The old meets the new – Compromise in litigation
24 Mar 2020
“Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often the real loser — in fees, and expenses, and waste of time. As a peace-maker, the lawyer has a superior opportunity of being a good man. There will still be business enough.” – Abraham Lincoln
During the ebb and flow of business, it is inevitable that dispute will occur. In circumstances where an agreement is, for whatever reason, potentially no longer enforceable– the law allows for parties to such a dispute to settle their claims, shake hands and walk away with the comfort of settlement and Compromise. Modern law has developed to the point where agreements can be settled quickly with a few strokes of a keyboard, meaning that the rules relating to Compromise should not be taken lightly.
An agreement of Compromise does not entirely replace the original agreement or claim. Compromise instead creates a new version of an agreement in terms of which a dispute is settled. The parties agree to carry on enforcing the terms of the entire agreement having settled the dispute. The law refers to all instances of ‘settlement by agreement’ as a form of Compromise and rears itself in civil and criminal matters alike. The defining feature of Compromise is that it must result in the settlement of a dispute or uncertainty. To constitute a valid offer of Compromise, however, a party must deny liability, which denial can be express or implied.
The Effect of Compromise
If a Compromise has been entered into between the parties to a dispute the natural effect is the same as that of a judgment given by consent or by the principles espoused by the maxim of res judicata. As such, a party to a dispute may not sue or lodge a claim against another party for so long as a valid compromise has settled the original dispute.
An interesting aspect of Compromise is that the obligations arise by virtue of the principals relating to offer and acceptance and, in this sense, may arise from express, implied or tacit terms. In other words, parties’ action, discussions and e-mails may lead to a settlement taking the form of a compromise. The sudden appearance of this argument has undoubtedly come as a surprise to many a Plaintiff.
It may come as no surprise, however, that proving the existence of an agreement of Compromise rests on the Defendant alleging its existence. Accordingly, to raise Compromise as a defence to a claim must not be done without due regard to the factual matrix pertaining to a dispute. If the evidence supports the allegation that a dispute has already been settled, the Plaintiff is precluded from instituting action on grounds which have already been resolved. The Defendant, if it can prove a valid agreement, will be successful.
The ultimate effect of Compromise is that the parties may not take action against the original claim unless, of course, the agreement of Compromise expressly or impliedly provides that a failure to adhere to the terms of the settlement would give an innocent party the right to institute action on the basis of the original claim.
Electronic Transactions and Agreements
Relevant case law is replete with examples of offers of Compromise made by virtue of a letter accompanying a cheque posted to opposing parties. The case of Hubbard v Mostert and the case law to which the learned Moosa J referred is indicative of the test case for a plea of Compromise. In the modern age, however, this trend is undoubtedly a relic as cheques are very rarely used in the scope of contemporary litigation.
With that in mind, the terms of s22(1) of the Electronic Communications and Transaction Act no 25 of 2002 (hereinafter referred to as ‘ECTA’) provide that “An agreement is not without legal force and effect merely because it was concluded partly or in whole by means of data messages. …” In these terms and considering that an Agreement of Compromise has no prerequisite formalities, parties can easily enter into settlement agreements which either preclude or, unnecessarily complicate, the institution of legal action.
Although the onus of proving the existence of a compromise rests on the victim, Compromise is a natural bar to any claim arising on aspects of an already settled dispute. In this sense: offer’s of settlement and Compromise were validly offered and accepted are protected by the common law, rightly so.
However, parties to a possible dispute and possible resolution must not engage in settlement discussions, accept offers or become unwittingly subject to the terms of new agreements without being very careful. From a practical point of view business owners and persons involved in disputes, whether in the throes of litigation or not, should act with restraint before proceeding to alter the terms of an agreement.
Although Lincoln opined that litigation should be avoided and compromise favoured, parties should act with caution when engaging in settlement discussions lest Compromise becomes a point for argument.
- Is a term undertaking to agree legally enforceable?
- To vary or not to vary, that is the (digital age) question