Twenty-Third Century Systems (Pty) Ltd and Another v SAP Africa Region (Pty) Ltd

The first appellant (Systems), a company incorporated in Zimbabwe, had entered into agreements with SAP (the respondent) whereby it was appointed as a service provider of SAP's products in Sub-Saharan Africa, excluding South Africa. The second appellant (Global), a company incorporated in Botswana and wholly owned by Systems, concluded a suite of three written agreements with SAP on 30 May 2016 (the agreement). Between 1 and 22 July 2019, the parties exchanged letters regarding the termination of the agreement. SAP terminated the agreement for good cause on 1 July 2019. On 15 July 2019, Global's attorneys informed SAP that it had repudiated the agreement, which Global accepted. The appellants subsequently instituted action on 30 November 2020 against SAP for loss of profit arising from SAP's repudiation of the agreement. The agreement contained an exclusion of damages clause (clause 2(b) of Article 1 of Part 2) which precluded claims for loss of profits, and a time bar clause (clause 4 of Article 1 of Part 2) which limited the period to institute claims to one year. The agreement also contained a survival clause (Article 17(13)) which expressly provided that certain provisions, including the limitation of liability provisions, would survive termination of the agreement.

• Whether a contracting party who has repudiated a contract can rely on the terms of that contract after termination to exclude or limit liability
• Whether the exclusion of damages clause and time bar clause survived the termination of the agreement
• The interpretation of survival clauses in contracts
• The distinction between primary and secondary obligations under a contract after acceptance of repudiation
• Whether the doctrine of approbation and reprobation precluded SAP from relying on contractual terms after repudiating the contract

The appeal was dismissed. The first appellant was ordered to pay the respondent's costs, including the costs of two counsel where so employed.

When a party repudiates a contract and the innocent party accepts the repudiation, the repudiation does not terminate the contract but brings to an end the primary obligations of the parties to perform under the contract and activates certain secondary obligations. A distinction must be drawn between primary obligations (those directed at discharge of performance) and secondary obligations (those activated when primary obligations are not performed). Clauses in a contract that regulate the consequences of breach or termination, such as exclusion of damages clauses and time bar clauses, are secondary obligations that can survive the termination of the agreement. Where parties have expressly agreed through a survival clause that certain provisions will survive 'any termination' of the agreement, those provisions survive all types of termination, including termination resulting from repudiation. A party who has repudiated a contract may rely on such surviving provisions as a defence to claims, provided they are secondary obligations rather than primary performance obligations. The doctrine of approbation and reprobation does not preclude reliance on survival clauses which represent secondary obligations of the contract.

The Court made observations about the proper interpretation of survival clauses in commercial contracts, noting that a restrictive interpretation which limits survival to only certain types of termination would undermine the purpose of such clauses and lead to unbusinesslike results. The Court noted that in the commercial context, parties specifically intend for certain provisions (such as those relating to confidentiality, intellectual property rights, and payment obligations) to continue to operate after termination, regardless of how the termination occurs. The Court also observed that the use of the word 'any' before 'termination' in the survival clause indicates an intention to cover all types of termination, and if the parties intended to exclude certain types of termination, they would have expressly provided for such exclusion.

This case is significant in South African contract law as it clarifies the distinction between primary and secondary obligations in contracts and confirms the established principle that repudiation does not terminate a contract but rather ends the duty of parties to perform their primary obligations while activating secondary obligations. The judgment provides important guidance on the interpretation and effect of survival clauses in contracts, particularly in commercial agreements. It confirms that parties can contractually agree that certain provisions will survive termination, including termination by repudiation, and that a party who has repudiated a contract may still rely on such surviving provisions, provided they are secondary obligations rather than primary performance obligations. The case also clarifies the limited application of the doctrine of approbation and reprobation in this context, confirming that reliance on survival clauses does not amount to impermissible approbation and reprobation. The judgment has important implications for commercial contracts, particularly in relation to the drafting of limitation of liability clauses, time bar clauses, and survival clauses.