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The infamous secret tender

Posted 02 December 2019

Tiaan Booyse

In a situation where the offer is rejected by the receiver (usually the plaintiff), thus allowing the trial to continue, and costs to run, and the judgment is later handed down for a sum that is actually lower than the amount offered (showing that the offer ought not to have been rejected in the first place), notifying the court tends to set the cat amongst the pigeons, so to speak. Why? Well, because the tables are then generally turned, and the party who rejected the tender may well then be liable for the costs of the action (which are generally not insignificant) from the date of the tender.

In other words, the risk to the receiving party in the face of a without prejudice offer of settlement made in terms of Rule 34 is that the court can be approached to reconsider a cost order. Rule 34(12) provides that:

"If the court has given judgment on the question of costs in ignorance of the offer or tender and it is brought to the notice of the registrar, in writing, within five days after the date of judgment, the question of costs shall be considered afresh in the light of the offer or tender: Provided that nothing in this sub-rule contained shall affect the court's discretion as to an award of costs".

In Naylor and Another v Jansen (508/05) [2006] ZASCA 94; [2006] SCA 92 (RSA); 2007 (1) SA 16 (SCA) (31 August 2006), the court highlighted two considerations to be borne in mind by a judge while exercising his or her discretion for the purpose of reconsidering a cost order. The first is the exact purpose behind Rule 34 and the second is the judge's unfettered discretion.

The purpose of Rule 34 is clear. The rule is designed to enable a party to avoid further litigation and, failing that, to avoid liability for the costs of such litigation from the date of the tender. The rule is there not only to benefit a particular party but generally for the public good.

The object of the rule is to limit costs and to create a possible safeguard against being held liable for costs which, had the tender been accepted, would not have been incurred. An offer in terms of Rule 34(1) is part of the mechanism established by that rule for the effective settlement of disputes (Singh and Another v Ebrahim (413/09) [2010] ZASCA 145 (26 November 2010) at par 89 page 35).

A judge has unfettered discretion to make a determination as he or she deems fit about the issue of costs. Although the court would ordinarily order the defendant (if the defendant had made a without-prejudice offer of settlement) to pay plaintiff's costs up to the date of the offer and the plaintiff to pay the defendant's costs thereafter, there is no hard "rule" to this effect.

MacRobert was recently involved in an action where it represented the defendant in a claim for damages due to alleged medical negligence. The issue of liability was settled by agreement between the parties. A without-prejudice offer of settlement, to pay R480 000 plus costs, was made shortly after the parties reached an agreement on the liability aspect of the action. The offer of settlement was rejected by the plaintiff and the quantum trial proceeded seven months later.

The court awarded damages of approximately R390 000,00 plus costs, an amount well below the value of the secret tender. The court was requested to reconsider the question of costs in terms of Rule 34(12). The judge exercised his discretion and reconsidered the costs. However, he allowed the plaintiff a spatium deliberandi to consider the offer of settlement. In the result, the judge ordered the plaintiff to pay the defendant's costs only from 15 days after the offer of settlement had been delivered. The plaintiff was also ordered to pay the costs of the application in terms of Uniform Rule 34(12). The defendant's costs were substantial and very little of the award of damages was left at the end of the day. Was the plaintiff greedy or poorly advised? If neither, then what went wrong?

Generally, the court is more likely to order a party in this type of position to pay the other party's costs from the date of the offer of settlement. However, as illustrated, depending on the circumstances, the court may allow the party a reasonable spatium deliberandi to consider the offer of settlement.

A secret tender (a without-prejudice offer of settlement in terms of Uniform Rule 34) affords litigants a powerful tool to create a possible safeguard against costs. An offer of settlement made at the appropriate time can bring about early settlement and could end up saving a litigant a substantial amount of money. It is imperative for parties to assess their clients' prospects of success very carefully once a tender of this nature has been made. Should a client decide not to accept an offer of settlement in the form of a secret tender, he will then pursue further action at his own peril, and be warned of the risk of paying the costs of the other side should he elect to continue – regardless.

Article published in Without Prejudice December 2019