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Can you cancel a contract by email?
Posted on 16 March 2015

Your agreement is signed, sealed and delivered! You know that in the agreement a non-variation clause stipulates that no variation or consensual termination of the agreement shall be of any force or effect unless in writing and signed by both parties thereto. This clause seems simple enough…. If you want to cancel the agreement, all you have to do is ensure that it is in writing and signed. What can possibly go wrong?

We live in a day and age where electronic technology has become the primary platform for communication. Emails, Twitter, Facebook, Instagram and instant messaging services such as Whatsapp and BBM are electronic platforms we are all familiar with. The question that now arises, however, is whether an email would meet the standard requirements of a non-variation clause requiring any variation or cancellation of an agreement to be reduced to writing and signed by both parties to the agreement.

This question came into focus in the Supreme Court of Appeal case of Spring Forest Trading CC v Wilberry (Pty) Ltd t/a Ecowash & Another. Here the court found that the exchange of emails between parties to an agreement, with each of the parties typing their first names at the end of the emails, was sufficient to cancel an agreement, which could only be cancelled in writing and signed by both parties.

In this case the court relied on the Electronic Communications and Transactions Act 25 of 2002 (“the Act”) and found that the requirement that an agreement had to be cancelled in “writing”, is satisfied if it is in the form of data messages and in this case the email met this requirement. With regards to the “signed” requirement, the court had to consider whether the parties’ names at the end of the emails, constituted a signature in terms of the Act, which provides that where an electronic signature is required by the parties and the parties have not agreed on the type of electronic signature to be used, that requirement is met if –

• ‘a method is used to identify the person and to indicate the person’s approval of the information communicated; and
• 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.’

A signature is commonly understood as a person’s name written in a distinctive way and serves as a form of identification. Our courts have generally adopted a practical rather than a formalistic approach to signatures. The question which remains, however, is whether the method of the signature used fulfils the functions to authenticate the identity of the signatory, rather than insist on the form of signature used. In terms of 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’. In the case above, the court held that the typed names of the parties at the end of the emails were intended to identify the parties and therefore constituted data that was logically associated with the data in the body of the email correspondence and accordingly constituted an electronic signature and this satisfied the requirement of a signature.

While our courts treat email communication in a similar manner to written communication, we cannot help but wonder whether a court will also be comfortable with a Tweet, Facebook, Whatsapp or BBM message whereby a cancellation message is sent merely with a typewritten name at the end.

It is evident from the above, that a non-variation clause is not necessarily that simple. Contracting parties should be cautious of their communications with each other, especially when using emails and messaging platforms such as Twitter, Facebook, Instagram, Whatspp and BBM. In order to avoid disputes and ambiguity in the future, it is advisable to stipulate in the agreement that electronic signatures will either not apply to amend or cancel an agreement or alternatively to regulate clearly in the agreement how electronic communications will apply. If you are unsure of what your contract says or unsure as to how to incorporate/exclude the position regarding electronic signatures and electronic communication in/from your agreements, contact a commercial specialist that can assist you to address your concerns. The reality is, electronic communication cannot be ignored and it is prudent to ensure that you understand how to safely orientate yourself contractually within our digital age.

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business rescue

Rescue your business

Rescuing your Business
By Benno de Klerk | Posted on 25 October 2012

The Companies Act of 2008, which commenced on 1 May 2011, brought about major changes to South-Africa’s Company Law.

One of the positive changes for Companies that are financially in distress is the concept of Business Rescue.

“Business Rescue” means proceedings to facilitate the rehabilitation of a Company that is financially distressed, by providing for the temporary supervision of the Company and of the management of its affairs, business and property, by a Business Rescue Practitioner. It also entails a temporary suspension on the rights of claimants to take legal action against the Company, or in respect of property in its possession.

