In the recent case of Sentinel Mining Industry Retirement Fund v Waz Props (Pty) Ltd, the Supreme Court of Appeal made use of the heading of a clause in a contract to interpret a clause ― to one of the signing parties' dismay.

Many contracts and/ or agreements fail to contain an interpretation clause similar to the standard "In this Agreement, clause headings are for convenience only and are not to be used in the Agreement's interpretation."

Yet an interpretation clause like the one above is of vital importance, as was illustrated in the case of Sentinel Mining Industry Retirement Fund v Waz Props (Pty) Ltd (779/11) [2012] ZASCA 124, heard in the first instance in the South Gauteng High Court.

The plaintiff and defendant entered into a contract in terms of which the defendant would contribute to a project embarked on by the plaintiff to upgrade Park Road in Birnam. Clause 3 of the contract placed an obligation on the defendant to effect payment of ZAR 115, 531.87 as its pro rata share of the Park Road upgrading project. The problematic provision followed at clause 4, with the heading "Method of Payment". This clause gave the defendant three options to effect payment of the amount.

The following clause, clause 5, was headed "Non-completion of the Park Road Upgrading Project". This clause stated that if the Sentinel Park Road upgrading project was not completed by 1 April 2009, then options one and three referred to in in clause 4 would lapse. There was no express mention of what would happen regarding the second option.

The defendant elected the second payment option and a bank guarantee was issued to the plaintiff's attorneys by ABSA Bank, in terms of which ABSA undertook to pay the plaintiff R115,531.87 plus interest. The Park Road upgrading project was, however, not completed on 1 April 2009; only reaching completion on 15 February 2010.

The plaintiff's attorneys presented the bank guarantee for payment to ABSA on 26 March 2010, but the defendant objected to the payment claiming the plaintiff's attorneys were not entitled to present the guarantee to ABSA for payment. The plaintiff argued that the defendant's obligation to make payment under the contract had lapsed when the upgrading project was not completed on 1 April 2009.

The plaintiff argued that its intention upon entering into the contract was that clause 3, which was titled "Owner's obligations", contained the defendant's primary obligation and clause 4, with the heading "Methods of Payment", dealt with security for payment and not the methods of payment, regardless of it being titled "Methods of Payment". In the plaintiff's view, the heading should be ignored and regard should only be given to the provisions of the clause.

Cloete JA disagreed and emphasized the fact that, in the absence of an express provision to the contrary, headings in contracts can be taken into account in interpreting the contract. Cloete JA explained that, where a heading conflicts with the body or a clause of the contract, then the body of the contract will prevail because the parties' intention will be spelt out in greater detail in the body of the contract. Where a heading and the detailed provisions expounded by the clause can be read together, however, this must be done.

On this basis, Cloete JA found that clause 4 was not confined to the provision of security for payment, but that clause 4 should rather be interpreted using its heading, with the result that it provides not only for security of payment but also determines the amount of money to be paid. Cloete JA therefore found in favour of the defendant and confirmed the order of the High Court directing the plaintiff to repay the amount received under the guarantee.

The case serves as a reminder to include an express provision stating that headings in a contract are for convenience only and are not to be used in the agreement's interpretation.

Written by Masala Ratshitanga, Candidate Attorney at Webber Wentzel