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Implications of the parol evidence rule on the interpretation and drafting of contracts in South Africa

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(1)COPYRIGHT AND CITATION CONSIDERATIONS FOR THIS THESIS/ DISSERTATION. This copy has been supplied on the understanding that it is copyrighted and that no quotation from the thesis may be published without proper acknowledgement.. Please include the following information in your citation: Name of author Year of publication, in brackets Title of thesis, in italics Type of degree (e.g. D. Phil.; Ph.D.; M.Sc.; M.A. or M.Ed. …etc.) Name of the University Website Date, accessed. Example Surname, Initial(s). (2012) Title of the thesis or dissertation. PhD., M.Sc., M.A., M.Com. etc. University of Johannesburg. Retrieved from: https://ujdigispace.uj.ac.za (Accessed: Date)..

(2) IMPLICATIONS OF THE PAROL EVIDENCE RULE ON THE INTERPRETATION AND DRAFTING OF CONTRACTS IN SOUTH AFRICA. by SUSANNA JOHANNA VAN BREDA. Submitted in partial fulfilment of the requirements for the degree. MAGISTER LEGUM in LAW OF CONTRACT in the FACULTY OF LAW at the UNIVERSITY OF JOHANNESBURG. SUPERVISOR: PROF D MILLARD JANUARY 2013.

(3) ACKNOWLEDGMENT. Prof J Neels, thank you for the manner in which you took control of the matter and ensured that the dissertation is examined in time for the spring graduation.. Prof D Millard, thank you for taking the time during your study leave to guide me through the dissertation.. Sheena Swemmer, thank you for the editing of the dissertation and your meticulousness in ensuring that the correct format of and number of copies are submitted.. My parents, I cannot begin to thank you for your love and support and the sacrifices you made to put me on the road to education. Your life motivated me to never stop improving myself.. My partner, Jan Nel at Swart Redelinghuys Nel & Partners Inc., thank you for your critique. You really are an exceptional jurist and mentor..

(4) ABSTRACT. The parol evidence rule encompasses those rules that regulate the admissibility of extrinsic evidence. The parol evidence rule only comes into play when the court has to interpret a written contract and one of the parties argue that the contract or any specific clause does not reflect the common intention between the parties. The court will then follow a two prong approach in interpreting the contract. The court will firstly utilise the rules of interpretation, including the common law principles regarding presumptions. If this does not clarify the disputed clauses of the contract, the court will then rule on whether extrinsic evidence is permissible and consider such extrinsic evidence in an attempt to determine the common intention of the parties. The rules applicable to the admissibility of extrinsic evidence in the South African law of contract developed from a strict formalistic approach as applied in the Delmas Milling v Du Plessis case to an approach where any extrinsic evidence may be admitted, as long as it is admissible in terms of the rules of evidence and it falls within the category of what Harms DP stated in the KPMG Chartered Accountants (SA) v Securefin Ltd case as “context” or “factual matrix”. The KPMG Chartered Accountants (SA) v Securefin Ltd case finally brought the law applicable to the parol evidence rule in the South African law of contract on par with its American and English counterparts..

(5) Page |i. TABLE OF CONTENTS. CHAPTER 1 ______________________________________________________________ 1 INTRODUCTION AND PROBLEM STATEMENT _____________________________ 1 1.1. Introduction ________________________________________________________________________ 1. 1.2. Problem statement __________________________________________________________________ 2. CHAPTER 2 ______________________________________________________________ 4 PAROL EVIDENCE RULE _________________________________________________ 4 2.1. Definition of the parol evidence rule ____________________________________________________ 4. 2.2. Exclusions from the parol evidence rule _________________________________________________ 6. 2.3. Clear meaning rule __________________________________________________________________ 7. CHAPTER 3 ______________________________________________________________ 9 COMMON LAW PRESUMPTIONS APPLICABLE TO THE PAROL EVIDENCE RULE ____________________________________________________________________ 9 3.1. Introduction ________________________________________________________________________ 9. 3.2. Presumptions of interpretation _______________________________________________________ 10. 3.2.1. Definition_____________________________________________________________________ 10. 3.2.2. Words were used in their ordinary sense _____________________________________________ 11. 3.2.3. Words were used precisely and exactly ______________________________________________ 11. 3.2.4. There are no superfluous words in a contract _________________________________________ 12. 3.2.5. There is no casus omissus ________________________________________________________ 13. 3.3. Presumptions of substantive law ______________________________________________________ 13. 3.3.1. Definition_____________________________________________________________________ 13. 3.3.2. No person writes what he or she does not intend_______________________________________ 14. 3.3.3. A person is familiar with the contents of a document which he or she signs (caveat subscriptor rule) _________________________________________________________ 14.

(6) P a g e | ii. CHAPTER 4 _____________________________________________________________ 17 DEVELOPMENT OF THE PAROL EVIDENCE RULE IN THE SOUTH AFRICAN CASE LAW ______________________________________________________________ 17 4.1. Delmas Milling v Du Plessis __________________________________________________________ 17. 4.1.1. Facts_________________________________________________________________________ 17. 4.1.2. Discussion ____________________________________________________________________ 18. 4.2. Haviland Estates v McMaster ________________________________________________________ 20. 4.2.1. Facts_________________________________________________________________________ 20. 4.2.2. Discussion ____________________________________________________________________ 21. 4.3. Van Rensburg and Another v Taute and Another ________________________________________ 22. 4.3.1 Facts _____________________________________________________________________________ 22 4.3.2 4.4. Discussion ____________________________________________________________________ 23. The Courts’ difficulty with the concepts “surrounding circumstances” and “background. circumstances” _________________________________________________________________________ 24 4.5. Coopers and Lybrandt v Bryant ______________________________________________________ 26. 4.5.1. Facts_________________________________________________________________________ 26. 4.5.2. Discussion ____________________________________________________________________ 27. 4.6. Vd Westhuizen v Arnold ____________________________________________________________ 28. 4.6.1. Facts_________________________________________________________________________ 28. 4.6.2. Discussion ____________________________________________________________________ 31. 4.7. KPMG Chartered Accountants (SA) v Securefin Ltd ____________________________________ 32. 4.7.1. Facts_________________________________________________________________________ 32. 4.7.2. Discussion ____________________________________________________________________ 32. CHAPTER 5 _____________________________________________________________ 36 COMPARATIVE SURVEY WITH AMERICAN AND ENGLISH LAW ___________ 36 5.1. English law ________________________________________________________________________ 36. 5.1.1. Origin of the parol evidence rule ___________________________________________________ 36. 5.1.2. Approach to the parol evidence rule ________________________________________________ 37. 5.2. Law in the United States of America ___________________________________________________ 38.

(7) P a g e | iii. 5.2.1. Origin of the parol evidence rule ___________________________________________________ 38. 5.2.2. Approach to the parol evidence rule ________________________________________________ 39. CHAPTER 6 _____________________________________________________________ 43 INTERPRETATION OF A CONTRACT AND THE SUBMISSION_______________ 43 OF EXTRINSIC EVIDENCE _______________________________________________ 43 6.1. Admission of extrinsic evidence _______________________________________________________ 43. 6.2. Framework _______________________________________________________________________ 43. 6.2.1. Read the contract and attach the ordinary grammatical meaning to the words ________________ 43. 6.2.2. Determine the context within which the contract was drafted to understand the grammatical meaning of the words used in the contract ___________________________________________ 44. 6.2.3. Extrinsic evidence regarding the circumstances surrounding the origin of the contract _________ 45. CHAPTER 7 _____________________________________________________________ 48 CONCLUSION ___________________________________________________________ 48 BIBLIOGRAPHY _________________________________________________________ 49.

