Judicial Control of Unfair Contract Terms: The Implications of the Consumer Protection Act

• Jurisdiction: South Africa
• Author: R D Sharrock
• Citation: (2010) 22 SA Merc LJ 295
• Date: 25 May 2019
• Published date: 25 May 2019
• Pages: 295-325

Articles

Judicial Control of Unfair Contract Terms: The

Implications of Consumer Protection Act

RD SHARROCK*

University of KwaZulu-Natal

Legal systems throughout the world, our own included, have had to f‌ind

ways of dealing with the pervasive problem of unfair contract terms.

1

The

main cause of the problem, in a nutshell, is that many businesses use

pre-formulated, non-negotiated contract terms and ensure that they are

routinely incorporated into their transactions with customers.

2

The terms

are typically framed so as to be overly protective of the business concerned; to

*B Comm LLB (Natal). Professor of Law, University of KwaZulu-Natal. The refereed version of this

article was published as a contribution in M Kidds & S Hoctor (eds) Stella luris: Celebrating 100 Years

of Teaching Law in Pietermaritzburg (2010), and this article is published with the permission of the

publishers, Juta & Co Ltd.

1

See, generally, PJ Aronstam Consumer Protection, Freedom of Contract and the Law (1979) at

14-25; E Kahn Contract and Mercantile Law through the Cases 2ed (1988) vol 1 at 33-6;AJ Kerr The

Principles of the Law of Contract 6 ed (2002) at 5-7; R Zimmermann ‘Good Faith and Equity’ in:

R Zimmermann & D Visser (eds) Southern Cross: Civil Law and Common Law in SouthAfrica (1996)

217 at 255-7; R Brownsword ‘General Considerations’ in: M Furmston (ed) The Law of Contract 3ed

(2007) ch 1 in pars 1.47-1.52, 1.57-1.69; K-H Neumayer ‘Contracting Subject to Standard Terms and

Conditions’ in: A von Mehren (ed) International Encyclopedia of Comparative Law vol VII (2008) ch

12 at ss 8-20; H Kötz ‘Controlling Unfair Contract Terms:Options for Legislative Reform’ (1986) 103

SALJ 405; GTS Eiselen ‘Die Standaardbedingsprobleem: Ekonomiese Magsmisbruik, Verbruikers-

vraagstuk of Probleem in Eie Reg’ (1988) 21 De Jure 251; (1989) 22 De Jure 44; SouthAfrican Law

Commission ‘Report on Unreasonable Stipulations in Contracts and the Rectif‌ication of Contracts’

Project 47 (April 1998) (the ‘SALC Report’) ch 1 in pars 1.40-1.47.

2

The device most commonly employed to do this is the ‘standard-form’ contract or ‘contract of

adhesion’ (derived from the French contrat-d’adhésion). Unprecedented growth in the production and

distribution of standardised goods and services has brought with it a corresponding increase in the use of

standard-form contracts. Despite being legally problematic, such contracts are now an indispensable

tool of mass merchandising and an integral part of modern living. See, eg, W Friedmann Law in a

Changing Society 2 ed (1972) at 131; Kahn op cit note 1 at 34; D YatesExclusion Clauses in Contracts

2 ed (1982) at 1-2; J Beatson Anson’s Law of Contract 28 ed (2002) at 163; Neumayer op cit note 1 at

s 8; F Kessler ‘Contracts of Adhesion – Some Thoughts about Freedom of Contract’ (1943) 43

Columbian LR 629 at 631; HB Sales ‘Standard Form Contracts’ (1953) 16 Modern LR 318; C Grunfeld

‘Reform in the Law of Contract (1961) 24 Modern LR 62 at 64; E von Hippel ‘The Control of

Exemption Clauses: A Comparative Study’(1967) 16 International & Comparative Law Quarterly 591

at 593; WD Slawson ‘Standard Form Contracts and Democratic Control of Lawmaking Power (1971)

84 Harvard LR 529 at 529-32; G Gluck ‘Standard Form Contracts: The Contract Theory Reconsidered’

(1979) 28 International & Comparative Law Quarterly 72 at 73-4; TD Rakoff ‘Contracts ofAdhesion:

an Essay in Reconstruction’ (1983) 96 Harvard LR 1173 at 1188-9; A Burgess ‘Consumer Adhesion

Contracts and Unfair Terms:A Critique of Current Theory and a Suggestion’ (1986) 15 Anglo-American

LR 255 at 260.

295

(2010) 22 SA Merc LJ 295

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minimise its risks and to exempt it from as much liability as possible.

3

A

business derives substantial economic benef‌its from using standardised terms

4

and will generally adopt a ‘take-it-or-leave-it’ stance if asked by a customer to

make changes to the terms.

5

The customer has the alternatives of not

contracting at all or of taking his or her custom elsewhere, but very often

going without is simply not feasible

6

and shopping around for better standard

terms is a waste of time and effort.

