We have published a number of blogs about modern concepts of interpretation of legislation and contracts. A June 2020 decision of the Supreme Court of Appeal sets it out well. There is nothing new in what is said but it is a nice little package of how to interpret an agreement:
‘It is trite law that the provisions of an agreement must be read and understood in the context within, and having regard to the purpose for which, the agreement was concluded. The point of departure is the language employed by the document. But the words must not be considered in isolation. A restrictive examination of words, without regard to the context or factual matrix, has to be avoided. Evidence of prior negotiations is inadmissible, but evidence relating to the surrounding circumstances and the meaning to be given to special words and phrases used by the parties, is admissible. No distinction is drawn between context and background circumstances. Words have to be interpreted sensibly so as to avoid unbusinesslike results.”
Strangely, the court went on to distinguish an introduction (preamble) to an agreement calling it ‘instructive’ and not the ‘operative part’. Seeing that context and background circumstances are important to the interpretation of a contract, there is no reason to subordinate the introduction/preamble to the rest of the agreement. When drafting a contract it is useful to set out the background circumstances clearly.
The case is Iveco South Africa (Pty) Ltd v Centurion Bus Manufacturers (Pty) Ltd.