(8) Page |1. CHAPTER 1. INTRODUCTION AND PROBLEM STATEMENT. 1.1. Introduction. When the court is called upon to interpret an oral contract, the witness consciously or unconsciously not only testifies to the plain words used by them during the contracting phase, but colours their testimony with their understanding of the contract. This is not the same with written contracts. When the court has to interpret a written contract, the court is presented with what Christie calls the “plain unvarnished form” of the contract and the court must then construe the common intention of the parties to the contract, by interpreting the words that they have used in the contract1.. As the written contract is the recording of the gist of the negotiations between the parties2, the words may not necessarily reflect the common intention between the parties. If this happens, one of the parties will inevitably try to rely on the clause, which, in his view, does not reflect the common intention between the parties, to his benefit and to the detriment of the other party to the contract.. Once one of the parties to a written contract argues that the contract or a clause thereto, does not reflect the common intention between the parties, the court has to interpret the contract and determine what the common intention between the parties was. In order to interpret the contract and determine the common intention between the parties, the court will follow a two prong approach: . follow the rules of interpretation, including the common law principles regarding presumptions; and. . consider extrinsic evidence.. 1. Christie The Law of Contract in South Africa 192. 2. Kerr The principles of the law of contract 152.

(9) Page |2. Once it is evident that the court has to consider evidence that is extrinsic to the contract, the court will revert to the case law applicable to the admissibility of extrinsic evidence.. The rules applicable to extrinsic evidence were developed by the courts in what is commonly known as the parol evidence rule and a further rule that Cornelius3 defines as the “clear meaning” rule.. The parol evidence rule is one of the most controversial, most misunderstood and most criticised rules in the Anglo-American law of contract4. In 1893 Thayer stated: “Few things are darker than this, or fuller of subtle difficulties”5.. 1.2. Problem statement. The focus of this dissertation will be on the development of the parol evidence rule in the South African law of contract from a strict formalistic approach as applied in Delmas Milling v Du Plessis6 to an approach where any evidence may be admitted, as long as it is admissible in terms of the rules of evidence and it falls within the category of what Harms DP stated in the KPMG CHARTERED ACCOUNTANTS (SA) V SECUREFIN LTD case as “context” or “factual matrix”.. It will be argued in the dissertation that if the American and English law relating to the parol evidence rule is compared with the South African law, that the approach in KPMG Chartered Accountants (SA) v Securefin Ltd is correct and in line with the development of Anglo-American law internationally.. 3. Cornelius Principles of the interpretation of contracts in South Africa 99. 4. Christie (n 1) 192; Agren, Demystifying the Parol Evidence Rule: An Analysis of the Parol Evidence Rule in American Contract Jurisprudence and the Lack thereof under the CISG 7. 5. Thayer, The “Parol Evidence” Rule 325. 6. Delmas Milling v Du Plessis 1955 (3) SA 447 (A).

(10) Page |3. The dissertation will be concluded with a proposal on the steps that a court should follow when interpreting a written contract and considering the admissibility of extrinsic evidence..

(11) Page |4. CHAPTER 2. PAROL EVIDENCE RULE. 2.1. Definition of the parol evidence rule. The parol evidence rule is one of the most misunderstood and controversial rules in the South African Law of Contract. Christie is of the view that practitioners should be pardoned for doubting whether the rule should exist at all because and it prevents the leading of valuable evidence7.. This rule is applicable when a juristic act is incorporated (integrated) into a single written document. The document itself is then proof of the juristic act and no evidence may be submitted to proof the terms of the juristic act, except this document. Extrinsic evidence (parol or oral evidence but also other written evidence8) is inadmissible insofar as it tends to contradict or change the contents of the document9.. The purpose of the parol evidence rule is therefore to prevent a party from submitting evidence that may redefine the terms of the contract and then rely on the altered contract10. 7. Christie (n 1) 192. 8. Agren (n 5) 7. 9. Union Government v Vianini Ferro-Concrete Pipes (Pty) Ltd 1941 AD 43 Watermeyer JA stated at 47 “when a. contract has been reduced to writing, the writing is, in general, regarded as the exclusive memorial of the transaction and in a suit between the parties no evidence to prove its terms may be given save the document or secondary evidence of its contents, nor may the contents of such document be contradicted, altered, added to or varied by parol evidence”; Schmidt & Rademeyer Law of evidence 11-21 “The following passage from Wigmore Evidence par 2425 has often been quoted with approval: ‘When a jural act is embodied in a single memorial, all other utterances of the parties on that topic are legally immaterial for the purpose of determining what are the terms of their act.’”; Lowrey v Steedman 1914 AD 532 543; Union Government v Vianini Ferro-Concrete Pipes (n 8) Johnson v Leal 1980 (3) SA 927 (A); Namibian Minerals Corporation Ltd v Benquela Concessions Ltd 1997 (2) SA 538 (SCA); Sealed Africa (Pty) Ltd v Kelly and Another 2006 (3) SA 65 (W); National Board (Pretoria) (Pty) Ltd v Estate Swanepoel 1975 (3) SA 16 (A) 26A; Rielly v Seligson & Clare Ltd 1977 (1) SA 626 (A) 637D 10. Corbet JA states in Johnston v Leal (n 11) 943B: “It is clear to me that the aim and effect of this rule is to prevent a party to a contract which has been integrated into a single and complete written memorial from.

(12) Page |5. The parol evidence rule is applicable if the written document records the complete contract between the parties11 and is also referred to as the “integration rule” due to the integration of the contract in a single and complete written memorial12.. Contrary to what is implied in the name, the parol evidence rule is not a rule evidence because it does not deal with the method by which a fact can be proven, or as stated by Wigmore the parol evidence is “not a rule of evidence, because it has nothing to do with the probative value of one fact as persuading us of the probable existence of another fact. It is a rule of substantive law, because it deals with the question where and in what sources are to be found the terms of the jural act”13. The Courts, however, historically treated the rule as a rule of evidence and thereby accepted the English law relating thereto14.. The parol evidence rule is a rule of substantive law that dictates whether a certain fact is material to establish the substance of the contract15. The document is the exclusive memorial of the act16, and “all other utterances of the parties on that topic are legally immaterial for the purpose of determining what are the terms of their act”17. This rule therefore deals with the nature and the scope of a juristic act.. seeking to contradict, add to or modify the writing by reference to extrinsic evidence and in that way to redefine the terms of the contract. To sum up, therefore, the integration rule prevents a party from altering, by the production of extrinsic evidence, the recorded terms of an integrated contract in order to rely upon the contract as altered” 11. Union Government v Vianini Ferro-Concrete Pipes (n 8). 12. Cornelius (n 4) 96; KPMG Chartered Accountants (SA) v Securefin Ltd 2009 (2) All SA 523 (SCA); Johnson v Leal (n 11); Namibian Minerals Corporation Ltd v Benquela Concessions Ltd (n 11); Sealed Africa (Pty) Ltd v Kelly and Another (n 11); Schmidt & Rademeyer (n 6) 11-21. 13. Schmidt & Rademeyer (n 6) 1-9. 14. Christie (n 1) 193. 15. Schmidt & Rademeyer (n 6) 1-9; Agren (N 5). 16. Union Government v Vianini Ferro-Concrete Pipes (n 8) 47. 17. Venter v Birchholtz 1972 1 SA 276 (A) at 282C.

(13) Page |6. At its core, the parol evidence rule therefore deals with the legal significance and consequences of reducing and agreement to writing.. 2.2. Exclusions from the parol evidence rule. Extrinsic evidence may not be submitted to determine the intention of the parties as this evidence may qualify or alter the terms of the contract18. The reasoning behind this is that the purpose is to determine the common intention of the parties at the time of the conclusion of the contract and the intention of one party is of no relevance as it does not assist the court in determining the common intention.. Strict application of this rule may lead to an incorrect interpretation of the contract and the rule is therefore tempered by certain exceptions, namely:. 1. the rule does not apply and evidence may be submitted if a. the agreement between the parties is contained in more than one document; or b. the written document only contains a certain part of the agreement; or c. the written agreement is amended by an oral agreement19; 2. evidence pertaining to tacit terms may be submitted because of the reasoning that a tacit term is not contained in the contract and the contract is therefore not the single memorial of the juristic act20; 3. the rule does not exclude the existence of a suspensive condition that is not included in the written document21;. 18. Cornelius “Die toelaatbaarheid van ekstrinsieke getuienis by die uitleg van geskrewe kontrakte” 425. 19. Johnson v Leal (n 11); Cornelius (n 4) 98. 20. Cornelius (n 27) 425; Cornelius (n 4) 98. 21. Union Government v Vianini Ferro-Concrete Pipes (n 8); Cornelius (n 4) 99; Cornelius (n 27) 425; Philmat (Pty) Ltd v Mosselbank Developments CC 1996 (1) All SA 296 (A) 301F.

