6 December 2022 by and Dispute Resolution Alert

Consent to judgment clauses

It is commonplace to encounter settlement agreements containing a consent to judgment clause. This clause typically provides that the debtor consents to judgment being entered against them for any outstanding amount should they default on the payment plan. Such a clause would normally be inserted at the initiation of the creditor.

The settlement agreement would then be made an order of court principally to have the sword of Damocles hanging over the debtor’s head. In other words, to engage the court as debt collector in respect of debt collection that did not first come to court. But are these clauses enforceable in all instances? This question was recently considered in the case of Capital Profound 3 (Pty) Ltd and Others v Guilt Food (Pty) Ltd t/a Guilt and Another (1454/2022) [2022] ZAMPMBHC 78 (18 October 2022).

Facts

The facts in the matter were uneventful.

Capital Profound and Guilt Food concluded a one-year lease agreement, commencing on 1 April 2021 and expiring on 31 March 2022. Guilt Food issued Capital Profound with a notice to vacate the lease premises before expiry of the lease. Flowing from that, the parties concluded a settlement agreement styled as a cancellation agreement on 26 October 2021.

In terms of the cancellation agreement, the parties agreed on, among other things, the re-instatement of the leased premises, the handing over of the keys to the lease premises to Capital Profound, and payment that Guilt Food would be liable to make in respect of rental and other amounts due in terms of the lease agreement, totalling R159,716.13.

It was agreed that this amount would be payable in monthly instalments of R5,000 for the period 30 November 2021 to March 2022, and thereafter in instalments of R10,000 per month from 30 April 2022 until the outstanding amount had been paid in full.

Capital Profound approached the High Court seeking to make the cancellation agreement an order of court on the strength of the consent to judgment clause, which provided that the parties agreed that the agreement would be incorporated into and made an order of court. In the papers before court, there was no suggestion that any litigation preceded the conclusion of the cancellation agreement and the consequential relief to make it an order of court.

The question then was whether the cancellation agreement may be made an order of court when the agreement was reached without litigation having commenced between the parties?

Findings

Relying on the dicta in Eke v Parsons, PL v YL and Avnet v Lesira (discussed in detail in a previous alert), the court was of the view that on a proper construction, where litigation has not yet commenced, a settlement agreement may not be made an order of court notwithstanding the inclusion of a consent to judgment clause. This is unsurprising in many respects because about eight decades ago, in Hodd v Hodd; D’Aubrey v D’ Aubrey 1942 NPD 198 204, the court said that:

[I]f two merchants were to make an ordinary commercial agreement in writing, and then were to join an application to court to have that agreement made an order, merely on the ground that they preferred the agreement to be in the form of a judgment or order because in that form it provided more expeditious or effective remedies against possible breaches, it seems clear that the court would not grant the application.

So while it may seem attractive to incorporate a consent to judgment clause in a settlement agreement, such a clause will not be enforceable in instances where the conclusion of the agreement was not preceded by litigation. This is because a court is not a registry of obligations. Similarly, it is not permissible or appropriate for parties to be free to clothe their settlement agreement as a court order in circumstances where the agreement is not resolving a matter already before the court i.e. where there is no live dispute between the parties before the court.

The legal position therefore remains that parties contracting outside of the context of litigation may not approach a court and ask that their settlement agreement be made an order of court on the basis of a consent to judgment clause embedded in the agreement. As illustrated above, these types of clauses have proven difficult to enforce in certain instances so parties would be well advised to reconsider their inclusion in settlement agreements not preceded by litigation.

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