Friday, February 26, 2010

Where has all the private law gone?

I vaguely remember expressing the concern earlier in the year that that this constitutional sh*t might be contagious. Prophetic words, if I look at the posts of my fellow bloggers the last couple of weeks (for Voet's sake indeed). So today I am taking one for the team - where has all the private law gone?

Law 101 - private law is that part of the law which regulates the relationships between individuals. A lot of the rules of private law are aimed at protecting the weaker party in a transaction and public policy plays the same role, but to what extent does, and perhaps more importantly, should private law be used to protect individuals against their own stupidity? (When I say stupidity I don't mean getting 10% in wood work, I mean signing things which you don't understand, which is something we all do.)

This is of course not a new question. Afrox, Brisley and Barkhuizen are all cases which dealt with the enforceability of contractual terms freely entered into by individuals (I say freely, but of course some are more equal than others when it comes to standard term contracts.) and all involving a challenge on the enforceability of those terms on Constitutional grounds. In Barkhuizen the majority held that it would not be appropriate to test the validity of a term against the Constitution directly, but instead that it still a matter of determining whether the term is against public policy. In the years B.C. (Before Constitution) preference was given to sanctity of contract above other public interests. This approach was approved by implication in Barkhuizen says Tomas Floyd in Chapter 7 of The Law of Contract in South Africa (2010) at 176.

Having said that I also recall Cameron AJ (as he then was) saying (at last year's 'saamtrek' of Students for Law and Social Justice) that the facts which were placed before the court in each of these cases did not support a finding of invalidity based on unequal bargaining position and such same considerations - hint hint. The fact remains that our courts have always followed a conservative approach when it comes to the invalidation of contracts which were freely concluded (some say not part of the court's inherent equitable jurisdiction, but I will not get into what Justinian would have done).

But not for long - in comes Part G of the Consumer Protection Act which, by the look of things, gives the courts the power to strike down terms which are unfair, unreasonable or unjust. The courts must look at the nature of the parties, their relationship, their relative capacity, education, experience, sophistication and bargaining position.

So yes, it looks like we are going to start protecting people who fall prey to the small print (I might finally be able to cancel that gym contract. Oh no, no retrospective effect *&^$%##@*.). But the question remains, should we? Stay tuned...
(Or share your thoughts. Dave says you can now post anonymously which means that you do not need to open an account. So come all you capitalists - put your mouth where your money is...)


  1. Justinian would have laughed at consumer rights, and then sacrificed a slave for good measure.

    Dave come on, feed us some of your slimy views about individual autonomy being fundamental to the right to dignity (which i don't actually dispute).

    The common law isn't silent on fairness, but what about ideas of substantive equality and redistributive justice in the context of SA. Im going out on a limb here to extend the debate i foresee...

    The common simply was not formed in a time when there was an understanding or appreciation of our societal conditions. If we do not adapt it - somehow (and i don't care whether you get the notion of substantive equality from the Constitution, Voet, or from referencing this blog post) then it cannot possibly be said to be useful. In CLH were learnt that the value of the common was precisely in its malleability.

    As far as standard term contracts are concerned. I have a problem with them. Original i know. Our whole system of contract is (from the common law) based on the intention of the parties. In the context of modern contracting, that is most certainly a fiction. I have the intention to get into a contract to buy a cellphone. I know there are terms i dont understand, havent seen and couldnt understand without a team of lawyers. I cant not have a cellphone. How does signing require me to have intention to agree to the specific terms of the contract?

  2. @Tim I don't disagree that contract law should take into account the social conditions parties find themselves in.

    I certainly have no problem with using residual rules to take social conditions into account. Residual rules should be designed to protect the vulnerable in society. I see nothing wrong with the law supplementing incomplete contracts with terms that are designed to protect parties that generally can't protect themselves. In circumstances like these parties can opt out of the fair terms if these terms don't suit their purposes.

    Now obviously you won't find this satisfying - businesses will just repeatedly opt out of residual terms and so the marginalized will continue being exploited. So, you want compulsory rules either prohibiting certain clauses or requiring certain other clauses.

