Tools of the Trade – The Secret Tender-Techniques in Arbitration_Harcourt – October 2025

The Secret Tender: A Technique in Arbitration

1. Introduction
   1. The nature of disputes: There is an inherent risk in all litigation, and for that matter in all forms of Alternate Dispute Resolution (ADR) too. There is no such thing as a ‘slam dunk’ in dispute resolution. More often than not by the time a dispute has formally arisen a degree of animosity, if not acrimony, exists between the parties. That is often compounded by an escalation in legal costs which is anticipated to be exponential.
   2. Fashion: Surprisingly techniques in litigation and arbitration come into and go out of fashion. That is a matter of anecdotal experience rather than evidence on record.
   3. Vocabulary: In the field of ADR, confusion often arises where sophisticated vocabularies use the same word or phrase, which has a particular meaning in a legal or technical context and another different educated colloquial meaning – barring slang – in other contexts.
2. Tender: An excursus
   1. Like it or not, lawyers create confusion by taking words with sophisticated and educated colloquial meanings and then using those words to give them a different meaning in a technical legal context which only serves to confuse.
   2. ‘Tender’^[1] is an example par excellence of such a word. In the Shorter Oxford Dictionary ‘tender’ has at least five primary meanings, together with numerous sub-meanings including ‘look after’; ‘soft and delicate’; ‘an offer in writing to execute an order’; ‘a confidential offer to purchase (goods or services)’ and ‘a confidential offer to perform services’.
   3. The word should not be confused with commercial tenders submitted to clinch a commercial contract for the provision of goods or services, typical to government enterprises, or so-called ‘State-Owned Enterprises’, which contracts are sometimes set aside by the High Court by reason of some or other irregularity. In this setting the word ‘tender’ bears a different meaning to the word ‘tender’ in the legal context I intend addressing in this article.
   4. In the present context, ‘tender’ simply means to ‘offer’. The use of the somewhat sinister word ‘secret’, coupled with ‘tender’, then causes confusion. What seriously adds to the mystique is the expression ‘legal tender’, which is used to refer to a recognised monetary currency, e.g., has the Spanish Doubloon survived the Euro as legal tender?
3. Why is the tender secret?
   1. ‘Secret tender’ is not an expression used in frequent and common parlance. An anecdotal experience is that as often as not it needs to be explained to the lay client that a secret tender is a method or technique of confidentially offering to compromise (settle) a disputed claim, and that it carries with it a threat of a sanction – by way of the costs incurred – if and when such a secret tender is rejected.
   2. The mystery of a ‘secret tender’ evaporates when it is explained that:
      1. ‘secret’ means ‘confidential’; and
      2. ‘tender’ means ‘offer’, and when it is also explained to the recipient of what a ‘secret tender’ is aimed at achieving, the animosity or acrimony between the parties is often reduced. At the risk of stating the obvious, this is then why the use of a secret tender is described as a ‘technique’ in this article.
4. The secret tender
   1. The object of a tender (secret or not) is to avoid further costs and, if possible, to bring the dispute to an end so as to resolve the litigation, or the ADR process.^[2]
   2. In litigation if a defendant wishes to protect himself from an order directing him or her to pay the costs of legal proceedings; then he or she can make a secret tender of an amount which he or she assesses will exceed the amount of the award of the judgment when made on the claim.
   3. If the amount of the judgment does not exceed the sum of the tender, then the defendant can disclose the tender and ask for costs from the date of the tender (and sometimes other relief too).
   4. Colloquially this is described as the tender ‘beating’ the amount for which judgment is granted, or for which an award is made.^[3] Not surprisingly, informally it has been described as a ‘sudden death’ remedy. As a general proposition, if the amount tendered exceeds the claim (by whatever margin) then the costs will follow the event and be awarded to the tenderer.^[4]
   5. A secret tender is privileged (confidential) and may not be disclosed to the court or arbitrator before judgment. How does it work and what is its purpose as a dispute resolution technique?
   6. Not all tenders are secret. A secret tender is made ‘without prejudice’ and cannot be disclosed until after the judgment is made, or the arbitration award is published.
   7. An ‘open tender’ can also be made and then the offer, which is stated to be ‘with prejudice’, is disclosed in the pleadings and the disclosure extends to the evidence when it is led and argument when it is advanced. The tender’s merits then are debated in the court or ADR proceedings, as the case may be. An open ‘with prejudice’ tender is beyond the scope of this article.
   8. Secret tenders are well entrenched in civil litigation. Since 15 January 1965, the High Court’s civil procedure tender has been governed by Rule 34 of the Uniform Rules of Court.^[5]
   9. The secret tender technique has been given a new lease of life in civil litigation with the introduction of statutorily permitted ‘champerty’^[6] in terms of the Contingency Fees Act 66 of 1997. This Act permits lawyers to charge a success fee, agreed in advance, of (i) either double the usual fee, or (ii) 25% of the total amount awarded, subject to whichever is the lesser.
5. Costs following the result: sudden death
   1. The benefit and advantage of a secret tender is that if, and as soon as, it is accepted, the dispute is compromised (settled) and the claim is at an end including, not insignificantly, the incurring of costs.
