Mistepresentation-and fraud 809 and should be awarded in some circumtances on policy grounds, he was prepared’ to award the R1 000 on that basis. mo This approach was decisively rejected by Trollip JA, giving the judgment of the majority, who analysed the quartet of previous Appellate Division decisions in order to show that there had been-no deviation from the principle that the delictual measure of damages must be applied. In. Trotman v Edwick, where the fraud affected the whole transaction (dolus dans: locum contractua) but rescission was not claimed, damages were calculated.as the difference between the purchase price‘and the actual value of the property less the strip of larid that was fraudulently represented to be part of it, This clearly represented the buyer’s patrimonial loss and was calculated on-the delictual measure, In Bill Harvey's the fraud affected, not the whole transaction, but only the number of citrus trees on the farm (dolus incidens in contractu) and in Scheepers only the morgenage of the farm. so, instead of applying the swings and roundabouts principle and inquiring whether, overall, the buyer had) paid more for the farm than it was worth (that is whether total price exceeded total value),, the Appellate Division concentrated, on the distinctive part oF feature of the property affected by the fraud and therefore distinguished, Trotman, 0 Edwick: “Hence, the value of the actual deficiency (in citrus trees in the one case and the mongenage in the ‘other) was awarded as the purchaser's patrimonial loss, this being the additional amount, 80 it was held, that he had been induced by the seller's fraud to pay for the property, In those circumstances, ‘of course, the swings arid roundabouts principle was inapplicable or irelevant.” This calculation was not based on the contractual measure, which would have required the seller to make good his representation by paying the difference between the price and the value if the representation had been true. In Bill Harvgy’s this would have. pro- duced no damages as the buyer had made bad bargain overall, apart from the fraud. De Jager was another case where the fraudulent misrepresentation did not affect the whole transaction, but only the number and value of the trees on one of two farms which, together with @ cash payment, were given in exchange for the innocent party's farm. During, the course of the negotiations the parties had placed a value of R24.000 on the farm affected by the fraud, but its true value was R9.000, so the innocent party was awarded R15 000 damages although the total value of what he received was not less than the total value of what he gave. So on the swings and roundabouts principle it could bé said he suffered no overall patrimonial loss, but because the fraud related oily to the value of the one farm and therefore affected the amount of the cash payment he agreed to accept, he was held to have lost the R15 000 he would obviously have required to be added to the cash payment if he had known the truth, ‘On this analysis; which must be acceptedl as'the’ considered view of the Appellate Divi- sion, there is no longer any room for the suggestion that contractual damages to put the innocent paity in’the position he would have been in if the'representation had been true can be awarded in a case of fraudulent misrepresentation." In accordance with its con- ‘sidered view the Appellate Division in Ranger awarded the buyer his R1000 as the patrimonial loss suffered by him in repairing the defective swimming pool he was fraudu- lently induced to buy as part of the propeity. Trollip JA brought a welcome breath of fresh air into an overheated corner of the law by pointing out at 992 that this was, after all, the way the damages would have been calculated if the defendants had damaged the plaintiff's swimming pool by physical means. As a cross-check on this conclusion, Trollip JA found that (because of the intensive bargaining between the parties and because there was no evidence to the contrary) the agreed price of the property could be taken as. its true value if the representation had been true, and its actual value with the defective VTA Voges v Wilkins 1992 4 SA 764 (1) 7726-7738.810 The law of contract in South Africa swimming pool was that amount less the reasonable and necessary cost of repairing the pool, so again on this basis this difference of R1 000 represented the buyer’s patrimonial Joss. The fact that. the same result can be reached on Jansen JA's frankly contractual basis does not make that the correct basis, but neither.does it make the result wrong.” The decision released this part of the law from the straightjacket in which it was beconi- ing confined as a result of taking Trotman v Edwick as imposing ‘the swings and roundabouts principle as a rule of law instead of a principle that will sometimes; butnot alivays, apply when the fraud affects thé whole contract. Thus at 999F-H Mclnnes'y White 1962 1 SA 26 (W) and Heckroodi v Nurick 1966 4 SA ‘76 (W); which had treated the swings and roundabéuts principle as a rule of law, were overruled. Flaks v Same 1959 1 SA 232 (T) 227G niust now also be regarded as ani unsafe guide. co ‘This part of the law must remiain flexible not nly because the facts of cases Vary bit because the nature of the evidence available to prove the loss’ varies from casé to tase and every plaintiff must be given a fair opportunity of proving his loss by the iethod that seeins to him iost appropriate with the evidence available to him. The applicabiliyy of this principle’ to’ the common case of a fraudulently induiced sale’ is shown by Beck J in Coomers Motor Spares (Put) Ltd v Albanis 1979 2 SA 628 (R) 625: "In sori eases the true ieasure of the plaintiff's damages will Be the difference between the actual market valtie of thé mew at the lime of sale and the higher price that the plaintiff, by reason of fraud, was induced to pay. In other cases the evidence may show what amount (regardless of the actual value of the mers) the plaintiff, as a reasonable purchaser negotiating in good faith," would have paid had ‘he not been influenced! by the seller's fraud, and the difference besveen that sam andthe higher amount that he in fact paid will be the measure of his actual loss." : ‘An instructive method of calculating the damages when a buyer would not hiave bouighit at all had he known: the true facts is set out in Mayes b Noordhof 1992 4 SA 233 (C) 249A— 2516. Darnages for fraudulent misreprésentation Will not be awarded to one who has himself Deen guily of fraud in’ the same trarisaction, as the fraud of the one will be set off against the frand of the other." But, assuming’ the fraud induced the contract, neither éan enforce the contract against the other, the defendant being permitted to raise the plain- tif’s fraud ag a defence and the plaintiff not being permitted to raise the deferidant’s fraud in bis replication as ah answer to that defence." Damages for negligent misrepresentation “The long controversy over whether there could be an action for damages for a negligent misrepresentation which induced a party to enter into,a contract was finally settled by the Appellate Division in Bayer South Africa (Pty) Ltd v Frost 1991 4 SA. 559 (A). At 570D-F Corbett CJ concluded an admirably coneise treatment of the lay with the wor: “For these reasons I hold that in principle a negligent misstatement may, depending on the circum- stances, give rise to a delictual claims:for damages atthe suit of the person to whom it was made, even though the misstatement induced such person to enter into a contract with the party who made it. ‘The circumstances will determine the vital issucs of unlawfulness and whether there is a causal 175. Pocket’s Holdings (Pot) Ltdw Lobal’s Holdings (Pot) td 1966 4 SA 288 (R) 248G, 176. Cf Corbet v Harris 1914 CPD 536 547. 177 See also Colt Motors (Ens) Bpk v Kenny 1987 4 SA 978 (T); Hunt Van der Wesluizen 1990 8 $A 387 (©); De Glak 0 Mag Spares CC[2002] 3 All SA 192 (SCA). 178 D43 36; 18 1873; Voet 43.8. C£D2 1033, 179 D4444'18, 180 ABSA Bank Ltd v Fouche 2008 1 SA 176 (SCA) 180H 18H. And see Létz 1993 De ure 427; Steyn “Damages for negligent non-disclosure by one party to the other: the requirements for liability” (2003) 120 SAI] 465.Misrepresentation and fraud 811 connection between the making of the misstatement and the loss suffered by the plaintiff. There is no ready formula for determining unlawfulness. Each case must be decided on its own facts in the light of the principles discussed in [Adininistrateus, Natal v Trust Bank van Afrika Bpk 1979 3 SA 824 (A)} at 8338-8048. ‘The principles for determining causation have been discussed by this Court in, for exam- ple, Siman & Co (Pty) Ltd v Barclays National Bank Ltd [1984 2 SA 888 (A)] and International Shipping Co (Ply) Ltd v Bentley 1990 1 SA 680 (A) at 6941-7044." The reasoning, at 566G-870D, which led to this conclusion fully supported the decision of Friedman J (Schock J concurring) in Kern Trust (Edms) Bph v Hurter 1981 3 SA 607 (C) in departing’ from the dictum in Haraman v Moolnan 1968 4 SA 340 (A) $48 which had blocked all attempts to claim damages for a negligent misrepresentation inducing a contract, and in extending Adninistrateur, Natal above so as to place such misrepresenta- tions on all fours with any other negligent misstatement causing purely economic loss, It is no longer necessary to trace the history of this branch of the lav," but it is worth observing that one reason why the approval of an action for damages for negligent misrepresentation was such a long drawn out affair is because, in the nature of things, most of the misrepresentations that come before the courts arc made by sellers in con. nection with contracts of sale. Since Phame (Ply) Lid v Paizes 1973 8 SA 397 (A) set the seal of approval on Hall u Milner 1959 2 SA 304 (O)"* itis clear that an innocent mistepresen- tation that qualifies as a dictum et promissum (‘a material statement made by the seller to the buyer during the negotiations, bearing on the quality of the res vendita and going beyond mere praise and commendation”) gives rise to the actio quanti minoris for a reduce tion of the purchase price. As Phame (Ply) Lid v Paites also accepted the extension of this action to sales of incorporeals™ it covers much of the ground that is not covered by the action for damages for fraudulent misrepresentation. The reduction of the purchase price is calculated as the difference between the price and the value objectively ascer- tained on the best evidence available. No action lies for an entirely innocent (i.e. nondraudulent and non-negligent) misrepre- sentation inducing a contract. The only support for such an action seems to be a dictum of Maasdorp CJ in Brink v Robinson 1916 OPD 88 90: “Why should he not get damages, even if the misrepresentation was innocently made? He has nothing to do with the misrepresentation. He asks for information, and gets mistepresentation. It does not matter to him whether it was innocently made or nog and I fail to see why he should be made to suf- fer damages for that.” If innocent is taken in the sense of non-fraudulent and non-negligent this dictum goes too far because it would impose strict liability on the maker of any representation, mak: ing him in effect an insurer of its truth. This would be out of step with our law of delict which as a general principle attaches liability only to dalusand culpa 181 For a more recent discussion of the principles of causation see Standard Chartered Bank of Canada 0 Nedperm Bank Lid 1994 4 SA 747 (A). Suic-Afvikaanse Nasionale Lewensassuransiemaatschappy Bp Louw & Collins Afsaers (Bams) Bpk 1997 1 SA 592 (A) shows that contributory negligence will be i relevant in the absence of causation. 182 See Holtehauzen v ABSA Hank Ltd 2008 5 SA 680 (SCA); Fouruay Haulage v SA National Roads Agency 2009 2 SA.150 (SCA); mCubed International (Ply) Ltd v Singer 2009 4 SA'471 (SCA); Delphisure Insua ‘ance Brokers v Dippenaay 2010 5 SA 499 (SCA) 183 Some account of which was contained in the second edition of this book at 361-365. For a fall account see Lov, “Nalatige wanvoorstelling: ‘n skadevergoedingsaksie gesien deur *n positiefregic- like brit (Deel 1)” 1995 De jure, 184 And see Van Schalkteyk » Prinsloo 1961 1 SA 655 (1); Overdale Estates (Pb) Ltd v Harvey Greenacre & Go Ltd 1962 3 SA 767 (D); Else Motors (Edms) Bpk v Breed? 