v Strydom
[2002] ZASCA 73
;
2002 (6) SA 21
(SCA);
[2002] 4 All SA 125
(SCA) at para 18;
Brisley
v Drotsky
2002 (4) SA 1
(SCA);
2002 (12) BCLR 1229
(SCA) at para 91; and
Bafana
Finance Mabopane v Makwakwa and Another
[2006] ZASCA 46
;
2006 (4) SA 581
(SCA);
[2006] 4 All SA 1
(SCA) at para 11.
12
Section
1 of the Constitution provides:
“
The
Republic of South Africa is one, sovereign, democratic state founded
on the following values:
(a) Human dignity, the achievement of equality and the
advancement of human rights and freedoms.”
13
Section
1 of the Constitution provides:
“
The
Republic of South Africa is one, sovereign, democratic state
founded on the following values:
. . .
(c) Supremacy of the constitution and the rule of law.”
14
Section
7(1) of the Constitution.
15
Section
34 of the Constitution.
16
Chief Lesapo v North West
Agricultural Bank and Another
[1999] ZACC 16
;
2000 (1) SA 409
(CC);
1999 (12) BCLR 1420
(CC) at para 22;
Zondi
v MEC for Traditional and Local Government Affairs and Others
[2004] ZACC 19
;
2005 (3) SA 589
(CC);
2005 (4) BCLR 347
(CC) at para 63.
17
Above
n .
18
Zondi
above n at para 61.
19
1925
AD 417.
20
Id
at 424. See also
Nino
Bonino v De Lange
1906 TS 120
at 123-4.
21
Administrator,
Transvaal, and Others v Traub and Others
1989 (4) SA 729
(A) at 764E;
Avex
Air (Pty) Ltd v Borough of Vryheid
1973 (1) SA 617
AD at 621F-G;
Stokes
v Fish Hoek Municipality
1966 (4) SA 421
(C) at 423H-424C;
Gibbons
v Cape Divisional Council
1928 CPD 198
at 200; and
Benning
v Union Government (Minister of Finance)
1914 AD 29
at 31.
22
Section
39(2) of the Constitution provides:
“
When
interpreting any legislation, and when developing the common law or
customary law, every court, tribunal or forum must promote
the
spirit, purport and objects of the Bill of Rights.”
23
Id.
24
Carmichele
above n at paras 33-56;
Pharmaceutical
Manufacturers Association of SA and Another: In re Ex Parte
President of the Republic of South Africa and Others
[2000] ZACC 1
;
2000 (2) SA 674
(CC);
2000 (3) BCLR 241
(CC) at para 44.
25
Section
8(3)(b) of the Constitution.
26
Alexkor
Ltd and Another v The Richtersveld Community and Others
[2003] ZACC 18
;
2004 (5) SA 460
(CC);
2003 (12) BCLR 1301
(CC) at para 44;
Cole
v Government of the Union of SA
1910 AD 263
at 273;
Paddock
Motors (Pty) Ltd v Igesund
1976 (3) SA 16
(A) at 24-5; and
Bank
of Lisbon and South Africa Ltd v The Master and Others
1987 (1) SA 276 (A) at 290.
27
Road Accident Fund v Mothupi
2000 (4) SA 38
(SCA);
[2000] 3 All SA 181
(A) at para 30.
28
The
applicants amended replication reads:
“
1.6.1 Klousule 5.2.5 van Bylaag ‘PB’, kom neer
op 'n sogenaamde tydsbeperkingsklousule, oftewel vervaltermyn.
1.6.2 Die gemelde tydsbeperkingsklousule, oftewel
vervaltermyn, objektief beoordeel, is strydig met die openbare
belang, aangesien
dit:
1.6.2.1 'n onredelike kort tydperk verleen aan
versekerdes, na verwerping van 'n eis, om aksie teen die versekeraar
in te stel;
1.6.2.2 ongetwyfeld, 'n uiters drastiese bepaling is
wat 'n ernstige inbreuk maak op die gebruiklike gemeenregtelike
regte van 'n
beswaarde versekerde om die bystand van 'n geregshof op
te soek en te bekom;
1.6.2.3 klaarblyklik geen bruikbare of regmatige doel
nastreef nie;
1.6.2.4 uiteindelik ‘n versekerde sy reg ontneem om
'n beregbare geskil rakende sy versekeringsdekking in 'n geregshof
te laat
beslis, indien dagvaarding nie binne die tydsbeperking,
oftewel, vervaltermyn, bestel word nie.
