Giving Practical Effect to Good Faith in the Law of Contract

JurisdictionSouth Africa
Citation(2018) 29 Stell LR 379
AuthorJacques du Plessis
Published date27 May 2019
Date27 May 2019
Jacques du Plessis
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 ru les. Secondly, courts may
take into account good fait h when deciding whether to read an implied term
into a contra ct,3 or when inter preting a contract.4 Thirdly, good faith is not a
“self-standing r ule”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 accorde d to good faith than the li mited role set out above.
In support of this a rgument some have pointed out that t he private law codes
of modern civil-law systems generally contain provisions to the effect t hat
* 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
understa nding of the pro cesses where by our common la w could consta ntly be renewed – a lso 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 Napier 2007 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 Napier 2007 5 SA 323 (CC) para 82.
3 Brisley v Drot sky 2002 4 SA 1 (SCA) para s 70-71; R Zimmerman n “Good Faith an d Equity” i n 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 Ltd 2005 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 E quity” in
Southern Cross 242-243; see the text to par t 2 2 1 below.
5 Barkhuize n v Napier 2007 5 SA 323 (CC) para 82.
6 Brisley v Drot sky 2002 4 SA 1 (SCA) para 22, relying on an i nfluential essay by D Hut chison “Non-
variation Cla uses in Cont ract: Any Esc ape from the S hifren Straightja cket?” (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 t hese 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 inde ed elevate the status of good faith f rom that
of an underlying value to such a ru le or standard. It would be an impossible
task to consider all the c odied good faith clauses in national laws8 and in
international inst rument s.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 t hat 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 t hat 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 g rappled for more than a century with delineati ng the
contours of this provision. These experiences have also enjoyed the attention
of South African cour ts, most notably the semi nal 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 P roject 47 Repor t (1998) 140 (setting out the submis sions of Van der Merwe a nd 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 “Goo d 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 Fide s, Billik heid en die Open bare Belang in d ie Suid-Afr ikaanse K ontrakt ereg”
(1990) 1 Stell LR 1 19 n 97.
8 For comparative over views see eg S W hittake r & R Zimmer mann (eds) Good Faith i n 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
9 See eg S Vogenauer “Art 1.7” in S Vogenauer (ed) Com mentary on th e UNIDROIT Pri nciples 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 blio/schlechtriem16.htm l (accessed 9-10-2018).
10 For 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.
380 STELL LR 2018 3
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Tuckers Land & Development Cor poration (Pty) Ltd v Hovis,11 which based
an implied duty not to comm it 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 est ablish to
what extent these experience s indicate that adopti ng 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. T his 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 r ights 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 fait h clause in the German Civil Cod e
2 1 The background to and general m eaning 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 Ger man term, Treu und Glauben, of
which “good faith” is a rather vague tra nslation. The term essentially requi res
that a party t akes into account t he protectable interests of anot her party (that
is, displays Tre u) and the other pa rty in t urn must rely on this (that is, must
display Glauben).13 The protection of this reliance lies at the hear t 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.
11 1980 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 Ltd 2010 4 SA 468 (SCA) para 31; Du Plessis v De K lerk 1996 3 SA 850 (CC) para 104.
12 See Schlechtr iem “Good Faith in Ger man Law” 17-18.
13 See 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).
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