2 February 2021 by and Dispute Resolution Alert

Ensuring termination does not amount to repudiation

Contractual relationships in business can easily become complex when one party appears to be unwilling to perform its obligations. Cancellation of a contract is a general remedy for breach of contract but can easily become mischaracterised due to the complexity of the relationship.  

The Supreme Court of Appeal (SCA) in MTN Service Provider (Pty) Ltd v Belet Industries CC t/a Belet Cellular (1077/2019) [2020] ZASCA 07 recently determined if MTN Service Provider (Pty) Ltd’s (MTN) cancellation of a dealer agreement (the agreement) concluded with Belet Industries CC t/a Belet Cellular (Belet) constituted a repudiation of the agreement.

Repudiation is defined in Nash v Golden Dumps (Pty) Ltd 1985 (3) SA 1 (A) as a situation “Where one party to a contract, without lawful grounds, indicates to the other party in words or by conduct a deliberate and unequivocal intention no longer to be bound by the contract … Where that happens, the other party to the contract may elect to accept the repudiation and rescind the contract. If he does so, the contract comes to an end upon communication of his acceptance of repudiation and rescission to the party who has repudiated...”.

The summary of the MTN case is as follows: During 2010 MTN and Belet concluded a dealer agreement in terms of which MTN appointed Belet to market, promote, and facilitate distribution by MTN of network services and stock. In exchange for Belet’s services, Belet received commission and discounts on pre-paid stock.

The agreement allowed MTN to conduct routine general audits on Belet’s stores and, in preparation of the September 2011 audit, Belet’s general manager instructed shop assistants to place several ‘obsolete’ items into black bags. The black bags were placed in a trolley and kept outside the store.

MTN claimed that some items in the trolley were goods not supplied by MTN and that the goods were held in violation of the terms of the agreement. Further, Belet’s actions in removing the items from the store sought to frustrate the completion of the audit in a manner which irreconcilably affected the trust between the parties. MTN proceeded to cancel the agreement.

Pursuant to MTN’s cancellation of the agreement, MTN disposed Belet of its business by placing guards outside of the store. Belet claimed that MTN’s termination of the agreement constituted a repudiation of the agreement and Belet was entitled to claim damages suffered.

The SCA agreed with the lower court’s findings that there was no evidence that Belet had breached the agreement by placing items in black bags and removing them from the store as Belet was not contractually obligated to keep any of the items in the store. The SCA held further that MTN did not ask Belet for an explanation regarding the goods in the trolley nor had it given notice to Belet to remedy any purported breach.

The SCA held that Belet did not repudiate the agreement and that MTN was not entitled to cancel the agreement. Therefore, MTN’s cancellation constituted a repudiation of the agreement and MTN was liable for damages incurred by Belet.

In conclusion, a terminating/aggrieved party must first consider all facts and clearly establish repudiation before it terminates the agreement. Wrongful termination of an agreement will ordinarily be seen as repudiation, allowing the other party to accept the repudiation, cancel and claim any damages suffered.

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