Giving Practical Effect to Good Faith in the Law of Contract

• Jurisdiction: South Africa
• Citation: (2018) 29 Stell LR 379
• Author: Jacques du Plessis
• Pages: 379-419
• Published date: 27 May 2019
• Date: 27 May 2019

379

GIVING PRACTICAL EFFECT TO GOOD FAITH

IN THE LAW OF CONTRACT

Jacques du Plessis

BComm LLB LLM PhD

Distinguished Professor of Private law, Stellenbosch University*

1 Introduction

According to South Afr ican law, all contracts are subject to the require ment

of good faith.1 The implications of this position are not entirely clear, but it at

least means the following. Firstly, good faith is an underlyi ng value of the law

of con trac t, whic h is ree cted in it s estab lishe d rule s,2 and which could also be

resorted to in justifying the development of new rules. Secondly, courts may

take into account good faith when deciding whether to read an implied term

into a contract,3 or when interpreting a contract.4 Thirdly, good faith is not a

“self-standing rule”5 or “free-oating” ba sis for courts to exercise a general

equitable discretion to ref use enforcing contracts.6

It has often been argue d that the current position is unsatisfactor y, and that

promoting greater fai rness in the South African law of contr act requires more

prominence to be accorded to good faith than the limited role set out above.

In support of this argument some have pointed out that the private law codes

of modern civil-law systems generally contain provisions to the effect that

*The fina ncial support of th e National Research Fou ndation is acknowl edged with grat itude. The resea rch

was partly co nducted when I was a visiti ng researcher at the Ma x Planck Institute for Co mparative and

Internat ional Private Law in H amburg; a word of appreciat ion goes to Reinhard Zi mmermann for b eing

such a generous ho st and for Jan Peter Schmidt for h is valuable comments. I fu rther benefitt ed greatly

from discus sions with my colleagues Ge rhard Lubbe and Franzis ka Myburgh, and from th e comments

of the anonymou s referees. This ar ticle is dedicated to the m emory of Hennie Erasm us, who had a deep

understanding of the processes whereby our common law could constantly be renewed – also in the

context of good fait h in the law of contract (see H J Erasmus “Roman law i n South Africa Today” (1989)

106 SALJ 666 676 -677).

1 See Bark huizen v Napier2007 5 SA 323 (CC) para 80; S outh African Forestr y Co Ltd v York Timbers

Ltd 2005 3 SA 323 (SCA) para 32. So metimes it is said that all co ntracts are bonae fidei or subject to

good faith (see Mesk in NO v Anglo-American Corpor ation of SA Ltd 1968 4 SA 793 (W) 802 or that

parties mu st relate to each other in go od faith (see Kwa-Zulu Natal Joint Lia ison Committee v MEC for

Education , Kwazulu-Natal 2013 4 SA 262 (CC) para 17; fur ther see Bank of Lis bon and South Afr ica v De

Ornelas 1988 3 SA 580 (A) 601F-G).

2 Barkhuize n v Napier2007 5 SA 323 (CC) para 82.

3 Brisley v Drotsky2002 4 SA 1 (SCA) paras 70-71; R Zimmermann “Good Faith and Equity” in R

Zimmerm ann & D Visser (eds) Southe rn Cross - Civil Law a nd Common Law in Sout h Africa (1996) 217

244-245; see the text t o part 4 3 below.

4 South Afric an Forestry Co Ltd v York Timber s Ltd2005 3 SA 323 (SCA) para 32; Meskin NO v Anglo-

American Cor poration of SA Ltd 1968 4 SA 793 (W) 802; Zim mermann “Good Faith and Equity” in

Southern Cross 242-243; see the text to par t 2 2 1 below.

5 Barkhuize n v Napier2007 5 SA 323 (CC) para 82.

6 Brisley v Drot sky2002 4 SA 1 (SCA) para 22, relying on an i nfluential essay by D Hut chison “Non-

variation Clauses in Contract: Any Escape from the S hifren Straightjacket?” (2001) 118 SALJ 720

743-744; F Brand “The Role of Good Faith, E quity and Fairne ss in the South Af rican Law of Contrac t: A

furthe r Instalment ” (2016) 27 Stell LR 238.

