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In contractual agreements, we often encounter clauses of this nature: ‘No variation or consensual cancellation would be effective unless reduced to writing and signed by parties.’
These clauses, sometimes referred to as “non-variation clauses,” have a single purpose, which is to provide certainty and avoid later disputes regarding the variation or cancellation of the agreements. Since Shifren, non-variation clauses have been recognised as enforceable in our law. In Brisley v Drotsky, the Supreme Court of Appeal reasoned that these clauses are advantageous to both contracting parties.
The Electronic Communications and Transactions Act 25 of 2002 (the Act), which regulates two electronic communications, provides for two distinct types of signatures. The first is the “advanced electronic signature,” which the Act defines as, “An electronic signature which results from a process which has been accredited by [the .za Domain Name Authority] as provided for in section 37 [of the Act]”. The second is the “electronic signature,” which the Act defines as, “Data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature”.
Before the Supreme Court of Appeal (SCA) judgment in Spring Forest Trading v Wilberry, there was uncertainty about whether the requirements of these clauses are fulfilled where a variation or cancellation takes form of an electronic message (e-mail). This uncertainty related particularly to whether the names of the parties at the foot of the e-mails by both parties could be construed to be signatures in law.
It is common cause that most e-mails in the ordinary cause of business do not incorporate the “advanced electronic signature” but the “electronic signature”. Nonetheless, uncertainty was raised by section 13(1) and (3) which reads:
“(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.
….
(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.”
Section 13 raised several important questions that remained resolved until the recently. First, whether the phrase “required by law” referred to instances where signature is required by statute and not by the parties to the agreement? Second, whether the placement of the names that clearly identifies the parties at the foot of the e-mails fulfils the requirements of non-variation clauses? Finally, whether the exchange of e-mails can be regarded as a separate agreement despite being preceded by an oral agreement?
The Spring Forest Trading case
The dispute concerned five emails exchanged by parties to a lease agreement purporting to vary the terms of the agreement. The agreement contained a non-variation clause. The e-mails did not incorporate “advanced electronic signature”, and related to options presented to the appellant by the respondent after the appellant’s failure to make payments. These options had been presented to the appellant orally.
In the first and second e-mails, the appellant sought to clarify the options presented, and whether if it chose the option to “cancel and walk away”, would this mean “there [wi]ll be no further claim or legal action from either side.” The third and fourth e-mails came from the respondent, where it clarified that should the appellant opt to “cancel and walk away”, there will be no further legal claims, provided that the appellant pays the rental in arrears. In the last e-mail, the appellant informed the respondent that it elected to “cancel and walk away” and they will return the leased equipment.
It became common cause that the rental arrears were fully paid and the lease equipment was returned. However, the respondent denied that lease agreement was validly cancelled relying on the non-variation clause. The ultimate question before the Court was whether the names of the parties at the foot of the exchanged e-mails constituted signatures as contemplated in section 13(1) and (3).
Holding 1: Agreements can be varied or cancelled by agreements in terms of s 13(3)
The Court clarified that the inclusion or printing of the name of the parties at the foot of an e-mails meets the requirement of an electronic signature. It held that the approach by South African courts to signatures has been pragmatic rather than formalistic, and that the sole function of a signature is to “authenticate the identity of the signatory”.
The Court reasoned that:
“Commonly understood a signature is ‘a person’s name written in a distinctive way as a form of identification . . . .’ But this is not the only way the law requires a document to be signed. In the days before electronic communication, the courts were willing to accept any mark made by a person for the purpose of attesting a document, or identifying it as his act, to be a valid signature…”
Therefore, as long as the names of the parties printed at the foot of the respective e-mails are intended by the parties to serve as signatures and are “logically connected with other data in the e-mail the requirement for an electronic signature is satisfied.” In the case, the Court held that there had been valid cancellation of the lease agreement.
The Court held further that an exchange of e-mails would constitute a separate agreement “in writing” even though they were preceded an oral agreement. The court relied on section 22(1) of the Act which provides that, “An agreement is not without legal force and effect merely because it was concluded partly or in whole by means of data messages.”
In my view, this is the correct position when read in the context of section 12 of the Act. The exchange of e-mails should be regarded as a reduction of the agreement into writing as contemplated by section 12 despite the multiplicity of the e-mails exchanged. Section 12 of the Act provides that, “An requirement in law that a document or information must be in writing is met if the document or information is: (a) in the form of a data message; and (b) accessible in a manner usable for subsequent reference.”
Holding 2: Defining “required by law” in terms of s13(1)
Before the Court, the respondent contended that where the signature is “required by law” in terms of s13(1), it should be interpreted not only to include formalities required by statute but also those imposed by parties in the agreement. As such, since the exchange of e-mails between the responded and the appellant did not incorporate the “advanced electronic signatures”, it fell short of the section and renders the cancellation invalid.
Rejecting this argument, the Court held that non-variation clauses are always imposed by parties to the agreement, not by the law as contemplation in s13(1). It further held that “advanced electronic signatures” only results from a process accredited by the by Accreditation Authority, and does not apply in private agreement.
This is correct. Beside the nature in which “advanced electronic signatures” result, nothing suggests that the section refers to common law requirement of signature. To interpret it in this manner would certainly make ordinary running of business difficult.
The law
It is therefore clear that the Supreme Court of Appeal’s judgment in Spring Forest Trading case marks a step forward for the business sector. The Court was possibly driven by the increasing use of communications by e-mails daily. However, it has somehow created a room for forgery. Unlike ordinary signatures, where forgery of signature is easy to prove, the same cannot be said with e-mails. In addition, an interesting question related to whether the use of cellular phone messages (sms) will get a similar response.
CITATIONS
Shifren and Others v SA Sentrale Ko-op Graanmaatskappy Bpk 1964 (2) SA 343 (O)
Brisley v Drotsky 2002 (4) SA (SCA) 1
Spring Forest Trading 599 CC v Wilberry (Pty) Ltd t/a Ecowash and Another (725/13) [2014] ZASCA 178
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