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Court rules on validity and enforceability of time limitation clauses

Out-Law News | 13 Jul 2021 | 2:18 pm | 4 min. read

The South African High Court has confirmed that a time limitation clause remains valid and enforceable, even in extraordinary circumstances delaying compliance with the clause.

The High Court of KwaZulu-Natal in Pietermaritzburg examined the factors considered in determining fairness in a case that relates to common questions about time limitation clauses’ validity, fairness and enforceability.

The dispute

In the case, MEC Dept of Transport KZN v Raubex KZN (Pty) Ltd and another, the Department of Transport for KwaZulu-Nata and construction company Raubex agreed a contract for routine road maintenance. Raubex’s bid included the project specification and the amount it intended to charge the department as a management fee for the subcontracted work.

After the tender was awarded to Raubex, the department noted that the company had not included a rate for the management fee, and took the view that no fee was to be charged for this portion of the contract. Raubex did not agree with this preposition and a dispute ensued before an adjudicator, who ruled in favour of Raubex.

The department was not satisfied with the decision and provided its notice of dissatisfaction several months after the decision was handed down – but not within the time period as stipulated in the contract. It applied to the High Court for a ruling that the time clause was not valid and enforceable in this instance.

Time limitation clauses

There are a number of reasons for the inclusion of time limitation clauses. One reason is that without rules in place to manage the time limits in litigation, there would be inordinate delays in finalising these disputes which would not be in the interests of justice.

This proposition is supported by the 2007 case of Barkhuizen v Napier, where the South African Constitutional Court found that a time limitation clause does not deny a party the right to seek judicial redress: it simply requires the party to seek judicial redress within a prescribed period.

Clause 10.6 of the contract in dispute contained a sub-clause that required a dissatisfied party to give notice of its intention to dispute either the whole, or a part of, a decision of the adjudication board within a defined time period. If, as happened in this case, the dissatisfied party failed to provide the notice within that period, it could no longer refer the decision to a court.

The department’s application to the court to have the time bar ruled unenforceable related only to the Raubex contract, and not to the validity of time-limitation clauses generally. The department’s argument was that in this particular dispute there was an interplay of two principal factors which caused it difficulty in complying with the provisions of the time-limitation clause: the murder of its lawyer four days before receiving the adjudicator’s decision; and the nationwide lockdown for the Covid-19 pandemic the day before the decision was handed down.

The department said it could not get any information from its lawyer’s office as he was a sole practitioner and his office was in “disarray” following his death. It also said that with the restrictions in place as a result of the lockdown, it had trouble appointing a new attorney to take on the matter.

Raubex, on the other hand, argued that effect had to be given to the contract, including the time-limitation clause, as the department voluntarily agreed to the terms of the contract.

A settled principle in South African law is that contracting parties are to honour obligations that have been freely and voluntarily undertaken by them. This was considered in a 2020 case between Beadica 231 CC and others and Trustees of the Oregon Trust, where the court held that it was crucial to economic development that individuals should be able to trust that all contracting parties would be bound by obligations willingly assumed by them when contracting.

However, in coming to that decision the court did recognise that there are several constitutional rights and values which are implicated when contracts are entered into, and confirmed that a balancing exercise is required to determine whether enforcement of the contractual terms would be contrary to public policy. Taking the need for a balancing exercise into consideration, it is a possibility that in certain instances courts could decline the enforcement of a time limitation clause, particularly in instances where its implementation would result in unfairness or would be unreasonable for being contrary to public policy.

The determination of fairness

In the Raubex case, the department said the applicable test for fairness was the two prong test which was set out in the Barkhuizen versus Napier case, where the court held that subject to considerations of reasonableness and fairness, such time-limitation clauses in contracts are permissible.

The test for fairness was a two-stage test, considering first whether the clause to which objection is taken unreasonable. If it is not unreasonable, then the test asks if the clause should be enforced in the view of the circumstances that prevented compliance with its provisions.

In this case, the court said once it is accepted that the wording of the contract or clause in question does not itself violate public policy and that non-compliance with it is established, the Department was required to show that, in the circumstances of the case, there was a good reason why it failed to comply with the clause.

The department did not contend that the clause itself was objectionable, so the court went on to assess whether the reasons for not complying with the time limitation were sound. It decided that both of the reasons were out of the department’s control, but that it had provided very little information concerning the conduct of its employees during this period. As a result, the two factors were insufficient to permit the department to avoid the terms of the time-limitation clause.

The ruling makes it clear that time limitation periods are an accepted part of South African law, but are not above challenge. The circumstances around the enforcement of these clauses will be considered and if compelling circumstances exist, clauses of this nature may be overcome.

Brendan Whyte and Chantel Carreira are construction disputes experts at Pinsent Masons, the law firm behind Out-Law