   2. The generalisation that the costs should follow the result, which ordinarily means that if a secret tender is rejected but the amount tendered was more than the amount for which judgment is granted, or for which an award is made, then the plaintiff or claimant, as the case may be, is liable for all the costs from the date of such tender and, conversely, if the amount tendered is less than that granted or awarded, then the plaintiff or claimant pays all the taxed or agreed costs.
   3. That general rule is illustrated by the decisions in John Sisk & Son (SA) Ltd v Urban Foundation^[7], which enjoyed the attention of the court on two occasions.
      1. Twice the arbitrator made awards for costs based on percentages roughly pro rata to the amounts awarded. Twice the awards were set aside.
      2. The court – a different judge presided on each of these occasions (per Milne, JP on the first, and per Shearer, J, on the second) – set aside the awards in the arbitration and allowed the costs in full (the judgments).
      3. The judgments might be open to the criticism that the application of the general rule led to an inequitable result – the contention in this regard being that since the issue of costs resides in a discretionary power of the arbitration tribunal, the awards on both of these occasions called out for some discretionary adjustment of the costs allowed; and, consequently, the (six separate) awards should not have been set aside as an irregularity as they rather involved the exercise of a ‘sympathetic’ discretion, and did not, as such, constitute an irregularity. However, this is a technical argument beyond the scope of this article.^[8]
6. A tender is not only the defendant’s prerogative
   1. Thus far the discussion of tenders (secret or otherwise) has been on the basis that it belongs to the defendant as a defensive mechanism to protect him/her/it from an adverse costs award. That has recently changed as a result of a secret ‘counter-tender’ made by the plaintiff in a medical negligence case where contingency fees were an important issue. This was done by importing a legal procedure from English law.
      A Secret Counter Tender: The Rule in Calderbank and Cutts
   2. In AD v MEC for Health and Social Development, Western Cape^[9] (AD v MEC) massive medical negligence claims arose as a result of irreversible brain damage to a minor infant after an eventful birth caused by the negligence of the Provincial hospital staff. Separate claims were made by the parents as guardians of the minor, and in their personal capacities for their own consequential expenses. As could be expected in a case of this magnitude:
      1. Volumes of documents were generated, comprising exhibits, expert reports, argument and the like;
      2. the trial ran for 45 days and when the ‘writing was on the wall’ the Province made a ‘secret tender’ of R20 million;
      3. when the so-called offer to settle was made, the amounts already determined totalled R18 146 169.00, while the plaintiff’s claims, at that point in time, stood at R20 851 516.00;
      4. complicating matters were two items of reserved costs, namely: (a) the remuneration of trustees to administer future expenditure of the minor; and the lawyers’ contingency fees.^[10]
   3. The court considered and admitted an English law procedure of a secret counter tender by the plaintiff in the following terms:^[11]
      ‘[41]  The plaintiff’s secret offer was referred to in argument as a Calderbank offer, with reference to the judgment of the English Court of Appeal in Calderbank v Calderbank [1975] 3 All ER 333 (CA). In that case Cairns LJ^[12] said that he saw no reason in principle why, in cases not covered by the rules of court permitting secret offers, a litigant should not be permitted to make a settlement offer ‘without prejudice save as to costs’ and to rely on such offer, once judgment has been granted, in  support of a particular costs order. This view was approved and acted upon in Cutts v Head [1984] 1 All ER 597 (CA) … it is accepted that a Calderbank offer by a plaintiff can, after judgment, be adduced in support of a request for what we would call attorney/client costs.’
      The court held that this procedure of a secret counter-tender is part of South African law and adopted the qualification in the Cutts case^[13] that the secret (counter) tender should be stated as being made as being without prejudice ‘… except in relation to costs’, or words to similar effect.^[14]
7. Calderbank rule entrenched
   1. The endorsement of the rule in Calderbank and Cutts was not slow in coming.
   2. In Van Reenen v Lewis^[15] an active 66-year-old housewife sued her neurosurgeon (as first defendant) and the Rosepark Hospital (as second defendant) for bodily injuries after a spinal surgery developed serious injuries leaving her a cripple.
   3. The trial on the merits continued for 11 days. After the neurosurgeon defendant gave evidence for 2 days, the plaintiff withdrew her claim against him and he made himself available to give evidence against the Rosepark Hospital. His evidence showed that the hospital’s nursing staff caused the surgical complications by failing to administer post-operative procedures in the neurological ICU.
   4. This led to a concession of 100% liability by the hospital.
   5. The proceedings were then focused on the liability for costs.
   6. The plaintiff revealed that she had made three (separate) formal ‘secret’ common law offers to the hospital (including limited concessions on costs) which were rebuffed by it.
   7. The court approved the decision in AD v MEC confirming that the rule in Calderbank and Cutts is part of South African procedural law that a plaintiff may make a secret offer to compromise a claim without disclosing it to the court.^[16]
   8. It is obvious that the risk of a serious liability for costs as a result of a refusal to entertain a counter-tender is a serious incentive to settlement, which is obviously desirable and is particularly likely to create such pressure in ADR.^[17]
