Time-Barring Clauses – Precisely what is Reasonable and Honest?

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Within the construction and engineering market time-barring provisions will often be included in the standard conditions in construction legal agreements. These conditions often involve “strict” conformity with time intervals and hold significant sanction which could impact adversely on claims or other entitlements under such contracts. Contracting parties often query the fairness and reasonableness of such provisions once they face the results of being time-barred.

Our Courts have solved the legal position in accordance of clauses from this nature with regards to Barkhuizen v Napier. The short facts of the case are:

1. 2 years after Napier refused Barkhuizen’s insurance claim, Barkhuizen issued a summons for settlement in respect of what he considered “an insured event”;

2. Napier stated in its defense that it hadn’t been accountable as Barkhuizen had neglected to issue the summons in time. Napier argued the fact that the agreement contained a certain provision that required Barkhuizen to issue a summons within 90 days from the date on which Napier rejected Barkhuizen’s insurance claim and that his inability to take action effectively time-barred him from enforcing any thought of entitlements;

3. Barkhuizen’s counter argument was that the time-barring clause was unconstitutional and unenforceable because it disregarded his right beneath the Constitution of the Republic of South Africa to get the matter determined by a Judge.

Original Ruling

The High Court at first upheld Barkhuizen’s argument and proclaimed the time-limitation clause to be inconsistent with the Constitution and dismissed the Napier’s defense.

Court of Appeal

However, the Supreme Court of Appeal ruled that Section 34 of the Constitution did not prevent time-limitation provisions in contracts that have been entered into openly. Although it found that, within the evidence, it could not determine if the clause under consideration ended up being entered openly and of their own accord, the Court however upheld Napier’s argument and excused the insurer of all legal responsibility.

Constitutional Court

Barkhuizen then got into contact with the Constitutional Court for leave to appeal contrary to the choice of the Supreme Court of Appeal. In response, Napier’s arguments included that the provisions of Section 34 of the Constitution could not be applied to constitutional difficulties introduced against predetermined contractual terms.

The Constitutional Court held that public policy concerns needs to be looked at to determine whether a contractual term which goes against the Constitution and, as a result, is contrary to public policy and therefore unenforceable. The Court held the fact that the proper approach to constitutional challenges of this nature was to determine if the term itself was contrary to public policy and South Africa’s constitutional values, particularly, those located in the Bill of Rights. The Court held that Section 34 not only reflected the fundamental values that underlie the constitutional order, but that it also constituted a manifestation of public policy. The best approach to the present matter was therefore to work out if the time-limitation clause violated Section 34 from the Constitution and was thus contrary to public policy.

The Court held that, as a matter of public policy (governed by considerations of reasonableness and fairness) time-limitation clauses in agreements are indeed constitutionally allowable. The Court held further that the right to seek judicial redress (as guaranteed by Section 34) can be limited in occasions where:

1. It’s allowed by way of a law of general application; and

2. Such a limitation would be sensible and sensible.

Reasonableness

The examination for reasonableness, the Court found, was the way in which clause afforded the claimant a satisfactory and fair opportunity to seek judicial redress. If a contractual term provides, as an example, for an impossibly limited time for a disagreement to get referred to forum where it might be resolved, it may be in contrast to public policy and unenforceable.

Fairness

The Court laid out a two-pronged test that needs to be used in order to evaluate such provisions in respect of justness. The first was if the clause itself was not reasonable. This involves a weighing-up of the principle of pacta sunt servanda and the legal right of all persons to seek judicial redress. In case the clause was discovered not to be unreasonable, then the additional prerequisite is examined.

The next demand was whether or not the situations that held back compliance provided the defaulting party with a validated excuse for its non-compliance with the time-barring provision. Fulfillment of this requirement requires proof by the defaulting party that it has justified reason for its failure to see the requirements from the time-limitation clause. In that way, the relative equality or inequality of the bargaining positions of the parties can be a relevant consideration.

In Barkhuizen’s case, the Court learned that the ninety-day time restriction wasn’t manifestly unreasonable. That it was also held not to be manifestly unjust. There was clearly no evidence that the agreement had not been worked out freely between parties in comparable bargaining positions. There were also no evidence that the clause had not been drawn to the applicant’s particular attention. Within the circumstances, enforcement of the clause wouldn’t be in contrast to public policy.

One of several specific requirements that Barkhuizen failed to address (that the Court regarded as inexcusable) was his lack of ability to clarify and motivate his non-compliance with all the requirements on the time-limitation clause. His failure to do this placed the Court in a situation where it could not evaluate whether or not the implementation of the clause will be unfair and, consequently contrary to public policy.

Whilst the Constitutional Court, within this specific instance, found that the time-limiting clause has not been incompatible with public policy considerations and therefore it had been necessary to recognise the doctrine of pacta sunt servanda, the Court recognized that it may not allow the enforcement of a time-limitation clause if its execution would lead to unfairness or would be irrational as being in contrast to public policy.

You can find out more about construction law, by visiting Dirk Markhen’s site on construction and engineering law.

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