KPMG Chartered Accountants (SA) v Securefin Limited and Another (644/07) [2009] ZASCA 7; 2009 (4) SA 399 (SCA) ; [2009] 2 All SA 523 (SCA) (13 March 2009)

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KPMG Chartered Accountants (SA) v Securefin Limited and Another (644/07) [2009] ZASCA 7; 2009 (4) SA 399 (SCA) ; [2009] 2 All SA 523 (SCA) (13 March 2009)

THE
SUPREME COURT OF APPEAL
REPUBLIC
OF SOUTH AFRICA
JUDGMENT
Case No: 644/07
KPMG CHARTERED ACCOUNTANTS (SA)
Appellant
and
SECUREFIN LIMITED First Respondent
ING BHF-BANK AKTIENGESELLSCHAFT
(formerly) BHF-BANK AKTIENGESELLSCHAFT Second Respondent
Neutral citation:
KPMG Chartered Accountants v Securefin
(644/07)
[2009] ZASCA 7
(13 MARCH 2009)
Coram:
HARMS DP, CLOETE, LEWIS, PONNAN and SNYDERS JJA
Heard:
17 FEBRUARY 2009
Delivered:
13 MARCH 2009
Updated:
Summary:
Contract – interpretation – evidence –
admissibility of evidence, expert or otherwise, to interpret.
ORDER
On appeal from:
High Court, Pretoria
(Van der Merwe J
sitting as court of first instance):
‘The appeal is dismissed with costs, including the costs of three
counsel.’
JUDGMENT
HARMS DP (CLOETE, LEWIS, PONNAN and SNYDERS JJA concurring)
Introduction
[1] This appeal relates to the existence, validity and terms of an
agreement between the appellant and the first respondent. The
first
respondent as first plaintiff alleged that the appellant had breached
the agreement and that it consequently had suffered
damages for which
the appellant was liable. The claim of the second respondent as
second plaintiff was in the alternative to that
of the first
respondent and was based on delict. It is for present purposes
unnecessary to deal with the alternative claim. The
appellant denied
the agreement and in the alternative alleged that it was void because
of error; and in the further alternative
it denied the construction
placed on the agreement by the respondents. The court below agreed to
decide these and other related
issues separately. It found for the
respondents and issued a declaratory order accordingly. This appeal
is with the leave of the
court below.
[2] During January 1998, the SA Mutual Life Assurance Society (also
known as the Old Mutual), a life assurance society without

shareholders decided to demutualise. This meant that it would become
a company with shareholders listed on the Johannesburg Stock

