Unpacking non – variation clauses in contracts – The shifren principle

The era of sealing business deals with a handshake is long behind us. In today’s commercial landscape, formal written contracts govern business relationships. These contracts define the rights, responsibilities, obligations, and available remedies for each party, typically negotiated as set out in the contract. Once the written agreement has been concluded , a legally binding contract not only outlines how the parties must behave throughout it’s duration and whether it can be amended. A key provision in a contract, known as a non-variation clause, which strictly regulates the manner in which the contract can be amended.  

SA Sentrale Ko – op Graanmaatshappy BPK V Shifren 1964 (4) SA 760 (A) 

Non-variation clauses are recognised under South African law, a position affirmed by the Appellate Division in the case of SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren en Andere. This legal rule is commonly known as the "Shifren principle."The court held that when parties to a contract include a non-variation clause, there is no valid reason why they should not be bound by it, since both parties agreed to its inclusion. The “Shifren Principle” serves to promote clarity and avoid disputes, particularly those that arise when oral agreements are difficult to prove.  

Non-variation clauses help ensure certainty in contractual relationships and work to the benefit of both parties. Such a clause does not prevent the parties from amending the contract. It simply requires that any changes be made in writing, in line with the agreed formalities stipulated in the contract. The Shifren Principle affirms that parties to a contract can restrict their ability to make future changes by agreeing that any amendments must follow the specific procedure outlined in the contract. 

Consequences of failure to comply with the non – variation

Non-variation clauses can have serious consequences, particularly when parties reach a verbal agreement to amend a condition precedent and if the amendment is not recorded in writing and signed, as required by the contract, the condition may be seen as unfulfilled under the original terms. This could entitle the non-defaulting party to cancel the agreement and failing to formalise such changes in writing can therefore result in significant legal and commercial consequences. 

Can a non  – variation clause be escaped?

There maybe however be light at the end where is concluded in the face of a non – variation clause. A non-variation clause can sometimes be escaped, but doing so is generally difficult. To succeed, a party usually needs to show that the clause itself was orally modified through the parties’ words or conduct, indicating a mutual intention to depart from the formal requirements, which is a stringent test to pass. In other cases, a court may be willing to disregard the clause if enforcing it would be contrary to public policy, or if strict reliance on it would facilitate fraud, deception, or unfair dealing. In short, while non-variation clauses are designed to be rigid, they are not completely immune from challenge when equity or justice strongly supports an exception.  

Court's recognition of non – variation clauses  

In the case of Xtraprops 66 (Pty) Ltd v Phiopater Supplies (Pty) Ltd (20228/14) [2014] ZAWCHC 177 (25 November 2014), the Court reaffirmed that when parties have agreed to self-imposed formalities for varying their contract, those formalities are binding upon them. 

In this matter, the Applicant had cancelled a lease agreement and called upon the Respondent to vacate the premises it had been leasing in Camps Bay after the Respondent had fallen into rental arrears. In response, the Respondent raised the defence that a verbal agreement had been reached between it and the Applicant’s representatives. According to the Respondent, this verbal agreement allowed it, due to severe financial distress, to pay a percentage of its daily revenue (generated from operating a restaurant on the premises) instead of the agreed rental. 

The Applicant, however, relied on the lease agreement, which expressly required any variation to be in writing and signed. The Respondent attempted to avoid this requirement by arguing that the verbal arrangement was not a variation but merely an agreement to substitute performance, in the form of reduced rentals. 

The Court rejected the Respondent’s defence and held that the alleged verbal agreement indeed constituted a variation of the lease terms, not a substitution of performance. Consequently, because the variation was not in writing as required, it was unenforceable. The Court further confirmed that the Shifren principle applied, emphasising that once parties choose to bind themselves through contractual formalities, those formalities are binding and must be given effect. 

Conclusion  

A non-variation clause can leave a contracting party without any remedy when the parties attempt to alter their agreement but fail to comply with the clause’s formal requirements. In such a situation, the party seeking to enforce the original written terms may rely strictly on the clause, preventing the informal variation from taking effect. This can be particularly harsh where the parties genuinely intended to amend the contract but did not do so in the manner prescribed, typically in writing and signed by both parties.  

Nevertheless, an oral amendment may still overcome a non-variation clause in limited and exceptional circumstances. A party may succeed in proving that the oral variation is valid despite the clause, if fraud is involved or enforcement of the clause would conflict with public policy. Despite these narrow exceptions, parties should adopt a highly cautious approach when varying the terms of a contract.  

They should ensure that any intended amendment fully complies with the formal requirements set out in the non-variation clause and complying with the requirements  not only avoids disputes about whether a variation is valid but also reduces the risk that a court will refuse to recognise the parties’ actual intentions due to non-compliance with contractual formalities. 

For tailored legal advice, contact an attorney at Schoeman Law