Warren Bowles Corporation Communications CC v Rheinmettal Denel Munition Ltd

On 19 February 2010, Warren Bowles Corporation Communications CC (the close corporation) entered into a partly written and partly oral agreement with Rheinmettal Denel Munition Ltd (RDM) to organise a special demonstration event for RDM's products for R8.5 million, scheduled for 10-14 May 2010. The agreement provided that RDM could cancel the event up to 8 March 2010 with a 40% cancellation fee, and RDM paid R3 million (40% of the cost excluding VAT) on 4 March 2010. On 8 March 2010, RDM decided to postpone (not cancel) the event to an unspecified date in 2011. As the main agreement did not provide for postponement, disputes arose regarding the money paid. The parties met on 7 April 2010 at Somerset West where, according to RDM, a further agreement was concluded settling the disputes. RDM claimed that at this meeting Mr Bowles undertook to account for all liabilities incurred and refund any surplus. Mr Bowles initially did not dispute giving certain undertakings but later claimed they were given on a 'without prejudice' basis to maintain business relations. RDM demanded a detailed account. Mr Bowles offered to refund R491,886 but RDM rejected this. RDM sued for a statement and debatement of account, or alternatively damages.

• Whether the parties concluded a legally binding and enforceable variation agreement on 7 April 2010
• Whether the close corporation undertook to account to RDM for all liabilities incurred pursuant to the main agreement
• Whether the undertaking given by Mr Bowles on 7 April 2010 had contractual force or was merely provisional and exploratory
• What the requirements are for obtaining an order for a statement and debatement of account
• Whether the close corporation was entitled to payment of outstanding VAT on its counterclaim

The appeal against paragraph d of the high court order was allowed and that paragraph (relating to damages) was deleted. Subject to this amendment and renumbering of subsequent paragraphs, the high court order was confirmed, directing the close corporation to: (a) furnish a full account with supporting documents of all liabilities incurred up to 7 April 2010; (b) submit to debatement of the account; (c) pay such amount as found due upon debatement; with interest from 1 September 2010 and costs. The close corporation's counterclaim for R420,000 VAT was dismissed with costs. Save for the deletion of paragraph d, the appeal was dismissed with costs.

Where parties have entered into negotiations to resolve disputes arising from a contract, and one party gives undertakings which are followed by conduct consistent with those undertakings (including correspondence and actions implementing them), such undertakings will be construed as having contractual force and constituting a binding variation of the original agreement, unless clearly stated to be provisional or subject to further agreement. A party seeking an order for statement and debatement of account must establish: (a) the right to receive an account and its legal basis (contract, fiduciary relationship or otherwise); (b) any contractual terms or circumstances bearing on the account sought; and (c) the defendant's failure to render the account. Subsequent conduct of a party is relevant in determining whether that party intended an undertaking to constitute a concluded bargain. The construction which a party places on their own undertaking by their subsequent conduct is probative of contractual intention.

The majority noted that the argument that an account should not be ordered because it may lead to further proceedings between parties is not a valid ground for refusing such relief, as this possibility exists whenever such an order is made. The court observed that while the remedy of statement and debatement of account falls naturally in situations involving fiduciary relationships, parties may nevertheless contract to provide such accounts in ordinary commercial relationships. The dissenting judgment observed that undertakings given on a 'without prejudice' basis during settlement negotiations, particularly where the party giving them has no precise knowledge of the information required and receives no consideration for the undertaking, are more likely to be provisional rather than final and binding. The dissent noted that a remedy as technical, onerous and intrusive as statement and debatement of account would require clear agreement in the absence of a fiduciary relationship, and that parties' motives for giving undertakings (such as maintaining business relationships) may be relevant to interpreting whether they intended legal obligations.

This case is significant for clarifying the requirements and circumstances in which a court will order a statement and debatement of account in commercial contractual relationships, even in the absence of a traditional fiduciary relationship. It demonstrates how subsequent conduct of parties can be used to interpret and give effect to oral undertakings as binding contractual variations. The case also illustrates the principle that parties can contractually agree to provide accounts even where no fiduciary duty exists. It confirms the application of the Doyle v Fleet Motors principles for obtaining such relief. The dissenting judgment provides important guidance on when agreements reached during negotiations may be merely provisional or 'in principle' rather than final and binding, citing the line of authority including Lambons v BMW, CGEE Alsthom and Pitout. The case demonstrates the court's approach to credibility findings based on contradictory evidence and prior consistent statements in correspondence and pleadings.