Risks in Negotiating a Contract

By the Mining, Minerals and Energy team

The Supreme Court of Appeal recently handed down a Judgment which has important implications for executives of companies who are involved in negotiating contracts with third parties (Novartis South Africa (Pty) Ltd v Maphil Trading (Pty) Ltd).

The essential question for the Court to decide was whether the parties intended to bind themselves contractually, and, in effect, whether a contract was concluded.

In this particular case there was a written contract that was incomplete in certain respects but had been signed by one of the parties, as well as several exchanges of emails and meetings held to determine the content of the incomplete portion of the written contract.

After considering the complete 'factual matrix' of the negotiations between the parties –i.e. the content of the documents exchanged during the negotiation, the parties' conduct in negotiating, and the steps the parties took to commence the implementation of the contract, the Court held that the partly written, partly oral contract was binding on the parties.

The Court made these findings despite the fact that it was accepted that both parties required the final written contract to be settled by an attorney, and that this had not occurred. The Court found that the parties had already reached agreement prior to that on all material aspects of the contract.

This case will be used as a precedent in future litigation involving the interpretation of contracts, and it should serve as a warning for companies who do not wish to be bound by mere oral undertakings, or an exchange of emails, to make it absolutely clear, during their negotiations, that they will not consider a binding agreement to have been concluded until (a) the agreement has been reduced to writing in a single document (b) the written contract has been approved by an attorney and (c) the contract has been signed by each parties' authorised representatives.

By Prè Prinsloo, Head of the Mining, Minerals and Energy Department

prinsloo@wylie.co.za, 082 453 8819