Validity Of Contract Cancellation Via E-Mail

A longstanding standard in the drafting of contracts, the so called “non-variation clause”, came under scrutiny in light of the provisions of the Electronic Communications and Transactions Act 25 of 2002 (hereinafter “the Act”). The gist of the dispute at hand was whether the agreed terms of non-variation, in particular requiring the signatures of both parties, were achieved via electronic correspondence.

Wilberry (Pty) Ltd (hereinafter “Wilberry”) concluded several agreements with Spring Forest Trading 599 CC (hereinafter “Spring Forest”), including four rental agreements for the lease of Mobile Dispensing Units (MDUs) at four locations. All agreements between the parties shared the same non-variation clause. Spring Forest failed to meet the agreed rental commitments and, as a result of which, the parties held a meeting from which four proposals crystallized. Spring Forest undertook to consider these and revert. The following day, by way of five electronically mailed messages between the parties, the proposals were confirmed and Spring Forest indicated its election to “cancel the agreement and walk away”, per proposal 2. The names of the parties, acting on behalf of their respective enterprises, appeared at the foot of each electronic mail message.

Spring Forest thereafter contracted with another entity to conduct the same business. Wilberry instituted proceedings in the Durban High Court, interdicting Spring Forest from continuing its business, citing (with regard to the cancellation) non-compliance with the non-variation clause and, thus, that Spring Forest was acting in breach of the agreements between the parties. The interdict was granted and Spring Forest appealed to the Supreme Court of Appeal, arguing valid cancellation of the agreements.

When the formal requirements of writing and signature are imposed by statute or the parties to an agreement, these requirements may be satisfied through electronic means. The Act records that, with specific reference to the formation and validity of agreements, “an agreement is not without legal force and effect merely because it was concluded partly or in whole by means of data messages”.

The agreed requirement of writing, subject to exceptions, is satisfied if writing takes the form of a data message. In the case under consideration, there was no dispute that this requirement was met.

In so far as signatures are concerned, the Act distinguishes between an “advanced electronic signature” and an “electronic signature”. In short, when a signature is required by law, and the type of signature is not specified, the advanced electronic signature is applied, and when a signature is required by the parties to an electronic transaction, and the type of signature is not specified, the electronic signature is applied subject to stipulated conditions. In the case under discussion, it was held that the non-variation clause’s signature requirement is met through use of the electronic signature.

The remaining enquiry is whether the names of the parties at the foot of their respective correspondence constitute electronic signatures. The Act describes an electronic signature as “data attached to, or incorporated in, or logically associated with other data and which is intended by the user to serve as a signature”, thus, as long as data is intended to serve as a signature, and is logically connected with other data, the signature requirement is met.

The Supreme Court of Appeal ultimately found that, in light of the Electronic Communications and Transactions Act, the correspondence via electronic mail was in accordance with the terms of the non-variation clause and, as such, confirmed the validity of the cancellation of the agreements between the parties.

It must be borne in mind that this dispute pivoted on interpretation of the law and its application to the merits. The merits were not in dispute; the parties did not dispute the content of the electronic messages, nor the identity of the respective authors. Judgment in this matter, through interpretation of the law, has not created law that did not already exist but highlights the ease with which a contract, that may previously have been considered ‘bulletproof’, could easily be amended by a lay person through, what is now, an everyday activity. In addition, consider the host of electronic communication mediums (sms, Skype, WhatsApp, Facebook Messenger, Twitter’s direct messages are but a few) that, in the correct circumstances, may well provide the platform for valid amendment of various agreements.

 

Article Written by

Liam Groome
liam@dyason.co.za