We are often approached by clients on either side of a contract – be it the supplier, or their client – wanting to take action against the other for breach of contract.
In the case of the supplier, it’s usually due to their client’s failure to pay their account.
In the case of the client, it’s usually due to the supplier rendering a substandard service.
While it’s right to take action swiftly if a contract has been breached, be careful of cancelling prematurely.
Read your Breach, Disputes and Notices clauses carefully. If your contract requires that you first deliver a breach notice, cancelling the contract without doing so may place YOU in breach of contract – with expensive, messy consequences.
The breach clause of professionally drafted contracts usually read as follows:
Should any party breach any provision of this Agreement ("the defaulting party") and fail to remedy such breach within 7 (seven) days of receiving written notice from the other party requiring it to do so, then the aggrieved party shall be entitled, without prejudice to any other rights that it may have, whether under this Agreement or at law, to cancel this Agreement without notice or to claim immediately specific performance, in either event, without prejudice to the aggrieved party’s right to claim damages together with a claim for legal costs on an attorney-and-client scale.
A breach notice need not be the end of the contract, nor should it be viewed as damaging the relationship between the parties. If the other party is in breach, it requires an objective, dispassionate notice from you. In fact, it’s better for your parties’ relationship to highlight issues sooner rather than later, before issues cause irreversible damage.
Our office can assist as your outsourced legal counsel and send breach notices on your behalf – that way, you can maintain relations with your client and blame any hurt feelings on your Legal Department.
A breach notice should not be viewed as the end of the contract, or the relationship.
This scenario raises a technical question: whether the contract is cancelled or not. If you cancelled without sending a breach notice, is the cancellation valid? Moreover, can your cancellation be revoked and be replaced with a breach notice?
For a cancellation to be valid, it does not require compliance with the terms of the contract. In other words, you may have failed to comply with the requirement to send a breach notice first, but that does not invalidate your cancellation notice.
Further, cancellation is a unilateral legal act informed by your intention, and the consent of the other party is not required for cancellation to be valid.*
* This is, in our opinion, irrespective of any contractual term to the contrary. We sometimes see an opponent respond to a cancellation notice with cries about consent or filling in their Accounting Department’s cancellation forms, or similar nonsense. But can you imagine if the other party’s consent was a requirement to permit you to cancel? No contract would ever be successfully cancelled then.
Bear in mind, the above circumstances do not relieve you of your obligations to perform in terms of a contract. If you are in breach of contract, the other party may have a claim against you for damages.
Cancellation is a unilateral legal act. It doesn't require the other party's consent.
Can you revoke cancellation?
If you’ve made a mistake, and accidentally cancelled a contract first before sending a breach notice, the question arises whether you can revoke that cancellation. It seems not. As an analogy, cancellation is like divorce – once you’re divorced, it’s final. You can re-marry the same person, but you cannot un-divorce them. Similarly, you can reinstate a contract, but you cannot usually un-cancel it.
Avoid contractual technicalities by thoroughly reading breach provisions first, and sending a breach notice first.
Although not always appropriate, it's often wise to be in the habit of sending breach notices first in all your contract management dealings. Getting into this habit can save time and legal costs.
Maybery Inc. provides guidance in all aspects of contract law, including drafting and negotiation of contracts, as well as litigation on breach of contract. Contact us for bespoke advice to keep your commercial contracts favourable to you.
The above information is for illustrative purposes only and does not take into account your specific circumstances. It therefore does not constitute legal advice. Please contact us for comprehensive advice to address your circumstances. Under no circumstances should any person use the above information in an attempt to circumvent the provisions of legislation or contract, or to cause damage to any other person. Always ensure you and your company are in compliance with the law in all dealings.
This information is accurate as of the date of publication.
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