1963 2 SA 86 (O); Van Niskerk-v Thompson Mo- {ors 1966 2 PH A70 (N); Du Plessis v Senmetink 1976 2.SA 500 (T) 185 Italso extends to barter but not to goods given in part exchange: Mountbatten Investments (Ply) Lid v Makowed 1989 1 SA 172 (D). 186. Labuschagne Broers v Spring Farm (Py) Ltd 1976 2 SA 824 (T),: : . : : © eee . “ oe mo : nos . B | . o oa 1 4 et bets18 “ DURESS AND UNDUE INFLUENCE Duress . ‘The relatioiiship between force (vis), threats and fear (metus) was examined by Voet 42 1, and his conclusions are as valid today as when he wrote. The effect of what he called absolute force (vis absoluia) on a contract can be simply explained: the contract is void ab initio, ie what may appear to be a contract is not a contract at all. Such cases must be very rare, and the only example that comes to mind is where a stronger person physically overcoines a'wéaker, ‘puts a pen‘in his hand-and physically forces his hand to write his “signature” on a writen contract. Not surprisingly, there appears tobe no such case in our modern law. : ‘The other way in which force may affect the making of a contract, says Voet, is by fear of its repetition or, continuance or by a threat inducing fear of its initiation. What really operates on the mind of the victim is therefore fear, and the legal significance of this fear as affecting his consent may be the same whether he has been beaten, is being beaten or is about to be beaten. A fear of equal legal significance may be aroused in, the mind by other causes quite unconnected with physical force. Because a person who is induced by legally significant feat can properly be said to have éonsented, his contract is voidable'at his option, not void ab iiztio like’ the contract of the person whose hand is physically forced. Voet 4 2.2 acknowledges, however; that whether a person induced by fear can properly be said to'¢onsent is a'inatter of dispute between philosophers, Our courts haye adopted the English (or, more accuratély, Norman French), word duress to describe fear which renders a contract yoidable, but it must not be thought that by adopting the English word they have adopted the English law, as our courts have built, this part of the law on firm Roman-Dutch foundations, with no more than what. might be fegarded as normal references to and adoption of English authoriti¢s.! Our courts have also fortunately not allowed themselves to be detained or deflected by the philosophical dispute mentioned by Voet about whether there is consent. In While Bros v Treasurer-General (1883) 2 SC. 322 351, De Villiers CJ said: “Where a man is forced by menaces to his,person 10 make payments which he is not legally bound t0 make, it cannot be said that there is a total absence: of consent = bu, inasmuch as his consent is forced and not free, the payment is treated as involuntary, and therefore subject to restitution.” It is necessary to-prove a causal connection between the duress and the making of the contract," and words and phases like’ “involuntary”,’ “no trué consent”,* “voluntarily 1. Cf Prter v Jordaan 1956 1 SA 483 (A) 493B (undue influence); Regal v African Supersate (Ply) Lid 1963.1 SA 102 (A) 106 (nusisance). : 2 BOE Bank Bpk v Van Zyl 2002 5 SA 165 (C) 180-181 3. Cupido v Brendon 1912 CPD 64 73; Benning v Union Government (Minister of Finance) 1914 AD 420 425; Port Elizabeth Municipality v Uitenhage Municipality 1971 1 SA'724 (A) T41D; Miller v Bellville Municipali- fy 1973 1 SA.914 (C) 921B, 31314_ The law of contract in South Africa chooses the lesser of the two evils" “induce him to do what he would not have done voluntarily’,' “not an act of free volition” have been used indiscriminately. The fact is that having, as a matter of obviously necessary policy, decided that the subjective ap- proach to the formation of contracts must prevail in cases of duress the law is in the not unfamiliar position of being unable to express in unambiguous words the subjective state of mind that justifies its intervention. The importance of not allowing verbal formulae attempting (o describe something so elusive as a subjective state of mind to dictate policy is shown by the common settlement or compromise of disputed claims. Almost any party to such an agreement could argue that he did not enter into it voluntarily but under the threat that if he did not do so the claim would be pursued against him, and there is quite a line of cases in which this argument has been unsuccessfully raised.” ‘To prevent verbal formulae ruling policy and inevitably producing unsatisfactory results some requirements have been worked out which, taken together, can be described as the constituent elements of duress. They were summarised by Wessels para 1167 as follows: : “In order to set aside a contract on the ground of violence or fear, our law requires the following. elements: (1), Actual violence or reasonable fear. : (2) The fear must be caused by the threat of some considerable evil” to the party or his family. (8) [must be:the threat of an imminent or inevitable evil (4) ‘The threat or intimidation must be contra bonas mores, (8) The moral pressure used must have caused damage.” : Although adopted in some of the leading cases,” this summary is inaccurate in subpara- graph- (2) but will serve as a basis for examining the requirements. : ‘The reasonableness of the fear ° ‘The significance of actual violence has been examined in the first two paragraphs of this chapter. As every case other than.a case of absolute force involves fear,it is necessary to consider whether the fear must be. such as would overcome the resistance of the reason- able person in the position of the.innocent party or such as did in fact overcome his resistance. Is the test, in short, objective or subjective? From isolated phrases used in thé cases it would be easy to gain the impression that the test is purely objective. Thus it fas been said that te fear must be ‘sufficient to affect the mind of a person of ofdinaty firmness" or such as would not ulireasonably be capable’ of affecting an ordinarily'self possessed man," or mist be a reasonable fear.” But these phrases are all used Against t background of Voet 4'2 11 and Van der Linden 1 1422, both of whom make it very clear Broodye v Smuts 1942 TPD 47 53; Arend v Astra Furnishers (Pb) Lid 1974 1 SA 298 (0) 306A. Kniger v Selretaris van Binnelandse Inkémste 1978 1 SA 394 (C) 397-398: : Block w Dogon, Drtier & Co 1910 WLD $80 338. Padéyytchey v Lebese 1942 TPD 10 14. Cupido v Brendon 1912 CPD 6473; Salter v Haskins 1914 IPD 264 267; Du Plooy-v National Industrial Gredit Conpn Lid 1961 3 SA.741 (W) 745-746; Mille v Bellville Municipality 1973 1 SA 914, (C).022G,, 9 See Kilroe v Bayer 1915 CPD 717 720. 10. Broadryk v Smuts 1942 TPD 47 51-52; Arend v Astra Furnishers (Ply) Lid 1974 1 SA 298 (C) 306 (with slight modifications); Machanick Steet and Fencing (Py) Ltd v Westhodan (Pty) Ltd 1979 1 SA 265, (W) 271; Benkenstein v Nesius 1997 4 SA 836 (C) 845E—H; BOE Bank Dpk v Van 2312002 5 SA 165(C) 177. 11 White Bros v Treasurer General (1883) 2 SC 322 351; Salter v Haskins 1914 TPD 264 266;, Steiger v Union Government 1919 NPD 7579. i « 5 12 Steiger above 81. 13: Kruger v Sehvetaris van Binnelandse Inkomste 197% USA 394 (C) 397H; Astra Furnishins (Pty) Ltd w Arend 1975 1 SA446 (C) 4498. .Duress and undue influence 315 that there is not simply one universal objective standard: Van der Linden ‘says’ thav'a contract is imperfect and invalid: , Mein ot “when the comseit of one of the contracting patics is extorted by undiue violence o' Feil provided the violence is.of such actual importance: that it would make an imipression upona ‘eouragedus person; in determining which, the judge must take into consideration the circumstances both of the, peryons,and of the things: e.g, that fear which cannot be deemed sufficient t0 disturb the mind of person df mature age or of a soldier may be quite sulficient in the ease of a woman or old In conformity with this approach, Curlewis Jin Block v Dogon, Dreier & Co 1910 WLI 350 noted that the plaintiff was “an ignorant and stupid man, and quite unable t0, express himself properly in English”, and after considering the nawre of the threats accepted that‘the plaintiff, was “one who could be frightened by such threats”. Similarly, in Sexpides v Savvides 1986 2 SA'325 (T) Myburgh A] assessed the subjective effect which a husband's threat not to return home had on a loving wife, who was concerned about the future of the children and was financially vulnerable, The point is that, every person who, com- plains of duress is entitled to he seen as the sort of person he or she is, but to prevent the remedy getting out of hand he is not entitled to resile. from the contract if he claims to have succumbed:to a fear that would be unreasonable even for the sort of person he is. BOE Baink Bpk's Van Zl 1999 8 SA 818 (C) 828H-829G decided that it ig not nécessary that the threat be by ekpress words or deeds, Like niisrepresentation, it may be implied, tacit or by conduct, and may also, like extortion, consist in mote subtlé forms of intimi dation: Thése ptinciples ‘dre undoubtedly correet, but on the facts of the ease thei application was held on appeal" to be unjustified. The objetts of the threat The supposed limitation to threats directed at the party or his family seems to be due io Pothier. D4 28 3 says a threat to one’s children will suffice, and Voet 42 11 extends this to one’s wife, neither of these authorities expressly saying that a threat to.a more remote relation ora stranger will not suffice, but Pothier Obligations s 25 says, that the threat must be directed to the party.or his family. This limitation was noted, without comment by De Villiers GJ, in White Bros v Treasurer-Geneval (1883) 2 SC. 322 350 and was accepted in Broodryk v Smuts 1942 TPD 47 52 where the threat of internment was held to be directed not‘only to the plaintiff, as depriving him of his freedom, but to his family, as depriving them of his support." This limitation has never been put to the test in our moilern law, however, and if it were itis inconceivable that it would be-applied. The court could never conclude thata serious threat of imminent death to a party's relatives outside his nuclear family, or to a total stranger, would leave the:person of ordinary firmness unmoved. No doubt such.a person would react more sharply ito protect his family ‘than to protect strangers against less drastic threats than'death, but to draw the line at-the limits of his family in all cases would: be, in effect, to decide that much of the New Testament is not for people of ordinary-firmness, os ve " This naturally leads to the question whether a thredt to property will suffice, In English Jaw such a threat is called “duress of goods” and, as noted in White Bros 350-351, it ig not a ground for avoiding a contract: “Now according to the English law, I take it to be clear that although the mere duress of goods will ‘not avoid a contact, a payment of money in order to obtain goods improperly detained is not consi- dered to be a voluntary payment, and is therefore recoverable." 14 Paragon Business Forms (Pty) Ltd v Du Preez 1994 1 SA 434 (SE) 4401-4411, 15 BOE Bank Bpk v Van 2312002 5 SA 165 (C). 