The law of contract, the Consumer Protection Act and medical malpractice law

June 1st, 2012
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By Maud Letzler

Exclusionary clauses have long formed part of the large volume of contracts that legal professionals deal with on a daily basis. Legal professionals themselves have no doubt been apprehensive about signing such clauses in relation to their own health and well-being.

The hospital exclusionary clause (as well as the ones that may be required for surgeons and anaesthesiologists) has with time become the norm in hospitals.

The purpose of this article is to explore if the Consumer Protection Act 68 of 2008 (CPA) will influence how the courts will look at exclusionary clauses in all contracts, and in respect of hospitals and doctors in particular.

Background

Exclusionary clauses in the form of hospital exemption clauses are mainly used in the private health care sphere and seek to protect the hospital (or doctor) from personal liability arising from negligence that will cause the patient harm. In my view, such exclusionary clauses are problematic not only for the patient but also for the doctor as they seem to go against the grain of the Hippocratic Oath.

Exclusionary clauses have been called by many a name in contracts, including ‘exemption clauses’, ‘indemnity clauses’, ‘exculpatory clauses’ and ‘waivers’.

Courts in South Africa have historically upheld such clauses as the sanctity of contractual freedom was seen to be supreme (see Osry v Hirsch, Loubser & Co Ltd 1922 (CPD) 531 and Wells v South African Alumenite Co 1927 (AD) 69).

The courts have attempted to protect the public by interpreting exemption clauses narrowly and/or limiting their effect, or even striking them out in the interest of public policy (Van der Westhuizen v Arnold [2002] 4 All SA 331 (SCA)).

To date, the matter of Afrox Healthcare Bpk v Strydom 2002 (6) SA 21 (SCA) has been the most controversial decision relating to health care exemption clauses, sparking debate in many quarters. In this case the exemption clause indemnified the hospital, its employees and agents from all liability for damages or loss of whatsoever nature, including consequential damages or special damages from any direct or indirect injury caused to the patient by act or omission.

This exclusionary clause was upheld by the Supreme Court of Appeal (SCA) and, in short, the court held that these clauses were the norm, not the exception, and, as such, were sound business practice and not contrary to public policy. Further, the court could find no evidence that the patient was in a weaker bargaining position than the hospital. Gross negligence was not dealt with but it was indicated that even this would not result in an automatically invalidated clause.

The judgment has however been criticised, with legal writers arguing that the principles laid down need to be overturned (H Lerm ‘A critical analysis of exclusionary clauses in medical contracts’ unpublished LLD thesis (University of Pretoria 2008) at 4, and the authorities cited therein, http://upetd.up.ac.za, accessed 3-5-2012).

Comparative legal principles in other countries

In various foreign jurisdictions courts and legislators have dealt with exclusionary clauses in a different manner.

In the United States these clauses are generally regarded as invalid in hospital contracts. The courts tend to rely on the common law in its interpretation and application of the law as opposed to statutory guidelines.

As the medical profession and medical practices affect public interests, the profession and medical practices are governed by public regulations that involve health, safety and welfare, as well as ethics. Any conduct that would move away from a generally accepted standard of discharging professional duties is frowned upon. As such, exclusionary clauses in hospital contracts are invalid and unenforceable (see Lerm (op cit) at 13 and the authorities cited therein).

Section 2(1) of the English Unfair Contract Terms Act 1977 (c50) states that: ‘A person cannot by reference to any contract term … exclude or restrict his liability for death or personal injury resulting from negligence’. Similarly, the Council of the European Communities directive on unfair terms in consumer contracts 93/13/EEC has caused several other European countries to prohibit the exclusion or restriction of liability for death or personal injury by way of standard contract terms (Lerm (op cit) at 13).

Such countries include, for example, Germany and the Netherlands (for Germany, see s 309(7)(a) of the German Civil Code BGB and, for the Netherlands, see art 6:236 of the Dutch Civil Code BW). In France and in the United Kingdom’s Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) terms excluding liability for bodily injury are not entirely blacklisted as in Germany and the Netherlands. Instead, these type of terms are included in the list of terms that are likely to be held void for unfairness if they do in fact fall within the broad definition of ‘unfair terms’, for example, by creating a significant imbalance in the rights and obligations of the parties (art L 132–1 of the Code de la consummation and reg 5 of the UK regulations). Although there is no case law, as far as I am aware, that specifically addresses whether exclusionary clauses in hospital contracts will be outlawed by the English courts, Lerm states that it appears that the legislative provisions will result in these types of clauses being declared invalid (Lerm (op cit) 13).

