Plaintiffs as creditors who agree to settle a dispute prior to the trial should not simply remove the matter from the trial roll on the basis that it has been settled and then wait for performance. In order to secure the position gained, it is imperative that the settlement agreement be made an order of the court.

Once a settlement agreement has been made an order of court, the dispute between the parties is disposed of and the parties cannot institute further litigation in respect of the cause of action giving rise to the settlement agreement (save in the event of the settlement agreement specifically excluding a novation of the original cause of action), as the matter is res judicata (already judged) despite a judge not necessarily having decided on the merits of the matter. This order is recorded as a judgment in credit assessments, and any debt arising from the settlement agreement becomes a judgment debt, which only prescribes after 30 years. 

In the case of Makhafola & Verster Incorporated v Hurter & Coetzee Legal Consultants CC [2022] JDR 2509 (GP), the court stated that a settlement agreement which is made in terms of Rule 27(6) of the Magistrate’s Court Rules, may be made an order of court. Rule 27(6) of the Magistrate’s Court Rules provides a mechanism for litigants to apply for a settlement agreement to be made an order of court at any time during litigation, but before judgment. The terms of the settlement may be recorded by the court without entry of judgment, or the settlement agreement may be made an order of court if the terms of the settlement provide for it.

Treated as a final judgment

In the case of Arcus v Arcus [2022] 1 All SA 626 (SCA), the court clarified that a settlement agreement, once made an order of court, is treated as a final judgment. This means that section 11(a)(ii) of the Prescription Act 68 of 1969 (Prescription Act), which concerns judgment debts, applies. Without such a court order, a settlement agreement is considered an ordinary debt and prescribes after three years under section 11(d) of the Prescription Act. Parties, and debtors in particular, should be cautious when entering into settlement agreements that later become court orders. While this approach may expedite dispute resolution and lower litigation costs, it also means that any debt arising from the agreement is treated as a judgment debt against a party which may be executed upon and will impact their credit rating.

In Eke v Parsons [2015] (11) BCLR 1319 (CC), the Constitutional Court summed up the position with respect to settlement agreements being made an order of court as it determined the status and impact of a settlement order. The respondent in this case had obtained summary judgment against the appellant in the court a quo for defaulting in terms of a settlement agreement which had been made an order of court. The appellant appealed the order granting the summary judgment, which was dismissed by the Constitutional Court, as it found that, amongst other things:

“The effect of a settlement order is to change the status of the rights and obligations between the parties. Save for litigation that may be consequent upon the nature of the particular order, the order brings finality to the lis between the parties, the lis becomes res judicata (literally, ‘a matter judged’). It changes the terms of a settlement agreement to an enforceable court order. The type of enforcement may be execution or contempt proceedings. Or it may take any other form permitted by the nature of the order.”

Once a settlement agreement becomes a court order, it holds the weight of a final judgment, finalising the dispute between the parties but also subjecting them to long-term obligations and potential enforcement actions. The debtor in the settlement agreement shall ultimately become the judgment debtor. While the terms of payment which are agreed to between the litigants may be more favourable to the debtor than what the court would have ordered if it were to make an order on the merits, understanding the implications of turning a settlement into a court order is essential, as it impacts parties’ rights, obligations and credit ratings. Therefore, thorough consideration and legal guidance are crucial before agreeing to make a settlement agreement an order of the court.