You are on page 1of 28

Dale Hutchison (Editor), Chris-James Pretorius (Editor) Jacques du Plessis, Sieg Eiselen, Tomas Floyd, Luanda Hawthorne, Birgit

Kuschke, Catherine Maxwell, Tjakie Naude

Oxford University Press Southern Africa 2010 www.oup.com/za

Pacta sunt servanda v considerations of public policy weighing up private and public interests Public policy anchored primarily in values enshrined in Constitution Two possible consequences of illegality (unlawfulness):
Agreement void (and thus unenforceable) Agreement valid but unenforceable.

Courts: contract is illegal because it is:


Contra bonos mores (contrary to good morals) Contrary to public policy

Distinction has little inherent value: see Sasfin (Pty) Ltd v Beukes 1989 (1) SA 1 (A) Public policy: consider interests of society as a whole (including interests of sections of society).

Examples of recognised public interests:


Sanctity of contract Simple justice between individuals Equal bargaining power Administration of justice Safety of the State Proper functioning of the public service Full exercise of rights should not be interfered with

Public policy is an open-ended standard, but is not as problematic as it seems Preference for freedom of contract and sanctity of contract Party who alleges illegality must plead it; onus of proof But court can take notice of illegality of its own accord.

Some contracts are void by virtue of their conclusion Examples:


Contracts that are void according to statute Certain pacta successoria Contracts with enemy subjects Agreements that oust the jurisdiction of the courts

Some contracts are void by virtue of their performance Examples:


Contracts to commit a crime Contracts to commit a delict Presumption: parties intended to perform a contract in a lawful manner.

Some contracts are void by virtue of their purpose or object, provided that both parties had the same illegal purpose in mind Examples:
Kennedy v Steenkamp 1936 CPD 113 Contract to grant a creditor preference above an insolvent debtors other creditors.

1. Contracts against good morals


What are good morals? Examples of contracts contrary to good morals:
Agreement to pay a prostitute for sexual intercourse Agreement to insure a brothel Agreement of a divorced father to trade his claim for custody for financial reward: Shepstone v Shepstone 1974 (2) SA 462 (N) Maseko v Maseko 1992 (3) SA 190 (W).

2. Statutory illegality
Statutes may expressly or impliedly prohibit the conclusion of specific types of contract Is such a contract is void or not? Intention of the legislature Examples of contracts that are void for statutory illegality:
Sale of dangerous weapons, drugs, uncut diamonds etc Contracts in fraudem legis Clauses in consumer contracts prohibited by s 51 of the Consumer Protection Act 68 of 2008

Sometimes the legislation does not expressly state the consequences of illegality.

3. Pacta de quota litis, champerty and maintenance


Definitions Historical background Case law: the following agreements invalid:
Agreements whereby an outsider financed litigation in return for a share of any proceeds Agreements to traffic, gamble or speculate in litigation

Exception: where the agreement was concluded in good faith to assist the litigant in the exercise of his or her rights Contingency Fees Act 66 of 1987: certain contingency fee agreements valid Price Waterhouse Coopers Inc v National Potato Cooperative Ltd 2004 (6) SA 66 (SCA).

4. Unfair contracts
Individual interests of the parties: role in determining public policy Role of principle of good faith? Unfairness or unreasonableness a ground for common-law illegality? Sasfin v Beukes Barkhuizen v Napier 2007 (5) SA 323 (CC) Consumer Protection Act:
s 48: price or terms are unfair, unjust or unreasonable s 52: contract is unconscionable, unjust, unreasonable or unfair.

5. Unfair enforcement of contracts


Brisley v Drotsky 2002 (4) SA 1 (SCA): assumed Sasfin principle could be extended to the enforcement of contractual terms Barkhuizen v Napier: enforcement of a clause invalid if enforcement so unfair or unreasonable in the circumstances that its enforcement was against public policy The limits of a defence of unfair enforcement have not been defined.

1. Contract cannot be enforced (ex turpi rule)


From an illegal cause, no action arises: ex turpi causa non oritur actio Rule is inflexible; no exceptions

2. Severing the illegal part of a contract


Partial illegality:
Sometimes illegal part can be severed Sometimes illegality taints whole agreement: void

Severability:
Depends on intention of the parties Guidelines for determining this intention.

3. Reclaiming performance that has been made in terms of an illegal contract (the par delictum rule)
Performance made in terms of a contract that is void for illegality:
If ownership has not passed: rei vindicatio If ownership has passed: enrichment remedy (condictio ob turpem vel iniustam causam) But par delictum rule can prevent party from reclaiming performance

In pari delicto potior est conditio possidentis: where parties are equally morally guilty, the one in possession is in the stronger position.

3. Reclaiming performance that has been made in terms of an illegal contract (the par delictum rule) (continued)
Court Public policy considerations underlying rule:
will not assist those who approach it with unclean hands Illegal contracts should be discouraged

Equal guilt:
Minister of Justice v Van Heerden 1960 (4) SA 377 (O) Klokow v Sullivan 2006 (1) SA 259 (SCA)

Mitigating the potential harshness of the rule:


Jajbhay v Cassim 1939 AD 537 Factors to be considered in deciding whether to relax the rule.

Such contracts can be validly performed; no claim for return of performance Why does the law attach different consequences to different illegal contracts?

1. The common law


Applies to those wagering contracts not regulated by legislation Definition of a wagering contract Crucial factor: absence of an independent interest Reasons why wagers are against the public interest Consequences of classification as a wager/gambling debt:
Directly and indirectly unenforceable But can be validly discharged and ceded; set-off uncertain.

2. The National Gambling Act 7 of 2004

Section 16(1):
Licenced gambling activities Unlicenced lawful gambling activities Unlawful gambling activities Gambling activities of minors or persons excluded from participating in gambling Informal bets.

Characteristic: limitation of someones freedom to carry on a profession, trade or business Examples may be found in:
Contracts of employment Sales of goodwill of a business Partnership agreements.

Two competing contractual values:


Sanctity of contract Freedom of trade

Traditional approach favoured freedom of trade Magna Alloys and Research (SA) (Pty) Ltd v Ellis1984 (4) SA 874 (A): favoured sanctity of contract Do constitutional values require another reversal of the onus? Basson v Chilwan1993 (3) SA 742 (A): is the restraint reasonable?

What is a protectable interest? When will it be threatened? How far should the restraint go? Any further relevant aspects of public policy? Determined by circumstances at the time of enforcement Partial enforcement of agreements in restraint of trade.

2. Statutory illegality (continued)


Interpretation of statute: was nullity was intended? Factors to be considered:
Object of statute and mischief it is directed against Imposition of criminal sanction Mere protection of States revenue Protection of individuals or public interest Balance of convenience

Example: National Gambling Act 7 of 2004.

Oxford University Press Southern Africa 2010 www.oup.com/za

You might also like