    When it comes to these type of rules I have mixed feelings. For the reasons above I see why they are necessary. However, the problems I have with consumer protection legislation is generally to do with the specifics proposed. The Consumer Protection Act will allow courts to declare contracts void that are 'unfair, unjust or unreasonable'. Now this to me is a massive problem. If there ever was an open ended phrase that would be it. How can people derive any kind of certainty from this rule? Different judges at different times can simply exercise their discretion in a different way when confronted with a contract they think is unfair. That seems to be a very poor foundation upon which to build an economy.

    Anyway, I don't know enough about this matter to give you much more Tim but I am hoping that Elizabeth (or Prof Naude) could give us a little bit more about the issues with trying to protect consumers from their own foolish contracting.

  3. I am definitely going to devote an entire blog to this but a few comments seem apposite

    (1) Tjakie has written two (a third is one the way) excellent articles on unfair terms legislation. 'Unfair contract terms legislation: the implications of why we need ot for its formulation and application' (2007) 124 SALJ 128 and 'The use of black and grey lists in unfair contract terms legislation in comparative perspective (2007) 17 Stell LR 361.

    (2) @ Tim: I think that you are selling 'Justinian' short (Justinian has kind of become a metaphor for all things Roman in this blog). I think that there was a remarkable appreciation for the injustices caused by social factors back in the day (fun to argue about this one), but of course you are right, the changed market place asks for new rules (or new application of old rules) which is to an extent what the CPA seeks to do. Interesting article to read and disagree with in this regard is Graham Glover's 'Lazarus n the Constitutional Court: An exhumation of the exceptio doli generalis?' (2007) 124 SALJ 449.

    (3) @ Dave: No disagreement there, the test is formulated to widely. Tjakie has been pointing this out to the DTI for years, but to no avail. Hopefully they will include her 'grey' list of terms in the regulations - these are terms which are presumed to be unfair unless the supplier can come up with some justification for their inclusion. I think that a blog comparing the test in the CPA to that advanced in Barkhuizen (the SCA judgment is better in some respects) is in order...

  4. I understand the problem with the generality of the test, but i would suggest that it is still useful in that it sends a message to corporate sharks:

    "Don't try and shaft people."

    Way better than not having any legislation if you ask me. Also it is hoped the Tribunal (watch this space) will prevent these issues having to be litigated on - and therefore the test being stringently applied.

  5. Wonderful topic guys!

    Dave has already made this point, but from a Libertarian perspective "well-educated adults" should be entitled to enact any legal contract and should bear full responsibility for the consequences following therefrom. Libertarianism has difficulty defining who the vulnerables (the not-so-well-educated adults) are in society, but typical examples are:

    1. Children
    2. The mentally disabled

    I believe the principle of caveat emptor was established to promote the provision of services to society. If companies find it more difficult to protect themselves with contractual exceptions, through stronger 'protection' of consumers, then the unintended consequence is to restrict provision of a good to society.

    For example, if life insurance companies are forbidden from excluding claims arising from an AIDS death, even where the policyholder has deliberately concealed their HIV-positive status from the insurer, the unintended consequence would be to restrict life insurance companies' ability to sell life insurance to the public.

    A further unintended consequence of strong consumer protection legislation is a problem of moral hazard. If consumers know they have the option to invalidate 'unfair' contract terms, they become even less inclined to heed the contracts into which they enter. Consumers have the incentive to become increasingly litigious and courts will find more applications brought before them to invalidate 'unfair' terms, the boundaries of which will continuously be tested.

  6. How I would love to comment tonight, but I am in Johannesburg for the Department of Trade and Industry's Conference on the Consumer Protection Act and I need my beauty sleep.

    After the last two posts there is definitely a need for another blog.

  7. @ Galen - I am excited. You've put the cat amongst the pigeons and I can only imagine how both Tim and Elizabeth are going to go crazy now.

    Interestingly enough, last year I heard a communist defense of freedom of contract which was very interesting. I am actually going to email the guy who made it to see if he has his notes for it.

  8. @Dave Lol, great.

    @Elizabeth I would love to read such a blog. On with the pursuit of knowledge!

  9. Now that I have gotten today's little rant off my chest (and once I finish this week's round of CLH tut hell) I will write it. You Libertarians are going to go down in flames.