huyssteen_1998_the horizontal application theory and its influence on freedom of agreement in the...

8/13/2019 Huyssteen_1998_The Horizontal Application Theory and Its Influence on Freedom of Agreement In the law of contr

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The horizontal application theory andits influence on freedom o agreementin the law o contract - a South AfricanperspectiveLF van HUYSSTEENProJessor o Private LawUniversity o the Western ape

1 HORIZONTALITY RADIATION AND PRIVATE LAW INGENERALIt now seems clear. when interpreting the wording of the relevant sectionsof the 1996 Constitution,l and particularly section 8 2 in the light of themain tenets of interpretation advanced by the Constitutional Court in uPlessis v De Klerk. that direct horizontal application of the basic rightsprotected in Chapter 2 of the Constitution to private relations regulated byprivate law , is possible Private law is of course, not so private , andthat goes equally for the law of contract - certainly contract is and mustbe largely a private matter, but we should remind ourselves. even leavingthe Bill of Rights aside for the moment, that objective values, norms andpublic policy playa decisive role in the creation and validity of contracts -reasonable reliance on consensus can create contractual liability andlegality is a reqUirement for validity. Also these limitations on privateautonomy are becoming increasingly important in respect of theenforcement of validly created contractual rights5 and the remedies forbreach of contract.

Whether a right is directly enforceable in terms of the Constitution andwhether a new remedy may be created in the process will of coursedepend on the nature of the right and of the duty imposed by the right. Inthis regard I suppose the preponderant weight o the social interestsinvolved over the private interests at stake, will playa role, Social interestsrelate to rights of general application and enforceability subject to other


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always relative and subject to a process of balancing the interests of theindividuals concerned. 6 Thus, and in the first place, if the case is a matterwithin the public domain (where social interests are dominant), directenforceability is indicated. This approach would satisfactorily and properlyprovide space for the application of the limitations clause (section 36) interms of which only social interests are considered - this test wouldobviously be too unsophisticated if private interests had to be balanced,considering also social interests.

Where direct enforceability is not possible because private interests reparamount or at least indicative o the relative weight to be attached tocompeting social interests the interpretation section of the Bill of Rights(section 39) comes into play. which mandates a court. when developingthe common law. to promote the spirit, purport and objects of the Bill ofRights. Section 8, by making the Bill applicable to all law and binding alsothe judiciary. Jays the foundation. in the context of indirect horizontality.for a mandatory and overt constitutional audit by the court in everyrelevant case.1There is some support for the view that this may be so even jf a litigantdoes not bring a protected right in issue or even if the case does notstrictly concern development . that is. the extension of open-endedprinciples to a particular case. On the other hand, practicality and thegeneral approach by the courts thus far that the Bill of Rights was notintended to meddle in every aspect of private relations. would require aparty to allege and prove the relevance and applicability of a particularright. s However, it appears that the Constitutional Court would then beable to reassess a decision on the basis that it does not properly give effect

to section 39 and refer the case back for that to be done.9The main difference in substance between direct and indirect horizontality is that in the latter type of case the court must also take the privateinterests of the parties in the particular circumstances of the case into

account and balance them. whereas in a case of direct horizontal applicationa rule of general applicability is formulated. subject only to Iimitation. o

2 FREEDOM OF CONTR CTFreedom of contract as such is not expressly listed in the Bill of Rights.which may support the hierarchical argument that it is necessarily sub-

6 See the examples given below. For a discussion of the concepts of social and privateinterests and their relationship to each other see Van der Merwe and Van Huyssteen


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HOR ZONTAL A?PtlCATrON THEORY -A SOUTHAFRlCAi'IPERSPECTIVE ,

ordinate to any listed right with which it may conflict, such as the rights tofreedom of trade, occupation or profession, equality, freedom of asso-ciation, and access to housing. On the other hand, of course, freedom ofcontract is not only an expression of the basic values of autonomy. selfexpression and individual growth and development (which certainlyunderlie, in general terms, the whole Bill of Rights ). but also forms thedirect basis of listed rights such as some of those mentioned above. Assuch, freedom of contract may form the basis of private interests or socialinterests, depending on the circumstances.

t will thus clearly not do to take an oversimplified view of the positionof freedom of contract in the context of the Bill of Rights. t would also begenerally accepted that much weight still has to be attached to the manyjudicial pronouncements (pre- and post Bill of Rights) that freedom ofcontract and the concomitant principle of p ct serv nd su t aregenerally favoured by public policy.'2 Depending on the circumstances,freedom of contract remains a weighty factor in the balancing process - ina case of direct application of a protected right it could feature as alimiting factor,13 and in a case of indirect application it would obviouslyhave to be shown why the agreement should not have full force and effect.

