Louw & others v Davids & others

The ten appellants were women from Lamberts Bay who worked in the fishing industry and were granted a fishing quota under the Marine Living Resources Act 18 of 1998 through a close corporation, Meermin Viserye CC. They held equal 10% members' interests in Meermin. On 8 July 2012, they sold their members' interests to the first and second respondents for R4 million (R400,000 each less an equal share of the corporation's R875,514.15 debt). The original agreement provided for payment on the 'effective date' (28 February 2013). An addendum dated 26 November 2012 changed the payment terms to R50,000 per person per month until 15 May 2013 (with an oral variation adding a June 2013 payment). Subsequently, the respondents proposed and implemented smaller monthly payments (R10,000 per month) over a longer period, which the appellants accepted without protest. By January 2014, when the appellants sought cancellation, 96% of the purchase price had been paid - three appellants were paid in full, and seven were owed between R20,000-R27,000 each (totaling R160,000 outstanding).

• Whether cancellation of the agreement of sale was justified when the respondents paid smaller instalments over a longer period than stipulated in the addendum
• Whether the appellants elected to abide by the contract by accepting payments under the varied terms without protest
• Whether the breach, if any, was material enough to justify cancellation as a remedy
• Whether the Minister's approval was a condition precedent to the validity of the sale agreement
• Whether the appellants were capable of making restitution if cancellation were granted

The appeal was dismissed. The respondents' tender to pay the outstanding amounts to seven appellants remained standing. The respondents abandoned their costs order from the court below and did not seek costs in the Supreme Court of Appeal.

Cancellation of a contract for breach is not justified where: (1) the innocent party has accepted performance under varied terms over an extended period without protest, potentially constituting an election to abide by the contract; and (2) applying the value judgment test, cancellation would be disproportionate where 96% of the purchase price has been paid, only an insignificant amount remains outstanding, and the innocent party's ability to make restitution is doubtful. The test for justified cancellation requires balancing competing interests and assessing whether the breach is so serious that it would be fair to allow the innocent party to cancel and undo all consequences of the contract. Cancellation is a radical remedy that will not be granted where it would constitute a disproportionate sanction in the circumstances.

The court expressed no view on whether the oral variation was legally effective despite the non-variation clause in the original agreement, noting it was unnecessary to decide this point. The court assumed for purposes of analysis that the oral variation, while factually agreed to, may not have been legally enforceable. The court noted (without deciding) that much could be said for the proposition that by accepting payments from May 2013 to January 2014, the appellants elected to abide by the contract and must be held to their election. The judgment also noted the importance of transformation profiles of fishing quota holders but clarified this does not mean the sale agreement was conditional on ministerial approval. The court observed that once clarified that cancellation was not justified, the controllers of Meermin may need to obtain ministerial approval for the change in control for future annual quotas.

This case is significant in South African contract law for clarifying the test for justified cancellation of contracts where substantial performance has occurred. It reinforces that cancellation is a radical remedy requiring a value judgment balancing both parties' interests, and that courts will not allow cancellation where the breach is relatively minor, most of the contract has been performed, and restitution is unlikely. The judgment also demonstrates the principle that conduct accepting varied performance over an extended period without protest may constitute election to abide by the contract. The case provides guidance on when payment defaults justify cancellation, particularly relevant in sale of business contexts involving fishing quotas and empowerment transactions.