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Everfresh contends that the common law should be developed in terms of the Constitution to oblige parties who undertake to negotiate with each other to do so reasonably and in good faith. The contention of Shoprite is that a provision of this kind should not be enforceable because the concept of good faith is too vague.
The learned judge, writing the minority judgment of the court, then continued to express the following views on good faith: Good faith is a matter of considerable importance in our contract law and the extent to which our courts enforce the good faith requirement in contract law is a matter of considerable public and constitutional importance.
The question whether the spirit, purport and objects of the Constitution require courts to encourage good faith in contractual dealings and whether our Constitution insists that good faith requirements are enforceable should be determined sooner rather than later. Many people enter into contracts daily and every contract has the potential not to be performed in good faith. The issue of good faith in contract touches the lives of many ordinary people in our country. What makes Yacoob J's observations on good faith in contracting especially important is the express positioning of good faith under the value system of ubuntu , which the judge explained as follows: The values embraced by an appropriate appreciation of ubuntu are also relevant in the process of determining the spirit, purport and objects of the Constitution.
The development of our economy and contract law has thus far predominantly been shaped by colonial legal tradition represented by English law, Roman law and Roman Dutch law.
The common law of contract regulates the environment within which trade and commerce take place. Its development should take cognisance of the values of the vast majority of people who are now able to take part without hindrance in trade and commerce. And it may well be that the approach of the majority of people in our country place a higher value on negotiating in good faith than would otherwise have been the case.
Contract law cannot confine itself to colonial legal tradition alone. It may be said that a contract of lease between two business entities with limited liability does not implicate questions of ubuntu. This is, in my view, too narrow an approach.
It is evident that contractual terms to negotiate are not entered into only between companies with limited liability. They are often entered into between individuals and often between poor, vulnerable people on one hand and powerful, well-resourced companies on the other.
The idea that people or entities can undertake to negotiate and then not do so because this attitude becomes convenient for some or other commercial reason, certainly implicates ubuntu.
These observations were obiter dicta , as the majority of the court ultimately held that Everfresh 's arguments and calls for the common law of contract to be developed in terms of section 39 2 of the Bill of Rights should not have been raised for the first time in the CC, and leave to appeal the SCA's rejection of Everfresh's challenge was denied. Even so, Yacoob J hinted at the fact that development of the common law role of good faith as per Everfresh's contentions were probably more in line with the spirit, purport and objects of the Bill of Rights than an approach that would not require negotiation in good faith under a clause of the nature of the one contained in the lease agreement at issue in this matter.
Moseneke J, writing the majority opinion of the court, also chose to express himself quite forcefully regarding the potential application of ubuntu and the role of good faith under the common law: Indeed, it is highly desirable and in fact necessary to infuse the law of contract with constitutional values, including values of ubuntu, which inspire much of our constitutional compact.
On a number of occasions in the past this Court has had regard to the meaning and content of the concept of ubuntu. It emphasises the communal nature of society and carries in it the ideas of humaneness, social justice and fairness, and envelopes the key values of group solidarity, compassion, respect, human dignity, conformity to basic norms and collective unity.
Were a court to entertain Everfresh's argument, the underlying notion of good faith in contract law, the maxim of contractual doctrine that agreements seriously entered into should be enforced, and the value of ubuntu, which inspires much of our constitutional compact, may tilt the argument in its favour. Contracting parties certainly need to relate to each other in good faith. Where there is a contractual obligation to negotiate, it would be hardly imaginable that our constitutional values would not require that the negotiation must be done reasonably, with a view to reaching an agreement and in good faith.
I however conclude that it is unnecessary to decide the merits of any of these difficult questions now. Even though the above observations were made in the context of one specific aspect of the application of good faith in contracting, namely the duty to negotiate in good faith in the context of such a contractual undertaking to negotiate or "agreement to agree" ,  I would suggest that the sweeping nature of the above statements - especially in respect of their references to ubuntu  - augur a potentially more comprehensive future judicial review of good faith by this court.
Everfresh now stands as a clear indication that, firstly, the CC is prepared to tackle  the proper role of good faith in contracts especially under the value system of ubuntu and, secondly, that the court appears to be of the opinion that the current role of good faith as expressed so consistently by the SCA in the cases referred to earlier probably needs to be revisited in favour of a more robust role for this principle than has hitherto been recognised.
One specific component of good faith that is especially important here is that of fairness and "simple justice" between contracting parties. Even though Harms JA, in Bredenkamp , expressly denied the existence of an overarching constitutional value of fairness,  I believe that the views expressed in Everfresh are in accord with an emerging approach which emphasises fairness and the pursuit of contractual justice, and which is evident from recent judgments in the provincial courts  as well as, more specifically, in the infusion of fairness into consumer contracts by means of the Consumer Protection Act of I believe that our contract law jurisprudence in the next decade will be quite different from the jurisprudence on good faith that has emanated from the SCA in our constitutional dispensation to date.
The SCA has a constitutional duty in terms of section 39 2 to actively develop the common law in this regard, and the statement by Brand JA in Potgieter v Potgieter — "Unless and until the Constitutional Court holds otherwise, the law is therefore as stated by this court, for example, in the cases of South African Forestry, Brisley, Bredenkamp, and Maphango which do not support the [proposition that courts can refuse to give effect to the implementation of contractual provisions which it regards as unreasonable and unfair]"  - is inaccurate, overly-conservative and constitutionally unsound.
It is undoubtedly illegitimate for the SCA to say that " it will only change its rigid and seemingly anti-transformative approach to our common law if it is forced to do so by those rogue judges of the Constitutional Court". The Constitution and the value system which it embraces came into being in the light of the realisation of the urgent need to change the status quo of our highly racialised and inequitable society, and to develop the law in its various branches in the image of an ideal and aspirational new South African society.
As such, and in the light of the supremacy of the Constitution , its transformative role in the development of legal rules and doctrines is and should be the norm. So why have the courts, when called upon to develop the common law of contract, been so hesitant to deliver on their constitutional mandate?
Making the enforcement of contracts dependent on an external standard of review which is notionally divorced from the will of the parties would, in principle, be potentially destructive of the required legal certainty which flows from the law's hegemonic treatment of the parties' intentions.
But this should be true only where the parties' intentions are not potentially at odds with the constitutional value system and their aspirations for the development of our society; our ideal constitutional community. Accordingly, the courts can no longer apply their one-size-fits-all rejection of the consideration of arguments based in those constitutional values in favour of perpetuating a system of contract that allows often gross unfairness in the dealings between individuals to be screened from legal scrutiny.
That is what Madala J meant when he reminded us in Du Plessis v De Klerk  that "[i] n its effort to create a new order, our Constitution must have been intended to address these oppressive and undemocratic practices at all levels"; and that is why our Constitution expressly allows for the horizontal application of its Bill of Rights.
Accordingly, the need for the development of contract law doctrines in the image of the Constitution, which would more actively and realistically pursue its objectives, would appear to be non-negotiable and uncontroversial. The enactment of the Constitution, the transformative hopes it disseminates and the view that its normative framework is explicitly post-liberal occasions an opportunity for a re-evaluation of and a challenge to the individualist hegemonic understanding of freedom of contract, its concomitant commitments and The Constitutional Court's decision in Barkhuizen In the rest of this section I will argue, firstly, that the SCA's rejection in Brisley of the boni mores as the source for a robust application of good faith in our law of contract was premature, simplistically dismissive of the real issues, and inconsistent with the Constitution.
