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Interpreting a settlement agreement

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Donald Dinnie | Director | Insurance Litigation | Norton Rose Fulbright | mail me |


The Supreme Court of Appeal, in Pelham Stephanus Bothma and Others v Tertius Bothma N.O and Another (Case number 748/2019) [2021] ZASCA 46 (15 April 2021), re-affirmed the position regarding the interpretation of legal documents, re-stating the principle that only admissible evidence of context, conservatively applied, may be led in resolving an interpretation dispute.

The dispute originated with a termination agreement, reached between two brothers, previously in business together, in terms of which one brother, the appellant, was required to rehabilitate a portion of mining land for the benefit of the other, the respondent, who was given ownership of the land.

The appellants failed to rehabilitate the property concerned and the respondents instituted action against them. A settlement agreement was reached between the parties in terms of which the appellant was to deliver to the respondents 100,000 cubic metres of ‘clean sand’, at a specified point of delivery, within a period of 6 months from the signing of the agreement.

This settlement agreement became the subject matter of a further dispute regarding the meaning of the term ‘clean sand’. It was alleged that the material delivered was not ‘clean sand’ as stipulated in the settlement agreement. Much evidence was led in this regard.

The respondents contended that the material delivered was lumpy, loamy sand with no commercial value, and was not in keeping with the provisions of the settlement agreement. The appellant suggested that they had complied with their obligation by delivery of material that was suitable for its intended purpose, namely the rehabilitation of the mining land as required from the outset.

The court, dispelled the notion that the source of the dispute was rehabilitation. The delivery of the clean sand was in lieu of a monetary award arising from the breach of the original termination agreement. This monetary claim was therefore the correct context for the interpretation of the settlement agreement, and not the rehabilitation. The court pointed out that it was clearly never the intention of the respondents to physically use the ‘clean sand’ to rehabilitate the property, but instead accepted the sand instead of money. This interpretation was confirmed the chosen point of delivery, being nearby a public road to allow for easy transportation, as opposed to being spread over the land in question, as some means of attempted rehabilitation.

The court confirmed the application of the integration (or parol evidence) rule, and the need to admit evidence to contextualise a document as conservatively as possible. Where parties have entered into a written contract, such decision will be respected and that document will be the sole and complete record of their agreement. ‘Extrinsic evidence may not contradict, add or modify its meaning’.

Once the Court held that the soil delivered was not ‘clean sand’ in the reasonable sense of the words in the context, a material breach had occurred, and the appellants had failed to meet their obligations.


 



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