Bank of Lisbon & South Africa v Ornelas and Another (53/85) [1988] ZASCA 35; [1988] 2 All SA 393 (A) (30 March 1988)

Case No 53/85 /MC

IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)

Between:THE BANK OF LISBON & SOUTH AFRICA LTD AppellantAND ANTONIO DE ORNELAS First Respondent

JORGE DE COSTA DE ORNELAS . Second Respondent

Coram: RABIE ACJ et JANSEN, JOUBERT, HEFER et GROSSKOPF JJA.

Heard: 9 MARCH 1987 Delivered: 30 MARCH 1988.

JUDGMENT

JANSEN /.....

1.

JANSEN JA:

I have had the privilege of reading the.

judgment by JOUBERT JA, but I find myself, unfortunately,driven to a different conclusion.

The respondents (applicants in the Court a quo) raised

the replicatio doli (generalis), but the underlying principles

are the same as those of the exceptio doli (generalis) .

Whether the exceptio has any role to play in

our modern law is a matter of debate. The chief supporters of

the defence are e g: p van Warmelo (Exceptio Doli 1981

De Jure 203-22); A J Kerr (The Principles of the Law of

Contract 3ed 107-8, 137-42, 174; 1971 SALJ 408; 1981 THRHR

88-9, 93-4; 1981 SALJ 159); P Aronstam (Consumer

Protection, Freedom of Contract and the Law, 168 et seg,

1979/...

2. 1979 THRHR 21 et seq); A D Botha (Unpublished thesisJune 1981, Die Exceptio Doli Generalis in die S A Reg; 1980 THRHR 255-266 -where the author arrives at a contraryconclusion which he does not continue to support in his.thesis). The main critic is J C de Wet. In histhesis, "Estoppel by Representation" in die S A Reg (1939),

he deals with the exceptio at pp 83-89. He concludes that "die exceptio doli generalis geen aanspraaklikheids= beginsel bevat nie, en dus nie die grondslag van aanspraak= likheid by estoppel kan vorm nie". This dismissal of the exceptio doli (generalis) from the arena as a separate substantive defence has been adopted by some later writers, including Van Huyssteen (Onbehoorlike Beïnvloeding en

Misbruik/...3. Misbruik van Omstandighede in die S A Verbintenisreg, 1980, p 23 n 174) and p J J Olivier (Aanspreeklikheid weens Onskuldige Wanvoorstelling by Kontraksluiting, 1964 THRHR 20,26,28), in respect of their particular fields of enquiry. They see the exceptio doli generalis merely as a label for a defence that the plaintiff,has no cause of action.Since the beginning of this century the exceptio has however often been raised in our Courts as a substantive defence. Single judges felt themselves constrained to recognize its existence, but their reactions run the gamut of unbelief (Aris Enterprises (Finance) (Pty) Ltd v waterberg Koelkamers (Pty) Ltd, 1977(2) SA

436 / ....4. 436(T)), scepticism (e g North Vaal Mineral co Ltd v Lovasz, 1961(3) SA 604(T)), circumspection (e g Novick and Another v Comair Holdings Ltd and Others, 1979(2) 116(W), 155H-157B) and enthusiasm (Rand Bank Ltd v Rubenstein

1981(2) SA 207(W)). In rscent times' a full benchof the Transvaal Provincial Division however had no difficulty in accepting that the exceptio doli constituted a defence which is not "'n skerp omlynde regswetenskaplike figuur nie maar 'n regsmiddel wat na gelang van al die feite in 'n gegewe geval aan 'n party toegeken word as die Hof meen dat daar anders ontoelaatbare onreg sou geskied" (Otto en 'n Ander v Heymans (1971(4) SA 148(T), 155 C-E); and a full bench of the Cape Provincial Division in

Sonday / ...5. Sonday v Surrey Estate Modern Meat Market (Pty) Ltd (1983(2) SA 521(C)) found it to be clear that the exceptio doli generalis "has been accepted as part of our law and applied as such for a considerable period of time, both by Provincial Divisions as well as the Appellate Division" (per TEBBUTT J). This Court has certainly always assumed that such a defence at least exists. Whether it has in fact gone further and applied the underlying principles is a question that will be returned to later.

