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