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CONTRACT LAW: NON-VARIATION CLAUSES – MEETING MODERN BUSINESS PRACTICES

January 26, 2015

Spring Forest Trading v Wilberry (725/13) 2014 ZASCA 178 (21 November 2014)

 

Importance of this case

 

The case fortifies how emails and simple electronic signatures at the bottom of such emails can constitute an amendment or cancellation of an agreement – effectively bringing contract law (particularly in relation to non-variation clauses) in line with modern technology and business practices. Gone are the days where every amendment or cancellation must be made on a separate written document and signed by all the parties. The courts are now prepared to accept emails and other ‘data messages’ as enough to comply with the non-variation clauses in clients’ agreements. Further, a mere name at the foot of an email or other ‘data message’ (e.g. Kind regards, X) will be sufficient to meet the ‘signature’ requirement of the Electronic Communications and Transactions Act 25 of 2002 (“the Act”) and non-variation clauses contained in agreements. All businesspeople (and laypeople) must take cognizance of this case and make provision for them in their business dealings.

 

Introduction and Background

 

The tools of the modern businessperson have evolved in the last two decades. From writing letters and sending them by post, facsimile or delivery – today, s/he sends most of her/his messages, letters and documents via email; s/he sells and purchases goods and services online; and s/he interacts with customers and contractors via email and other electronic and digital means.

 

The Supreme Court of Appeal, in Spring Forest Trading v Wilberry (725/13) 2014 ZASCA 178 (21 November 2014), had occasion to decide how the above modern exchanges (particularly emails) impact on non-variation clauses.

 

In SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren en Andere [1964] 4 All SA 520 (A) (“Shifren”), the then Appellate Division held that where a contract had been concluded, and a non-variation clause included therein, a variation or cancellation of such a contract outside of the requirements contained within the non-variation clause is null and void and not binding on the parties to the contract.

 

A typical non-variation clause looks more or less like this:

 

‘No addition to, variation, or agreed cancellation of this agreement or any of the annexures or schedules hereto shall be of any force or effect unless reduced to writing and signed by or on behalf of all the parties.’

 

Therefore, the requirements of a non-variation clause (spoken of earlier) are:

 

  • that the variation or cancellation must be in writing; and
  • such must be signed by all parties to the contract.

 

The objective and effect of a non-variation clause (read in line with Shifren) is to protect the parties against casual/informal (usually verbal/oral) amendments or cancellations of the contract – to create certainty and prevent future disputes.

 

Facts

 

The parties in this case were Spring Forest Trading 599 CC (“Spring Forest”) and Wilberry (Proprietary) Limited t/a Ecowash and Another (“Wilberry”).

 

Wilberry was the owner of an ‘Ecowash system’ operated from one of its ‘mobile dispensing units’ (“MDUs”). The business involved washing vehicles in the parking lots at various locations. Spring Forest and Wilberry concluded a written contract (“master agreement”), in terms of which Wilberry appointed Spring Forest as its operating agent, giving Spring Forest the rights to promote, operate and rent out MDUs to others. The contract contained a typical non-variation clause.

 

Thereafter, the parties concluded four subsidiary rental contracts, all of which were subject to the terms and conditions of the master agreement. The rental contracts allowed Spring Forest to lease Wilberry’s MDUs at four locations and also contained non-variation clauses.

 

Spring Forest was not able to meet its obligations in terms of the rental contracts and, therefore, the parties met in order to determine how to proceed. Wilberry’s representatives put forward four proposals to Spring Forest. They decided to consider these proposals and revert after the meeting.

 

After the meeting, one of Spring Forest’s representatives sent an email to Wilberry’s representative confirming the four proposals detailed in the meeting, the most important of which was point 2, wherein it was suggested to ‘cancel the agreement and walk away’.

 

What ensued was a series of emails sent to and from the representatives of both parties clarifying and negotiating the details of point 2 above; importantly including the payment of arrear rental and return of equipment. Thereafter, Spring Forest complied with the terms negotiated, but continued to operate the car washing business at the locations contained in the rental agreements. It concluded a new contract with another entity to operate at these locations. It relied on the cancellation of the agreements to do so. Wilberry denied that the contracts were legally cancelled.

 

Judgment

 

The court held that a legal requirement for an agreement to be in writing is satisfied if it is in the form of a data message; including an email. However, there was no dispute that the emails met the ‘in writing’ requirement. The real dispute was whether or not the representatives’ names, placed at the foot of the emails, constituted ‘signatures’ as contemplated by sections 13(1) and (3) of the Act.

 

The court held that where signatures are required by law, and the law does not specify the type of signature to be used, section 13(1) states that this requirement is met only by using an ‘advanced electronic signature’.

 

Where, however, the parties require a signature, but they have not specified the kind of electronic signature that must be used, the requirement is met if –

  • a method is used to recognise the person;
  • to demonstrate the person’s sanction of the information contained in the data message; and
  • considering the circumstances when the method was used, it was appropriately reliable for the objectives for which the information was relayed.