(14) Page |7. 4. the rule does not apply where the parties do not accept the document as it stands or to show the true nature of the document 22 or wishes to rectify the document23, or the parties never intended the document to embody the terms of a contract24; 5. the rule is further excluded where the following is alleged: common mistake, disagreement, fraud, duress or undue influence. Should these allegations be proven, no valid contract came into existence. These are therefore not an exception to the terms of the contract but stands at the basis of whether there is a valid contract to be interpreted or not25; 6. evidence may further be submitted to identify the parties or things concerned or referred to in the contract. This does not entitle a party to submit evidence regarding the identify of parties or the characteristics of things that differ from those contained in the contract, as such evidence will vary the terms of the contract26.. 2.3. Clear meaning rule Closely related to the parol evidence rule is the rule that Cornelius defined as the “clear meaning rule”27. Cornelius defines this rule, in accordance with the Delmas Milling case, as one where no extrinsic evidence may be submitted to alter the clear and unambiguous meaning of the words contained in a contract28. Christie, however, in accordance with the Rand Rietfontein case, defines the rule as one where no evidence. 22. Wessels ACJ states in Kilburn v Estate Kilburn 1931 AD 501 at 507 “It is a well-known principle of our law. that Courts of law will not be deceived by the form of transaction. They will rend aside the veil in which the transaction is wrapped and examine its true nature and substance. Plus valeat quod agitur quam quod simulate concipitur” which maxim was translated by Van Zyl J in BC Plant Hire CC v Grenco (SA) (Pty) Ltd 2004 (1) All SA 612 (C) at 621 as “true facts have more value than apparent facts” or “substance bears more weight than form”’. 23. Christie (n 1), 329. 24. Kilburn v Estate Kilburn (n 19). 25. Cornelius (n 4) 99. 26. Cornelius (n 27) 425. 27. Cornelius (n 4), 96. 28. Cornelius “Background circumstances, surrounding circumstances and the interpretation of contracts” (2009) 4. TSAR 767 768.

(15) Page |8. may be presented to alter the clear and unambiguous meaning of a contract, whether oral or written29. Watermeyer AJA in Rand Rietfontein Estates Ltd v Cohn30 explains that the connection between these two rules as follows: “The difficulty which arises in practice, however, is not connected with the aim of theenquiry, but with the limitations imposed by the rules of evidence upon the conduct of the enquiry. These rules limit the material which can be placed before the Court in order to ascertain the intention of the parties, In the first place there is the well-known rule that when a contract has been reduced to writing no oral evidence may be given to contradict, alter, add to or vary the written terms, and in the second place there is another rule the effect of which is that when the terms of a contract are clear and unambiguous no evidence may be given to alter such plain meaning, This latter rule has been the subject of controversy. Wigmore (secs. 2461 and 2462) regards it as unsound both in theory and in policy. But the rule undoubtly exists and must be applied”. (own emphasis). From the aforementioned it can be inferred that if the contract, the words or the terms thereof is clear and unambiguous, then no extrinsic evidence may be adduced to alter the plain meaning thereof.. Similar to the parol evidence rule, the clear meaning rule is also not applicable when the parties apply for the rectification of the contract31.. 29. Christie (n 1), 204. 30. Rand Rietfontein Estates Ltd v Cohen 1937 AD 317 326. 31. Christie (n 1), 205.

(16) Page |9. CHAPTER 3. COMMON LAW PRESUMPTIONS APPLICABLE TO THE PAROL EVIDENCE RULE. 3.1. Introduction. Presumptions provide an interpreter with a provisional interpretation of a document until such time as other factors proof otherwise32 the basis on which contracts are drafted. The interpreter accepts, until rebutted, that the drafters of the document applied certain principles in concluding their contract. They are therefore conclusions about unknown facts33.. Presumptions promote brevity in drafting and drafters therefore do not have to express their intention in minute details34. Written contracts are therefore only a portion of what is said by the parties and the presumptions serves to fill in the resultant gaps. For this very reason, presumptions are a warning to drafters to ensure that they express themselves clearly to prevent the law from imputing a meaning to the contract that was never the intention of the parties35.. Presumptions are rebuttable and the party that wishes to rebut a presumption bears the onus of proof. Conclusions are therefore drawn based on the presumptions and if there are other factors that leads one to an alternative interpretation, the presumption does not apply and give way to these factors36. There is no hierarchy of presumptions and in cases of conflict, the circumstances of each case are to be considered to determine which of the conflicting presumptions apply37.. 32. Cornelius (n 4) 115; Schmidt Evidence 134. 33. Devenish Statutes 156; Cornelius (n 4) 115. 34. Cross & Tapper Cross on evidence 167; Cornelius (n 4) 116. 35. Cross & Tapper (n 72) 169; Cornelius (n 4) 116. 36. Cross & Tapper (n 72) 166; Abbot v CIR 1963 (4) SA 552 (C); Cornelius (n 4) 116. 37. Cross & Tapper (n 72) 168; Cornelius (n 4) 116.

(17) P a g e | 10 Devenish38 differs from Hahlo and Kahn’s and Christie’s interpretation that presumptions are tertiary sources that are only applied if other rules and principles do not provide a solution for the interpretation and only applies when the available information is insufficient to do so; or assists as guides when it is not possible to decide between one or more alternatives39. Devenish argues that these views are oversimplistic and that certain presumptions lie at the very base of interpretation. As many presumptions are based on the application of legal rules, they should be applied throughout the process of interpretation, and should be rebutted if there is good reason to do so40.. Presumptions can be divided into the following two categories:. 1. presumptions of interpretation; and 2. presumptions of substantive law.. 3.2. Presumptions of interpretation. 3.2.1. Definition. Presumptions of interpretation deal with linguistic matters and not the direct application of any rule of law. They attempt to prevent or eliminate ambiguities or uncertainties that may occur in the words used in the document. These presumptions are nothing more than inferences drawn by common sense. These presumptions are also not applicable to a specific field of law, but have a general and universal application e.g. to contracts, statutes, etc. 41.. The presumptions of interpretation that will apply against the party that argues for the submission of extrinsic evidence will subsequently be discussed.. 38. Devenish (n 71) 156; Cornelius (n 4) 117. 39. Christie (n 1), 420; Hahlo & Kahn The South African legal system and its background 202. 40. Devenish (n 71) 156; Cowen “The interpretation of statues and the concept of ‘the intention of the legislature’. 1980 THRHR 374 374 & 392 41. Hoffman & Zeffertt The South African law of evidence 531; Cornelius (n 4) 118.

(18) P a g e | 11. 3.2.2. Words were used in their ordinary sense. It is presumed that the words used in a contract are used in their ordinary and everyday sense42 and according to their ordinary meaning in the subject matter that they are used43.. The court takes judicial notice of the ordinary grammatical meaning of a word and no evidence, except reference to authoritative dictionaries, may be submitted to explain the meaning of these words44.. It is presumed that the words have the ordinary meaning in the business or trade that it is being used. In these cases evidence may be submitted to proof the meaning of the words in that specific business or trade45.. If it is clear from the context that the word has a different meaning or if the ordinary meaning of a word will lead to an absurdity in the context, then the resumption does not apply46.. 3.2.3. 42. Words were used precisely and exactly. Cinema City v Morgenstern Family Estates and other 1980 (1) SA796 (A) 803G; Cornelius (n 4) 119; Gardner. and another v Margo 2006 (3) All SA 229 SCA; Kellaway Principles of legal interpretation of statures, contracts and wills 432, 447 43. Kellaway (n 80) 224 “[an interpreter] should construe the words not only according to their ordinary meaning,. but according to their ordinary meaning as applied to the subject-matter with regard to which they are used, unless there is something which obliges [him] to read them in a sense which is not their ordinary sense in the … language as applied”; Blackburn v Blackburn 1920 CPD 13 44. Rand Rietfontein Estates Ltd v Cohn (n 27). 45. Kellaway (n 80) 436-437; Cornelius (n 4) 120;. 46. Blackburn v Blackburn (n 81); Van Streepen & Germs v Transvaal Provincial Administration 1987 (4) SA 569. (A) 589B; Finbro Furnishers (Pty) Ltd v Registrar of Deeds, Bloemfontein 1985 (4) SA 773 (A); Cornelius (n 4) 120.

