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Non-variation clauses and modern business transactions

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Non-variation clauses and modern business transactions

26th September 2017

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We all have seen a clause in most contracts called the “Non-variation clause”, but one does not always pay clear attention to this short three- or four-line clause in a contract of sometimes up to fifty pages. This clause usually states that “no variation, or agreement to cancel shall be of any force and effect unless in writing and signed by both parties”.

Moving on to the Electronic Communications and Transactions Act No 25 of 2002 (hereinafter the “ECT Act”). The core function of this piece of legislation is to encourage legal certainty in respect of electronic communications and transactions. In many business transactions, an agreement is signed, and thereafter the parties correspond through the various methods of modern communication, and in most business probably still the e-mail.

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By looking at the wording of the non-variation clause, and then the practical impact or possible ambiguity this clause may bring, when considering the ECT Act provisions, it is clear that there needs to be clarity on some issues. One such issue is whether an agreement containing a non-variation clause as above, may be varied if both parties agree thereto through email exchanges.

The ECT Act
The ECT Act in section 13(3) states that:
“13(1) Where the signature of a person is required by law and such law does not specify the type of signature, that requirement in relation to a data message is met only if an advanced electronic signature is used.

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(2) . . .

(3) Where an electronic signature is required by the parties to an electronic transaction and the parties have not agreed on the type of electronic signature to be used, that requirement is met in relation to a data message if-

  • (a) a method is used to identify the person and to indicate the person's approval of the information communicated; and
  • (b) 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.”

Further in the ECT Act, an electronic signature is defined as “…data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature…”.

The Supreme Court of Appeal (the “SCA”) in the case of Spring Forest Trading CC v Wilberry (Pty) Ltd t/a Ecowash and another, gave clarity on the interpretation of section 13(3) of the ECT Act. Here, the question was whether a person’s email signature is sufficient to satisfy the requirements of an electronic signature in terms of Section 13(3).

The Forest Trading-case
South African courts have always adopted a practical approach to signatures, rather than a formalistic approach, and the primary consideration is not whether the signature is literally pen on paper, but rather if the method of signature has fulfilled the function of authenticating the identity of the signatory.

In this case, the parties entered into four separate rental agreements, and each agreement contained a non-variation clause stipulating that “no variation . . . or agreement to cancel shall be of any force and effect unless in writing and signed by both you and us”.

Briefly, the lessee sent an email to the landlord in which it opted to cancel the agreements and the landlord responded to these emails, confirming what the lessee opted to do. Based on the non-variation clause in the agreements, the landlord denied this cancellation as it argued that the agreements could only be cancelled in writing with both parties’ signatures.
The SCA concluded that the typewritten names of the parties at the foot of the emails, which were used to identify the users, constitute ‘data’ that is logically associated with the data in the body of the emails, as envisaged in the definition of an ‘electronic signature’. They therefore satisfy the requirement of a signature and had the effect of authenticating the information contained in the emails.

In summary, the names of the parties at the foot of their respective emails were intended to serve as signatures; and constituted “data” which was logically associated with the data in the body of the emails; and identified the parties.
The requirements of Section 13(3) of the ECTA was therefore met, and the court held that the agreements were lawfully cancelled through the emails.

Conclusion
It is clear from the above example that it is important to have specific regard to the wording used in email correspondence, especially relating to cancellation or variation of contracts. The approach followed by our courts hereby conforms to the aim and purpose of the ECT Act. Parties have the choice to specifically exclude electronic forms of acceptance or variation as defined in the ECT Act. Such a specific exclusion will need to be added to the non-variation clause. It is thus important to have a professional attorney assist with drawing up agreements or assist with the negotiations thereto in order to be aware of such technical aspects. 

Written by André Nortjé, Junior Associate, SchoemanLaw Inc.

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