In the judgment handed down on 25 April 2024, Mafisa v Road Accident Fund and Another, the Constitutional Court dealt with an application for leave to appeal against an order granted by the Free State Division of the High Court, which had unilaterally altered the terms of a settlement agreement concluded between the Road Accident Fund (“RAF”) and Tumalo Mafisa.
The road to litigation
On 31 January 2016, Mafisa was involved in a motor vehicle accident which, according to him, was caused by the sole negligence of the driver who collided with a tree. As a result, Mafisa suffered bodily injuries and thereafter issued summons against the Road Accident Fund (“RAF”) for past and future medical expenses together with loss of income, and general damages. The RAF disputed both liability and the quantum of the claim.
During the first day of hearing before the Free State High Court, the parties requested that the matter stand down for settlement negotiations. The following day, the parties concluded a settlement agreement in terms of which the RAF agreed to pay Mafisa the sum of R1 652 715.70 and provided an undertaking in respect of medical costs. The RAF also agreed to pay Mafisa's taxed costs. Thereafter, the parties requested the judge to make their settlement agreement an order of court.
The judge, however, was not satisfied with the terms of the draft order and reserved judgment . The High Court subsequently handed down a judgment which unilaterally amended the settlement agreement by striking-out the amount in respect of loss of earnings (as the judge believed there was inadequate proof that Mafisa was employed pre-accident), and awarded Mafisa an amount in respect of general damages only.
Mafisa then unsuccessfully applied for leave to appeal against the High Court's order to a full bench as well as the Supreme Court of Appeal. Before the Constitutional Court, Mafisa submitted that this matter raised two constitutional issues. The first issue was that the unilateral alteration of a settlement agreement without affording parties an opportunity to be heard amounted to a procedural and substantive irregularity. Mafisa also argued that his right to a fair hearing was infringed and that the basic notions of fairness and justice were undermined. Further, despite providing evidence of the impact of his injuries on his earning capacity, he now faced an impoverished future without his entitled compensation, which amounted to an infringement of his right to equality and human dignity.
The second constitutional issue Mafisa argued was that the High Court discarded its role as an impartial arbiter when it stepped into the role of the Executive as the “guardian of public funds”. By so doing, the Free State High Court, infringed the separation of powers doctrine. Mafisa argued that the settlement agreement created a substantive contract with new rights and obligations that existed independently of the original cause of action, and as such, is res judicata (a matter already judged). Accordingly, the Court could not have interfered to bind the parties to an agreement they did not intend to make.
The Personal Injury Plaintiff Lawyers Association (“PIPLA”), who was admitted as amicus curiae, argued that jurisdiction is determined by the dispute between the parties and that a compromise terminates the litigation proceedings and thus has the effect of res judicata. In this case, the parties had not approached the High Court to decide upon the validity of their settlement agreement. Therefore the High Court did not have the authority to do so. PIPLA further argued that the risk of a compromise may be for more or less than what a court would have ordered is not offensive to public policy or the law.
PIPLA concluded that by unilaterally altering the settlement agreement, the High Court infringed on Mafisa's right to contract freely; disregarded the parties' right to settle their disputes voluntarily and on mutually agreed terms; and violated the separation of powers doctrine. Further, by acting as the custodian of the RAF, the High Court infringed Mafisa's right to equal treatment before the law. Finally, if the High Court had taken issue with the terms of the settlement agreement, it should have invited the parties to make submissions before making its decision. By failing to do so, the High Court infringed the parties' section 34 constitutional right to have their dispute resolved by the application of law decided in a fair public hearing.
The Constitutional Court's judgment
The Constitutional Court noted from the outset that a compromise entails an agreement between the parties to prevent or terminate a dispute by adjusting their differences by mutual consent. Once a compromise is reached, new contractual rights and obligations arise which exist independently of the original cause of action, and the parties are precluded from proceeding on the original cause of action. Nevertheless, although a compromise has the effect of res judicata, this does not mean that a court has no power to raise concerns over the terms of settlement agreements.
With reference to its judgment in Eke v Parsons, the Constitutional Court noted that when parties ask for a settlement agreement to be made an order of court, the court must ensure that the agreement is ‘competent and proper' in that it must (a) relate directly or indirectly to the dispute between the parties; (b) not be objectionable in that it must accord with the Constitution and the law and not be offensive to public policy; and (c) hold some practical and legitimate advantage. The Constitutional Court held that the second element was at issue in this case.
In this regard, public policy represents the legal convictions and values of South African society, which is deeply rooted in the Constitution and its underlying values. As per the principle of pacta sunt servanda, judges should typically refrain from interfering with the terms of a settlement agreement that parties entered into freely and voluntarily. Exceptions may arise when a settlement agreement may offend public policy such as when there is a significant difference between the amount in the agreement and the amount that could reasonably be expected to be agreed upon between parties in similar cases, thereby giving rise to a reasonable suspicion of an inflated amount or possible corruption.
The Constitutional Court noted that where a judge raises concerns about the terms of a settlement agreement, the audi alteram parterm principle places an obligation on them to notify the parties of these concerns. If the parties elect to address the issues raised and the judge is satisfied, the settlement agreement will be made an order of court. If the judge is not satisfied, he or she is entitled to refuse to make the settlement agreement an order of the court. However, the fact that the Judge refused to make the settlement agreement an order of court does not mean that the settlement agreement is invalid, as this depends on its terms and the law. Further, judges are not entitled to assess the propriety of a settlement agreement with reference to inadmissible evidential material.
The Constitutional Court noted that, in this case, the High Court did not inform the parties about its concerns in respect of the proposed quantum of damages nor did it provide them with an opportunity to address these concerns. Further, in reaching its decision, the High Court considered information obtained from actuarial and industrial psychologist's reports which were never placed as evidence before it, and found that it failed to prove that Mafisa sustained damages with respect to past and future loss of earnings. Finally, since the parties had already settled their litigious dispute, the validity and terms of their settlement agreement were not in dispute, so the High Court had no jurisdiction to pronounce on it.
Conclusion
The Constitutional Court concluded that the High Court exceed its authority when it unilaterally amended the parties' settlement agreement, and that it was improper and irregular to have considered the actuarial and industrial psychologist's report in rejecting the agreed settlement for loss of earnings, since this report was not properly before the Court. Accordingly, the Constitutional Court upheld Mafisa's appeal and set aside the High Court's order and replaced it with one making the original settlement agreement an order of court.
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