The appeal court has set aside an order granted against the appellant for breach of contract. The parties had concluded an Implementation and Support Services Agreement in terms of which the appellant was paid to implement software for the respondent. After the implementation of the software, the respondent complained that the after-services provided by the appellant were defective in two material respects and as a result they were unable to use the system for its intended purpose. As a result, the respondent proceeded to cancel the contract. The dispute before the court was in regards to the validity of the purported cancellation of the agreement by the respondent.
The court held that for proper cancellation, the respondent was required to comply with the requirements of the cancellation clause strictly. It was required to couch the notice in such a manner that the appellant would have been in no doubt as to what was required of it to avoid the consequence of cancellation for such non–compliance.
The agreement provided two cancellation clauses which stipulate different cancellation procedures. Clause 17 provided that, in instances where there are service level failures, the respondent may on written notice to the appellant, ‘require it to submit a rectification plan in accordance with the provisions of clause 17.2’. If the service level failure cannot be rectified, the agreement provides that ‘such failure shall constitute a breach by the appellant of the agreement between them’.
The second clause of the agreement provided that where a party commits a material breach of the agreement and fails to remedy such breach within 30 days of having been called upon to do so by the other party, then the innocent party may terminate the agreement on written notice to the defaulting party.
There was some confusion on the part of the respondent as to the basis for its purported cancellation of the agreement. In its pleadings the respondent averred that it had cancelled the contract in terms of clause 17. However at the commencement of the trial it argued that it was entitled to cancel under clause 18. The respondent had addressed two letters to the appellant wherein in articulated its position and the basis of its cancellation. In the first letter, the respondent put the appellant on terms and requested the appellant to submit a comprehensive proposal stating exactly how the appellant intended to remedy the breach. The respondent did not accept the two attempts by the appellant to bring about a rectification plan. The second letter was the letter of cancellation of the contract.
The court referred to the Principles of South African Law which explains the application of breach clauses. Cancellation clauses often require the aggrieved party to 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 instances, the procedure stipulated in the contract must be followed as a necessary prelude to cancellation.
It was further explained that the purpose of these strict compliance requirements was to inform the party in breach what is required of them in order to avoid the consequences of default. The notice should be articulated in such a manner that the defaulting party has no doubt as to what is required of them.
Turning to the respondent’s two letters, the court found that they fell short of the above standards in that the respondent did not comply with the procedures laid out in clause 17 & 18. The respondent failed to pertinently give the appellant 30 days within which to remedy the breaches. Instead, it seems as though the respondent was following the procedure of clause 17 by requesting the appellant to produce a rectification plan.
Accordingly, the SCA found that the respondent failed to comply with the cancellation requirements in terms of clause 17 & 18 and the damages claim based on the cancellation was dismissed.