SCA rules that e-mail contract cancellation legal

February 1st, 2015
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By Nomfundo Manyathi-Jele

In Spring Forest Trading 599 CC v Wilberry (Pty) Ltd t/a Ecowash and Another (SCA) (unreported case no 725/13, 21-11-2014) (Cachalia JA) the Supreme Court of Appeal (SCA) ruled that a contract between two Durban businesses was lawfully cancelled through e-mails they sent each other. The judgment has set a precedent in the validity of the cancellation of a written agreement via e-mail.

Background

The appellant, Spring Forest Trading 599 CC (Spring Forest) and respondent, Wilberry (Pty) Ltd (Wilberry) entered into several agreements in which Spring Forest leased ‘mobile dispensing units’ (MDU’s) from Wilberry which Spring Forest required for use in its mobile car wash business. The agreement contained a non-variation clause providing that no variation or consensual cancellation would be effective unless reduced to writing and signed by both parties.

However, Spring Forest was unable to meet its rental obligations in terms of the agreement and, following negotiations, verbally agreed to cancel the agreements. The terms of the cancellation, namely the payment of the arrear rental owed by Spring Forest and the return of the machinery to Wilberry, were recorded in e-mails between Nigel Keirby-Smith, Gregory Hamilton and Walter Burger, the representatives of Wilberry and Spring Forest with the names of the parties appearing at the foot of their e-mails.

The appeal concerned a series of e-mails purporting to consensually cancel written agreements between the parties. The agreements required any ‘consensual cancellation’ to be in writing and signed by them. The Electronic Communications and Transactions Act 25 of 2002 (the Act) gives legal recognition to transactions concluded electronically by e-mail. The dispute between the parties required the Supreme Court of Appeal (SCA) to consider whether their exchange of e-mails met the writing and signature requirements of the Act thereby constituting a consensual cancellation.

Mr Hamilton sent an e-mail to Mr Keirby-Smith at 11:44 am confirming the proposals. It read:

‘Hi Nigel,

Thanks for meeting with Walter and I today. I would like to clarify the options that you mentioned to us today.

1/ Pay a cash amount of R1 600 000.00 for the balance of 2 years.

2/ Cancel agreement and walk away.

3/ Carry on operating but we would end up in court.

4/ Pay R1 000.00 per month for 5 years with 15 % escalation.

Please confirm the above then we will advise tomorrow.

Kind Regards

Greg.’

At 11:56 am, Mr Hamilton sent a further e-mail to Mr Keirby-Smith:

‘Hi Nigel,

[Fu]rther to my previous mail, to clarify point 2. Please confirm that should we elect this option to walk away, there [wi]ll be no further claim or legal action from either side.

Kind Regards

Greg.’

At 12:18 pm, Mr Keirby-Smith replied:

‘Hi Greg,

That is correct subject to my last reply.

Nigel.’

The ‘last reply’ referred to in the e-mail was sent from Mr Keirby-Smith’s address at 12:05 pm and it read:

‘All arrear rentals due at the date of handover will be due.

Henry Wilkinson

Chief Executive Officer.’

At 4:02 pm, Mr Hamilton sent the final e-mail which read:

‘Dear Henry and Nigel,

[A]s per our discussion this morning and follow up emails, we thank you for the 4 options offered to us. We confirm that we accept your second offer whereby we will return all equipment leased to us and that there shall be no further legal recourse from either party. We would like all equipment picked up on or before 28 February 2013 so that we do not incur further lease costs for the following month.

Kind Regards

Greg.’

Spring Forest, paid the arrear rentals. However, it continued operating its car washing business at the locations covered by the rental agreements. It says it was entitled to do this as both the master and rental agreements between it and the respondent had been cancelled. Spring Forest then entered into an agreement with another entity to conduct the same business. In response, Wilberry applied for an interdict preventing Spring Forest from conducting its business. The respondent denied that the agreements were validly cancelled. It therefore sought and was granted interdictory relief to protect its proprietary rights in its MDU’s pending the institution of an action for breach of the agreements. The High Court found that the e-mail communication did not evince an intention to cancel the agreements, but merely recorded the inconclusive negotiations between the parties. And, that in any event, the parties had not specified that their agreements could be cancelled by the exchange of e-mails.

It thus held that the Act did not apply to the e-mails and that the appellant’s purported cancellation of the agreements was in conflict with the terms of their written agreements, and therefore invalid. The interdict was granted by the Durban High Court. Spring Forest thereafter lodged an appeal to the SCA.