1.6.3 Die gemelde tydsbeperkingsklousule, oftewel,
vervaltermyn, druis, voorts, in teen die bepalings van artikel 34
van die Grondwet
van die Republiek in ag geneem word nie.
Bygevolg
behoort klousule 5.2.5 van Bylaag ‘PB’ ten nadele van die
versekeraar (die Verweerder) uitgele te word, aangesien dit
beide
strydig met die openbare belang en strydig met artikel 34 van die
Grondwet, 1996, is en nie redelik en regverdigbaar is nie.”
29
National
Education Health and Allied Workers Union v University of Cape Town
and Others
2003 (3) SA 1
(CC);
2003 (2) BCLR 154
(CC) at para 25;
Khumalo
and Others v Holomisa
[2002] ZACC 12
;
2002 (5) SA 401
(CC);
2002 (8) BCLR 771
(CC) at para 10;
Islamic
Unity Convention v Independent Broadcasting Authority and Others
[2002] ZACC 3
;
2002 (4) SA 294
(CC); 2002 (5) BCLR (CC) 433 at para 15; and
Member
of the Executive Council for Development Planning and Local
Government, Gauteng v Democratic Party and Others
[1998] ZACC 9
;
1998 (4) SA 1157
(CC);
1998 (7) BCLR 855
(CC) at para 32.
30
Above
n at para 11. See also
Engelbrecht
v Road Accident Fund
CCT
57/06, 6 March 2007, as yet unreported at para 29.
31
Above
n at para 12. The Court formulated the test as follows:
“
What
counts rather, I believe, is the sufficiency or insufficiency, the
adequacy or inadequacy, of the room which the limitation
leaves open
in the beginning for the exercise of the right. For the consistency
of the limitation with the right depends upon
the availability of an
initial opportunity to exercise the right that amounts, in all the
circumstances characterising the class
of case in question, to a
real and fair one. The test, thus formulated, lends itself to no
hard and fast rule which shows us where
to draw the line. In
anybody’s book, I suppose, seven years would be a period more than
ample during which to set proceedings
in motion, but seven days a
preposterously short time. Both extremes are obviously
hypothetical. But I postulate them in order
to illustrate that the
inquiry turns wholly on estimations of degree.”
32
Id.
33
Price
Waterhouse
above n at para 23. See also
Sasfin
(Pty) Ltd v Beukes
1989 (1) SA 1
(A) at 9F-G; and
Jajbhay
v Cassim
1939 AD 537
at 544.
34
Above
n .
35
[2001] ZACC 21
;
2001
(4) SA 1288
(CC);
2001 (8) BCLR 765
(CC).
36
2005
(2) SA 512
(SCA);
[2005] 2 All SA 460
(SCA).
37
Above
n 1 at para 25.
38
Id
at para 27.
39
Nino
Bonino
above n .
40
Brisley
above
n
at
para 94;
Barkhuizen
above n at para 12.
41
Afrox
above n at para 12.
42
Above
n at para 14.
43
Id.
44
Id
at para 13.
45
Id
at para 20.
46
Above
n at para 14.
47
Above
n at para 13.
48
Id
at para 13.
49
The
Supreme Court of Appeal held:
“
Nor
does the fact that a term is unfair or may operate harshly by itself
lead to the conclusion that it offends against constitutional
principle . . . [I]n appropriate circumstances these standards find
expression in the liberty to regulate one’s life by freely
engaged
contractual arrangements.” Id at para 12.
50
Lorimar
Productions Inc and Others v Sterling Clothing Manufacturers (Pty)
Ltd; Lorimar Productions Inc and Others v OK Hyperama
Ltd and
Others; Lorimar Productions Inc and Others v Dallas Restaurant
1981 (3) SA 1129
(T) at 1152-3; and
Schultz
v Butt
1986 (3) SA 667
(A) at 679B-E.
51
1984
(1) SA 619
(A).
52
Id
at 638G-H.
53
Id
at 634E-635A.
54
Pizani
v Minister of Defence
1987 (4) SA 592
(A) at 602G-I;
Mati
v Minister of Justice, Police and Prisons, Ciskei
1988 (3) SA 750
(Ck) at 755-6;
Minister
of Law and Order and Another v Maserumule
1993 (4) SA 688
(T) at 691G-692B; and
Gassner
NO v Minister of Law and Order and Others
1995 (1) SA 322
(C) at 332B-H.
