Commercial contracts are the lifeblood of modern business. Reviewing them with a keen legal eye is essential to protecting your organisation’s interests and ensuring compliance with both local and international standards.
Drawing on years of experience advising large companies, this article offers a practical overview of the most important legal principles to consider when reviewing a commercial contract.
While grounded in South African law, the insights provided are broadly applicable to cross-border agreements as well—especially when aligning foreign contract terms with South African legal standards.
Business leaders, legal teams, and procurement professionals alike will benefit from this guide, which focuses on common contract types such as vendor applications, supplier agreements, and non-disclosure agreements (NDAs).
Key focus areas include payment terms, risk transfer, liability limitations, jurisdiction clauses, penalties, and termination rights.
Understanding Key Contract Types and Legal Considerations
Vendor Applications (Supplier Onboarding Forms)
Vendor application forms are often the first step in a business relationship, especially when a company wishes to become an approved supplier for another.
Though they may seem routine, these forms often contain legally binding obligations. Standard terms and conditions—typically drafted by the procuring company—can include payment cycles, delivery requirements, liability disclaimers, and more.
Key Considerations:
Review for hidden security provisions, such as director surety or cession clauses. Confirm that the proposed payment terms align with your internal policies, and ensure that jurisdiction clauses do not create undue legal disadvantages.
Supplier Agreements
Supplier agreements are central to most B2B transactions. They define the terms under which goods or services are provided and must be drafted with clarity and precision.
Key Focus Areas:
Ensure that payment obligations are clearly defined. Delivery and acceptance terms, limitations of liability, cancellation rights, and jurisdictional clauses should be fair and clearly worded.
It’s also important to distinguish direct damages from excluded consequential losses and ensure that termination and penalty clauses are balanced and commercially reasonable.
Non-Disclosure Agreements (NDAs)
NDAs protect confidential information exchanged between parties during negotiations or partnerships. A robust NDA should:
- Define the scope and purpose of the confidentiality clearly;
- Specify a fixed duration (commonly up to five years);
- Include survival clauses that remain in effect post-expiry;
- Set out exclusions (e.g., information that is public or legally required to be disclosed);
- Detail remedies in the event of a breach; and
- Identify a governing law and dispute resolution mechanism, such as neutral arbitration.
Key Legal Principles in Contract Review
Payment Obligations and Financial Terms
Ensure payment terms are comprehensive and specific: include amounts, currency, due dates (e.g., net 30 days), interest on late payments (as per the Prescribed Rate of Interest), invoicing procedures, security mechanisms, and any cross-border withholding requirements.
Clear financial terms reduce the risk of disputes and cash flow disruptions.
Transfer of Risk and Ownership
Contracts should override default common-law positions by clearly stating when risk and ownership transfer. Typically, risk passes on delivery and ownership upon full payment (as per a retention-of-title clause). For international transactions, use Incoterms and align contract provisions with insurance policies to avoid ambiguity.
Limitation of Liability and Indemnities
Liability caps, exclusions of certain types of damages, and indemnity provisions set boundaries for legal exposure. Under South African law, such clauses are enforceable but must comply with public policy.
They may not exclude liability for willful misconduct and should ideally carve out gross negligence. Indemnity procedures must include notice and allow the indemnifying party to participate in the defence.
Governing Law and Jurisdiction
It is essential to specify the governing law—commonly the law of the Republic of South Africa—and identify the forum for resolving disputes, such as a particular court or arbitration panel.
Well-drafted clauses reduce jurisdictional uncertainty and increase the enforceability of judgments, particularly under international treaties like the New York Convention.
Penalties and Liquidated Damages
Under the Conventional Penalties Act, pre-agreed penalties are enforceable but may be reduced if deemed out of proportion to the breach. Ensure these clauses define clear triggers, reasonable calculations, and appropriate caps to withstand scrutiny.
Termination Rights and Remedies
Termination provisions should clearly spell out when either party may end the agreement—whether for cause or convenience.
Include reasonable notice periods, cure provisions (to allow the other party to rectify a breach), and post-termination obligations such as the return of confidential information or settlement of outstanding invoices. Clear exit strategies reduce risk and foster trust between parties.
Conclusion: Legal Insight Meets Commercial Strategy
An effective contract review process requires both legal expertise and commercial sensitivity. South African law supports the principle of party autonomy—meaning that what is written in your contract matters immensely. Every clause should be clearly drafted and commercially justified.
At Kamfer Attorneys, we help our clients safeguard their interests by providing precise, practical legal advice across all types of commercial contracts. If your business requires expert guidance on drafting, negotiating, or reviewing commercial agreements, we are here to assist.
Contact us today to discuss how we can support your commercial legal needs.