Even before these legislative innovations, the traditional view in a number of European countries was that professionals could not exclude their liability for negligence (JH Herbots ‘De exoneratiebedingen in het gemeenrecht’ in JH Herbots (ed) Exoneratiebedingen (Keure 1993) at 11 as cited in T Naudé and G Lubbe ‘Exemption clauses: A rethink occasioned by Afrox Healthcare Bpk v Strydom’ (2005) 122 SALJ 330 at 458). This was often based on ethical norms and justified by the relationship of trust with the client (Herbots (op cit) at 11 as cited in Naudé and Lubbe (op cit) at 458). E Dirix notes that it was generally accepted in most, if not all, European countries that exclusion clauses were unlawful in respect of medical liability (E Dirix ‘Exoneratiebedingen: Een rechtsvergelijkende rondblik’ at 170 in Herbots (op cit) at 159 and 169-72, as cited in Naudé and Lubbe (op cit) at 458).

The Consumer Protection Act

It is likely that the CPA will entirely abrogate the principles laid down by the SCA in the Afrox case. This will bring South Africa in line with foreign jurisdictions in regard to medical liability, specifically in respect of exclusionary clauses in hospital contracts. In short, it can safely be assumed that exclusionary clauses in hospital contracts are no longer valid.

This is especially so when one considers the duty of the courts to take account of foreign and international law when interpreting the provisions of the CPA. Section 2(2) of the CPA provides:

‘When interpreting or applying this Act, a person, court or tribunal or the commission may consider –

(a) appropriate foreign and international law;

(b) appropriate international conventions, declarations or protocols relating to consumer protection; and

(c) any decision of a consumer court, ombud or arbitrator in terms of this Act, to the extent that such a decision has not been set aside, reversed or overruled by the High Court, the Supreme Court of Appeal or the Constitutional Court.’

In regard to the effect of the CPA on exclusionary clauses in hospital contracts, courts are likely to have regard to –

  • various examples of ‘foreign law’, such as the examples mentioned earlier, which indicate that exclusion of liability in medical cases is unfair and should be unenforceable, will support a conclusion that the CPA does not permit such terms; and
  • international law and instruments, such as the Hippocratic Oath, the Declaration of Geneva (1968), the International Code of Medical Ethics and the Declaration of Helsinki (as revised in 2000), which lie at the heart of medical ethics. These all weigh firmly against allowing exclusionary clauses in hospital contracts (P Carstens and A Kok (2003) ‘An assessment of the use of disclaimers by South African hospitals in view of constitutional demand, foreign law and medico-legal considerations’ 18 SAPR/PL 430, 451 quoting with authority Mason and McCall Smith (1991) 439-446; BR Roth ‘Medicine’s ethical responsibility’ in RM Veatch (ed) Cross Cultural Perspectives in Medical Ethics (Jones and Bartlett Publishers 1989) 150, 153; TL Beauchamp and JF Childress Principles of Biomedical Ethics (Oxford University Press 1994) at 3, as cited by Lerm (op cit) at 6).

It can therefore be argued that it is likely that any type of exclusionary clause, at least where it appears in a hospital contract, will no longer be valid in light of the CPA, especially when regard is had to comparative case law dealing with what should be regarded as an unfair, unreasonable or unjust term.

Outright prohibitions in the CPA on exclusionary clauses

The CPA contains certain outright prohibitions on the terms that can appear in contracts, which together can be referred to as a blacklist. These will be discussed briefly. A term in a hospital contract that excludes a hospital’s liability to perform its obligations under the CPA is automatically void. The patient does not have to demonstrate that the exclusionary clause is unfair, unreasonable or unjust.

Section 51(1)(b) of the CPA provides:

‘51(1) A supplier must not make a transaction or agreement subject to any term or condition if –

(b) it directly or indirectly purports to –

(i) waive or deprive a consumer of a right in terms of this Act;

(ii) avoid a supplier’s obligation or duty in terms of this Act;

(iii) set aside or override the effect of any provision of this Act; or

(iv) authorise the supplier to –

(aa) do anything that is unlawful in terms of this Act; or

(bb) fail to do anything that is required in terms of this Act … .’

