Can terms of a contract be unilaterally waived when the contract includes a non-variation clause? A comparative analysis

February 1st, 2025
x
Bookmark

The above question was recently pondered by the Supreme Court of Appeal (SCA) in two judgments, namely, Phoenix Salt Industries (Pty) Ltd v The Lubavitch Foundation of Southern Africa (SCA) (unreported case no 330/2023, 3-7-2024) (Mocumie ADP and Matojane and Molefe JJA and Seegobin and Mbhele AJJA) (Phoenix Salt) and Christopher Charles Hughes v Nicolas Gargassoulas and Others (SCA) (unreported case no 1030/2022, 12-4-2024) (Mothle and Molefe JJA and Coppin AJA) (Hughes). At first blush, the two appear conflicting; however, on closer inspection Phoenix Salt and Hughes are distinguishable in that the judges considered the purpose of the two legal doctrines – non-variation clauses and the presumption against waiver – and consequently reached different conclusions.

Definitions:

  • A non-variation clause is practically always included in a commercial contract and contains only two formalities, namely –

–          that any variation to a contract must be recorded in writing; and

–          that the variation must be signed by the contracting parties to the agreement.

  • A waiver is where a party stands to benefit from a right contained in the agreement and that same party may voluntarily choose to abandon or relinquish the right. The waiver can be made either expressly (in writing) or implicitly, wherein the waiver is deduced from the benefitting party’s conduct which would be interpreted to be inconsistent with a party wishing to uphold the right.

Because it is commonly accepted that parties go to great lengths to secure certain rights and, therefore, intentionally include these in their agreements, there is a general presumption in law against the waiver of a right. A person wishing to prove the waiver of a right must provide irrebuttable proof of the waiver.

Taking the two cases into consideration:

Phoenix Salt

The applicant (creditor) and respondent (principal debtor) entered into a loan agreement wherein the applicant’s subsidiary-company signed as surety and co-principal debtor in solidum, on the basis that the respondent would sell properties to the surety where the purchase price would be equal to the loan amount. The loan agreement included a non-variation clause. Twenty years later, the applicant demanded payment of the outstanding amount.

According to the respondent, the applicant’s directors made an oral representation that the surety would repay the loan to the applicant and/or that the surety had ceded its right to receive proceeds from the sales to the applicant. The applicant had, therefore, waived its right to recover the loan. In addition, there had been no previous attempts on behalf of the applicant to enforce the loan, nor was the loan ever recorded in the applicant’s financial records which is indicative of the applicant’s waiver.

The applicant argued that the oral representations constituted an attempt to vary the terms of the loan agreement and that due to non-compliance with the non-variation clause the variation could not be considered valid. No waiver was exercised.

The court held that a waiver was in fact established and that it could not necessarily be trumped or voided purely through the existence of a non-variation clause in the contract. The court did, however, emphasise that its finding would have been different had a clause been included in the contract specifically stating that a waiver may only be in writing.

Hughes

In the above case, the applicant (the seller) and the purchaser had entered into a sale agreement which included a suspensive condition that the purchaser obtain approval for a mortgage bond by a certain date. The agreement stated that the condition had been inserted to the benefit of the purchaser who may waive it by giving notice any time prior to the fulfilment or waiver of the right and that if the suspensive condition was not fulfilled or waived by that date, the agreement would be null and void. Importantly, the agreement included a non-variation clause and that no waiver of any rights by any party shall be of any force and effect unless done in writing and signed by both parties.

No waiver or mortgage bond was obtained by the due date, however, prior to the expiry of the due date, the conveyancer’s secretary sent an e-mail to the seller stating that the purchaser had waived his right to obtain a mortgage bond. The respondent was granted early occupation, however, shortly after occupation the respondent was informed that there were no building plans for certain parts of the property and the respondent subsequently vacated the property.

The applicant argued that this constituted a repudiation on behalf of the respondent and that the deposit ought to be retained as damages by the applicant, to which the respondent countered that no waiver had been applied and, therefore, the contract was null and void.

The SCA confirmed that no valid waiver had been established and that the agreement was void, based on the following reasons:

  • The conduct of the purchaser was not indicative of a party who had waived his rights – the presumption against a waiver had not been discharged.
  • The party must be aware of the right that they are waiving.
  • The conveyancer’s secretary did not have sufficient authority to waive the right to the approval of the mortgage bond on behalf of the purchaser.
Conclusion

While both agreements contained a non-variation clause, Phoenix Salt held that a unilateral waiver had been successfully established and could not be prevented by the inclusion of a non-variation clause in the agreement irrespective of the fact that the agreement included a non-variation clause, whereas the court in Hughes found that no such waiver had been proven and that even if there had been a waiver, such would have had to be in writing by the relevant party exercising it due to the agreement’s non-variation clause stipulating such as a requirement.

The two judgments underline that a non-variation clause and a waiver are two distinct doctrines with different purposes that need to be clearly defined in the relevant agreement. These being:

Waiver: abandonment/relinquishment of a right or privilege in contract, expressed through an explicit statement or conduct that indicates a voluntary decision without modifying the contract’s terms.

Variation: involves making changes to the terms of the contract, through mutual agreement or unilaterally and recorded in writing.

Celine Bakker BA (Law) LLB (Stell) is a legal practitioner at SL Law Inc in Cape Town.

This article was first published in De Rebus in 2025 (Jan/Feb) DR 35.

X
De Rebus