Most commercial agreements include a clause along the lines that the parties cannot amend or cancel the agreement except in writing and with both parties signing the amendment or cancellation (a “non-variation” clause).
Contracting parties would usually expect that this would amount to their signing an addendum to the agreement, setting out the amendment or the cancellation by agreement.
In an appeal judgment delivered last Friday, the Supreme Court of Appeal (“SCA”) ruled that an exchange of emails can suffice to meet the requirements of such a clause.
The High Court had decided that an exchange of emails between the parties concerning cancellation by agreement amounted to inconclusive negotiations only. Furthermore, the parties’ agreement did not specify that cancellation by email was possible. Therefore the original agreement had not been validly cancelled, and still bound the parties.
The SCA held differently. The Electronic Communications and Transactions Act No 25 of 2002 in section 13 distinguishes between signatures in electronic communications required by law and those required by the parties only. Those required by law should be advanced electronic signatures where not otherwise specified. Those required by parties who have not specified the form, need only “identify the person and… indicate the person’s approval of the information communicated, and having regard to all the relevant circumstances at the time the method was used, [be] as reliable as was appropriate for the purposes for which the information was communicated”.
The SCA found that the email exchange set out a clear agreement as to the terms of a consensual cancellation of the parties’ agreement. Signature of the consensual cancellation was not required by law but by the parties’ own original agreement. The emails met the requirements for signature in such a case, in that they identified the parties and their approval of the message contents, and were adequately reliable. The party seeking to rely upon the non-variation clause was criticised by the SCA as acting in bad faith, and trying to escape the consequences of a lawful consensual cancellation.
Contracting parties must therefore be very careful as to the email correspondence in which they engage concerning their contracts, and in particular in cases where amendments or consensual cancellations are under discussion. Hastily composed messages and careless wording can have grave legal consequences!