7

For various reasons, customers tend to

agree to pre-formulated terms without questioning them or attempting to bring

about modif‌ications.

8

Their usual reaction on encountering such terms is to

skip the small print and concentrate on the few matters that are negotiable,

such as subject-matter, price, payment terms, delivery dates and warranties.

9

The South African common law has principles that may be relied upon to

contest unfair contract terms (eg, principles of legality and interpretation), but

3

‘Natural self-interest soon leads to the inclusion in such contracts of protection extending beyond

the realm of legitimate interests’: NS Wilson ‘Freedom of Contract and Adhesion Contracts’(1965) 14

International & Comparative Law Quarterly 172 at 176. See also Friedmann op cit note 2 at 131-2;

Neumayer op cit note 1 at s 8; R Harker ‘Imposed Termsin Standard-form Contracts’ (1981) 98 SALJ

15 at 16; JR Maxeiner ‘Standard-terms Contracting in the Global Electronic Age; European

Alternatives’ (2003) 28 Yale Journal of International Law 109 at 110; K Hopkins ‘Standard-form

Contracts and the Evolving Idea of Private Law Justice: A Case of Democratic Capitalist Justice versus

Natural Justice’ 2003 Tydskrifvir die Suid-Afrikaanse Reg 150 at 154.

4

For example, the business only has to have one contract drafted for all its transactions with

consumers; negotiation time with customers is reduced to a minimum; it is able to use relatively

unskilled personnel to conclude its transactions; and its legal liability is restricted and standardised,

making it easier for it to discount agreements, obtain f‌inancing, insure against liabilities and plan for the

future. See, eg, Friedmann op cit note 2 at 131; Restatement 2d Contracts (1979) at s 211 comment a;

Yates op cit note 2 at 2-4; Kahn op cit note 1 at 34; H Beale ‘Legislative Control of Fairness: The

Directive on Unfair Terms in Consumer Contracts’in: J Beatson & D Friedmann (eds) Good Faith and

Fault in Contract Law (1995) 231 at 231-2; K Zweigert & H Kötz Introduction to Comparative Law 3

ed (trans by Weir) (1998) at 333; G Howells & S Weatherill Consumer Protection Law 2 ed (2005) at

19; Neumayer note 1 at s 8; KN Llewellyn ‘What Price Contract – An Essay in Perspective (1931) 40

Yale LJ 704 at 731; Kessler op cit note 2 at 631-2; Wilsonop cit note 3 at 176; Rakoff op cit note 2 at

1220-5; GTS Eiselen op cit note 1 (1988) 21 De Jure 251 at 254; Hopkins op cit note 3 at 153-4;

Maxeiner op cit note 3 at 113.

5

See, eg, HR Hahlo & E Kahn The Union of South Africa: The Development of its Laws and

Constitution (1960) at 443; Kahn op cit note 1 at 34; Sales op cit note 2 at 318; CC Turpin ‘Contract and

Imposed Terms’(1956) 73 SALJ 144 at 145; HR Hahlo ‘Buying a New Motor-car – An Object Lesson in

Standard Form Contracts’ (1956) 73 SALJ 443.Apart from anything else, a non-standard contract, like a

non-standard product, is expensive for a business to make because it cannot spread its ‘production costs’

over a large number of items. See Slawson op cit note 2 at 531.

6

See, eg, Friedmann op cit note 2 at 119; Aronstam op cit note 1 at 14-5, 20; Sales op cit note 2 at

318.

7

The customer may have a choice between different suppliers but is unlikely to f‌ind better terms or a

more accommodating attitude to that already encountered. See, eg, Friedmann op cit note 2 at 131;

Beale op cit note 4 at 232; Howells & Weatherill op cit note 4 at 23; Neumayer op cit note 1 at s14;

Kessler op cit note 2 at 632; Von Hippel op cit note 2 at 593; Rakoff op cit note 2 at 1227; H Beale

‘Inequality of Bargaining Power’ (1986) 6 OxfordJournal of Legal Studies 123 at 131; T Naudé ‘Unfair

Contract Terms Legislation: The Implications of WhyWe Need It for its Formulation and Application’

(2006) 17 Stellenbosch LR 361 at 368.

8

See, eg, Beale op cit note 4 at 232; Zweigert & Kötz op cit note 4 at 334-5; Howells & Weatherillop

cit note 4 at 19; Sales op cit note 2 at 318; Hahlo op cit note 5 at 445; Rakoff op cit note 2 at 1225-9.

9

The reality is that most customers do not have the time, energy, or expertise to ascertain, read and

comprehend the terms that apply to their transaction or to negotiate changes. In many situations, it is

simply not realistic to expect customers to haggle over terms because the terms are not readily

accessible. See, eg, Sales op cit note 2 at 333; Von Hippel op cit note 2 at 593; Kötz op cit note 1 at

413-4; Maxeiner op cit note 3 at 114; Naudé op cit note 7 at 366-9.

(2010) 22 SA Merc LJ296

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