Barkhuizen v Napier

• Jurisdiction: South Africa
• Judge: Langa CJ, Moseneke DCJ, Madala J, Mokgoro J, Ngcobo J, Nkabinde J, O'Regan J, Sachs J, Skweyiya J, Van Der Westhuizen J and Yacoob J
• Judgment Date: 04 April 2007
• Docket Number: CCT72/05
• Hearing Date: 04 May 2006
• Counsel: K Hopkins for the applicant P G Cilliers and S Odendaal for the respondent
• Court: Constitutional Court

Ngcobo J:

Introduction C

[1] 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 D contends that this clause is unconstitutional in that it violates the right to approach a court for redress.

Factual background

[2] The applicant entered into a short-term contract of insurance with a syndicate of Lloyd's Underwriters of London, represented in E 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 F 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. G

[3] 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 specialh H plea was based on clause 5.2.5 of the contract which provides that:

'(I)f 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.' I

[4] The respondent also pleaded over, a plea that is not relevant for present purposes.

Ngcobo J

[5] In his replication the applicant conceded non-compliance with clause 5.2.5, but alleged that the clause is contrary to public A policy in that, among other things, it prescribes an unreasonably short time to institute action and 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 s 34 of the Constitution. That provision, which guarantees the right of access to court, provides: B

'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.'

[6] The replication did not evoke any further pleading from the respondent. C

The decisions of the Courts below

(a) The High Court

[7] The Pretoria High Court, which heard the matter in the first D 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. E

[8] 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 s 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 F foreshadowed in the pleadings. As a consequence the High Court did not deal with this argument, but only with the argument that clause 5.2.5 is inconsistent with s 34.

[9] The High Court upheld the argument. It found that clause 5.2.5 is inconsistent with s 34 and made a declaration to that effect. G 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 that regulated the institution of proceedings against the South African National Defence Force. The impugned H 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 s 33(1) of the interim Constitution, the predecessor of s 36(1). [3]

Ngcobo J

[10] The High Court accepted that clause 5.2.5 in itself is not a law of general application within the meaning of s 36 of the A 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 s 36, the High Court declared the clause invalid and dismissed the respondent's special B plea with costs.

(b) The Supreme Court of Appeal

[11] 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 C 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 D 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: E

'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] F

[12] 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 G 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 H arrangements is a step that Judges should countenance .

Ngcobo J

with care, particularly when it requires them to impose their individual conceptions of fairness and justice on parties' individual A arrangements'. [8]

[13] 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 B 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. C

[14] 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 D 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] E

[15] 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 F 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. G

[16] Addressing the constitutional challenge based directly on s 34, the Supreme Court of Appeal held that the Constitution does not prevent time-bar provisions in contracts...