Contractual fairness has come under increasing scrutiny in South African law. In recent cases, the Constitutional Court has liberalised contract law by tempering freedom of contract in favour of equity and public policy – informed, of course, by the values enshrined in the Constitution. The courts have reiterated that where the terms or conditions of a contract are against public policy, they may refuse to enforce them.
The latest chapter in this story is the Constitutional Court decision in Botha v Rich. This case involved the sale of immovable property on a credit instalment agreement which contained a cancellation clause whereby, should the purchaser breach the agreement, the seller would be entitled to cancel and the purchaser would forfeit all amounts paid under the agreement up to that point.
The court held that enforcement of the cancellation clause would be unconscionable, as "granting cancellation – and therefore forfeiture – in circumstances where three quarters of the purchase price had already been paid would be a disproportionate penalty for the breach". The court went so far as to hold that "the fairness of awarding cancellation is self-evidently linked to the consequences of doing so".
The effect of this decision is that courts will go further than just assessing the objective fairness of an offending clause in the abstract, but will actually assess the fairness of the offending clause in light of its subjective outcome or effect on the particular set of facts before the court.
For further information on this topic please contact Lawrence Helman at ENSafrica by telephone (+27 21 410 2500) or email (email@example.com). The ENSafrica website can be accessed at www.ENSafrica.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.