(2018) 29 Stell LR 379

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parties must act according to good faith.7 In other words, in these codes,

good faith is not (only) a value underlying the law of contract; it is given effect

to by a general rule that c ourt s may rely on directly to provide relief.

The purpose here is to explore whether foreign experiences suggest that

South African law should indeed elevate the status of good faith from that

of an underlying value to such a rule or standard. It would be an impossible

task to consider all the c odied good faith clauses in national laws8 and in

international instruments.9 The focus consequently will be on arguably the

most prominent and far-reaching of these clauses, namely paragraph 242 of

the German Civil Code or Bürgerliches Gesetzbuch (“§ 242 BGB” or simply

“the good faith clause”). 10 It reads a s follows:

The debtor must perform in the manner required by good faith, taking into account common usage

(Der Schuldner ist verpichtet, die Leistung so zu bewirken, wie Treu und Glauben mit Rücksicht auf

die Verkehrssitte es erfordern).

One hastens to add that even though the wording of the good faith clause

suggests that it only applies to how an obligation, and more specically a

contractua l obligation is to be performed, the provision is generally, and quite

generously, interpreted to mean that rights have to be exercised and duties

have to be fullled according to good faith. The ambit of the clause is therefore

not limited to the man ner of performance of a contract; in fac t, it extends even

beyond the domain of the law of contract, or pr ivate law in general.

German law has grappled for more than a century with delineating the

contours of this provision. These experiences have also enjoyed the attention

of South African courts, most notably the seminal judgment of Jansen JA in

7 See eg L Hawthor ne “Abuse of a Right to Dismiss not Cont rary to Good Faith” (2005) 17 SA Merc L J

214 217-219; A Louw “Yet Another Call for a G reater Role for Good Faith in the S outh African Law of

Contract: C an We Banish the Law of the Jun gle, while Avoiding the Eleph ant in the Room?” (2013) PELJ

68 81 sqq; South Afric an Law Commissio n Unreasonable St ipulations in C ontracts and th e Rectificat ion

of Contracts Project47Report (1998) 140 (setting out the submissions of Van der Merwe and Van

Huyssteen). The ap plication of good faith in contin ental European codes is v irtually absent as a t opic

in pre-1980 academ ic literature; th is could be ascribe d in part to local sy mpathy for the Pandect ist (pre-

codificat ion) approach in Ger man law, which did not favour suc h an open-ended nor m. On this appro ach

see P du Plessis “Good Faith and Equit y in the Law of Contract in the Civi lian Tradition” (2002) 65

THRHR 397 406-407, 409. For an early i ndication of the valu e of comparative pe rspectives i n this context,

see G Lubbe “Bona Fides, Billikheid en die Openbare Belang in die Suid-Afrikaanse Kontraktereg”

(1990) 1 Stell LR 1 19 n 97.

8 For comparative overviews see eg S Whittaker & R Zimmermann (eds) Good Faith in European

Contract Law (2000); H Beale et al Case s, Materials and Text on Contrac t Law 2 ed (2010) 775-779,

812-826; D Looschelders , D Olzen & G Schiema nn (eds) J von Staudinge rs Kommentar zu m Bürgerlichen

Gesetzbuc h mit Einführungs gesetz und Nebenge setzen, Buch 2, Rech t der Schuldverhä ltnisse Einleitu ng

zum Schuldr echt §§ 241 - 243 (Treu und Glauben) § 242 by D Looschelde rs, D Olzen (2015) paras 1160-

1254; S Cornelius “B epaalde Verskynin gsvorme van Goeie Trou in die Kont raktereg” (2001) TSAR 241

245-248.

