Thursday, October 25, 2012

Time-Barring Clauses - What is Reasonable and Honest?

By Dirk Markhen

In the building and engineering marketplace time-barring provisions in many cases are included within the standard conditions in building agreements. These conditions are likely to demand "strict" conformity with time periods and carry significant sanction which could impact negatively on claims along with other entitlements under such contracts. Contracting parties often query the fairness and reasonableness of these provisions every time they face the implications of being time-barred.

Our Courts have clarified the legal position in respect of clauses from this nature in the matter of Barkhuizen v Napier. The short facts from the case are:

1. 2 years after Napier rejected Barkhuizen's insurance claim, Barkhuizen issued a summons for settlement in respect of the items he thought to be "an insured event";

2. Napier stated in its protection that it hadn't been responsible as Barkhuizen had failed to issue the summons in time. Napier argued that the contract included a particular provision that required Barkhuizen to issue a summons within 90 days from the date where Napier rejected Barkhuizen's insurance claim knowing that his failing to do so effectively time-barred him from implementing any perceived entitlements;

3. Barkhuizen's counter argument was that the time-barring clause was unconstitutional and unenforceable given it disregarded his right under the Constitution of the Republic of South Africa to get the matter determined by a Court.

Original Judgment

The High Court to begin with upheld Barkhuizen's argument and declared the time-limitation clause to be inconsistent with the Constitution and dismissed the Napier's defence.

Court of Appeal

Nevertheless, the Supreme Court of Appeal ruled that Section 34 of the Constitution failed to prevent time-limitation provisions in agreements that have been entered into readily. Though it found that, within the evidence, it could not determine whether the clause under consideration has been entered openly and voluntarily, the Court nevertheless upheld Napier's argument and excused the insurer from all liability.

Constitutional Court

Barkhuizen then contacted the Constitutional Court for leave to appeal against the choice of the Supreme Court of Appeal. In response, Napier's arguments included that the provisions of Section 34 of the Constitution cannot be applied to constitutional conflicts introduced against predetermined contractual conditions.

The Constitutional Court held that public policy concerns ought to be looked at to figure out whether or not a contractual term which violates the Constitution and, as such, is in contrast to public policy and thus unenforceable. The Court held that the right approach to constitutional challenges of this nature would have been to see whether the term itself was in contrast to public policy and South Africa's constitutional principles, especially, those found in the Bill of Rights. The Court held that Section 34 not only reflected the basic values that underlie the constitutional order, but that it also constituted a representation of public policy. The best approach to the current matter was therefore to work out if the time-limitation clause violated Section 34 from the Constitution and was thus in contrast to public policy.

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

1. It is allowed by a law of general application; and

2. Such a limitation will be sensible and sensible.


The test for reasonableness, the Court found, was the way in which clause afforded the claimant an adequate and fair opportunity to seek judicial redress. In case a contractual condition provides, by way of example, for an impossibly limited time for a dispute to get referred to forum where it might be resolved, it can be in contrast to public policy and unenforceable.


The Court put down a two-pronged test to always be used in order to evaluate such provisions in accordance of fairness. The first was if the clause itself was unreasonable. This consists of a weighing-up of the theory of pacta sunt servanda and the privilege of the persons to find judicial redress. If the clause was found not to be irrational, then the further requirement is analyzed.

The next requirement was if the conditions that averted compliance provided the defaulting party with a validated defense for its non-compliance with the time-barring provision. Fulfillment of this prerequisite calls for proof by the defaulting party that it has valid reason for the failure to see the requirements from the time-limitation clause. In that regard, the relative equality or inequality of the negotiating positions of the parties can be a relevant consideration.

In Barkhuizen's case, the Court learned that the ninety-day time restriction was not manifestly irrational. It was also held to not be manifestly unjust. There was no evidence that the contract had not been concluded freely between parties in equivalent negotiating positions. There were also no evidence that the clause had not been drawn to the applicant's interest. In the circumstances, enforcement of a clause would not be contrary to public policy.

One of many specific requirements that Barkhuizen decided not to address (that the Court considered inexcusable) was his lack of ability to clarify and motivate his non-compliance with all the requirements for the time-limitation clause. His failure to do so placed the Court in a position where it couldn't evaluate whether the use of the clause will be unfair and, consequently contrary to public policy.

While the Constitutional Court, in this specific instance, discovered that the time-limiting clause hasn't been incompatible with public policy considerations and therefore it had been vital to recognize the doctrine of pacta sunt servanda, the Court recognized that it may not allow the enforcement of the time-limitation clause if its execution would lead to unfairness or would be unreasonable as being in contrast to public policy.

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