The general principles in construing a contract silent as to its duration is to look at the express provisions of the contract and the intention of the parties. However there is no presumption either way and the concern is that parties can be bound in perpetuity especially when there are no express terms dealing with the duration of the contract and where the parties dispute when the contract can be terminable.

These principles were recently applied of the case of Plaaskem (Pty) Ltd v Nippon Africa Chemicals (Pty) Ltd [2014] SCA 73. This case involved the determination of whether a contract between two parties contained a tacit term to the effect that the contract was terminable by either party on reasonable notice. The written agreement between the parties regulated the importation of agricultural chemical products.

It was common cause between the parties that the contract was silent as to the duration of the contract and the issue to be decided in the High Court was whether the agreement had a tacit, alternatively implied term that the agreement was terminable by either party on reasonable notice or that properly construed, the agreement was terminable on reasonable notice. The High Court found that the contract was not terminable on reasonable notice and the concern was therefore that the appellant could be bound in perpetuity.

In assessing whether the contract contained a tacit term the Supreme Court of Appeal (SCA) noted that the first assessment is one of construction and involves looking at the language used by the parties in the agreement. The SCA found that the contract contained no express term dealing with the contract's duration but that there was also no indication that the parties intended to be bound in perpetuity. The next assessment involves considering the intention of the parties, having regard to the nature of the relationship between the parties and the surrounding circumstances. The SCA found that the contract required the parties to form and maintain a close working relationship with regular conduct and interaction. The SCA also found that the contract covered a wide range of products and that it was therefore reasonable to assume that the nature of the relationship would change over time. The contract involved the local distribution authority importing chemical products and the SCA found that a number of factors would impact the profitability and financial viability of the contract. The SCA was of the opinion that given the unpredictable and variable nature of factors such as production and transportation costs it would be unlikely that the parties could have intended to be bound to the contract in perpetuity. It was the commercial reality of the relationship which the SCA found to suggest an intention of the parties not to remain bound in perpetuity.

As a result the SCA found that taking into account the surrounding circumstances and in view of the fact that the contract was silent as to its duration it was necessary that a tacit term be imported into the agreement. Taking into account the practical considerations, the SCA found that it was necessary and commercially efficacious that the tacit term should have the effect that the contract would be terminable on reasonable notice. The SCA also stated that when formulating a tacit term one must ensure that it is capable of clear formulation. The SCA therefore declared that the agreement between the parties contained a tacit term that the contract may be terminated by either party on reasonable written notice.

It is therefore clear that where a contract involves a close working relationship with mutual trust and confidence it is reasonable to infer that the parties do not intend to bind themselves indefinitely but rather that the contract will by either party terminate on reasonable notice. Moreover, while a court should be cautious in deciding whether to import a tacit term into a contract, regard must be had to the circumstances surrounding the contract such as the business sensitivities and the practical effect that a perpetual contract would have on the parties.