Proof and interpretation of contracts Flashcards
What are the two general approaches to interpretation?
- Historical-psychological approach:
● This approach held that, in interpreting a contract, the aim is to give effect to the common intention of the parties, i.e., to what both of them intended upon entering into the contract
● In today’s complex world, it is no longer accurate to hold that this approach is true.
2.) Normative or objective approach:
● The court in Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 confirmed that the approach to be followed is an objective one
objective interpretation:
■ The inevitable point of departure was held to be the language of the provision itself, read in context, and having regard to the purpose of the provision and the background to the preparation and production of the document.
Tshwane City v Blair Atholl Homeowners Association facts
the water tarrif case
■ The parties in this case had come to an agreement concerning the supply of water to a residential estate. A dispute arose as to the interpretation of one of the agreement’s provisions.
■ The City was prepared to provide water to the area on the basis that the developer funded the construction of a 20 km water pipeline that would enable the water to be supplied to the new development, as well as a reservoir. The City undertook to maintain the external pipeline and reservoir
outcome of the Tshwane City v Blair case
The court found that it was sensible, in deciding which of the City’s approved rates applies to the phrase “normal rate” within the contract, to simply determine which of the categories is factually applicable. The HOA would have had to lead more evidence to shift the presumption that scale D applies to the situation in favour of tariff 6.
○ The court thus found that the question of interpretation was answered in favour of the City and that the appeal therefore was upheld.
Approaches to admissibility of evidence in interpretation
- Traditional approach:
if the meaning of a contract could be ascertained with sufficient certainty from the written words, evidence of matters outside of the contract were irrelevant; the court would not be entitled to take them into account.
- Current approach
the court in Natal Joint Municipal Pension Fund v Endumeni Municipality determined that interpretation is an objective process considering the “language used in the light of the ordinary rules of grammar and syntax; the context in which the provision appears; the apparent purpose to which it is directed; and the material known to those responsible for its production.” Furthermore, “where more than meaning is possible, each possibility must be weighed in light of all these factors.
Factors to consider in interpretation
- Language of the provision
- Context in which it appears
- The provision’s apparent purpose, and material known to those responsible for its production
The parol evidence rule
○ It declares that where the parties intended their agreement to be fully and finally embodied in writing, evidence that would contradict, vary, add to, or subtract from the terms of the writing is inadmissible. As an evidentiary rule, it is also subject to the fundamental principle that irrelevant evidence is inadmissible
Rule manifests itself in two ways:
1. Intergration leg
● Determines what evidence is admissible to prove the contents of the contract.
● Parties are said to have integrated their earlier negotiations into one document, and they should not be allowed to redefine the terms of their contract; extrinsic evidence that attempts to contradict or vary the contract is generally regarded as irrelevant.
2) Interpretation leg:
● Determines what evidence is admissible in proving the meaning of the words used by the parties to express those terms.
● The SCA has confirmed parol evidence still forms part of our law, but the second leg of the test has in effect been brushed aside.
University of JHB v Auckland Park Theological Seminary facts
■ At the core of this matter was a dispute over the permissibility of the cession of rights in a long-term lease agreement.
■ Thus, in 1996, the parties entered into a long-term lease agreement which was to endure for 30 years. ATS paid UJ a once-off rental of R700 000.
● Clause 8 of the agreement spoke to the right of use of the property, holding that it was to be used for the construction of a campus for education and student facilities.
■ ATS did not end up establishing this college, and instead ceded its rights under the lease agreement to the second respondent, Wamjay Holdings, a company who wished to build a faith-based school on the premises. Neither UJ nor the Minister were notified of this cession or asked for permission therefore.
■ When UJ came to know of this cession, it took the view that ATS had repudiated the lease agreement because the rights that they purported to cede to Wamjay were personal to ATS. It cancelled the lease agreement
outcome of the Auckland case
■ The court set out the position that the court took in Endumeni regarding the factors to be taken into account in interpretation, including context (regardless of the ambiguity of the provision) and evidence as to negotiations between the parties preceding the conclusion of the contract.
■ The court, in applying the identified principles, found that the rights were delectus personae based on the circumstances of the case.
● ATS agreed to a once-off payment and the court found it could never have been intended by the parties that ATS could simply cede its rights to use the property to another in exchange for profit.
■ All these factors weigh in favour of a finding that it did matter to UJ that the lessee was ATS
SCA current approach on extrinsic evidence?
■ The words chosen by parties are just as important as their context.
■ Evidence of the parties’ negotiations preceding the conclusion of their contract is always inadmissible
Further guidelines of interpretations
- Interpret in context: “iusdem generis” rule
2.Interpret towards validity - Interpret against one presenting terms: “contra proferentem” rule
- Interpret towards a fair result if there is ambiguity
Interpretation of exemption clauses: Durban’s Water Wonderland v Botha
■ In this case, the respondent and her child sustained injuries by being thrown from a malfunctioning jet ride at an amusement park operated by the appellant. In response to the respondent’s claim for damages, the appellant alleged that the respondent was contractually bound by a disclaimer displayed at its ticket booths.
■ The court found that if the language of a disclaimer or exemption clause is such that it exempts the proferens from liability in express and unambiguous terms, effect must be given to that meaning. If there is ambiguity, the language must be construed against the proferens in a manner that the language is capable of.
■ The court found that the wording of the exemption clause clearly covered any liability based on negligence related to the design or manufacture of the ride in question.
■ For our purposes, the decision showed that where the wording of a clause is clear, courts must give effect to it even if the consequences thereof are harsh on the plaintiff
○ If there is no ambiguity, the contra proferentem rule cannot be applied, and the wording of the exemption clause must be given effect to, unless the provision is so harsh that it is against public policy (quite a high bar).
Interpretation and section 4(4) of the CPA
○ S 4(4): “Any standard term
■ a) Must be interpreted contra proferentem where ambiguous; and
■ b) So that any limitation or exclusion of a consumer’s right is limited to the extent that a reasonable person would expect.”
