If you have ever received a formally drafted contract, it will almost inevitably contain a ‘non-variation clause’ along the lines of “no amendment or variation of this Agreement shall be valid unless in writing and signed by or on behalf of each of the Parties“. These clauses have a long history in South Africa of being strictly interpreted, with the rationale being that this prevents uncertainty on the actual terms of the contract, and prevents ‘informal amendments’ which one party may not consider to be a true amendment. A recent judgment of the Supreme Court of Appeal (“SCA“) delivered in November 2014 has opened up the non-variation clause to a new and intriguing challenge by providing for an exchange of emails to have effectively cancelled an agreement between two parties, on the basis of certain provisions in the Electronic Communications and Transactions Act (“the Act“), and in particular the Act’s recognition and definition of ‘electronic signatures’.
Use of ‘signatures’ as proof of an individual’s identity or intent is a well-established global practice, and the notion of what constitutes a “proper” signature has evolved over the course of history – from the use of a personalised seal (still a strict company law requirement in several South East African countries), to handwritten signatures, to modern day’s digital signatures in email or other electronic communication.
In recent history, South African courts have placed emphasis on the importance of handwritten signatures (often requiring ‘wet signatures’ on original documents) to prove identity and approval in commercial agreements – it was generally accepted that these ‘signatures’ would be the most difficult to falsify. However, business reality has evolved so that more and more people are concluding agreements through emails (with name and address footnote ’email signatures’), over web-based platforms (with ‘click to accept’ signatures), and other faster, more efficient methods. The question inevitably arises as to whether or not, and in what circumstances, these new types of signatures could validly amount to proof of an author’s identity and agreement, and whether the law could keep pace with technology and commercial reality by recognising them as such.
In 2002, the legislature finally tackled this problem head-on, when it enacted the Electronic Communications and Transactions Act. The Act recognises and regulates electronic communications and transactions at large (broadly recognising the ability of two parties to conclude a valid agreement via email, for example). The relevant sections of the Act for our purposes are as follows –
Section 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.”
Section 13(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.
The Act therefore essentially distinguishes and recognises two categories of signatures, namely an advanced electronic signature (section 13(1)) and an ordinary electronic signature (section 13(3)):
An ordinary “electronic signature” is defined in the Act as follows: “data attached to, incorporated in or logically associated with other data and which is intended by the user to serve as a signature”. This may for example include a scanned signature, or your name and details at the bottom of an email, provided the ‘signatory’ intended it to serve as a signature.
An “advanced electronic signature” is defined in the Act as follows: “an electronic signature which results from a process which has been accredited by the authority as provided for”. This essentially means a secure type of digital signature purchased from a third party who has been accredited by the Department of Communication (Law Trust was the first such authentication service provider to be accredited).
This brings us to the recent judgment delivered by the SCA in Spring Forest Trading CC v Wilberry:
Two parties, Spring Forest and Eco Wash respectively, had entered into an agreement in terms of which Spring Forest was appointed as operating agent for Eco Wash, and would be entitled to promote, operate and rent out the latter’s “Mobile Dispensing Units” (Eco Wash’s car wash equipment) to third parties. The parties’ agreement (“the Agreement“) contained a standard non-variation clause which required that any consensual cancellation or variation of the Agreement be in writing and signed by both parties.
Spring Forest eventually began to struggle to meet its rental commitments. Following a meeting between the parties to discuss how they would proceed, a string of emails were sent between the parties. Based on the content of this string of emails, Spring Forest believed that the agreement had been validly cancelled by both parties’ agreement expressed through these emails. When Spring Forest began competing with Eco Wash, Eco Wash applied to the Kwazulu Natal High Court for an interdict restraining Spring Forest from doing so on the basis of the competition being in breach of the Agreement. Eco Wash alleged in its court papers that its representatives viewed the emails as negotiations only, and not as a consensual agreement to cancel their previous Agreement. Eco Wash were granted their interdict by the Kwazulu Natal High Court, and Spring Forest appealed to the SCA.
In the course of the SCA’s judgment, the court found Eco Wash’s contentions that the emails merely record a negotiation and do not amount to an agreement to cancel to be “utterly without merit”, based on a reading of this exchange of emails. The court acknowledged the history and efficacy of the non-variation clause, which has been consistently upheld in previous judgments. The court then determined that the legal question at hand was the proper interpretation of ss 13(1) and (3) of the Act. Referring to the aims of the Act and the wording of the sections, the SCA found that it was clear the Act distinguishes between situations where the law requires the signature, and situations where the parties to a transaction impose this obligation upon themselves:
- Where a signature is required by law and the terms of the Act do not specify the type of signature required, then s 13(1) of the Act requires that an advanced electronic signature be used. An example of this would be the National Credit Act that specifically provides in the “Interpretation” section, for an advanced electronic signature to be used if the Act requires any document to be “signed”.
- Where, however, an agreement between two parties requires signature and does not specify the type of signature, then an ordinary electronic signature will suffice in terms of s 13(3) of the Act.
The court found that the email signatures used by each party constituted ordinary electronic signatures within the definition of the Act, and accordingly found the Agreement to be validly cancelled by way of the parties’ email correspondence agreeing to the cancellation (which satisfied the requirements of the non-variation clause in that the emails were ‘in writing’ and ‘signed’ by way of ordinary electronic signatures).
We believe that there are a few very interesting lessons to be learnt from the Spring Forest judgment. The first is of course to be careful what you put in your emails to commercial partners, clients and third parties with whom you have concluded written agreements. The second is that, if you would prefer amendments only through more “formal” means, we recommend requesting your legal representatives to strengthen the non-variation clause to require (for example) only handwritten or advanced electronic signatures for amendment or cancellation of an existing agreement. The judgment is ultimately a triumph of pragmatism over formalism, however it does open up the possibility of parties perhaps unwittingly amending or cancelling important agreements. It should be borne in mind that ultimately the question of when email correspondence will amount to an amendment or cancellation will depend on the content of those emails, which should be relatively clear and unequivocal on the part of both parties. Which brings us back to our first point – be mindful of what you put in writing.