Too Close for Comfort: a Constitutional Court Ruling in South Africa
Darryl Bernstein, Partner and Head of the Dispute Resolution Practice, and Deepa Ramjee, Director Designate of Dispute Resolution, at Baker McKenzie Johannesburg, discuss a troubling 6/5 ruling at Constitutional Court level.
Darryl Bernstein
Ranked in Chambers Global: Dispute Resolution and Corporate Investigations
Late last year, the Constitutional Court in South Africa had occasion to consider the enforceability of an exemption of liability clause in Fujitsu Services Core (Pty) Limited v Schenker South Africa (Pty) Limited (“Fujitsu”).
The hearing took place in November 2022 and the judgment was handed down in June 2023, with the Constitutional Court taking approximately eight months to deliberate the final award. The delay may have been attributable – at least partly – to the narrow 6/5 split between the majority and the minority, a split that is in direct contrast to the court’s recent decisions, which have largely been unanimous.
“The narrow 6/5 split between the majority and the minority... is in direct contrast to the court’s recent decisions, which have largely been unanimous.”
In Fujitsu, Fujitsu Services Core (Pty) Ltd (“Fujitsu Services”) contracted with Schenker South Africa (Pty) Ltd (“Schenker”), for Schenker to provide logistics services for the import of various goods into South Africa for Fujitsu Services. The contract provided that special arrangements had to be made in writing for Schenker to deal with certain valuable goods. The specific exemption clause in question provided that if Fujitsu Services caused Schenker to handle or deal in these valuable goods without any arrangements in writing, Schenker would not incur any liability “whatsoever” in respect of those goods, “howsoever arising” and in particular, would incur no liability in respect of its negligent acts or omissions in respect of such goods.
Fujitsu Services delivered a consignment of laptops and accessories and engaged the services of Schenker to assist with the logistics and clearing of the consignment. Fujitsu Services did not make any special arrangements in writing for these services, and it so happened that a Schenker employee stole these goods.
The High Court and Supreme Court Decisions
In the High Court, Fujitsu Services instituted a delictual claim against Schenker on the basis that Schenker was vicariously liable for the loss occasioned by the theft. Schenker argued that the contract excluded liability. The High Court found in favour of Fujitsu Services on the basis that the theft was an act outside of the performance of the contract and that the exemption clause could not apply. On appeal, the Supreme Court of Appeal (SCA) held that the words “whatsoever” and “howsoever arising” were “sufficiently wide enough in their ordinary import to draw into the protective scope of the exemption the deliberate and intentional conduct of the employees of Schenker”. The SCA also relied on the decision of Goodman Brothers (Pty) Ltd v Rennies Group Ltd (“Goodman Brothers”), which concerned an exemption clause almost identical to the clause under consideration in Fujitsu.
Constitutional Court Considerations
After making its way through the High Court and the SCA, the Constitutional Court was faced with the question as to whether the exemption clause was contrary to public policy and unenforceable.
The minority’s views were, inter alia:
- Where an exemption clause purports to exclude liability in general terms, the exemption clause must be given the minimum degree of effectiveness by only excluding liability involving the minimum degree of blameworthiness. Stated differently, if a party seeks to exclude liability for theft, it must do so in express terms.
- A person cannot escape liability for fraud or dishonesty by inserting an exemption clause to cover such conduct.
- The narrow approach in Goodman Brothers failed to take into account the constitutional values of fairness, reasonableness and justice.
- A clause that allows employees to steal goods in such circumstances and exculpates the employer from liability on the basis of the phrases “of whatsoever nature”, “any such goods”, “howsoever arising”, “any loss damage or expense arising” and “whatsoever shall any liability” offends the values of human dignity, the achievement of equality, the advancement of human rights and most importantly, the rule of law.
The majority, carrying the day, albeit by a slim margin, found, inter alia:
- The exemption clause still allowed for Schenker to be liable but only if Fujitsu Services had made prior special arrangements in writing with Schenker.
- As regards public policy considerations, applying the approach outlined by the same court in Barkhuizen, there was nothing unfair or unreasonable about the exemption clause, and in particular –
- in Barkhuizen, the principle was that contracts that have been voluntarily and freely concluded should, as a general rule, be enforced unless they are contrary to public policy;
- there was no suggestion that Fujitsu Services was in a weaker bargaining position than Schenker when the agreement was concluded; and
- Fujitsu Services had not demonstrated why it did not comply with the exemption clause by making prior special arrangements with Schenker before it sent the goods to Schenker.
- Most importantly, and affirming the decision in Goodman Brothers, there was nothing contrary to public policy with two contracting parties agreeing on the exemption from liability of one party to the agreement.
The Implications
Fujitsu represents just one example in the recurring tug of war between the principle of pacta sunt servandaand the principle of fairness as derived from the Constitution. Although a fair amount of ink has been spilled in the figurative battle, in many ways, Fujitsu places us further away from resolution. The split in a largely harmonious court is a harbinger of things to come and the narrow avoidance of a potentially seismic shift in settled contractual principles is perhaps too close for comfort.
Looking Forward
Whichever way the groundswell carries us, it is prudent for contracting parties to be aware that any onerous, one-sided, or potentially prejudicial terms may run the risk of offending public policy. Given that public policy, as a concept, is nebulous and contingent on subjective considerations, a pre-emptive exercise to scour contracts for offending terms will require extraordinary prescience and insight into the judiciary’s next moves. For the time being, clauses should be drafted as expressly and narrowly as circumstances allow, and if possible, with a crystal ball in hand.
Baker McKenzie
