In the recent judgment in case of Phoenix Salt Industries (Pty) Ltd v The Lubavitch Foundation of Southern Africa, the Supreme Court of Appeal tackled a critical question for businesses: can a contractual right be unintentionally waived, even when a contract includes strict non-variation clauses? The judgment offers valuable lessons for business owners and managers, particularly when it comes to managing agreements and safeguarding rights.
At the heart of the case was a loan agreement entered into in 1994. Phoenix Salt, the appellant, had loaned money to Lubavitch, the respondent, to help it overcome financial difficulties. The agreement contained non-variation clauses, which stipulated that any changes to the contract had to be in writing and signed by all parties. Decades later, Phoenix Salt sought to enforce repayment, but Lubavitch argued that the right to demand repayment had been waived by Phoenix Salt’s previous directors, the Krok Brothers, through their conduct and oral assurances.
The court was asked to determine whether the non-variation clauses precluded this claimed waiver. Phoenix Salt argued that oral assurances could not override the written terms of the agreement. However, the court found that a waiver is distinct from a variation. While a variation changes the terms of a contract, a waiver is a voluntary abandonment of a right. Importantly, the court ruled that a waiver does not necessarily need to comply with the non-variation clauses of a contract unless expressly stated.
This finding has significant implications for businesses. Many agreements include non-variation clauses to ensure that changes are clearly documented, avoiding disputes over verbal or implied modifications. However, as the court noted, these clauses do not automatically cover waivers. If a party behaves in a way that suggests they are relinquishing a right—for instance, by making repeated assurances or failing to enforce a contractual term over an extended period—this may amount to a waiver.
The judgment highlighted the importance of context. The court considered not only the written agreement but also the relationship between the parties, the conduct of the Krok Brothers, and the fact that the loan was not enforced for decades. By the time repayment was demanded, the court found that Phoenix Salt had effectively abandoned its right to enforce the agreement, despite the existence of non-variation clauses.
For business owners and managers, the lessons from this case are clear. First, contracts must be actively managed. Allowing a long period of inaction or making informal assurances that contradict the written terms of an agreement can undermine your ability to enforce those terms later. Second, while non-variation clauses provide a degree of protection, they are not a complete shield. Businesses should consider including explicit provisions addressing waivers to minimise the risk of unintended relinquishment of rights.
This case also underscores the importance of record-keeping. Phoenix Salt’s inability to produce clear records of its intentions after 2003 weakened its case significantly. For businesses, maintaining a consistent and transparent record of communications and actions related to agreements can be the difference between winning or losing in a dispute.
Ultimately, this judgment serves as a reminder that contracts are not just about what is written on paper but also about how parties behave in practice. Even the most carefully drafted agreements can be undermined by actions that suggest a change in intention. For business owners and managers, this case is a cautionary tale: when it comes to contracts, actions speak as loudly as words.
By Dirk Swanepoel | Senior Associate
