Unfair Contract Terms Legislation: The Implications of Why We Need It for its Formulation and Application

• Jurisdiction: South Africa
• Date: 27 May 2019
• Published date: 27 May 2019
• Citation: (2006) 17 Stell LR 361
• Pages: 361-385
• Author: Tjakie Naudé

UNFAIR CONTRACT TERMS LEGISLATION: THE

IMPLICATIONS OF WHY WE NEED IT FOR ITS

FORMULATION AND APPLICATION

*

Tjakie Naude

´

BA LLD

1 Introduction

Legislative control over unfair contract terms is regarded in many

countries as an essential tool in the law’s response to the abuses attendant

upon the use of non-negotiated or standard contract terms.

1

Some

countries go further and extend statutory fairness control to negotiated

terms.

2

The need for unfair contract terms legislation has also repeatedly

been pointed out in South Africa,

3

including by a few judges

4

and the

* I am grateful to the Oxford Institute of European and Comparative Law, particularly its Director,

Stefan Vogenauer, for hosting me as a visiting fellow in Oxford where this research was done. I also

benefited from financial assistance by the National Research Foundation, the Harry Crossley Fund

and the International Office of the University of Stellenbosch.

1

Such legislation has long been the norm in Europe. See, eg, the German Standard Contract Terms Act

of 1978 (AGBG) now incorporated into the Civil Code (BGB)(}305 et seq) and the Swedish Consumer

Contract Terms Act of 1994, which replaced an Act from 1971 of the same title. See also the EC

Directive on Unfair Terms in Consumer Contracts 93/13/EEC of 5 April 1993 (the Unfair Terms

Directive), and reports on its implementation collated in 1995 European Review of Private Law. Other

countries with such legislation include Zimbabwe, many South American countries, Asian countries

like Japan, Hong Kong and Thailand, Israel, and provinces in Australia and Canada (many of these are

mentioned in the South African Law Commission’s Report on Unreasonable Stipulations in Contracts

and the Rectification of Contracts Project 47 April 1998). By standard terms I mean previously

formulated terms intended for repeated and general use. Non-negotiated terms, as the term is used in

Europe, is a wider concept between standard terms and individually negotiated terms. It refers, in the

words of the Directive, to a term drafted in advance, where the consumer has not been able to influence

the substance of the term, particularly in the context of a pre-formulated standard contract. Non-

negotiated terms therefore includes terms pre-formulated for a specific contract, but the Directive

excludes a review of the core terms as to price and subject matter insofar as these are transparent. See

also, eg, Micklitz German Unfair Contract Terms Act and the EC Directive 93/13 in Lonbay (ed)

Enhancing the Legal Position of the European Consumer (1996) 173 180.

2

The Nordic countries provide examples (see Wilhelmsson Standard Form Conditions in Hartkamp et al

Towards a European Civil Code (2004) 431 441). See also the English Unfair Contract Terms Act 1977

which is not limited to standard terms, although its scope is more limited than the title suggests.

3

See, eg, Turpin ‘‘Contract and Imposed Terms’’ 1956 SALJ 144; Aronstam Consumer Protection,

Freedom of Contract and the Law (1979); Ko

¨tz ‘‘Controlling Unfair Contract Terms: Options for

Legislative Reform’’ 1986 SALJ 405; Van der Walt ‘‘Die Huidige Posisie van die Suid-Afrikaanse Reg

met betrekking tot Onbillike Kontraksbedinge’’ 1986 SALJ 647; Eiselen ‘‘Die Standaardbedingpro-

bleem: Ekonomiese Magsmisbruik, Verbruikersvraagstuk of Probleem in Eie Reg?’’ 1988 De Jure 251,

1989 De Jure 44; Eiselen Die Beheer oor Standaardbedinge: ’n Regsvergelykende Ondersoek Unpublished

LLD dissertation, University of Potchefstroom (1988); Van der Walt ‘‘Kontrakte en Beheer oor

Kontrakvryheid in ’n Nuwe Suid-Afrika’’ 1991 THRHR 367; Van der Walt ‘‘Aangepaste Voorstelle vir

’n Stelsel van Voorkomende Beheer oor Kontrakteervryheid in die Suid-Afrikaanse Reg’’ 1993

THRHR 65; Lewis ‘‘Fairness in South African Contract Law’’ 2003 SALJ 330; cf Kerr The Principles

of the Law of Contract 6 ed (2002) 661.

