15 January 2020 by and Dispute Resolution Alert

“What you do have is my word. And it’s stronger than oak.”

It is still fairly common for parties to “shake on it”. Parties often discuss terms of an agreement before formally putting it into writing. Parties are also known to verbally agree to amendments to a contract. Disputes often arise when such terms are not included in the written agreement, especially when the written agreement doesn’t include a “whole agreement clause” (a clause which states that the written agreement contains all the provisions the parties agreed on, and supersedes and novates in its entirety any previous understandings or agreements in respect thereof) and/or a “non-variation clause” (a clause which states that no addition to or variation, deletion, or agreed cancellation of all or any clauses or provisions of the agreement will be of any force or effect unless in writing and signed by the parties).

When faced with a situation where one party to an agreement attempts to rely on certain verbal undertakings outside the confines of the written agreement, the South African courts are guided by the parol evidence rule. The parol evidence rule prescribes that where parties to a contract have reduced their agreement to writing, it becomes the exclusive memorial of the transaction, and no evidence may be led to prove the terms of the agreement other than the document itself, nor may the contents of the document be contradicted, altered, added to or varied by oral evidence.

In the recent case of Mike Ness Agencies CC t/a Promech Boreholes v Lourensford Fruit Company (Pty) Ltd (922/2018) [2019] ZASCA 159, which was before the Supreme Court of Appeal (SCA), Lourensford Fruit Company (Pty) Ltd (Lourensford) attempted to argue that it had verbally agreed to a certain additional term to an agreement which was concluded with Mike Ness Agencies CC t/a Promech Boreholes (Promech), which term was not included in the written Agreement between the two parties.

In the normal course, taking into consideration the parol evidence rule, the additional term which the parties verbally agreed upon (on Lourensford’s version), would not be allowed to form part of the agreement between the parties.

In an attempt to overcome the parol evidence rule, Lourensford argued that the agreement was partly in writing and partly oral (with the oral portion of the agreement being the additional term to the agreement). Lourensford thereby attempted to establish that it was entitled to rely on the verbal agreement between itself and Promech, even though this term was not included in the written portion of the agreement.

In its judgment, the SCA reiterated what it previously held in the case of Affirmative Portfolios CC v Transnet Limited t/a Metrorail 2009 (1) SA 196 (SCA), namely that, “where an agreement is partially written and partially oral, then 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.

Considering the above, the SCA held, inter alia, that the oral portion of the agreement, as contended for by Lourensford, contradicted and varied the written portion of the agreement and as a result thereof, evidence on the oral portion of the agreement would offend the parol evidence rule and be inadmissible.

Conclusion:

When dealing with contracts, parties should be cognisant of the risks involved when leaving terms agreed upon out of the written contract. Parties should ensure that all the terms agreed upon between them are reflected in the contract. It is also important to include a “whole agreement clause”, as well as a “non-variation clause” in the contract, in order to avoid future disputes.

Lastly, if the parties agree on an oral portion of the contract, outside the confines of the written portion of the contract, parties should ensure that the terms of the oral portion of the contract do not contradict or vary the written portion of the contract, because if this is the case, the South African courts will be reluctant to allow it.

 

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