Contract Law and the Constitution

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The Constitution indirectly impacts the relationship between private persons because, under section 39(2) of the Constitution, the courts are obliged to incrementally develop the common law (i.e case law) to align it with the values of the Bill of Rights in the Constitution.

The Constitution can also directly apply to the relationship between private persons because section 8(2) of the Constitution says private parties can be subject to constitutional duties, but whether they are, and the extent to which they are subject to them needs to be determined by the courts.

What this all means is that a contract (or just a term in it) between private persons can be declared unconstitutional by the courts. Attorneys who draft contracts, and clients (both businesses and individuals) that conclude contracts, want to have legal certainty that once concluded, the contracts will be binding on the other parties to them. This means it is important to follow the developing trends and attitudes of the courts towards applying their discretion to declare terms of contracts between private persons unconstitutional.

ALSO READ: Warranties and Indemnities in a Sale of Business or Shares Agreement

Differing attitudes between the Supreme Court of Appeal (“SCA”) and Constitutional Court

The SCA and Constitutional Court have historically had different approaches and attitudes towards developing the common law in line with the Constitution. In the main, the SCA has more narrowly applied their discretion to do so, being less willing to interfere with the existing common law rules regarding the law of contract, while the Constitutional Court has applied their discretion more broadly, and followed the position that even the common law rules of contract are subordinate to the Constitution.

Contract law has quite rigid and technical rules, and is not easily made subject to value-based reasoning. As such, it doesn’t easily accommodate change to make it more constitutionally compliant. However courts are intervening in contracts on the basis of constitutional arguments as follows:
– in many cases, if they find a contract term to infringe a constitutional right, that contract term will be held to be against public policy, and if they then find that this infringing contract term is unfair and unreasonable in the circumstances of that particular case, they will declare it unenforceable.
-however, in other cases, they do not even require that the contract term must infringe a constitutional right, before they investigate whether it is unfair and unreasonable, and then possibly declare it unenforceable.

So there remains a differing approach by the SCA and Constitutional Court in this regard.

The question for courts is how readily should courts apply the public policy test to intervene in a contract between private persons, and what public policy will they be guided by.

The Consumer Protection Act (CPA”)

The CPA is an example of a legislative intervention by government to assist in enforcing the values of the Constitution on contracts between private persons. It prohibits certain unfair contract terms, and it places the onus on the product or service provider (i.e. the business) rather the consumer, to prove that its contract terms are fair and reasonable and comply with the CPA. So a consumer will more easily escape unfair and unreasonable contract terms if he/she can show that the CPA was breached by the terms of the contract, rather than having to rely on the argument that the contract term infringed the Constitution and is against public policy. However, the CPA does not apply to larger businesses and consumers, and so will not assist in all cases.

In summary, we need to continue to monitor the developing trends of our courts to strike out certain contract terms as being unconstitutional, so that we can try and ensure our contracts will remain fully enforceable, even when analysed by courts against the backdrop of the Constitution and public policy concerns.

Written by Abigail Reynolds (Corporate & Commercial Law Specialist)

This article originally published by Reynolds Attorneys

Read original article here

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