The roots of the exceptio in its modern guise must be found in the treatment of the subject in the Digest title De Doli Mali et Metus Exceptione (D.44.4),

where / ...

6. where inter alia the following is found :-

Ideo autem hanc exceptionem praetor proposuit, ne cui dolus suus per occasionem juris civilis contra naturalem aeguitatem prosit .(p.44.4.i.l).

Seen as a substantive defence the exceptio would implythat in appropriate circumstances a Court could grant

relief where the strict law would have an effect contranaturalem aequitatem, and in so doing it would modify the

law. Broadly speaking this is what happened in Romeand in the course of time new defences developed as a

result (e g exceptio non numeratae pecuniae etc).Critics of the survival of the exceptio would have onebelieve that the defences so developed constituted a numerus

clausus to this day. This would deny the possibility

of / ...7. of the law being adapted according to the exigencies of the times and in the light of the changing mores and concepts of fairness and proper conduct. It must be emphasized that seen as a substantive defence the exceptio is no longer a procedural device, as

it once was in the hands of the Praetor to enablethe objective standard of bona fides to be appliedto negotia which would otherwise have given rise to

judicia stricti juris.

It / ...

8.

It is said that the recognition of the exceptio

doli in this sense would be an infraction of the freedomof contract and of the principle that pacta servanda sunt -that it would lead to legal uncertainty. Freedom ofcontract, the principles of pacta servanda sunt andcertainty are not however absolute values. They didnot prevent the modification in England of the commonlaw by Eguity, which inter alia gives relief against"unconscionable"bargains :-

"There is a well developed jurisdiction in equity independent of the principles as to undue influence to set aside catching and unconscientious bargains. The English cases are centred in the last century. But in Australasia the jurisdiction still flourishes." ( Meagher , Gummow and Lehane : Eguity, para 1601).

Moreover / ...

9.

Moreover, the twin concepts of freedom of contract and

pacta servanda sunt have, during this century, increasingly

come under assáult as a result of inter alia rampant

inflation, monopolistic practices giving rise to unequal

bargaining power, and the large-scale use of standard

form contracts (often couched in small print). (Cf.Asser-Rutten II, Algemene Leer der Overeenkomsten, 1979,Chapter V). In 1895 the Dutch jurist Molengraafexpressed the following view :-

"Meer en meer wint de overtuiging veld dat het dogma der contractsvrijheid niet als de hoogste wijsheid mag gelden. Men is gaan in zien, dat er hoogere beginselen zijn dan het pacta sunt servanda; dat het recht slechts dan een, 'ars boni et aegui' mag heeten, als het in overeenstemming is met ethische beginselen en tot doorvoering daarvan heeft medegewerkt."

(as ) / ...

10. (as cited by Van Huyssteen op cit p 128 n5). Sub=

sequent developments in the Netherlands confirm hisassessment. The operational field of B W Art 1374.3

("Zij [overeenkomsten] moeten te goeder trouw wordenten uitvoer gebragt") has expanded to include not onlythe supplementing óf an agreement ("aanvullende werking")as a result of "de eisen van redelikheid en billikheid",but also the limitation of an agreement ("beperkendewerking") (cf P Abas, Beperkende werking van de goedetrouw, 1972). This development has culminated in theNieuw Burgerlijk Wetboek Art 6.5.3.1:-

"1. Een overeenkomst heeft niet alleen door partijen overeengekomen rechtsgevolgen, maar ook die welke, naar de aard van de overeenkomst, uit de wet, de gewoonte of de eisen van

redelijkheid en billijkheid voortvloeien.

2./...

11.

2. Een tussen partijen als gevolg van de overeenkomst geldende regel is niet van toepassing,voor zover dit.in de gegeven omstandigheden naar maatstaven van redelijk= heid en billijkheid onaanvaardbaar zou zijn."

