Case CCT 257/17
[2018] ZACC 33
Hearing Date: 22 May 2018

Judgement Date: 27 September 2018

Post Judgment Media Summary  

The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.

On Thursday, 27 September 2018 at 11h30 the Constitutional Court handed down its judgment in an application for leave to appeal against the whole judgment and order of the Supreme Court of Appeal (SCA). The dispute revolved around the meaning and effect of a settlement agreement and consequences of it being made an order of court.

The applicant in this matter was Airports Company South Africa (ACSA) and the respondents (Big Five, Flemingo and Tourvest) were bidders for a tender issued by ACSA for the operation of duty-free stores at airports in the country.

In May 2009 ACSA issued in an invitation to bid for a tender. The successful bidder was to operate duty-free stores at OR Tambo, Cape Town and King Shaka International Airports. Big Five, Flemingo and Tourvest submitted bids. On 26 August 2009, Big Five was told that it was the successful bidder. Big Five then entered into a lease agreement on 25 September 2009 with ACSA on terms set out in a pro forma lease agreement.

Flemingo thereafter brought an application to review and set aside the award of the tender to Big Five. It also sought an urgent interim interdict to stop the implementation of the award until the review had been determined. ACSA and Big Five opposed the review, arguing that the tender was lawful. Tourvest did not participate. The High Court of South Africa, Gauteng Division, Pretoria (High Court) granted the interim interdict, and in the subsequent review application found the tender to be unlawful and proceeded to set it aside (Phatudi J judgment).

Big Five appealed the review judgment to the Full Court of the High Court. After the hearing of the appeal, but before judgment was handed down by the Full Court, Big Five and Flemingo agreed to resolve the dispute through a settlement agreement. ACSA could not agree to the settlement agreement without the approval of its board of directors. Big Five and Flemingo went ahead with the settlement agreement without ACSA being party to it. The Full Court made the settlement agreement an order of court.

ACSA took the view that since it was not party to the agreement, it was not bound by it and decided to start a new tender process. Big Five sought an order from the High Court that ACSA was bound by the award it had made in 2009 and that it was obliged to conclude the written lease agreements anticipated. ACSA and Tourvest opposed the application. The High Court refused the application, holding that the judgment of Phatudi J was a “public remedy” or judgment “in rem” in that it had a public character that transcends the interests of the litigating parties and could not be set aside by agreement of private parties; and that even though the Full Court had made the agreement between Big Five and Flemingo an order of court, it was not bound by that order because it was “at odds with the Constitution, the law and public policy”.

Big Five appealed to the SCA against the order. The SCA addressed the question of whether the tender awarded in Big Five’s favour stands and is binding on ACSA, or whether ACSA was free to start a new tender process. The Court concluded that the effect of the settlement agreement, made an order of court, was that the review proceedings were withdrawn as if they had never happened and that ACSA was bound by the 2009 tender decision.

ACSA seeks leave to appeal that decision to this Court.

The majority in this Court, in a judgment written by Froneman J (Dlodlo AJ, Goliath AJ, Khampepe J, Madlanga J, Petse AJ and Theron J concurring) upheld the appeal and made it clear that a judgment in rem cannot be set aside by mere settlement agreement between the litigating parties. For a judgment in rem to be set aside by settlement agreement the court hearing the appeal must make the settlement agreement an order of court after considering the merits of the appeal and it should give reasons for doing so.

Froneman J discussed whether the matter could be determined on a purely interpretational basis, considering the obvious problem that ACSA and Flemingo’s attempt to set aside Phatudi J judgment was accepted by the Full Court without any reasons proffered as to why it chose to do so. Froneman J considered whether in light of that discussion, remittal to the Full Court was appropriate. He concluded that ordinarily it would be appropriate to do so but that various practical problems in the present matter precluded such an option.

The majority in interpreting the settlement agreement held that a court, in an interpretation exercise should first have regard to the words of the agreement. The majority held that the language of the agreement was so poor that in order for Big Five to succeed the Constitutional Court would have to give the words a meaning that the words would not be capable of bearing. At best, the majority held, the settlement agreement resulted in Flemingo withdrawing its opposition to the appeal and abandoning the Phatudi J judgment with the effect that the relevant proceedings were never instituted. But the majority held that ACSA and Flemingo were labouring under a mistaken view about the consequences of abandonment. Abandonment alone could not have nullified the Phatudi J judgment. Furthermore even if abandonment could have the effect of setting aside the Phatudi J judgment, it suffers from the defect that in the absence of reasons by the appellate court, private parties cannot set aside judgments in rem.

In a separate concurring judgment Jafta J found it unnecessary to engage in an interpretation exercise. Jafta J held that the antecedent question must be whether it was competent for the Full Court to make the settlement agreement an order of court in the present circumstances. Jafta J reasoned that if the parties had intended to set aside the order of Phatudi J, they would have expressly said so in their settlement agreement and they would have asked the Full Court to make that agreement an order of court which they failed to do. As the award of the tender was in breach of section 217 of the Constitution, it could not be implemented. The reversal of the Phatudi J order could not cure the inconsistency and the invalidity. Moreover, Jafta J was of the view that before the parties’ agreement is made an order of court, the court must be satisfied that the order it is about to make is “competent and proper” and that it is consistent with the Constitution and the law. Jafta J concluded that litigants cannot overturn a court order by private agreement.

In a dissenting judgment Cachalia AJ found the criticism levelled by the majority at the Supreme Court of Appeal’s approach to interpreting the settlement agreement to be unfounded. Cachalia AJ held that the Supreme Court of Appeal’s reasoning was sound. He reasoned that the point of departure in an interpretive process is always the language of the agreement. This is only the starting point in an exercise to establish the contractual intention of the parties. Important in this analysis is the context within which the language is used in the light of the document as a whole, the circumstances around its coming into existence, the apparent purpose to which it is directed and the material known towards those responsible for its production. A sensible meaning is to be preferred to one that leads to “unbusinesslike” results or undermines the apparent purpose of the document. Cachalia AJ found that ACSA’s contentions did not bear scrutiny. He would have dismissed the appeal.            

The Full judgment  here.