At common law the general approach to the enforcement of contracts is encapsulated in the principle ‘pacta sunt servanda’ ie all contracts entered into voluntarily and freely are valid and enforceable even though the contract (or a term in the contract) is unfair or may operate harshly. A Court will not, however, enforce a contract which is contrary to public policy. This requires a Court to analyse, objectively, whether the contract offends the legal convictions of the community. If it does, the contract is contrary to public policy and void; if not, a contract entered into voluntarily and freely stands and can be enforced, whatever reason a party may have for not complying with its terms.
This no longer our law. In Barkhuizen v Napier 2007 (5) SA 323 (CC) the Constitutional Court stressed that all law, including the common law of contract is subject to constitutional control. Any clause in a contract which is inimical to the values underlying our constitutional democracy is contrary to public policy and therefore unenforceable. Public policy imports the notions of fairness, justice and reasonableness and precludes the enforcement of a contractual term if its enforcement would be unjust or unfair. In determining the fairness of a clause, two questions must be asked. The first is whether the clause itself is unreasonable. If the clause is objectively reasonable, the second question arises, namely whether the clause should be enforced in the light of the circumstances which prevented compliance. In practical terms this means that once it is accepted that the clause itself does not objectively violate public policy, a party to the contract may nevertheless escape the consequences of noncompliance if it can be shown that that a good reason existed for not complying.
The clause in question was a time limitation clause in an insurance contract. The Constitutional Court made it clear that where a claimant seeks to avoid the enforcement of such a clause on the basis that non-compliance therewith was caused by factors beyond his control, it is inconceivable that a Court would hold the claimant to the clause. The enforcement of the clause in such circumstances would result in an injustice and would be contrary to public policy.
According to the Court, public policy endorses the principle of freedom of contract, but nevertheless recognises the need to do simple justice between the contracting parties.
Simply put, it comes to this: a Court will not enforce a clause which, viewed objectively, is unfair; neither will it enforce a clause which is objectively fair but there happens to be a valid reason for a party not complying with it. The ultimate aim is to do ‘simple justice’ between the contracting parties. Courts are therefore now empowered to declare contract terms unenforceable on the grounds that enforcement would be unfair. Of course, this does not mean that courts can or will do so indiscriminately. The difficulty, however, will be to determine in each individual case whether or not the enforcement of a particular term would be unfair. The Constitutional Court agreed with the Supreme Court of Appeal 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.’
With respect, this approach is obviously sound but the difficulty is not confined to determining the fairness of the parties’ individual arrangements. In terms of the Constitutional Court’s judgment a Court may now be called upon to decide not only whether the parties’ individual arrangements are fair, but also whether the reason offered for non-compliance with a particular clause is sufficiently sound as to render enforcement unfair. Hopefully our Courts will,
over time, develop clear guidelines as to what they consider to be fair and unfair in a contractual context. Until that occurs, however, it could be a challenging task for legal advisors to express a firm view on the enforceability of a particular term in a contract.