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WHEN A SETTLEMENT AGREEMENT DOES NOT SETTLE THE MATTER.

 

 

It has been widely accepted by South African Courts that once a settlement agreement has been reached, by consent, then it may be made an order of court and this would result in the finalisation of a matter.

 

In the matter of Buffalo City Metropolitan Municipality // Asla Construction (PTY) LTD [2019] ZACC 15, the constitutional court illustrates how this mechanical approach to settlement agreements may be abused by litigants.

 

In this matter, the Municipality, sought to have housing units built in the greater Duncan village area in East London. Through a competitive procurement process, the Municipality engaged the services of the Asla Construction to provide between 3000 housing units in the greater Duncan village area under the turnkey contract. The Municipality sought to geographically extended the project to encompass the Reeston area. This was to be known as the Reeston contract. After 3 failed attempts at tendering, the Municipality decided to appoint Asla Construction to the Reeston contract as they were currently performing the services needed.

 

When Asla sought to invoice the Municipality for serves rendered, the Municipal Manager of the Municipality advised it that the Reeston contract was unlawful as it had not been concluded through a lawful tender process and refused to pay for the services rendered by Asla construction under the Reeston contract.

 

Asla construction instituted provisional sentence proceedings against the Municipality, the Municipality opposed the proceeding on the grounds that the Reeston contract was unlawful for it did not comply with the constitutional and statutory prescripts applicable to the procurement of goods and services[1]. The Municipality proceeded to launch review proceedings in terms of PAJA, to review and set aside its own decision to award the Reeston contract to Asla construction.

 

The matter than came before the Constitutional Court on the 4^th September 2018, it was heard, and judgment reserved. However, on the 16^th November 2018, after the matter was heard but before judgement was delivered, the Municipality brought an application to withdraw its review application and advised that a settlement agreement had been reached and that the agreement is to be made an order of court, by consent.

 

The court held that it was highly unusual to seek a withdrawal after a matter has been heard however, it was not irregular to do so. The court noted that the withdrawal of the application was conditional on the settlement agreement being made an order of court.

 

The court held that had this been merely an application for withdrawal then it would have been inclined to agree to it however, the withdrawal and the settlement agreement being made an order of court were integrally linked. Therefore, considering the integration, the court then held that it had to consider the terms of the agreement prior to it making it an order of court.

 

The court held that it can only make an order that is competent and proper and in accordance with the constitution and the law.

 

The settlement agreement between the Municipality and Asla sought to regulate the provision of 5000 housing units and add further obligations for additional units that go beyond the Reeston and Turnkey contracts. The settlement agreement also sought to settle 2 other matter which were not before this court and the constitutional court had no knowledge of.

 

The constitutional court found that it would not be able to make the settlement agreement an order of court nor allow for the withdrawal of the application on the following basis: -

 

• The settlement agreement traverses litigation unrelated to the proceedings in this court; and

• Does not deal with the issue of the legality of the two agreements, which was an issue that the court was concerned with. Further, the application for withdrawal did not provide an explanation as to how the settlement agreement cures the alleged defects in the Reeston contract,

 

The court found that the municipality sought to hide the underlying maladministration within the Municipality and seek to conclude an agreement that endorses the invalidity on the Reeston contract which was improperly and invalidly awarded to Asla construction.

 

The court dismissed the application for the withdrawal of the matter and continued to consider and decide on the validity of the contract and the review proceedings. The court declared the Reeston contract unlawful, however due to the fact Asla had already performed in terms of the agreement, it decided not to set aside the contract, so as to preserve the rights that Asla Construction might be entitled to.

 

Contributor:  Noluthando Dlamini (Senior Associate) (Public Law Department) (PMB Office)

E-mail:  noluthandod@tmj.co.za

Tel:  033 341 9100