55
Tuckers
Land and Development Corporation (Pty) Ltd v Hovis
1980 (1) SA 645
(A) at 651C.
56
Id
at 652A-B.
57
Id
at 652D-F.
58
Brisley
above n at para 32.
59
Hutchinson
“Non-variation clauses in contract: any escape from the Shifren
straitjacket?”
(2001) 118
SALJ
720
at 743-4 quoted with approval in
Brisely
above n at para 22.
1
Para
64 of Ngcobo J’s judgment.
2
Napier
v Barkhuizen
2006 (4) SA 1
(SCA);
2006 (9) BCLR 1011
(SCA) at para 15.
3
[2006] ZASCA 46
;
2006
(4) SA 581
(SCA);
[2006] 4 All SA 1
(SCA).
4
1989
(1) SA 1
(A).
5
Id
at 14F. See also
Eastwood
v Shepstone
1902
TS 294
at 302 (per Innes CJ).
6
1995
(3) SA 1
(A).
7
Above
n 4.
8
Above
n 6 at 13I–J.
9
1993
(3) SA 822
(C).
10
Id
at 831A-B.
11
Above
n 3. See also Christie
Law
of Contract
4 Ed (Butterworths, Durban 2001) at 398–404; Kerr “Public policy
concerning clauses in contracts declaring certificates to
be
‘conclusive proof’ of their contents” (1993) 110
SALJ
at 668.
12
Above
n 3 at para 21.
13
Mohlomi
v Minister of Defence
[1996] ZACC 20
;
1997
(1) SA 124
(CC);
1996 (12) BCLR 1559
(CC).
14
Act
40
of 2002.
15
Section
2 states:
“
(2) Subject
to section 3 and subsections (3) and (4), a debt which became due—
…
(b) after the fixed date, will be extinguished by
prescription as contemplated in Chapter III of the Prescription Act,
1969 (Act
No. 68 of 1969), read with the provisions of that Act
relating thereto.”
16
Act
68 of 1969.
17
Under
section 32 of the Police Act 7 of 1958, legal proceedings against
the police had to be instituted within six months from the
date of
the cause of action, and one month’s prior notice of such
proceedings had to be given. When this statute was amended
in 1995
by the
South African Police Service Act 68 of 1995
, the period was
extended to twelve months in terms of
section 57(1).
The one
significant change was
section 57(5)
, which empowered courts to
condone non-compliance with time limitation provisions where the
interests of justice required it.
Section 57(5)
therefore permitted
account to be taken of the claimant’s fault, or the lack of it,
and the prejudice suffered by the State,
or its absence. Section
113 of the Defence Act 44 of 1957 required proceedings against the
defence force to be instituted within
six months from the time when
the cause of action arose and also required a month’s prior notice
of such proceedings.
Section 57
of the
South African Police Service
Act and
section 113 of the Defence Act have been repealed by the
Institution of Legal Proceedings against certain Organs of State
Act,
2002, with the result that legal proceedings against these
organs of State must now be instituted within three years.
18
Section
3 of the Institution of Legal Proceedings against certain Organs of
State Act, 2002, states:
“
(2)
A notice must—
(a) within six months from the date on which the debt
became due, be served on the organ of state in accordance with
section 4(1)
. . .”.
19
Id
at section 3(4).
1
The
first page, headed “Endorsements”, indicates that the previous
premium for ensuring a car radio in the Hyundai has been
cancelled
and replaced by premiums for a car radio, CD shuttle and satellite
navigation in the BMW. The second page, headed “Policy
Schedule”,
gives details about the insured, bank debit order details and broker
details. This is followed by Section 2 in which
R2 000 000 is given
as the sum insured for personal liability for a premium of R1,63.
Section 3, dealing with household goods,
covers the rest of the
page. It gives details about the sum insured and the premium,
describes the house and itemises security
requirements that have to
be complied with, stating that theft cover will only be given once
all the security requirements have
been installed. The third page
itemises the all-risks cover and premiums for the car radio and
satellite navigation.
2
Finally,
the fourth page includes a small premium for SASRIA (riot cover), a
policy fee of R55 and a total monthly premium of R564,83.
Below
that is the statement:
“
This
schedule shall be deemed to be correct in accordance with the
instructions of the Insured or Broker, unless Hamford is advised
to
the contrary within 30 days hereof.”
3
“
Hamford:
Certificate of Insurance”.
