Topic: Drafting tips

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Contracts need consensus

The basis of any contract is consensus between the two parties. The court in Vincorp (Pty) Ltd v Trust Hungary ZRT found that the two parties alleged by the plaintiff to be parties to a contract had different things in mind when they negotiated and that no contract came into being because it lacked the … Continue reading

Interpretation of contracts by giving extreme examples is not helpful (UK)

A recent UK case made the following point regarding interpretation of contracts based on hypothetical, extreme examples: ‘There was also, as there sometimes is in commercial cases that turn on points of interpretation, the temptation to provide illustrations of ‘commercial sense’ by the use of hypothetical, and occasionally extreme, examples of what any particular interpretation … Continue reading

Reciprocal performance under reciprocal contracts

The principle of reciprocity in contracts recognises the fact that in many contracts the common intention of the parties, expressed or unexpressed, is that there should be an exchange of performances. There is a presumption that interdependent promises are reciprocal unless there is evidence to the contrary. The common intention is that neither of the … Continue reading

Engineer’s fees are not ‘performed labour’ under a construction guarantee (US)

When an engineering company sought to recover under a contractors bond (construction guarantee) for unpaid fees for engineering services rendered, a court held that a bond which provided protection for entities that have ‘performed labour or furnished materials in the prosecution of the work’ did not include the engineer’s professional engineering services which were not … Continue reading

Interpretation of contract: A lawyer’s understanding must not always be imposed on non-lawyers

In an important development of the law of interpretation of contracts, the Constitutional Court held in July 2017 that where ordinary laypeople use ordinary words in a contract, their understanding of the meaning of the words used must not be overridden by a lawyer’s understanding based on their knowledge of legal principles not familiar to … Continue reading

Could v would (UK)

In a judgment in the lower court in a reinsurance non-disclosure case the judge referred to what ‘could’ have happened if certain loss statistics had been produced whereas the relevant test was what ‘would’ have happened in that situation. The appeal court held that people, including judges, do not always speak with precision in the … Continue reading

Punctuation matters

In Maine, USA, the interpretation of a state law involving overtime pay revolved around the use of the Oxford comma. What is the Oxford comma? The Oxford comma comes before the last item in a list of 3 or more things, usually to resolve ambiguity. This example illustrates its use: Without Oxford comma: I love … Continue reading

Setting aside arbitrator’s award for going beyond the dispute

Arbitration clauses must be construed liberally to give effect to their essential purpose which is to resolve legal disputes arising from commercial relationships before privately agreed tribunals, instead of through the courts. When business people choose to arbitrate their disputes they generally intend that all their disputes will be determined by the same tribunal unless … Continue reading

Principles of contract interpretation

Where parties signed a memorandum of understanding as an interim arrangement for ten months in anticipation of entering into a more comprehensive and lasting agreement the MOU was binding because the full agreement did not materialise. An attempt to call contextual evidence to change the agreement was not allowed. In the case of Urban Hip … Continue reading

Interpretation of exclusions

Traditionally, ambiguous exclusion clauses provide little or no protection because they will be interpreted narrowly and against the person who tried to exclude their liability (in Latin the contra proferentem rule). In the light of modern methods of interpretation it is doubtful that this principle of interpretation can be used in every case for anything … Continue reading

Does the principle of pay now, argue later apply to an adjudicator’s decision given out of time?

When adjudication is incorporated into contracts, often construction contracts, as a means of dispute resolution it is usually included with other mechanisms such as mediation, arbitration and possibly even an approach to a court so that a party dissatisfied with an adjudicator’s award can attempt to rectify what is considered wrong with it in a … Continue reading

Public holidays are not bank holidays

The definition of ‘business day’ in South African agreements often includes phrases like ‘any day on which banks are open for business in South Africa’. These words are confusing and it is sufficient to refer to a day other than a Saturday, Sunday or official public holiday. The words have crept in from English law … Continue reading

Legislation cannot always be incorporated into an agreement

You can incorporate legislation into a contract but you cannot attempt to bind non-consenting third parties, like the state or its regulators, by incorporating legislation. Obligations cannot be imposed on private third parties without their consent. For example, the parties in Firstrand Bank v Clear Creek Trading concluded a contract to which the National Credit … Continue reading

Interpretation of contracts – guarantees

In resolving the question whether a guarantee was a call guarantee or a conditional guarantee the Supreme Court of Appeal in Mutual & Federal v KNS Construction restated what has been said before about interpreting documents. The interpretative process is one of ascertaining the intention of the parties – what they meant to achieve. And … Continue reading

Acceleration clauses are not all equal

An acceleration clause that allows a creditor to call in a full debt payable by instalments can be drafted to operate automatically on default by a debtor, or it can allow the creditor an election to accelerate the debt. The distinction between automatic and elective acceleration clauses is important because it affects when prescription on … Continue reading

Don’t forget the Interpretation Act

The Interpretation Act 1957 applies to the interpretation of all laws, so it is a useful act to know. The act was last amended to incorporate the 1993 Interim Constitution. While there are some archaic and strange provisions, like the mention of the former colonies and the Royal Letters Patent of His Majesty King William … Continue reading

Arbitrator cannot fix scope of arbitration

An arbitrator has no power to fix the scope of the arbitrator’s jurisdiction. Jurisdiction must be fixed by the terms of reference of the arbitration. Its scope must be objectively ascertainable in advance of the arbitration. An arbitrator cannot make a decision conferring jurisdiction on the arbitrator that is not possessed in law. That is … Continue reading

Statutes interpreted in conformance with common law

A statute should be construed to conform with the common law unless the statute itself evidences a plain intention on the part of the legislature to change the common law. This observation was made in Engen Petroleum Limited v The Business Zone 1010 CC t/a Emmarentia Convenience Centre. The court found that section 12B of the Petroleum … Continue reading
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