Conditions precedent: At what stage may fulfilment be waived?
13/05/2011

Suspensive conditions render the operation and consequences of an agreement subject to the occurrence or not, of an uncertain future event. A suspensive condition can only be waived before the period to fulfil the condition has lapsed. If the period has elapsed without the conditions being fulfilled, there will be no contract in place and nothing to waive. The Supreme Court of Appeal’s judgement in Pangbourne Properties Ltd v Basinview Properties (Pty) Ltd [2011] ZASCA 20 (17 March 2011) has confirmed these provisions.

The facts of the Pangbourne case can be summarised as follows: In November 2007 a contract of purchase and sale of immovable property was entered into. This entire agreement was subject to the condition that the board of directors of both parties must approve the proposed transaction and that a copy of this written resolution, duly certified as a true copy, be furnished by the parties to each other. This condition was supposed to be fulfilled within 14 days of the signature date. The contract further provided that no extension, waiver or relaxation of any provision shall operate as an estoppel against any party.

The Basinview’s board of directors approved the transaction and furnished the required proof within the 14 day period. On the other hand, the CEO of Pangbourne approved the transaction and this was conveyed to Basinview in a letter dated 15 November 2007 that also stated that he had the authority to approve the transaction. It later transpired, however, that due to the purchase price, the CEO could not exercise his general authority and approve the transaction. The approval was accordingly ultra vires.

On 19 June 2008 the parties signed an addendum to the agreement, altering a certain provision and stating that the original agreement would ‘remain of full force and effect’. Around this time, Pangbourne received legal advice that, in terms of s36 of the Companies Act, 1973, the agreement was not void simply because the director exceeded his authority in approving the transaction. The Board, under the impression that the agreement was still in existence, ratified the addendum on 27 June 2008.

The facts were not in dispute in the appeal matter. Pangbourne only raised questions of law.

In the court a quo, Basinview contended that the letter of 15 November 2007 was a misrepresentation on which it reasonably relied and acted to its detriment and thus Pangbourne was estopped and bound to the letter. Although the High Court upheld this argument, the SCA dismissed it on grounds that there was no misrepresentation or any reasonable reliance. The letter clearly indicated that the transaction was approved by the CEO in terms of a general authority. This did not constitute a particular resolution by the board as required by the condition. Lewis J also refered to estoppel as a defence and not an attack.

Basinview successfully contended in the High Court that the addendum waived the condition and was intended to revive that agreement as the Parties were under the impression that the contract was no longer valid as the condition was not fulfilled in time. The SCA found this to be “far fetched”. Lewis J held that the resolution of 27 June and the addendum clearly indicated that at least Pangbourne was under the impression that the agreement was still valid. Therefore, the addendum intended to be attached to, and to amend a provision in, a contract that was assumed to be valid. It did not replace or revive such contract as there was, based on this assumption, no need for this. However, since a valid contract did not exist and the Parties incorrectly assumed that such existed, the addendum could not be annexed to or alter it.

This serves to confirm the classic position that a contract ceases to exist if a suspensive condition is not fulfilled. The agreement cannot be revived after that. As such, when drafting an agreement, it is important to state which of the parties may waive fulfilment of the conditions. If the conditions have not been fulfilled by the end of the given period, it is crucial to reinstate the agreement. It will have no effect to conclude an addendum or to waive any conditions after expiry of the period.

Danie Strachan
Senior Associate