4
See
Woolfrey “Consumer Protection — a new jurisprudence in South
Africa”
(1989-1990) 11
Obiter
109
at 119-20. See generally Aronstam
Consumer
Protection, Freedom of Contract and the Law
(Juta, Kenwyn 1979).
5
Collins
The
Law of Contract
3 ed (Butterworths, London 1997) at 2-3.
6
Id
at 112.
7
Id.
8
Id.
9
Id.
10
Id.
11
Id
at 112-3.
12
Mort
NO v Henry Shields-Chiat
2001 (1) SA 464
(C) at 474J-475F. This passage was cited by
Olivier JA in
Brisley
v Drotsky
2002 (4) SA 1
(SCA);
2002 (12) BCLR 1229
(SCA) at para 69.
13
See
below paras 42-8.
14
Section
34 of the Constitution reads:
“
Everyone
has the right to have any dispute that can be resolved by the
application of law decided in a fair public hearing before
a court
or, where appropriate, another independent and impartial tribunal or
forum.”
15
Rakoff
“Contracts of Adhesion: An Essay in Reconstruction” (1983) 96
Harvard
Law Review
1173 at
1237.
16
Id.
17
See
Afrox
Health Care Bpk v Strydom
[2002] ZASCA 73
;
2002
(6) SA 21
(SCA);
[2002] 4 All SA 125
(SCA) at para 4;
Brisley
above n at para 9. But see
Sasfin
(Pty) Ltd v Beukes
1989 (1) SA 1
(A) at 18F/G-G.
18
I
stress “a reasonable person in his or her position”. In
relation to precisely the same documents the situation of two
business
people bargaining with each other, each backed up by a
battery of lawyers and accountants, even if one is economically in a
much
stronger position than the other, would be very different from
that of an insurance company dealing with a motorist coming off the
street to its office, or phoning through instructions. I would
emphasise too, that I am not dealing with terms that were actually
agreed upon, or that were part of or implicit in the bargain
actually struck, or that provided for reciprocal benefits. In these
cases different considerations could apply.
19
In
this regard it is significant that the new Consumer Protection Bill
refers in its preamble both to the rights of historically
disadvantaged persons and to protecting the interests of all
consumers. See below n .
20
Brisley
above
n at para 94.
21
Fridman
The
Law of Contract in Canada
4 ed (Carswell, Scarborough 1999) at v.
22
Id.
Fridman refers to Maine
Ancient
Law: Its Connection with the Early History of Society and its
Relation to Modern Ideas
(Oxford University Press, London 1861) at 140. Maine writes:
“
Nor
is it difficult to see what is the tie between man and man which
replaces by degrees those forms of reciprocity in rights and
duties
which have their origin in the Family. It is Contract. Starting,
as from one terminus of history, from a condition of
society in
which all the relations of Persons are summed up in the relations of
Family, we seem to have steadily moved towards
a phase of social
order in which all these relations arise from the free agreement of
Individuals. . . . [W]e may say that the
movement of the
progressive societies has hitherto been a movement
from
Status to Contract.
” (His emphasis.)
23
Atiyah
The
Rise and Fall of Freedom of Contract
(Clarendon Press, Oxford 1985) at 731. At 731-2 he adds the
following:
“
The
problem is all the greater because . . . in the high noon of
classical theory the Courts gave a new meaning to the requirements
of the Statute of Frauds. The written note or memorandum required
by the Statute, they insisted, was merely evidence of an agreement;
the actual binding contract rested not in the writing itself, but in
the will of the parties. But when, later in the nineteenth
century,
the Courts were faced with the new problems of printed clauses, or
tickets containing references to terms contained elsewhere,
there
was an increasing tendency to treat the written terms, subject to
certain conditions, as themselves the actual words of the
contract.”
24
Id
at 733.
25
Fridman
above n at vi.
26
In
similar vein Collins above n at v-vi explains the changed mode of
thinking as follows:
“
Perhaps
no other subject in the standard canon of legal education can claim
such an august tradition, such rigour of analysis, and
such sublime
irrelevance, as the law of contract. The multitudes of textbooks
typically repeat an interpretation of the subject
which has remained
unaltered for a century or more in its categorization of the legal
materials. The latent values which inform
these works include a
priority attached to personal liberty, minimal regulation of market
transactions, and a profound divide between
private economic
transactions and public control over the social order. This
fidelity to nineteenth-century
laissez
-
faire
ideals,
which is unmatched in other fields of legal studies, often remains
concealed behind a presentation of the law which emphasizes
the
formal, technical, and historical qualities of legal reasoning.
