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SUMMARY OF FINDINGS AND RECOMMENDATIONS

1.1 The Commission notes the concerns raised by a substantial number of respondents, particularly in respect of the possibility that foreign investors and contracting parties might be discouraged from concluding contracts in South Africa should the law enable courts to review contracts in order to determine whether they comply with principles of contractual fairness. The Commission notes that apart from there being local calls for the recognition of fairness in contracts, measures have lately been adopted and existing ones extended in foreign jurisdictions who have recognised the need to regulate unfair contracts. In view of this factual situation it seems to the Commission that the argument raised by some respondents that the introduction of measures against unfair or unconscionable terms would isolate South African contracting parties and inhibit foreign investment and trade, should be critically evaluated. It seems to the Commission that South Africa would rather become the exception and its law of contract would be deficient in comparison with those countries which recognise and require compliance with the principle of good faith in contracts. Furthermore, the Commission accepts on the question whether the proposed legislation will create unwarranted legal uncertainty, that any change effected by the proposed legislation, will produce a measure of legal uncertainty and consequent litigation, at least in the short term when many contracts are challenged. The Commission is, however, of the view that this is a price that must be paid if greater contractual justice is to be achieved, that certainty is not the only goal of contract law, or of any other law, and lastly in any event, that the fears provoked by the proposed Bill are exaggerated, in the light of the experience of countries that have already introduced such legislation. The Commission furthermore considers that the issue of unfair contracts or terms has to be addressed in a more fundamental and less fragmentary way than ad hoc reform to specific Acts, as some respondents proposed, would mean. The Commission is finally of the view that reform is called for and that legislation is the most viable and expedient method to effect legal reform. The Commission is of the view that there is a need to legislate against contractual unfairness, unreasonableness, unconscionability or oppressiveness in all contractual phases, namely at the stages when a contract comes into being, when it is executed and when its terms are enforced. The Commission consequently recommends the enactment of legislation addressing this issue. (See par 2.2.3.1 to 2.2.4.1.)

1.2 The Commission notes the respondents' arguments about the inaccessibility of the courts and that the Commission's preliminary proposals will do little to alleviate the plight of ordinary consumers. The Commission is therefore of the view that it has to reconsider its Working Committee's preliminary Bill which contained no provisions on the establishment of preventative mechanisms. The Commission duly notes the proposals on establishing an Ombudsperson with powers to prevent the continued use of contractual terms which are unreasonable, unconscionable or oppressive. The Commission is of the view that the arguments raised for establishing such an office is persuasive and consequently recommends that the Office of an Ombudsperson be established. The Commission is of the view that the powers of the Ombudsperson should be limited to pre-formulated standard contracts. Judging from the comments raised by the respondents it seems as if the administrative control of the Ombudsperson seems to be necessary particularly in regard of standard form contracts. (See par 2.3.6.1.)

1.3 The Commission also notes the issue of the pre-validation of terms and its significance in other jurisdictions. The Commission is however of the view that the proposed powers of the Ombudsperson would provide adequate relief and that there is no need to consider conferring powers to an administrative body to enable it to perform the task of the pre-validation of contractual terms. The Commission further notes the arguments in favour of allowing industry and trade to self-regulate itself by adopting codes of conduct or codes of practice. The Commission has considered the advantages and limitations of codes of conduct and is of the view that these voluntary codes of conduct will not in itself be able to effect the redress which is needed in contracts. Although the Commission would concur that codes of conduct should be encouraged, it believes that codes of conduct could be established in addition to legislation establishing an office such as an Ombudsperson. The Commission therefore recommends that provision be made for setting out the powers of the proposed Ombudsperson in regard of codes of conduct. The Commission recommends further that the powers of the Ombudsperson should be aimed at preventing the continued use of contractual terms which are unreasonable, unconscionable or oppressive. The Commission proposes that the Ombudsperson should have the following powers and duties- (See par 2.3.6.1 and 2.3.7.1.)

• to negotiate with a person using or recommending the use of pre-formulated standard contracts in order to obtain an undertaking from him or her that he or she will act in accordance with the proposed Act, and if such a party fails to fulfil such an undertaking, that the Ombudsperson may issue such orders as may be deemed necessary for ensuring the fulfilment of such an undertaking;
• if having considered a complaint about any contract term that the Ombudsperson considers to be unreasonable, unconscionable or oppressive, that he or she may bring proceedings in the High Court for an interdict against any person appearing to him or her to be using or recommending use of such a term; provided that if he or she decides not to apply for an interdict, he or she shall furnish reasons to the complainant for such a decision;
• to prepare draft codes of conduct applying to particular persons or associated persons in a field of trade or commerce, in consultation with such persons, organisations, consumer organisations and other interested parties for the consideration and approval of the Minister;
• if it appears to the Ombudsperson that a person has acted in contravention of a prescribed code of practice applicable to that person, that the Ombudsperson may request the person to execute within a specified time a deed in terms approved by the Ombudsperson under which the person gives undertakings as to-

