Brief Summary

Contract — Written undertaking — Interpretation of undertaking given by attorneys — Whether constituted unconditional guarantee to pay — Contextual analysis of the factual matrix revealing that the undertaking did not amount to a personal guarantee — Evidence of parties’ intentions regarding the undertaking deemed inadmissible. The appellant, a firm of attorneys, provided a written undertaking regarding profit sharing for a development project, which the respondent claimed was an unconditional guarantee for payment of R1 million. The respondent sought payment after the appellant failed to honor the undertaking, leading to the cancellation of a related property sale agreement. The legal issue was whether the written undertaking constituted an unconditional guarantee by the appellant to pay the respondent. The court held that the undertaking, when interpreted in context, did not constitute a personal guarantee, and the appeal was upheld, setting aside the previous order that had favored the respondent.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings concerned an appeal to the Supreme Court of Appeal against an order of the full court of the High Court, Gauteng Division, Pretoria. The dispute turned on the proper interpretation of a written “undertaking” (described in the document as a “guarantee”) issued by a firm of practising attorneys, and whether it bound that firm as principal debtor to pay money to the respondent.

The parties were Steyn Lyell Maeyane Attorneys as the appellant (the attorneys’ firm that issued the undertaking) and Dr Johan Oelofse as the respondent (who claimed payment in reliance on the undertaking). The undertaking was addressed to Gary Janks Attorneys, who acted in a related property transaction, and it was issued expressly “on instructions” of the appellant’s client, Abrina 2537 (Pty) Ltd.

Procedurally, the respondent instituted action in the High Court, Gauteng Division, Pretoria, claiming payment of R1 million under the undertaking and R200 000 damages allegedly flowing from non-performance. The trial court (Prinsloo J) dismissed both claims with costs, but granted leave to appeal to a full court. The full court (Legodi J, with Molopa‑Sethosa and Tuchten JJ concurring) upheld the appeal and granted both claims with costs. The present appeal was brought with the special leave of the Supreme Court of Appeal.

The general subject-matter was the construction of commercial undertakings issued by attorneys within a transactional context, including the extent to which such undertakings are to be treated as unconditional personal guarantees or as confirmations/undertakings contingent upon an underlying transaction and the availability of funds.

2. Material Facts

The factual matrix forming the context for the undertaking was described as largely common cause, or at least not seriously disputed. Abrina 2537 (Pty) Ltd was involved in a property development known as Drakensberg Gardens in Vanderbijlpark. During March 2007, the respondent advanced finance to Abrina on terms that he would receive ten per cent of the net profit upon completion of the development. Completion was anticipated for January/February 2008, and the respondent expected his share to be in the region of R1.2 million to R1.5 million.

On 26 February 2008, the respondent (acting on behalf of a special purpose vehicle, Plenty Properties (Pty) Ltd) concluded an agreement to purchase Wiesenhof Business Park in Heidelberg, Gauteng, for R3.265 million. The respondent depended on receiving his profit share from the Drakensberg Gardens development to fund part of this purchase. A deposit of R200 000 was payable immediately; because the respondent had not yet received the profit share, his father advanced the deposit, which was paid on behalf of Plenty Properties. The agreement provided that the deposit would be forfeited as rouwkoop if the balance was not paid timeously leading to cancellation. The balance was payable against transfer, and Plenty Properties had to provide approved guarantees by 31 March 2008.

Abrina did not complete Drakensberg Gardens timeously, so the respondent’s profit share was not paid when expected. This led to an extension of time for Plenty Properties to provide guarantees to the seller (Wiese) until 4 April 2008. By this stage, the respondent insisted on receiving a written undertaking regarding payment of the profit share due by Abrina, because he believed it would serve as a form of assurance to the seller regarding Plenty Properties’ ability to perform.

On 1 April 2008, the appellant issued an initial document (on Abrina’s instructions) confirming the respondent’s ten per cent interest and that profit sharing would occur on or before 11 April 2008, in an amount “approximately” R1 000 000. The respondent was not satisfied with that version, suggested amendments after consulting his attorney, and later the same day the appellant issued the final undertaking in a letter addressed to Gary Janks Attorneys. In that undertaking the appellant stated, among other things, that the letter “serves as a guarantee” for funding required by the respondent for the Wiesenhof purchase; that on instructions of Abrina it confirmed the respondent’s ten per cent interest; that profit sharing would take place on or before 11 April 2008; that the ten per cent “shareholding” amounted to R1 000 000 which “will be paid to him as agreed”; and it requested bank account details so that the appellant could make payment directly into the attorney’s account.

The development was not completed in April 2008. It was only completed in April 2009, at which point the net profit was determined as R6 022 608, and Abrina paid the respondent R600 000 as part of his profit share.