. . . .
My
interpretation of the legal materials emphasizes the way the law
both establishes market transactions as an important site for
citizens to acquire meaning for their lives, and controls the market
for the sake of establishing and protecting public goods.
I have
referred to these goals compendiously as a conception of the ‘social
market’.”
27
And
little wonder that the phrase “watch out for the small print”
has become synonymous with a warning to beware of hidden ways
of
taking away with the left hand what the right hand has given.
28
Sasfin
above
n at 8-9.
29
Eastwood
v Shepstone
1902 TS 294
at 302.
30
Sasfin
above n at 9B-C.
31
Id
at 9G quoting Stratford CJ in
Jajbhay
v Cassim
1939 AD 537
at 544. Today we would say between “person and
person”.
32
Bafana
Finance Mabopane v Makwakwa and Another
[2006] ZASCA 46
;
2006 (4) SA 581
(SCA).
33
Id
at paras 11, 20-1. In that matter the clause stated that the debtor
agreed not to seek an administration order in the Magistrate’s
Court if unable to pay his debts. Although distinguishable on the
facts from the present case,
Bafana
Finance
emphasises the importance that public policy attributes to keeping
open the right of access to court.
34
In
January 2003 the South African Law Commission was re-named the South
African Law Reform Commission. I will use the acronym SALRC
to
cover reports of the Commission both before and after the name
change.
35
Section
39(1) of the Constitution provides that—
“
When
interpreting the Bill of Rights, a court, tribunal or forum—
(a) must promote the values that underlie an open and
democratic society based on human dignity, equality and freedom;
(b) must
consider international law; and
(c) may consider foreign law.”
36
Collins
above n at 2-3.
37
SALRC
“Unreasonable Stipulations in Contracts and the Rectification of
Contracts” Project 47 (April 1998) at para 1.44.
38
Id.
39
Unfair
Contract Terms Act 1977. See too The Unfair Terms in Consumer
Contracts Regulations 1999 which implements the Council Directive
93/13/EEC on Unfair Terms in Consumer Contracts. The latter can
apply to almost any type of term that was not individually
negotiated
and will invalidate the term if it is unfair.
40
Council
Directive 93/13/EEC OJ L 095/29 (5 April 1993),
http://www.crw.gov.uk/resources/unfair%20
terms%20 directive7.pdf
,
accessed on 27 March 2007.
41
Collins
above n 5 at 253. In 2001 the Department of Trade and Industry
asked the Law Commission and Scottish Law Commission to
rewrite the
law of unfair contract terms in a single regime in a clear and
accessible style. In recommendations published in 2005,
the
Commissions produced a draft Bill aimed at preserving the existing
level of consumer protection, rounding up rather than down,
when
there was a discrepancy between the 1977 Act and the Directives. It
is interesting to note that t
he
Bill distinguishes between consumers, very small businesses and
other businesses. The protections given to businesses in their
dealings with each other in relation to standard contract terms are
not as extensive as those given to consumers. However, very
small
businesses will be able to challenge any standard term of the
contract which has not been altered throughout negotiations
and is
not the subject matter of the contract or the price. An interesting
recommendation in favour of consumers, contained in
para 9(4) of the
Commission’s Summary, is that:
“
[I]n
claims brought by consumers, the burden of proof lies on the
business to show that the term is fair. Again this follows the
1977
Act. The business will generally have far greater resources than
the consumer so, where fairness of a term is in issue, it
should be
required to justify its position.”
42
SALRC
Report above n at para 2.2.2.1.
43
Nassar
Sanctity
of Contracts Revisited: a Study in the Theory and Practice of
Long-term International Commercial Transactions
(Marthinus
Nijhof, Dordrecht
1995)
at
167-8 quoted in the SALRC Report (see above n  at para
2.5.2.25). For the United Nations Guidelines on consumer protection
see generally Resolution Adopted by the General Assembly, UN
Department of International Economic and Social Affairs,
A/RES/39/248
(1985).
44
Id.
45
Law
Reform Commission of Hong Kong “Report on Sale of Goods and Supply
of Services” at 37-8 quoted in the SALRC Report above
n  at
para 2.2.2.8.
46
Above
n .
47
Id
at para 1.8.