I will then argue for an understanding of good faith as an objectively verifiable, ethical standard of conduct in contracting that is rooted in our constitutional value system, which understanding - if applied consistently by our courts on the basis of proper guidelines - would avoid the dangers of uncertainty that hitherto has been ascribed to good faith in this context.
Mention was made earlier of the fact that the SCA, in Brisley , made short shrift of Davis J's  calls for the boni mores to feature in the law of contract. The court in Brisley was contemptuous of such arguments and rubbished them in six short sentences in the majority judgment. The court held that there are "material policy differences"  in the approaches to the law of contract and the law of delict, respectively.
It appears that the court's strongly-worded admonition on the danger of "unacceptable chaos and uncertainty" creeping in through such legal convictions of the community as determinant of the enforceability of a contract was based on the court's predilection for the intention of the parties rather than for the application of an externally-imposed, value-based benchmark of contractual liability.
The court specifically observed that in the law of contract the parties voluntarily undertake their legal obligations and deem themselves to be bound to the expressions of their intentions, and that the parties determine the nature and scope of their legal relationship.
But this is surely not the whole story. The parties to a contract cannot determine the nature and scope of their legal relationship to be something that is not countenanced by the law.
The court appeared to overstate the role of the parties' intention in determining the nature and scope of their relationship; by observing that in the law of delict the parties have no say in this regard, the court seemed to place an undue weight on the parties' intentions in contract law because they have some say in this process.
An interpretation that accords the parties to a contract carte blanche to determine their obligations without regard for the legal convictions of the community would be anathema to the rule of law and to the continued legitimacy of our law of contract.
And the genuine nature of the intention of the parties to a contract and true volition , nowadays, is something that is in itself often fraught with uncertainty, and with the potential for significant inequity. Sachs J, in his eloquent and well-reasoned minority judgment in Barkhuizen , convincingly exposed the many problematic aspects of contracts of adhesion concluded in standard form and with little or no negotiation, in situations of significant disparity in bargaining power between the participants in modern commerce, and Bhana and Pieterse have rightly questioned the veracity of the assumptions that underlie the classical, liberal theory of contract in the light of the modern-day realities of the marketplace.
It is especially when we are confronted with our socio-economic reality including issues such as widespread poverty, illiteracy, unemployment, virtual monopolies in service provision and the like that one must ask if some form of "social control over private volition"  should not be a sine qua non for the very continued legitimacy of our law of contract. And, in this sense, I must ask if the boni mores are, in fact, such an unsuitable mechanism for this purpose as has been suggested by the SCA.
Our law has for some years now been relatively settled on the issue that contracts that offend public policy are illegal and should not be enforced by the courts. And these same courts have consistently held that public policy is now informed by the values iterated in our constitution. This was confirmed even by Cameron J in Brisley. Ngcobo J in Barkhuizen, too, told us that public policy is based on the legal convictions of the community, which are based on these constitutional values.
The only disagreement between the Constitutional Court and Davis J is the doctrinal name of these legal convictions. The Constitutional Court calls it public policy, Davis J calls it good faith. Can it be that the Constitutional Court in this case in fact merged public policy with good faith? Can it be that good faith after all forms part of public policy as Olivier JA argued in his much-maligned judgment in Eerste Nasionale Bank?
The answer to this question is by no means clear given Ngcobo J's emphatic statement that the facts of the case did not require the Court to answer the question whether, under the Constitution, the limited role for good faith expounded since Brisley, is appropriate. Yet, the Court attributes exactly the same meaning to public policy as the meanings that have been attributed to good faith. A striking example is the similarity between the definition by the Constitutional Court of public policy as "importing the notions of fairness, justice and reasonableness" and Olivier JA's definition of good faith as realising the community's legal convictions regarding propriety, reasonableness and fairness.
Hutchison also observed that Olivier J's approach in his minority opinion in Saayman encompassed a similar view on the link between good faith and public policy: There is a close link This is because the function of good faith has always been to give expression in the law of contract to the community's sense of what is fair, just and reasonable. The principle of good faith is thus an aspect of the wider notion of public policy, and the reason why the courts invoke and apply the principle is because the public interest so demands.
Good faith accordingly has a dynamic role to play in ensuring that the law remains sensitive to and in tune with the views of the community. The concept of ubuntu is of some relevance to the values we need to uphold. It is a culture that places some emphasis on communality and on the interdependence of the members of a community. It recognises a person's status as a human being, entitled to unconditional respect, dignity, value and acceptance from the members of the community such person happens to be part of.
It also entails the converse, however. The person has a corresponding duty to give the same respect, dignity, value and acceptance to each member of that community. More importantly, it regulates the exercise of rights by the emphasis it lays on sharing and co-responsibility and the mutual enjoyment of rights by all.
It is to my mind inconceivable that our community would not be deemed to aspire to a fairer system of contract law in which mutual respect and mutual responsibility towards the other would be paramount. The emphasis should not be, simplistically, on fairness in the circumstances of any given case and the potential for legal uncertainty which may, justifiably, arise when this determination is dependent on individual judges' conception of fairness.
The emphasis should be on an objectively verifiable ethical standard of conduct in contracting - 'fair dealing', which entails more than simply a subjective determination of fairness of the bargain for one or more of the contracting parties. Ultimately, the law's abhorrence of an illegitimate degree of promotion of self-interest which violates an objectively verifiable, ethical standard of good faith would not be based, simplistically, merely in such a subjective determination of what is 'fair', but rather in the fact that the public interest requires that such contracts or conduct in their enforcement should not be countenanced.
Hutchison's frequently recycled view, that has found such favour with the SCA, reminds us that good faith is " an ethical value or controlling principle based on community standards of decency and fairness that underlies and informs the substantive law of contract", and which has "a creative, a controlling and a legitimating or explanatory function" [my emphasis]. This legitimating function of good faith is not found only in its role as an "important moral denominator".
When Davis refers to the work of American lawyer and economist Robert Lee Hale, he emphasises the fact that the legal machinery as personified in the rules of contract that our courts apply have a key role in determining this socio-economic reality and the way in which it deals with private power and the distribution of wealth: A party who enjoys the protection afforded by a property right can exert considerable pressure in order to induce another party to enter into a bargain.
In addition, the law endows the property owner with power to have recourse to governmental authority, if necessary, to enforce his or her property rights. Our system of contract law, in effect, places in the hands of the economically powerful in society a potential weapon of mass destruction.
It is inconceivable that the community's sense of what is acceptable - which legitimates the content of the legal machinery of the state which is brought to bear on the dealings between contracting parties and determines which party will receive the assistance of the state - should not play a fundamental role in determining which contracts and conduct in the negotiation, conclusion and enforcement of contracts should be allowed by the courts.
