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Does misinterpretation mean repudiation of a contract?
07 June 2019
“I run a retail store and have been buying stock from a specific supplier for some time. The contract requires me to buy a minimum amount per month. The supplier now demands an escalation of his prices based on a formula in the contract that he is clearly misunderstanding to my detriment and refuses to budge even though I’ve explained to him that he is misunderstanding the formula. He says that if I don’t pay the prices as he calculates it, I will be in breach and he’ll sue me. At these new prices, the stock is too expensive for me. Is there any way I can get out of the contract?”

Our courts have recently held that misinterpretation can lead to a repudiation of a contract. In the case of Starways Trading 21 CC (in liquidation) and Others v Pearl Island Trading 714 (Pty) Ltd and Another 2019 (2) SA 650 (SCA), a purchaser entered into an agreement with a seller to buy sugar. Included in the purchase price was import duty which the Seller was obliged to pay under law and which he subsequently added to the purchase price to be paid by the Purchaser. Legislation regulating the sale of sugar determines that unless specifically agreed otherwise, the purchase price of sugar would vary in line with any changes in import duty. 

As the import duty on sugar decreased drastically, the Purchaser was entitled to a concomitant reduction in the purchase price. However, the Seller did not interpret the agreement correctly and insisted that the Purchaser pay the original purchase price. The Purchaser regarded this insistence as repudiation and subsequently cancelled the contract. The Seller then applied to to the High Court to enforce the contract, but the case was dismissed. He then appealed to the Supreme Court of Appeal.

The court held that it is well established that repudiation of an agreement takes place by an unequivocal indication, by word or conduct and without lawful excuse, that all or some of the obligations arising from the agreement will not be performed. The test is objective and must be applied from the vantage point of the innocent party. Bona fide insistence on an incorrect interpretation of a material term of a contract may therefore amount to the repudiation of the contract. Accordingly, the Seller’s conduct in enforcing the contract and demanding the price without any reduction, entitled the latter to cancel the contract. The appeal was dismissed. 

The above case provides grounds for considering the cancellation of your contract based on the repudiation of your supplier of the contract due to his insistence to apply an incorrect price escalation calculation. 

Our advice is to contact your attorney to help you review your contract and the supplier’s calculations and if appropriate help you to cancel the contract correctly and avoid yourself being in breach.