As such, an exclusionary clause in a hospital contract would generally amount to an attempt to avoid a supplier’s obligations under the CPA and also deprive a patient of his rights under the CPA.

A hospital is obliged under the CPA to provide quality service to its patients. Section 54(1)(b) of the CPA provides:

‘54(1) When a supplier undertakes to perform any services for or on behalf of a consumer, the consumer has a right to –

(b)              the performance of the services in a manner and quality that persons are generally entitled to expect; …

having regard to the circumstances of the supply, and any specific criteria or conditions agreed between the supplier and the consumer before or during the performance of the services’.

Most exclusionary clauses would contravene the above requirement because, by excluding a hospital’s liability, the clause would shield the hospital from its duty under the CPA to perform ‘in a manner and quality that persons are generally entitled to expect’. There are long-standing professional standards of conduct and ethical rules that the medical profession is expected to meet. Failure to meet such standards is inarguably proof that the hospital has failed to perform in a manner that the patient is ‘generally entitled to expect’. Of course, this is a direct breach of the hospital’s obligations under the CPA. Being an obligation stemming from the CPA itself, it cannot be waived and liability for failure to perform properly cannot be excluded.

In any event, exclusion of liability for gross negligence is also on the blacklist, thus demonstrating another problematic aspect of hospital contracts containing exclusionary clauses. Section 51(1)(c)(i) of the CPA prohibits any term in a hospital contract that purports to ‘limit or exempt a supplier of goods or services from liability for any loss directly or indirectly attributable to the gross negligence of the supplier or any person acting for or controlled by the supplier …’. Thus, any exclusionary clause that excludes liability for the gross negligence of the hospital would be void on the basis of this provision, over and above the general prohibition on exclusionary clauses, which can be inferred from what was stated earlier.

The effect of a term on the blacklist appearing in a hospital contract is that it is automatically void. Section 51(3) of the CPA provides: ‘A purported transaction or agreement, provision, term or condition of a transaction or agreement, or notice to which a transaction or agreement is purported to be subject, is void to the extent that it contravenes this section.’ Thus, in no circumstances can an exclusionary clause that contravenes the abovementioned provisions be relied on by a hospital to escape liability.

Consequently, the effect of the above provisions, specifically ss 54(1)(b) and 51(1)(c)(i) of the CPA, will inarguably render most exclusionary clauses in hospital contracts void. Nonetheless, for purposes of thoroughness, other possible reasons why such exclusionary clauses would be invalid under the CPA are discussed below.

General prohibition on exclusionary clauses – unfair, unreasonable and unjust contract terms

Assuming that it is found that some exclusionary clauses can escape the ambit of the blacklist contained in s 51 of the CPA, these would certainly not fall outside of the general prohibition on unfair, unreasonable and unjust contract terms in s 48 of the CPA.

Section 48(1)(a)(ii) of the CPA prohibits ‘terms that are unfair, unreasonable or unjust’. This is supported by s 48(1)(c), which prohibits any agreement that requires a consumer to waive any rights, assume any obligations or waive any liability of the supplier on terms that are unfair, unreasonable or unjust.

Examples of unfair, unreasonable or unjust terms include ones that are ‘excessively one-sided in favour of any person other than the consumer’ (s 48(2)(a) of the CPA), as are ones where ‘the terms of the transaction or agreement are so adverse to the consumer as to be inequitable’ (s 48(2)(b) of the CPA).

It has generally been accepted in foreign jurisdictions that for purposes of consumer protection legislation, the waiver of a supplier’s liability in circumstances where the supplier is at fault, whether intentionally or negligently, is unfair. For instance, the Office of Fair Trading in the United Kingdom has stated in its ‘Unfair contract terms guidance’ (September 2008) (www.oft.gov.uk, accessed 3-5-2012) (the guidelines), that:

‘A disclaimer will often exclude or limit liability for breach of the “implied” terms that the law presumes are included in a contract when nothing is expressly agreed on the issues involved. These help ensure agreements are workable, and generally reflect what the law considers a reasonable person would have agreed. Excluding them can have the effect of allowing one party to act unreasonably or negligently to the other without consequences.

Any term which can have that effect in a consumer contract is particularly likely to be considered unfair’ (para 1.3).