In the United States a somewhat similar development hastaken place. The Uniform Commercial Code containsprovision against "unconscionable" contracts (U C Cpara 2.302) and this has, according to Calamari andPerillo (Contracts 2d 1970 para 9-39) "entered thegeneral law of contracts". They cite the Restatementof the Law of Contract 2d (1979) Vol 2 para 208 :-

"If a contract or term thereof is uncon= scionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result."

The / ...12. The authors in para 9-40 point out :-

"'Unconscionable' is a word that defies lawyerlike definition. It is a term borrowed from moral philosophy and ethics. As close to a definition as we are likely to get is 'that which affronts the sense of decency'."

They also say in para 9-37 that "the legislative purpose

of the section (viz of the U C C) is illuminated by the

following language in the official comment :-

'This section is intended to make it possible for the courts to police explicitly against contracts or clauses which they find to be unconscionable. In the past such policing has been accomplished by adverse construction of language, by manipulation of the rules of offer and acceptance or by determinations that the clause is contrary to public policy or to the dominant purpose of the contract.' "

The / ...

13.

The ideal that the law should be certain,

is often contrasted with adjudication by the lengthof the Chancellor's foot. In relation to such anargument adduced in Preller and Others v Jorcaan (1956(1)SA 483(A4) against the acceptance of an extended meaningof dolus and the recognition of a remedy based on undue

influence, FAGAN JA, delivering the judgment of themajority, said (at 493 2): "Daar is egter vertakkingsvan die reg waarin uit die aard van die saak die beginselselasties moet wees omdat dit alleen aangedui kan word inwoorde waarvan die toepassing in grensgevalle soms moeilikmag wees, maar dit in sigself kan geen rede wees om 'n

andersins gesonde remedie uit ons reg te weer nie".

Apart from statutory innovations, there are in any event a

number / ...

14.

number of well recognized instances in our law of contractwhere freedom of contract and the principle of pacta

servanda sunt and the ideal of certainty give way to other

considerations. A few examples may be mentioned. Acreditor has a right to specific performance but a Courtmay in the exercise of its discretion refuse to make suchan order. The discretion

"is aimed at preventing an injustice - for cases do arise where justice demands that a plaintiff be denied his right to per= formance - and the basic principle thus is that the order which the Court makes should not produce an unjust result which will be the case, eg, if, in the particular circumstances, the ord er will operate unduly harshly on the defendant. Another principle is that the remedy of specific performance should always be granted or withheld in accordance with legal and public policy "

(per HEFER JA: Benson v S A Mutual Life Assurance Society 1986(1) SA 776(A), 783 D-E).

A restraint of trade is not per se invalid or unen=

forceable /...

15. forceable - but it is so if it offends against the

public interest (Magna Alloys and Research (SA) (Pty)Ltd v Ellis 1984(4) SA 874(A)). In delivering the

judgment of the Court, RABIE CJ points out :-

"Omdat opvattings oor wat in die openbare belang is, of wat die openbare belang vereis, nie altyd dieselfde is nie en van tyd tot tyd kan verander, kan daar ook geen numerus clausus wees van soorte ooreenkomste wat as strydig met die openbare belang beskou kan word nie. Dit sou dus volgens die beginsels van ons reg moontlik wees om te sê dat 'n ooreenkoms wat iemand se handelsvryheid inkort teen die openbare belang is indien die omstandighede van die betrokke geval sodanig is dat die Hof daarvan oortuig is dat die afdwing van die betrokke ooreenkoms die openbare belang sou skaad." (891 H-I). "Die opvatting dat 'n persoon wat 'n beperking wil afdwing nie die las dra om te bewys dat dit redelik inter partes is nie, bring nie mee dat oorwegings van die redelikheid of onredelikheid van 'n beperking nie van belang is of kan wees nie." (893 H). Die /...