Exchange. Its free assets of about R29.3 billion were to be converted
into share capital and the shares allocated to its members
(policy
holders) free of charge. To qualify for a share allocation one had to
be a member and the policy had to be in force at
the time of
demutualisation.
[3] A policy holder wishing to terminate a policy could surrender the
policy in which event a surrender value was payable to the
insured.
In such event the policy holder lost the benefits of the bonuses that
might attach to the policy since these were payable
only if the
policy matured. The policy holder could instead assign the policy to
a third party who might be prepared to maintain
the policy until it
matured by continuing to pay the premiums. The assignee may have been
prepared to pay an amount over and above
the surrender value as the
policy had a higher intrinsic value due to the bonuses that attached
to it.
[4] Some Old Mutual endowment policies permitted the insured to amend
the policy conditions within certain parameters. The process
is
referred to as re-engineering. The insured amount could be increased
or decreased; the amount of the premiums could be changed;
the
maturity date could be brought forward or be extended; and the policy
could be paid up. There was a limitation: the maturity
date could be
changed only to a date that coincided with the anniversary of the
policy and this change had to be effected more
than a year before the
next anniversary. Because of this it was possible to create value by
re-engineering the policy purchased
– increasing the insured amount
and bringing the maturity date forward – thereby obtaining the
advantage of earlier maturity
and increased bonuses.
[5] Re-engineering requires some special skills and understanding of
insurance business. One David Alexander, the moving force
behind KNA
Insurance & Investment Brokers (Pty) Ltd (hereafter ‘KNA’),
was such a person. Re-engineering also required
large capital outlay.
The cost of a single policy could have amounted to millions and
normally exceeded the surrender value. Provision
had to be made for
future and increased premiums.
[6] Alexander, with the assistance of one Stride, made contact with
Mr N Kirsch, a wealthy businessman with business interests
locally
and overseas. Kirsch valued Stride’s business acumen; Stride had
been his auditor and long-time business associate. Kirsch,
who saw
the financial benefits of a scheme by which policies are purchased
and re-engineered, realised that it would be prudent
for tax purposes
to create a special off-shore vehicle for this purpose. This vehicle,
ultimately, was the first respondent, Securefin
Ltd, a company
incorporated in Jersey, Channel Islands. Kirsch was prepared to get
involved only in a large scheme. For finance
he sought the assistance
of a bank, the second respondent, known then as BHF-Bank AG.
[7] The bank was prepared to advance money to Securefin for a limited
period but required security in the form of a cession of
the
re-engineered policies. This by necessary implication meant that the
bank would require the assurance that the money advanced
was to be
used for acquiring re-engineered policies; that the proceeds of the
matured policies would cover Securefin’s indebtedness;
and that the
policies would mature before the loan became repayable. It is
accordingly not surprising that the bank insisted on
a verification
or overview procedure by the appellant, KPMG Chartered Accountants
(SA) (‘KPMG’), one of the big five (subsequently
reduced to four)
accounting firms in the world. KNA was to act as Securefin’s agent
in purchasing and re-engineering the policies.
The assured profit in
the hands of Securefin would be the difference between maturity value
and the cost of acquisition, including
interest. An added advantage
(referred to by Kirsch as ‘the cherry on the top’), was that
Securefin would have become entitled
to the relevant demutualisation
shares if the policies vested in Securefin on demutualisation.
[8] Lengthy negotiations between the different parties ensued. There
were negotiations between Securefin and the bank; between
KNA and
KPMG; and also between Securefin, KNA and KPMG. Many drafts were
prepared as the proposed structure and contractual relationships

around the scheme developed and changed.
[9] Alexander, it later transpired, was an accomplished swindler who
manipulated the scheme and allegedly caused the respondents
a loss of
some US $ 40m. Since KNA was liquidated and Alexander is in prison
they wish to recoup their loss from KPMG. Alexander,
understandably,
was not called by either party as a witness but his absence made him
a useful scapegoat.
The procurement contract
[10] On 12 June 1998, Securefin and KNA entered into a procurement
contract. It recorded the intention of Securefin to acquire
a large
number of policies. KNA was appointed as its procurement agent. KNA
would be entitled to a commission of five per cent
of the aggregate
acquisition price. KNA had to ensure that the necessary exchange
control approval was in place to reflect that
Securefin was acquiring
the policies as principal and that it could remit the proceeds of the
matured policies in foreign currency
used.
[11] The policies that KNA was to acquire had to be capable of being
re-engineered and were to be assignable to Securefin. The

re-engineered policies were to have ‘a maturity date not later than
1 January 2001’ unless otherwise stipulated. The relevance
of this
date will become apparent in due course. The policies had to be fully
paid-up, and, if not, the discounted value of future
premiums had to
be deposited in a bank account for future use. The funds to pay for
the policies and the premiums were to be sourced
from the bank.
[12] Of critical importance to the case is clause 5, which dealt with
the verification procedure and the obligation of Securefin
to pay KNA
the ‘tranche consideration’ within five days after the receipt of
‘the verification certificate’. Clause 5.1
obliged KNA to deliver
each ‘policy tranche’, together with supporting documentation, to
KMPG, the ‘verification agent’.
A policy tranche was defined in
the definition clause as a batch of policies with a ‘tranche
consideration’ of not less than
US $500 000, ‘verified by the
verification agent’. And ‘tranche consideration’ in turn was
defined as the sum of (i) the
total acquisition price (ie, the cost
incurred by KNA in acquiring the policies) of the policies; (ii)
agent’s commission plus
VAT; and (iii) all future premiums
discounted to present-day values. It is apparent that the purpose of
the exercise was to verify
the amount due by Securefin to KNA and
which the former could draw against the bank loan. It is common cause
that the percentage
of the agent’s commission was later amended but
nothing at this stage turns on this.
[13] Clause 5.1 also provided that KPMG had to perform the
verification procedures in order to provide the ‘verification
certificates’.
‘Verification certificate’ was defined in clause
2.1.15 to mean two certificates: the one was to be given by KPMG to
Securefin
and the bank and had to be ‘in accordance with Appendix
C’. The other, for which no form was prescribed, was to be ‘a
certificate
verifying the cost to Securefin of the tranche
consideration.’
[14] The next obligation of KPMG was set out in clause 5.2. It had to
deliver each policy tranche to Nedbank International to hold
in
accordance with a custodial agreement. This clause holds no
significance for this judgment. Thereafter, under clause 5.3, KPMG

