Adv Louis Nel Business Review: Indemnities - The role of contractual issues, public policy, delict and the duty of care (Part 1)

I drew attention in my previous insert to the importance and wording of section 48. I believe that, although public policy is not mentioned in so many words, the following extract raises the spectre thereof, i.e. 'excessively one-sided' and 'so adverse to the consumer as to be inequitable'.

Section 51 can be regarded as alluding thereto as well, i.e. an agreement (thus an indemnity) must not 'defeat the purposes and policy of this Act'.

CONTRACTUAL ISSUES

It should be borne in mind that an indemnity is a contract, and all the requirements for a valid, binding contract should be applied when interpreting it, i.e. consensus, certainty, offer and acceptance, possibility, legality, capacity, and formalities. These aspects include elements (which have now been emphasised by the CPA) such as plain language.

If these requirements are met, then, based on the principle of pacta sunt servanda, i.e. agreements entered into freely must be upheld for legal certainty, even if the outcome is onerous for one party, will apply to the indemnity (being a pacta). It was expressed as follows in the case of Beadica 231 CC (Constitutional Court) and Others v Trustees for the time being of the Oregon Trust and Others [2020] ZACC 13, i.e. provided an agreement was in "simple, uncomplicated language, which an ordinary person could reasonably be expected to understand," it should be enforced. Likewise, in the case of Mohamed's Leisure Holdings (Pty) Ltd v Southern Sun Hotel Interests [2017] ZASCA 176 (1 December 2017), the court stated that: “The fact that a term in a contract is unfair or may operate harshly does not by itself lead to the conclusion that it offends the values of the Constitution or is against public policy,” and it upheld the pacta sunt servanda principle.

However, certain factors may render a contract voidable (i.e. it can be set aside), such as undue influence, a material fact not being disclosed, such as undue hazards (Duffield v Lilyfontein School), and the courts will consider fairness, reasonableness, and good faith but only in exceptional cases (Brisley v Drotsky 2002 4 (SA) 1 (SCA) (More about this later).

A tacit term or implied term was described in the leading case in this regard, i.e. by Corbett AJA in Alfred McAlpine & Son (Pty) Limited v Tvl Provincial Administration 1974 3 SA 506 (A) 531-532 as: "...an unexpressed provision of the contract which derives from the common intention of the parties, as inferred by the Court from the express terms of the contract and the surrounding circumstances."

It has also been referred to in the case of Petra Kruger v Wawiel Park (Freestate High Court 2022) as ‘quasi-mutual assent’. This case dealt with signage at the entrance and the opportunity of visitors to read the same when they only had ‘a split second’ to read it (discussed in more detail below).

This is relevant to the adventure tourism industry in particular and tourism in general, as many indemnities are either in the booking form (whether hard copy or electronic) in detail or referred to, and likewise, ‘Own Risk’ signage and finally the (usually very brief) indemnity signed by the parties upon embarking on a walk or game drive by vehicle. What is implied or tacit may depend on the prior knowledge and/or experience of the customer and/or the extent to which it has been elaborated upon in the briefing, as well as the practice in the industry in question.

PUBLIC POLICY, THE CONSTITUTION & THE CPA

Let’s consider the evolution of this concept as it has been addressed, applied, and developed by our courts

Barkhuizen v Napier 2007 (7) BCLR 691 (CC) is the leading case in this regard. It addressed the role of good faith and ubuntu (e.g. essential human virtues, compassion, and humanity) and introduced a two-step process for determining fairness: the 1st question is whether the clause in question is unreasonable and contrary to public policy – if the answer to that is 'Yes', that is the end of the enquiry and the clause will be deemed to be unenforceable. If the answer is 'No' a 2nd question must be asked i.e. should the clause be enforced considering the circumstances of the case.

Barkhuizen was followed in the case of Bredenkamp v Standard Bank of SA [2010] 4 All SA 113 (SCA) but it held inter alia that the Barkhuizen case:

Cannot be interpreted to entail that all contractual provisions have to be “reasonable”

Is not authority for the proposition that fairness is a core value of the Bill of Rights and that it is therefore a broad requirement of our law general;

Is not authority for the proposition that the enforcement of a valid contractual term must be fair and reasonable even if no public-policy consideration found in the Constitution or elsewhere was implicated

Naidoo vs Birchwood Hotel 2012 6 SA 170 (GSJ) involved a disclaimer signed by Naidoo upon registration at the hotel as well as disclaimer signs on the premises. A heavy gate fell on Naidoo, and he sued for injury when it came off its rails. The Court refused to uphold the indemnity and disclaimer notices stating: (1) to do so would not only be unfair and unjust to the plaintiff but also unconstitutional as it would limit his access to the judicial remedy; (2) public policy in South Africa includes the notions of fairness, justice, and reasonableness and would prevent the enforcement i.e. excluding liability for negligence (Applying the ‘circumstances’ second step as per Barkhuizen)(Note that this aspect included a detailed discussion of the duty of care which I will address in my next insert); (3) The Court could not solely rely on the principle of freedom of contract to override the need to ensure that contracting parties must have access to courts if they so need.

In the case of Botha and Another v Rich NO and Others [2014] ZACC, the Constitutional Court proposed that to determine whether a clause would be unenforceable as a result of being contrary to the public policy, one would have to consider whether the relevant clause was not in good faith or reasonable or fair in the circumstances. It was of the view that to pass this test, it must be mutually beneficial to the contracting parties or must have reciprocating rights and obligations. The latter, of course, alludes to the duty of care imposed on the indemnified party, an issue I will discuss in my next insert.

Beadica (see above) the court considered the role of public policy in the context of contract terms being unfair and/or unreasonable and not in good faith. The former will only play a role where the contract falls foul of the latter principles.

I look forward to sharing the case of Cooper v Shamwari Game Reserve (2565/2018) [2021] ZAECGHC 52 (13 April 2021) - South Africa: Eastern Cape High Court, Grahamstown with you in my next insert.

© ADV LOUIS NEL

Louis-THE-lawyer

September 26, 2023

DISCLAIMER - Each case depends on its facts & merits - the above does not constitute advice - independent advice should be obtained in all instances.