Mr Khumalo wakes in a cold sweat. The final due date for payment is coming up, but how will his company pay the amount set out in the agreement? What with the pandemic, rising fuel prices and stagnant economy, it’s no wonder he is dreading his company having to comply with its contractual obligations. But it’s the last of the conditions precedent to be fulfilled before the agreement takes effect. He must do something. Begrudgingly, he types a number into his cell phone. “Hi, Anele. Mr Khumalo here. Would it be acceptable if I only make a half payment this month and we amend the contract accordingly?” “Yes, sure Mr Khumalo, I agree to that variation”.
It is not uncommon for parties to informally agree to amend the parameters of a signed agreement. But parties should look before they leap. In instances where a signed contract requires all variations of the contract to be in writing and signed, it is worth noting that any subsequent oral variation may have no binding effect.
Although non-variation clauses and the Shifren principle are not new concepts, in this article we revisit their importance when amending agreements.
A non-variation clause in a written agreement is a contractual provision that prevents the agreement from being altered unless certain conditions are met. It usually states that no amendment to the agreement will be valid unless reduced to writing and signed by both parties. These types of clauses are employed to avoid arguments arising from the uncertainty of oral variations. Without any record of an oral variation, there is no way to prove definitively that such a variation was ever concluded.
Non-variation clauses are accepted in South African law. This was confirmed by the Appellate Division in SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren en Andere and is referred to as the “Shifren principle”. Cameron JA, as he then was, summarised this principle in the case of Brisley v Drotsky stating that:
“contracting parties may validly agree in writing to an enumeration of their rights, duties and powers in relation to the subject matter of a contract, which they may alter only by again resorting to writing.”
The Shifren principle confirms that contracting parties can limit their future contractual flexibility by requiring that any variation must be made in the manner specified in the contract.
Non-variation clauses can be destructive, particularly in cases where an oral agreement to amend is concluded and relates to the fulfilment of a condition precedent. A failure to record the amendment in writing and have it signed may permit the non-defaulting party to terminate the agreement as the conditions precedent were not fulfilled in line with the written agreement. The consequences of not formalising an amendment could be devastating.
Escaping a Non-Variation Clause
There may however be light at the end of the tunnel where an oral amendment is concluded in the face of a non-variation clause. The courts have held that the Shifren principle cannot be relied on in a case where a party seeks to invoke the writing-only requirement in deceit or to attain fraud.
In addition to the fraud exception, a party cannot invoke the Shifren principle where it would offend public policy. It would be contrary to public policy to allow the reliance on the principle where a party does so, not for the vindication of the party’s rights, but for an ulterior purpose and in bad faith.
A non-variation clause can leave a contracting party without recourse where an alteration does not fulfil its conditions and the terms of the written agreement are relied on by the party.
However, if a party is able to prove the existence of an oral amendment, such amendment may survive a non-variation clause (a) where fraud is involved or (b) where the reliance on the clause would lead to a result which conflicts with public policy.
Parties to an agreement should however take a cautionary approach when varying the terms of the agreement and ensure that they follow the requirements for a valid variation.