What does this clause do:

One of the first questions a person entering into a contract must ask themselves is: “what happens if the other person doesn’t perform or breaks their promises?”, for example by not paying or not delivering the goods.

The parties must decide what happens if they don’t perform or perform incorrectly and set out those requirements in writing. Usually the innocent party can ask for a remedy, such as termination of the agreement, damages and so forth, or choose not to carry out their part of the agreement.

To ensure fairness, a breach clause usually includes a requirement that notice must be given to the party who is in breach and that they must be given a period of time to perform, although the parties can also agree to immediate termination if there is a breach.

A breach clause also ordinarily lists some remedies for breach like “specific performance” or a claim for damages.

Real life example:

You order 20 bags of cement from a shop, ABC Hardware, which agrees to deliver to your home. You sign their terms and conditions and agree that the deal will be cash on delivery.  They deliver 20 bags and you pay them cash. After they leave you realise they have dropped off 20 bags of fertilizer instead. You read the terms and conditions and write them a letter requesting that they remedy the improper fulfilment of the agreement within seven days, failing which you are entitled to cancel the agreement and request your money back.

Kleva sample wording:

1 If any party (the “defaulting party”) fails to comply with any provision of this Agreement on time, the other party (the “innocent party”) may notify the defaulting party in writing of such failure and demand compliance by the defaulting party of the relevant provision of this Agreement within 10 (ten) days of being notified. 

2 The failure to comply with any provision of this Agreement, on time,  is deemed to be a material breach of this Agreement.  If the defaulting party does not remedy the breach within 10 days of being called upon to do so then the innocent party can, without prejudice to its other rights: 

2.1 enforce specific performance of the defaulting parties obligations in terms of this Agreement;

2.2 claim any damages it has suffered as a result of the breach by the defaulting party or, 

2.3 To cancel this Agreement without prejudice to any claim it may have for damages as a result of the breach by the defaulting party”

 

What does this clause do?

It limits the liability of one or more parties for specific loses or the amount of the loss.

Generally in law you will be responsible for any failure to perform an agreed obligation or any loss that naturally arises out of any act or failure to act.  Because business involves risk parties will often agree to a limitation of liability clause to limit the loss that they will incur to each other if something goes wrong or if they don’t perform.

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The parties ability to limit their liability is limited by common law and legislation.  You cannot exclude liability for fraud or intentional acts by the contracting party for example.

Note: it is possible and quite common to have one sided limitation of liability clauses where one party excludes all their liability.

You will have different types of limitation of liability for example:

  • Excluding losses arising from the happening of certain events or if one of the parties doesn’t perform.
  • Excluding specific types of losses like consequential or indirect or unforeseeable harm;
  • Limiting the legal causes of action and the loss arising from, for example no liability arising out of delict, breach of contract or negligence.
  • Limiting the extent of liability for example to a maximum of the contract value or a monetary limit.

You should read these carefully to see what harm is excluded if something does go wrong.

Real life example:

You take your children a water park called Splash City.  The sign that is prominently displayed at the entrance and on your ticket states:

DISCLAIMER:   I/We enter Splash City and participate in any or all activities at my/our own risk and indemnify and absolve Splash Co (Pt) Ltd, its shareholders, directors, management and staff members of any damage or loss to my/our personal property, physical injury or death (or that of my spouse, children, family members). Splash Co will not be held responsible or liable for any accident or incident or resultant medical or emergency care or assistance including those listed/stated here.

Legislation:

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The Consumer Protection Act requires that any assumption of risk or limitation of liability is brought to the attention of a user when contracting. Make sure that you bring any indemnity clauses to the attention of the other party (if they are an individual or a company with a turnover less than R2million) or they may not be bound!  A good way to do this is to ensure that they sign along side it and to make sure that it is prominent.

 

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