Settlement agreements: Final & binding

handshake 1513228 1280
25 Jul 2016

In the matter of Eke v Parsons 2015 (11) BCLR 1319 (CC); 2016 (3) SA 37 (CC), Parsons applied for summary judgment for payment of money owing in terms of a sale agreement. On the morning of the hearing, the parties agreed to settle with the summary judgment application postponed and Eke paying the money in instalments. If Eke missed a payment Parsons could re-enrol the summary judgment application and Eke would not be allowed to oppose the application. We don’t know why the parties did not agree that Eke’s default would entitle Parsons to judgment for the balance but that notwithstanding the agreement was clear, simple and final. But was it?

Eke missed a payment and Parsons re-enrolled the application for summary judgment. The High Court unsurprisingly found in favour of Parsons, on the basis that the settlement agreement, having been made an order of court, was final. Eke appealed all the way to the Constitutional Court where Madlanga J, supported by the majority of the court, agreed with the High Court, finding that the settlement order is “final in its terms” and that Parsons was entitled to approach the court for enforcement of that order. The Constitutional Court rejected the formalistic approach to settlement orders argued by Eke and effectively allowed for a broader range of settlement orders to be considered.

Eke argued that contrary to the essence of an agreement made an order of court is that the order becomes immediately enforceable upon non-compliance, and includes only those terms which require performance of a specific act such as payment of money. The settlement order in Eke v Parsons was not immediately capable of execution as the terms of the agreement required a set down of the summary judgment application rather than simply an accelerated payment of the money. There are lessons to be learned in the strange and cumbersome terms of this agreement, but the Constitutional Court found that an application to make a settlement agreement an order of court cannot be rejected solely on the basis that the agreement is not immediately enforceable.

In addition, it is not necessary that all of the terms of the settlement agreement relate directly to the original underlying dispute. An agreement may be comprehensive in that it deals with the issues in dispute but also with peripheral issues which are not directly in dispute, but are perhaps of importance to the litigants and require resolution. The court found that to be competent and proper the agreement must relate directly or indirectly to the dispute between the parties but it serves no purpose to excise these additional issues from a settlement order because as Madlanga J stated the “entire agreement may crumble”.

He said that the agreement must not be objectionable either from a legal or practical point of view in the sense that it accords with both the Constitution and the law, is not at odds with public policy and holds some practical and legitimate advantage. The agreement must also be clear and unambiguous. He also said that settlement agreements are consistent with the efficient use of judicial resources in that the original dispute is settled, subsequent litigation will relate to non-compliance with the settlement order, not the original underlying dispute and litigation in regard to enforcement is not the norm.

Although settlement agreements are entered into every day, they are often prepared in haste at court, scribbled down on a pad, signed and presented to a judge, anxious to clear the court roll. As with any agreement the purpose and effect should be carefully considered before the agreement is crafted to secure the interests of the parties. All of this before the agreement is set in a court order. After all, having sued for payment of money and having settled the matter, you can be sure that the very last thing that Parsons wanted was to be making law in the Constitutional Court.

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)

Contract Law articles on GoLegal