had to provide to Securefin and such other party as might be required
by Securefin ‘the verification certificates in terms of
Appendix
C.’ Appendix C, which was to be prepared by KPMG, did not exist at
the time the procurement contract was signed. The
payment clause,
clause 5.4, required payment by Securefin within five days of receipt
by the latter of ‘the verification certificate’.
In context this
did not refer to the appendix C certificate but to the second
certificate mentioned in the definition clause.
[15] That was not the only problem with the construction of the
document. For instance, it may have been noted that the terms
‘certificate’ and ‘certificates’ were used loosely and
interchangeably. But in order to understand the contract it was
unnecessary to deconstruct it, as counsel for KPMG sought to do,
without submitting that it was void for uncertainty (
Namibian
Minerals Corporation Ltd v Benguela Concessions Ltd
[1996] ZASCA 140
;
1997 (2) SA
548
(SCA) at 561G-562I).
The inconsistencies are the result of
the changes that were brought about during the preparation of the
various drafts. The contract
made perfect business sense and
anticipated that KPMG as verification agent would perform two
functions that are relevant to these
proceedings. The first was that
it would accept delivery from KNA of a policy tranche consisting of
policies with maturity dates
of not later than 1 January 2001.
Furthermore, it had to verify the cost to Securefin (ie, the amount
due to KNA) for each tranche,
which required the verification of the
tranche consideration. That, in turn, required a verification of the
acquisition price,
calculating the commission, and verifying the
future premiums and discounting them to present-day values.
The verification contract
[16] The signed procurement contract of 12 June was soon sent to
KPMG. On 26 June 1998, KPMG sent a letter to Securefin dealing
with
KPMG’s appointment as verification agents for the acquisition by
KNA of Old Mutual policies on behalf of Securefin. It is
common cause
that this letter amounted to an offer by KPMG to act as Securefin’s
verification agent, and it is also common cause
that the offer was
accepted by Securefin represented by Ms Salkinder, a business
associate of Kirsch, who was closely involved
with the negotiation of
the various contracts in issue. Although prima facie a verification
contract, KPMG alleged that Securefin
had failed to prove the
contract and, in the alternative, that the contract was void due to
error. Before dealing with these defences
and the facts on which they
were based it is convenient to deal first with the terms of the
letter.
[17] Under the heading ‘background information’ the letter
recorded the fact of conclusion of the procurement contract which,
as
annexure A, formed an attachment. The letter mentioned that the
procurement contract required that KPMG perform certain procedures

and report on certain aspects of the policy acquisitions. It accepted
that KPMG was obliged to perform the specific procedures
in
accordance with clauses 5.1, 5.2 and 5.3 of the procurement contract
and contained the further undertaking that KPMG would ‘carry
out
certain other procedures’ in order to provide Securefin with
confirmation of nine facts. In order to ‘satisfy’ these
aspects
KPMG undertook to perform the ‘detailed audit procedures’ set out
in a document compiled by KPMG, namely annexure B
to the letter.
[18] The letter also recorded KPMG’s understanding that it had to
report to Securefin on the verification of the nine points.
A pro
forma report that would deal with those aspects was attached as
annexure C, which also contained an example of a draw down
report
which was to be used to verify at a given date the total maturity
value of the verified batches in Rand terms. Annexure
C did not deal
with the certification of the cost to Securefin of the tranche
consideration, and did not purport to incorporate
the second
certificate required in terms of the definition of ‘verification
certificate’.
The annotation defence
[19] The first issue that arises from the letter concerns the
identification of the correct version of the verification contract.