16

"Die belangrike vraag is dus nie of 'n oor= eenkoms van so 'n aard is dat dit ab initio ongeldig is nie, maar of dit 'n ooreenkoms is wat die Hof, gesien die vereistes van die openbare belang, nie behoort af te dwing nie." (895 D-E).

The Court may reduce a stipulated penalty "to such an

extent as it may consider equitable in the circumstances"

(Act 15 of 1962, section 3 - reinstating the common law).

Not only contracts against public interest or publicpolicy are subject to control by the Court, but alsothose offending the boni mores. In this fieldreference must be made to the sense of justice -("regsgevoel")of the community, as is the case in delict, where it isnow recognized that there is no numerus clausus of actionable wrongs

Perforce our Courts must in a variety of

cases work with the prevailing mores and the sense of

justice / ....

17.

justice of the community as a norm. In principle

there can be no real objection in the case of theexceptio to determine an objective standard of aeguitasalong similar lines.

In discussing the exceptio reference is some=

times made to its fate in German law. ït is said that atthe time of the introduction of the BGB it was a dead

letter. However, the true position seems to be that

it was considered obsolete because its underlyingprinciples were absorbed into the requirement of bonafides (cf BGB article 242). Reference to a few writerswill illustrate the general approach: A Brinz, Lehrbuchder Pandekten (1884) p 379:-

"So/...SEE ORIGINAL JUDGMENT PAGE18.

19.

H Dernburg - P Sokolowski (System des Römischen Rechts (1911)) p 323-4 :-SEE ORIGINAL JUDGMENT TEXT

(However, in the end art 138 ("a transaction that offendsgood morals (guten Sitten) is void") proved to be a more

fruitful source of development. ( Cf John P Dawson:Unconscionable Coercion: The German Version, 1976 HarvardLaw Review, p 1041).

In our law the requisite, of good faith has not

as yet absorbed the principles of the exceptio doli norhas the concept of contra bonos mores as yet been spe=cifically applied in this field. To deny the exceptio

right of place would leave a vacuum.

This / ....

20.

This Court has certainly not considered the exceptio doli to be an empty shell. In Trust Bank van Afrika Bpk v Eksteen (1964(3) SA 402(A) at 411 A-C) the majority of this Court referred inter alia to Waterval Estate and Goldmining Co Ltd v New Bullion Gold Mining Co Ltd (1905 TS 717)as a case on estpppel where "nie nagelaat is om na die grondslae waarop dit in ons reg sou rus, te verwys nie". In that case CURLEWIS J said that "the doctrine of estoppel in pais is merely an extendec interpretation of the principles underlying the exceptio doli mali". He specifically refers to D.44.4.1. Clearly what happened here was that a new defence, not specifically described in our authorities, was thus accepted on the ground of "natural justice". To that

extent / ...

21.

extent the law was modified. In Preller and Others vJordaan (supra) the majority of the Court extended themeaning of dolus as to enable an equitable remedy on theground of undue influence to be adopted where the existingauthorities did not go as far. (This was a case of doluspraeteritus, but it is nevertheless an instance where thelaw was modified as a result of equitable consideration).In Weinerlein v Goch Buildings Ltd (1925 AD 282) the Courtaccepted a remedy of rectification not on any contractualtheory of consensus but as a result of equity. It is truethat DE VILLIERS JA cited what he considered to be directauthority for the remedy (at p 289), but both WESSELS andKOTZe JJA refer to the exceptio doli. In Mouton v Hanekom

(1959(3) SA 35(A) at 40 B-C) a full bench of this Courtapplied the following dictum of WESSELS JA (at p 292 of

the Weinerlein-case):-

"The /...

22.

"The exception ( exceptio doli ) lies whenever the court regards it as a fraudulent act to rely on your summum jus when you know full well that your claim is founded on a mutual error."

The existence of the exceptio doli as a

defence based on equity is demonstrated by the decisionsof this Court; moreover, our lower courts have over=whelmingly assumed for many years such a defence to beavailable. Although the underlying principle is to betraced back to the Digest it seems, in view of the afore=going, to be of no crucial import whether the leges dealingwith the exceptio were received in Holland or fell intodisuse. However, it is significant that Groenewegen

in his De Legibus Abrogatis, where he deals with D.44.4.,

does / ...

