Enforceability of indemnity clauses excluding vicarious liability for employee theft: balancing pacta sunt servanda and public policy

Abstract

This study examines the enforceability of indemnity clauses that exclude vicarious liability for employee theft within South African contract law. It critically analyses the tension between the principle of pacta sunt servanda, which upholds the sanctity of contracts, and the evolving needs of public policy, which reflect constitutional values such as fairness, justice, and Ubuntu. Using the landmark case of Fujitsu Services Core (Pty) Ltd v Schenker South Africa (Pty) Ltd 2023 6 SA 327 (CC) as a focal point, the research considers whether such exemption clauses can be upheld when they result in unfair outcomes for victims of employee theft. The study adopts a qualitative methodology, analysing primary sources including case law, legislation, and the Constitution, alongside secondary academic literature. It traces the historical development of vicarious liability, evaluates the legal nature and function of indemnity clauses, and assesses how public policy considerations influence judicial decisions. The findings reveal a divergence in judicial approaches between the Supreme Court of Appeal and the Constitutional Court, contributing to uncertainty in contract enforcement. Ultimately, the study advocates for a balanced approach that respects contractual autonomy while ensuring that exemption clauses do not compromise justice or constitutional principles. It concludes with recommendations for legal practitioners, contract drafters, and policymakers to foster fairness and predictability in commercial relationships.