And as Zimmerman observed, "unreasonable and one-sided promotion of one's own interest at the expense of the other infringes the principle of good faith to such a degree as to outweigh the public interest in the sanctity of contracts ". Our freedom of contract is therefore an ethical freedom. It is [the] positioning of good faith within the common contractual interest which addresses the fear that the introduction of good faith cannot be reconciled with the inherent entitlement of contracting parties to advance their own positions: Bearing in mind these ethical parameters of contractual autonomy based on the boni mores should also cause us to reconsider Harms DP's reliance in Bredenkamp on the rule of law to counter admittedly, in that case, weak arguments based on fairness and calls for substantive equity.
The rule of law, as a constitutional value and an age-old gründnorm in our law, does not encompass the enforcement of that which should not be enforceable as contracts under our law, namely those 'contracts' which offend against the legal convictions of the community. Such an understanding, in fact, would violate the rule of law. The imperative to inform our understanding of good faith as one deriving from the constitutional values and ubuntu and the transformative ethos of the Constitution is also buttressed by the policy considerations which should underlie all law.
This requires the advancement of desirable goals of collective social welfare, including the promotion of ethical values and generally accepted underlying principles of our law All these determinants of fairness can be grouped together as 'policy considerations' In fact, all legal rules ought in the final analysis to be justifiable by reference to some consideration of policy.
This is because all law, including contract law, is regulatory. When the state should put the machinery of the law in the service of the one party against the other, and how that should be done, are important questions of public policy. The application of the law ius dicere is therefore 'unavoidably embedded in political considerations'. De Vos has also observed that a proper understanding of this underlying nature of all legal rules would seem to rubbish the SCA's consistent distinction between 'hard law' rules of contract and vague and abstract notions such as good faith , and that this also highlights the paranoid and irrational nature of the court's stance towards the latter in respect of the maintenance of legal certainty.
I am adding my voice here to the calls for the role of good faith in contracts to be reconsidered in line with the constitutional values. In this process it should be borne in mind that the legal convictions of the community play an integral role in such a process - the SCA has said so: Courts have not only the right but also the duty to develop the common law, taking into account the interests of justice and at the same time to promote the spirit, purport and objects of the Bill of Rights.
In this regard courts have regard to the prevailing mores and public policy considerations. In the current context, the legal convictions of the community are doubly important as also being the source of the ethical standard of good faith and fair dealing. And one could, I would suggest, even meet the arguments of those opponents of a robust good faith doctrine derived from the boni mores who may believe that such a creature would lack the possibility of empirical proof: Admittedly, assertions that '[p]eople, including commercial people, expect a degree of common sense, fairness and justice in the law and in the rules that govern commercial behaviour' cannot be proven in any scientific sense.
However, it is difficult to see how it might convincingly be argued otherwise: This is especially so in contract law, which is concerned with agreements, understandings and other such meetings of minds. The superstructure of contract law is built upon foundational notions of accord, cooperation and common purpose, and it is suggested that those foundations are likely to be strengthened, not weakened, by adopting a doctrine of good faith. Liew gives a further reason why fears of uncertainty inherent in a doctrine which would require case-by-case analysis of compliance with a duty of good faith might be ungrounded - namely that similar methodology is not unknown in other areas of law such as the law of delict: He did so in the context of an examination of the proper role for the intention to create legally enforceable obligations animus contrahendi , and suggested that the lawfulness of contractual obligations should trump the parties' intention in any such investigation.
There may be a case to be made for a closer relationship between these two branches of our private law in respect of the central importance attached to the lawfulness, based on the legal convictions of the community, of obligations created also in the context of contracts. This, of course, would fly in the face of the majority's brief and rather dismissive rejection of such a link through the boni mores in Brisley , and Alkema J was at pains to point out that his approach in this case might be "at this stage of the development of our law on the subject, a bridge too far".
It is in fact not uncommon in law for the policy objective of legal certainty to be relaxed in circumstances where competing social considerations and the development of the common law warrant it. In the law of delict, for example, the test for wrongfulness, which is based on the legal convictions of the community, wholeheartedly embraces competing social and economic considerations including those reflected in the Constitution , notwithstanding the inevitable reduction in legal certainty.
The law of contract, as a branch of the common law, is equally meant to embrace normative and constitutional values so as to adapt to the changing needs of the community. It is therefore difficult to discern a cogent explanation for contract law's apparent need for more certainty and its attendant 'elevated' status.
Of course, as I have argued above, I would suggest that the explanation for this elevated status of certainty in contract law is the courts' inapt over-emphasis on the intention of the parties and the protection of their expectations in terms of pacta sunt servanda , while failing to sufficiently emphasise the role of the legal convictions of the community in determining the parameters within which those expectations should be protected by law.
This methodology serves to retard the development of the common law of contract towards greater substantive equity, particularly in terms of the good faith debate.
I have argued above that the legal convictions of the community, as based in and evidenced by the constitutional values and, especially, ubuntu provide the basis for a more robust doctrine of good faith in our law of contract. I am not arguing for a vague and imprecise notion of good faith which would require courts to make casuistic and subjective decisions based on a vague conception of 'fairness'.
What I am proposing is that the boni mores and ubuntu require the recognition of an objectively verifiable ethical standard of conduct in contracting and the enforcement of contracts - " a minimum threshold of mutual respect". A concept of fair dealing has become the norm in civil law systems  and indications especially in consumer law are that such standards are increasingly being recognised, internationally.
Importantly, it should be remembered that many of those jurisdictions that have started to recognise such a standard do not have the benefit of our constitutional value system, but have still managed to make the mind-shift from rigid formalism in the enforcement of contracts to the policing of private conduct in the pursuit of substantive equity.
Hector MacQueen writing in the context of Scots law made the following observations regarding Martijn Hesselink's  distinction between the subjective  and objective meanings of good faith under civil law systems for example, in Germany: It is objective good faith, however, which is chiefly relevant to contract law.
Objective good faith is about external, or community, norms and standards imposed upon contracting parties. Over time these norms and standards have been distilled into particular rules But the content of good faith is not fixed or static, and the existence of the general principle in the Codes enables the Continental judge to innovate and develop the law in response to circumstances without infringing upon the territory of the legislator.
It is, however, in that most unlikely place - the English law of contract - where I believe we may find guidance on the way forward for recognition of an objective test for good faith. In the recent judgment of Yam Seng PTE Ltd v International Trade Corporation Ltd ,  Leggatt J, in the Queen's Bench, commented as follows on the content of good faith, and it is submitted that these comments may hold the key to our own understanding of the concept and why it may not be as slippery and potentially risky a ground to promote greater substantive equity in contract law as might be commonly believed: Although its requirements are sensitive to context, the test of good faith is objective in the sense that it depends not on either party's perception of whether particular conduct is improper but on whether in the particular context the conduct would be regarded as commercially unacceptable by reasonable and honest people Understood in the way I have described, there is in my view nothing novel or foreign to English law in recognising an implied duty of good faith in the performance of contracts I see no objection, and some advantage, in describing the duty as one of good faith 'and fair dealing'.
I see no objection, as the duty does not involve the court in imposing its view of what is substantively fair on the parties. What constitutes fair dealing is defined by the contract and by those standards of conduct to which, objectively, the parties must reasonably have assumed compliance without the need to state them. The advantage of including reference to fair dealing is that it draws attention to the fact that the standard is objective and distinguishes the relevant concept of good faith from other senses in which the expression 'good faith' is used.
