Constraints on Unfair Contracts

Additional Comparative Material – contracts

1.1. History


In many Western countries, beginning in the 1970s, a move for contractual justice moved away from the view that “the rules relating to justifiable mistake, duress, undue influence and fraudulent, negligent and innocent misrepresentations,” etc. were enough to protect consumers.[1]

In 1996, the South African law commission looked at the issue of unconscionable contracts and recommended the principle of good faith be used to resolve the issue of what contractual provisions should be used and which not.[2]  It should be noted that even those against the ‘good faith’ argument did not believe in full ‘freedom of contract’ but that certain clauses should not be enforceable.[3]  These include “. consent to jurisdiction, exemption and voetstoots clauses, waiver of defences clauses”. The research team for the Commission recommended 14 further categories of clauses that should not be enforced. [4] It seems then, that all sides of this debate accepted that the pacta clause should not be absolute.

The question to be determined in this dissertation is only where selling houses for much less than they are worth should be banned as a practice or whether it should be allowed. Some in the above SA law commission may have banned it on the basis of good faith, others might have listed it as a specific type of unconscionable clause.

In the UK and in Scandinavia various institutions review the use of contracts (particularly standard form contracts), in order to ensure that they are fair, and have various powers to adjust them if they are not.[5]

In Bank of Lisbon[6]  it is stated of the pacta principle and certainty: “They did not prevent the modification in England of the common
law by Equity, 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.” (MeagherGummow and Lehane: Eguity, para 1601).


The French approach deals with unfair contracts under the heading of ‘breach of economic power’[7] The question for this thesis would then be ‘when a bank sells a property for a lot less than it is worth, is it a breach of economic power’?

In the United States, Canada and in the European Union, laws have been passed that restrict the impact of the pacta principle,[8]


[1] SALC p7

[2] SALC p5

[3] SALC p10 at paragraph 11.1

[4] SALC p10 -12

[5] SALC p20

[6] Bank of Lisbon and South Africa Ltd v De Ornelas 1988 (3) SA 580 paragragh 9

[7] SALC p 21

[8] SALC p28