Freedom of contract no more: South Africa’s Constitutional Court and the horizontal application of the Bill of Rights
The drafters of the South African Constitution were a rather ambitious lot and envisaged that the new Bill of Rights would play a major role in the transformation of the country and of its laws. It is often said that the South African Constitution – adopted in 1996 – is a transformative Constitution because it was designed to facilitate the complete transformation of South African law and legal culture and would thus enhance the transformation of society away from a formalistic, deeply unequal and oppressive racial order towards a human rights based, egalitarian society.
Exhibit number one for lawyers who support this transformative vision of the Constitution is sections 8(2) and (3), which states that “a provision of the Bill of Rights binds a natural or a juristic person if, and to the extent that, it is applicable, taking into account the nature of the right and the nature of any duty imposed by the right” and that when applying a provision of the Bill of Rights to a natural or juristic person a court must apply, or if necessary develop, the common law to the extent that legislation does not give effect to that right”. These sections are further amplified by section 39(2) of the Constitution which states that “when interpreting any legislation, and when developing the common law or customary law, every court, tribunal or forum must promote the spirit, purport and objects of the Bill of Rights.
The idea behind this section, it is argued, is for the human rights values of the Constitution to permeate every aspect of the law and judicial decision making and especially to infuse the common law with the values captured in the Bill of Rights. Despite the adoption of this potentially radical provision, courts – including the Constitutional Court – was at first reluctant to engage with it fully.
A strong feeling remains among many lawyers and judges that this provision is a dangerous one as it would destroy the perceived legal certainty on which support and reliance on the law is supposedly built. But in recent years the Constitutional Court has shown an increasing willingness to engage with this provision and to revisit especially common law principles in the common law of defamation, tort law and now also the law of contract. Much of South Africa’s law is common law based, so this means that the country may be entering an area of flux regarding the common law. This was made clear in a recent decision of the Constitutional Court in the case of Barkhuizen v Napier in which the Court was called upon to develop the common law rules around freedom of contract.
2. Barkhuizen v Napier
This case came to the Constitutional Court via the Supreme Court of Appeal and involved a challenge to the constitutionality of a clause in a short term insurance contract. The insurer had repudiated a claim brought by the owner of a luxury car written off in an accident because it claimed that the car was used for business purposes contrary to the contract. When the owner of the car issued summons against the insurer two years later, the summons was met by a special plea because the owner of the car had failed to issue summons within 90 days of being notified of the repudiation of the claim. The contract contained a clause which purported to exclude liability by the insurer for any damage to the insured motor vehicle unless the owner of the vehicle serves a summons within 90 days of the repudiation of the claim. The applicant challenged the constitutionality of this provision in the contract, basing his argument on section 34 of the South African Constitution which states that:
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.
In South Africa there has long been a debate amongst legal scholars about the way in which the Bill of Rights should apply “horizontally” – that is as between individuals – in cases where the relationship between the parties are governed by the common law. If, say, one wants to sue someone for defamation, one would rely on the common law of defamation, but the Bill of Rights guarantees for everyone the right to human dignity and the right to freedom of expression. The question that has long exercised the minds of South African lawyers and academics was whether in such a case one could argue, say, that the South African law of defamation was too restrictive because it directly infringed on the right to freedom of expression or whether one would have to argue that although the law of defamation cannot be tested against the right to freedom of expression directly, the common law can be developed to take cognisance of the demands of the guarantee of freedom of expression.
This same confusion was present in the present case. In his majority Judgment Justice Sandile Ngcobo pointed out that lawyers for the applicant basically argued that the time limits clause was contrary to public policy and therefore unenforceable because of section 34 of the Constitution. But in doing so, it conflated the argument that section 34 applies directly to the clause in the contract (so called direct horizontal application of the Bill of Rights) and the argument that the common law should be developed in the light of section 24 of the Bill of Rights (the so called indirect horizontal application of the Bill of Rights.
In any event, the majority judgment concluded that in cases like this where provisions in a contract are challenged, it will not be appropriate to rely directly on the relevant provisions of the Constitution to declare invalid provisions of a contract. Instead, one will have to challenge the provisions of a contract on the common law ground that the provisions are contrary to public policy. In terms of the South African common law 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. 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, and the rule of law. 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.”
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.