(i) discontinuance of the conduct;
(ii) future compliance with the code of practice; and
(iii) the action the person will take to rectify the consequences of the contravention,

or any of them;

• to retain all deeds and to register the deeds in a Register of Undertakings kept by the Ombudsperson and containing the prescribed particulars;
• if a person fails to comply with the request by the Ombudsperson for the giving of an undertaking that the Ombudsperson may on application to the High Court, request that the person be ordered-

(i) to act in a manner that would have been required; or
(ii) to refrain from acting in a manner that would have been prohibited.

1.4 The Commission is of the view that it is understandable that considerable concern were raised that conferring wide-sweeping powers to the courts may lead to legal uncertainty. The Commission is, however, of the view that there is a need to confer wide powers to the courts to effect justice to contracting parties, especially when considering the wide-sweeping powers conferred by legislation in other jurisdictions. The Commission is of the view that the wide powers it proposes to confer to the courts should and can be balanced by confining the proposed criterion of fairness to unreasonableness, unconscionability and oppressiveness. The Commission furthermore agrees with Professor Kerr that there is a need to redraft the clause governing the powers of the courts to set aside contracts along the lines he proposes, and also agrees with the Supreme Court Judges that any court sitting on appeal on that issue, shall be at liberty to approach the matter as if it were a court of first instance. (See par 2.4.4.1.)

1.5 The Commission furthermore believes that there is a need for a specific provision conferring on the High Court the jurisdiction where it is satisfied, on the application of any organisation, or any body or person, that a person has embarked, or is likely to embark, on a course of conduct leading to the formation of contracts or terms which are unreasonable, unconscionable or oppressive, that it may, by order, prescribe or otherwise restrict, the terms upon which that person may enter into contracts of a specified class. The Commission further is of the view that provision should be made for the High Court issuing orders on the application by the Ombudsperson that a person fails to comply with the request by the Ombudsperson for the giving of an undertaking and to order, in addition to granting any other relief, the omission of terms that are unreasonable, unconscionable or oppressive, or any term having in substance the same effect, from all pre-formulated standard contracts. (See par 2.4.4.2, 2.4.5.1 and 2.4.5.2.)

1.6 The Commission is of the view that its respondents did not raise valid arguments for the reconsideration of the Working Committee's proposed criteria for determining fairness in contracts. The Commission therefore considers that the fairness criterion to be included in the proposed legislation should be based on the determination of the question whether contracts or terms are unreasonable, unconscionable or oppressive. The Commission recommends that unreasonableness, unconscionability or oppressiveness should be the yardstick to be applied in determining fairness in contracts. (See par 2.5.4.1 and 2.5.5.1.)

1.7 The question whether there should be guidelines also led to diverging comments from the respondents: some are totally opposed to guidelines whereas others are strongly in favour of guidelines. The Commission is of the view, upon reflection, that there is a need to provide some definition to the concept of unreasonableness, unconscionability or oppressiveness by setting out guidelines in the proposed legislation. The Commission considers that legal certainty and predictability can be effected by including guidelines in the proposed legislation. The Commission is of the view that an open-ended list of guidelines will not have the effect of unduly limiting judicial discretion. Moreover, the Commission takes note once again of the numerous comments stating that courts are inaccessible, that providing for curial intervention only will not effect relief and that provision should therefore be made for preventative action. The Commission supports the view that no preventative action is possible without guidelines and that informed self-control by drafters of standard and model contracts, action by representative bodies, negotiations with a view to settling disputes, etc, are all heavily dependant upon there being a large measure of predictability regarding the question of what will be acceptable and what not in regard of contracts. The Commission therefore recommends that guidelines be included in the proposed legislation. (See par 2.6.4.1 and 2.6.5.1.)

1.8 The Commission has duly noted the mixed reaction of its respondents on the question of the scope of the proposed legislation. In the first instance the Commission considered the suggestion that only the High Court should have jurisdiction to entertain applications under the proposed legislation. The Commission notes the concerns which a number of respondents have raised on the question of the accessibility to justice and to the courts. The Commission considers that granting jurisdiction to the High Court only would mean that the proposed legislation would be available to an exclusive minority of the South African community and this would mainly defeat the purpose of the proposed legislation. The Commission therefore does not support the suggestion concerning the exclusive jurisdiction of the High Court. (See par 2.7.4.1.)