4

Western Bank Ltd v Sparta Construction Co 1975 1 SA 839 (W) 840 and Linstom v Venter 1957 1 SA 125

(SWA), cited by Aronstam Consumer Protection 16 24.

361

(2006) 17 Stell LR 361

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Law Commission in their 1998 Report on Unreasonable Stipulations of

Contracts and the Rectification of Contracts.

5

Subsequent to that Report, some South African writers have still

suggested that common law mechanisms for controlling one-sided terms

(such as interpretation and the requirement of legality)

6

may be flexible

enough to deal sufficiently with the problem.

7

In addition, some writers

commenting on the Supreme Court of Appeal’s subsequent failure to

strike down a clearly unfair exemption clause in a private hospital

admission form,

8

have tended to plead only for a greater role for

constitutional values and common law principles and control mechan-

isms, without calling for general unfair terms legislation.

9

This may

perhaps suggest some confidence in the common law and the Bill of

Rights on their own.

10

In my view, common law mechanisms and judicial control cannot

sufficiently address the problems in this area, regardless of how wide

judges would be prepared to interpret their powers under the Constitu-

tion or the common law.

11

Legislative control in the form of unfair

contract terms legislation (which inter alia gives a general power to courts

to strike out or amend unfair terms) is necessary. South Africa already

has some sector-specific legislation that imposes a measure of control

over the contents of certain contract types, such as the National Credit

Act

12

and the Rental Housing Act,

13

but these are insufficient to address

the problem of unfair contract terms, which is more pervasive.

14

The South African Department of Trade and Industry (DTI) has

therefore taken a step in the right direction by including provisions on

unfair terms control in their proposed Consumer Protection legislation

(which has not yet been finalised).

15

Thus South Africa will probably

5

See n 1 supra. This report was effectively shelved after publication.

6

The requirement of legality implies that contracts may not be enforced insofar as they are contrary to

public policy. The most important case is Sasfin v Beukes 1989 1 SA 1 (A).

7

Hefer ‘‘Billikheid in die Kontraktereg volgens die Suid-Afrikaanse Regskommissie’’ 2000 TSAR 142;

Hopkins ‘‘Standard-form Contracts and the Evolving Idea of Private Law Justice: A Case of

Democratic Capitalist Justice Versus Natural Justice’’ 2003 TSAR 150; Hefer ‘‘Billikheid in die

Kontraktereg’’ 2004 Tydskrif vir Regswetenskap 1. Cf Jamneck ‘‘Die Konsepwetsontwerp op die Beheer

van Kontraksbedinge’’ 1997 TSAR 637.

8

Afrox Healthcare Bpk v Strydom 2002 6 SA 21 (SCA). The clause excluding liability for bodily injury

caused by negligence was held to be neither surprising nor contrary to public policy.

9

Eg, Tladi ‘‘Breathing Constitutional Values into the Law of Contract: Freedom of Contract and the

Constitution’’ 2002 De Jure 306; Hawthorne ‘‘Closing of the Open Norms in the Law of Contract’’

2004 THRHR 294; but cf Hawthorne ‘‘Distribution of Wealth, the Dependency Theory and the Law of

Contract’’ 2006 THRHR 48. Cf Bhana & Pieterse ‘‘Towards a Reconciliation of Contract Law and

Constitutional Values: Brisley and Afrox Revisited’’ 2005 SALJ 865 who, in criticising the Afrox case,

argue in depth for a greater role for constitutional values in applying common law rules such as those

on illegality, but mention in a footnote that they do not wish to state a preference for legislative

enactment or judicial reform to facilitate constitutional compliance of contract law.

10

Such writers may, however, have simply focused on common law and constitutional arguments

because these are already available.

11

As will be explained further below.

12

34 of 2005.

13

50 of 1999.

14

Such legislation is bound to have lacunae in respect of unfair terms control (Ko

¨tz 1986 SALJ 405 409).

15

Draft Consumer Protection Bill, 2006, published for comment in GN 418 in GG 28629 of 2006-03-15.

362STELL LR 2006 3

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