The parol-evidence rule / extrinsic evidence

Published on 11, 2022

The case of CAPITEC BANK HOLDINGS LTD vs CORAL LAGOON INVESTMENTS 194 (PTY) LTD 2022(1)SA 100 (SCA) once again highlights the importance of the application of the parol evidence rule to litigants and drafters of contract.

The parol evidence or integration rule requires that, save exceptional circumstances such as fraud or duress, where the parties to a contract have reduced their agreement to writing and assented to that writing as complete and accurate integration of the contract, extrinsic evidence is inadmissible to contradict, add to or modify the contract. This principle plays an important part in our law and has been confirmed in, inter alia, KPMG Chartered Accountants (SA) vs. Securefin Ltd. and Another 2009 (4) SA 399 (SCA) and Tshwane City vs. Blait Atholl Homeowners Association 2019 (3) S.A. 398 (SCA).

Attorneys are accustomed to clauses in written contracts stipulating that the written contract is a complete and accurate reflection of the parties’ contract, and that extrinsic evidence is inadmissible.

However, this is not the end of the story.

The Constitutional Court recently affirmed that extrinsic evidence in the interpretation of contracts is indeed admissible, notwithstanding the principles of the parol evidence rule.[2]

(It)… does not mean that extrinsic evidence is always admissible. It is true that a court’s recourse to extrinsic evidence is not limitless because interpretation is a matter of law and not of fact and accordingly, interpretation is a matter for the court and not for witnesses. It is also true that to the extent that evidence may be admissible to contextualize the document (since context is everything) to establish its factual matrix or purpose or for purposes of identification, one must use it as conservatively as possible. I must, however, make it clear that this does not detract from injunction on courts to consider evidence of context and purpose. Where, in a give case, reasonable people may disagree on the admissibility of the contextual evidence in question, the unitary approach to contractual interpretation enjoins a court to err on the side of admitting the evidence. There would, of course, still be sufficient checks against any unitive reach of such evidence because the court dealing with the evidence could still disregard it on the basis that it lacks weight. When dealing with evidence in this context, it is important not to conflate admissibility with weight. [3]

The co-existence of the two principles is explained by Corbin[4] as follows:

The parol evidence rule simply reflects the agreement between the parties that the written document constitutes their exclusive agreement. It supersedes earlier agreements, whether written or oral, and excludes evidence of such agreements. The parol evidence rule is not a rule as to the admission of evidence for the purpose of interpreting the meaning of the written agreement, that constitutes the parties' exclusive agreement. If the plain meaning of a contract is rejected conceptually or enjoys no privacy in the interpretative exercise, then extrinsic evidence as to meaning will enjoy a very considerable remit, and the parol evidence rule's exclusionary force will be greatly reduced. [5]

The position in our law is therefore that although the principles of the parol evidence rule remain important and applicable, extrinsic evidence indeed forms part of contractual interpretation in our law.

The implications of the above to our law of contract and interpretation thereof have been summarized in Capitec[6] as follows:

• The parol evidence rule is likely to become a residual rule that does little more than identify the written agreement, the meaning of which must be determined. It is only possible to determine whether extrinsic evidence is contradicting altering or adding to a written contract once the court has determined the reason of that contract [7] It is this enquiry into relevance that will determine the admissibility of the evidence once this has taken place, the exclusionary force of the parol evidence rule is consigned to a rather individual role. [8]:
• There are limits to the evidence that may be admitted as relevant to context and purpose.[9] The fact that extrinsic evidence may be allowed is not an invitation to harvest evidence. The evidence must be relevant to an objective determination of the meaning of the words used in the contract. [10]
• The matter of Endumeni 2012 (4) S.A. 593 (SCA) should not serve as authority for an open-ended permission to pursue undisciplined and self-serving interpretations.[11] Meaning is ultimately the most compelling and coherent account the interpreter can provide, making use of these sources of ..

(The practical application of these principles are evidenced in para 51-59 of Capitec).

The result from the aforegoing is that although extrinsic evidence may be allowed to assist in contractual interpretation, such evidence must be relevant to an objective determination of context and purpose. It is suggested that in most instances extrinsic evidence will not contribute to this determination.

C.M. Weiss
Practicing Consultant

Source:

• [1] Capitec Bank Holdings Ltd vs Coral Lagoon Investments 194 (Pty) Ltd 2022(1) SA100 (SCA).
• [2]University of Johannesburg vs. Auckland Park Theological Seminary and Another 2021
  (6) SA (CC).
• [3] University of Johannesburg(supra) par 68.
• [4] Corbin on Contracts rev. ed. (1960) (108-110).
• [5] Capitec (supra) para 44.
• [6] Capitec (supra) para 47.
• [7] Since meaning is ascertained by resource to a wide-ranging engagement with the void of text, context and purpose, extrinsic evidence may be admitted as relevant to context and purpose.
• [8] (par. D-F).
• [9] The Court’s aversion to receive evidence of the parties’ prior negotiations and what they intended or understood should remain an important limitation on what may be said to the relevant to the context or purpose of the contract.
• [10] (para G-1).
• [11] The case emphasizes that the meaning of a contested term of contract is properly understood not simply by selecting standard definitions of particular words but also by understanding the words and sentences that comprise the contested term as they fit