Cancellation of contracts in the 21st century

transfer pricing 102Author: Douglas Molepo – Dispute Resolution Director at ENSafrica

Can parties cancel or amend written agreements by email if their written agreement prohibits amendments or cancellation unless in writing and signed by the parties?

In the recent case of Spring Forest Trading v Wildberry (case no 725/13), the Supreme Court of Appeal (SCA) answered this question with a firm “yes”, meaning that parties should carefully consider the wording of their contracts before signing on the dotted line.

South African law allows parties to enter into most contracts without formalities, with exceptions including land sales and suretyship agreements. This means that parties can generally enter into perfectly valid contracts orally and without the need for amendments or cancellation to be in writing.

However, to create a measure of certainty and to avoid squabbles down the line, the parties may require amendments and cancellation to be in writing and signed by all parties in order to have any effect. They can do so in “non-variation clauses”, which are common and are generally upheld by the courts.

In days gone by, this requirement meant that the contract – and any future variations or cancellation – should be typed or handwritten and signed by hand. However, today, more often than not, parties communicate by email and text messages, which raises the question of whether such means amount to “in writing” and can be regarded as duly signed.

These were the issues the court was confronted with in Spring Forest Trading v Wilberry. The parties had concluded a written master agreement, together with a number of subsidiary rental agreements, each containing a non-variation clause.

Down the line, their relationship soured and, in an exchange of emails, they agreed to cancel the various agreements. But this was not the end of the matter, as Wilberry later challenged the validity of the cancellations, relying on the non-variation clauses.

Their dispute eventually reached the SCA, which earlier this year found in Spring Forest Trading’s favour, upholding the email cancellations as valid and binding.

In reaching its decision, the SCA relied on the Electronic Communications and Transactions Act 25 of 2002 (“ECTA”), which provides for courts to recognise and accommodate electronic transactions and data messages (ie, “data generated, sent, received or stored by electronic means”).

Section 12 of the Act states that, as a general rule, a legal requirement that an agreement should be in writing is met if it is in the form of a “data message”. There are, however, exceptions – the general rule doesn’t apply to immovable property sale agreements, wills, bills of exchange and stamp duties.

In Spring Forest Trading v Wilberry, the parties were in agreement that the emails met the “in writing” requirement, but they disagreed on whether the names of the parties at the end of their emails could be regarded as signatures.

Section 13 of the ECTA distinguishes between instances (i) where the law requires a signature and (ii) where the parties impose this obligation. In the case of the former, and where the law doesn’t specify the type of signature to be used, section 13(1) says that an “advanced electronic signature” is necessary. In the case of the latter, section 13(3) provides that where the parties require a signature and they haven’t specified its form, what is required is:

  1. “a method is used to identify the person and to indicate the person’s approval of the information communicated; and
  2. having regard to all the relevant circumstances at the time the method was used, the method was as reliable as was appropriate for the purposes for which the information was communicated.”

Wilberry argued that, since they had included non-variation clauses in their agreements, their signatures were required by law, and thus section 13(1) applied and only an advanced electronic signature would suffice. In its view, the failure to include an advanced electronic signature meant that the cancellations were invalid.

But the SCA rejected this, finding that the parties – and not the law – required signature. The court held that an advanced electronic signature required a strict and onerous accreditation process, and to require such a signature in a self-imposed non-variation clause would detrimentally affect electronic transactions and would render section 13(3) unnecessary.

In this case, not only did section 13(3) apply, but its requirements were met. The SCA found that the typewritten names of the parties at the foot of their emails constituted “data” that was logically associated with the data in the body of the emails, and thus constituted electronic signatures as defined in the ECTA.

Their names identified them, indicated their approval of the information in the emails, and there was no dispute as to the reliability of the emails or of the information communicated in them: the emails clearly and unambiguously demonstrated a common intention to cancel the agreements and they were thus validly cancelled.

Lessons to take away from the judgment

Carefully consider the wording of non-variation clauses when you are entering into a contract. If the common intention is that any variations or cancellations should be effective only if made in writing on paper and signed by hand in the traditional manner, make sure this is set out unambiguously in a carefully crafted non-variation clause.

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