28 November 2018 by , and Dispute Resolution Alert

Can settlement agreements have the effect of setting aside in rem judgments?

“A judgment in rem determines the objective status of a person or thing” (Froneman J quoting Tshabalala v Johannesburg City Council 1962 (4) SA 367 (T) at 368H). More distinctly, “[a] judgment in rem is an adjudication, pronounced upon the status of some particular subject-matter… founded on a proceeding instituted…against or upon the thing or subject-matter itself, whose state or condition is to be determined. It is a proceeding to determine the state or condition of the thing itself; and the judgment is a solemn declaration upon the status of the thing, and it ipso facto renders it what it declares it to be”.

The Constitutional Court recently handed down judgment in the case of Airports Company South Africa v Big Five Duty Free (Pty) Ltd and others [2018] ZACC 33. The Constitutional Court found that the mere entering of a settlement agreement between the parties and making that settlement agreement an order of Court in an Appeal Court does not have the effect of setting aside a judgment in rem granted by the lower court. This remains the case even if a party has agreed to abandon the lower court’s in rem order.

The case concerned the award of a tender contract by Airports Company South Africa (ACSA) to Big Five Duty Free (Pty) Ltd (Big Five), to operate duty-free shops at its international airports for ten years, pursuant to a competitive bidding process. One of the parties competing with Big Five, and unsuccessful bidder, was DFS Flemingo SA (Pty) Limited (Flemingo).

The review application

Flemingo sought to review the tender granted to Big Five in the High Court. Part of the relief sought was an urgent interim interdict to prevent the implementation of the award until the review had been determined. Ultimately, Phatudi J found the award of the tender to have been unlawful and upheld the review, setting aside the tender (Phatudi J Order).

Big Five then appealed to the full bench of the High Court (Full Bench). However, before the full bench handed down judgment in the matter, Big Five and Flemingo entered into a settlement agreement. Flemingo agreed to abandon the Phatudi J Order and withdrew its review application. Without providing reasons, the Full Bench made the settlement agreement concluded between Flemingo and Big Five an order of court (Full Bench Order). No further leave to appeal was sought.

Notwithstanding the Full Bench Order, ACSA announced that it was bound by the Phatudi J Order and initiated a new bidding process.

Application for a declaratory order

Big Five launched an application seeking an order declaring ACSA bound by the Full Bench Order. The court a quo dismissed the application. Big Five then appealed to the Supreme Court of Appeal (SCA) which found in favour of Big Five and declared that ACSA was in fact bound by the Full Bench Order, which had had the effect of setting aside the Phatudi J Order.

ACSA appealed to the Constitutional Court had to decide the meaning and effect of a settlement agreement on a judgment in rem in the case where such judgment was abandoned by the successful party, and the settlement agreement was made an order of court.

The Constitutional Court

The Constitutional Court upheld the appeal in favour of ACSA. In granting the appeal, the Court based its findings on the fact that the Phatudi J Order was a judgment in rem. The Phatudi J Order found that the tender awarded was in breach of s217 of the Constitution and that a settlement agreement, without the Appeal Court having considered the merits of the matter, could not cure the invalidity. In other words, an in rem judgment could not be set aside by the Full Bench without any consideration of the correctness of the merits of the matter.

In addition, the Constitutional Court found the provisions of the settlement agreement to be problematic in that they did not explicitly state that the agreement had the effect of setting aside the Phatudi J Order. The agreement stated that Flemingo “abandons” the Phatudi J Order, “withdraws” the review proceedings and that ACSA was free to implement the award of the tender to Big Five without limitation. The Court stated that it was not possible to ascertain the true intention of the parties from the settlement agreement, therefore the SCA incorrectly made a decision based on what the Court thought the intentions of the parties were. That being said, regardless of what the parties intended, the Court concluded that the settlement agreement did not have the effect of overturning the Phatudi J Order.

The essence of the judgment is that (i) in order for an in rem judgment to be set aside by a settlement agreement, the court making the agreement an order of court must give its sanction to the setting aside of the in rem judgment only if it is justified by the merits of the matter, not merely because agreement has been reached between the parties to do so; and (ii) the parties must be very careful to record their intentions and purposes when entering into a settlement agreement to be made an order of court.

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