The person at KPMG responsible for the matter, and who had drafted
the letter and compiled the annexures for transmission to Securefin,

was one Delaney. Although not a chartered accountant he occupied a
senior position within KPMG but he had no authority to bind
KPMG. He
was intimately involved with the development of offer in the letter
and had sight of all the draft agreements between
Securefin and KNA
and was in contact with the bank to determine its involvement and
interest. KPMG alleged and Delaney testified
that when he received
the final procurement contract he noticed an error in the contract.
It concerned the maturity date. As mentioned,
it provided that KPMG
had to ensure that all the policies in a tranche had to mature before
1 January 2001. Delaney thought, so
he said, that they had to mature
after that date. Assured by Alexander, he said, that the date was an
error he made a note on the
procurement contract against the relevant
clause in these terms: ‘x Error – should be not earlier.’ He
then allegedly attached
the annotated procurement contract to the
letter.
[20] Securefin alleged that KPMG had failed to ensure that the
policies would mature before 1 January 2001 and that amounted to
a
breach of the contract. The reason for this requirement was,
according to Securefin, that the loan facility from the bank was
to
terminate on 31 January 2001 and was to be paid with the proceeds of
the policies. Delaney, while fully aware of the repayment
date and
that the policies had been ceded as security to the bank, said that
he believed that the policies had to mature after
that date to enable
Securefin to gain the advantage of the demutualisation policies.
[21] KPMG’s case on this point went through an evolution process.
It accepts that the annotation did not amount to an amendment
of the
procurement contract and that the verification contract was not void
due to a mutual error concerning the date. Its case
is that
Securefin, relying on the letter without the annotated annexure A,
failed to prove that the agreement did not consist of
the letter with
the annotated annexure.
[22] KPMG’s problem was that Delaney was not a credible witness
and, as KPMG accepts, his evidence cannot be relied on unless

corroborated by objective facts. The problem facing Securefin, who
bore the onus of proving its contract, was that the original

verification letter signed by Salkinder could not be found.
Salkinder, one can accept, did not read annexure A when signing the

verification letter since she had no reason to do so: the letter
explicitly confirmed that annexure A was the contract concluded

between Securefin and KNA. The fact that the letter assumed the
obligations placed on KPMG under the procurement contract without

qualifications, coupled with the fact that the annotation was on the
face of it (and according to Delaney) not intended to amend
or
qualify that contract, means that this defence had no legal basis.
[23] The defence also had no factual basis. It is unnecessary to
consider whether Delaney misunderstood the reason for the clause
or
whether Alexander had told him that the date was a mistake. The trial
court found Delaney’s evidence unconvincing on this
aspect and
dealt with the issue as a matter of probabilities. It found that it
was improbable that the copy sent to Securefin contained
the
annotation. The reasons for this finding were these. Salkinder only
became aware of the existence or significance of the annotation

during May 2002. During October 1998 she briefed Price Waterhouse,
another firm of accountants, to look into certain problems that
had
arisen in connection with the performance of the contract. These had
nothing to do with the date issue. She handed her file
to Price
Waterhouse and they copied the whole file. They retained their copy.
It did not contain the annotation. During December
1999, Securefin
instructed a firm of attorneys to bring liquidation proceedings
against KNA. Salkinder again handed them her file
and they, too, made
a full copy. That copy also did not contain the annotation. It would
appear that the attorneys had mislaid
the original file. In May 2002,
during Delaney’s interrogation at the KNA liquidation inquiry, the
annotation issue came to the
fore for the first time. In summary, the
two copies made and kept independently are destructive of Delaney’s
evidence and make
Securefin’s version probable.
[24] The high watermark of KPMG’s argument on this aspect of the
case was that Salkinder’s version was questionable. That
is not
good enough. Her evidence on this aspect was not questioned during
the trial and the trial court’s finding, unless shown
to be wrong,
has to stand. There is consequently no ground to interfere with the
finding that Securefin had discharged its onus
to establish that the
annexure A attached to the verification letter did not have the
annotation.
The appendix C argument
[25] Another defence concerning the invalidity of the verification
contract raised by KPMG was based on the fact that the procurement