(19) P a g e | 12. It is presumed that the drafter of a contract chose his words carefully and that these words express their intention precisely and exactly47. Innes JA (as he then was) stated in Zandberg v Van Zyl48 that the parties normally express themselves in language that is calculated and without concealment and that the agreement that they arrive at is then in the form that they intended it to be.. The result of this presumption is that a term will not be inferred in a contract unless there are compelling reasons to do so49.. 3.2.4. There are no superfluous words in a contract. It is presumed that the parties to a contract inserted every word with a purpose and there are no superfluous, tautological or meaningless words in the contract50 as Davis AJA quoted the passage from the judgment of Knight Bruce LJ in Ditcher v Denison 1857 14 ER 718 723 in Wellworths Bazaars Ltd v Chandlers Ltd: “It is… a good general rule in jurisprudence that one who reads a legal document, whether public or private, should not be prompt to ascribe – should not without necessity or some sound reason impute – to its language tautology or superfluity, and should be rather at the outset inclined to suppose every word intended to have some effect or be of some use”. This presumption implies that care should be taken or every word or expression contained in a contract and that effect should as far as possible be given thereto, unless no sensible meaning van be extracted therefrom. It follows then that there are no purposeless terms in a contract 51.. 47. Nelson v Hodget’s Timber (East London) (Pty) Ltd 1973 (3) SA 37 (A) 42C-D. 48. Zandberg v Van Zyl 1910 AD 302 309 cited with approval in Du Plessis v Joubert 1968 (1) SA 585 (A) 598B. 49. Cornelius (n 4) 120. 50. Wellworths Bazaars Ltd v Chandlers Ltd 1947 2 SA 37 (A) 43; Christie (n 1) 221. 51. Cornelius (n 4) 122; Kellaway (n 80) 438; Birkenruth Estates (Pty) Ltd v Unitrans Motors (Pty) Ltd and others. (2005) 3 All SA 128 (W) 140i.

(20) P a g e | 13. This presumption was applied in a number of cases with decisive effect, but Botha AJA warned in Owsianick v African Consolidated Theatres (Pty) Ltd52: “As in legislation, so in written documents, tautology is not unknown. A specific provision is not infrequently inserted to provide, ex abundante cautela, for a matter already covered by general provisions. In such a case the specific provision is mere surplusage, and care should be exercised that, in an attempt to avoid the tautology, a distorted meaning is not assigned to either the specific or the general provisions”.. 3.2.5. There is no casus omissus. It is presumed that parties have chosen their words carefully and that they have therefore not left out any words that should have been included in the agreement. If the contract can be interpreted in more than one way, an interpretation that avoids a casus omissus should be preferred to one that leads to a casus omissus53.. 3.3. Presumptions of substantive law. 3.3.1. Definition. The presumptions of substantive law relate to the application of a certain rule of law and are principles and guidelines from common law54. These presumptions apply irrespective of whether there are ambiguities or uncertainties in the language of the contract. It is inferences that the law make on the assumption that the parties observed the principles of law when they contracted55. Cornelius argues that these presumptions compel an interpreter to. 52. Owsianick v African Consolidated Theatres (Pty) Ltd 1967 3 SA 310 (A) 324G; Christie (n 1) 221. 53. Cornelius (n 4) 122; Devenish (n 71) 212. 54. Cornelius (n 4) 118; Schmidt (n 70) 133; Van Heerden and Crosby 57. 55. Cornelius (n 4) 118; Devenish (n 71) 156.

(21) P a g e | 14. accept a certain provisional fact56. As these rules are based on the substantive law, it differs from one field of law to another, although it may overlap in certain instances57.. The presumptions of substantive law that will apply against the party that argues for the submission of extrinsic evidence will subsequently be discussed.. 3.3.2. No person writes what he or she does not intend The presumption is that no person writes what he or she does not intend58. This presumption gives effect to the Roman Dutch rules that a party expresses himself truthfully and that no party should go counter to his own act59.. This presumption leads to the rule that a document is what it purports to be, until proven otherwise60 and that the intention of the parties coincides with the words contained in the contract61. Cornelius62 argues that this presumption is the foundation upon which the presumption in favour of the ordinary meaning of words operate and that this presumption therefore forms a bond between the presumptions of interpretation and the presumptions of substantive law.. 3.3.3. A person is familiar with the contents of a document which he or she signs (caveat subscriptor rule). 56. Cornelius (n 4) 118. 57. Cornelius (n 4) 118. 58. Zandberg v Van Zyl (n 86); Sonap Petroleum (SA) (Pty) Ltd (formerly known as Sonarep (SA) (Pty) Ltd) v. Pappadogianis 1992 (3) SA 234 (A) 59. Cornelius (n 4) 123. 60. Zandberg v Van Zyl (n 86); Cornelius (n 4) 122. 61. Kellaway (n 80) 317; Cornelius (n 4) 123. 62. Cornelius (n 4) 123.

(22) P a g e | 15. A person signs a document, he indicates thereby that he is familiar with the contents of the document and assents thereto. The judgment of Innes CJ in the court a quo was quoted in Burger v Central South African Railways63 as follows: “’It is a sound principle of our law that a man, when he signs a contract, is taken to be bound by the ordinary meaning and effect of the words which appear over his signature’”.. Numerous judgments followed the notion that a person, by signing an agreement, makes the writing his or her own64. Nicholas J rejected this view and stated that a person only admits that he is familiar with the contents of the document when he signs it and not that he makes the contents thereof his own65.. If a party did not read the contract before signing it, he is bound by the terms thereof, unless he raises the defence of66:. 1. fraud; 2. duress; 3. undue influence; 4. non est factum, in which case he has to proof that he was not negligent or careless in signing the agreement.. A defence of unilateral mistake cannot be raised if the mistake is due to his own fault, which fault can take any of the following forms: failure to do the reasonable necessary investigations before committing himself to the contract67;. 63. Burger v Central South African Railways 1903 TS 578. 64. Douglas v Tromp & Sons (Tvl) (Pty) Ltd 1959 (4) SA 752; Saambou National Building Society v Friedman. 1979 (3) SA 268 (W) 278D 65. Glen Comeragh (Pty) Ltd v Colibri (Pty) Ltd 1979 (3) SA 210 (T) 215A-C; Cornelius (n 4) 124. 66. Goedhals v Massey-Harris & Co 1939 EDL 322; Burger v Central South African Railways (n 101); Musgrove. & Watson (Rhod) (Pvt) Ltd v Rotta 1978 (2) SA 918 (R); Christie (n 1) 177; Cornelius (n 4) 124 67. Osman v Standard Bank National Credit Corpn Ltd 1985 2 SA 378 (C) 388F-I; Christie (n 1) 315.

(23) P a g e | 16. not reading the contract before signing it68; carelessly misreading one of the terms69 or any other act that is due to his own carelessness.. The defence of unilateral mistake will only be successful if the party can proof that the error was iustus70.. In the case of mutual mistake, and if the misunderstandings by both parties are reasonable, then the contract is void because of a lack of consensus71. If the misunderstanding of the one party is reasonable and the other party unreasonable, then the first party may enforce the contract72.. 68. Standard Credit Corpn Ltd v Naicker 1987 2 SA 49 (N); Christie (n 1) 315. 69. Patel v Le Clus (Pty) Ltd 1946 TPD 30; Irwin v Davies 1937 CPD 442 447; Christie (n 1) 316. 70. Glen Comeragh (Pty) Ltd v Colibri (Pty) Ltd (n 103) 214-215; Kerr (n 2) 241; Cornelius (n 4) 124. 71. Cornelius (n 4) 124. 72. Cornelius (n 4) 125.

