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Mike Ness Agencies CC t/a Promech Boreholes v Lourensford Fruit Company (Pty) Ltd

11 January 2021

We have often seen our clients agree to additional terms in their contracts or changes to existing terms orally – a “let’s shake on it and get moving” arrangement to keep the job going without delay. If you are a party that has made an oral agreement alongside a written contract, beware that it may be immaterial due to a principle in our law known as the parol evidence rule.

The case of Mike Ness Agencies CC t/a Promech Boreholes v Lourensford Fruit Company (Pty) Ltd explains this principle and illustrates its effect.

Promech Boreholes is a borehole drilling contractor. At the request of Lourensford, Promech provided a written quotation to drill a borehole on Lourensford’s farm. In the quotation, Promech undertook to “guarantee water within 70 metres” and that “if no water was found at 70 metres we will drill from 70 metres to 100 metres free of charge”. The quotation also stated that a payment of 50% of the total amount due would be transferred to Promech as soon as “sufficient water supply” had been found.

The borehole ended up yielding approximately 4,000 litres of water per hour. Notwithstanding this, Lourensford refused to pay Promech. Promech contended that “sufficient water” had been struck and decided to sue Lorensford. Lourensford contended that the parties had agreed that the borehole would yield 10,000 litres per hour and that as it did not do so, Lorensford was not obliged to pay Promech.

The parol evidence rule prescribes that where the 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 its terms other than the document itself, nor may the contents of the document be contradicted, altered, added to or varied by oral evidence. In other words, all other utterances of the parties on the topic are legally immaterial for the purpose of determining the terms.

The parties led considerable evidence on what their negotiations were, and what the intention had been, but this evidence was all clearly inadmissible. If a document was intended to provide a complete memorial of a jural act, extrinsic evidence may not contradict, add to or modify its meaning. Furthermore, interpretation is a matter of law and not of fact – i.e. a matter for the court and not for witnesses.

The written terms of the parties’ agreement contain no guarantee of the yield of the borehole. Instead, they provided that Promech would not charge for drilling if the hole yielded no water (no water, no pay). Therefore, “sufficient water” clearly meant no more that enough water to avoid the borehole being regarded as a dry hole.

In an attempt to overcome the parol evidence rule, Lorensford tried to argue that the agreement between the parties was partly written, partly oral. Where an agreement is partly written, partly oral, the parol evidence rule prevents the admission of extrinsic evidence that contradicts or varies the written portion of the agreement. The agreement clearly did not provide a guarantee as to a yield quantity and was merely that there would be no charge if the borehole was dry. The oral portion contended for, would therefore vary or contradict the written agreement and be inadmissible.

Accordingly, the Supreme Court of Appeal concluded that Lourensford’s defence that Promech had guaranteed a yield of 10,000 litres per hour could safely be dismissed and that Promech was entitled to be paid.