Page 94 - Q&A 2019/2020

Forgot to include a cancellation clause? What
to do.

Japie Kruger
July 2019

“My business entered into an agreement some time ago to have certain
goods manufactured for us. Unfortunately, the agreement was drawn up in
haste, and now that we want to look at other manufacturers, we have realised
it does not have a fixed contract period or cancellation clause. Are we now
stuck with this manufacturer till the end of time?”

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 (i.e. a contract in perpetuity or of unspecified
duration).

In the case, 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, alternatively whether the agreement,
properly construed, was terminable on reasonable notice. The High Court found
that there was no tacit or implied or other clause in the contract, to the effect
that the contract may be cancelled and 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
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 (i.e. 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. Litigation
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. The court
however warned that a tacit term cannot be imported into an agreement
where it will be contradicted by an express term. Therefore, 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.

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