9 See eg S Vogenauer “Art 1.7” in S Vogenauer (ed) Commentary on the UNIDROIT Principles of

Internati onal Commercial Contra cts (PICC) 2 ed (2015) 205-225. On the application of A rt 7(1) of the

CISG see P Schlecht riem “Good Faith in Germ an Law and in Internat ional Uniform Laws” (Febru ary

1997) https://ww w.cisg.law.pace.edu/cisg/bi blio/schlechtriem16.htm l (accessed 9-10-2018).

10For overviews in E nglish see S Whittaker & R Z immermann “Good fa ith in European Contra ct Law:

Surveyin g the Legal Landscape” in W hittaker & Zimmer mann (eds) Good Faith 718-32; W F Ebke &

B M Steinhaue r “The Doctrine of Good Fait h in German Contra ct Law” in J Beatson & D Friedm ann

(eds) G ood Faith and Fault in Cont ract Law (1995) 171. For a broader comparati ve view of the treatme nt

of good faith in int ernational inst ruments see J P Schm idt “Art 1:201: Good Faith an d Fair Dealing” in

N Jansen & R Zim mermann (eds) Commentaries on European Contract Laws (2018) 101-15 6.

380STELL LR 2018 3

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Tuckers Land & Development Corporation (Pty) Ltd v Hovis,11 which based

an implied duty not to commit anticipatory breach on the requirement that

contracts are subject t o good faith.

Crucially, the German Civil Code was built on the foundations of uncodied

rules of civil law that also unde rlie much of our law of contract. From a South

African perspective it may therefore be of particular interest to establish to

what extent these experiences indicate that adopting a good faith rule can

promote greater fair ness, or whether they rather point in the op posite direction

and caution us against according good faith a more prominent role than that

of an underlying value.

In these deliberations it will of course have to be borne in mind that

German law and South African law do not necessarily share identical values,

policies or goals;12 dif ferent social, political, economic and cultural c onditions

may require different means of giving expression to good faith. This could

also inuenc e the determinat ion of the standard of behaviour expected from

contracting pa rties. Nonetheless, in these two systems the re at least appears to

be strong coherence at the level of the recognition of fundamental rights and

constitutional values.

With these introdu ctory observations in mind , let us then rst try to obtai n

a better gras p on the good faith clause itself.

2 The good faith clause in the German Civil Code

2 1 The background to and general meaning of the good faith clause

2 1 1 The meaning of good faith

As is often the case with a code, much is concealed behind the wording.

Firstly, when applying § 242 BGB, “good faith” does not simply mean fairness

or reasonableness. It bears a more specic meaning, which sometimes is

explained by closer examination of the German term, Treu und Glauben, of

which “good faith” is a rather vague tra nslation. The term essentially requi res

that a party takes into account the protectable interests of another party (that

is, displays Treu) and the other party in turn must rely on this (that is, must

display Glauben).13 The protection of this reliance lies at the heart of the

whole construct of good faith. When used in this sense, the concept is dened

“objectively” as a standard of behaviour, as opposed to t he “subjective” sense

of having the state of mind of being “in good faith”, typically through not

knowing something. Ge rman law then uses a different ter m, guter Glaube, to

describ e “subjective” good faith.

111980 1 SA 645 (A) 652D, commented on by DL Ca rey Miller “Iudicia Bonae Fidei: A New Development

in Contrac t?” 1980 (87) SALJ 531; further see the r eferences in Bredenk amp v Standard Bank of So uth

Africa Ltd2010 4 SA 468 (SCA) para 31; Du Plessis v De K lerk1996 3 SA 850 (CC) para 104.

12See Schlechtr iem “Good Faith in Ger man Law” 17-18.

13See Staudinger § 242 para 140-143; Jauernig - Bürgerliches Ge setzbuch Kom mentar 16 ed (2015) § 242 by

H-P Mansel par a 3. However, as we have seen, in applyi ng the good faith claus e, German lawye rs hardly

limit them selves to its exact wording; and we are a lso acting somewhat a-hist orically when parsing a

German exp ression to give effect to a c oncept that is esse ntially Roman in or igin (i.e. bona fides).

GIVING PRACTICAL EFFECT TO GOOD FAITH 381

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