Fagan and Others v Business Partners Limited [2015] ZAGPJHC 348 (1 December 2015)

Did the applicants establish sufficient grounds for the rescission of the court order incorporating the settlement agreement, and were the clauses within the settlement agreement contrary to public policy or the applicants' constitutional rights?

The case involves an application for rescission of a court order that incorporated a settlement agreement between the applicants and the respondent, Business Partners Limited. The applicants are Kevin John Fagan, Erna Fagan, and Choice Paints and Hardware CC, a close corporation owned by Kevin Fagan. The respondent is Business Partners Limited, a company that had previously lent money to Choice Paints and Hardware CC.

The background facts are as follows:

In 2007, Choice Paints and Hardware CC entered into a loan agreement with Business Partners Limited, borrowing R700,000. The agreement stipulated that the loan would be repaid in monthly installments of R16,470 over 60 months, starting from March 1, 2007. As part of the agreement, the applicants provided security for the loan, which included a new second covering mortgage bond over the property owned by Choice Paints and Hardware CC and a general notarial bond over movable property at the business location.

By April 2009, Choice Paints and Hardware CC had defaulted on its loan repayments, leading Business Partners Limited to initiate legal action against the corporation and the Fagans, who acted as sureties. The summons sought payment of R552,194.71 and an order declaring the immovable property of Choice Paints and Hardware CC specially executable.

The matter was set down for trial on February 17, 2012. Prior to the trial, the parties reached a settlement agreement, which was signed by the Fagans and their attorney. The settlement stipulated that the defendants would pay R750,000 to the plaintiff, with specific payment terms and interest. It also included clauses that allowed the plaintiff to proceed against the defendants without notice in the event of default and permitted the execution against the immovable property owned by the first defendant.

On the trial date, the applicants did not have legal representation present in court, as they had agreed to the settlement. The court subsequently made the settlement agreement an order of court. However, the applicants later defaulted on the payment terms of the settlement agreement, prompting Business Partners Limited to seek a warrant of attachment against the property.

In response, the applicants filed for rescission of the judgment, arguing that the clauses in the settlement agreement were against public policy and violated their constitutional rights, particularly their right to housing. They contended that the right of the plaintiff to execute against their property without notice was contrary to the principles of fairness and justice.

The court had to consider whether the applicants had established sufficient grounds for rescission under the relevant rules and whether the settlement agreement was enforceable or contrary to public policy. The applicants' claims were ultimately dismissed, with the court finding that they had not demonstrated a bona fide case for rescission and that the settlement agreement's provisions were not contrary to public policy.

The ratio decidendi of the case is that a settlement agreement, once made an order of court, is binding and enforceable unless the party seeking rescission can demonstrate valid grounds for such rescission, such as fraud, duress, or public policy violations. The court found that the clauses allowing for execution against the applicants' property without notice were not inherently contrary to public policy or the applicants' constitutional rights, particularly since the applicants had voluntarily entered into the settlement agreement with legal representation. The court emphasized that the principle of compromise in legal disputes is to bring certainty and finality, and that parties must accept the risks associated with such agreements. Therefore, the applicants failed to establish sufficient grounds to justify the rescission of the court order incorporating the settlement agreement.

The court relied on several cases in its reasoning process, including:

- Benefeld v West 2011 (2) SA 379 (GSJ), which discusses the nature of a compromise as a substantive contract that exists independently of the original cause of action.
- De Vos v Calitz and De Villiers 1916 CPD 465, which recognizes that any order or judgment made by consent may be set aside upon any ground that would invalidate an agreement between the parties.
- De Wet and Others v Western Bank Ltd 1977 (4) SA 770 (T), which held that there are circumstances based on justice and fairness that may justify rescission.
- Gundwana v Steko Development and Others 2011 (3) SA 608 (CC), which dealt with the constitutionality of default judgments and the need for judicial oversight in cases involving the execution of immovable property that serves as homes for indigent debtors.
- Jaftha v Schoeman; Van Rooyen v Stoltz 2005 (2) SA 140 (CC), which emphasized the importance of judicial oversight in execution processes affecting residential properties.

These cases were instrumental in shaping the court's understanding of the enforceability of settlement agreements and the conditions under which rescission may be granted.