Don’t just ‘Shake On It’

It is not uncommon for the contracting parties to a written agreement to verbally agree on additional terms or terms which are intended to vary the content of the written agreement. This is often done with honest intentions, as having to conclude additional or varying terms in writing to the existing agreement may be perceived as an unnecessary hindrance to efficiently doing business. Parties eager to “get things done” will often simply “shake on it”, relying on the belief that that the other party will honour its verbal undertaking.

Such verbal varying of written contractual terms generally work out well for the contracting parties, until they don’t! In this regard, our law restricts the nature and extent of the evidence that may be brought when a dispute arises regarding the content and meaning of a written agreement. The applicable principle is known as the Parol Evidence Rule.

In terms of the Parol Evidence Rule, where the parties have reduced their agreement to writing, the written agreement becomes the exclusive memorial of the transaction and no evidence may be led to prove its terms other than the document itself, nor may the contents of the document be contradicted, altered, added to or varied by verbal/oral evidence. So-called ‘non-variation’ and ‘whole agreement’ clauses in written agreements are also expressions of the Parol Evidence Rule.

In an attempt to circumvent the Parol Evidence Rule, parties in legal proceedings have been known to advance argument that the agreement between the parties concerned had been ‘partly in writing’ and ‘partly oral’ and by doing so they attempt to  rely on evidence which would otherwise be inadmissible.  This was the case in a recent matter of Mike Ness Agencies CC v Lourensford Fruit Company (Pty) Ltd (922/2018) [2019] ZASCA 159 (judgment handed down on 28 November 2019), in which the Supreme Court of Appeal (“SCA”) was called upon to consider the trite Parol Evidence Rule.

The matter related to the drilling of a borehole on the property of the Respondent. The facts of the matter are briefly as follows: The parties had concluded a written agreement in terms of which the Appellant undertook to “guarantee water within 70 meters” and that “if no water was found at 70 meters [it] would drill from 70 meters to 100 meters free of charge”, and that according to its “No water. No pay policy” the Respondent would not be liable to pay unless water was found. The Appellant subsequently commenced drilling and at a little over 20 meters water was found (more water was found throughout the drilling and drilling was eventually stopped at a depth of 76 meters). The Respondent, however, refused to pay the Appellant alleging that the Appellant had verbally agreed to a yield of 10 000 liters per hour, failing which, the Appellant agreed it would not charge any fees.

The SCA confirmed in this matter that the considerable amount of evidence led by both parties regarding their negotiation and what their intentions had been, was inadmissible even as part of the context in which the agreement was concluded.

In relation to the allegation that the agreement was partially in writing and partially oral the court referred to the decision of the court in the matter of Affirmative Portfolios CC v Transnet Ltd t/a Metrorail 2009 (1) SA 196 (SCA) in which it was held that the Parol Evidence Rule “prevents the admission only of extrinsic evidence to contradict or vary the written portion, without precluding proof of the additional or supplemental oral agreement”.  This is often referred to as the Partial Integration Rule, which has the effect that extrinsic evidence regarding the oral part of an agreement is only admissible to the extent that it does not vary or contradict the written terms of the agreement. In other words, the written terms of the agreement will prevail where the alleged oral terms purport to vary or contradict such written terms.

The court in the Mike Ness Agencies CC v Lourensford Fruit Company (Pty) Ltd found in favour of the Appellant and quoted, with approval, the statement by the court in the matter of KPMG v Securefin 2009 (4) SA 399 (SCA) regarding the implications of the Parol Evidence Rule, namely that “interpretation is a matter of law and not of fact and, accordingly, interpretation is a matter for the court and not the witnesses”.

While the Parole Evidence Rule is a trite principle of our law, it is seldom enforced in practice. The court in the Mike Ness Agencies CC v Lourensford Fruit Company (Pty) Ltd matter has, however, re-affirmed its application.

Parties should therefore always record any variations or amendments to agreements in writing.

COHEN GROOTBOOM

Associate
Attorney

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