16 And see Astra Furnishers above, where not even the extension to the family wis mentioned,816 The Jaw of contract in South Africa Cheshire Fifoot and Furmston at $84 justly comment “Clearly these two rules are difficult to reconcile”, but there has been no change in this illogical distinction in English daw since 1883. when While Bros was decided and, subject to what is said below, we must be taken to have accepted the illogical distinction into our law, if it was not in fact always part of the Givil law."” ° ‘Tie’ second part’ of the iMlogical English dichotomy ~ that money paid to obtain the release of goods improperly detained is recoverable ~ has been transplanted inito our law, where it flourishes. The fact that it has been transplanted under the name of duress of goods probably does not indicate that the courts originally intended to depart frori! the rule that duitéss'of goods'does not justify the rescission of a contract, but progressive extensions of the rule that riioricy'paid under protest to obtain possession of goods wrongly detained is recoverable seem to have brought us to that position. "In White Bros 351, after referring to threats to the person, De Villiers CJ continued: “There is a similar absence of free consent where goods are illegally detained, and a sum of money is paid simply for the purpose of obtaining possession of those goods again. There is however t ference betweet the case of menaces to the person and that of duress of gooils, that in thie formes the menaces ~ if sufficient to affect the mind of a person’ of otdinary firmness — might per se be eriouigh to prove the absence of fiee consent, although no objection may have been made to the payment at the time it was made, whereas in the latter case, all reasons for fear of bodily danger being absent - it is impossible to knqw whether the payment is voluntarily or involuntarily made unless some unequivocal ‘objection to the payrient is raised at the time itis made.” Having made.no such unequivocal objection the plaintifis failed to recover payments of customs dues which they alleged were illegally collected. The law thus laid down. has been consistently applied to payments of a variety of types, all having the common cha- racteristic of having been made to effect the release of goods improperly or allegedly improperly detained.” The law was restated by Innes C] in Union Government (Minister of Finanie) 0 Gowar 1915 AD 426 43; . “Where goods have been wiongiy'detained and where the owner Has been driven to pay money it order to obtaity possession, and where hie has done so not voluntarily, as by way of gift or compromise, ‘but with an expressed reservation of his legal rights, payinents so 'made can bé recovered back, as biav- ing been exacted undér duress of goods.'The onus of showing that thé payment had been inade involuntarily and that there had been no abandonment of rights would, of course, be upon the per- son secking to recover. And hence the importance of a protest or unequivocal statement of objection made at the time. Without such protest it is difficult to see how the plaintiff's state of mind could be established to the satisfaction of the Court.” “ While retaining the duress of goods label the-Appellate Division extended the principle to cover “refissal to perform a public duty, which is a dential or detention of a right”, and the plaintiff, having paid wansfer duty under protest in order to-obtain registration of & usufruct in the Deeds Office, was held entitled to recover: The principle has also been extended beyond the recovery of money paid, to cover property,” including property wrongfully attached in execution,” and to enable.a defendant t6-resist enforcement ofa contract induced by duress of goods.” As a result of these extensions it can now be said that, whatever lip service may, have been paid to the English distinction between duress 17 Union Government (Minister of Finance) v Gowar 1918 AD 426 438. 18 Knapp and Kayser v Loonguana (1892) 7 EDC.61 (pound fees); Verster v Beaufort West Municipality 1911 CPD 856 (unlawful fine); Cupido'v Brendon 1912 CPD 64 (disputed debt); Bening v Union Govern- ment (Minister of Finance) 1914 AD 430 (customs dutj). Cf Blackbumn v Mitcheld (1897) 14 SC 338 (payment for salvage services ~ decided under English maritime law). 19 And see De Beers Mining Co v Colonial Government (1888) 6 SC 155 (stamp duty on mining claims). 20 Miller v Bellville Municipality 1973 1 SA.914 (C) 921A. 21. Assurty (Put) ed v Truck Sales (Put) Ltd 1960 2 SA 686 (SR). 22 Hendvicks w Barnett 1975 1 SA 765 (N).Duress and undue:inflienee 317 of: goods and the recovery of money. paid under protest, we havé accepted duress of goods as a valid ground for rescinding a contract, and as incoiporating the:-recovery Bf money paidvunder protest'to obtain possession of goods wrongly detained, san Ifwe have not already reached this position it is-desirable that we'should-do so, and this tight be achieved by an appeal to first prineiples-over the heads of the English authori- ties which expressly and the Roman and Roman-Dutch authorities which impliedly’ say that a threat to property will not suffice, especially-because in-recent years Kinglish law has come to recognise “economic duress”." The first principles are (a) that a contract induced by a threat sufficient to overcome the resistance of a person of ordinaiy firmness should not be allowed to.stand, and (0), that no, one should he permitted to profit from ris own wrong t is illogical. that if 1 am induced to sign a contract by a threat! to bi tie up I should be able to rely on principle (a), but if the threat is to blow up my house | should have to take my chance with principle (0), the limits of which in this connection have not been, explored. Especially, principle (0) might not be applicable if the other party has reasonable but mistaken grounds for’ thinking he is entitled to’ blow up my house, ‘The differerice between dhiress of the person and duress of goods as understood in, our Jaw (namely thiat in the latter case a protest is necessary) is neatly illustrated by Kapp TC Valuta (Ply) Lid'1975 3 SA 283 (T), where a thiteat to prosecute a company was held t'be duress of the conipany’s goods not its person, So it was not entitled to fesist enforcement Of the contract becatise'it had itiadé no protest at thé time of contracting. It ig scarcely necessary to add that'making a protést does ‘not itt itself establish that a payment was made-under duress. PME es at When the Heqitsites for a cliim based on duress of goods cannot be made out, especially when a paymicht ‘caniiot be'shown to have ‘been involuntaty betause no protest was made, 'it may be possible to succeed on a conitictio indebiti on the basis that the payment was made'as the result of an’excusable error of fact or law.” A voluntary’ payment may also be recoverable if it was made subject to the condition that it would be recoverable if found not to’ be'due; and there is no reason why a condition of this sort should not embrace the possibility that the reason for the payment not being due might be that the Taw was niot as it was believed to be.”* " , Iewould be beneficial to our law (by enabling it to produce results which modern pubilié opinion would favour) to go beyond duress of goods and follow English law-in recognis- ing “economic duress": Some of the English authorities were considered by Corbett JA in Matilang-v MV Houda Pearl 1986 2 SA 714 (A) 730A-E (a decision on Eniglish adiniralty Jaw) and by Van den Heever AJ in Van den Berg & Kie Rehenkundige Beamptes +» Boomprops 1028 BK:1999-1 SA 780 (T) 786C~787C, and they undoubtedly show that duress of the person, duress of goods and economic duress can be equally unconscionable. There.is therefore good reason for the law to treat a contract obtained by economic duress as not binding on the victim, and O'Linn J's decision to this effect in Viasiu-v President of the Republic of Namibia 1994 NR 332 (LLC) is to be welcomed. Bue the distinction between economic duress and legitimate hard bargaining so clearly drawn by Yan den Heever AJ 28. By strossing the necessity of a threat to the person without expressly mentioning the irrelevance of a threat to property. But see Perezius ad D4 2 fn 15; ad C2 20 fi 6; Van Leeuwen CF1 1137, 24 Malilang v MV Houda Pearl 1986 2 SA 714 (A) 730A-E. See Glover "Developing @ test for economic duress in the South African law of contract: A comparative perspective" (2006) 123 SAIJ 285. 25. Parity Instivance Co Ltdv Marescia 1965 8 SA 430°(A) 4363. 26 Goldroad (Pty) Lid w Fidelity Bank (Pry) Ltd 1996 4 SA 1151 (1). ° 27 Wills Faber Enthoven (Pty) Lud v Receiver of Revenue 1992 4 SA 202 (A), departing from Benning o Union Government (Minister of France) 1914 AD 420, 28 Port Blizabeth Municipality v Uitenhage Municipality 1971 1 SA 724 (A) 741-742. ‘318 The law of contract in South Africa in Van den. Berg 795E-796A, and emphasised. in Medscheme Holdings (Pty) Ltd v Bhamjee 2005 5 SA 339 (SCA) 346, must never be overlooked. Inequality of bargaining power overlaps economic duress, and in some factual situations the overlap is so. complete that the contract could equally well be scrutinised from either angle.. The, possibility of challenging a contract under s 9 of the Constitution and the Promotion, of Equality and. Prevention of, Unfair Discrimination Act 4 of 2000; on the ground of inequality of bargaining power has been considered above at 17-19,” ‘The imminence of the.threat a ‘The requirement that the ‘threat be of an imminent or inevitable evil siems fro D 4'2'9 pr and raises'a narrower question than the question whether a person of ordinaty firit: ness would Have resisted the threat, The question is whether, assuming the threat wad sufficiently serious, to affect the mind of such a person, he could not have averted it by soine method other than agreeing to the contract. How inuch time was available to hin to choose his méthod of averting the threat? “ ‘This question was investigated in BOE Bank Bpk v Van Zyl 2002 5 SA 165 (C), where a bank official had told Van Zyl that if he did not sign,a suretyship agreement one of the bank’s options might be to take criminal proceedings against his son;in-aw. because there was a possibility that he had committed fraud or theft. Van Zyl went away to think it over and had plenty of time to investigate the legal position before coming back next day to sign, so the threatened evil was not imminent and there was.no, duress, ‘Two cases on claims for damages in delict are equally applicable in the sphere of tract, In Sievers v Bonthuys 1911 EDI. 525 a claim for damages, as a result of being forbidden t9 proceed along a public road failed because the forbidding was backed only by a threat to.sue, and to meet that threat it was not necessary to turn back along the road and suffer the loss claimed, In Hamlyn v Acton, 1919 EDL. 189 the plaintiff's wagon drivers were ordered to turn back,on a public road by a Government veterinary officer. Damages were, awarded hecause, the defendant veterinary officer was:acting in consulta- tion with. the police. and..the natural inference was that if his order had not been promptly obeyed he would have called in the police to.arrest.the drivers or enforce the order. : : It-seems clear, however, that in deciding on the imminence and inevitability of an evil the court must not apply the standards of the armchair critic. ‘Thus in: Broodryk.v Smuts 1942. TPD 47 52:a man who volunteered for military service to avert a threat of intern ment was held entitled to rescind the contract although’ no.doubt the armchair critic could argue that he could have averted the threat of internment by other miveans, such as the taking of legal advice. The doctrine of the agony of the moment is obviously applica- ble here. ‘The thieat must be unlawful or contra bonos mores ‘A person who is legally and morally entided to do something to ‘another’ should not suffer at the hands of the law for doing it.” Therefore he should not suffer if he threat- ens to do it, so it follows that if such a threat induces another to contract with him that other cannot be heard to complain,” So a threat to dismiss an employee lawfully is not 29 Sce the specific antiiscriminatory provisions in consumer legislation such 28 the Rental Housing Act 50 of 1999, s 4; the National Credit Act 34 of 2005, ss 61 and 66, and the Consumer Protection ‘Act 68 of 2008, ss 8-10. 30 D5017 161, 155. 