It should be noted that the judgment in Yam Seng , and especially Leggatt J's views on a duty of good faith, have not yet been confirmed in English law. We think that the concept of good faith is reducible to a core meaning… At its core, the concept of good faith encompasses the threshold subjective requirement of acting honestly, as well as the objective requirement of observing accepted commercial standards of fair dealing in the performance of the identified obligations.
This encompasses a duty to act fairly, having regard to the legitimate interests of the other party. Hawthorne also iterates the objective standard of fair dealing that is inherent in the concept of good faith, with reference to the experience in civilian jurisdictions: Good faith has both a subjective and an objective sense.
The subjective sense requires honesty in fact, while the objective sense requires compliance with standards of fair dealing It is without question true that the result of subjective good faith would be legal uncertainty, but it is submitted that good faith in the law of contract has an objective nature.
Most countries which have a civil code refer, in their law of contract, to good faith and rely on this norm It would be absurd to contend that the law of contract in these jurisdictions differs from judge to judge, or from party to party. It is submitted that in all these [civil law] jurisdictions, the courts have, in conjunction with legal science, developed an objective norm of good faith which governs the conduct of contracting parties.
If the European systems are still too far removed from us, not only geographically, historically and economically, a potentially more comparable jurisdiction to South Africa - Brazil, which also struggles with vast levels of social inequality - may provide some guidance on such an objective standard of good faith and fair dealing under a more relational conception of contract and its 're-personalisation'.
It appears to me that it is possible to formulate an objective test for good faith conduct in contracting. Apart from the subjective notion of good faith honesty, or the absence of bad faith , objective good faith would translate to an ethical standard of fair dealing between parties which encompasses notions of trust, a moral basis for the enforcement of promises, reciprocity, a duty to act fairly, having regard for the legitimate interests of the other party, and to refrain from conduct that is commercially unacceptable to reasonable and honest people.
As stated earlier, I am not calling for a conception of good faith as a tool for parties to challenge the fairness of their bargain, generally. That would not be in line with established principles of our law of contract which have been established for more than a hundred years. Such a general power to strike down contracts in order to assist parties who are the authors of their own woes would truly violate the sanctity of contracts, as well as pose the very real risk of subjective judicial notions of fairness implicating legal certainty.
Also, it might contribute to moral hazard and the risks of cultivating a society of careless contractants secure in the expectation of a judicial get-out-of-jail card. What I am proposing, however, is that, apart from the outcomes of the bargain, a party should be entitled to challenge conduct by the other party which offends against an ethical standard determined by the legal convictions of the community.
Our law already provides assistance to parties in cases of improper conduct in the formation of contracts consider the remedies relating to misrepresentation, duress and undue influence. Why should a party be without recourse if such conduct presents only after the conclusion of the contract for example, in the enforcement of such a contract?
When Cameron J referred in Brisley to the fact that "[s]horn of its obscene excesses, contractual autonomy informs also the constitutional value of dignity", one must ask what those obscene excesses are. If good faith is understood as an objectively determined ethical standard consonant with and inclusive of the notion of fair dealing - which is so fundamentally at the heart of Sasfin 's "simple justice between man and man" - would the abuse of autonomy in a manner that selfishly promotes one party's self-interest contrary to the demands of such ethical standard not constitute just such an "obscene excess" of individual autonomy?
It is suggested that, just like Sasfin 's abhorrence of clearly unconscionable contracts, it might not be such a difficult exercise to spot in any given case that a contracting party's conduct amounts to shameless self-promotion at the cost of the other party's constitutional values.
He observes, however, that instead they stated that "although the meaning of good faith is dependent upon the context in which it is used, good faith 'emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party'".
Would ubuntu not require that parties to a contract should be entitled to expect a certain measure of respect from the other party, of being treated fairly and within a contractual environment free from attempts at selfish over-reaching?
But good faith should not be sidelined to the extent that Davis argues has been done by the courts in respect of public policy in the constitutional context: So, in order to provide a less controversial meaning for the determination of the content and parameters of such an ethical duty - and to attempt to avoid the temptation for judges to reject outright such an application of good faith - I will very briefly consider possible guidelines to facilitate the courts' application of such a standard.
Before I engage in this exercise, however, I would suggest that we should not underestimate the quality of our judicial officers. As Lewis observed regarding some cases that involved creative judicial attempts to control the use of contractual exemption clauses in English law, such decisions "seem intuitively correct in that they match our commonsense perceptions of what is just. They do not seem to be manipulating the rules of contract".
It is not my intention here to even attempt to exhaustively define and populate my suggestion for an ethical standard of fair dealing based on the boni mores and ubuntu , as I believe that, if such suggestion were to find support in our courts, judges would be the best suited to developing such a standard and to undertaking such development based on the cases before them.
I do think, however, that there are a number of specific elements which would have to be encompassed in such a standard for judicial consideration in any given case, and that we already find these elements either in the judgments of our courts or in the consumer legislation.
The astute reader will note that these suggested factors are a bit of a mixed bag, incorporating factors relating to contract formation, mistake, public policy and the content of contracts. I believe, however, that they are all relevant to the determination of compliance or not with an ethical standard of conduct in contracting, which envelopes the various stages of the contract's establishment and existence treating the contract as a lived reality rather than a snapshot of a legal bargain.
So, bearing in mind that this is not intended to be the final word on the subject, I will rather simplistically submit that all of the following are elements which courts could use as guidelines in order to determine compliance with an ethical standard of good faith in any given case: This is one of the guidelines for the determination of "unreasonableness, unconscionableness or oppressiveness" suggested by the SA Law Reform Commission in its earlier proposal for unfair contract terms legislation.
This is reflected in our common law treatment of the caveat subscriptor rule and the courts' approach es  to unexpected terms in contracts. More generally, some guidance may also be found in the SA Law Reform Commission's 'catch-all' guideline, namely "the context of the contract as a whole ", in which case the court may take into account the identity of the parties and their relative bargaining position, the circumstances in which the contract was made, the existence and course of any negotiations between the parties, any usual provisions in contracts of the kind or any other factor which in the opinion of the court should be taken into account.
In order to provide some more concrete guidance on the application of the suggested ethical standard of good faith, I will - again briefly and rather simplistically - attempt to consider such application in a more practical sense, by examining the potential role for such a mechanism in an actual case.
The Durban High Court, in Standard Bank v Dlamini ,  recently considered a matter that I believe provided an ideal opportunity for this exercise even though the words 'good faith' appeared only once in the judgment of the court, and then not in the context of the relationship between the parties to the contract and the litigation.
Dlamini under a credit agreement for the financing of a motor vehicle. Dlamini had bought a used car at a dealership in Pinetown which acted as an agent for the bank in terms of the financing agreement , which he returned four days later because the vehicle malfunctioned. The bank claimed that Dlamini had voluntarily surrendered the vehicle in terms of the National Credit Act or NCA ,  because he had failed to notify the bank of the return of the vehicle to the car dealership, and they issued summons against him for the return of the vehicle, costs of suit and the costs of locating, removing, storing and disposing of the vehicle.
