In re: Hosi Technologies (PTY) Limited v Bebeza (A3125/2021) [2022] ZAGPJHC 647 (6 September 2022)

The above case is an appeal against a judgment and order handed down in civil proceedings in the Randburg Regional Court on 11 August 2021. The case concerns the termination of an independent contractor agreement without a termination notice. The appellant and respondent (“parties”) concluded an independent contractor agreement for the provision of Automation Tester services for a one-year period ending in October 2020 (“contract”). The respondent was engaged to assist the appellant in carrying out its obligations under a service level agreement concluded with MTN.

What was at issue was clause 3 of the contract, more specifically, the termination ground that allowed for an automatic termination of the contract in the event that the service level agreement between the appellant and MTN terminated (third ground of termination under the contract). The effect of this was that if the service level agreement came to an end, then the contract would end at the same time. In addition, termination ground no 2, which allowed either party to terminate the contract on one month’s written notice.

The source of dispute between the parties was regarding a communication received from MTN to the appellant dated 30 April 2020 to the effect that there would be a dramatic reduction in the volume of work that the appellant would be required to provide to MTN. However, this did not serve to terminate the service level agreement between the appellant and MTN.  Upon receipt of the abovementioned communication, the appellant informed similarly situated independent contractors (including the respondent) that by virtue of the termination clause of their contracts, their contracts were terminated with immediate effect.

The appellant’s contentions are twofold. First, the appellant contends that the court a quo erred in its interpretation of the contract in that the court should have found that the contract automatically terminated when MTN gave notice to the effect that the services the appellant was required to provide that had been rendered by the respondent were no longer required. Thus, the contract terminated on the third ground of termination under clause 3 of the same. Secondly, in light of the court a qou’s conclusion that there was a supervening impossibility, the court erred in finding that the appellant was obliged to provide notice to terminate the contract, and even if the situation at dispute was not contemplated by clause 3 of the contract, no notice was required.

The respondent’s position was that the appellant was required to provide one months notice per the contract. The respondent contended that the contractual consequence of the termination of the service level agreement with MTN could not be invoked as this was not what occurred.

Essentially, the crux of the appellant’s position was that the rationale behind the third ground of termination was that if there was no available work to be performed by the respondent to MTN, the contract would terminate with immediate effect without the need to provide notice. The contract only catered for an event where the service level agreement between the appellant and MTN had terminated, not where there is a reduction in the work or where the services of the respondent were no longer available. The appellant was asking the court to adopt a purposive interpretation of the contract and rewrite the contract between the parties to cater for an event where the services are no longer available.

On the court a qou’s finding that there was a supervening impossibility, the principle is that where changed circumstances make it uneconomical for a party to carry out its obligations, this does not mean that performance had become impossible. Therefore, there are no grounds on which it can be contended that it was impossible for the appellant to have given the respondent notice of termination of the contract.

The court did not agree with the appellant’s contentions and held that there was no obstacle to the appellant complying with its contractual obligation to give notice. The appellant’s choice to instead rely on the contractual provision that provided for automatic termination of contract on termination of the service level agreement was flawed when they could have elected to give notice. Consequently, the appeal was dismissed with costs, and the respondent was awarded damages equal to a month notice.

Take home lessons

• Before you terminate an independent contractor agreement or any other agreement, please seek legal advice. Even the simplest clauses can lead to risks that were not initially anticipated.
• Termination clauses should be written with sufficient clarity. In the above case, the termination clause should have catered for different scenarios, not just one specific scenario.
• Update your internal contracts to cater for changing circumstances.
• Update your termination clauses to ensure that they align with your business objectives.

For legal advice on termination of contracts, interpretation of contracts or amendments, please contact us on: info@mhmattorneys.co.za

Article written by Hazel Moshidi