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Interpreting insurance contracts: a refresher (part 5 – fairness and reasonableness)

07 August 2020 Donald Dinnie, Norton Rose Fulbright
Donald Dinnie, Norton Rose Fulbright

Donald Dinnie, Norton Rose Fulbright

A court may not refuse to enforce contractual terms on the basis that the enforcement would, in its subjective view, be unfair, unreasonable or unduly harsh. It is only where a contractual term or its enforcement is so unfair, unreasonable or unjust that it is contrary to public policy that a court may refuse to enforce it. The public policy considerations are informed by the wide range of constitutional values.

Courts do not make decisions about the enforcement of contractual provisions on the basis of abstract considerations of good faith, reasonableness or fairness. They do so on the basis of established legal rules. Good faith, reasonableness and fairness form the basis of our law but are not themselves, legal rules.

The Constitutional Court in Barkhuizen said that, while public policy imports notions of fairness, justice and reasonableness into our law, parties are generally required to honour contractual obligations that they have freely and voluntarily undertaken.

The relevance of fairness and reasonableness in the contractual context was recently revisited by the Constitutional Court in Beadica, which affirmed Barkhuizen.

The courts will enquire whether a clause in a contract is itself unreasonable and secondly, even if it is reasonable, whether in the circumstances it would be contrary to public policy to enforce it.

The onus is on the party challenging the enforcement to demonstrate why enforcement would be unfair and unreasonable.

The courts should apply public policy with restraint but that should not cause the courts to shrink from their constitutional duty to infuse public policy with constitutional values if the facts require it.

 

First published by: Financial Institutions Legal Snapshot

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