31 D4231Duress and undue influence 819 duress in the. eyes of the lav," nor is a threat to sue, since the courts are open to al] and the only penalty for rash litigation is costs.» It makes no difference that the threatened ligation would inconvenience the. defendant, as by interrupting his travel. plans.” In Shepstone v Shepstone 1974 1 SA 411 (D) these principles were applied in circumstances that leave one with an uneasy feeling: : : A divorced wife alleged she was indivced to pay her ex-husband R8 00 by his threat to apply forthe Eustody of the children if she did not pay. The court held that if such an application was justified the threat to bring it was not contra bones mores and if it was not justified her fear of losing the Children was wholly unreasonable. ‘The reasoning seems impeccable, but the uneasy feeling is caused by the thought that the ex-wife's decisiqn to buy off an, inquizy into the children’s welfare was upheld, ‘The remedy lies outside the field of contract. If the court-has reason to suspect that the truth conceming the children's welfare is being suppressed it can exercise its powers as upper guardian |, : Threats to bring criminal proceedings have caused the courts more difficulty. If the Prosecution would be justified but the threat induges.a payment that is not,due, the Payment may be recovered,* If the prosecution would not be justified the “healing balm of costs" argument that discounts the fear of civil proceedings has no application and a threat to prosecute or hand over to the police in such, circumstances is contra bonos mores.” Similarly with an unjustified threat of internment in wartime." The difficulty arises in the common situation where an employer threatens to prosecute his employee for theft unless he gives an acknowledgment of debt or promissory note or cheque for the amount allegedly stolen. In’ Arend v Astra Purnishers (Pty) Ltd 1974 | SA 298 (C) Cor bett J held dat in these circumstances the employer by his threat obtains advantages to which he was not otherwise entitled, namely a liquid document” and a fixing of the amount owing, no doubt on his oivn valuation, together with any advantage flowing from the terms of payinent incorporated in an acknowledgment of debt. Not only does this make the threat contra:bonos mores but the express or implied agreement not to prosecute invexchange for’ the advantages mentioned amounts to the ctime of-compounding, so the contract is in any-event illegal and therefore void. In @ series of Transvaal cases the advantages listed by Corbett J have not béen regarded as significant, and in the words of Nestadt J in Machanick Steel and Fencing (Pty) ‘Ltd v Wesvho- dan (Pty) Lid'1979 1 SA 268 (W): vos . “On the Trahsvaal approach, it seems to me that if deciding whether the éontract had been entered into under duress, or whether it amounts to & comipouriding; thé'same test in determining whether the threat of prosecution was contra bonos stones has to’ be applied, namely did the cteditor thereby extract or extort something to which he was not otherwise entitled.” " 32 ‘Steiger Uiioh’ Government 1919 NPD'75 81. . 38. Sievers v Bonthuys LOL] EDL 525 592; Salter v Haskins 1914 TPD 264, in which it was hinted that a threat of an unfounded action might amount to duress. This appears very doubtfal. 34 Houtappelv Kersten 1940 EDL 221 224-925; of Kilroe v Bayer 1915 CPD 717 720. 35. CE Katzenallenbogen v Kateenellenbogen and Josep 1047 2 SA 528 (W) 543. 36 Wells v Du Preec (1906) 23 SC 284. 8% Black v Dagon Dreier & Co 1910 WLD 830; Hamilion Paneelkloppers v Niomo 1991.2 SA 534 (0) 1 SAOA-BAID. : 38. Broodiyh v Simuts 1942 TPD 47 52-58. ‘ 89 The advantages of which in this comtext were recognised in Freedman v Kruger 1906 TS 817 821-822 and Houtappelv Kersten 1940 EDL. 221 224, 40 And sce Du Plony v National Industrial Credit Corp Ltd 1961 8 SA 741 (W) 745-746; Jans Rautenbach Produsies (Bins) Bpl wv Wijaa 1970-4 8A 31 (1).820 The lait of contract in South Africa Tw Tinga Wholesalers \’ Ebrahim 1974 2 SA 292\(D), decided before Arend was téported; Milite J agreed widh the Transvaal approach and added: * : nels wl “Wheré, however, the creditor doés'not kiow and’ probably canhot éstablish (and! a’ fortion'Whéré'he hows thal’ he caniiotestablish) the atiiounnt of the debtor's indebtedness it beets ‘to me an inipioper “use of his rights to threaten to prosecute the debtor unless thé’ debtor undertakes 'to jay aif amouint which the creditor more or less arbitrarily estimates to be duc.” rs ‘Thesé views diverge in detail only but not in priniciple, the'accepted prihciple being that itis neither'duress not compounding to induce a promise of no more thian one’s «due by agreeing to withhold a justified prosecution. On the detailed question it ficult to. ‘ccept Corbett J's view in Arend that aliquid document i more than One's due." After all, what is tealiy due is payment of the amount stolen, and if the threat induced iniinie idiaté payment in ‘cash it could, oi the ‘aécepted principle, tiot be recovered as a’payment imade under duress.” I seems hard to tell the creditor that the liquid documént whieh he rightly values less than cash in his hand gives him an advantage to which he isnot entitled-and'is therefore worthless. to In, BOL Bank Bpk v' Van’ Zyl 2002 5 SA 165°(C), the facts of which are dutlined’ at 318 hove, the banke official’s threat was Hot cénira bonos ‘mores bécauise he made® cléar that (prosecution was only oe of the baiik’s option’ and he gave Van Zj1, wh was ath exp rienced businessinian, ples of time to consider! his position: * . ‘The threat must have caused damage : te . a ‘The requirement that the, threat must have caused damage is taken from Voet 4 2.17 who, among other examples, gives the. cage of a debtor being inducéd. to pay. what really due and adds: tt “Since the. mature of the action because of fear demands a loss which an be repaired, and in. such ‘cases the sufferer from fear has parted with nothing, this edict.is bound not to apply,” ‘This. principle is interlocked with: the question. considered at the end of the previous section. Is the creditor.who extorts a liquid document receiving more than his-due, and is the debtor suffering a loss? If the matter. were ves noud one'would unhesitatingly say nd, because the, debtor who has given a liquid document cannot,claim to have lost more than Voet's debtor who has paid. But this is not how it appeared to Wessels J in Freedman uv Kruger 1906 TS 817 821-822, where the debtor’s loss was:measured, not as Voet meas- ures it against his actual indebtedness, but, against his pre-threat state of haying, the money he owes still in his pocket: Formidable authority in- itself, this case. has been followed,” and must be taken as representing the present law. But it is far from satisfac- tory. “ wa ‘An entirely non-contentious application of the same requirement that the threat must have caused damage is that a patty cannot complain of duress if the threat did not in fact induce him to enter into the contract but, despite the threat, he entered into the con- tract for some other,reason."" 41 But see McLennan in (1971) 88 SALJ 161; D’Oliveita in 1974 (91) SALJ 284; Block "Duress ~ threats of civil and criminal prosecution" 1974 Responsa Meridiania 42; Harker “The effect. of a‘threat of criminal prosecution on a contract” 1977 THRHR 139. 42. Voet 42.17 quoted below. ' 43 In Houtappel v Kersten 1940 EDL. 221 224 and Arend v Astra: Furnishers (PH) Lid 19741 SA 298 (©) 8090. ' 44 Padayachey v Lebese 1942 TPD 10 13-14, :Duress and undue influence 321 Duress by a third party . i kote Ifa third party éting as ageiit of or in collusion with the other party to the contract brings duress to bear) the’ contract can obviously be’ rescihded,® and it seems equall cléar that this is'so even if the third party and the' other party to the contract are ii no way connected. In 'Broodyk v Smuts 1942 TPD 47 52 Ramsbottom J accepted obiter the opinions to this effect of Pothier Obligations s 23 and Wessels para’1193 who notes that the Civil law, as opposed to the English law, speaks with only one voice on this point. Itis true that the authorities date from times when the reliance theory of the formation of contracts had not been developed, but even so-there would have to be the strongest reasons for reversing 2 rule-of such antiquity, and the obvious desirability of bringing duress into line-with inisrepresentation® in this-respect has not yet been recognised as a strong enough reason, For consistency inthe law,'it should be. The effect of duress 4 As seén at the beginning of this chapter, a conitract induced by duress is voidable at'the option of the innocent party and not void ab initio except when the duress takes the form of, for example, physically forcing che innocent party's hand to write his “signature” on a written: contract. There may of course be cases where the duress is combined with a misrepresentation,”” and if the misrepresentation induces in the mind of the innocent party a sufficiently fundamental mistake the apparent contract will be void. ab initio, but this will be because of the misrepresentation and not because of the duress, Up to the time of Voet it wasi recognised that, the actio quod metus causa being an ‘actio in rem scripta; the innocent party was entitled to recover any'property with which he: had parted as a result of the duress, even from innocent third-parties." Wessels at para 1202 treats this as the modern law, butas pointed out by Fagan JA in Preller v Jordaan 1956 1 SA 483 (A) 4941 our moder law is that the contract, being voidable not void, is effective until set aside, so in the interim ona fide third parties can acquire rights including own. ership: In this Fespect and in all other respects the rules applicable to contracts voidable for-misrepresentation are equally applicable to contracts voidable for duress. It shoitld not be overlooked that, like fiaud, dtiress is a delict for which damages may be awarded. Again anid for the same reason there is little modern authority," so the cases on damages for fraud may be turned to. Undue influence As Steyn J pointed out in Mauerberger v Mauerberger 1948 4 8A 902 (C) 910, the term “andué influence” found its way into our law from'English lw, Some of the cases simply referring to it without elaboration, some taking its English law meaning for granted and some expressly holding this meanirig to be in accordance with out law. The situation was reviewed by the Appellate Division in Preller v Jordaan 1956 1 SA 483 (A) and the conclusion reached that the grounds for estiutio in integrum in, Roman- Dutch Jaw are wide enough to cover what may properly be called undue influence pro- vided it is remembered that the use of this term borrowed from English law does not 45. Broodryh v Smuts 1942 TPD 47 53, 46 See at 281-282 above, 47 As in Broodyk above. 48. AC297 above, 49 Vor 424, 50 Barnard v Bamard 2000 8 SA 741 (C) [81]. BL Sce Sievers v Bonthuys 1911 EDL 525; Hamlyn v Acton 1919 EDL 189. .322 _ The layrof contract in South Africa mean that we have taken over the English rules. The English cases may, however; be-of yalug. in helping to elucidate some of the concepts invalyed. This conclusion, was con- firmed in Patel,v Grobbelaar 1974.1 SA 582 (A) 533-534 where, taking its wording from Preller v Jordan, the Appellate Diyision, set out concisely what must be proved. by a,plain, tiff who claims rescission or a defendant. who resists enforcement of @ contract.on the ground of undue influence: si ' if “Dic.onus cimihierdie skuldoorsaak te. bews; het klaarblyklik op die respondent gerus en dic geleerde ‘Verhoomegter het, na my oordeel, tereg bevind dat die respondent die volgende moet bewys: : . -(@2) datdie appellant’ invloed oor hom gekty het; : woe Gi). dat hierdie invloed sy tecnstandsvormod verswwak en sy wil plooibaar gemaak het; en os: 0 4 Gi) dat die appellant hierdie invloed op gewetenlose wyse: gebruik het om die respondent te oorreed ‘om toe te stem tot °n transaksie (a) wat tot sy nadeel strek en (6). wat hy met normale wilsvryheid nite sou aangegaan het mie.” ‘This is as far as our law goes, and there is no overarching ground of avoidance of a contract based on the absence of bona fides or the improper procurement of consensus.” One party may gain an undue influence over another in a variety of circumstances, and it wwill be aquestion of fact in each case whether such ait influence exists.‘To assist in resolv- 1g this question English law places the-onus on the'party seeking to set: aside: the contract unless one of a:number'of special relationships exists between the parties, in which case the onus is on the:other party to prave that he did not abuse’ the confidential relationship or his position of trust. It seems clear that in this respect our law and English aw differ. In. Miller » Muller 1965 4. SA 458 (G) 463 Corbett J, while finding it unnecessary to decide the point, observed that no support for regarding the English principle as part of our law is to-be found in: Preller v Jordan and that Spies v Smith 1957 1 SA-539.(A) contains several remarks which indicate that a confidential relationship between persons, such as might give rise to @ metus reverentialis, though relevant, docs.not create any pre- sumption of undue influence.” The latter case was concerned with the setting aside’ of a will, but there seems no good reason for treating wills and. contracts differently on-this point, There-being nothing in our old authofities to suggest that our law contains a principle similar to that contained in the English law;* an. outright adoption. of the English principle would be ill-advised because some. of the relevant relationships are not, quite the same in English law as they are in ours, as is evidenced by the different senses in which the two systems refer to trustees and executors.