48
Hahlo
“Unfair Contract Terms in Civil-Law Systems”
(1981) 98
SALJ
70.
49
See
SALRC Report above n at para 1.27.
50
Id
at para 2.2.3.2.
51
Id.
52
Id.
53
Id
at para 2.7.4.4.
In
keeping with the broad proposals of the Commission, the Consumer
Protection Bill (Government Gazette 28629 GN R489, 15 March
2006)
was recently published by the Department of Trade and Industry for
public comment. The preamble states that:
“
The
people of South Africa recognise—
. . . .
That it is necessary to develop and employ innovative
means to—
(a) fulfil the rights of historically disadvantaged
persons and to promote their full participation as consumers;
(b) protect the interests of all consumers, ensure
accessible, transparent and efficient redress for consumers who are
subjected
to abuse or exploitation in the marketplace; and
(c) give
effect to the internationally recognised customer rights”.
Section 3(1) goes on to provide
that—
“
The
purpose of the Act is to promote and advance the social and economic
welfare of consumers in South Africa by—
(a) establishing a legal framework for the achievement
and maintenance of a consumer market that is fair, accessible,
efficient,
sustainable and responsible”.
In Chapter 2, which deals
with fundamental consumer rights, special attention is given to the
question of notice to the consumer
of clauses which provide for
exemption from liability. Section 50(1) provides that any provision
in an agreement in writing that
purports to limit in any way
liability of the supplier is of no force and effect unless:
“
(a) the fact, nature and effect of that provision is
drawn to the attention of the consumer before the consumer enters
into the
agreement;
(b) the
provision is in plain language . . . ; and
(c) if the provision is in a written agreement, the
consumer has signed or initialled that provision indicating
acceptance of it.”
Further provisions require that the attention of the
consumer be drawn to similar exemptions from liability at an early
stage and
in a conspicuous manner and in a form that is likely to
attract the attention of an ordinarily alert consumer, having regard
to
the circumstances (section 50(2)(b)(i)). The section dealing
with determination of whether a term of a contract is unfair or
unreasonable
provides that a court must have regard to all the
circumstances of the case and in particular, the bargaining strength
of the parties
relative to each other, and whether the consumer knew
or ought reasonably to have known of the existence and extent of the
term,
having regard to any custom of trade and any previous dealings
between the parties (section 58(1)(a) and (c)).
54
Above
n .
55
See
for example Woolfrey above n ; McQuoid-Mason “Consumer law: the
need for reform”
(1989) 52
THRHR
32
; Lewis
Fairness
in South African Contract Law
(2003)
120
SALJ
330
; Bhana and Pieterse “Towards a Reconciliation of Contract Law
and Constitutional Values: Brisley and Afrox Revisited”
(2005) 122
SALJ
865
and articles quoted therein.
56
Id.
57
Reported
as
Napier v
Barkhuizen
2006 (4) SA 1
(SCA);
2006 (9) BCLR 1011
(SCA).
58
Id
at para 8.
59
Act
40 of 2002.
60
Section
2(2) provides:
“
Subject
to section 3 and subsections (3) and (4), a debt which became due—
(b) after the fixed date, will be extinguished by
prescription as contemplated in Chapter III of the Prescription
Act, 1969
(Act No. 68 of 1969), read with the provisions of that Act
relating thereto.”
61
Act
56 of 1996.
62
Section
23(1).
63
Section
23(3) read with section 24.
64
See
Carmichele
v Minister of Safety and Security and Another (Centre for Applied
Legal Studies Intervening)
[2001] ZACC 22
;
2001
(4) SA 938
(CC);
2001 (10) BCLR 995
(CC);
2002 (1) SACR 79
(CC);
K
v Minister of Safety and Security
[2005] ZACC 8
;
2005 (6) SA 419
(CC);
2005 (9) BCLR 835
(CC). See also
Phumelela
Gaming and Leisure Ltd v Gründlingh and Others
[2006] ZACC 6
;
2006 (8) BCLR 883
(CC).
65
Napier
v Barkhuizen
above n at para 7.
66
Id
at para 28.
67
Thus,
in the present case there is no indication on the face of the
documents to suggest that the substantive term on which the
insurer
relied to repudiate liability, namely that which limited coverage to
private use of the car, was open to challenge on grounds
of
violating public policy, even if, notionally, it could be shown that
Hamford had in fact driven an extremely hard bargain against
Mr
Barkhuizen.
1
Above
at para 30.