+27 21 461 6240 - [email protected] - 34 Plein Street, Cape Town

Recent Industry Articles

Eke v Parsons: On the Effect of Settlement Agreements made Orders of Court

Eke v Parsons: On the Effect of Settlement Agreements made Orders of Court

On 29 September 2015 the Constitutional Court handed down judgment in the matter of Eke v Parsons 2015 ZACC 30, which was taken on appeal from the Eastern Cape Division of the High Court.

The facts of the matter

The facts in the matter were essentially as follows: Mr Eke agreed to stand as surety and co-principal debtor in respect of a sale-and-purchase agreement between the Kevin Eke Family Trust (of which Mr Eke was a trustee) and Mr Parsons for the purchase of a membership interest in a close corporation. Following default of payment of a portion of the purchase price, and subsequent letters of demand, Mr Parsons instituted legal proceedings against Mr Eke. Mr Eke entered an appearance to defend, and Mr Parsons launched an application for summary judgment.

Prior to the application being heard, the parties entered into a settlement agreement which directed Mr Eke to comply with a schedule of payments, failing which Mr Parsons would be entitled to re-enrol the summary judgment application against both Mr Eke and the Trust.  The settlement agreement contained an agreed upon prohibition that Mr Eke was prohibited from opposing the relief sought. It was subsequently made an order of court. Mr Eke failed to abide by the terms of the settlement agreement and the matter was re-enrolled for hearing.  Mr Eke opposed the application on various grounds, despite having undertaken not to do so.

The High Court found that by virtue of the settlement agreement being made an order of court it had been elevated to executable status, meaning that it was a final order and no defences against the original summons could be raised. Instead, liability in the event of a dispute would turn on the contents of the settlement agreement itself.  Mr Eke was unsuccessful in his opposition.

Both the High Court and the Supreme Court of Appeal refused his applications for leave to appeal, however the Constitutional Court agreed to hear the appeal.

The appeal to the Constitutional Court was founded on a number of issues, one of them being the status and effect of making a settlement agreement an order of court. This is the question that forms the topic of this article.

As part of his appeal, Mr Eke argued that the settlement agreement between the parties was not intended to constitute a final order, and accordingly that any order regarding the settlement agreement could not be executed upon without further litigation. In doing so, he relied on case law from instances where divorce settlements, despite having been made orders of court, were not enforced.

The ratio in such cases was that enforceability of a court order depended on whether it was immediately capable of being carried out by a sheriff, his deputy or a member of the SAPS. Orders that did not constitute payments of money or performance of specific acts were not enforceable. Mr Eke argued that settlement agreements that did not satisfy these criteria could not be made orders of court because they required subsequent litigation to clarify the ambit of the obligations the order would impose.

Madlanga J, writing for the majority, was not persuaded by the formalistic approach proposed by Mr Eke, saying that it failed to properly consider the role of settlement agreements in the judicial process. The Court found that,

…an expedited end to litigation may not only be in the parties’ interest, it may also serve the interests of the administration of justice.

Madlanga J further explained that although the ordinary purpose of a settlement agreement was to allow a party in whose favour it operated to be in a position to enforce it through execution or contempt proceedings, the mechanism was more flexible and, coupled with a court’s discretion, could assist in the curtailment of countless legal disputes. Rather than rejecting settlement agreements that fell short of the formalistic requirements submitted by Mr Eke outright, a court was in a position to make an order that would be enforceable following the issuing of a mandamus for compliance, and a subsequent committal for contempt, both of which could be applied for without the issuing of fresh court proceedings. Such an approach would ease the burden of cases on the judicial system as well as being of substantial benefit to the aggrieved party.

In support of his interpretation of the courts’ powers to make orders of court, Mandlanga J referred to section 173 of the Constitution, which empowers the Supreme Courts to regulate their own processes in accordance with the interests of justice. To limit the capacity of courts to only formalise such settlement agreements that fell within a specific range of enforceability was to fail to give content to section 173, to the detriment of the justice system as a whole.

By allowing a broader range of settlement agreements to be made orders of court, the scope for litigation thereafter would be narrowed to enforcement of the terms thereof, rather than requiring courts to return to the underlying causa, which would already have been the subject of consensus at the time of the agreement being concluded.

Madlanga J hastened to clarify that the proposed approach would not afford the courts unfettered discretion in formalising settlement agreements, as orders would still have to be related to the issue between the parties on the papers. Settlement agreements unrelated to litigation would not be capable of being made orders of court. Furthermore, it was emphasised that the terms of the settlement agreement would have to be consistent with public policy, and capable of legal and practical performance.

On the facts at hand, Madlanga J found that clear obligations had been placed on Mr Eke by the settlement agreement, and that the consequences for non-compliance were 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 order of the court a quo was accordingly upheld.