Lynette Nonqaba Hlobo v The Multilateral Motor Vehicle Accidents Fund

On 13 November 1994, the appellant's minor daughter Tembisa (aged 1 year and 7 months) was seriously injured in a motor collision on the old Berlin road in the Eastern Cape. The Multilateral Motor Vehicle Accidents Fund (respondent) became liable for compensation. Summons was issued in July 1996 with quantum being the only dispute. After extensive pre-trial negotiations between the parties' attorneys (Mr B A Lowe for appellant and Mr D H De la Harpe for respondent), a settlement was reached on 18 August 1997, two days before the scheduled trial. The settlement provided that respondent would pay R2,148,807.60 for future medical expenses (after a 10% contingency deduction) and furnish an Article 43 undertaking for certain other future expenses. Mr V Short, a claims-handler employed by respondent, authorized the settlement in a letter dated 17 July 1997. On 7 September 1997, respondent brought a motion application to set aside the settlement, contending that it intended to furnish only an Article 43 undertaking (not a cash payment) for future medical expenses, and that Mr Short's authorization was given in error.

• Whether Mr Short had contractual capacity to authorize the settlement agreement on behalf of respondent
• Whether the settlement agreement could be set aside on the basis of unilateral mistake (error) by Mr Short
• Whether Mr De la Harpe (respondent's attorney) had actual or ostensible authority to conclude the settlement
• Whether the respondent, as a State entity, could be released from a lawfully concluded contract on grounds of prejudice caused by its manager's actions
• The scope and limitations of an attorney's authority to settle litigation on behalf of a client

The appeal was upheld. The order of the court below was set aside except for the portion obliging respondent to pay costs. The application to set aside the settlement was dismissed with costs, including costs of two counsel. The respondent was ordered to pay the costs of the appeal, including costs of two counsel.

An attorney of record has inherent authority to settle litigation on behalf of a client, similar to counsel's authority at trial. Where an attorney concludes a settlement agreement on behalf of a client, the client will be bound by that settlement where: (1) the attorney had actual authority to settle (express or implied from the conduct of the principal); or (2) the attorney had ostensible authority, which arises when the principal appoints the attorney, knows the attorney is conducting settlement negotiations, allows the attorney to do so, and the other party relies on the apparent existence of authority. A party cannot resile from a settlement agreement on the basis of unilateral mistake where: (1) no misrepresentation (innocent or fraudulent) was made by the other party; (2) the other party did not appreciate at the time of acceptance that the offer was being accepted under a misapprehension; and (3) the party seeking to resile was to blame in that by their conduct they led the other party, as a reasonable person, to believe they were binding themselves. The objective approach to contract formation applies to settlement agreements. Internal errors in authorization (such as a claims-handler mistakenly authorizing a settlement) do not vitiate a settlement where the attorney acting on those instructions had apparent authority to conclude the settlement and the other party had no knowledge of the internal error.

The Court noted that in South Africa, as in England, counsel has authority to compromise an action or any matter in it unless counsel has received instructions to the contrary, and counsel's apparent authority to compromise cannot be limited by instructions unknown to the other party (citing R v Matonsi 1958 (2) SA 450 (A) and Benjamin v Surewitz 1973 (1) SA 418 (A)). The Court also observed that compromises arrived at between litigants are well-established measures that courts encourage, and that rules decree that compromises must be sought. When concluded, such a compromise disposes of the proceedings (citing Estate Erasmus v Church 1927 TPD 20). The Court questioned whether the respondent could properly be equated to the State for purposes of applying special principles regarding State contracts. While not necessary to the decision, the Court expressed doubt about the court a quo's findings regarding Mr Short's lack of experience and the impact of transitional difficulties, noting these had no evidentiary foundation.

This case is significant in South African law for establishing clear principles regarding: (1) the extent of an attorney's authority to settle litigation on behalf of a client, both actual and ostensible; (2) the application of the objective theory of contract formation to settlement agreements; (3) the narrow scope for setting aside settlement agreements based on unilateral mistake where there is no misrepresentation and the other party had no knowledge of the mistake; (4) the binding nature of settlements concluded by attorneys within their authority, even where the client later claims internal authorization was given in error; and (5) that State entities cannot escape lawfully concluded contracts merely on the basis that they suffer prejudice from their officials' actions. The case reinforces the policy of finality in settlements and the principle that courts encourage parties to resolve disputes through compromise.