Barkhuizen v Napier, Constitutional Court of South Africa, 2007 (5) SA 323 (CC)

IN THE CONSTITUTIONAL COURT OF SOUTH AFRICA 

Case CCT 72/05 

[2007] ZACC 5 

JUDGMENT

NGCOBO J:

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[30] 919000In 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. 

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[55] 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. 

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[57] 919000The 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, 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. 

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[70] 919000While 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.”
919000And 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.” 

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[73] 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. 

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[79] 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. 

[80] 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 7th 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

[81] 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 

[82] 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. 

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[87] 919000In 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. 

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