 

The court held that because 1) the non-variation clauses were agreed upon by the parties (not imposed upon the parties by any law); and 2) when regard was had to the objective for which an advanced electronic signature is required, it is clear that it does not apply to private agreements between parties. As such, an ‘advanced electronic signature’ was not required.

 

Furthermore, to impose the onerous requirements for accreditation upon the parties, in this case, would have a detrimental effect on electronic transactions, and the obligations of the courts, when interpreting the Act, to recognize and accommodate electronic transactions and data messages in the application of any law. In addition, it could render section 13(3) redundant. In the court’s view, in the circumstances of this case, section 13(1) did not apply and section 13(3) did.

 

Furthermore, the court held that all negotiations between the parties were reduced to writing in the form of emails and constituted an agreement to cancel the written contracts. Section 22(1) of the Act states emphatically that ‘an agreement is not without legal force and effect merely because it was concluded partly or in whole by means of data messages’. Therefore, the emails do constitute a separate electronic transaction.

 

The court demonstrated the approach of the courts relative to signature requirements as being pragmatic and flexible, and not formalistic. They look to whether the method of the signature used complies with the function of a signature i.e. to authenticate the identity of the signature; rather than insist on the form of the signature used.

 

Contrasting an ‘electronic signature’ with an ‘advanced electronic signature’, the court asserted that as long as the ‘data’ in an email is intended by the user to serve as a signature and is logically connected with other data in the email, the requirement for an electronic signature is satisfied.

 

The court held that the parties required a signature to cancel the agreement, but they cancelled the agreement by email and did not specify the type of electronic signature that was required – hence, section 13(3) applied. The court affirmed that the typewritten names of the parties at the foot of the emails, which were used to identify the users, constituted ‘data’, that was logically associated with the data in the body of the emails, as envisaged in the definition of an ‘electronic signature’. They had the effect of authenticating the information contained in the emails and, therefore, satisfied the requirement of ‘signed’ in terms of the non-variation clause.

 

The court held that there was no dispute relating to the dependability of the emails; the correctness of the information transmitted; or the identities of the persons who added the names to the emails. On the contrary, the emails clearly and unambiguously revealed an object/purpose by the parties to cancel the agreements.

 

Analysis and Comments

 

It is clear from this judgment that emails will be taken as complying with the “in writing” requirement; and placing names at the foot of such emails will be accepted as “signatures” required in terms of non-variation clauses to vary and/or cancel contracts. Non-variation clauses are now in line with modern business practices i.e. the use of email and electronic signatures to do business, including concluding deals and varying and/or cancelling already concluded contracts.

 

I recommend all businesspersons to take head of this judgment, and to be aware that concluding contracts and amending and cancelling such agreements, by email and including their name/s at the end/foot of such email, will be accepted by the courts as in line with their non-variation clauses (if such is included in the agreement). Therefore, they cannot later rely on the notion that what was contained in the email was merely “negotiation”.

 

Furthermore, I recommend businesspersons, who have others concluding agreements on their behalf, to inform these individuals of the implications of this judgment (see above).

 

If businesspersons wish to impose a heightened restriction on the type of signature that will be required (remember that with this judgment, a basic name at the foot of your email will constitute an ‘electronic signature’ in terms of the Act, and therefore, a ‘signature’ for the purposes of a non-variation clause), it is advised to use advanced electronic signatures and to include in your non-variation clauses that only an ‘advanced electronic signature’ will be acceptable as an electronic signature  in terms of the clause and hence the agreement. This will require accreditation of the electronic signature by an Accreditation Authority before being accepted; and thereby provide greater protection. Persons wishing to pursue this route must comply with sections 37 – 41 of the Act.

 

I believe it is important to also consider section 12 of the Act read with the definition of ‘data message’ in section 1 of the Act in light of this judgment:

 

‘Writing.—A requirement in law that a document or information must be in writing is met if the document or information is —

 (a) in the form of a data message; and

(b) accessible in a manner usable for subsequent reference.’

 

‘data message’ means data generated, sent, received or stored by electronic means…’

 

I would argue that, taking into account the above provisions, other electronic means such as SMS, Whatsapp messages, Facebook messages and the like, could also be caught by provisions of the Act read in line with this judgment. Potentially, an agreement could be varied or cancelled using these electronic means, because they would comply with the definition of a ‘data message’; be accessible in a manner usable for subsequent reference (stored on your smart phone), hence complying with the ‘in writing’ requirement of the non-variation clause; and comply with section 13(3) and this judgment: that merely the name at the foot of the ‘data message’ (SMS, Whatsapp message, Facebook message etc) would suffice to meet the signature requirement of the non-variation clause.

 

Contract negotiators take cognizance: making amendments or cancelling an agreement via email with a simple signature at the foot of the email will be enough to effect such amendment/cancellation, unless you specifically impose a more stringent requirement in your agreements. 

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