This passage makes clear that the majority of judges of the Constitutional Court balked at the idea that one would be able to directly “test” individual clauses in a contract against any provision of the Constitution. Perhaps because it wanted to ensure that the common law was not somehow marginalized by the provisions of the Bill of Rights that allow horizontal application of that Bill of Rights, it chose the indirect horizontal application route. The Court said it would use the existing principle in the common law of contract in South Africa that clauses contrary to public policy should not be enforced to infuse the law of contract with the values enshrined in the Bill of Rights. Where in the past it would be rather difficult to establish what would constitute public policy, courts will now have it easy because they will be able to rely on the values and the specific provisions contained in the Bill of Rights. On one level this is a radical departure for South African law because it now confirms that any principle of the common law – be it criminal law, tort law, or contract law – can be “developed” to bring it in line with the rights in the Bill of Rights. Potentially this could require South African courts to revisit many of the common law principles developed by judges over the past hundred years and could create an amount of legal uncertainty about what the law on a particular issue might be.
For some critics of the Constitutional Court, the majority judgment exacerbated this potential uncertainty in our law and opened a pandoras box that would easily be exploited by litigants with deep pockets. This is because the Court argued that given the right of access to court set out in section 34 of the Constitution, the court would not be able to enforce an unreasonable or unfair time limitation clause because such a clause would be contrary to public policy. If a dispute arises a court will have to ask whether such a clause afforded a claimant “an adequate and fair opportunity to seek judicial redress”. But in order to determine whether there was fairness and unreasonable one would have to ask at least two questions.
First, one would have to ask whether the clause itself was unreasonable by weighing up two considerations. On the one hand, public policy as informed by the Constitution, requires in general, that parties should comply with the terms of a contract which have been freely and voluntarily undertaken. This aspect gives effect to the traditional common law principle of pacta sunt servanda which gives effect to the constitutional values of freedom and dignity. After all self autonomy – or the ability to regulate one’s own affairs – is seen as the very essence of freedom and a vital part of dignity. On the other hand, one must ask whether there were any circumstances which prevented compliance with the clause. It would, for example be unreasonable to insist on compliance with the clause if it was unreasonable or impossible for the person to comply. But the onus should be on the person seeking to avoid enforcement of the time limitation clause to show that he or she could not have complied or that – given the specific circumstances of the case – it would be unreasonable for him or her to comply.
Second, if the clause itself is not thought of as unreasonable, one could still ask whether it should be enforced in the light of the specific circumstances which prevented compliance within the time limitation. This is a subjective enquire and will depend on the specific circumstances of the person who seeks to avoid compliance with the clause. Where there is evidence of unequal bargaining power between the parties, it may well be that an otherwise reasonable clause would become unenforceable. But the enquiry is subjective in that the actual position and circumstances of the person seeking to avoid compliance would be taken into account. If he is a relatively well educated, well resources individual with access to lawyers it will not be easy for the person to claim that there was unequal bargaining power between the parties.
This means that in each case where a contract contains provisions that may affront the values and provisions of the Bill of Rights, the person who seeks to avoid compliance with those provisions will have to come to court and after presenting evidence to the court that it was impossible or unreasonable for him or her to comply or after showing that his or her circumstances made the bargaining power so unequal as to ensure that it would be against public policy to allow enforcement of the impugned clauses, the person would be able to escape enforcement.
This judgment is therefore a boon to lawyers who represent individuals with deep pockets and who wish to escape compliance with certain clauses in a contract. It is not clear how it will assist marginalized and vulnerable individuals who are often required to sign standard form contracts that may seem rather unreasonable and unfair to the rest of us. Very few poor litigants will have access to lawyers to actually take such a case to court where they will have to show that the contract provisions were unreasonable or that given their poverty and lack of bargaining power the provisions should not be enforced.
South Africa’s Constitutional Court has now given some thought to the question of how the Bill of Rights should apply to relationships between individuals. In tort law the courts have developed the common law to give effect to the Constitutional values of human dignity and safety and security of the person and in this case these general principles have been extended to the common law of contract. In the process the court might have opened a pandoras box which might not truly assist the most vulnerable and marginalised in the community but which may assist rich and powerful individuals with the power to access lawyers and courts. No wonder that the Barhuizen decision has been criticised.