Lack of clause can be circumvented

2019-10-16 06:01
Japie Kruger

Japie Kruger

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Question:

My business entered into an agreement to have certain goods manufactured for us.

Unfortunately, the agreement was drawn up in haste.

Now that we want to look at other manufacturers, we have realised that the original agreement does not have a fixed contract period or cancellation clause.

Are we now stuck with this manufacturer until the end of time?

Answer:

To answer your question, it is useful to refer to the matter of Plaaskem (Pty) Ltd v Nippon Africa Chemicals (Pty) Ltd where the parties concluded an agreement which was silent as to its duration (a contract in perpetuity or of unspecified duration).

After one of the parties gave notice to cancel the agreement, the parties approached the High Court to determine whether the agreement had a tacit, alternatively implied term that the agreement was terminable on reasonable notice to the other party, or the agreement, properly construed, was terminable on reasonable notice.

The High Court found that there was no tacit or implied clause in the contract, and that the contract may be cancelled.

The Court held that the notice of cancellation of the agreement was invalid and of no effect.

On appeal, the Supreme Court of Appeal (SCA) had to decide whether or not the contract between the parties contained a tacit term to the effect that the contract was terminable by either party on reasonable notice.

The SCA considered four factors when deciding whe­ther or not such a tacit term can be included, namely:

  • the language used by the parties (the express terms of the contract);
  • the intention of the parties;
  • the nature of the relationship between the parties; and
  • the surrounding circumstances when the agreement was entered into.

In this specific case, the SCA found that it is necessary that a tacit term be imported, allowing termination on reasonable notice by either party.

However, the court warned that a tacit term cannot be imported into an agreement where it will be contradicted by an express term.

For a tacit term to be included, it must be capable of a clear formulation even though the formulation does not have to be concise.

It would be advisable to have your attorney review your contract to determine whether there are any grounds for cancellation or termination of the agreement or merits in approaching the court to have the agreement cancelled.

– Japie Kruger, senior associate, Phatshoane Henney Attorneys

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