1.9 The Commission further considered the Unfair Contract Terms Committee's suggestion that certain contracts are already specifically regulated, and that they should therefore not be over-regulated by the application of the proposed legislation. The Commission notes that the UCTC argues along the same lines as the Ontario Commission when it considered whether it would or should be possible to limit the application of the proposed provisions so as to exempt certain types of contract that are already subject to extensive regulation. The Commission notes the reasoning applied by the Ontario law Commission namely that their proposed doctrine of unconscionability should be statutorily recognised as a basic and pervasive contract norm, that their proposed legislation should apply to all contracts and that certainty and finality should yield to flexibility and avoidance of injustice. The Commission is, however, of the view that the UCTC's view is persuasive that the tendency to over-regulate, by imposing general control through the application of a general fairness clause to contracts which are created, structured and performed under specific legislation, tailor-made for the purpose, is uncalled for, and that the purpose should not be to codify the entire field of the law of contract in this respect, but rather to retain specialised, ad hoc legislation already in existence, and to make provision only for those matters which are still left uncatered for. The Commission concurs with the UCTC's suggestion that the proposed legislation should not apply to the following contracts-

• contracts which fall within the scope of the Labour Relations Act, Act 66 of 1995, or which arise out of the application of that Act;
• contracts falling within the scope of the Bills of Exchange Act, Act 34 of 1964;
• contracts to which the Companies Act, Act 61 of 1973, or the Close Corporations Act, Act 69 of 1984, apply or which arise out of the application of those Acts; and
• contractual terms in respect of which measures are provided under international treaties to which the Republic of South Africa is a signatory and which depart from the provisions of this Act.

(See par 2.7.4.2 and 2.7.5.1.)

1.10 The Commission does not agree with excluding the application of the proposed legislation in respect of family law agreements in accordance with the Divorce Act, the Matrimonial Affairs Act, or the Matrimonial Property Act. It does not seem to the Commission that settlements reached under these Acts are in any way satisfactorily regulated and the possibility of judicial review under the proposed legislation seems to be called for. (See par 2.7.4.3.)

1.11 The Commission does not believe that the arguments raised by respondents for exempting categories of contracting parties from the application of the proposed legislation are persuasive. The Commission supports Prof Hein Kötz's view that the distinction between consumers and other contracting parties are mostly arbitrary and difficult to maintain. The Commission concurs with Prof Hein Kötz that a court would apply more flexible criteria when a contract concluded by so-called business people is being considered than would be the case where other contracting parties are involved. (See par 2.7.4.4.)

1.11 The Commission considers that the arguments raised by Professors Van der Merwe and Lubbe and the Unfair Contract Terms Committee on the question of changed circumstances after concluding a contract, particularly in view of the position in other jurisdictions, are persuasive. One must agree with the Commission on European Contract Law that this is a vexed question. However, the Commission is of the view that the provision adopted by the Commission on European Contract Law seems to provide a fair solution to the issues involved in changed circumstances after conclusion of a contract. The Commission therefore recommends that the proposed legislation should provide that in the application of the legislation the circumstances which existed at the time of the conclusion of the contract should be taken into account, and that where there is a reasonably unforeseeable change of circumstances which makes performance under the contract excessively onerous, the parties to the contract should be bound to enter into negotiations with a view to adapting the contract or terminating it. (See par 2.8.4.1 and 2.8.5.1.)

1.12 The question whether the parol evidence rule should be retained or abolished leads to divergent answers not only in South Africa but also in other jurisdictions. The Commission is of the view that if evidence of what passed between the parties, or the background or surrounding circumstances, contains the best clue to understanding what the parties meant, and if the words the parties used are capable of some other meaning, as is almost invariably the case, such evidence should be admissible to prove the contract. The Commission further considers that where one party has induced another to believe that a document contains all the terms of their agreement, he or she shall be bound by the belief that he or she has induced - provided that the other party was bona fide and reasonable in entertaining that belief and that the inquiry should involve the ventilation of all relevant information, including anything that may have been said or written by the parties, before or after the execution of the document, that might have a material bearing on whether there had been consensus or the induction of that belief. The Commission further considers that if a party leads evidence which the court feels has been nothing more than a waste of time it can make an appropriate order as to costs, and that when litigants realise that such orders both can be, and will be, made there should be no undue lengthening of the time taken in court on contractual cases. The Commission recommends that the following provision be included in the proposed Bill: (See par 2.9.4.4 and 2.9.5.1.)

Whether or not the words of the contract appear to be ambiguous evidence of what passed during negotiations between the parties during and after the execution of the contract and surrounding circumstances is admissible to assist in the interpretation of any contract.