M Visagie & Associates CC and another v Small Enterprise Finance Agency Ltd

The first appellant leased premises under a lease agreement that commenced on 1 July 2001 and expired on 30 June 2004. After expiry, the first appellant remained in occupation on a month-to-month basis but fell into rental arrears. The respondent cancelled the lease via email on 30 September 2013 and instituted legal action on 28 January 2014 for arrear rental and confirmation of cancellation. The appellants counterclaimed for R80,000 for improvements to the premises. On 18 July 2016, the parties settled the matter. Under the settlement agreement: the respondent withdrew its claim; the appellants withdrew their counterclaim; the appellants agreed to pay the respondent's legal costs from December 2013 to 18 July 2016 (scale unspecified); and the appellants agreed to vacate by 30 September 2016 and pay all rental from June 2016 until vacation. The original lease required rental to be paid monthly in advance by the first working day of each month, but the settlement agreement did not specify when rental payments were due. After the settlement, the appellants paid: July rental on 4 July 2016; August rental on 11 August 2016; September rental on 2 September 2016. The respondent accepted these payments without protest but later invoked forfeiture provisions claiming breach for late payment, demanding the full balance and costs on an attorney-client scale.

• Whether the terms of the original lease agreement, specifically regarding the timing of rental payments, were tacitly relocated into the settlement agreement
• Whether the appellants breached the settlement agreement by paying rental after the first working day of each month
• Whether the respondent was entitled to invoke the forfeiture provisions in clause 12 of the settlement agreement
• What are the proper principles for implying tacit terms into a contract
• In the absence of an express term, when is rental payable under common law

The appeal was upheld with costs. The order of the Western Cape High Court was set aside and substituted with an order upholding the appeal from the Magistrate's Court with costs. The Magistrate's Court order was set aside and substituted with an order dismissing the application with costs.

The binding legal principles established are: 1. A tacit term will only be implied into a contract where it is a necessary inference from the express terms and surrounding circumstances; courts will be slow to import tacit terms into written contracts, particularly settlement agreements. 2. The party alleging a tacit term bears the onus of proving it. The practical test is the officious bystander test - whether both parties would necessarily have agreed to the term if asked at the time of contracting. 3. Terms from a previous agreement between parties will not be tacitly relocated into a subsequent settlement agreement unless the express terms, surrounding circumstances, and subsequent conduct of the parties demonstrate that such relocation was the necessary common intention of both parties. 4. Subsequent conduct of parties, including acceptance of performance that allegedly breaches a tacit term without objection, and delay in asserting rights allegedly arising from such term, has direct bearing on the probabilities regarding whether such tacit term exists. 5. Under common law, in the absence of an express provision or proven tacit term regarding when rental is payable, rental under a periodical lease is payable in arrears after the end of each period, not in advance. 6. Where a settlement agreement is intended to be final and inclusive of all issues relating to the dispute, and parties have negotiated its terms, courts will not readily supplement it with terms from earlier agreements that the parties chose not to expressly include.

The court made observations about the commercial context and practical realities of the settlement: 1. The court noted that since insistence on strict payment dates (first day of month) had not historically occurred and might have jeopardized the respondent's primary objectives (receiving rental for the remaining period and having the premises vacated), it was improbable the respondent would have insisted on this strict term. 2. The court observed that the respondent's subsequent discontent originated not from late payments but from a dispute about the scale of costs to be paid, suggesting the timing of payments was not truly the respondent's concern. 3. The court commented on the respondent's "about turn" after conclusion of the settlement agreement, implying criticism of the respondent's litigation strategy in attempting to invoke forfeiture provisions for alleged breaches that it had previously tolerated. 4. The court noted that the costs demanded by the respondent (R134,217.82 for a trial that never ran, calculated on attorney-client scale) appeared excessive and may have been the true motivation for invoking the forfeiture provisions. 5. The judgment implicitly criticizes attempts to use technical breaches of uncertain terms as leverage to escape from settlement agreements that parties later perceive as unfavorable, particularly where the alleged breaches relate to conduct the other party had previously accepted without objection.

This case provides important guidance on the principles governing tacit relocation of contract terms, particularly in the context of settlement agreements. It establishes that courts will not readily imply terms from previous agreements into settlement agreements, especially where the settlement is the product of negotiated compromise intended to be final and inclusive. The judgment reinforces the strict approach to tacit terms articulated in Wilkins v Voges, emphasizing that the party alleging a tacit term bears the onus of proof and that the inference must be necessary, not merely plausible. The case also clarifies the common law position on rental payments in the absence of express terms: rental is payable in arrears after the lessor has fulfilled its obligation. The significance extends to the interpretation of settlement agreements as court orders, applying the contextual approach from Natal Joint Municipal Pension Fund v Endumeni Municipality. The judgment demonstrates how subsequent conduct of parties can be probative of their actual intentions at the time of contract formation. The case serves as a caution against attempting to resurrect terms from previous agreements that parties have deliberately chosen not to include in negotiated settlements, and highlights the importance of express drafting where specific terms are intended to survive into new agreements.