When both parties to a dispute agree on certain terms and conditions, certain obligations and rights and certain future actions - outside of the dispute being settled in the forum concerned (e.g. court, arbitration), a settlement has been reached. To make this agreement binding and avoid further disputes or the associated costs, we strongly recommend that the parties put it in writing and have the agreement made an order of court. This normally means the matter is finalised and the only further actions to be taken by the respective parties, are those set out in the settlement agreement.

Many people put the question to attorneys if the settlement agreement they are entering into is truly binding, and can they be sure that the other party will not default?  This question is obviously dependent on whether the agreement was made an order of court, and if the postponement or withdrawal of the matter was based on the settlement being reached.

Case law

On 29 September 2015 the Constitutional Court handed down judgment in the matter of Eke v Parsons.  This matter was taken on appeal from the High Court, Eastern Cape Division.

A short summary of the facts are as follows: Parsons applied for summary judgment against Eke for the payment of money owing in terms of a sale agreement. Prior to the hearing, the parties agreed to a settlement.  The terms of the settlement was that Eke would make certain payments and failing this, Parsons would be entitled to re-enroll the summary judgment application and Eke would not be allowed to oppose the application.

The settlement agreement was made an order of court.  Eke subsequently failed to abide by the terms of the settlement and the matter was re-enrolled for summary judgment.  Despite having undertaken not to do so in writing, Eke opposed the application.
The High Court found in favour of Parsons, on the basis that the settlement agreement, having been made an order of court, was final.

The appeal to the Constitutional Court by Eke was based on a number of issues, one of these being the status and effect of making a settlement agreement an order of court.  He argued that the settlement agreement between the parties was not intended to be a final order and that any order regarding the settlement agreement could not be executed upon without further litigation.

Is the settlement final and binding?

The short answer to the above question is yes.  However, normally the enforceability of a court order is dependent on whether it was immediately capable of being carried out by a sheriff or a member of the police.  Orders that did not constitute payments of money or performance of specific acts were not enforceable.

The Constitutional Court rejected the formalistic approach to settlement orders and allowed for a broader range of settlement orders to be considered.

Eke argued that the settlement order in the matter was not immediately capable of execution 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.

Madlanga J further explained that, although the ordinary purpose of a settlement agreement was to allow the party in whose favour it is to be in a position to enforce it through execution or contempt proceedings, the mechanism was more flexible.  However, settlement agreements unrelated to litigation would not be capable of being made orders of court.

Furthermore, he emphasised that the terms of the settlement agreement would have to be consistent with public policy, and capable of legal and practical performance.  The agreement must also be clear and unambiguous.

Outcome

The Court found that clear obligations had been placed on Eke by the settlement agreement and that the consequences for non-compliance were also clear.  The fact that the consequences entailed re-enrolment of the matter, and not merely the execution of a lump sum amount, did not preclude the court from making an order. 

The court found that to be proper, the agreement must relate directly or indirectly to the dispute between the parties but it serves no purpose to excise the additional issues from a settlement order because as Madlanga J stated the “entire agreement may crumble”.

The High Court’s decision was upheld and the matter could be re-enrolled for summary judgment based on the non-compliance of the court order.

Conclusion
Settlement agreements are entered into every day and are often prepared in haste at court.  However, as with any other agreement, the purpose and effect thereof should be carefully considered before the agreement is drafted and made an order of court as the settlement will have binding consequences on the parties.  Our advice is to have an attorney draft the settlement agreement and explain all the consequences thereof to you before you sign it!