In Phoenix Salt Industries (Pty) Ltd v The Lubavitch Foundation of Southern Africa, the Supreme Court of Appeal ("the SCA") was dealing with a contractual dispute. The key question is – is a waiver impacted by the presence of a non-variation clause ("NVC") in a contract?
Fundamental Points
A waiver is a voluntary abandonment of a known existing right, benefit, or privilege. A waiver must be a deliberate abandonment, either expressly or by conduct, plainly inconsistent with an intention to enforce such a right. To trace a waiver, one must scrutinise the conduct of the contracting party. Whether there is a waiver or not is a matter of evidence.
An NVC is a contractual term which stipulates that without certain preconditions being met, alterations/amendments to a contract are of no force and effect. This relates to alterations needing to be reduced to writing and signed by all contracting parties for the alterations to be of force and effect.
Background
In June 1994, the Lubavitch Foundation of Southern Africa ("Lubavitch") experienced financial difficulties and struggled to service its mortgage loan with Nedbank. It faced foreclosure by Nedbank. Phoenix Salt Industries (Pty) Ltd ("Phoenix Salt"), at the time represented by two directors, the Krok Brothers, took over the Nedbank loan and took cession of Nedbank's claims and rights. The agreement provided that should Phoenix Salt demand payment from Lubavitch, it would be repayable 24 months after the demand.
Golden Hands Property Holdings (Pty) Ltd ("Golden Hands"), a company controlled by the Krok Brothers, bound itself as a surety and co-principal debtor with Lubavitch for the performance owed by Lubavitch. Lubavitch was to sell its properties to Golden Hands for the same value as the loan amount, ZAR 5.2 million. Lubavitch and Golden Hands thus entered into a separate agreement to give effect to these terms.
A Lubavitch representative was reassured by the Krok Brothers on numerous occasions that Lubavitch would never be required to settle the debt. Additionally, when the Krok Brothers resigned from Phoenix Salt in 2003, there was never an attempt to enforce the agreement against Lubavitch.
Two decades later on 25 July 2017, Phoenix Salt demanded repayment of the balance of the loan making the debt due and payable by 26 July 2019.
The SCA's Findings
The SCA highlighted that where an NVC is silent on how a waiver is to be effected by a party, a party can orally waive a right. The presence of a NVC which does not provide preconditions on how a waiver is to be exercised does not override this principle. The two aforementioned principles, waiver and non-variation, are different and should be treated as such. A waiver does not alter/vary the terms of an agreement.
The court saw Phoenix Salt as being Lubavitch's benefactor. The fact that the Krok Brothers made it very clear that Phoenix Salt had always intended to pay Lubavitch's debt and would not enforce its claim against Lubavitch, was decisive. In scrutinising the Krok Brothers' conduct, and thus Phoenix Salt's conduct, the SCA held that Phoenix Salt waived its right to demand payment from Lubavitch.
Conclusion
So, is it possible for a waiver to be effected orally even if there is a NVC in a contract? Well, that depends. Where the NVC makes provision for a waiver being subjected to certain conditions for it to have effect, it appears to be a no. Where the NVC contains no such provision, a waiver can be effected orally.
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