contract required it to provide a certificate in terms of
appendix
C (not
annexure
C). There was no such appendix. However, it
was common cause that the pro forma certificate had to be prepared by
Delaney and was
not yet ready when the procurement contract was
signed. Delaney subsequently prepared annexure C, which was intended
by all to
be the pro forma certificate. The letter contained an
undertaking by KPMG to provide a certificate in terms of annexure C.
It was
common cause on the evidence that annexure C was intended to
be appendix C. Thus this defence too has no basis.
The iustus error defence
[26] KPMG’s main defence was one of iustus error. The error related
to the obligation to verify the acquisition price and the
issue arose
because KPMG apparently failed to verify it independently. It will be
recalled that the effect of clause 5.1 of the
procurement contract,
which KPMG undertook to comply with, required it to provide
verification certificates, one of which had to
relate to the tranche
consideration payable to KNA. This in turn required a verification of
the acquisition price, ie, the costs
incurred by KNA in acquiring any
policy on Securefin’s behalf. Instead of independently verifying
the price, KPMG accepted KNA’s
word as to what it had paid. It
would appear that Alexander provided KPMG with false information with
the result that Securefin
overpaid KNA.
[27] KPMG’s case in this regard is in summary as follows. Delaney
never intended to verify the cost of acquisition since Alexander
had
told him that it was not possible to verify it. Salkinder knew or
ought to have known of KPMG’s stance. The duty to verify
the cost
was not contained in any of the draft procurement contracts that had
been perused by Delaney. In particular, the document
of 10 June 1998,
which he had sent to his advisers in KPMG for comment, did not
contain a reference to a certificate dealing with
the tranche
consideration. He believed that the 12 June procurement contract was
the same and he therefore had no reason to read
or check it. It
follows from this, according to the argument, that Salkinder had a
duty to inform Delaney that the signed copy
differed in a material
respect from the 10 June copy; she failed to do so; and thus Delaney
acted reasonably by assuming that there
was no difference between the
two documents.
[28] Basic to KPMG’s defence of justus error is a finding that
Delaney had not read the signed procurement contract before
transmitting
the verification letter to Securefin because, as
Nicholas J said in
Glen Comeragh (Pty) Ltd v Colibri (Pty) Ltd
1979 (3) SA 210
(T) at 215A-C:
‘
The fact that a person has put his signature to a
document gives rise to a presumption of fact that he knew what it
contained. The
reason given (in Hoffmann South African Law of
Evidence 2nd ed at 391) is that "people do not usually sign
documents without
reading them". . . . It would not in my view
be at all unusual for a person signing such a document [a standard
form of contract]
not to read it, whether because of laxity,
unwariness, heedlessness, or confidence in the integrity of the
[offeror]. In my view,
a more satisfactory basis for the presumption
of fact is that a person by his conduct in putting his signature to a
document admits
that he is acquainted with its contents (cf
Knocker
v Standard Bank of SA Ltd
1933 AD 128).
The
admission is not of course conclusive, but it is sufficient to
establish that fact prima facie.’
[29] As mentioned, Delaney was not a credible witness and, absent
material corroboration of his version that he had not read the

letter, the defence cannot succeed. The only corroboration that
counsel for KPMG could refer to was that Delaney had failed to
verify
the acquisition price. Although consistent with the version that he
had not read the contract, his failure is equally consistent
with a
failure to comply with the terms of the contract.
[30] It is unlikely that Delaney had not read annexure A before
attaching it to his letter. He was on his own version told that
the
10 June copy was not final in form. Indeed, he had to change his
draft letter after receipt of the signed contract. His letter