* In this connection Katzenellen- bogen 0 Katzencilenbogen and joseph 1947 2 SA 528 (W) 541, where (before Preller v Jovdaan) the English principle was adopted outright, is no longer a safe guide. ‘Our case law shows that undue influence may exist in a variety of circumstances: between doctor and patient thought to, be dying,” priest and woman on her deathbed,” husband and wife,” persons contemplating marziage, mother and minor daughter,” father and 52. BOE Bank Bpk v Van Zyl2002 5 SA 165 (C) 182-183, : , 53° In Faxon v Foson 1914 NPD 917 the court looked only to the English lave, a6 the Natal cous tenidéd to do at thiat time. 54 In addition to the authorities reviewed in Preller v Jordaan sce Scholtens “Undue infhuence” 1960 Acta Juridica 276. 55 “Mauerberger v Mauerberger 1948 4 SA.902 (C) 910. 56 Preller v Jordaan, 57 Cafonteyn’s Executors v O'Haire (1878) 8 Buch 47 (codicil to a will) 58. Ralanee v Maharaj 1950 2 SA 438 (D) 547 582. But see Silver Garbus & Co (Ply) Ltd v Teichert 1954.2 SA98 (N) 1068. 59 Katenellenbogen abvove 542. 60 Hayes Anderson 1912 SR 25.Duress and undueiinfluence 323 major son}"" attorney: atid alcoholic client distantly related by marriage." That these relationships do not constitute a definitive list and that, in fact, there need be.no jspecial relationship at all is illustrated by Patel v Grobbelaar 1974 1 SA 582 (A), in which‘the owner of a farm was granted cancellation of a:mortgage bond he had been iriduced to pass iri favour ofa person he believed to have supefnatural’ powers. These bare facts'(on which the’ report does not claborate) give rise to the question whether it must be shown, as with fraud" atid duress, that the influence was such as Would hayé indiced a reason- able person in the position of the party seeking relief, or whether it is sufficient to show that it in fact'itiducéd him. The answer appears froth thé quotation ‘by Fagan JA in Pidlley v Jordadn at 498G of a'dictum of Lindley LJ in ‘Acard ‘) Skinner (1887) '57 LT 61 722": "ecBuris of Equity ave never set aside gifts on thé round ofthe folly, imprudtence or want dt Fone sight on the part of the donors.” Ween ene If the influenic# has been ‘exercised in an unscrupulous mannet' (op gewetenlose' wyse) it will not avail the influencer to say it would not have affected-a reasonable person, but if the cotract was due to the folly, itnprudence or lack of foresight of the party seeking rélief his claim to set it aside will fail for lack of causation ~ the influence did not induce the ‘contract. Lest it be' thought that this limitation of the doctrine is insufficient: to prevent undue influence getting out of hand, Fagan JA said immediately before the above quotation: “EK sien geen gevaar dat die regsbronne waarna ck hierbo verwys het eni dié vertolking wat ek daat- aan gegee het, 'n Hof daartoe mag lei om bw, die oorredingsvermoé van ’n vernuflige verkoper, "n geesdrfiige kollektant of ‘n Seelsprekendé prediker as ‘onbehoorlike’ beinvlocding te bestempel Although, as.has been said above, the English rule that the existence of a'special rela: tionship’ reverses the normal onus does not appear, to be’ part ‘of our law, ‘the attorney/client relationship may present a spécial case, The rule that an attorney cannot enforce a'Contwact between himself and his client unless it is manifestly fair to the client of the client took independent legal advice before entering into the contract in effect requires the attorney to prove that he brought no undue inflierice té bear on the client. ‘The rule has been ‘adopted in out courts,” and although Miller v Midler 1965 4 SA'458 (C) 462G-463H casis doubt on its continued existence, attorneys woilld do well 6 Be guided Byit, "" * a As with fraud and duress, the party seeking relief cannot succeed unless he can prove, in the, words of Millin J in Katenellenbogen v Katzenellenbogen and, Joseph 1947 2 SA 528 (W) 54], that : “the contract is oite which, but for the undue influence or fraud, yould not have been made, This is the same thing as saying that the plaintiff must have been inducad by the frauc.or undue influence to enter into the contract. If the plaintiff was not so induced the fraud ot influence is of no impor tance.” It.was on this ground that the plaintiff in thiat case failed. " ‘The effect of undue influence, as with fraud, is to. jake the contract void ab initio only if he influence induced in the mind of the party seeking relief such a fundamental mis- take that his apparent assent to the contract is in truth not asseni at all. In all other cases 61 Mauerbergery Mauerberger 1948 4 SA.902 (C), 62. Miller Muller 1965 4 SA 458 (C) 462468, 63. See at 201-293 above. 64 See at 314-815 above. 65. Hough v Van Eijk (1898)'8 GTR 403; Yates v Bstate Yates'(1903) 20 SC 35; Armitage Trustees v Allison 1911 NPD 88.107. : 66 And see Insoloent estate Buans v South African Breweries Lid (1901) 22 NLR 115 128.324 The lawof contract in South Africa the contract is voidable at the option of the party influenced) In Preller v Jordan at.496 Fagan JA said: ' ! on “Wat ons dus thoet via, is of die ciser die beweerde regshandeling willens en wetens verrig het):met , die docl om die:regsgevolgo wat dit inhou, tot stand te bring, of nie. Indien wel, dan is dit;'n geldige ‘handeling solang dit nie ongeldig verklaar is nie, al.is dit, vernietighaar op sy aandrang omdat hy op ongeoorloofde, wyse daattoe gorrced is. Indien egter sy wil nie met die handeling gepaard gegaan het nie ~ by. as hy *n magtiging tot transport geteken het in die mening dat dit 'n andex dokument was — ht die handeling (afgesion van die effek wat estoppel mag hié) geen regsgevolge nie.” “ If.the contract is;voidable the position of the party influgnced is the same as that of & party induced to contract by a misrepresentation, In particular, he must elect within a reasonable time whether to rescind the contract or to stand by it, He cannot both, appro- bate and reprobate.” Undue influence. brought to bear by a third party gives the party influenced no right to rescind unless the, other party to. the contract.was aware at the time the contract was made that undue influence had been exercised. Whether a claim would lie.in delict against the third party has not yet arisen for decision, but it seems clear that the Aquilian action would, cover the case, since the exercising of undue influence is a species of do- lus® shri Consumer legislation. ‘The Consumer Protection Act 68 of 2008 contains a number of provisions that will cover the situations dealt with in this chapter, though the legislation does not displace the common law.” Section 4(5)(b) prohibits, among other things, a person dealing with. a consumer in the ordinary course of business engaging any conduct that is “unconsciona- ble”. The, term'“unconscionable” used with reference to conduct is defined ins 1 to mean conduet having a character contemplated in s 40; or “otheiwise unethical or improper to a degree that would shock the conscience, 6f a reasonable person”, Section 40(1) of the Act prohibiting “unconscionable conduct” op the part Of suppliers or their representatives defines unconscionable conduct to include the ‘use ‘of, physical force against a consumer, coercion, undue influence, pressure, duiress or harassment, unfair tactics or any other similar conduet” in connection with, among other things, the negoti: ation of a contract to supply goods or services subject to the Act. In terms of's 40(2) itis also uncoliscicriable for a suipplier to knowingly take atlvantage of the fact that a con sumer was substantially unable to protect his or'her owi initerests due ‘to physical or mental disability, illiteracy, ignorance, inability to understand the language of an ag ment, or ‘any other similar factor. In addition, in terms of s 48(1)(b) a supplier must not market aily goods Or services, or negotiate ati agreement for the’ supply of any goods or services, in a manner that is unfaif, unreasonable or unjust.” ‘The phrase “unconscionable conduct” is somewhat loosely defined in the legislation, in many instances,resorting to words or phrases, such as “undue influence” and “otherwise unethical or improper’ to a degree that would shock the conscience’ Of a reasonable person", without defining thiem. The terms “unfair”, “iihreasonable” and “unjust” are not 67 Arnstrong v Magid 1987 AD 260 273-274. GB Stride v Wepener 1903 TH 383; Katzenellenboger v Katzenellenbogen. and Joseph. 1947 2 SA 528 (W) 540; Silver Carbus & Co (Py) Lid v Teichert 1954 2 SA 98 (N) 105F. : 60. Mawerberger v Mauerberger 1948 4 SA 902 (C) 913; Preller v fordaan 491-492. 70 Consumer Protection Act 68 of 2008, s 2(10). 71 ‘When no statutory requirement of formal validity is involved, a written contract that appears on the face of it to be invalid by common law, or by a statute that does not impose requirements of formal validity, may be rectified to bring it into line with the true underlying agreement which is not invalid.'” But a document that was never intended to be a written contract cannot be rectified so as to make it one." On the other hand, a valid contract can be rectified to make a contract that is void for vagueness." Rectification is such a well established common law right that it cannot be excluded by a clause in a contract except in clear and explicit terms, A clause prohibiting variation or amendment or insertion will not suffice. Prescription does not run against a claim for rectification because such claim does not have a corresponding debt within the ordinary meaning of that word.”" If prescription were to run against a claim for rectification, it could, for example in the case of a mort- gage bond, produce the result that parties become entitled to rights and subject to obligations incorrectly recorded and never intended, and this cannot have been con- templated by the Prescription Act 68 of 1969." 111 Dowdle’ Estate v Dowdle 1947 3 SA 340 (T); Kourie v Bean 1949 2 SA 567 (1); Brack v Gitystate Town- houses (Py) Ltd 1982 3 SA 364 (W); Thathiah v Khan 1982 3 SA 370 (D); Den Dunnen v Kreder 1985 3 SA 616 (T); Engelbrecht v Net 1991 2 SA 549 (W); Intercontinental Exports (Ply) Ltd v Fowles 1909 1 SA 1108 (Wi); Greathead v SA Commercial Catering & Allied Workers Union 2001 3 SA 464 (SCA) 4691-J. 112 Magwaza v Heenan 1979 2 $A 1019 (A) 1029-1030; Republican Press (Pty) Lid'v Martin Murray Asso- cialés CC 1996 2 SA 246 (N) 2548-P. 113 Amod v Nagia 1964 2 SA 350 (D) 358; Bankorp Bpk v Jooste1994 1 REL AL? (C). 114 Vogel Volkosz 197 1 SA.637 (1) 556-558. 115 Lazarus v Gorfinket 1988 4 SA 123 (C) 130H-181D. 116 Milner Stet Properties (Py) Lid v Bekstin Propenies (Pty) Ltd 2001 4 SA 1315 (SCA). LT Spiller v Laweence 1976 1 SA 307 (N); Headermans (Viyburg) (Ply) Ltd u Ping Bai 1997 3 SA 1108 (W); Swanepoel v Nameng 2010 8 SA 124 (SCA). LI8._Meyerv Kirnar 1974 4 SA 90 (N) 10SR. 119 Akasia Road Surfacing (Py) Ltd v Shoredits Holdings Ltd 2002 8 SA 346 (SCA). 120 Leyland (SA) (Ply) Ltd v Rex Boans Motors (Pty) Lid 1980 4 SA 271 (W); Jarvosson Estates (Kids) Bph v Oosthuizen 19B5 3 SA.550 (NC); Standard Bank of SA Ltd v Coen (2) 1998 3 SA 854 (SE) 863B-D. 121 Boundary Financing Ltd v Protea Property Holdings (Pty) Lid 2009 3 SA 447 (SCA) (13] overruling Primavera Construction SA v Gouernment, Novth-West Province 2008 3 SA 579 (BRD) 598-599. 