Barkhuizen v Napier (CCT72/05) [2007] ZACC 5 (4 April 2007)

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 Mohlomi³⁴ 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 Wyk³⁶ 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:
1. Leave to appeal is granted.
2. The appeal is dismissed.

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 Ltd⁶ re-endorsed the approach laid down in Sasfin⁷ 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

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South Africa: Constitutional Court

Barkhuizen v Napier (CCT72/05) [2007] ZACC 5 (4 April 2007)