In Avnet South Africa (Pty) Limited v Lesira Manufacturing (Pty) Limited and Another the Supreme Court of Appeal had to decide if a settlement agreement may be made an order of court when the agreement was reached without litigation having commenced between the parties.
Settlement agreements usually contain a standard clause providing that either party to the agreement may approach the court for an order incorporating the terms of the settlement agreement.
The court found that it 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 court relied on a dictum in Eke v Parsons that “parties contracting outside the context of litigation may not approach a court and ask that their agreement be made an order of court”.
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 (after satisfying itself that the settlement agreement is a permissible one) make the settlement agreement an order of court”.
Accordingly, the courts will not make agreements orders of court merely by consent.