   9. These two decisions illustrate what a useful tool or technique secret tenders and counter tenders can be. It is a pity the technique has not received more contemporary attention.
8. Tenders in arbitration
   1. As indicated above and as a generalisation the courts tend to take the approach in the case of secret tenders that the costs should follow the result outright. That approach is certainly open to criticism and is particularly opened to criticism when a secret tender is made in ADR proceedings where an equitable adjustment or percentage award may be more appropriate to the circumstances than an outright ‘costs follow the event’ approach.
      Without prejudice communications and ADR
   2. ADR has embraced the confidentiality of without prejudice communications as a technique of dispute resolution often combined with the introduction of a mediator as both go-between and conciliator. As explained in AD v MEC the secret tender or ‘Calderbank offer’ is based on the policy consideration that parties would be encouraged to use without prejudice (i.e., ‘off the record’) communications to settle disputes (especially when parties appear to be intractable).
9. ADR Rules for Tenders
   1. The International Arbitration Act 15 of 2017 has adopted the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration and Conciliation Rules which include the 1980 UNCITRAL Conciliation Rules and these provide for confidential negotiations between the parties.^[18]
   2. It is submitted that provisions of section 32(1) and (2) of the Arbitration Act 42 of 1965 contemplate, among other things, the remittal of a secret tender in arbitration proceedings regarding costs after an otherwise final award.
   3. Article 39.1 of the Rules for the Conduct of Arbitrators (2013: 3^rd Ed) of the Association of Arbitrators (Southern Africa) provides that the parties may request the arbitral tribunal to make an award or additional award as to claims presented ‘… but not decided …’ Article 39(2) then proceeds to provide that the tribunal ‘… considers the request … to be justified, it shall render or complete its award within 60 days.’ It is submitted that the description ‘additional award’ encompasses a secret tender.
   4. The Joint Building Contracts Committee’s (JBCC) standard form agreement (May 2018 edition) provides for a three-tiered dispute resolution structure commencing with mediation, and then progressing to adjudication and, finally, arbitration. It is silent as to the admissibility of without prejudice communications.^[19]
   5. The South African Institution of Civil Engineering’s (SAICE) ‘General Conditions of Contract for Construction Works’ (GCCC)^[20] has a four-tiered structure of mediation, adjudication, arbitration and (as an additional alternative) dispute resolution.^[21] In other words, the exclusion of ‘without prejudice’ communications is not only implied generally but appears to be specifically excluded. If clause 10.4.4 of the GCCC does so exclude the admission of Calderbank secret tenders and post award disclosures then that is unfortunate.
   6. FIDIC, which stands for Fédération Internationale des Ingénieurs-Conseils, provides a suite of standard contract forms used in many construction projects. One of its contracts is the so-called ‘FIDIC Red Book’ that contains detailed contractual terms for the ‘Construction of Building and Engineering Works’.^[22]
   7. Clause 20 of the FIDIC Red Book^[23] sets out the provisions of the dispute resolution clause:
      1. It provides for informal mediation by a Dispute Adjudication Board (DAB) if jointly requested by the parties.^[24]
      2. Clause 20.5 then provides in the event of a failure to reach an ‘amenable settlement in terms which cannot be improved on’ within 56 days then litigation or formal arbitration follow.
      3. The modus operandi of FIDIC is designed for the DAB to monitor or even positively supervise communications ‘off the record’ or at any rate commence negotiations which either culminate in a compromise or in active intervention by the Dispute Adjudication Board so as to accelerate a dispute.
10. Conclusion
    At the risk of enthusiasm, it is suggested that secret tenders and counter-tenders by both plaintiffs and defendants has been shown to be part of South African law and a useful technique in resolving litigation. While a lay arbitrator need not have any training in the refinements of his powers and duties after disclosure of a secret tender, he should certainly be alive to the possibility of such a disclosure while hearing evidence.
11. Epilogue
    1. At the risk of an apocryphal ending, it was suggested in the 1970’s in the Durban Bar Common Room that the secret tender rule should be re-named ‘the McHatty Rule’ after the name of an usher (long since deceased) who disclosed a secret tender to the Judge while escorting him back into court after a recess as evidence was about to end so requiring a complete (and lengthy) re-trial!
    2. The practitioner should be aware of the secret tender because it is part of his tactical arsenal. Similarly, the arbitrator should be aware of the implications of the secret tender so as not to be taken by surprise after a prolonged hearing and award.
    3. It is also suggested that the secret tender has a useful role to play in ADR,^[25] and that the various statutes, practice rules and (construction) standard proforma contracts should be amended or amplified to expressly provide for such secret tenders.
    4. In ADR the mediator, the ‘dispute adjudicator’ or such like decision-maker, can manage the potential difficulties relating to the disclosure of confidential disclosures during the course procedural pre-mediation or pre-adjudication preparations as part of settlement negotiations without prejudicing the objectivity of the final Dispute Resolution Tribunal.

Mark Harcourt SC

August 2024.

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