WHAT IS THE EFFECT OF A SETTLEMENT AGREEMENT WHICH HAS BEEN MADE AN ORDER OF COURT? BY DONNA GEWER AND FATIMA BHAM

Monday, December 08, 2008
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Many litigious matters are ultimately settled out of court. It is usual for the terms of the settlement reached to be recorded in a settlement agreement and for the settlement agreement to be made an order of court.
 
Often, despite lengthy negotiations leading to a settlement, one of the parties breaches the terms of the settlement agreement. The question is whether in these circumstances this party is in contempt of court.
 
Our courts initially dealt with this question in the case of Johannesburg Taxi Association v Sara-City Taxi Association and others.[1]  In this case the court surprisingly found that settlement agreements simply recorded what the parties had contracted for and were, for reasons of administration of justice, not necessarily agreements which the courts would require compliance with. Correctly, this position has since been overruled.
 
In the case of Simon N.O. and others v Mitsui and Co Ltd[2] and others the court made an obiter comment doubting the ratio of the Johannesburg Taxi Association case.  The court quoted the following extract from an English court:
 
“Let it be stated in the clearest possible terms that an undertaking to the Court is as solemn, binding and effective as an order of the Court in the like terms and that the contrary has never been suggested”.
 
In York Timbers Ltd v Minister of Water Affairs & Forestry[3] the court explicitly overruled the Johannesburg Taxi Association case. The judge in this case stated that:
 
“In my view there is no difference between the legal effect of an undertaking to do something or refrain from doing something which is made an order of court and the legal effect of an order to the same effect made by the court after considering the merits and giving judgment”.
 
The court in the York Timbers case held that to follow the Johannesburg Taxi Association case denies an innocent party an effective remedy and is not in the interests of the administration of justice.  The court said that the object of having a settlement agreement made an order of court is to facilitate enforcement of the order in the event of the respondent or defendant failing to honour the terms of the relief tendered.  It would not make sense for the applicant to have to request the court to give considered judgement before granting the relief.
 
The case of Dadel Vlak Boerdery v Greyling & another[4]confirms the position of York Timbers.  In this case the court stated that:
 
“The moment such (a settlement agreement) is made an order of court it ceases to be a settlement agreement but it becomes a court order.  Any party is entitled to enforce it through the permissible remedies such as contempt of court or execution”.
 
In light of the above it is clear that a party that is in breach of a settlement agreement that has been made an order of court is in the same position as a party that is in breach of a court order made by the court after deliberating on the merits of the case. The aggrieved party is entitled to enforce the order by applying to court for a contempt of court order or issuing a writ in appropriate circumstances.
 
 
Donna Gewer is a senior associate and Fatima Bham is a candidate attorney in the Dispute Resolution Department of commercial law firm Bowman Gilfillan

[1]               1989 (4) SA 808 (W).

[2]               1997 (2)SA 475 (W) at 498G–H.

[3]               2003 (4) SA 477 (T).

[4]               [2007] JOL 19050 (T).