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Variation of agreements by email – no Spring in the court’s step

July 21, 2015

INTRODUCTION AND BACKGROUND

Forum 1 and 2 Panorama Office Estate (Pty) Ltd v Indigold Cellular CC and Others (72355/09) 2015 ZAGGP (10 July 2015) dealt with, to some extent, the same issues that were dealt with by the Supreme Court of Appeal in Spring Forest Trading v Wilberry (725/13) 2014 ZASCA 178 (21 November 2014)  (Spring Forest). See my earlier article on my blog on this website.

As a bit of background, these are the material facts:

  • On 30 January 2009, Forum 1 and 2 Panorama Office Estate (Pty) Ltd entered into a written rental agreement (with a standard non-variation clause) with Indigold Cellular CC for three years.
  • Taryn, Joshie, Vispana and Vinoshini Pillay were all members of Indigold and signed surety for Indigold’s obligations in terms of the rental agreement. They pleaded that they entered into an oral agreement with Forum, in terms of which, in the event that they were unable to continue with their business due to Cell C, (their own client) cancelling its contract with them, they would have to secure an alternative tenant for the premises and accordingly they would be released from their obligations in terms of the rental agreement and suretyship.
  • As luck would have it, Cell C indeed cancelled its contract with Indigold in September 2009, triggering the course of events that lead to Indigold and the Pillays vacating the premises.Forum issued summons against Indigold and the Pillays for payment of arrear rental and damages suffered due to the breach of the rental agreement, together with interest and costs on an attorney and client scale, in accordance with the rental agreement.
  • Although Indigo and the Pillays all defended the action, the only issue in dispute between the parties and for the court to decide was the issue of whether Forum mitigated its damages. The Pillays filed an amended plea dealing with this, the varied rental agreement and the initial oral agreement.
  • Critically, Indigo and the Pillays pleaded that the rental agreement was varied to the effect that Indigold was obliged to pay rental in terms of the agreement, until such time as a new tenant was obtained.
  • According to Indigold, it found a suitable tenant, KSS Cellular, that was willing to take over the rental agreement on the same terms as Indigold and, as such, it had complied with the “varied rental agreement” and was no longer obliged to pay rental from 1 November 2009. Indigold and the Pillays pleaded in the alternative, but this plea is not relevant for the current discussion.
  • The basis of the “varied rental agreement” was three emails dated 5 October 2009 and 9 October 2009 (written by Joshie Pillay and Swart). According to Vispanathan Pillay’s testimony, the emails were only pleaded for the first time in Indigold and the Pillays’ plea because their IT specialist (his wife) only found them four weeks prior to the trial.
  • Mr Swart testified on behalf of Forum. He denied that there was any oral agreement where the cancellation of the Cell C contract with Indigold and the Pillays was discussed prior to the written agreement. The Pillays could not explain why the oral agreement was not raised in their earlier plea nor why it was not incorporated in the written rental agreement.
  • The three e-mails (argued by Indigold and Pillays as varying the rental agreement) were:
  1. This letter serves to confirm that Denash Pillay – – – and Chantal Andrews – – – hereby give Retief Swart, the owner of the building Forum 1 and 2 Panorama Office Park, permission to lease the Building out, or to get an agent to find a suitable tenant, until then our lease over the above property still stands” (dated 5 October 2009 and written by Joshie Pillay).
  2. “As per our meeting with you today please accept this as confirmation that we are closing down our business. We we (sic) hereby grant you authority to seek new tenants or sell your property and we will ensure that your rental for this month is paid – – – “ (dated 9 October 2009 and written by Vispanathan Pillay).
  3. “- – – I trust that we will find a new tenant ASAP and that you will keep payments until such time” dated 9 October 2009 and written by Swart.

JUDGMENT

With regard to the variation of the rental agreement, the court stated (paragraph [16]) that it did not agree that the e-mails proved variation of the rental agreement as alleged by Indigold and the Pillays. It stated that the words in the e-mail indicated that Indigold and the Pillays were merely giving permission to Swart and Forum to lease or sell the property and nothing more. Swart’s e-mail in response clearly held Indigold and the Pillays compliant with the terms of the rental agreement to pay rentals until a new tenant had been secured. The court said there was no ambiguity or lack of clarity in these e-mails and that they were not an intention of the parties to vary the rental agreement.

Based on this, the court stated that it need not discuss the issue raised by Forum as to the signature on the e-mails.

Counsel for Indigold and the Pillays relied on the names at the bottom of the e-mails as the parties’ signatures in line with Spring Forest, where the SCA held, unambiguously, that the legal requirement that an agreement or its variation be in writing is met in the form of a data message.

The court stated that the general rule is that parties who have signed a written agreement are free to vary or discharge their agreement within the limitations contained in the agreement. At paragraph [17] it said that “it would be remiss of the courts to permit parties who had entered into contracts with the prescribed formalities to vary such informally”. In the court’s view the Pillays’ signature at the bottom of the e-mails do not constitute signatures nor electronic signatures as contemplated and required in the written agreement and do not comply with the non-variation clause. The court rejected Indigold and the Pillays’ plea that the agreement was varied by the e-mails – there was no written and signed variation of the rental agreement.

COMMENTARY AND ANALYSIS

Without commenting on the conduct of Indigold and the Pillays in this matter, I submit that the court erred on the question of law as to whether the rental agreement was varied in writing and signed by the parties.

The SCA in Spring Forest is quite clear on this issue. Without going into too much detail, the SCA stated that an e-mail meets with the requirements of “in writing”, and the appending of names at the end of an e-mail constitutes “signatures” in terms of a non-variation clause and the Electronic Communications and Transactions Act (25 of 2002). See my earlier article on the Spring Forest judgment and its implications for parties to agreements.

By refusing to consider adequately the Spring Forest judgement, as it pertains to the e-mails already referred to, the court has not kept in line with SCA precedent. Further, the reasons for the courts diversion from the Spring Forest judgement were inadequate in the court’s judgment. No real discussion was entertained by the court in this regard; merely paying lip service by a reference to the SCA precedent.

Perhaps the reason for this is the conduct of Indigold and the Pillays but this is not established in the portion of the judgement dealing with the e-mail variation of the agreement. Possibly the best reason is the content of the e-mails themselves – it does not suggest a variation of the agreement. Or, contrary to the judge’s judgement itself, it was not clear that there was a meeting of the minds leading to a variation of the agreement by virtue of the e-mail exchange. However, Indigold and the Pillays argued that i the exchange did indeed lead to a variation of the terms of the agreement. I believe the court was remiss in not delving deeper into the Spring Forest decision and applying them to the facts in issue.

Whilst I disagree with the judgement on the point of law, we can learn something from this judgement: If you are going to vary an agreement by e-mail, it is best that it be clear from the emails that there is indeed a variation of the original agreement (that there is clear and unequivocal proof of a meeting of the minds leading to the variation of the agreement). When drafting an agreement with a non-variation clause, should the parties not wish the Spring Forest judgement to apply to their agreement, this should be clearly stipulated allowing no question of interpretation of the clause and the import of the Spring Forest and Forum issues.

There is the possibility that this judgement will go on appeal on this point of law. If so this will provide clarity on the state of the law on this issue based on the facts before the court.

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