MAIN IMAGE: Sisanda Avela Makunga, Senior Associate, Mota Africa
Sisanda Makunga
When a contract is drafted, the termination clause must be considered, and the intention of the parties must be clear when it comes to the duration of the contract and the termination thereof. In certain instances, the termination clauses could be forgotten or omitted in anticipation that the parties will have a harmonious relationship. When disputes arise, this could lead to court processes that are costly and daunting at times. It must be clear from onset that the parties intend on signing a perpetual contract. Perpetual contracts still exist in South Africa where parties bind themselves in a contract for eternity.
No cancellation clause
In instances where a contract is silent on termination and its duration, the contracting parties can terminate on reasonable notice by relying on an implied term that the contract can be terminated on reasonable notice unless the contract was intended to continue indefinitely.
Again, in the event where the contract does not have a cancellation clause the innocent party can cancel the contract if there is a breach, and the breach is material. A material breach is when one of the contracting parties breaches one of the terms of the contract.
What happens when one of the parties wants to cancel a contract for whatever other reason which may be apart from a breach?
No one is prevented from cancelling. However, this creates numerous problems which mostly involve courts to resolve. The problem arises when one must determine what is considered as reasonable period for either of the parties to notify the other that they wish to cancel and whether the existence of the contract was reasonable enough to warrant a cancellation. That is why it is imperative that cancellation clauses be in the contracts to avoid disputes in respect of termination.
There are statutes which regulate the duration and termination of the contract, for example the Consumer Protection Act 68 of 2008. This Act provides for fixed term consumer contracts to be terminated on 20 days’ notice and states that a consumer contract is valid for a maximum of 2 years.
This removes any uncertainty when the contract is silent on cancellation and duration. The CPA says if the contract is to exist for more than 2 years, then, the contract should demonstrate that the extra years are to the benefit of the consumer. If termination and duration are not legislated, then common law applies where duration and termination are determined contractually.
Over the years, courts have made rulings which provided direction on cases where contracts are silent on duration and termination. In Plaaskem (Pty) Ltd v Nippon Africa Chemicals (Pty) Ltd 2014 (5) SA 287 (SCA) followed that what was said by Coetzee J in Trident Sales (Pty) Ltd v A H Pillman & Son (Pty) Ltd 1984 (1) SA 433 (W) at 441D-E about the unspecified duration of the contract:
- It is a question of construction of the agreement according to the ordinary principles of construction
- Since, however, such agreement, ex hypothesi, contains no express provision dealing with determination by the party who asserts that it should be inferred, it is a question of construction in the wider sense of ascertaining what the intention of the parties was when they entered into the agreement
- This intention is determined in the light of all the admissible evidence and in the light of what the parties have said or omitted to say in their agreement.
- There is no presumption one way or the other.
- The onus is on the party who asserts that the parties intended something which they omitted to state expressly to demonstrate that this was so.
In summary, the SCA took the following into consideration when making its determinations: Firstly, it analysed the language used by the parties in the contract. Secondly, the court considered the intention of the parties, having regard to the nature of the relationship between the parties, as well as the surrounding circumstances. Thirdly, the court considered the nature of the relationship between the parties. Fourthly, the surrounding circumstances of the agreement were considered. The SCA upheld Plaaskem’s appeal and held the contract could be terminated by either party on reasonable written notice.
Conclusion
In conclusion, it is clear that in the absence of the duration and termination clauses, the language used in the contract, the intention of the parties and the relationship should be looked at.
Amalgamated Beverage Industries Ltd v Rond Vista Wholesalers 2004 (1) SA 538 (SCA); Trident Sales (Pty) Ltd v AH Pillman & Son (Pty) Ltd 1984 (1) SA 433 (W); and Putco Ltd v TV & Radio Guarantee Co (Pty) Ltd 1985 (4) SA 809 (A) are few of the cases which one can consider. In all these cases the courts held that where the settings of an agreement show that all that the parties intended was a temporary arrangement, but the contract was silent as to duration, it is reasonable to imply that they contemplated termination on reasonable notice.
It is advisable that to avoid costly court procedures which are also lengthy, make sure that all terms intended must be put in writing and they must clear and unambiguous.
- Sisanda Avela Makunga (Senior Associate), holds an LLB from the Nelson Mandela Metropolitan University and an LLM from the University of South Africa (UNISA).
