Summary
Summary Contracts Case Summaries (Topic 1-3)
- Course
- Contract law 371
- Institution
- Stellenbosch University (SUN)
Case summaries for all prescribed cases for topics 1 to 3. Created in 2018.
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Law of Contract: Case SummariesTopic 1
Bredenkamp v Standard Bank of South Africa 2010 (SCA)
Facts
Appeal concerning the right of a bank to close a client’s (Bredenkamp’s) account
- B (and his companies) opened several accounts with Standard Bank in 2002, in Dec 2008 the bank
notified B that it had suspended his accounts and would be withdrawing them in Jan 2009
- B applied for an urgent interdict to prevent the bank from closing the accounts, interim interdict
granted in HC, but dismissed on return date (insufficient grounds to grant)
Argued that this was a constitutional issue on the basis of principles laid down in Barkhuizen v Napier
Proposed: (1) that the benchmark for the constitutional validity of a contract is fairness, and (2) that even if a
contract is fair and valid, the enforcement thereof must be fair
Bank argued that it had a right to close the accounts on two grounds:
- (1) an express term of its contracts granted it a right to close an account with reasonable notice
- (2) an implied term of its contracts also granted it a right to the same effect as above, that a
indefinite contractual relationship may be terminated with reasonable notice
Bank did not inform B of reasons for termination (this is irrelevant in the ordinary course of events, with a
possible exception being an abuse of rights)
The crucial relief sought by B was an order that the bank ‘maintain the accounts’ until a breach of contract
was committed by B (on the basis that the common law rule is that an indeterminate contract may only be
terminated in the event of a breach by the other party)
Legal Question
Could a bank validly terminate a client’s contract by giving notice to the client?
Ratio & Judgment
Reasons for termination: the US listed B as an undesirable person to do business with, MasterCard (a US
company) is not permitted by US law to do business with such persons, and the bank, by virtue of its
relationship with MasterCard couldn’t permit him to use a MasterCard – the bank was thus obligated to
cancel the card(s) B did not dispute this
- Was listed as such a person due to his alleged involvement in the Mugabe regime (B disputed – but
court not required to pronounce on correctness)
- B alleged to be involved in several illicit activities, thus bank concerned that its accounts had been or
may be used to facilitate unlawful or unethical acts – with the potential to harm its reputation
- Bank also concerned about material business risks
During the suspension of the accounts the bank conducted further research into B – found that he was
accused of extremely severe crimes internationally, was under investigation by numerous authorities, and
that he was further listed as an undesirable business person by both the UK and the European Union
The decision of this court ultimately rests on two underlying values: pacta servanda sunt (sanctity of
contract) VERSUS the public policy rule
- Pacta servanda sunt: if a contract is freely and voluntarily concluded then it must be served
It is possible in terms of the contract with the bank to terminate the accounts by notice
But, this doesn’t work well with the public policy rule – yes you may agree freely, but you
may not agree to whatever you want
We do not adhere strictly to formalism, it is a self-evident principle that contracts concluded
contrary to the law and to the boni mores of society cannot be enforced and are of no effect
- The public policy rule says:
(1) neither the content nor the enforcement of a contract must be contrary to public policy
(2) where the content is fine, but the enforcement of that contract would be contrary to
public policy, then that contract should not be enforced
, - NB: this is a rule (public policy) qualifying a value (sanctity of contract)
- In this case, the content itself is not contrary to public policy, but it is conceivable that the
enforcement thereof may be contrary to public policy
- But, B could not explain why either the content or the enforcement thereof would be contrary to
public policy therefore cannot argue that the contract may not be enforced on these grounds
Relevance of good faith or bona fides and how this relates to the exceptio doli
- Like pacta servanda sunt, this is a competing value in our law
- Subjective meaning: is someone acting in good faith or not? This is a subjective state of mind enquiry
– are they being honest? Do they have knowledge of some other right?
Was the bank bona fide in their decision to terminate the contract? What was their motive?
Did it have a pure motive? Was it pursuing some kind of acceptable business goal?
To act in line with bona fides is to act in accordance with a certain standard of behaviour – to
have regard to your contracting partner, not just to act selfishly, or for your own interest
Requires a certain degree of consideration and concern for your contracting partner
- Exceptio doli: a defence which could be raised that the other party is enforcing a right in an unfair
manner – gives effect to the value of good faith
The court confirms that the exceptio is not a part of our law – thus B couldn’t say that it
would be contrary to good faith or be unfair for the bank to terminate the contract, there is
no rule which would allow him to do this
All contracts in our law are considered to be bonae fidei – therefore there is no
purpose for the exceptio in modern law
Good faith is only an underlying value, and not a rule, you cannot rely directly on it
Impact of the Barkhuizen judgment on this case:
- The court in Barkhuizen held that a term in a contract which limits the right of access to courts is
contrary to public policy – the CC found that our common law has always recognised the right of an
aggrieved person to seek the assistance of the courts
- The clause of the contract in question did not deny this right, but limited it – this limitation was not
outright contrary to public policy, but would be if it was found to be unfair or unreasonable
- Therefore, if a contract is prima facie contrary to public policy – the question of enforcement would
not arise, likewise, if the contract is prima facie innocent, but its enforcement would impact
unjustifiably on a constitutional value, then it may also not be enforced
- As to the case at hand – the court could not hold “that the judgment [in Barkhuizen] held or
purported to hold that the enforcement of a valid contractual term must be fair and reasonable,
even if no public policy consideration found in the Constitution or elsewhere is implicated” there
is no mention of an overarching requirement of fairness, and thus, there is nothing here which
supports B’s proposition that (1) the benchmark for the constitutional validity of a contract is
fairness, and that (2) even if a contract is fair and valid, the enforcement thereof must be fair
In light of the above the court dismissed the application – the closure of the accounts was permissible
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