The bank relied on clause If he terminated the agreement in this way he was obliged to pay rental for the use of the vehicle for the time that he had it and any reasonable costs the bank might incur to have the vehicle returned or restored to a saleable condition. The contract did not record that Mr. Dlamini was entitled to a refund in terms of the Act.
Pillay J held that the only issue in dispute on the facts was whether or not Dlamini knew and understood the terms of the agreement specifically relating to his duty to inform the bank of the termination of the agreement. Before returning to the facts of the case, it bears noting that the court decided the matter on the basis of the bank's reliance on caveat subscriptor and quasi-mutual assent based on Mr.
Dlamini's signature on the credit agreement. The learned judge, interestingly, decided that this case implicated Dlamini's right to equality under the Bill of Rights: However, when the NCA applies, the constitutional right to equality comes to my mind immediately. What then is the interface between the Constitution, NCA and the common law principles of caveat subscriptor and quasi mutual consent?
Following the court's consideration of case authority on the caveat subscriptor rule as well as the provisions of the National Credit Act , the court found that Mr. Dlamini was not bound to the notice requirements under the contract and, in fact, that for a number of reasons the credit agreement was unlawful. Ultimately, Pillay J held as follows: The unlawfulness on all the grounds established above is a breach of the right to equality in s 9 1 of the Constitution.
The Bank conducted this transaction oblivious of the purposes of the NCA. Notwithstanding the manifest inequality in its relationship with its bargaining counterpart it sought to snatch an advantage. I will not evaluate the correctness of the court's approach in this case here beyond remarking that the learned judge's automatic recourse to the constitutional equality right was not explained,  and that such direct recourse to section 9 of the Bill of Rights also appears strange in light of the Constitutional Court's preference for indirect application as expressed in Barkhuizen v Napier .
What I would like to do is to briefly examine the potential application of an ethical standard of good faith based on the facts of the Dlamini matter and the court's findings regarding the circumstances surrounding the conclusion and enforcement of the credit agreement.
In the light of the foregoing discussion, consider the following observations by the court which I quote extensively here: Mr Dlamini completed schooling at standard one. At 52 years, he is an unsophisticated African male. He had difficulty in the witness stand engaging with the documents. He had become so excited about the purchase of a vehicle that he paid little attention to the repayment plan. He relied on the Bank to deduct reasonable instalments. He did not expect the Bank to deduct a high amount that left him without the means to support himself, his wife and his two little children.
He expected to discover what the amount of those instalments would be when the Bank deducted its first instalment from his account.
He trusted his bank. On discovering that he bought a defective vehicle he returned it intuitively to the person who sold it to him. Such non-disclosure and selective disclosure is designed to deceive consumers. Such deception conflicts with the letter and spirit of the NCA. Above all, it reinforces the patterns of inequality and inequity that persist in South Africa.
Such a business practice makes credit transactions unduly onerous and a veritable trap for poor, illiterate and disadvantaged people who intuitively would return defective goods to a supplier and ask for a refund. Even if the Bank and its agents provided this service at a fee it would have been far cheaper than litigating to determine the basis of the termination. Relying on agents whose interests as second hand car dealers conflicted with consumers' interests needed better control of the agent to avoid any finding that the Bank was complicit.
Part B of the agreement which incorporates the terms and conditions, an acceptance form and an authority to release goods form is seven pages. The terms and conditions span over five pages incorporating 18 main clauses with several sub-clauses. Clause 1 is a list of definitions usually found in complex agreements and legislation. For lawyers and lay persons alike, the form of the Bank's standard agreement is an unappetising formidable read. For a labourer like Mr Dlamini who did not read, write or understand English there might just as well have been no written agreement at all.
It defeats the purpose and policy of the NCA and renders the entire agreement unlawful. Consequently, this action for confirmation of the termination and the return of the vehicle was wholly unnecessary. Why the Bank framed its relief in these terms remains unexplained. Penalising and intimidating Mr Dlamini are aims that cannot be excluded.
The Bank's conduct in initiating and pursuing this action is unlawful for the further reason that it is irrational. I have little doubt that a court armed with direct recourse to the application of an ethical standard of good faith based on the legal convictions of the community and, especially, ubuntu would have little difficulty in finding that the above facts and findings in Dlamini 's case show a clear breach of such a standard, and that the bank's conduct in the circumstances was unlawful and unconstitutional.
Dlamini was in every sense reduced to an object of economic gratification for the bank, and the bank failed to show him the required respect as counter-party to the contract. The bank would appear to have abused its economic and bargaining power over an illiterate and ignorant individual, and propounded the insult and injury through its choice of litigation and litigation tactics.
Standard Bank v Dlamini provides an example not only of how such recourse to good faith would assist litigants faced with such overwhelming obstacles in the protection of their rights; it also shows why we need such a mechanism for the pursuit of substantive equity in contracts especially considering that this case involved a contract concluded under consumer protection legislation, with clear proof that the credit provider - one of the largest commercial banks in the country - had not aligned its standard form contract and practices with such legislation and was, apparently, simply doing 'business as usual' with little concern for the rights and interests of the consumer.
As argued above, I believe that specific content can be given to an ethical duty of good faith by the courts. On a broader level, I believe that justification for such an exercise in terms of the legal convictions of the community can also be found in the minority opinion of Sachs J in Barkhuizen even though his views were expressed in the specific context of the law's treatment of standard form contracts: What is needed is a principled approach, using objective criteria, consistent both with deep principles of contract law and with sensitivity to the way in which economic power in public affairs should appropriately be regulated to ensure standards of fairness in an open and democratic society.
Ultimately, however, and as already suggested, it would be the task of the courts to determine the parameters of such an ethical duty of good faith based in the boni mores and ubuntu. The fact that this exercise would have to proceed on a case-by-case basis, however, should not detract from legal certainty in the application of such a standard of good faith. And, even if these are inaccurate descriptions of the process of legal adjudication, I would submit that the effects of any legal uncertainty that might result would, at least, be tempered by the fact that our courts would be motivated by the intention to actively pursue substantive equity in the cases before them.
And the establishment of a culture of good faith adjudication would surely serve a preventative or deterrent function and, eventually, translate into the negotiation and enforcement of contracts that are more in line with the good faith standard.
This could, ultimately, go some way towards obviating the need for such adjudication by our courts by ensuring that only the most egregious cases of bad faith will end up in court, thereby eliminating the hard cases that make for bad law.
Should we really ask for much more than that? In this piece I have argued that the Supreme Court of Appeal's current understanding and apparent devaluation of the role of good faith in contract law is wrong, and that this court has not sufficiently explained and defended its 'conservative' stance on good faith in respect of its apparent conviction that "this road leads to uncertainty in contract".
I have also pointed to the fact that the Constitutional Court has provided strong indications not only of a possible view that the SCA's understanding of good faith is incorrect, but also of a willingness to change the law as soon as an appropriate opportunity presents itself. More specifically, I have argued - and I must admit that this is not a novel argument  - that a robust role for good faith can be developed, based on the legal convictions of the community or boni mores , and that the SCA has not sufficiently explained its rejection in Brisley of the idea of the application of the boni mores to contracts.
