• Practical importance• Oral vs written contracts.

• In establishing this common intention, the court must first consider the grammatical and ordinary meaning of the words used by the parties

• However dictionary or everyday meanings are inconclusive because– Words have multiple meanings – Meanings change over time

• Therefore this is only the first step.

• The next step: consider the textual context in which the words have been used: the ‘linguistic treatment’: Delmas Milling Co Ltd v Du Plessis 1955 (3) SA 447 (A)

• See Coopers & Lybrand v Bryant 1995 (3) SA 761 (A) at 767E: the wording must be read in the context of the other provisions in the document, read as a whole

• Court should interpret the wording so as to give effect to the contract, favouring validity and business efficacy.

• If the intention of the parties is still unclear, the court must look beyond the written contract to its extended context

• What evidence of this broader context may be considered? – This is determined by the parol evidence rule.

The integration aspect of the parol evidence rule:• Where the parties intended their agreement to be fully and

finally embodied in writing, evidence to contradict, vary, add to or subtract from the terms of the writing (extrinsic evidence) is inadmissible

• Reasoning: the parties consolidated or integrated their negotiations into one document – the final expression of their will.

• Not applicable where the question is whether the parties intended the written document to be the exclusive memorial of their agreement

• Does not apply to the oral part of a contract which has only partly been reduced to writing – but evidence of the oral part may not be led if it would contradict, or is inconsistent with the written part

• Clearly does not apply to evidence of a subsequent oral agreement (but cf the non-variation clause)

• Does not apply to a document signed by only one of the parties (but it does apply in the case of negotiable instruments).

• Does not operate where the validity of the contract is in question eg there is an allegation of:– Fraud– Misrepresentation– Mistake– Undue influence– Duress– Illegality– That the written agreement was not an agreement at all, or– That it was a sham agreement.

• The integration rule is one of two manifestations of the parol evidence rule:– The integration rule establishes the kind of evidence permitted to

establish the content of the contract– The interpretation rule establishes the kind of evidence permitted to

establish the meaning of the contents of the contract

• But the two compartments are not watertight.

• This ‘determines when and to what extent extrinsic evidence may be adduced to explain or affect the meaning of the words contained in a written contract.’: Johnson v Leal 1980 (3) SA 927 (A) at 939

• Locus classicus: Delmas Milling Co Ltd v Du Plessis: guiding principle: relevance

• Some extra-textual evidence usually necessary, but where should the line be drawn?

• Traditional distinction:– Evidence of background circumstances always admissible– Evidence of surrounding circumstances generally

inadmissible (only exceptionally admissible).

• Courts increasingly willing to admit extra-textual evidence – defeats the purpose of the parol evidence rule

• Theoretically, the court should only consider the extra-textual context if clarity cannot be obtained by first looking at the ordinary meaning of the words, and then by examining the intra-textual context – but this is not always practical

• Distinction between background circumstances and surrounding circumstances unclear: examples

• But until fairly recently: courts would only admit evidence of surrounding circumstances where a document was ambiguous and clarity could not be obtained by referring to the rest of the document and to the background circumstances.

• Cf Masstores (Pty) Ltd v Murray & Roberts Construction (Pty) Ltd2008 (6) SA 654 (SCA) (obiter): ‘ambiguity is not ... a precondition for a court to interpret a provision by having regard to the context of the contract and the surrounding circumstances.’

• It has therefore been suggested that the distinction should be disregarded: – Pangbourne Properties Ltd v Gill & Ramsden (Pty) Ltd 1996 (1) SA 1182 (A):

‘the time may be ripe for this Court to reconsider the limitations placed in this statement on the use of “surrounding circumstances”.’

– KPMG Chartered Accountants (SA) v Securefin Ltd 2000 (4) SA 399 (SCA) (obiter): ‘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.’

– Unreasonable Stipulations in Contracts and the Rectification of Contracts (Project 47) (1998) of the Law Commission.

But did the court intend to allow evidence that would previously not have been admissible (eg direct evidence of the parties’ intentions?)

• By alleging a tacit term• By applying for rectification 1. A party can lead evidence to show that the contract contained

a tacit term, either» Envisaged but not included by the parties» So essential to commercial viability of the contract that the parties would

have included them, had they thought about them– A party cannot prove a tacit term that contradicts a written term, but

may allege a tacit term that modifies a written term– Result: evidence excluded by the parol evidence rule is brought before

the court

2. Alternatively, a party may apply for rectification of a contract where:» The parties mistakenly included a term in a written contract, or» The parties mistakenly omitted a term

– Result: evidence that would be excluded by the parol evidence rule is brought before the court

– Is rectification an exception to the integration aspect of the parol evidence rule?

• Applied where the court still cannot decide what the parties intended

• Not a closed list• Court need not apply all of them, and can apply them in any

order• Distinction between primary, secondary and tertiary rules of

interpretation.

• Applied where, having applied the primary rules, there is still ambiguity• Some overlap with primary rules:

– Eiusdem generis (‘words with a general meaning are restricted when used in association with words relating to a species of a particular class’: Van der Merwe et al at 304)

– Noscitur a sociis (words are understood by the company they keep)

• Some relate to the way in which the contract was reduced to writing:– Where a printed contract contains typed or written insertions inconsistent with

the printed text, effect to be given to insertions– Preamble subordinate to the operative part of the

contract unless the latter is unclear.

• Some are based on the presumed intention of the parties:– Ut res magis valeat quam pereat: a meaning that renders the contract

effective is favoured over one that renders it legally ineffective– Parties are assumed to have intended their contract to be legal rather

than illegal, constitutional rather than unconstitutional

• Some are aimed at achieving a fair result:– In a case of ambiguity the court will favour an equitable interpretation.

• Primary and secondary rules: aim at establishing the intention of the parties

• Tertiary rules: aim is to provide a fair outcome, regardless of the intention of the parties

• Examples:– Contra proferentem rule: ambiguous terms of a contract must be

interpreted against the party who proposed them – see Drifters Adventure Tours CC v Hircock 2007 (2) SA 83 (SCA)

– Quod minimum rule: ambiguous terms must be narrowly interpreted

• When all the rules of interpretation have been exhausted: contract void for vagueness.

Durban’s Water Wonderland (Pty) Ltd v Botha 1999 (1) SA 982 (SCA)• Facts• Disclaimer: Durban’s Water Wonderland was ‘absolutely unable to accept

liability or responsibility for injury or damage of any nature whatsoever whether arising from negligence or any other cause howsoever which is suffered by any person who enters the premises and/or uses the amenities provided.’

• Court: if clear: give effect to that meaning• Only if ambiguous: construe against the proferens• The alternative meaning must be plausible • The court must not adopt a strained meaning in order to import ambiguity.

• Paradox: to establish the parties’ subjective intentions, the court must refer to objective factors.

• Some cases and authors support a subjective approach to interpretation, others a more objective one

• Influence on admissibility of evidence:– Subjective approach – more inclusive approach to admissibility of

evidence– Objective approach – more restrictive approach to admissibility of

evidence

• Our law moving from a more objective to a more subjective approach to interpretation.

© Oxford University Press Southern Africa 2010www.oup.com/za