However, as I will attempt to show in more detail below, it appears thatthe Bill of Rights will provide the impetus for a second or third new age forthe law of contract in which freedom of contract and p ct serv nd su twill reappear in their proper perspective as part of one of the three greatprinciples of the law of obligations - no one shall be unjustly enriched at the expense of another; damage wrongfully caused shall be compensated; and contractual relations shall comply with the requirements of good faithbetween the parties.

3 DIRECT PPLIC TION OF THE BILL OF RIGHTSThe inclusion of. for example, a racially discriminating clause against sub-letting in a contract of lease of a theatre for the operation of which a licencefrom a public authority is necessary. would to my mind clearly be directlyimpugnable as being against the equality clause, section 9. This would beso even though the lessee had already agreed to the term, since the publicand social interest in eradicating discrimination clearly outweighs the solelegitimate private interest of the lessor that his or her contract must beenforced, and moreover. the case probably falls within a broad concept of


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I LAW,DEMOCf\ACY DE\lElOPMENTSimilarly, a term in a property development contract which purports tobind the developer not to sell stands to for example) Seventh Day Ad-

ventists, could be directly attacked with reference to the equality c1ause 14the right to freedom of movement and residence, and the right to accessto housing - there are no discernable legitimate private interests to beweighed against the overwhelming social interest in the application of therights mentioned.So also would a constitution of an association, for example a chess club,which is affiliated to the national body which issues national colours andwhich contains a sexually discriminatory clause, be directly under constitutional scrutiny - the social interest as expressed in the equality and

freedom of association clauses prim f cie override the freedom to regulate one s own affairs without interference. S3 1 The application o the freedom o trade clause in the ill ofRightsA matter which has often come before the courts. in terms of both theinterim Constitution and the 1996 Constitution. is that of the applicationof the freedom of trade clause in the Bill of Rights. 6 The crucial questionnow is whether section 22 which provides that every citizen has the rightto choose their trade, occupation or profession freely. has the effect that acontractual restraint of trade is unconstitutional, unless it can be proved tobe acceptable in terms of the limitation clause, section 36.

Under the interim Constitution the courts have consistently, and forvarious reasons, decided that the current common law position should bemaintained - that is, that a restraint which has properly been agreed to isprim faCie valid, unless it is against the public policy and thus illegal), thatis unreasonable inter p rtes or infringing the public or social interests inanother way.

This approach also seems to be endorsed by the Court under the 1996Constitution in the Fidelity Guards case. at least in the earlier part of itsjudgement. 17 On the other hand, some commentators apparently insistthat section 22 is without more applicable, either directly,lS or indirectly,I9subject of course to potential limitation. In the final analYSiS the Court inthe Fidelity Guards-case appears to favour direct application of the right tofree trade, but argues that a reasonable restraint that is inter p rtes andprobably also from the point of view of the public interest) isautomatically?) an acceptable limitation of general application in terms ofsection 36.20 Despite this, the Court shrinks from finding that a restraint is


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I > . HQR,fZON1 AL,APPLlCATIONTHEORY ~ SOUTHAF.RlCANPERS?ECTIVE 1reasonableness is consequently on the party claiming enforcement of therestraint. The approach of the Court in this case seems too robust, and notin accordance with the primary purpose of the limitations clause - privateinterests, which are primarily in issue in restraint cases, should not besummarily elevated to matters of public interest and general application. 21

The answer seems to lie in the analysis put forward above, which in thiscontext is supported by the distinction relating to the kinds of interestsinvolved made in the leading case on contractual restrictions on freedomto trade in Magna Alloys and Research SA) Pty Ltd v Ellis22 and in theconstitutional analysis conducted by van SchalkwykJ in Knox D Arcy td vShaw Where the social interest in maintaining freedom of trade,occupation or profession is paramount and overrides the principle thatagreements must be fulfilled, which has at least an important privatedimenSion) then the restraint will be unconstitutional unless it can passthe test of the limitations clause. An example of such a case could bewhere a partnership agreement between medical general practitionersplaces an area restriction on the partner leaving the partnership whichwould result in a serious lack of medical care in the community. In thisregard the right to access to health care services section 27) is also relevant.Where, however, no such social interests appear to be paramount, thematter is one of balancing the private interests of the contractants, that is,whether the restraint is reasonable inter partes considering the legitimateprotectable interests of the one party, against the restrictions placed onthe other. Since such a process certainly accords with the spirit, purportand objects of the Constitution, the status quo in the common Jaw as setout above is maintained. 4