There are strong indications from the CC that ubuntu will be used to develop a more robust role for good faith, which appears unassailable in the light of the constitutional value system including the role of ubuntu and the nature of good faith as a key legitimating principle in contract law.
I believe that the fears of legal uncertainty in respect of the application of a robust good faith doctrine may be illusory if one considers that it is possible to formulate and develop an objectively verifiable, ethical standard of conduct in contracting, which would be little different from our courts' use of public policy to date.
When the then Appellate Division so famously 'buried' the exceptio doli generalis in Bank of Lisbon  it did so relying quite heavily on the fact that this "superfluous, defunct anachronism"  had never been received into our law, because all our contracts are, fundamentally and as a matter of first principles, viewed as being contracts bonae fidei. It is ironic then that this same court - and especially so in its new guise in our constitutional era - has failed to properly recognise this centrally important good faith component of contracts, through a limp-wristed conception of bona fides as nothing more than a footnote or fine print to the text the text that is the less 'slippery' and more easily quantifiable black letter doctrines and rules of our law of contract.
The exceptio would be superfluous only if the common law recognised a comparable mechanism to achieve the same aims; but in its failure to assert this elementary logical precept it would appear as if our courts have failed us.
In the final analysis, I believe that the time has come for the courts to realise that, as Liew observes, a robust doctrine of good faith is not something that is at all at odds with the objectives of our law of contract or its continued legitimacy and existence although it may very well be at odds with some central precepts of our economic system,  which may, in any event, require re-evaluation in due course as part of the greater constitutional project: Good faith, properly understood, is not alien to the institution of contract; on the contrary, without mutual trust, candour and sincerity, it is difficult to see how contracts could be agreed at all.
If these premises are accepted, then the way is open for an obligation of good faith to be implied in law into every contract.
What the content of that obligation is, however, must always be fact-specific, taking into account the intentions of the parties, the purpose of the contract, and the relevant matrix surrounding the contract's formation and operation.
In other words, while a default obligation of good faith may be implied into every contract by law, the precise scope or extent of that obligation will always be a matter of construction or implication in fact. Such an approach adequately balances the communitarian interests of the proponents [of a robust doctrine of good faith] with the opponents' rightful insistence that agreements should be rooted in the will of the parties, and that contractual rules must therefore be clear and predictable in order to facilitate the implementation of such intentions.
Being guided by the parties' intentions in this regard thus gives the doctrine of good faith both legitimacy and practicality. Once we accept the natural place for good faith, we can start to use it to better develop not only our law of contract but to enrich the tapestry of our very society. We will still, and for some time to come, be faced with the colonial tradition of our legal system including, in the current context, the law's apparent long-held preference for the classical, liberal theory of contract law , as well as our relatively unique socio-economic conditions and the realities of our extremely unequal society.
Recourse to the law is still mostly the domain of the privileged and they are no longer, necessarily, only previously-advantaged, white South Africans - the bad guys are no longer so easy to spot. In the face of these dichotomies, it is clear that not all the kids in the playground can be trusted to play fair without some form of communitarian ethical policing. The Constitution is there, very explicitly, to protect the weaker kids against the bullies.
Assumptions of autonomy and unfettered volition so inherent in our courts' conception of 'freedom of contract' which are assumed to exist - res ipsa loquitur - upon the proof of the formal validity of a contract are unrealistic. And they are dangerous when viewed through the prism of the constitutional values such as dignity and equality , as our courts' continued preference for such notions of the classical, liberal theory may serve to promote the abuse of private power  and to reduce contracting parties to objects of economic gratification for their counterparts.
Our law should serve to inculcate the idea l that contracting is more of a tandem skydive than a case of ruthlessly trying to push the other guy out of the plane after snagging the only parachute. When one considers the prevalence of the inequality of bargaining power in modern-day commerce and related issues and social realities which may affect the presence of free volition and choice on the part of contracting parties to determine the form, nature and consequences of their bargain , I believe that such an objective standard of ethical conduct - imposed on parties by the boni mores as evidenced in the constitutional values and, more specifically, ubuntu - might provide a powerful tool with which to level the playing field and ensure that all contracting parties are equal before the law and enjoy equal protection of the law.
That the drafters of the Constitution could have had this in mind is inconceivable. And, even worse, it would only serve to perpetuate the common law of contract's current, apparent ambivalence towards the abuse of private power which, Davis J reminds us, is contrary to one of the fundamental aims of our Constitution 's transformative agenda and which underlies its horizontal application.
Problems such as poverty, inequality of opportunities or housing cannot be addressed by private law, and private law should not be used to reach these goals. But of equal importance is the way that citizens deal with each other and what they may expect from one another. And this is exactly the role of private law, through concepts such as duty of care, good faith and proportionality and always balancing conflicting interests, using notions and theories that have come to us, constantly refined, after centuries of litigation, debate and legal thinking Efficiency or the creation of wealth is not, and should not be, the prime focus of private law.
If the outcome of private law is efficient, all the better. Section 18 of the Gaming Act of , while not expressly referring to insurance, had the effect of making void all contracts of insurance which were wagers.
Section 4 of the Marine Insurance Act of stated that every contract of marine insurance by way of gaming or wagering was void; and that a contract of marine insurance would be deemed to be a gaming or wagering contract where the insured had not an insurable interest as defined in the Act.
The leading English cases on insurable interest have concerned the interpretation of one or other of these English statutes. For many years until this was in turn the law to be applied in the Cape and Orange Free State. There is no South African statute which lays down the need for a so-called insurable interest. In England the statutory requirement of insurable interest was introduced in order to outlaw wagers in the form of insurance contracts and to remove the incentive which such contracts might provide for people to destroy the subject-matter of the policy.
We have our own law both common and statutory to regulate gambling. In respect of other gambling debts, the common law is that gambling contracts are not illegal but are stigmatised to the extent that they will not be enforced Dodd v Hadley TS at ; Estate Wege v Strauss AD 76 at 81; Christie The Law of Contract in South Africa 6 th Ed at If an insurance contract does not constitute a gambling transaction for purposes of our law, why should it not be enforced?
There certainly appears to be little justification for importing requirements from English law which only ever applied in the Cape and the Orange Free State and which ceased to apply there in However, the question would remain how, in our law, we are to distinguish an enforceable insurance contract from one which is an unenforceable betting transaction.
Voet Commentarius ad Pandectas He says that in modern times ie in Roman-Dutch law no demands are enforceable in respect of such games Grotius Introduction to Roman-Dutch Law deals with gambling transactions in the context of conditional contracts. After stating that a contract may validly be made the subject of a suspensive condition 3.
Grotius speaks of some interest in the event while the above case refers to an interest in the contract. I doubt whether these are different concepts. The existence of some such interest is the thing which takes the contract outside the realm of betting. When one says that a person has no interest in the event or contract but for the stake he will win or lose one is saying that but for the existence of the wagering contract it would be a matter of indifference to him whether the event happens or not.