Because guarantees for the Wiesenhof purchase could not be furnished timeously, further extensions were negotiated. On 1 May 2008, the respondent asked the appellant to honour the undertaking by paying R1 million to Janks. The appellant responded that the funds for profit sharing had not yet been made available by Abrina and therefore it could not transfer funds. On 5 June 2008, Wiese cancelled the sale and retained the R200 000 deposit as rouwkoop. On 21 May 2008, the appellant, on Abrina’s instructions, withdrew the undertaking.

A material undisputed contextual fact was that, when the undertaking was issued on 1 April 2008, the appellant did not hold funds in trust on behalf of Abrina from which payment could have been made. The respondent nonetheless sued the appellant on the basis that the undertaking made the appellant itself liable. Although the respondent reduced his claim for the principal amount from R1 000 000 to R400 000 in light of Abrina’s later payment of R600 000, no formal amendment to the pleadings was effected. The damages claim for R200 000 was advanced as consequential loss linked to forfeiture of the deposit.

3. Legal Issues

The central legal question was whether, properly construed, the written undertaking constituted an unconditional guarantee by the appellant attorneys’ firm itself to pay R1 million to the respondent (or to the conveyancing attorney) irrespective of whether Abrina performed and irrespective of whether the appellant held funds.

This issue was primarily one of law and the application of law to fact, namely the interpretation of a written document in its context and the legal consequences of that interpretation. It also implicated an evidentiary rule: whether direct evidence of the parties’ subjective intentions regarding the meaning of the undertaking was admissible in construing a document intended as the sole memorial of the agreement.

A further issue arose regarding the damages claim: whether the respondent had proved that he personally suffered loss recoverable from the appellant, given that the deposit was paid on behalf of Plenty Properties by the respondent’s father and forfeited by Plenty Properties, and whether such loss (as framed by the respondent) was legally attributable to the appellant and foreseeable.

4. Court’s Reasoning

The Supreme Court of Appeal approached the matter through established principles of contractual/documentary interpretation, emphasising that the starting point is the language of the document, read contextually with regard to purpose and background. Reliance was placed on the approach described in Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13; 2012 (4) SA 593 (SCA), requiring the language to be read in context and in light of purpose and background. The court also referred to its earlier treatment of attorney undertakings in Frans Jacobus Kruger h/a Kruger Attorneys v Property Lawyer Services (Edms) Bpk [2011] ZASCA 80, where an undertaking was construed against the factual matrix and given a commercially sensible meaning, and where an unconditional independent promise to pay was considered unlikely in the relevant transactional circumstances.

The court emphasised that the word “guarantee” is capable of bearing different meanings depending on context. It relied on List v Jungers 1979 (3) SA 106 (A) and the dictum with approval from Hermes Ship Chandlers (Pty) Ltd v Caltex Oil SA Ltd 1973 (3) SA 263 (D) to caution against seizing on a single word and treating its ordinary meaning as determinative. Instead, the meaning had to be fixed by the context and permissible surrounding circumstances.

Applying those principles to the undertaking and the largely common-cause factual matrix, the court identified features of the undertaking that, in its view, pointed away from an unconditional personal guarantee by the attorneys. The undertaking was directed to the seller’s attorney in the Wiesenhof transaction; it expressly described Abrina as the appellant’s client; and it stated that the relevant confirmations were made “on instructions of our client, ABRINA 2537 (PTY) LIMITED”. The payment reference was linked to the respondent’s profit-sharing interest in the Drakensberg Gardens development and included the phrase “which remuneration will be paid to him as agreed”, which was common cause to refer to the profit-sharing agreement between Abrina and the respondent. In that agreement, payment was tied to completion of the development and the determination of profit.

On the court’s reading, the request for banking details so that the appellant could “make the payment” directly into the attorney’s trust account was contextualised as an administrative/payment-mechanism aspect of implementing the underlying profit-sharing arrangement, rather than as language by which the appellant substituted itself as debtor. The court concluded that, on its plain wording read contextually, the undertaking was a confirmation on behalf of Abrina of the respondent’s entitlement and the anticipated timing of payment, and not an undertaking by the attorneys’ firm to pay out of its own pocket regardless of Abrina’s performance or regardless of whether the firm had been funded.

The court considered it significant and undisputed that the appellant held no trust funds on 1 April 2008 from which payment could be made. Against that undisputed background, it considered it “improbable in the extreme” that the attorneys’ firm would have bound itself unconditionally to pay R1 million within a short period without any identified reason why it would undertake such exposure. This improbability was used not as an independent ground of decision but as reinforcement of the contextual interpretation that the undertaking did not create an unconditional personal obligation.