specifically referred to clauses 5.1 to 5.3 of the procurement
contract and they were different from those contained in the 10
June
draft. Although the acquisition price verification was not all that
obvious because it required a reference to the definition
clause,
which had changed on the 12 June version, the definition of
‘verification certificate’ itself stood out because the
amendment
did not follow the paragraph formatting of the rest of the document.
The responsible partner, one De Villiers, who was
the directing mind
of KPMG and who signed the letter on its behalf did not say that he
had not read the attachments to the letter.
If he had not done so, he
would have been reckless.
[31] There is, furthermore, corroboration for a finding that Delaney
had read the contract at the time and fully understood KPMG’s

obligation to verify the acquisition consideration. Soon after the
conclusion of the verification contract (on 30 June 1998) a
dry or
test run was undertaken during which KPMG not only certified the
total guaranteed maturity value in accordance with annexure
C, but
also certified the total purchase price of the tranche in the same
document. This was unacceptable to Securefin and KPMG
consequently
issued two certificates, one reflecting the verification of the total
guaranteed maturity value and the other the
total purchase price,
both without qualification. Thereafter and for more than a year KPMG
issued, in addition to the annexure
C certificates, 22 further
verification certificates, certifying on the face thereof the total
purchase price of each tranche in
SA Rands. These certificates were,
however, accompanied by a letter qualifying them, something to which
I shall revert in another
context. Except for the usual ‘blame it
on Alexander’- excuse, there is no credible explanation why these
certificates were
issued if Delaney had not understood that KPMG was
contractually bound to issue them.
[32] During November 1998, Delaney had occasion to consider the terms
of the procurement contract carefully. He was using it as
a precedent
for another engagement to verify the purchase of re-engineered
policies by Alexander, who had surreptitiously created
another
vehicle to divert business from Securefin. Delaney compared the two
documents clause by clause and noted the differences.
He noticed the
relevant clause and made an annotation against it to the effect that
KPMG had not in fact verified the tranche costs.
Although recognising
the contractual obligation and the failure to comply, he did nothing.
In particular, he did not alert Securefin
to the alleged error in the
contract.
[33] His inaction may have been due to his professed belief that the
duty to verify did not require the ascertainment of the correctness

of the tranche consideration and that KPMG was instead entitled to
rely in this regard on the information given to it by KNA. This
may
explain the fact that, as mentioned, he did issue certificates albeit
that they were qualified. This indicates that Delaney
knew of the
obligation but misconceived its ambit.
[34] As mentioned, KNA was liquidated and Delaney testified at the
liquidation inquiry during May 2002. He was asked about KPMG’s

failure to verify the acquisition price in the light of the
provisions of the contract. He had no explanation. He did not express

surprise at the existence of the clause. He did not say that he had
been unaware of the requirement. His explanation four years
later at
the trial was that he was too perplexed at the inquiry to realise
that the clause should not have been in the contract.
[35] It is in this regard significant to ascertain how the error
defence developed. During consultation in preparation for trial
and
after a minute analysis of the paper trail, which was painfully
replicated during the trial, the explanation that KPMG had
never
intended to verify the acquisition price, and that Delaney had not
read the procurement contract at the time, apparently
sprang to mind.
It resulted in an amendment to the plea. This was about eight years
after the event. One cannot but conclude that
Delaney contrived his
evidence to fit the lawyers’ points.
[36] In the first drafts of the verification letter KPMG indicated it
would not verify the acquisition costs. Significantly, that
statement
was omitted from later drafts and in the final letter. Counsel
proffered an explanation for the change (namely that it
was no longer
necessary to state because it was implicit in the whole arrangement)
but the explanation appears to me to be too
subtle to accept and is,
once again, based on counsel’s reading of the exhibits and not on
Delaney’s evidence.
[37] A conclusive indication that the error defence was an
afterthought appears from annexure B to the letter, which contained