What distinguishes an insurance contract from a wager is that there is a reason apart from the contract why the happening of the event matters to the insured party. Indeed, his interest is that the event should not happen, so that unlike the person who places a bet he does not conclude the contract with the wish that the event will occur so that he can receive a payment from the insurer. There seems no good reason why an enquiry into whether a person who has concluded a purported insurance contract has an interest in the event or contract apart from the insurance contract itself should be an unduly technical matter.
That is not to say that English and other Commonwealth cases on insurable interest may not usefully be consulted but it would be erroneous, in my view, to assume that we have inherited a body of common law derived from English law. That would be to ignore the statutory foundation of the English law of insurable interest and the legislative basis for its application in the Cape and the Orange Free State until The presence or absence of what is customarily regarded as an insurable interest is a relevant aspect of that enquiry but it is not a self-standing requirement.
If the learned judge meant something other than the interest necessary to avoid the conclusion that the contract is an unenforceable gambling transaction, his view appears to me, with respect, to pay insufficient regard to the historical evolution of our insurance law.
I have not conducted an extensive enquiry into the Roman-Dutch law of insurance. A requirement of something akin to insurable interest is not to be found in the overview of the contract of insurance in Grotius Inleiding 3. These discussions relate to the insurance of ships and other property — the insuring of human life was not permitted in Roman-Dutch law.
However, the lectures of Van der Keessel on Grotius 3. And in Van der Linden Institutes of Holland 4. There are also statements in Van der Keessel suggesting that the nature of insurance law dictates that the insured may not recover more than the damage he himself has suffered in consequence of the loss of or damage to the insured goods. In Wessels Law of Contract in South Africa the question of insurance is discussed in passing in the context of the attitude of our law to betting paras It may well be that at the time of Van der Keessel and the earlier writers the same underlying policy that led to gambling transactions being treated as unenforceable resulted in fairly strict rules about what could be recovered under insurance contracts.
However, a reading of these writers shows that there were many restrictions in the Roman-Dutch law of insurance, often derived from ordinances and local statutes, which are not part of our modern law. Such a view is not supported by case law see below. It is sometimes said, at least in regard to so-called indemnity insurance, that the insured must have an interest in the subject matter of the policy because the purpose of indemnity insurance is to indemnify the insured party against actual loss and there can be no loss without an interest.
In my view, however, this does not mean that we need a separate requirement of insurable interest. One must interpret the policy to determine what it means.
If the contract properly construed requires the insured party to prove that he has suffered a particular kind of loss in order to claim then that is what he must prove. As will appear, though, it is by no means our law that in every short-term insurance contract the insured party is limited to claiming his own proven patrimonial loss.
The courts here and abroad have sometimes stretched the notion of insurable interest quite far in order to find that a policy is enforceable. Of course we must not assume facts which do not exist, nor stretch the law beyond its proper limits, but we ought, I think, to consider the question with a mind, if the facts and the law will allow it, to find in favour of an insurable interest.
In that sense, insurable interest in our law would, like wrongfulness in the field of delict, be a policy-laden assessment serving to separate enforceable contracts from those which should in accordance with the legal convictions of the community be branded as unenforceable wagers.
One sees this particularly in life insurance, where our own case law on insurable interest is particularly sparse. In some cases such insurance may have an economic justification but that is not necessary for the policy to be valid; the insured party can claim on the death of the insured life without proof that the death has occasioned him or her financial loss.
That is a policy-laden conclusion, one on which views could be expected to change over the years. This is to sacrifice common sense to dogmatism. If a particular type of insurance contract is unenforceable it can only be because, as with gambling, it is stigmatised as offending public policy. And why, most of all, should insurers be permitted to write such contracts and make profits from them when the contracts are supposedly frowned upon and when the insurers fail to tell their clients upfront that they are buying an unenforceable policy?
The common sense answer is that such contracts are not in truth frowned upon. They are regarded as fulfilling a useful social function. There is some or other element which, at the level of policy, we find an acceptable reason to justify the conclusion of the contract and to remove it from the realm of gambling.
It is these more liberal modern views to which the notion of insurable interest, if it is to remain a useful tool, must adapt. Insurable interest in our case law. Zurich in the present case did not allege or argue that the policy taken out by Lorcom was an unenforceable gambling transaction.
Zurich did, however, allege the absence of an insurable interest. Lorcom for its part did not argue the case on the basis that insurable interest was not a requirement of our law. I thus propose to examine the concept of insurable interest in our case law, where it has largely been dealt with along conventional lines as an independent requirement for an enforceable insurance contract.
If Lorcom had an insurable interest in the conventional sense, that would obviously be a sufficient interest to avoid characterising the policy in this case as an unenforceable wager. Conceivably, though, some lesser interest would suffice if the sole enquiry were whether the contract is or is not an unenforceable wager. In the case of indemnity insurance, it is generally said that the purpose of the policy is to indemnify the insured party against loss.
It is this feature that is generally thought to distinguish such a contract from a wager. If I take out a policy in terms whereof I will receive an agreed figure upon the destruction of an asset owned by a stranger, I and the insurer are merely betting on the likelihood of the event occurring. It is thus not surprising that in indemnity insurance the concept of insurable interest is conventionally concerned with identifying those interests which will cause the insured party to suffer financial harm if the insured risk eventuates.
Financial loss in this context naturally includes loss as recognised in our law of damages in the fields of delict and contract ie some diminution in the patrimony of the insured party but, as will be seen, it extends beyond patrimonial loss so as to include financial prejudice of a kind the party would not be entitled to recover in delict or for breach of contract see LAWSA op cit para The function of insurable interest in the law of indemnity insurance and its association with financial loss show that one cannot divorce the question of insurable interest from the type and extent of recovery permitted by the policy.
This is not to be confused with a valued policy, where the parties bona fide settle upon a sum to be taken as the market value for purposes of the policy. It is well established that a person other than an owner may have an insurable interest in relation to an asset.
However, in the case of a non-owner the insurable interest ie the extent to which he will suffer financial harm from damage to or destruction of the asset will often be less than the market value of the asset. For example, a person with a contractual right to use an asset free of charge for one year will have an insurable interest in the asset because upon destruction of the asset he will be deprived of its use for one year.
The loss he stands to suffer by virtue of this circumstance would be less than the market value of the asset and would be given, rather, by the market rent of hiring an equivalent asset LAWSA loc cit para It follows that one cannot say, merely because the insured party has an insurable interest in an asset, that he has an insurable interest sufficient to sustain cover of the kind for which the particular policy provides in respect of the asset.
Where, for example, a contract of insurance promises to pay the market value of an asset upon its destruction, the question will be whether the insurable interest the insured has in the asset is an insurable interest which will sustain insurance against the loss of the market value of the asset. This can be illustrated with reference to the Manderson case supra. The plaintiff had insured a vehicle against theft.
The vehicle having been stolen, he claimed an amount equal to the value of the vehicle. The vehicle in fact belonged to a Mr Sieg, who was employed by the plaintiff an electrician as a sub-contractor. He certainly has not suffered a loss represented by the market value of the vehicle and the tools which were stolen. That is the loss which has been suffered by Mr Sieg. What was insured against was the loss of or damage to the vehicles described in the schedule, including that owned by Mr Sieg, not the loss caused to the plaintiff as a result of the unavailability of that vehicle or the tools which were contained in it when it was stolen.
