The Supreme Court of Appeal (SCA) provided us with a concise explanation on the difference between variations of a contract and a waiver of a right, in a judgement delivered on 3 July 2024. We set out below a summary of the key legal principles in that matter. The judgement will be of interest to any professional dealing with the contents and enforcement of contracts.

In the matter of Phoenix Salt Industries (Pty) Ltd v The Lubavitch Foundation of Southern Africa (330/2023) [2024] ZASCA 107 (03 July 2024) (“Phoenix Salt”), the SCA had to decide whether conduct of a party to a contract amounted to a variation of a contract containing a non-variation clause or the conduct was in fact a waiver. A link to the judgement is provided at the end of this article.

Variation and non-variation clause

A contractual variation is simply, as its name suggests, a change to the contract. A non-variation clause is usually incorporated in contracts to protect parties from alleging that there was a subsequent change to the contractual terms. It ordinarily prohibits a variation of the contract unless both parties sign the variation. This is intended to diminish the risk of disputes about what the terms of the contract are.

The non-variation clause in the agreement in the Phoenix Salt matter was quite standard and stated as follows:

“9.2      Neither party shall be bound by any representation, express or implied term, warranty, promise or the like not recorded herein or reduced to writing and signed by the parties or their representatives.

9.3       No addition to, variation or agreed cancellation of this agreement or the annexure thereto shall be of any force or effect unless in writing and signed by or on behalf of the parties.”

Waiver

The SCA explained that a waiver on the other hand is a deliberate voluntary abandonment of a known existing right, benefit or privilege. The right must exclusively belong to that party before it can be waived.

A party can for example decide that it no longer needs to receive payment in terms of a contract. If this is communicated, the other party will not need to make payment. The waiver of a right can be communicated either expressly or by conduct.

Where the contractual clauses do not make specific provision for how a waiver must occur, a party can validly waive a contractual right orally. Whether there was a waiver or not is a matter of evidence.

Difference between a variation and waiver

A waiver is not a variation which needs to be in writing and signed by the parties where there is a non-variation clause. It does not alter the terms of the contract. It simply abandons or relinquishes a right or privilege through conduct outside of the contract.

A variation is where both parties agree to change a contract. A waiver does not require the other party to accept it, it only requires unilateral communication that a right will be waived.

The SCA stated: “A waiver is the renunciation of a right, and when the intention to renounce is expressly communicated to the affected party, such person is entitled to act upon it. When the renunciation is evidenced by conduct inconsistent with the enforcement of the right or clearly showing the intention to surrender that right, the intention can be acted upon and the right perishes.”

Contractual interpretation

The SCA also summarised the principles applicable to contractual interpretation and set out as follows:

-        It is difficult to find the intention of contracting parties exclusively in the written words of a contract.

-        Wording must be interpreted in the context of the whole contract and the surrounding circumstances.

-        Context must be considered when interpreting any contractual provision.

-        The surrounding circumstances should not be elevated over the wording of the contract, but such evidence can give insight into the intention and the purpose of the contract.

The court set out these principles to justify considering the external context in which the waiver occurred. It found that despite the non-variation clause quoted above, a waiver could be inferred from conduct. The non-variation clause did not apply to the waiver nor prohibit a waiver by conduct. It applied only to changes to the contract.

Each case must be determined on its own facts. In this matter there was no provision prohibiting an oral waiver or waiver by conduct. Where the contract specifically provides how a waiver must occur, ordinarily the terms of the contract will apply. If the parties to a contract wish for the waiver to only occur in writing, then the terms of the contract should expressly state this.

Below is the link to the judgement:

https://www.saflii.org/za/cases/ZASCA/2024/107.html

This article does not constitute legal advice or replace the need to seek advice. It also does not contain all the information relevant to the subject matter. Each situation is different and must be evaluated on its own merits. For advice on contractual disputes, our contact details are below.