The Electronic Communications and Transactions Act 25 of 2002

The respondent disputed the appellant’s argument. It contended that the e-mail exchange was merely a negotiation between the parties regarding the appellant’s breaches and did not amount to a consensual cancellation of the agreements, a contention that the High Court upheld. At best for the appellant, says the respondent, the e-mails refer only to the rental agreements, not the master agreement. However, if they do evince a cancellation of both the master and the rental agreements, the e-mails did not comply with s 13(1) of the Act. This is because the section requires an ‘advanced electronic signature’ to be used on an e-mail when a signature is required by law – as specified by the non-variation clause in this case – and no such signature appears on the e-mails. In addition, the respondent argued that s 13(3) relied on by the appellant to bring the e-mails within the ambit of the Act does not apply because: ‘First, it contends that the e-mails do not and cannot constitute a separate electronic transaction because they pertain to the oral negotiations about the written agreements. Secondly, even if they do constitute a separate electronic transaction, the parties did not require an electronic signature as envisaged in the section; and finally, there was no reliable method used whereby the parties were identified and indicated their approval of the information communicated in the emails.’

On appeal, the SCA stated that it was not in dispute that the e-mails between the parties fulfilled the requirement that the cancellation of the agreements must be ‘in writing’. This was because, in terms of s 12(a) of the Act, a legal requirement for an agreement to be in writing is satisfied if it is in the form of data messages and that it was common ground that the e-mails between the parties was governed by the Act.

The SCA held that the real issue in this case was whether the names of the parties at the foot of their respective e-mails constituted signatures as contemplated by ss 13(1) and (3) of the Act. Section 13 reads as follows:

‘(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.

(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.’

The court held that s 13(1) did not apply in the circumstances of this case, and on the face of it, s 13(3) did.

The SCA pointed out that s 13 of the Act makes a distinction between a situation where the law requires a signature and where the parties between themselves agree on the added formality of a signature. Where a signature is required by law and the law does not specify the type of signature to be used, s 13(1) says that this requirement is met only if an ‘advanced electronic signature’ is used. Where, however, the parties to an electronic transaction require this but they have not specified the type of electronic signature to be used, the requirement is met if a method is used to identify the person and to indicate the person’s approval of the information communicated (s 13(3)(a)); and having regard to the circumstances when the method was used, it was appropriately reliable for the purpose for which the information was communicated (s 13(3)(b)). Section 13(1) of the Act requires an ‘advanced electronic signature’ whereas in the latter instance only an ‘electronic signature’ is required.

The SCA rejected Wilberry’s contention that in this case an ‘advanced electronic signature’ was required as the requirement was agreed between the parties and it could not be argued that the parties were involved in a business where an ‘advanced electronic signature’ was necessary.

The SCA analysed s 13(3) of the Act. Justice Cachalia said: ‘The respondent submits that the phrase: “Where the signature of a person is required by law” (emphasis added) in s 13(1) it should be interpreted not only to include formalities required by statute but must also incorporate instances where parties to an agreement impose their own formalities on a contract, as in this case. And, so the contention goes, because the parties required their signatures for the contracts to be cancelled the requirement could only be satisfied by the use of an advanced electronic signature as contemplated in s 13(1), which did not occur in this case.’

Conclusion

The court held that the approach of the courts to signatures in general has been pragmatic and not overly formalistic. It said that the courts look to whether the method of the signature used fulfils the function of a signature – to authenticate the identity of the signatory rather than insist on the form of the signature used.

The judgment cited a case where the courts have accepted any mark made by a person attesting to a document. ‘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. They went even further and accepted a mark made by a magistrate for a witness, whose participation went only as far as symbolically touching the magistrate’s pen’ (para 25).

In the 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 court held that the typed written names of the parties at the foot of the e-mails were intended to identify the parties, constituted data that was logically associated with the data in the body of the e-mails and therefore constituted an electronic signature. The SCA found that ‘there is no dispute regarding the reliability of the e-mails, the accuracy of the information communicated or the identities of the persons who appended their names to the e-mails. On the contrary, as I have found earlier, the e-mails clearly and unambiguously evinced an intention by the parties to cancel their agreements. It illbehoves the respondent, which responded to clear questions by e-mail itself, to now rely on the non-variation clauses to escape the consequences of its commitments made at the meeting on 25 February 2013 which were later confirmed by e-mail.’ Accordingly, the SCA found that the cancellation of the agreements was valid and the appeal of Spring Forest was upheld.

Shortly after this judgment was handed down, social media was abuzz with users questioning whether a court would show the same comfort to an agreement cancelled on social media such as via a Tweet or a Facebook status update.

Nomfundo Manyathi-Jele is the news editor at De Rebus.

This article was first published in De Rebus in 2015 (Jan/Feb) DR 57.