the ‘verification procedures’ devised by KPMG and which formed
part of its undertakings under the letter. KPMG undertook to
‘ensure’
that the calculated draw down value (ie, the amount that was to be
drawn from the bank) was the lesser of the total
purchase price of
the policies and 80 per cent of the calculated total guaranteed
maturity value. (The latter had to be certified
in accordance with
annexure C.) This requirement arose from the provisions of the loan
agreement since the bank was prepared to
advance only the amount so
calculated. This Delaney surely knew. KPMG could not have complied
with this obligation without ensuring
what the total purchase price
of the policies was. The court below was accordingly correct when it
held that KPMG intended to verify
the acquisition costs and that the
late amendment to the procurement contract did not add any
substantive obligation that had not
been envisaged by the parties.
The meaning of ‘verify’
[38] Much of the evidence dealt with the interpretation of the
verification contract. Indeed, each party called an expert on the

issue and they testified for about fourteen days on the
interpretation of the contract. The factual witnesses, too, spent
most
of their time dealing with interpretation issues. The parties
were able to create a record consisting of 6600 pages of evidence
and
exhibits. It is difficult to understand why the trial judge permitted
the evidence or the cross-examination or overruled the
objection to
the leading of some of the evidence. Obviously, courts are fully
justified in ignoring provisionally objections to
evidence if those
objections interfere with the flow of the case. It is different if a
substantive objection is raised which could
affect the scope of the
evidence that will follow. In such a case a court should decide the
issue and not postpone it. It is accordingly
necessary to say
something about the role of evidence and, more particularly, expert
evidence in matters concerning interpretation.
[39] First, the integration (or parol evidence) rule
remains part of our law
.
However, it is frequently ignored by practitioners and seldom
enforced by trial courts. 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 (
Johnson
v Leal
1980 (3) SA
927
(A) at 943B).
Second,
interpretation is a matter of law and not of fact and, accordingly,
interpretation is a matter for the court and not for
witnesses (or,
as said in common-law jurisprudence, it is not a jury question: Hodge
M Malek (ed)
Phipson on
Evidence
(16 ed
2005) para 33-64
). Third, the rules about
admissibility of evidence in this regard do not depend on the nature
of the document, whether statute,
contract or patent (
Johnson
& Johnson (Pty) Ltd v Kimberly-Clark Corp
[1985] ZASCA 132
(at
www.saflii.org.za
),
1985 Burrell Patent Cases 126 (A)).
Fourth, to the extent that evidence may be admissible to
contextualise 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’
(
Delmas Milling Co Ltd v du
Plessis
1955 (3) SA
447
(A) at 455B-C).
The time has arrived
for us to accept that there is no merit in trying to distinguish
between ‘background circumstances’ and
‘surrounding
circumstances’. The distinction is artificial and, in addition,
both terms are vague and confusing. Consequently,
everything tends to
be admitted. The terms ‘context’ or ‘factual matrix’ ought
to suffice. (See
Van der Westhuizen v Arnold
2002 (6) SA 453
(SCA) paras 22 and 23 and
Masstores (Pty) Ltd v Murray & Roberts
(Pty) Ltd
[2008] ZASCA 94
;
2008 (6) SA 654
(SCA) para 7.)
[40] Trollip JA in
Gentiruco AG v
Firestone (SA) (Pty) Ltd
1972 (1) SA 589
(A)
at 617F-618C dealt with the admissibility of expert evidence in
interpreting a document (a patent specification in that case)
and
quoted with approval from a speech of Lord Tomlin in
British
Celanese Ltd v Courtaulds Ltd
(1935) 52 RPC
171
(HL):
‘
The area of the territory in which in cases of this
kind an expert witness may legitimately move is not doubtful. . . .
He is entitled
to explain the meaning of any technical terms used in
the art. . . . He is not entitled to say nor is counsel entitled to
ask him
what the [document] means, nor does the question become any
more admissible if it takes the form of asking him what it means to

