Minimising the potential binding effect of email exchange in contracts

Negotiating contracts by way of email exchange can create rights and obligations between the parties, which are legally binding and enforceable, unless that eventuality is expressly excluded.

25 Feb 2016 4 min read Dispute Resolution Alert - 25 February 2016 Article

Section 22(1) of the Electronic Communications and Transactions Act, No 25 of 2002 (ECTA) provides that “[a]n agreement is not without legal force and effect merely because it was concluded partly or in whole by means of data messages”. This provision applies to email correspondence as well as other data generated, sent, received and stored by electronic means. Therefore, a formal requirement for an agreement, such as that the contract be in writing is satisfied if it is in the form of an email.

Parties negotiating agreements might think that until the ink hits the page (literally speaking) they cannot be bound, but we advise such parties to consider the comments below before hitting send.

Certain contacts cannot be concluded by electronic means.

Certain agreements including the sale of immovable property, and certain documents such as wills cannot be concluded electronically. However, these exceptions are dwindling due to technology’s prominence in all areas of life and law.

When an electronic contract is possible what will bind a party?

Where the signature of a person to a transaction is required, s13 of ECTA distinguishes between two instances, namely, where a signature is required by operation of law and where the parties to a transaction impose this obligation upon themselves:

  • Section 13(1) provides that where a signature is required by law and such law does not specify the type of signature to be used, the requirement in relation to a data message is met only if an ‘advanced electronic signature’ is used, which is defined in the ECTA as “a signature which results from a process accredited by an Accreditation Authority”.

  • Where, however, the parties to a transaction formulated electronically require a signature but they themselves have not specified the type of electronic signature to be used, s13(3) provides that the requirement in regard to a data message is met if:

  • a method is used to identify the person and to indicate the person’s approval of the information communicated (s13(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)).

A real-life scenario concerning s13(3) (where the parties themselves required the signature).

The case of Spring Forest Trading 599 CC v Wilberry (Pty) Ltd t/a Ecowash & Another 2015 (2) SA 118 (SCA) dealt with the cancellation of an agreement via email.The Supreme Court of Appeal (SCA) was asked to determine whether or not the names of the parties appearing at the foot of their emails constituted signatures as contemplated in s13(1) and s13(3) of the ECTA. If they did, the non-variation clause in the agreement between the parties would be satisfied and the agreement was validly cancelled. Non-variation clauses are intended to protect the parties from informal changes to the contract that they formally agreed to.

The SCA took a pragmatic approach - the names of parties placed on the foot of each email sent could be regarded as a ‘signature’ in the context of the nonvariation clause. In the Spring Forest case the agreement was validly cancelled because the provisions of s13(3) were met.

The tech-savvy negotiator should therefore be alive to the fact that an email, signed off in a manner that identifies the sender and indicates concordance with its contents, is the legal equivalent of writing a message by hand, signing it and physically giving it to the recipient. The ECTA and the Spring Forest judgment have certainly brought parity between traditional hand-written or computer-generated documents, and perhaps, the most commonly used means of modern communication, email and its digital relatives.

What protection is there against the potential binding nature of email correspondence?

The standard non-variation clause which stipulates that “any variation must be in writing and signed by both parties” can now be met by two seemingly innocuous emails: one requesting the other party to vary the terms of the agreement and another, replying to the first, agreeing to that variation. Thus, in the wake of ECTA, standard variation clauses do not offer the protection they once did.

In order to minimise the risk of informal email correspondence giving rise to a binding agreement, parties should define the terms ‘in writing’ and ‘signed’ and specifically exclude electronic forms of acceptance or variation (as defined in ECTA) from those definitions. Such an exclusion will retain the status quo of the pen being mightier than email.

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