What does this clause do?

It outlines the circumstances under which parties may end their legal relationship and withdraw from any obligations under the agreement.  Sometimes this is linked to the duration of the agreement, for example, if an agreement is for 12 months in duration it will terminate as soon as the 12 month period has passed.

However, if the agreement is not for a fixed term you will want to negotiate and decide how to exit the relationship.  Termination clauses are often on notice (for example the parties may cancel the agreement by giving each other 30 days notice in writing) or on breach (for example the parties can exit the relationship if the other party has committed a specific breach).

You may also find that some contracts are drafted in a one sided manner only allowing one party to cancel the agreement on notice.  Make sure that you discuss termination and record your decision in your agreement.

Real life example:

You are hired as a consultant for a six month period on a project for Engineering Co 5.  Your contract terminates automatically after six months but also provides for termination on notice of at least two weeks, during which you must render services and be paid for those services, or they may terminate the agreement if you are in breach.

Legislation:

The Consumer Protection Act has changed the common law around termination of contracts by providing a wide range of cooling off periods especially if the agreement was entered into after direct marketing and it provides relief (section 14) for getting out of fixed term contracts such as cellphone contracts by giving 20 business days notice.  A reasonable cancellation fee may be charged.\"""""\"

Kleva contract sample wording:

TERMINATION 

This Agreement shall automatically terminate on 1 July 2018.

1.1 Either party may also terminate this Agreement on two weeks’ written notice.  The Consultant shall be paid for all Services properly rendered to the termination date. 

1.2 Despite clause 1.1 above Engineering Co 5  may terminate this Agreement summarily for any reason valid in law or if the Consultant: 

1.2.1 is guilty of conduct which is likely to bring Engineering Co 5  into disrepute;  

1.2.2 is convicted of any offence involving dishonesty;  

1.2.3 is convicted, whether in the Republic of South Africa or elsewhere, of theft, fraud or forgery; 

1.2.4 is disqualified under any law from carrying on their profession. 

1.3 Should either party breach any term of this Agreement and not remedy the breach within 7 (seven) days after receiving written notice to do so, then the innocent Party may, without prejudice to any other rights which it has either in terms of this Agreement or at law, cancel this agreement and claim any damages, which may have arisen out of the breach…

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.

 

What does this clause do?:

In an agreement one party (or both parties) agree to reimburse the other party for any harm or loss or to release the party from any liability when an event occurs.

In simple terms one party will agree to take on the loss for the other or step into their shoes if they suffer a loss or a claim from a third party.  Indemnities can be expensive so they should be read carefully so you know what you are taking on.  All indemnities will be different depending on the contract and the relationship between the parties.

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In some cases you might want to get insurance to make sure that you are covered if you have to indemnify the other party.

Real life example:

You are a designer and create a logo for Wizard Potato Chips.  In your agreement with Wizard you agree to assign all copyright to them and that you have not infringed the intellectual property of any third party in designing the logo.  You also agree to indemnify them against any claims by third parties against them for use of the logo and agree to defend the court case on their behalf.  When designing the logo you copied an existing logo from Slays Chips.

Slays sues Wizard for copyright infringement.  You would be required to defend the court case on their behalf, pay the legal costs and, if Slays wins the case, pay any damages awarded against Wizard on its behalf.

Legislation:

\"""""\"

The Consumer Protection Act requires that any assumption of risk or limitation of liability is brought to the attention of a party 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 R 2 million) or they may not be bound!  A good way to do this is to ensure that they sign along side it and that it is prominently worded.

Kleva sample wording:

the First Party will indemnify the Second Party, against all losses, excluding any indirect or consequential losses, and all liabilities, claims, actions, damages, expenses reasonably incurred and costs (including legal fees) arising out of or related to any breach of this Agreement by the First Party or any of its Representatives

 

 

 

 

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