(24) P a g e | 17. CHAPTER 4. DEVELOPMENT OF THE PAROL EVIDENCE RULE IN THE SOUTH AFRICAN CASE LAW. 4.1. Delmas Milling v Du Plessis73. 4.1.1. Facts. Delmas Milling and Mr du Plessis entered into a written agreement in terms whereof Du Plessis was to deliver a certain number of bags of beans to the mill at a pre-arranged price. The agreement stated that if the bags of beans were not delivered by the time specified in the agreement, then the parties would agree on a new price for the bags of beans. Du Plessis only delivered a portion of the bags by the time stipulated in the contract and Delmas Milling sued Du Plessis for damages suffered by them due to the alleged breach of contract by Du Plessis. Du Plessis pleaded that he was not in breach of the agreement as the contract stipulated that the parties had to agree on a new price before he was to deliver the balance of the bags of beans.. Centlivres JA held that the effect of the disputed clause was to make the contract an option to sell. If the contract was to be construed as one of purchase and sale, the clause must have been inserted for the benefit of the Du Plessis, in which case he could not be said to be taking advantage of his own wrong (in failing to deliver by the stipulated date) when he relied on the clause. The court held further that, as there was no ambiguity in the meaning of the disputed clause, evidence of surrounding circumstances could not affect the meaning of the clause.. The decision in the Provincial Division was confirmed and the appeal dismissed with costs.. 73. Delmas Milling Co Ltd v du Plessis (N 7).

(25) P a g e | 18. 4.1.2. Discussion. Delmas Milling v Du Plessis is the locus classicus on when extrinsic evidence may be admitted to contradict the plain meaning of words in a contract74. The case laid down three successive principles that determine when extrinsic evidence may be admitted, namely75:. 1. the first rule states that the plain meaning of words should be followed and uncertainties should as far as possible be eliminated by means of linguistic treatment; 2. the second rule states that once it is established that the uncertainties cannot be resolved by means of linguistic treatment, then extrinsic evidence may be submitted only to clear the uncertainty; 3. the third rule states that if the second rule does not provide clarity, then there is an ambiguity and in such case evidence relating to the negotiations between the parties or as stated by Schreiner JA “recourse may be had to what passed between the parties on the subject of the contract”76 may be submitted. Accordingly, the type of extrinsic evidence that may be submitted during the different stages of the application of the rules are as follows77:  First rule:. Only evidence that apply the text to the facts of the case or to identify the parties or things involved in the contract78;.  Second rule:. Only evidence that clear the difficulty or uncertainty thus evidence relating to the “surrounding circumstances”. 74. Cornelius (n 4) 99. 75. Cornelius (n 4) 100. 76. Delmas Milling v Du Plessis (n 7) 455B. 77. Kerr (n 2) 152; Cornelius (n 4) 100; Otto (n 38) 145. 78. Delmas Milling v Du Plessis (n 7) 453H 454E-F.

(26) P a g e | 19. should be submitted. Schreiner JA defines surrounding circumstances as the “matters that were probably present to the minds of the parties when they contracted (but not actual negotiations and similar statements. It is commonly said that the Court is entitled to be informed of all such circumstances in all cases 79; and  Third rule:. Evidence pertaining to the actual negotiations between the parties to clear the ambiguity.. The clear meaning rule is not applicable to words that are used in a technical sense or words that have obtained a certain meaning through trade or in a certain group or community80.. The Delmas rules were criticised because, if rigidly applied, it gives rise to what Steyn CJ warns a letter-worship and literal formalism to be where the words are stronger than the intention and will of the parties81 and may lead to hypothetical results that the parties may not have intended82. Regarding the third rule, Schreiner JA warned that “one must use outside evidence as conservatively as possible but one must use it if it is necessary to reach what seems to be a sufficient degree of certainty as to the right meaning”83.. Prior to Delmas Milling v Du Plessis the plain meaning of words were rigidly applied by courts and no provision were made to allow for the admission of extrinsic evidence to contradict, what in the court’s view were, clear and unambiguous words in the contract.. 79. Delmas Milling v Du Plessis (n 7) 454F-G. 80. Simon v Lewis & Co (Pty) Ltd 1944 TPD 137. 81. Trollip v Jordaan 1961 (1) SA 238 (A) 245E-F. 82. Cornelius (n 4) 100; Otto “Die Aanwending van “Background Circumstances” en “Surrounding Circumstances”. by die Uitleg van Kontrakte” 144 146 83. Delmas Milling v Du Plessis (n 7) 455B.

(27) P a g e | 20. Otto84 criticised the Delmas rules since, although it gave rise to an objective manner of working, it placed hurdles in the way of the court to determine the common intention of the parties.. 4.2. Haviland Estates v McMaster85. 4.2.1. Facts. The case centered around the transfer of a property and whether or not the property is subject to certain servitudes, including a right of way and water servitude. The court had to consider whether extrinsic evidence could be submitted to interpret the contract. This case centred around a notarial deed purporting to grant a praedial servitude in respect of water over the remaining extent of a portion of a farm subdivided from the remainder of the farm. No express mention of servitudes of aqueduct, abutment or storage was made in the title deed. Evidence of surrounding circumstances was admissible and revealed that the furrow was already in existence with the intake, and the route and termination was clearly defined in situ and was known to the parties. The case was brought in the water court to have the registered documents altered by the court. Evidence of the surrounding circumstances at the date when the notarial deed was executed was admitted by the court. This revealed that a certain portion B which had already been surveyed and was about to be transferred in sole ownership, had no source of water other than the aforementioned furrow, and that it had been the common intention of the parties to create, in relation both to the right of way and to the right of water, a servitude in favour of Portion B, and that servitude was binding upon the remaining extent of the farm. The aforementioned furrow was already in existence and conveying water to Portion B and that the parties to the deed were dealing with a familiar established physical situation. 84. Otto (n 38) 144. 85. Haviland Estates (Pty) Ltd and Another v McMaster 1969 (2) SA 312 (A);.

(28) P a g e | 21. The court held that with regard being had to certain uncertainties deriving from the language employed by the parties in the notarial deed, that the deed should be construed in the light of the surrounding circumstances which were relevant at the time of the execution of the notarial deed. Further, the absence of reference in the deed of servitudes of aqueduct, etc., was due to the fact that the furrow was already in existence. In the particular circumstances such absence of mention was not fatal to the concept of a praedial servitude in favour of Portion B. The court further held that the terms of the deed clearly imposed on the owner of the Portion C the obligation to do nothing to prevent the stated quantity of water from reaching Portion B by means of the furrow and to refrain from polluting the water.. 4.2.2 Discussion. The strict application of the first Delmas rule requires the contract to be read and then interpreted in isolation from its context. This is problematic as words do not exist in isolation, but are dependent on some context86. In the Haviland case the court held that extrinsic evidence of surrounding circumstances is always admissible to place the court as near as possible in the position of the parties at the time of conclusion of the contract87.. The effect of this judgment was that it effectively merged the first and second Delmas rules and allowed for the admission of evidence on surrounding circumstances to assist the court in establishing the common intention of the parties.. 86. Cornelius (n 25) 770. 87. Cornelius (n 25) 770; Haviland Estates v McMaster (n 41) 339A.

(29) P a g e | 22. 4.3. Van Rensburg and Another v Taute and Another88. 4.3.1 Facts. The facts of the case centered around a dispute over water rights.. The respondents had been granted certain orders by a water Court in terms of which the appellants had to remove certain dams and furrows on their (appellants’) property and whereby they were prohibited from constructing dams, without the consent of all the other interested partied, above certain servitude dams referred to in a water agreement concluded in 1875 by former owners of the appellants’ and respondents’ land. The water agreement provided, inter alia, “dat geen bezitter het regt zal hebben eenig dam boven of tusschen de gezegde servituut dammen aan te leggen zonder toestemming van al de ander besitters”. Prior to 1875 appellants’ and respondents’ farms were compromised of two larger farms held in undivided shares by the six owners thereof. The two farms were adjacent to one another. A public stream, the Diep River, flowed through the two farms. The water flowing in the Diep River had as its source several streams which arose in various ravines on one of the two farms and on another farm.. The six owners of the two farms divided the farms between them in 1875 so that five of them received a portion of each of the farms and the sixth received only a portion of one farm. Their water rights were determined in the water agreement and these water rights registered against their title deeds. The water agreement provided that two dams which were on the farms would be servitude dams and that the furrows leading from these dams would be servitude furrows.. The agreement further provided that the various owners of the farms as divided amongst them could irrigate from the servitude dams at certain times and it also. 88. Van Rensburg v Taute 1975 (1) SA 279 (A).