122 Boundary Financing Lid u Protea Property Holdings (Ps) Ltd 2009 3 SA 447 (SCA) [13].fe weeping on ce et Co ne tes : Ve oN aaecth ons ah 8 we He ls : , : a Oo tetet oan a es HME end ui i a 5 x ir wees es boty snk ek n en cob ha fit CP se a er ee \ , :__ILLEGALITY AND UNENFORCEABILITY vas ‘The three previous chapters cover unenforceability of contracts resulting from defective consent (misrepresentation and fraud, duress and undue influence, mistake). This chapter'covers unenforccability which is not connected with defective consent but results from the contravention of some rule of law. The rule contravened may owe its origin to statute or common law, so these two causes of illegality or unenforceability in contracts will be examined separately, followed by an examination of the effects of illegality, and unenforceability on contracts. Statutory illegality and unenforceability No useful purpose would be served by endeavouring to list the very many stattites and statutory regulations and by-laws that may render a contract illegal. However long the list turned ‘out tobe (and it would bé very long) it would be incomplete and therefore misleading because it couuld not hope to cover the almost infinite variety of ways int which a contract, innocent in itself, may lead to contravention of a statute, whether by intention or by unintended result. Some of these situations will be examined later in this chapter, and this section will be confined to an attempt to identify the principles of statutory illegality and urtenforceability. ‘The legislature may make its intention plain by enacting that any contract which contra- venes the statutory prohibition or does not fulfil the statutory requirements shall be null and void or of no force and effect. If some such language is used it will noxmally be given its straightforward meaning and the contract will be treated as notrexistent,’ with the corollary that it cannot be subsequently ratified nor its voidness renounced or waived? or overcome by estoppel,’ but even. apparently unambiguous words such as these may give rise to difficulty, ‘Thus an express statutory provision that a contract shall be void may be held-to mean that it is voidable at the option of the party belonging to the class for whose benefit the statute was intended;* or that such a party may waive his statutory benefit unless public interests are concerned? or that, although unenforceable, it might be given in evidence wherever material; or that it is voidable at the option of either party provided he is not Willan’ ¢ Koller 1913 AD 135 141. Neugarten v Standard Bank of South Africa Lid 1989 1 SA 797 (A) 813H- Merwe 1996 1 SA 111 (W). 1 Eastern Cape Provincial Goverment v Contrectprops 25 (Ply) Ltd 200 4 SA.142 (SCA) 148E-G, Wilken v Kohler 142; Brown v Vlak 1925 AD 26 60. And see Maree v Booysen 2010 5 SA 179 (SCA) (28)-132) 5 Ritch and Blyat 0 Union Government 1912 AD 719 794-735; South African Railways and Harbours v Conrndio 1992 AD 137 147; Bezwidenhout v AA Mutual Insurance Asciciation Ltd 1978 1 $A 703 (AA) 710; Go. vedarv Sona Development Co (Pty) Lt 1980 1 SA 602 (D).. 6 Moser Mitton 1945 AD 517 526, Simplex (Ply) Ltd » Van der Re 351362_The law of contract in South Africa taking advantage of his own wrong?’ or that it is not void against the parties to it, but only their successors, for whose benefit the stafute was intended? A statute expressly stating that a contract is void unless a prescribed requirement is fulfilled may mean that if a contract is made but the requirement not fulfilled there is no vinculum iuris between the parties, both of whom have a locus poenitentiae and can resile from the contract before the requirement is fulfilled,’ or it may mean that the statutory requirement is in ibie nature of a condition precedent so that pénding its fulfilment the contract is unenforceable but neither party can resile from it.” The former is the more common interpretation, and carries with it the result that although the fulfilment of the statutory requirement immediately makes the previously void contract valid it does not validate a contract of suretyship entered into in connection with the contract while it was still void.” 4 alt Moire common are’thé cases where ‘a contract contravenes some provision ‘of 2 statute which does not expressly say the contract shall be void, and the question is whether such an intention is to be imputed to the legislature." The question must be approached in the way indicated by Vanden Heever JA'in Messenger of the Magistate’s Court Durbano Pillay 1952 8 SA 678 (A) 682: “ “The cardinal rule is still that stated in Standard Bank v Estate van Rhyn‘1925-AD'266 at p. 274! ‘After all, what we have to get at is the intention of the Legislature’ or as Viscount Cave LC observed in Sal- ford Guardians v Dewhurst (1926) AC 619 at p. 626: *T base my decision upp the whole scope and purpose of the statute, and upon the language of “the sections to which Ihave specially veférved ...”” : A good introductipn, to the reasons for holding that the legislature intended a contract contravening a stattitory provision to be void is contained in De Faria v Sheriff, High Court, ‘Witbank 2008 § SA 872 (T), where there had been asale in execution in contravention of 5:30 of the Administration of Estates Act 66 of 1965, Alter reviewing the leading cases, De Vos J said at 897: : “Applying these rales... . itis virtually impossible to escape the conclusion that the Legislature tended the general rule to apply, ie that non-compliance with the prescriptions thereof results in nuility, Firatly, the prohibition contaited in s 30 clearly couched in percihptory language (‘no per- ‘gon ; shall), Secondly, itis also couched in negative language. Thirdly, a citininal sanction is © imposed in the event of the provisions thereof not being complied with. Fourthly, it is selCevident «i that recognition ofa sale in contravention thereof by the Court will bring about! or give legal-sanction to, the vety situation which the Legislature sought to prevent.” tis The question’ often presents itself in the form of whether the statutory provision is pe- remptory, pointing towards the conclusion that a contract which contravenes it is void, or merely directory, pointing towards the conclusion that the validity of a contract which contravenes it is unaffected, whatever results unconnected with the validity of the con- tract might follow. In Sutier v Scheepers 1932 AD 165 173-174 Wessels JA said:, “Now it is admittedly a difficult matter to lay down any conclusive test as to when a provision is direc ‘tory and when itis peremptory. & long series of cases both here and in Kingland have evolved certa guiding principles. Without pretending to make an exhanstive list I would suggest the following tests, ot as comprehensive but as useful guides. The word ‘shall’ when used in a statute is rather to be con: strued as peremptoty than as directory unless there are other circumstances which negative this construction — Standard Bank Lid v van Rhyn 1925 AD 266. ‘7 Above at 27; Neugarten fh 2 above at 81341-1, 8 Messenger ofthe Magistrate's Court Durban w Pillay 1952 8 SA 678 (A) 68241. 9 folly v Herman's Executors 1908'TS 515; Moser v Milton 1945 AD 517; Iwels v Leach 1954 4 SA 62 (). 10 Ex parte Universal Insurance Co Lid 1949 3 SA 801 (1). 11. Groxon’s Garage (Ply) Ltd v Olivier 1971 4 SA 85 (T) 32 Afrisuze CC v Watson NO2009 2 SA 127 (SCA) [37].Mlegaliy.and unenforceability 353, (1) Ifa provision is couched in a negative form it is to be regarded as a peremptory rather than‘as 2 directory mandate... i (2) If provision is couched in positive language and there is no sanction added in case:the requi sites are not carried out, then the presumption isin favour of an intention to make the provision © only directory... ee (8) If, when'we consider the scope and object of a provision, we find that its terms would, if strictly carried out, lead to injustice and even fraud, and if there is no explicit statement that the.act is to be void if the conditions are not complied with, or if no sanction is added, then the presumption rather in favour of the proposition being diectory (4) The history of the legislation will also afford a clue in some cases.""* Expanding on Wessels JA’s test (1), this is often put in the form that what the law prohi- bits'it also makes void. Innes CJ makes this very clear in Schierhout v Minister of Justice 1926 AD 99 109: ’ ‘ “It is a furidamental principle of our law that a thing done contrary to the direct prohibition of the “law is void and of no effect. The rule is thus stated: Ba quae lige fini prohibentur, $¢ fuerint facto, non solu inutilia, sed pro énfetis habeantur; ict legislator fieri prohibuert tantuam, nec speciatiter divert inutile ese debere quod factum est,’ (Code 1.14.5). So that what is done contrary to the prohibition of the law is not only of no,effect, but must be regarded as never having been done ~ and that whether the lawgiver has expressly so decreed or not; the mere prohibition operates to nullify the act, (See also Brunne- man ad Codicem 1.14.5). The snaxim, ‘Quod contra iegem fet pro infecto habetur’, is also recognized in English law, And the disregard of peremptory provisions in a stauite is fatal to the validity of the pro- coding affected. (See rematks of Lord Penzance in Howland v Bodington (1877) 2PD 203, at p. 210.)"" An extension of this principle is that when a contract is not expressly prohibited but itis penalised, that is the entering into it.is made a criminal offence, then it is impliedly prohibited and so rendered void," especially if, as in Schute and De Jager v Edelstein. 1942 CPD 126 181-182, the object of penalising the contract appears to be to protect the public by discouraging such contracts, This extension, and the principle itself (despite Innes CJ's forceful language) must not be taken as'tigid rules, but only as guides in the search for the intention of the legisla- ture." Indeed the fact that a penalty is provided may be an indication that the legislature is content with the, penalty as a sufficient sanction without also intending that the con- tract should: be void.” Conversely, a prohibition without a criminal sanction may indicate the legislature’s intention that a contract contravening the prohibition would be void." The leading case is Standard Bank v Estate Van Rhyn 1925 AD 266, in which Solomon JA said at 274-275; : “The contention on behalf of the respondent is that when the Legislature penalises an act it impliedly prohibits it, and that the effect of the prohibition is to render the act null and void, even i€ no 18 The history of the legislation was decisive in interpreting s $4A of the Estate Agents Affairs Act 112 ‘of 1976 in Tabard v Ratha Properties 2008 6 SA 207 (SCA). 14 And see Lion Match Co Ltd v Wessels 1946 OPD 876 880-381; York Estates Lid v Wareham 1960 1 SA 195 (SR) 126; Hochfeld (Pty) Ltd v Garmeldine Investments (Ply) Lid 1955 4 SA 296 (W) 299A; Bland Boedery (Eds) Bpk v Anderson 1966 4 SA400 (T) 404405; Tuckers Land and Development Gorpm (Pty) Ltd 0 Tre. ter 198A 2 SA 180 (SWA); Tuckers Land and Development Corp (Psy) Lid v Wasserman 1984 2 SA. 187 (1); Smith v Tuckers Land and Development Corpn (Ply) L4d 1984 2 SA 166 (T); Sinplee (Pp) Led v Van der Merwe 1998 1 SA 111 (W). 15 Findlay, and Sullivan o Brown & Go 1926 AD 272 274; Knox-Gore v Lunt 1983 NED 698 702; Kruger v Fowrte 1946 TPD 155 188; Pevi-Usban Areas Health Board v South British Insurance Co Ltd 1966 2 PH AGS (1); Kerste Nasionale Bank van SA Bph v Noordkaap Lewendshawe Kotjperasie Bph 1994 2 PH. A30 (NC); Heray v Branfield 1996 | SA 244 (D) 250C; Hanilton-Broning o Denis Barker Trust 2001 4 SA 1181 {N) 11351, 16. Metro Western Gape (Pt) Lid.v Ross 1986 3A 181 (A) 17 A sanction other than a criminal punishment may justify the same conelusion: Swart v Smuts 1971 1 SABI9 (A) 831. 18. Simplex (Pty) Ltd v Van der Merwe 1996 1 SA 111 (W) 113C-E.354 The law of contract in South Africa |, declaration of nullity:is attached to the law. That, as a general proposition, may be accepted,'but it is nota hard and fast rule universally applicable. Afterall, what we have to get ati the intention of the -Legisiature, and, if we are satisfied in any case that the Legislature did not intend to render the act invalid, we should not be justified in holding that it was. As Voet (1.13.16). puts it — ‘but that which is, done contrary to law is not ipso jwe mull and void, where the law is content with a penalty laid down against those who.contravene it,’ Then after giving some instances in illustration of this principle, he proceeds: “The reason for all this I take to be that in these and the like cases greater inconveniences ‘and impropriety would result from the rescission of what was done, than would follow the act itself done contrary to the law.’ These remarks are peculiarly applicable to the present. case,’and I find it Gifficult to conceive that the Legislature had any intention in enacting the directions referred to in sec. 116(1) other than that of punishing the executor whg did not comply with them." : One type of statute in which it will be easy. to draw the conchusion that the legislature intended the prescribed penalty to be sufficient without also rendering the contract void isia revenue statute, typically where, either by positive imposition or negative prohibition, a licence has to be obtained (and, of course, paid for) as a prerequisite to entering into any contract of a specified class, In McLoughlin v Tumer 1921 AD 537 the Appellate Division had to consider Transvaal Ordinance Lf 1919 making it unlawful for certain professional persons, including advocates, (o “carty on busitiess” without a licence, and imposinig'a penalty for so doing. At 544 Innes CJ said: * “This isa reveriue statute and it is a well recognised rule, of construction that the mere imposition of a ‘penalty for the purpose of protecting the revenue does not invalidate the relative transaction. Where the object of the Legislature in imposing the penalty is merely the protection of the revenue, the sta- tule will not be construed as prohibiting the act in respect of which the penalt) is imposed. See ‘Haldioy, vol, 7, sec. 833, But, of course, the Legislature may prohibit ot invalidate the transactiost even where the sole object is to protect the revenue. Ani ifthat intention is clear effect must be give to it. But the literal meaning of the language used is not always decisive on the point." The principle applied in this case cannot be applied if the object of the statutory're- quirement is not simply fiscal but is, even if only partly, the protection of the public. The distinction appears clearly from Delport Viljoen 1953 2 SA 511 (T)-516-817, in which Blackwell’ pointed out that an advocate’s right to: practise his ‘profession is a matter between him and the Bar Council and the courts, the licence under consideration in ‘McLoughlin v Turner being unconditionally obtainable from the Receiver of Revenue (see 1921 AD‘at 538) but (speaking of the Licences Consolidation Act 32 of 1925): Sephis is'an Act inter alia to regillate trade, and the issit of trade licerices is 2 jealously-guarded affair. You cannot go to the licensing officer and say: ‘I want a licence to carry on trade’. Before you can get that licence you must go to the municipal authorities and obtain a certificate from them. That certifi- cate is by no means a matter of foim, There is a hearing, and very often the grant of a certificate is refused. Then, having complied with that requirement, you may go to the licence office and tender the prescribed amount and obtain a licence to trade.” To permit an unlicensed trader to-go on making valid contracts and hence trading indefinitely on. payment of the prescribed ‘penalty would defeat the. intention of the legislature by depriving the public of the protection given by the Act against undesirable traders." The relationship between the penalty and the invalidity of the contract in such cases was summed up by Fagan JA in Poilie v Kotze 1954 3 SA 719 (A) 726-727; “The usual reason for holding a prohibited act to be invalid is not the inference of an intention on the part of the Legislature to impose a deterrent penalty for which it has not expresely provided, bat 19 And see Williams v Rondebosch Fountain Garage Co 1929 CPD 439; Eastern Tul Garage v Farland 1950 2 ‘SA 778 (1); Smith v Lowe's Garage 1994 2 PH A26 (C); Pratsch uv Rasmussen 2008 2 SA 243 (IN). 20 And sce Abel v Ehulich 1924 OPD 229; Burt v Ryan 1926 TPD 680;.Dabs Lid v Gumtwala 1930 NPD 300; Cash Wholesalers Ltd w Fogan 1938 NPD 117; Knox-Gore v Lunt 1993 NPD 698, 21 Cf Rooiberg Minerals Development Co Lid v Du ‘oit 1953 2 SA 505'(T) 508-509.Mlegality and unenforceability 355 the fac:that recognition of the act by the Court ill bring about, or give legal sanction to, the very situation which the: Legislature wishes to prevent." y Turning to the other side of the medal, Fagan JA developed the idea of the inconve- niences.and impropriety resulting from. treating contracts as. void for non-compliance, which contributed towards the decision in Standard Bank v Estate Van Rhyn above:” The question being. the effect of failure to provide a certificate of roadworthiness when selling asecondhand car, for which a penalty of a modest fine was provided, Fagan JA sjid at.727: ‘A further compulsory penalty of invalidity would ~ as the cases I have referred to show — have. capri- ious effects the severity of which might be out of all proportion to that of the prescribed penalties, it would bring about inequitable results as between the parties concerned and it would upset transac- tions which, if the safeguard of an examination for roadworthiness can be enforced (as it can be ‘under the s¢ctions ] have mentioned), the Legislature could have no'reason to view with disfavour. To say that we are compelled to imply such consequences in the provisions of sec, 13 dis seems to me to ‘make us the slayes of maxims of interpretation which should serve us as guides and not be allowed to tyrranise overud as masters.” In any casé where reasoning such as this is appropriate it must outweigh all but the most unshakeable conclusions reached froin linguistic treatment of the statute, as is illustrated by Warren # Pirie (Pty) Ld 1959 1 SA 419 (C) in which the péremptoty wording of the Cape ordinance dealing with certificates of roadworthiness was held insufficient to justify departing from Pottie v,Kotze which was decided on the mandatory wording of the Trans- vaal ordinance. Pottie v Kotze also leaves little room for interpreting statutes as rendering the performance but not the making of contracts void. The cases applying this interpre- tation to:the Transvaal ordinance were shown to have produced undesirable results and. were overruled," and cases applying the same interpretation to other statutes must. now be viewed with suspicion. The tendency must be towards interpreting statutes either as rendering contracts void, or 0h the ab inconveniente argument, as not rendering them void. But it should not be overlooked that a statute that requires soinething to be done immediately after the making of a contract presupposes the making and therefore, in the absence of clear wording té'the contrary, the validity of the contract.” Even when it is concluded that the legisldture did not intend to invalidate a contract Which contravenes a particular statutory provision, the intention of the parties may be relevant in inducing the ‘court to declare their coniract void. A contract that is entered into with the deliberate intention of contravening a statute may therefore be void while a contract that inadvertently contravenes the same statute may not.” A different question arises when the: parties, fully conscious of the statutory provision, have designed their contract in such a way as to achieve their object (which may be the very mischief at which the statute is aimed) without contravening the statute. The ques- tion'is whiether their contiact so designed is hit by the statute because it is in fraudem legis, Sometimes the legislature takes this question out of the ambit of the common law by expressly rendering void a contract which. circumvents the Act, for instance the Stamp 82, And see Lende v Goldberg 1983.2 SA 284 (C) 288D-G; Oosthuizen v Standard Credit Corpn Ltd 1908.8 SA. 891 (A) 904K-905G; Hlxichem CC» Patensie Citrus Co-operative Ltd 1994 1 SA 491 (SE) 497A-F; Couve v Redidot International (P's) Lid 2004 6 SA 425 (W) 433-438; Van der Spuy v Malpoge (2005} 2 All SA. 635 (N) 644. 23 And see Jeffries v Komgha Divisional Councit 1958 1 SA 233 (A) 298-239; Swart v Smuts 1971 1 SA 819 (A) 831-832; Barclays National Bank Lid v Brownlee 1981 3 SA 579 (D); Savage and Lovemove Mining (Piy) Ltd v Bnternational Shipping Co (Pty) Lid 1987 2 SA 149 (W) 206E-208D. 24 1954 9 SA 719 (A) at 728. 25 Eg, Burgers v Moroeioe 1927 TPD 758; Luke & Cov Pretorius 1998 TED 463. 26 See Worthington v Shagam 1936 NPD 3: 27 Cf Rlanagan v Managan 1914 NPD 27 with Mclver v Stevenson 1921 NPD 357. And see Devenish “The status of acts done contrary to statutory provisions” (1990) 53 THRAR 359.356 ‘The law of contract in South Africa Dui ies Act 77 of 1968 s 14.” The limits of the doctrine of fraus legis were examined:and defined by Innes CJ in Dedoo Lid v Krugersdorp Municipal Councit 1920 AD 530 543-548. ‘The steps im his reasoning may be set out as follows:” 1 3. Th ‘The court must first interpret the statute in the ordinary way, not doing violence to ‘it in order to extend’its meaning to cover its supposed intention. “ ‘The contract will’ then be seen to:fall within or without the statute. If it falls within; cadit quaestio, If without, the inquiry proceeds. The distinétion’ drawn in some of the texts between the letter and the spirit of the law suggests a principle “in which the «unexpressed intention of the lawgiver has been elothed with authority to affect a transaction which could not under ordinary rules of construction be brought within the Written statute: Such a principle would be dangerous and difficult to apply to the meticulous provisions of modern legislation.” It must therefore be rejected.” Parenthetically, it should be noted that in Spies v Lombard 1950 3 SA 469 (A) 477-478 the Appellate Division recognised that this prin- ciple. might be applicable to such of the old Dutch statutes as have not, been abrogated by disuse, because “The Dutch, like the Romans, did not rely too much upon the draftsman of statutes”. . ‘The ttue principle emerging from the old authorities, and:applicable to our modern statutes, was thus expressed at 547: “An examination of the authorities therefore leads me to the conclusion that a transaction is in _frauden legis when it is designedly disguised so as to escape the provisions of the law, but falls in truth within these provisions.” Thus stated, the rule is merely a branch of the fundamental.doc- tine that the law regards the substance rather than the form.of things ~ a doctrine common, one would think, to every system of jurisprudence and conveniently expressed in the maxim plus valet ‘quod agituy quam quod simulate concipitu.” To complete the picture Innes CJ.turned to.the English authorities on interpretation of statutes (an art little developed by the Romans and: Dutch, for the reason men- tioned in Spies v Lombard above) and concluded: “But an Act thus construed.may nevertheless be eyaded; parties may genuinely arrange their transactions so a8 to remain outside: its provisions. Such a procedure is, in the nature of things, perfectly legitimate. There is nothi the authorities, as L understand them, to forbid it. Nor can it be rendered illegitimate by the niere faet that the parties intend to avoid the operation of the law, and that the selected course is as convenient ini its reull is imotheF which would'have brought them within it. An attempted evasion, however, may'proceed on other lines, The trans- action contemplated may in truth be within the provisions of the statute, but-the parties may call itby a name or cloak itin a guise, calculated to escape these provisions, Such,a transaction would be in fraudem legis; the Court would strip off its form and dliseloge its veal nature, and the law would operate.” ¢ concluding. words “and the law would. operate" do not. mean that the contract will necessarily be declared void. This is vividly illustrated by Automotive Tooling Systems (Pty) Ltd v Wilkens 2007 2 SA 271 (SCA). An employer and two employees entered into inde- pendent contractor agreements (service’ agreements), no doubt to circumvent the provisions of the Labour Relations Act 66 of 1995. The agrcements contained restraint of 28 29 30 31 32 See Boland Bank Bk v Picfoads Bpk 1987 4 SA 615 (A). And sce Sv Pouroutis 1993 4 SA 575 (W) 594E—595G where Stegmann J sets out these steps rather better, But sce at 221-222 above for purposive construction of the Constitution, statutes and contracts, a technique that has come into greater prominence since Innes CJ expressed this view in 1920. See Derksen “Het daar n.