Attachmate Corporation v Minister of Water and Environmental Affairs

Attachmate Corporation, a US-based software supplier, entered into a software licence agreement and a related maintenance and support agreement with the Department of Water and Environmental Affairs in June 2005. The Department initially acquired 300 licences for Attachmate’s software and later regularised a further 360 licences, totalling 660 licensed copies. Despite contractual prohibitions, the Department continued to install and use additional copies without obtaining licences. An audit conducted by KPMG in 2009 revealed 1 564 unlicensed copies. Attachmate claimed licence fees for these unlicensed copies under an audit clause in the licence agreement and also claimed maintenance fees for the same copies under the maintenance agreement. The High Court limited the licence fee to a discounted rate and dismissed the maintenance fee claim. Attachmate appealed to the Supreme Court of Appeal.

The appeal was partially upheld. The High Court’s order was amended to award Attachmate R7 744 302.40 in maintenance fees for the unlicensed copies, together with interest at 15.5% per annum from 14 December 2009. The remainder of the High Court’s order, including the licence fee award at the discounted rate, was confirmed. The respondent was ordered to pay the appellant’s costs, including costs of two counsel.

The case is significant for South African contract law as it clarifies the interpretation of audit and payment clauses in software licence agreements, rejects a punitive interpretation of undefined contractual terms, and confirms that damages may be awarded to place a party in the position it would have occupied had the contract been properly performed. It is an important authority on the distinction between penalties and damages, and on contractual damages in the context of IT and licensing agreements.