The guidelines go on to provide that:

‘A business that supplies services to consumers accepts certain contractual obligations as a matter of law. In particular, consumers can normally expect services to be carried out to a reasonable standard. That applies not just to the main tasks the supplier agrees to perform, but to everything that is done, or should be done, as part of the transaction.

A term which could – whether or not that is the intention – serve to relieve a supplier of services of the obligation to take reasonable care in any of its dealings with consumers is particularly liable to be considered unfair.

A more fruitful approach is to narrow the scope of the disclaimer, so that it excludes liability only for losses where the supplier is not at fault, or which were not foreseeable when the contract was entered into (paras 2.2.1 to 2.2.4).

Thus, an exclusion of a hospital’s duty to provide quality service would almost certainly fall foul of the CPA, especially where the hospital is at fault, regardless of whether it is intentional or due to negligence.

There are special considerations over and above the general considerations that apply to exclusionary clauses that render such clauses in hospital contracts especially unfair, unreasonable or unjust. The judgment of the Supreme Court of California in Tunkl v Regents of University of California 60 2d 92 (1963) (http://law.justia.com, accessed 3-5-2012) provides several reasons why exclusionary clauses in hospital contracts would be especially unfair, unreasonable or unjust. In this decision the court stated, at para 2:

‘We think that the hospital/patient contract clearly falls within the category of agreements affecting the public interest. To meet that test, the agreement need only fulfil some of the characteristics above outlined; here, the relationship fulfils all of them. Thus the contract of exculpation involves an institution suitable for, and a subject of, public regulation … . That the services of the hospital to those members of the public who are in special need of the particular skill of its staff and facilities constitute a practical and crucial necessity is hardly open to question.

In insisting that the patient accept the provision of waiver in the contract, the hospital certainly exercises a decisive advantage in bargaining. The would-be patient is in no position to reject the proffered agreement, to bargain with the hospital, or in lieu of agreement to find another hospital. The admission room of a hospital contains no bargaining table where, as in a private business transaction, the parties can debate the terms of their contract. As a result, we cannot but conclude that the instant agreement manifested the characteristics of the so-called adhesion contract. Finally, when the patient signed the contract, he completely placed himself in the control of the hospital; he subjected himself to the risk of its carelessness.

The hospital, under such circumstances, occupied a status different than a mere private party; its contract with the patient affected the public interest. We see no cogent current reason for according to the patron of the inn a greater protection than the patient of the hospital; we cannot hold the innkeeper’s performance affords a greater public service than that of the hospital.’

Even if the exclusionary clauses in hospital contracts do not fall under the blacklist contained in s 51 of the CPA (which in all likelihood they will), they certainly fall under the general prohibition on unfair, unreasonable or unjust terms contained in s 48 of the CPA. As such, they are void and cannot be relied on by a hospital to escape liability.

Conclusion

In light of the above, it would be prudent for insurers to take note. As personal injury attorneys start looking for new areas of practice and as advertising by attorney firms increases and members of the public become more informed of their rights, so the claims for medical negligence are likely to increase.

Medical practitioners will have to ensure that they understand and practice informed consent so as to prevent liability in instances where what seemed like an unlikely scenario has manifested itself in the injury or death of a patient. Above all, it is the public hospitals and the relevant government departments that should sit up and pay attention for they will most likely be hit the hardest, as will the public at large, whose hard-earned taxes are spent on paying medical malpractice claims where the hospital is to blame.

Doctors unprotected by an insurer can find themselves financially ruined by long and protracted litigation and it is unthinkable that any doctor practising in a public hospital would not have adequate insurance.

The effect that the CPA will have on exclusionary clauses and the law of contract in a wider sense will have to be determined by the courts. Except in a few limited respects, the CPA does not apply retrospectively and, as such, contracts entered into prior to 1 April 2011 cannot be attacked on their exclusionary clauses in terms of the CPA. Case law such as the Afrox case will still be a determining factor in the outcome of these matters.

I am sure that we all look forward to a few test cases being argued in our highest court and the SCA, which will provide an opportunity to rethink exclusionary clauses in line with the CPA.

Maud Letzler LLB (Unisa) is a practising member of the Johannesburg Bar. Ms Letzler would like to thank Dr Henry Lerm for his contribution to her research on the topic of this article.

This article was first published in De Rebus in 2012 (June) DR 22.

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