South Africa: The Effect Of Offer And Acceptance In Settlement Discussions

Introduction

When entering into settlement discussions, the content of your discussions and subsequent correspondence is of the utmost importance. Consideration is taken towards both what is said and what is not. However, a mere acceptance of an offer or settlement proposal does not necessarily equate to the conclusion of a settlement agreement between two parties.

Facts of the matter

In the case of Scania Finance Southern Africa (Pty) Ltd and GJ Vermaak Vervoer (Pty) Ltd & Gabriel Johannes Vermaak¹ the Court was tasked with determining whether correspondence between the parties had created a binding settlement agreement on the basis that the proposal to settle in full and final had been accepted by both parties.

The plaintiff sought payment of an amount of R6,986,748.29 plus interest in respect of a consolidated agreement for the lease of trucks and trailers. The judgment focussed on the second special plea that was raised by the Defendants who alleged that the previous correspondence between the parties was tantamount to a compromise.² A compromise in law refers to a situation whereby the parties settle a dispute by reaching an agreement in respect thereof.

A counter-proposal was made to the defendants in February 2017 and specifically stated that should the Defendants accept the counter-proposal, they would be required to conclude a formal settlement agreement, which settlement agreement should be made an order of Court, and would need to provide a warranty that they did not have any other assets other than that which had previously been disclosed. The Defendants accepted the counterproposal made by the Plaintiffs. However, upon receipt of the draft settlement agreement, the Defendants proposed several amendments to the material terms submitting that these terms did not reflect the original agreement that had been made between the parties.³ The Defendants further alleged that the Plaintiffs had not expressly or formally rejected their proposed amendments referred to above and therefore it had been implied that the Plaintiffs accept it.

The Plaintiff contended that no settlement agreement had been concluded as the agreement was subject to the condition that it be reduced to a formal written agreement that was to be made an order of court, and that a warranty be given. It was further argued that there had been no clear and unequivocal acceptance of the Plaintiff's offer as the Defendants had not referred to all of the conditions, specifically the warranty, in its response to the offer.⁴

In the case of Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2; 147 LTR 503 at page 514 Lord Wright said the following:-

"Business men often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the Court to construe such documents fairly and broadly, without being too astute or subtle in finding defects".

In "The Law of Contract in South Africa" it was stated that any attempt to vary a term of an offer while purporting to accept it does not signify an agreement thereof.⁵ Even if they had reached an agreement regarding the settlement, this would only novate the original debt if the intention to novate has been expressed. The express intention to contract is referred to as animus contrahendi and is a requirement for the validity of the conclusion of an agreement, in addition to any formalities that must be complied with. Thus, if the conditions set out by the Plaintiffs had been fulfilled and the settlement agreement thereafter been made an order of court, novation would be present, and the settlement agreement would be binding on both parties. In terms of the law of contract, an acceptance is unambiguous and unequivocal assent to the terms of a proposal.

So was the acceptance of the Plaintiff's offer suffice within the law of contract and did it create a binding agreement between the parties? The court held that it was disingenuous of the Defendants to believe that a binding agreement had been created as it is evident that the parties intended for an agreement to only come into being upon the conclusion of a formal written agreement which would be made an order of court.

Conclusion

It is the writer's opinion that the offer made by the Plaintiff was clear and unequivocal, made with the intention to create a legally binding agreement subject to the conditions being met. However, the Defendants acceptance of the offer would only give rise to a settlement between the parties once reduced to a written agreement and made an order of court. It is therefore imperative that when engaging in settlement discussions, careful consideration is made to all relevant requirements and parties do not jump the gun. A holistic approach is necessary to review each case and the proposals that are being put forward, as is evident in the case of Scania Finance the effect of the principle of offer and acceptance is unique when an offer is accompanied by conditions.

Footnotes