If one applies, therefore, the test of proof of loss or damage, in order to ascertain whether the plaintiff had an insurable interest in the motor vehicle and tools at the time of the theft of them, I am of the opinion that the plaintiff did not have an insurable interest to the extent of the value of the vehicle and tools.
The learned judge recognised that various people could have different insurable interest in the same asset. He referred to several examples but said D-E: That, in my view, is not permitted.
Whether the policy in that case was framed in such a way that that the plaintiff could have recovered an amount based on the insurable interest he had in the rentals payable by the tenants does not appear from the judgment. Nevertheless, the cases show that the courts in this country and in other jurisdictions though to differing extents have often approached the question of insurable interest quite liberally so as to enable the insured party to recover what the policy promised.
In this country the liberal approach can be seen, for example, in regard to insurance taken out by a person on the assets of his or her spouse. In Littlejohn 15 the husband was found to have an insurable interest in the goods of his wife to whom he was married out of community of property in circumstances where the goods constituted trading assets of the business which the husband de facto controlled and managed.
Wessels J found that the husband had an insurable interest, observing as follows If the insured 16 can show that he stands to lose something of an appreciable commercial value by the destruction of the thing insured, then even though he has neither a jus in re nor a jus ad rem to the thing insured his interest will be an insurable one. He was the manager of the property, it was almost entirely under his control, and from the profits he and his wife carried on the joint household.
It is to his interest that the property should be replaced exactly as it was before the fire. In the words of Chambre J, 17 he is interested in the preservation of the property because he has a benefit from its existence and prejudice from its destruction.
It is to his interest that the business should be conducted in the future as it has been in the past, and therefore I think he must be held to have had an insurable interest in the goods insured by him. It appears that in Littlejohn the husband was held to be entitled to claim the market value of the destroyed goods up to the limit of the policy. He was not required to quantify and value his separate interest in controlling the business and earning profits for the benefit of the joint household.
In other words, although in law his patrimony was not shown to have been reduced by the amount payable to him in terms of the policy, Wessels J evidently considered that the nature of his insurable interest entitled him to enforce a policy which provided cover measured with reference to the market value of the insured assets. In Phillips v General Accident Insurance supra De Villiers J held that a husband had an insurable interest in an engagement ring belonging to his wife because he had bought it for her and because, although he was under no legal obligation to replace it if it was stolen, he nevertheless felt under a moral obligation to do so G-H.
As noted earlier, there are statements in the judgment indicating that De Villiers J favoured an approach in which a contract of insurance would be enforceable provided it was not a betting transaction, thus bypassing the requirement of insurable interest eo nomine A-E. In Refrigerated Trucking Pty Ltd v Zive NO Aegis Insurance Co Ltd, Third Party 2 T the question was whether the owner of a vehicle had an insurable interest to sustain insurance in respect of third party liability incurred by persons driving the vehicle with his consent.
As is typical in clauses of this kind known as extension clauses , the provision of this cover was not a stipulatio alteri for the benefit of the driver but constituted cover which only the insured owner could enforce. It does not matter whether he personally has rights in respect of that article, or whether the event happens to him personally, or whether the rights are those of someone to whom he stands in such a relationship that, despite the fact that he has no personal right in respect of the article, or that the events does not affect him personally, he will nevertheless be worse off if the object is damaged or destroyed, or the event happens.
Hartzenberg J then applied this view of insurable interest to find that the owner of the vehicle had an insurable interest to obtain cover in respect of third party liability incurred by drivers of his vehicle. It was, he said, of great economic though not legal interest to the owner, for example, that members of his family should be insured against third party liability I , presumably meaning that a decrease in the patrimony of a member of the household by virtue of having incurred third party liability could put economic strain on the household as a unit.
He said, further, that the owner has an obvious interest in cases where the driver is one for whom he is vicariously liable but that the owner also has an economic interest in avoiding contentious litigation over the question whether the driver is indeed one for whom he is vicariously liable JD.
Once it is found that the owner has an insurable interest in obtaining insurance measured with reference to third party liability incurred by drivers of his vehicle, he can claim an amount equal to the liability without proving that he has suffered a loss in an equivalent amount.
An extension clause was also the subject of Unitrans Freight. One of the questions was whether the insured party, JGO, had an enforceable claim against Santam. Nugent JA rejected an argument that De Kroon had acquired any rights under the policy ie the extension clause was held not to be a stipulatio alteri. Indeed, it would be surprising if an insurer who has given an earnest undertaking to indemnify a person in what is clearly a policy of insurance and not a gambling contract as pointed out by Chaskalson loc cit , the requirement of insurable interest is designed to ensure that insurance policies are not used as a basis of gambling were to repudiate its obligations on those grounds.
What the insured party has to prove in such a case is not that he has incurred a liability or suffered a loss but that the driver has incurred a liability. Although the insured party may need to have some interest in obtaining cover of that kind, the interest does not need to be of a kind which, upon the happening of the event insured against, will result in the insured party suffering a loss.
Insurable interest in the present case. Reverting to the present case and dealing first with interpretation of the policy, I do not read it as saying that Lorcom must prove that it has suffered patrimonial loss. In the case of damage to the vessel which is not at issue in this case , the Institute Clauses appear to contemplate payment of a sum calculated with reference to cost of repairs or depreciated market value. I thus find that the policy does not require Lorcom to prove that the loss of the vessel caused it to suffer a patrimonial loss, whether in the amount of R3 million or any other sum, or to prove that Lorcom lost the vessel in the sense of ceasing to own it.
On the assumption that an insurable interest is an independent requirement of our law, the enquiry as I conceive it is whether Lorcom had an interest sufficient to render enforceable a policy providing cover measured with reference to the value of the vessel.
The insurable interests, other than ownership, which would commonly be accepted as sustaining insurance of that kind would include a purchaser to whom risk in the subject-matter has passed, a mortgagee to the extent of his secured claim and a lessee on whom the risk of destruction or damage is imposed by the lease.
In these cases the insurable interest is generally such as to cause the insured party, upon destruction of or damage to the insured asset, to suffer a patrimonial loss equivalent to the loss of or reduction in the market value of the asset.
However, in the field of property insurance Littlejohn and Phillips show that an insurable interest need not be such as in law to cause the insured party to suffer a patrimonial loss equal to the market value of the insured asset; and in liability insurance Refrigerated Trucking and Unitrans are by analogy to similar effect.
I do not know whether rent was payable and whether a period of use was stipulated. However, it was not definitely proved that Lorcom had a contractual right to this effect though I have little doubt that this was the factual expectation.
The temporary right of use would sustain cover related to the cost of hiring a comparable vessel and for loss of profits, neither of which the policy in the present case purported to provide.
It was also not proved that there was an agreement between Lorcom and GFW that in the event of the loss of or damage to the vessel Lorcom would be liable to GFW to compensate the latter for the value of the vessel or the depreciation in its value. Lorcom did not allege in its trial particulars that it was under any such liability and did not argue that its insurable interest lay in the existence of such a liability.
The purchase agreement required Crous to procure that Lorcom was by the effective date the owner of the vessel.