(30) P a g e | 23. provided for the maintenance of the dams and furrows. The farms as divided were later subdivided further.. As the water rights agreement was in dispute, the court was asked to interpret the agreement and use the surrounding circumstances to determine the intention of the parties when the initial servitudes were included in the water rights agreement.. 4.3.2. Discussion Otto89 describes the judgment in Van Rensburg v Taute as a “subtle change” to the Delmas Milling v Du Plessis case. Van Rensburg v Taute brought to the forefront the different concepts of surrounding circumstances and background circumstances.. The court distinguished between background circumstances and surrounding circumstances. and. explained. that. evidence. regarding. surrounding. circumstances may only be admitted if the contract is ambiguous or unclear. The ambiguity can either be because the words in the contract are unclear or the application of the contract on the external facts is ambiguous. The court then concluded that it may admit evidence regarding the background circumstances to understand the broad context within which the words in the contract was used90. A distinction was made in Van Rensburg v Taute between “surrounding” and “background” circumstances. Although the court attempted to define it, the confusion that was created by these two concepts can be seen in the following section. Van Rensburg v Taute therefore allowed extrinsic evidence to be admitted to court, but by dividing the evidence in two different categories, it. 89. Otto (n 38) 146-147. 90. Own translation and emphasis. Original text in 303D reads as follows: “Die hof kan blykbaar ook ingelig word. oor die agtergrondsomstandighede waaronder kontraksluiting plaasgevind het, maar slegs om die breë konteks, waarin die woorde wat vertolk staan te word, gebesig word, beter te kan begryp”.

(31) P a g e | 24. created a confusion that took decades to finally resolve the confusion in KPMG Chartered Accountants (SA) v Securefin Ltd.. 4.4. The Courts’ difficulty with the concepts “surrounding circumstances” and “background circumstances”. The difficulty that the court had with the distinction between background and surrounding circumstances is illustrated in the cases that will subsequently be discussed in what Otto calls the “heirs of Van Rensburg v Taute”91.. In List v Jungers 1979 (3) SA 106 (A) 120C the court said that it may be informed of the background circumstances under which the contract was concluded to enable it to understand the broad context within which the words to be interpreted were used.. In Swart v Cape Fabric (Pty) Ltd 1979 (1) SA 195 (A) 201A the court noted in passing that there apparently is a distinction between background and surrounding circumstances;. In Streek v East London Daily Despatch (Pty) Ltd 1980 (1) SA 151 (OK) 156C the court again placed background circumstances equivalent to those facts that determine the “broad context in which the words to be interpreted were used” and further stated that it cannot assist the court in determining the meaning of the words, except special or technical words;. In Van Rensburg v City Credit (Natal) (Pty) Ltd 1980 (4) SA 500 (N) the court went further and stated in 506G that the court is obliged to have regard to background circumstances to determine the real intention of the parties and should this not be sufficient, then a wider investigation into surrounding circumstances, should be done. In this case the court succinctly equated in 507B the difference between these two concepts as:. 91. Otto (n 38) 147.

(32) P a g e | 25. a. background circumstances refer to the birth of the document; while b. surrounding circumstances refer to the circumstances surrounding its conception.. In Krige v Wallace 1990 (3) SA 724 (K) 739H the court took the matter further and said that in cases of uncertainty and ambiguity the court must look at both surrounding and background circumstances. The court, however, in reference to List v Junger, referred to the relationship between the parties as surrounding circumstances, while the court in List v Junger referred to this relationship as background circumstances.. In Shoprite Checkers Ltd v Blue Route Property Managers (Pty) Ltd 1994(2) SA 172 (K) the court said that in every case where the interpretation of a contract is in issue, evidence regarding background circumstances but not surrounding circumstances is admissible, but that the distinction between surrounding and background circumstances will be determined by the facts of each case;. In Du Preez v Nederduitse Gemeente De Deur 1994 (2) SA 191 (W) the court equated background and surrounding circumstances as evidence that need to be submitted to court in case of uncertainty, ambiguity, vagueness and incompleteness;. In Commercial Union Assurance Company of South Africa Ltd v Kwazulu Finance and Investment Corporation 1995 (3) SA 751 (A) 759C the court said that it is accepted law that in cases of ambiguity the contract should be interpreted “against the background of the factual context or ‘matrix of facts’ in which it was concluded”. Again background circumstances was defined as the circumstances that prevailed at, what was referred to in Van Rensburg v City Credit as “the birth of the contract”..

(33) P a g e | 26. 4.5. Coopers and Lybrandt v Bryant92. 4.5.1. Facts. Bryant sued his accountants, Coopers & Lybrand, for the damages suffered by him when he purchased a business. He claimed that he suffered damages as he acted on their advice. Coopers and Lybrand contended in a special plea to Bryant’s particulars of claim, that Bryant’s claim was subject to the terms of a deed of cession concluded between Bryant and Standard Bank for Bryant’s book debts and that in consequence he had divested himself of locus standi to institute the action in question. In his replication to the special plea the Bryant averred that the deed, on a proper construction, covered only his business debts and not his personal debts. The court a quo dismissed the special plea with costs, and Coopers & Lybrand appealed the judgment. The Appellate Division held that the matter was essentially one of interpretation. According to the "golden rule" of interpretation the language had to be given "its grammatical and ordinary meaning”, unless this would result in some absurdity or some repugnancy or inconsistency with the rest of the instrument. The court further found that a particular word or phrase ought never to be interpreted in vacuo.. The court determined that the purpose of the session was to provide the bank, as cessionary, with continuing security for allowing Bryant, as cedent, access to its banking facilities. Bryant and Standard Bank never intended to include personal claims under the phrase "and other debts and claims of whatever nature." It was clear, the court found, "from the nature and purpose of the said cession, including its context as a whole," that the phrase was intended to refer only to business debts, including claims other than book debts. As the Bryant’s claim was clearly a personal one, and therefore unrelated to his trading debts, and as the terms of the deed were accordingly not wide enough to include such a claim, the court found that the cession did not divest the Bryant of his claim. In view of this conclusion, the court found it unnecessary to consider the parties'. 92. Coopers & Lybrand v Bryant 1995 (3) SA 761 (A).

(34) P a g e | 27. conduct after 16 April 1985, or any other extrinsic evidence relating to surrounding circumstances. The appeal was thus dismissed with costs and the decision in the East London Circuit Court, in Bryant v Coopers & Lybrand and Others, reversed by a unanimous judgment.. 4.5.2 Discussion. The Appeal Court distinguished between background and surrounding circumstances and laid down the rules relating to the admission of extrinsic evidence in the interpretation of contracts. The court explained how the “golden rule” of interpretation should be applied, after the literal meaning of the words or phrase in issue were established, as follows93:. 1. have regard to the context within which the word or phrase is used with its relationship to the whole of the contract as well as the nature and purpose of the contract; 2. have regard to the background circumstances which explains the genesis and purpose of the contract, therefore the matters probably to the minds of the parties when they contracted; 3. apply extrinsic evidence regarding the surrounding circumstances when the language of the document is on the face of it ambiguous. These circumstances are: previous negotiations and correspondence between the parties; subsequent conduct of the parties showing the sense in which they acted on the document; but excluding direct evidence relating to the individual intentions of the parties. Otto94 summarises the most important differences between the Delmas Milling v Du Plessis case and the Coopers & Lybrand v Bryant case as follows:. 93. Coopers & Lybrand v Bryant (n 48) 768A-E. 94. Otto (n 38) 150.