23.

does not state the relevant leges to be inapplicable. Nor does Voet (adl Pandectas) do so under this Title, although he is careful to state where the modern law differs in other instances. In 1793, J van der Linden

(ad Voet 1.1.2) says the following :-

"Jure nos Romano uti, quoties scriptae apud nos Leges, vel recepti mores & consuetudines de re controversa nihil certi statuunt, satis constat, Merula Man. van Proced. Lib. I. Tit 4 Cap.l $ 5 n. 6 nunc enim Jus Romanum, ut jus commune, esse receptum, multae posteriorum Principum, Caroli inprimis V. & Philippi II, multae item Ordinum Hollandiae Leges significant: palam guippe, deficientibus Legibus propriis, remittunt ad ius scriptum vel commune, quo utrogue Romanorum Civile intelligi certum est. Atque ita servat utraque Curia, nisi vel manifesta Reipublicae ratio, vel perpetuae Consuetudinis

auctoritas obstet. Bynkershoek in Praefat.

ad observ.jur. Rom. part. 1. pag. 1 & 2."

This /...

24.

This must be read in conjunction with Van der Keessel's

Rule 11 as stated in his Praelectiones :-

"Wie die Romeinse Reg aanvoer vir sover dit nie openlik strydig met uitdruklike wette of 'n bekende gebruiksregreël of die stelsel van die vaderlandse reg of 'n ander instelling van die staat is nie, het daarmee 'n goeie grond vir sy eis aangevoer en word nie verplig om die besondere erkenning daarvan te bewys nie." (Transl. Gonin Vol I p 81). It would seem that in the absence of contrary statutes or

usage it must be accepted that the principles of the

exceptio doli were in fact part of the Roman Law that was

received in the Netherlands. Although there appears to

be no or little mention of the exceptio, in the sense

discussed above, being used in practice, the occasion may

not have presented itself in view of the social circumstances

existing and the mores of the times. Van Huyssteen

(at /...

25. (at p 72) refers to Obs. Tum Novae vol 2 nr 1049 where

the Hooge Raad had applied D.45.1.36. Van Huyssteen

considers the lex was cited "heeltemal buite sy betekenis",

but was this not rather an example of the Court using the principles of the exceptio to extend a remedy where therewould not otherwise have been one available?

The exceptio doli generalis constitutes a

substantive defence, based on the sense of justice of the community. As such it is closely related to the defences

based on public policy (interest) or boni mores (cf Ismail v Ismail 1983(1) SA 1006(A),1025F-1026C). Conceivably they may overlap: to enforce a grossly unreasonable contract may in appropriate circumstances be considered as against public policy or boni mores. By the nature of things no general definition can be given of what would consti= tute dolus. In Zuurbekom Ltd v Union Corporation

Ltd / ....

26.

Ltd (1947(1) SA 514(A)) an example is to be found: where the enforcement of a "remedy by the plaintiff would cause some great ineguity and would amount to unconscionable conduct on his part" (per TINDALL JA at.p 537). However, each case must be judged on its own facts in the light of the sense of justice of the community.The facts in the present case present a number of salient features: the respondents were suppliants for an overdraft (or its increase); they had not equal bargaining power with the Bank; standard forms with standard terms were used by the Bank; the Bank stipulated for security far beyond its needs; the respondents never

actually / ...

27.

actually contemplated that the security would cover anything but the overdraft. These facts go beyond. mere unreasonableness of the contract per se (cf Paddock Motors v Igesund 1976(3) SA 16(A)). In my view it would offend the sense of justice of the community to allow the Bank to use the strict wording of the documents to retain the securities after payment of the overdraft. I find support for this in the views expressed by BOTHA J in Rand Bank Ltd v Rubenstein (1981(2) SA 207(W)) and that of the judge a quo in the present matter.

I would dismiss the appeal.