Failure to follow cancellation clauses in a contract.

A party who fails to follow a contractually prescribed termination procedure does so at its peril.

In the Supreme Court of Appeal (‘SCA’) case of Datacentrix (Pty) Ltd v O-Line (Pty) Ltd (891/2021) [2022] ZASCA 162 (25 November 2022), the court had to consider a purported cancellation of a contract because of a material breach. The breach clause provided that should a party to the agreement commit a material breach of the agreement and fail to remedy such breach within 30 days of having been called upon to do so by the other party, then the innocent party may, ‘in its discretion subject to the provisions of clause 19’, terminate the agreement on written notice to the defaulting party in which event such termination shall be without prejudice to any claims the innocent party may have for damages against the defaulting party ‘occasioned by the default or termination of this Agreement in terms of this clause’.

The court cited Wille’s Principles of South African Law regarding breach notices:

Contracts frequently provide that in the event of a breach, the aggrieved party should give the party in breach notice of the breach and a stipulated period within which the latter has an opportunity to remedy or purge the breach. In such a case the procedure laid down in the contract must be followed as a necessary prelude to cancellation, except, so it has been held, where the breach takes the form of a repudiation of the contract. In that case, the aggrieved party may cancel forthwith since the repudiating party cannot have it both ways by repudiating the contract and at the same time hold the other party to the rules prescribed by the repudiated contract.’

The court found that, in this case, O-Line did not give Datacentrix 30 days within which to remedy the breaches. Instead, it appears in part to have required Datacentix to produce a rectification plan. The notice was not an unequivocal statement that the agreement would be cancelled if the appellant failed to remedy its breaches.

The SCA applied the Western Cape High Court’s judgment in Bekker v Schmidt Bou Ontwikkelings CC. The Bekker judgment states that the purpose of a notice requiring a defaulting party to remedy a breach is to inform the defaulting party of what is required to avoid the consequences of the default (e.g., cancellation of the agreement). Importantly, the notice must be given in a way that leaves the defaulting party “in no doubt as to what is required”, otherwise the notice will be invalid. This means that the breach notice must be crystal clear.

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