him as an [expert].’
Lord Tomlin spelt out the disadvantages of allowing expert evidence
on interpretation:
‘
In the first place time is wasted and money spent on
what is not legitimate. In the second place there accumulates a mass
of material
which so far from assisting the Judge renders his task
the more difficult, because he has to sift the grain from an
unnecessary
amount of chaff.
In my opinion the trial Courts should make strenuous
efforts to put a check upon an undesirable and growing practice.'
That was in 1935, but the chaff is still heaping up, the
undesirable practice keeps growing and courts make no effort to
curtail
it. An expert may be asked relevant questions based on
assumptions or hypotheses put by counsel as to the meaning of a
document.
The witness may not be asked what the document means to him
or her. The witness (expert or otherwise) may also not be
cross-examined
on the meaning of the document or the validity of the
hypothesis about its meaning. Dealing with an argument that a
particular
construction of a document did not conform to the
evidence, Aldous LJ quite rightly responded with ‘So what?’
(
Scanvaegt International
A/s v Pelcombe Ltd
1998 EWCA Civ 436).
All this was sadly and
at some cost ignored by all.
[41] The debate about the meaning of the verification letter imploded
during oral argument before this court and no one sought
to rely on
the expert evidence. KPMG accepted that if it was bound by the
verification contract, it was obliged to verify the tranche

consideration by ensuring that it was accurate; and that it could not
comply with that obligation by relying on information provided
by
KNA.
[42] The final argument raised by KPMG concerned its right to qualify
a verifying certificate. It has been mentioned that although
KPMG had
certified the acquisition costs it added a qualification with a
statement that it had not verified the tranche consideration
because
it had relied on KNA for the information and that Alexander, with
these embarrassing documents in hand, apparently changed
them and
transmitted unqualified reports to Securefin. This issue did not
arise on the pleadings as they stand and was not considered
by the
trial court. Apart from the fact that the submission amounts to a
contradiction in terms, this issue is moot in view of
the findings in
the next section of this judgment.
[43] The trial court dealt with a large number of tacit terms of the
verification contract and found that the terms alleged by
the
plaintiffs were indeed terms of the verification contract. Since
KPMG did not pursue these issues on appeal it is unnecessary
to deal
with them. I should, however, point out that once again much
inadmissible evidence was led in this regard. Whether a tacit
term
can be inferred depends on the interpretation of the document and not
on evidence.
The amendment
[44] On or soon after 4 August 1998, KPMG received a letter
purportedly signed by Salkinder on behalf of Securefin. One of the

aspects covered by the letter was an instruction that the completed
reports (the certificates) had to be handed to KNA for onward

transmission to Securefin and the bank. This instruction conflicted
with the terms of the verification contract which required
that KPMG
‘report direct’ to Securefin. KPMG alleged that this letter
amended the verification agreement while Salkinder denied
that she
had written the letter. The relevance of the dispute is this: KPMG
handed the verification certificates to Alexander who
apparently
amended them to suit his dishonest purposes and then sent them on to
Securefin and the bank. If the letter did not amend
the verification
contract, the failure of KPMG to report directly to Securefin was a
breach of the verification contract.
[45] The court below, while doubting that the letter had emanated
from Salkinder, dismissed the defence by holding that KPMG had
not
accepted the offer. KPMG argued that the finding was cynical but in
my judgment it was fully justified. Paragraph 1 of the
letter
required KPMG first to issue all future draw down reports in a
particular format and, second, to hand the reports to KNA
for onward
transmission to the relevant parties. According to Delaney, KPMG was
not prepared to accept the first obligation but
it accepted the
second by transmitting reports in another format to KNA for onward
transmission. This evidence established that
KPMG had failed to
accept the offer in its terms. The answer of counsel was that the
offer was divisible. That is not so. The letter
contemplated that
certificates in the format prescribed in the letter had to be sent to
KNA. This did not entitle KPMG to send
other certificates to KNA on
the basis that it had accepted part of the offer. It follows that
this defence was correctly dismissed.
Conclusion and order
[46] In the result the judgment of the court below should be upheld
and the appeal dismissed. The costs of three counsel are in
the
circumstances appropriate. The following order is made:
‘The appeal is dismissed with costs including the costs of three
counsel.’
___________________
L T C HARMS
DEPUTY PRESIDENT
For
Appellant: A O CooK SC
L N
Harris SC
Instructed
by: Deneys Reitz
Sandton
Matsepes
Attorneys
Bloemfontein
For
Respondent: A Subel SC
S
Symon SC
R M
Pearse
Instructed
by: Werksmans Inc
Johannesburg
Symington
& De Kok
Bloemfontein