\fraus lgis-real in die Romeinse reg bestaan?” (1990) 58 THRHR 502. Bog. Singama v Jest 1916 EDL 444; Ajrisure CC v Watson NO 2009.2 SA 127 (SCA) [34].IMlegality and unenforceability 8577 trade clauses; which the employer sought to enforce when the employees-left, The trial court held the agreement void as being én fraudem legis; but on appéal Gachalia AJA said at [6]: Wes . . ' be “This does not appear to me a sound conclusion, “The mere fact'that'a coniract ig uhsiickessfutly de: signed to escape the provisions of the law does not itself render it unenforceable. It is unenforceable only if the true nature of the relationship is one that the law forbids. Accepting for present, purposes that the service agreements were, in tritth, contracts of employment, the law does not prohibit them, “and the resitints are not forbidden in themselves.” Vat ‘the distinction, ‘sd clearly drawn’ by Innes C], between genuine and disguised ‘transac. tions is not 'alwajs éasy to draw ili practice, and a helpful case is Commissioner of Customs aid Excise u Randles Brothers, & Hudson Ltd 1941 AD 369, ih- which ‘the Appellate Division split 3-2. In the majority judgment at 394-396 Watermeyer JA quoted Innes JA’s exposi- tidn of the pilus valet quod ajitur miaxim in Zandberg v Van Zyl 1910 AD 302 309 ‘ahd added: “Of couse, before the Court can find that a transaction is in fraudem legis in the above sense, it must “he satisfied that there is some unexpressed agreement or tacit understanding between the pattics. If this were not'so, it could not find that the ostensible agreement is a pretence. ‘The blucring of this Uistinetion betweea an hoist transaction designed to avoid the provisions of a statute and’ transac- tion falling within the prohibitory or taxing provisions of a statute but disguised to make it appear as ifitdoes not, gives rise to much of thé confusion which sdinetimes appears to accompany attempts to apply the maitiea quoted above," . or Prima facie; the nature of a transaction is what it purports to be, and the onus rests-upoin ‘the party who Asserts that it is something different to prove that fact." cis instructive to compare Colonial Banking and ‘Trust Co Lid v Hill's Trustee 1927 AD)488 (simulated watisaction) and Fox 7 Muller 1930'OPD 180 (genuine transaction) on’ the same statute. In Grayling v Peacock 1942 OPD 74 81 Van den Heever J indicated that the court Will’ be léss ‘astute to find that a transaction is i /riudem legis when the statute cfeates a purely administrative obstacle than when it contains an express prohibition, The onus of. proving compliance or non-compliance with a.statutory. requirement will depend upon:the proper construction of the statute.” Broadly, a statute may provide that no contract of a particular type shall be of any force or effect unless certain requirements have been. complied with. A plaintiff seeking to enforce a,contract of that type must ‘therefore allege and prove compliance with the statutory:requirements.” On the other hand a statute may start with.the assumption that all contracts of a particular type are valid, but provide that they shall be of no force or effect in certain specified. circum- stances. A plaintiff seeking to enforce a contract of that type is not required to allege and prove that the circumstances do not exist in relation to this contract. It will he for the defendant relying on statutory illegality as a defence to allege and prove the existence of the circumstances.” In either type of case the existence of the statute need not be pleaded (but is helpful), because the courts take judicial notice of statutes, but a regula- tion or by-law must be: pleaded in: order to bring it to the attention of the court and enable its validity to be put in issue if appropriate.” 83. See also Ex parte Millman: J re Multi-Bow (Pty) Ltd’ 1987 4 SA: 405 (C) 415C-416B: Peles v Schoeman 2001.1 SA 872 (SCA); Michau v Maize Board 2003 6 SA 459 (SCA) 464; Mackay v Fey NO 2006 3 SA 182 (SCA) [261. 34 Vasco Dry Cleaners v Twycross 1979 1 SA 603 (A) 615—616; Sv Coin Operated Systems (Pty) Lid 1980 1 SA. 448 (T) 454D; Registraiews van Aandeleheurse v Aldum 2002 2 SA 767 (SCA); Michaus loe cit 35. Twckers Land and Development Corpn (Ply) Ltd v Loots 1981 4 SA 260 (11) 260D. 36 Eg Goldberg v Kroomer 1947 4 SA 867 (T); York Extates Ltd v Wareham 1950 1 SA 125 (SR); Noffke v Giedit Gonpn of SA Ltd 1964 8 8A 451 (T). 87 Eg Yannakow v Apollo Club 1974 1 SA 614 (A); P Trinbomn Agency CC v Grace Trucking CC 2006 1 SA 427 (N) 430-431, 388. Raad vir Kuratore vir Wermbad Plase v Bester 1954 3.SA71 (T) 74,858 The lawof contractin South Aft a As a matter of comity South African courts will riot enforce a contract which involves the violation of foreign law on foreign soil” and, on the principle that.the proper law of.the contract should govern as many aspects of the contract as possible,® should not enforce a contract that is illegal according to its proper law." 1 Common law illegality and unenforceability Sasfin (Pb) Ltd v Beukes 1989 1 SA.1 (A) may be taken as the starting point of the modern law of illegality or unenforceability of contracts by common law. At 7-9A Smalberger JA accepted that it served no usefull purpose to classify contracts into those contrary to, the common law, those against public policy and those contra bonos mores, since the three expressions were interchangeable, and he. took as an authoritative statement of the court’s power to condemn a contract the words of Innes GJ in Eastwood v Shepstone 1902 TS 294 302: : “Now this Court has the power to treat a8 void and to refuse in any way to, recognise contracts and transactions which are against public policy or contrary to good morals, It isa power not to be hastily or rashly exercised; but once it is clear that any arrangement is against public policy, the court would be wanting in its duty if it hesitated to declare such an arrangement void. What we have to look at is the tendency of the proposed transaction, not its actually proved result.” The attitude of cautious boldness thus enjoined on the courts could be swung in the direction of boldness by reference to the generalised statements of Grotius 3 142 and 48 and Voet 2 14 16, or it could be swung towards caution, as Williamson AJ in Kuhn v Karp 1948 4 SA 825 (T) 838-840 preferred, by reference to some of the pronouncements on public policy in the English cases, but after quoting the above passage from Hastwoad'v Shepstone, Smalberger JA struck the balance between boldness and caution by adding: “No court should therefore shrink from the duty of declaring @ contract contrary to public policy ‘when, the occasion so demands, The power (o declate egntradts contrary to public policy should, however, be exercised sparingly and only in the clearest of cases, lest uncertainty as to the validity of contracts result from an arbitrary and indiscriminate use of the power. One must be careful not to conclude that a-contract is coittrary to public'policy merely:because its terms:(or some-of them) of fend one's individual sense of propriety and fairness.” : A‘few months later the Appellate Division again had to grapple with what Smalberger JA at 9K had called “this often difficult problem”, and in Botha (now Griessel) v Finanscredit (Pty) Ltd 1989°3 SA 773 (A) 7821-783C. Hoexter JA adopted and restated further prin- ciples from Sasfin: “I proceeil to consider ihéther the provisions'of elause 7 are; in the language of the majority judg. ‘ment in the Sasfn éase (at 8D), ‘..« Clearly inimical to the interests of the community, whether they are contrary to law of moral ity, or run counter to social or economic expedience . and, accordingly, unenforceable on the grounds of public policy. In such an investigation (see the remarks of Smalberger JA at 9A-G of the Sasfin-case) there must be borne in mind: (a) that, while public policy generally favours the utmost freedom. of contract, it nevertheless properly takes into account the necessity for doing simple justice between man and man; and (b) that a court’s power to declare contracts contrary to public policy should be exercised sparingly and only in cases in which the impropriety of the transaction and the element of public harm-are manifest. So approaching the inquiry in the instant niatter Tam not persuaded that the provisions of clause 7 of the suretyships are plainly improper and unconscionable. While at first blush the provisions of clause ‘T may seem somewhat rigorous they cannot, I think, having regard to the particular circumstances of the present case, fittingly be described as unduly harsh or oppressive. The enquiry is directed to ‘ 39. Henry v Branfield 1996 1 SA244 (D), 40 Forsyth at $13. 41 Herbst v Surlé 1991 8 SA'75 (ZH).Iegality and unenforceability 359 1 the tendency of the proposed transaction, not its actually proved result’. (Per Innes Qf in Eastwood'y -»Shaspstone 1902. TS 294 at 302; the Sasfin case supra at 8L-9A; 148.) . vat Botha (now Griessel) thus reinforces the 3-2 majority judgment in Sasfin with a unanimous judgment, and in the last paragraph of the above quotation it-opens up a method of replacing the now defunct exceptio doli generalis® as a method of controlling: contractual terms that are “plainly improper and unconscionable” or “unduly harsh anid oppressive", ‘The effect of Sasfin and Botha (now Griessil) may be summed up in a series of propositions: J. Public policy generally favours the utmost freedom of contract. 2. Public policy properly takes into account the necessity of doing simple justice be- | tween man and-man.** 8. The power to declare'a contract or a term in a contract contrary to public policy and therefore unenforceable should be exercised sparingly and only in the clearest of © eases. hs 4 y 4, Nevertheless a contract or a term in a contract may be declared contrary to publi policy if itis clearly inimical to the interests of the community, or is contrary to law of morality, or nins counter to social or economic expedience, or is-plainly improper and unconscionable, or unduly harsh or oppressive: These propositions are amplified by Hehet JA in Juglal v Shoprite Checkers (Ply) Ltd 2004'S SA 248 (SCA) 268: : “Because the courts will conclude that contractual provisions are contraiy to public policy only when that is their clear effect (see the authorities cited in Sasfin (Ply) Lid v Bewkes 1980'1 SA 1 (A) at 8C-9G) it follows that the’ tendericy of a proposed’ tiansaction’ towards such a'conflict (astwoud w Shepsiaite 1903 TS 294 at 302) can only be found to exist if there is a probability that unconscionable, immoral or illegal conduct will result from the implementation of the provisions according to their tenor. (It may be that the cumulative effect of implementation of provisions not individually objectionable may disclose, such sa tendency). If, however, a contractual: provision is capable of implementation ina manner that is not against public policy but the tenor of the provision is;neutral then the offending sq tendency is absent. In such event the crediton who implements the contraet in a manner which is un- canscionable, ilegal oy immoral will find that,a court refuses,to give effect to, his conduct but, the contract itself will stand. Much of the appellant's reliance before us on considerations of public policy suffered from a failure to make the distinction between the contraet and is implementation and the unjustified assumption that, because its terms'wefe open to oppressive abiise by the creditor, they ‘must, a8'a neceasary consequence, be against public policy. ‘An attempt to identify the tendency of contractual piavisions may require éonisideration, of the pur pose of’ the contract, discernible from its terms and from the objective circumstances of its conclusion." The criteria in proposition (4) above are not sharply defined, especially when it is re- membered that public policy is a question of fact not law® and changes with “the general sense of justice of the community, the boni mores, manifested im public opinion”.* In pondering these words it is necessary to draw a distinction between superficial public opinion, which can swing like a weathercock, and seriously considered public opinion on 42 The'tendency rather than the actually proved result was decisive in Citibank NA v Thandriyen Fruit ‘Wholesalers GC2007 6 SA 110 (SCA) [18], [14]. 43 See at 12-13 above. 44 The phrase comes from Jajbhay v Cassim 1939 AD 537 544, “Person and person” would be more in accordance with modern thinking. 45 Aquilius (Mr Justice Van den Hever) “immorality and illegality int contract” (1941) 58 SAL 937 846; Ryland v Edros 1997 2 SA 690 (C) 704B; Amod viMultilateral Motor Vehicle Accidents Fund 1900 4SA, 1319 (A). 46. Lorimar Productions Inc v Sterling Clothing Manufacturers (Pty) Ltd 1981 8 SA 1129 (1) 1152H per Van + Dijkhorst,}, cited with approval in Longman Distillers Ltd v Drop Inn Group of Liquor Supermarkets (Poy) Lid 1990 2.84 906 (A) 913G-H.