The court a quo made, among other findings, the following decision: An order declaring the First, Second and Third Defendants liable jointly to pay to the Plaintiff 10% of any excess by which the value of the Fourth Defendant as a termination of the agreement on 22 December 2009 (calculated as the net profit before tax of the Fourth Defendant for the financial year ending on 30 June 2010, excluding any abnormal items of income or expenditure, multiplied by four), exceeded the sum of R24,000,000, such payment becoming due when either the Fourth Defendant disposes of its business or the First, Second and/or Third Defendants dispose of or realise their direct or indirect interest in the Fourth Defendant, whichever shall occur first; …”
The Supreme Court of Appeal (SCA) summarised the dispute between the parties as the interpretation and effect of a vague clause contained in a consultancy agreement as to whether the respondent would be entitled to 10% of the net increase in the company over R24 million “only to be awarded at the time value is realised, eg when the business is sold”.
The SCA dismissed the appeal. In reaching its judgment, the court highlighted that a commercial contract seriously executed by parties with the intention of being bound thereby should not lightly be held to be unenforceable because they failed to express themselves as clearly as they could have done.
Furthermore, it held that the context in which a contract is concluded is often of great importance. It is often said that, in the interpretation of a contract, context is everything. Disputed words have to be considered in light of the relevant and admissible context, including the circumstances under which the contract came into being. In this matter, for example, the correspondence exchanged between the parties prior to the conclusion of the agreement was an important part of the admissible factual matrix.
A contract may be loosely worded but that does not necessarily mean that it is unenforceable and that you can walk away from it when it suits you. You need to consider the intention of the parties upon the conclusion of the agreement, which will include having regard to the intention of the parties leading up to agreeing to the terms and conditions. To avoid or limit the interpretation of a contract, parties must carefully review the terms and conditions put down in writing as, ultimately, the contract will be the starting block in any dispute and may lead to your demise.