Business Rescue also entails the development and implementation, if approved by the creditors, of a plan to rescue the Company, by restructuring its affairs, business, property, debt and other liabilities, in a manner that maximises the likelihood of the Company continuing in existence on a solvent basis or, if it is not possible for the Company to so continue in existence, results in a better return for the Company’s creditors or shareholders, than would result from the immediate liquidation of the Company.

In essence what this entails is that when a Company becomes financially distressed, to the extent that it no longer seems possible to meet its immediate commitments in the short term, instead of possibly losing its operating assets to creditors or being liquidated, a plan can be developed by a Business Rescue Practitioner to save the Company and get it on strong financial footing again or to ultimately secure a better dividend for creditors and shareholders.

“Financially distressed” means that it appears to be reasonably unlikely that the Company will be able to pay all of its debts as they come due and payable within the next six months, or if it appears to be reasonably likely that the Company will become insolvent, within the next six months.

A Company (as well as a Close Corporation), can go under Business Rescue, whenever it resolves to do so, if the Board of Directors has reasonable grounds to believe that the Company is financially distressed and there appears to be a reasonable prospect of rescuing the Company.

Once a Company has adopted such a Resolution and filed such a Resolution with the Companies and Intellectual Property Commission, the Company must publish a Notice of the Resolution, together with a sworn statement setting out the facts relevant to the grounds on which the Board’s Resolution was founded, as well as appoint a Business Rescue Practitioner.

A Business Rescue Practitioner is a person registered as such in terms of the Act, with the above mentioned Commission.

The Business Rescue Practitioner then takes full management and control over the Company, in substitution for its Board and pre-existing management.

A Business Rescue Practitioner has wide powers in managing and trying to rescue the Company. For example, a Business Rescue Practitioner may remove from office any person who forms part of the pre-existing management of the Company and may also appoint persons into management.

The Business Rescue Practitioner must devise and implement a Business Rescue Plan and must also meet with all creditors to obtain their support for the Business Rescue Plan.

If after performing his/her investigation into the Company’s affairs, the Business Rescue Practitioner finds that there is no reasonable prospect for the Company to be rescued, the Practitioner must so inform the Court, the Company and all creditors and other affected persons and then apply to the Court for an order discontinuing the Business Rescue proceedings and closing the Company into liquidation.

During Business Rescue proceedings, no legal proceedings against the Company or in relation to any property belonging to the Company, may be commenced or proceeded with in any form, except with the written consent of the Business Rescue Practitioner, or with leave of the Court.

In practice this means that whilst under Business Rescue proceedings, creditors may not attach and remove the Company’s property and the property is in other words left in the Company’s hands so as to try and generate income and recue the Company.

During Business Rescue proceedings, directors of a Company, (or the members of a CC), must continue to exercise their functions, but subject to the authority and directions of the Business Rescue Practitioner.

Should a director fail to give reasonable assistance in this regard, the Business Rescue Practitioner may apply to Court for an order removing the person as a director.

Business Rescue proceedings end when the Court sets aside the Resolution or converts the proceedings to liquidation proceedings. Business Rescue proceedings also end when the Business Rescue Practitioner has filed with the Commissioner a Notice of the Termination of Business Rescue proceedings.

Creditors are not to be left out in the dark during Business Rescue proceedings and have a number of rights in terms of the Act. For example, creditors have the right to vote to amend, approve or reject the proposed Business Rescue Plan and if it is rejected, a right to propose the development of an alternative Plan. The creditors are entitled to be consulted by the Business Rescue Practitioner, during the development of the Business Rescue Plan.

Creditors can also approach the Court for an order setting aside the Resolution to adopt Business Rescue proceedings, if the procedures as prescribed by the Act, are not followed.

Business Rescue proceedings is a new concept in our Company Law, which affords Companies which are financially distressed, but where there is a definite light at the end of the tunnel, to go under Business Rescue proceedings which allows them protection, in the interim, from creditors. The aim of Business Rescue proceedings is therefore to save the Company.

As with all other business decisions involving the future of any Company, the decision to go under Business Rescue must be taken timeously, whilst there is still hope that a Company may be saved.