18 May 2016 by Dispute Resolution Alert

Delays are just the beginning of grand adventures – Cathy Carlton Willis

Contracts generally have a momentum and until they terminate they continue to operate with rights and obligations and money flows. There are circumstances in which a party to a contract may be entitled to cancel but while that party considers its position, time rolls on. In the context of an insurance contract, the accrual of a right to cancel notwithstanding, the insured remains liable for the premium and the insurer liable to insure the risk until the contract is actually cancelled. Regardless of how the right to cancel arose, the right must be exercised within a reasonable time but that begs the question of what that reasonable time might be and what factors a court will take into account in coming to a decision. An insured and/or insurer must at some point exercise an election, failing which it is likely to be inferred that the insurance contract persists.

The case of Paradyskloof Golf Estate v Stellenbosch Municipality 2011 (2) SA 525 (SCA) concerned an agreement for the sale of land for a prospective residential and hotel development from Paradyskloof to the Municipality. Certain suspensive conditions were not met and the Municipality elected to cancel the agreement which decision Paradyskloof challenged. The point of interest in this case is that the court considered the reasonableness of the 13 month period that had passed before the Municipality communicated any intention to resile from the contract.

In its judgment, the court implicitly acknowledged that what is reasonable will depend on the circumstances of each case. In this instance, the parties had been engaging one another in the 13 month period and the Municipality had also sought further legal advice in respect of its rights and position in terms of the agreement. The agreement also included a clause to the effect that no indulgence would be given by either party in respect of the performance of any obligation in the agreement, and that a delay in the enforcement of a right would not constitute a waiver of that right.

The Supreme Court of Appeal confirmed that a party’s failure to exercise a right to cancel an agreement within a reasonable time does not necessarily result in the loss of this right. However, the Court noted that the circumstances of the particular matter “may…justify an inference that the right was waived or, stated differently, that the party entitled to cancel has elected not to do so…”. The point being that an unreasonably long delay in exercising a right to cancel may be taken to mean that a decision, one way or another has in fact been taken. On the facts, the Court concluded that there had not been an unreasonable delay in the Municipality’s exercise of its right to cancel the agreement and it was accordingly still entitled to exercise the right.

This judgment highlights that a delay in exercising a right to cancel an agreement creates unnecessary risk and opens the door for a court to consider the reasonableness of a delay. In that event the court will take into account all of the objective circumstances surrounding the delay including the position of the other contracting party and whether the other contracting party had been misled into believing that the election had already been exercised.

In the context of insurance agreements, especially where there is not a clause against presumption of a waiver, a court considering a delay will take into account that premiums continue to be paid by an insured, or collected by an insurer or that a renouncement of the insurance agreement is not communicated promptly by an insurer. This case shows that delay in exercising a right to cancel is not necessarily fatal but it does expose the parties to unnecessary uncertainty and risk. Cathy Carlton Willis said that “Delays are just the beginning of grand adventures” and that may be so but contracting parties would be well advised to act without delay and avoid the grand (and painful) adventure of contested litigation.

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