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Enforcing settlement agreements by an order of court – beware!

Fasken
Reading Time 2 minute read Reading Level Easy
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Overview

It is common practice to include a standard clause in a settlement agreement which provides that either party to the agreement may approach the court for an order incorporating the terms of the settlement agreement. However, the practice of making a settlement agreement an order of court has a long history in common law and a string of conflicting judgments exist on whether a party may make a settlement agreement an order of court. 

The Supreme Court of Appeal in Avnet South Africa (Pty) Limited v Lesira Manufacturing (Pty) Limited and Another (18/38649) [2019] ZAGPJHC 72 (4 March 2019) attempted to provide clarity on this contentious issue.  In a nutshell, it was held that a court does not have the power to make a settlement agreement an order of court where litigation has not commenced by the time that the settlement agreement is concluded.  The salient points of the judgment are as follows:

  • The primary function of the courts is to determine disputes between parties.  The basis upon which a court makes a settlement agreement an order of court is therefore that there is a dispute between the parties which is already before the court. Absent the settlement agreement, the court would have to adjudicate that dispute.
  • When the parties resolve the dispute that is before the court, the court may then make the settlement agreement an order of court. Such an order of court becomes an order of court "like any other".

Accordingly, caution should therefore be applied when including such a clause in a settlement agreement if no prior dispute between the parties existed before the court.  In the event of a ‘break down’ of a settlement agreement, a party ought to approach the court on the basis of breach of contract if there was no prior dispute before the court. 

 

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