4 INDIRECT PPLIC TION OF THE BILL OF RIGHTSIt is probably in this field that we will see the most far-reaching andultimately radical influence, resulting in a new perspective on the role ofcontractual freedom and its most relevant consequence, namely thatagreements must be kept and should be enforced.4 1 Validity of n agreement and public policyThe most obvious areas where the Constitution may indirectly impact onfreedom of contract is where open-ended policy norms already exist andare already in terms of the common law decisive regarding the validity or


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I / L A W , O E M b ~ ~ C Y DEVELOPMENTalready been felt regarding the content and interpretation of public policy.In the case of Ryland v Edros 5 Farlam J decided that an agreement amarriage by Muslim rites) in the context of a potentially polygamousmarriage was not against the public policy. as is now reflected in theConstitution - in the process not applying a previous appellate decision tothe contrary. In casu the constitutional principles of equality. tolerance andaccommodation as inferred from and stated in the preamble, varioussections of the Bill of Rights and postamble were cited as validating suchan agreement. 6 Interestingly, in this case the Constitution did not limit butextended freedom of contract. It may of course well be that in a case likethis direct application of the Bill of Rights is appOSite.

4.2 Enforceability of a contract - a wider context4.2.1 The development ofgoodfaithAnother. and wider. area of constitutional influence in the context ofpublic policy and the validity or enforceability of an agreement is thepossible recognition and development of a general nonn regulating theenforceability of a concluded contract and applying to all its phases: theprocess of conclUSion. its validity (legality) and its enforcement. 27 Veryrecently in a forceful separate Judgement in Eerste Nasionale Bank vanSuidelike Afrika Bpk v Saayman Olivier JA placed the principle of goodfaith squarely within the realm of public policy in this context. as actuallybeing part of public policy.29 In this connection he found authority in.among others. SasJin (Pty) Ltd v Beukes3 where the Court applied the normof simple justice between man and man when refusing to enforce a veryonerous cession and suretyShip which had the result of reducing Beukes toa slave of Sasfin.

In so far as good faith in our law of contract is understood to require, ingeneral terms. that a contracting party. while advancing his or her owninterests should also show some (reasonable?) respect for the interests ofthe other party. it certainly accords with the spirit. purport and objects ofthe Bill of Rights. As such. courts would be mandated by section 39 todevelop and apply the norm. in spite of the oft-expressed judicial reluctance based on the perception that the notion of sanctity of contract ispractically inviolable. Courts will always have to be mindful of the possibility of reassessment by the Constitutional Court.

Various concepts of the Constitution and the Bill of Rights might playarole in concretising the norm in the particular circumstances of the case.


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Ioverlap with the different phases of contract at the same time. andalthough theoretically it probably is ultimately not desirable t make aclear distinction between the various phases and the applicableremedies.33 it may be practical in this context t look at the conclusionphase separately. We know that subjective consensus is only one basis ofcontract. reasonable reliance being the other. We know that if there is aso-called defect of will the contract may be rescinded. We appreciatethat defect of will refers to wrongful conduct which unacceptably limitsunfettered freedom of decision and self-determination. This must befertile soil for the values of the Constitution to take root and influence thedevelopment of the common law. The extension of the trite grounds forrescission (misrepresentation. duress and undue influence) seem indicated- at least to cater for abuse of circumstances other than personalascendancy or power. What particularly comes to mind here is abuse ofeconomic necessity. abuse of dire need for housing. abuse of personalinexperience and lack of judgement. and abuse of inequality of bargainingpower. This extension just described should ideally be only a first step tthe development and recognition of a general principle upon whichrescission may be based. The principle itself is obvious - improper conduct.conduct against the good faith. even an extended notion of wrongfulconduct in a contractual setting. Call it what you wish. What of course is notso obvious is the application and boundaries of the principle. However. thatshould not deter the courts - they make similar judgments every day.

CONCLUSIONIn conclusion it is probably safe to say that the new era of constitutionalism in South Africa will either directly or indirectly impact on freedom of contract - it will most often result in some limitation of the ratherunfettered freedom which has enured to the benefit of the stronger partyand will require that the reasonable interests of the community and of theother party be considered when concluding and enforcing a contract.

SourcesCockrell A Rainbow jurisprudence (1996) 2 South African Journal onuman Rights 1Cockrell A Second-guessing the exercise of contractual power onrationality grounds 1997 ActaJuridica 26


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Van Aswegen A The implications of a Bill of Rights for the law of contractand delict (1995) South Africanjournal on Human Rights 5Van der Merwe S Van Huyssteen LF The force of agreements: valid,void, voidable, unenforceable? (1995) 58 Tydskrif vir HedendaagseRomeins-Hollandse Reg 549Woolman S Davis D The last laugh: Du Plessis v e Klerk classicalliberalism, creole liberalism and the application of fundamental rightsunder the interim and the final Constitution (1996) 2 South Africanjournal on Human Rights 361


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