On the evidentiary point, the court rejected reliance on trial evidence about what the respondent intended the undertaking to mean, and rejected criticism that the appellant did not call evidence of its own intention. It held such evidence to be inadmissible, reiterating the rule that where a written document is intended to be the sole memorial of the agreement, direct evidence of the parties’ intentions before or at conclusion is inadmissible for interpretation. The court cited Van Aardt v Galway [2011] ZASCA 201; 2012 (2) SA 312 (SCA) for the proposition that such evidence is also irrelevant and inadmissible as “context” in the interpretive exercise.

Having found that the undertaking did not bind the appellant as principal debtor, the court held that the respondent’s principal claim should have failed. It added that the full court had, in any event, erred by granting judgment for R1 million when the respondent had reduced the claim to R400 000, although the Supreme Court of Appeal treated this as ancillary given its main interpretive conclusion.

With respect to the damages claim, the court held that the respondent had not proved loss entitling him to damages from the appellant. The deposit of R200 000 had been paid by the respondent’s father on behalf of Plenty Properties; it was Plenty Properties that forfeited it upon cancellation. The respondent’s evidence that he undertook to repay his father was treated as a matter between him and his father. The court further held that the appellant could not have foreseen an indirect loss of this nature as a consequence of cancellation of the Wiesenhof agreement. The damages claim was therefore not established, and in any event it was dependent on the validity of the claim based on the undertaking.

5. Outcome and Relief

The Supreme Court of Appeal upheld the appeal with costs. It set aside the order of the full court and substituted it with an order dismissing the respondent’s appeal to the full court, with costs. The effect was that the trial court’s dismissal of both claims with costs was restored.

Cases Cited

Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13; 2012 (4) SA 593 (SCA)

Frans Jacobus Kruger h/a Kruger Attorneys v Property Lawyer Services (Edms) Bpk [2011] ZASCA 80

List v Jungers 1979 (3) SA 106 (A)

Hermes Ship Chandlers (Pty) Ltd v Caltex Oil SA Ltd 1973 (3) SA 263 (D)

Van Aardt v Galway [2011] ZASCA 201; 2012 (2) SA 312 (SCA)

Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk [2013] ZASCA 176; 2014 (2) SA 494 (SCA)

Dexgroup (Pty) Ltd v Trustco Group International (Pty) Ltd [2013] ZASCA 120; 2013 (6) SA 520 (SCA); [2014] 1 All SA 375 (SCA)

Kingswood Golf Estate (Pty) Ltd v Witts-Hewinson & another [2013] ZASCA 187; [2014] 2 All SA 35 (SCA)

Coopers & Lybrand & others v Bryant [1995] ZASCA 64; 1995 (3) SA 761 (A)

KPMG Chartered Accountants (SA) v Securefin Ltd & another 2009 (4) SA 399 (SCA)

Legislation Cited

No legislation was cited in the judgment.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that, properly construed in its factual and commercial context, the written undertaking did not constitute an unconditional guarantee by the appellant attorneys’ firm to pay R1 million as principal debtor. Instead, it was construed as a confirmation, given on the client’s instructions, of the respondent’s entitlement under the underlying profit-sharing agreement and the anticipated timing and mechanism of payment.

The court further held that evidence of the parties’ subjective intentions in relation to the meaning of the undertaking was inadmissible in interpreting a document intended to be the sole memorial of the arrangement.

It also held that the respondent did not establish a recoverable damages claim for the forfeited R200 000 deposit, because the forfeiture was suffered by Plenty Properties (not the respondent), and any asserted repayment obligation to the respondent’s father was collateral and not shown to have been foreseeable by the appellant.

LEGAL PRINCIPLES

The interpretation of a written undertaking must begin with the language used, read contextually and purposively with regard to the background and the commercial setting in which it was produced, consistent with the interpretive approach articulated in South African law.

A single word such as “guarantee” is not determinative of legal effect; its meaning may vary with context. The correct approach is to consider the word as part of the document as a whole and decide which meaning it bears in the specific transactional context.

In construing a document intended to be the sole memorial of the agreement, direct evidence of what the parties subjectively intended at or before contracting is inadmissible and is not permissible “context” for purposes of interpretation.

An attorneys’ undertaking issued in a transactional context is not to be assumed to be an unconditional, independent promise to pay absent clear language and contextual indicators supporting that construction, particularly where the undertaking is linked to the client’s obligations and the attorney is not shown to hold funds enabling payment.

A claimant seeking damages must prove legally cognisable loss and a sufficient causal and foreseeability link; an indirect or collateral loss arising from arrangements between the claimant and third parties, and suffered by a separate legal entity, will not without more establish recoverable damages against the party alleged to have breached the undertaking.

Steyn Lyell Maeyane Attorneys v Oelofse (271/2016) [2017] ZASCA 18 (23 March 2017)