This blog was co-authored by Atish Dullabh, candidate attorney at Norton Rose Fulbright South Africa

On 20 February 2024, the Western Cape High Court ruled that a party cannot enforce contractual rights after cancelling the agreement, but there is nothing in law that precludes a party from exercising its contractual rights simultaneously with the cancellation of the contract.

The applicant bank concluded a facility agreement with the borrower, which contained an acceleration clause entitling the applicant to demand that the Company repays the entire outstanding amount if it defaulted under the facility agreement. The respondent provided a guarantee in favour of the applicant pursuant to which the respondent guaranteed to and indemnified the applicant if the borrower failed to pay any amount or to perform any obligation under the facility agreement.

The applicant’s attorneys sent the respondent a letter simultaneously cancelling the agreement and exercising its rights under the acceleration clause. The applicant then instituted an application for a money judgment against the respondent and claimed under the guarantee after the borrower was in payment default under the facility agreement.

The legal issue was whether the applicant’s election to enforce its contractual acceleration rights simultaneously cancelling the facility agreement, precluded it from relying on the acceleration clause.

The respondent argued that the remedy sought against the borrower was payment of the accelerated debt, but that the remedy is not available to the applicant because of its election to cancel the agreement in the same letter.

The court held that such argument is inconsistent with the principles governing the interpretation of contracts, which requires a common sense and businesslike approach to interpretation. The respondent’s argument required the court to conclude that the applicant would have to cancel the agreement in a separate letter sent hours or minutes after exercising the right of acceleration, but not simultaneously. The respondent’s reasoning did not promote the purpose of the agreement, nor would it advance any of the policy considerations that underlie the law of contract.

The court reaffirmed that, if an agreement is cancelled, a party cannot later invoke rights under the contract, because there is no longer an agreement. However, there is nothing in law that precludes parties from exercising their contractual rights simultaneously with cancellation. The applicant exercised its right to acceleration not after cancellation, but at the same time as cancellation, and it was entitled to do so in terms of the facility agreement which expressly incorporated the right of cancellation under the acceleration clause. Accordingly, the court held that the respondent was liable to pay the applicant the full accelerated amount claimed under the guarantee.

This judgment serves as a reminder of the importance of a party’s manner and timing in which to exercise enforcement rights under an agreement.

Standard Bank of South Africa Limited v Friedman 2024 (3) SA 171 (WCC)