(35) P a g e | 28. Linguistic interpretation. Delmas Milling v. Coopers & Lybrand v. Du Plessis. Bryant. Most important and Also can decide a case. take. the. background circumstances. into. account Matters probably present Defined. as Defined as background. to the minds of the parties surrounding. circumstances. when they contracted – circumstances excluding. actual. negotiations Previous negotiations and. Defined as surrounding. correspondence between. circumstances. the parties. The importance of the Coopers & Lybrand v Bryant case lies therein that it removed the distinction between the first and second Delmas rules and replaced it with three different rules95.. One should, however, remember that the Delmas rules started off with the linguistic phase in determining the clear meaning of the words, while the Cooper and Lybrand rules, starts off with the assumption that the clear meaning of the words has already been determined and proceeds from thereon. Coopers & Lybrand v Bryant therefore actually proposed four rules and not three as determined in the Delmas Milling v Du Plessis case.. 4.6. Vd Westhuizen v Arnold96. 4.6.1. Facts. 95. Cornelius (n 25) 771. 96. Van der Westhuizen v Arnold 2002 (4) All SA 331 (SCA);..

(36) P a g e | 29. Arnold signed an agreement of sale for a motor vehicle which provided that "no warranty whatsoever has been or is given to me by the seller or his agent(s)." The agreement had been drawn up by Van der Westhuizen (also the seller). Arnold had been aware when he purchased the vehicle that it was in need of repair. The discussions between Arnold and Van der Westhuizen, prior to the conclusion of the contract, had related to the condition of the vehicle. Subsequent to Arnold’s taking possession of the vehicle, a bank claimed ownership of it. To avoid the bank's claim, Arnold paid the bank the amount outstanding to it. He then claimed that amount from Van der Westhuizen and based his claim on the implied warranty against eviction. Van der Westhuizen raised the exclusion clause in defence of the claim.. On appeal, the court held, that the surrounding circumstances, what passed between the parties, their negotiations and their conduct, did not show that the words "no warranty whatsoever" had included the implied warranty against eviction. Although the phrase had to be regarded at first glance as a complete catch-all, saving the seller from any liability that might have arisen by operation of law, or by virtue of representations or warranties, it could not, given its generality, and the absence of any evidence that the question of title had been considered or in contemplation, have excluded the most fundamental obligation of the seller: to give undisturbed possession of the merx to the buyer.. The court found that the only inference to be drawn from the circumstances was that Arnold had not intended or even contemplated that he might be deprived of possession by the true owner and then have no recourse against Van der Westhuizen. The evidence did not show that Van der Westhuizen had any such liability in mind either. In the circumstances, then, the provision in the document that Van der Westhuizen had given no warranties whatsoever did not exclude his liability for breach of the warranty against eviction. This did not mean that the words at issue were superfluous; they referred also to express warranties which would have related to the condition of the car..

(37) P a g e | 30. The court held further that there did not appear to be any clear authority for a general principle that exemption clauses should be construed differently from other provisions in a contract. That did not mean, however, that courts were not, or should not be, wary of contractual exclusions, since they deprived parties of rights that they would otherwise have had at common law. In the absence of legislation regulating unfair contract terms, and where a provision did not offend public policy or considerations of good faith, a careful construction of the contract itself should ensure the protection of the party whose rights had been limited, but also give effect to the principle that the other party should be able to protect herself or himself against liability insofar as it was legally permissible. The very fact, however, that an exclusion clause limited or ousted common-law rights should make a court consider with great care the meaning of the clause, especially if it was very general in its application. This required a consideration of the background circumstances and a resort to surrounding circumstances if there was any doubt as to the application of the exclusion.. The court also held, that the words "no warranty whatsoever has been or is given to me by the seller or his agent(s)" were of the widest connotation, but of critical importance were the words "has been or is given to me by the seller or his agent(s)." Their ordinary meaning was that Van der Westhuizen (or his agent(s)) neither gave nor had given any guarantees or warranties whatsoever. They were certainly apt to have excluded all expressly-given warranties, whatever their content. Although the word "whatsoever" would have covered warranties both expressly and tacitly given, a warranty which arose ex lege and owed nothing to the consensus of the parties was another matter altogether. It was not a warranty which was given (either expressly or tacitly) by the seller or his agent(s). The chosen words were not apt to exclude such a warranty. Plainer language than that which Van der Westhuizen had chosen would have been necessary to exclude effectively such a warranty. The decision in the Cape Provincial Division, in Arnold v Van der Westhuizen, was thus confirmed..

(38) P a g e | 31. 4.6.2. Discussion. The significance of this case is in the fact that the court questioned the artificial distinction between background and surrounding circumstances.. Lewis AJA stated that it is not apparent where to draw the line between surrounding and background circumstances. She found that it, however, was important for purposes of determining in the matter on hand what “the matters probably present to the minds of the parties (were) when they contracted – the ‘background circumstances’”97. Cornelius98 argues that this case diluted the requirement of ambiguity in the third Coopers & Lybrand v Bryant rule and that by implication, evidence regarding surrounding circumstances would be admissible even in the case of mere uncertainty and if the term is not ambiguous in the true sense of the word. He further argues that “(w)hereas the Coopers and Lybrand case removed the distinction between the first and second Delmas rules, the Van der Westhuizen case moved the third Delmas rule into the void left by the now defunct second Delmas rule”.. The significance of this case is that Lewis AJA openly questioned the distinction between surrounding and background circumstances and confirmed a more contextual approach to the interpretation of contracts99. This laid the foundation for the development of these rules in KPMG Chartered Accountants (SA) v Securefin Ltd 100.. 97. Van der Westhuizen v Arnold (n 52) 335. 98. Cornelius (n 25) 771. 99. Van der Westhuizen v Arnold (n 52) 335. 100. Cornelius (n 25) 771.

(39) P a g e | 32. 4.7. KPMG Chartered Accountants (SA) v Securefin Ltd 101. 4.7.1. Facts. The case centred around the following facts: The court was asked to consider the admissibility of evidence in interpreting the terms of a contract. The appeal turned on the existence, validity and terms of an agreement between the appellant (KPMG) and the first respondent (Securefin) and the interpretation of a contract in terms of which KPMG undertook to verify certain facts relevant to the execution of a contract relating to the re-engineering and acquisition of certain Old Mutual policies. This process of the ‘re-engineering and acquisition’ of Old Mutual in effect involved its demutualisation. Due to the fraudulent conduct of one Alexander, Securefin was swindled out of some US$40 million. Since Alexander was in prison Securefin wished to recoup its loss from KPMG. KPMG appealed against a decision handed down by the Pretoria High Court. Securefin, as first plaintiff in the court a quo, alleged that the KPMG had breached the agreement and that it consequently had suffered damages for which KPMG was liable. Harms DP held that, in interpreting the contract, the court had to decide whether a document with an annotation or one without was the contract entered into by the parties. Another issue for contention was whether the contract was void due to error. The court upheld the decision of the Pretoria High Court.. 4.7.2. Discussion. Much of the evidence in this case dealt with the interpretation of the verification contract. Experts were called by both parties and the court found it “necessary to say something about the role of evidence and more particularly, expert evidence in matters concerning interpretation”102. Harms DP went on to summarise the existing law in South Africa pertaining to the admissibility of extrinsic evidence in the interpretation of a term in a contract as follows: 101. KPMG Chartered Accountants (SA) v Securefin Ltd (n 14);. 102. KPMG Chartered Accountants (SA) v Securefin Ltd (n 14) n533a.

