Agreements Not to Sue – Tread Carefully!

“Agreements not to litigate are not necessarily unreasonable.” (Extract from judgment below)

An "Agreement Not to Sue" undertakes that one party won't take legal action against another. In other words, it's a way of ensuring that disputes don’t end up in court. You might come across this type of agreement in many different situations, such as in a business setting, a family dispute, a neighbour dispute, or even between friends.

In particular, any compromise agreement settling a dispute is very likely to contain such a clause. Incidentally, if you see mention of a “pactum de non petendo anticipando” that’s just Latin for the same thing.

The benefits

The benefits of an agreement not to sue are that it can save you time, money, and stress. Going to court can be a long and complicated process, and an agreement not to sue means that you can avoid that. It can also allow you to come to a solution that is mutually agreeable, rather than having a court make a decision for you.

The downsides and risks

However, there are also downsides and risks to consider.You may think that you can never lose a constitutionally guaranteed right such as that which gives us all right of access to the law, and indeed our courts will approach any “agreement not to sue” with a great deal of caution. But, as a recent SCA (Supreme Court of Appeal) decision has made crystal clear, such agreements may well be held valid and enforceable in an appropriate case. In that event, you have no legal recourse if the other party doesn't follow through on their end of the agreement.

A R1,225 billion claim sunk by a “limited and reasonable” clause

• A complicated series of contracts went wrong, and one of the parties sued a bank for R1,225 billion.
  
  
• The bank relied on a “agreement not to sue” clause in the applicable contract, and the High Court agreed, ordering the claimants to withdraw their action. The SCA confirmed that order on appeal, and in doing so highlighted some of the important considerations a court will consider in such a case –
  
  
  • An agreement not to sue “is an agreement like any other …It is a contract that gives rise to rights and correlative duties. The nature of the right in question varies from case to case and is dependent on the text and the facts.”
    
    
  • It can be for a limited time or “operate in perpetuity”.
    
    
  • “Courts should use the power to invalidate a contract or not to enforce it sparingly and only in the clearest of cases … balanced against the backdrop of our constitutional rights and values.”
    
    
  • The claimants were fully informed of their rights and had consented to the clause freely and voluntarily. Their agreement not to sue was not a waiver of their constitutional rights, just an agreement not to enforce them.
    
    
  • The clause was not against public policy – the claimants had been legally represented (they spent over R16 million on legal advice), they were all experienced businesspeople capable of evaluating the merits, risks and suitability of the clause, and there was no indication of unequal bargaining power between the parties. Perhaps most importantly, the Court found that the agreement “went no further than was necessary to prevent very specific litigation. As such it is a limited and reasonable restriction on the appellants’ ability to litigate.” (Emphasis supplied).

The bottom line

An agreement not to sue is a serious document with both benefits and risks. If you're asked to sign one, take the time to carefully consider all the pros and cons and remember that it's always a good idea to ask a professional to help you understand the terms of the agreement and ensure that your rights are protected.