(40) P a g e | 33. 1. “the integration (or parol evidence) rule remains part of our law. … If a document was intended to provide a complete memorial of a juristic act, extrinsic evidence may not contradict, add to or modify its meaning103;. 2. “interpretation is a matter of law and not of fact and, accordingly, interpretation is a matter for the court and not for witnesses …”104;. 3. “the rules about admissibility of evidence in this regard do not depend on the nature of the document, whether statute, contract or patent”105;. 4. “to the extent that evidence may be admissible to contextualise the document (since ‘context is everything’) to establish its factual matrix or purpose of for purposes of identification, ‘one must use it as conservatively as possible’” 106.. Harms DP then made the following remark that rid the courts from decades of cases regarding the cumbersome distinction between surrounding and background circumstances: “The time has arrived for us to accept that there is no merit in trying to distinguish. between. ‘background. circumstances’. and. surrounding. circumstances’. The distinction is artificial and, in addition, both terms are vague and confusing. Consequently, everything tends to be admitted. The terms ‘context’ or ‘factual matrix’ ought to suffice.”107. 103. KPMG Chartered Accountants (SA) v Securefin Ltd (n 14) n533b; Johnson v Leal (n 11). 104. KPMG Chartered Accountants (SA) v Securefin Ltd (n 14) n533c. 105. KPMG Chartered Accountants (SA) v Securefin Ltd (n 14) n533c-d; Johnson and Johnson (Pty) Ltd v KimberlyClark Corp 1985 ZASCA 132. 106. KPMG Chartered Accountants (SA) v Securefin Ltd (n 14) n533d; Delmas Milling Co Ltd v du Plessis (n 7) 455B-C. 107. KPMG Chartered Accountants (SA) v Securefin Ltd (n 14) n533e-f referring also to Van der Westhuizen v. Arnold (n 52) at paragrap 22 and 23; Masstores (Pty) Ltd v Murray and Roberts (Pty) Ltd and another 2008 (6) SA 654 (SCA) at paragraph 7.

(41) P a g e | 34. Cornelius108 argues that, by rejecting the distinction between surrounding and background circumstances, Harms DP effectively destroyed the distinction between the first and second Coopers & Lybrand v Bryant rules on the one hand and the third Coopers & Lybrand v Bryant rule on the other hand. The distinction between these rules centred mainly on whether the words and terms in a contract were “uncertain” or “ambiguous”. Cornelius109 further argues that after KPMG Chartered Accountants (SA) v Securefin Ltd, there is, for purposes of admissibility of extrinsic evidence, no longer a distinction between certain and unambiguous and uncertain and unambiguous words and terms.. What extrinsic evidence may then be admitted to interpret the terms or words of a contract? Cornelius110 argues that the admissibility of extrinsic evidence is only limited by the ordinary rules of the law of evidence and that the evidence may be divided into four categories, namely111:. 1.. evidence pertaining to both parties:. 1.1. evidence about what the parties should have observed around them when the contract was negotiated and eventually concluded. How does the court use this evidence? By placing itself in the position of the parties and looking outward from their perspective to what both parties should reasonably have observed;. 1.2. evidence pertaining to circumstances that give a direct indication of the parties’ collective intention when the contract was negotiated and concluded;. 2.. evidence pertaining to one of the parties. 108. Cornelius (n 25) 771-772. 109. Cornelius (n 25) 771-772. 110. Cornelius (n 25) 774. 111. In the original text of Cornelius the evidence was divided into four categories. For ease of understanding, these. four categories were changed by writer into two categories with two subcategories.

(42) P a g e | 35. 2.1. evidence pertaining to what one of the parties observed when the contract was negotiated and concluded.. 2.2. evidence pertaining to circumstances that give a direct indication of each party’s individual intention when the contract was negotiated and eventually concluded.. The purpose of interpretation is to determine the common intention of the parties to the contract. The intention of one of the parties is therefore irrelevant112 and can only assist the court if it is difficult to proof actual consent and the court has to determine whether, what Christie defined as quasi mutual assent existed at the time of entering into the contract. Both the last mentioned two categories of evidence will therefore only be admitted if quasi mutual assent has to be proven and will not be allowed to proof the common intention of the parties.. The only caution made by Harms DP in KPMG Chartered Accountants (SA) v Securefin Ltd regarding the discard of the previous rules and the establishment of this new rule, is a repeat of what Schreiner JA said in the Delmas Milling v Du Plessis case: “one must use outside evidence as conservatively as possible but one must use it if it is necessary to reach what seems to be a sufficient degree of certainty as to the right meaning”113.. 112. IRR South Afica BV (Incorporated in the Netherlands) t/a Institute for International Research v Tarita 2003. (3) All SA 188 (W) 194 113. Delmas Milling v Du Plessis (n 7) 455B.

(43) P a g e | 36. CHAPTER 5 COMPARATIVE SURVEY WITH AMERICAN AND ENGLISH LAW. 5.1. English law. 5.1.1. Origin of the parol evidence rule. The parol evidence rule originated with the seal of the king. According to Wigmore114, once the king’s seal was placed on a written document, the document was incontestable. When the seal was extended to all people, the documents carrying the seal of a person was attributed the same value as that of the king and the incontestability of the sealed documents became complete. In commercial transactions the faithfulness of written documents against the “shiftiness of mere testimonial recollections” was valued and as the people became more literate, the value of written documents in the mid second century increased to be superior to other forms of evidence115. Wigmore stated that the rationale for this was two pronged: . by affixing their seal to the document, the parties testified to the validity of the document and that the document embodied the complete agreement between the parties;. . sealed documents were regarded as superior in form to other documents and could not be contradicted by evidence of an inferior form116.. When unsealed documents became common practise, a similar approach was followed by the court. In 1604 the rule was pronounced and reported under the Countess of Rutland’s case as “a written deed will bar parol evidence”. The rationale was that written documents provided certainty above the “slippery”. 114. Wigmore Columbia Law Review, Vol. 4, No. 5 (May, 1904), pp. 338-355. 115. Agren (n 5) 13. 116. Wigmore Columbia Law Review, Vol. 4, No. 5 (May, 1904), pp. 338-355 - 342.

(44) P a g e | 37. memory of witnesses and it further provided certainty of commercial transactions117.. 5.1.2. Approach to the parol evidence rule. A strict formalistic approach was followed in England with the admissibility of evidence to assist the court in the interpretation of contracts. This approach, however, gave way to a more contextual approach in the case of Investors Compensation Scheme Ltd v West Bromwich Building Society118.. Hoffman LJ explained in Investors Compensation Scheme Ltd v West Bromwich Building Society that the purpose of interpretation of a contract is to determine what the document would convey to a reasonable person with the same knowledge as the contracting parties regarding the background circumstances at the time the parties concluded the contract. These background circumstances is not limited to what Hoffman LJ called the “matrix of fact” but included absolutely anything that affected the way in which a reasonable man would have understood the language of the contract, excluding the previous negotiations between the parties. Hoffman LJ further explained that the meaning of the words in the agreement is objective aspects that can be determined by means of a dictionary, but the meaning of the document is what the parties would understood the words to mean against the relevant background. Hoffman LJ then concluded to say “The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had”119.. 117. Agren (n 5) 14. 118. 1998 1 WLR 896; Cornelius (n 4) 105. 119. Investors Compensation Scheme Ltd v West Bromwich Building Society (n 128) 912-913.

(45) P a g e | 38. It is therefore evident that the English courts have also accepted a contextual approach to the interpretation of contracts and that evidence may be more readily admitted to determine the meaning of words120.. Cornelius, however, argues that if the principles laid down by Hoffman LJ in Investors Compensation Scheme Ltd v West Bromwich Building Society is compared to the judgment in Coopers & Lybrand v Brayant then it is evident that Hoffman LJ proposed essentially the same approach as that of Joubert JA in Coopers & Lybrand v Brabant. Cornelius argues that this approach can at best be defined as a “qualified contextual approach”121.. If Investors Compensation Scheme Ltd v West Bromwich Building Society is compared to KPMG Chartered Accountants (SA) v Securefin Ltd it is evident that the South African courts has a much more liberal approach regarding the parol evidence rule than the English courts. If Cornelius’s argument is accepted as correct then the English law regarding the parol evidence rule is still more conservative than its South African counterpart and has a long way to be developed to the same standard as the South African law.. 5.2. Law in the United States of America. 5.2.1. Origin of the parol evidence rule. The parol evidence rule in the American law originated in the English law and Agren submits that the parol evidence rule is “rooted in and reflects the legal preference, if not legal primacy, that was historically afforded [to] writings in the English common law”122.. By definition the parol evidence rule is only applicable if the parties intended the agreement to be a single and complete memorial of their agreement. This 120. Cornelius (n 4) 106. 121. Cornelius (n 37) 772. 122. Agren (n 5) 17.

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