When Settlement Agreements become a crime



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Settlement agreements are a useful alternative to settling a dispute between parties without resorting to litigation or adjudication by a Court. Even if a process of litigation has commenced, the parties can settle the dispute between them before any Court adjudication. And, where the dispute has already been adjudicated by the Court and judgment is granted against the Defendant, the parties may further enter into an agreement for the payment of the judgment debt and an application for rescission of the judgment may be made by the Defendant.[1]

Settlement agreements are legally enforceable contracts[2] and usually take the form of a written agreement between the parties. It is not mandatory to record the settlement agreements in writing,[3] but it is always strongly advised in order to avoid future disputes regarding the actual terms of that agreement.

Importantly, there are instances where certain terms may not be included in a settlement agreement and will usually be severed from the rest of the agreement or make the settlement agreement void or unenforceable.

Terms that contradict or violate public policy

When a settlement agreement contains terms that are against public policy, it will make the settlement agreement unenforceable.[4] For example, if a term or clause obliges another party to perform an illegal act, or unreasonably goes against public policy,[5] it may not be included. Public policy is explained in Barkhuizen v Napier[6]:

What public policy is and whether a term in a contract is contrary to public policy must now be determined by reference to the values that underlie our constitutional democracy as given expression by the provisions of the Bill of Rights. Thus, a term in a contract that is inimical to the values enshrined in our Constitution is contrary to public policy and is, therefore, unenforceable.

In certain instances, a clause in a settlement agreement might not only be against the public policy but can, in fact, amount to a criminal offence by the parties.

Compounding in settlement agreements

The crime of compounding is described as “unlawfully and intentionally agreeing, for reward, not to report or prosecute a crime other than one which is punishable by fine only”.[7]

According to Joubert and Kuhne,[8] the purpose of the common law crime of compounding is the protection of the administration of justice. It is not up to individuals to decide whether a person has committed a crime or not, because it is the function and duty of the police to investigate a crime and bring it before a Court for it to decide on the guilt or innocence of a person.[9] In Wells v du Preez[10] the Court stated:

If men were permitted to trade upon the knowledge of a crime, and to convert their privity to that crime into an occasion of advantage, no doubt a great legal and a great moral offence would be committed.

Permitting someone to make a payment to another person with the aim of preventing the reporting of a crime, would result in a surge of criminal activity with more and more people committing crimes in the belief that they would not be prosecuted, because they could simply buy their way out of any criminal system consequences.[11]

Most criminal offences are subject to a fine or imprisonment. Common law crimes do not have any specific mention of the type of sentence and must be deduced from case law. There are certain offences, however, where the penalty is only a fine (such as certain municipal bylaws).[12] It should be noted that the definition of compounding refers to crimes for which the penalty on conviction will be imprisonment, and specifically excludes offences for which the only penalty is a fine. There is, however, no clarity on whether the offence of compounding would be committed when the penalty for the offence committed by the offender will be a fine or, alternatively, imprisonment.

Some legal commentators are of the view that, should imprisonment be an alternative to a fine, the parties would still be committing the crime of compounding.[13] Others are of the opposite view.[14] In any case, it would seem that the debate leans more towards the offence of compounding being committed where the penalty would be a fine and/or imprisonment and not when the only penalty would be a fine.

So, how would compounding affect settlement agreements? Consider the scenario where a person commits an offence and, in order to avoid prosecution, they approach the victim and offer them a reward not to report the crime. The victim might accept the offer on the condition that the parties enter into a settlement agreement, with the consequence that the agreement would very likely contain a clause in which the offender will consent to judgment should he breach the terms of the settlement agreement by failing to meet his obligations in making payment as agreed. This will ensure some certainty that there will be consequences if the offender fails to make payment in terms of the settlement agreement.

The offender, however, also needs to have some certainty that the criminal offence will not be prosecuted, or if it was already reported, that the criminal charges will be withdrawn by the victim. So,  in order to ensure that the charges are withdrawn, or the offence not to be reported to the SAPS, the parties will insert a clause in the settlement agreement which provides that the victim will withdraw the charges, or not report the offence, upon payment by the offender a certain reward, usually monetary.

In this scenario, the victim now has apparent certainty that the offender will make payment or risk having judgment against him; and the offender has apparent certainty that the victim will withdraw the criminal offence or not report the offence. Unfortunately for both parties, the settlement agreement will in actual fact be void. This is because no person may agree to perform an illegal activity, as it is against public policy, and both parties would be committing the crime of compounding – rendering the settlement agreement unenforceable.[15]

It is advisable that parties wishing to settle a dispute in which a criminal offence has been committed, should consult with litigation attorneys to approach the relevant public prosecutor who has the authority to withdraw a criminal charge.[16] Should they fail to resolve the dispute through the relevant channels such as the Court or the public prosecutor, or use other remedies such as those found in section 300 of the Criminal Procedure Act,[17] the parties may be subject to criminal charges for their conduct.

[1]        See rule 29 of the Magistrates’ Court Rules of Court; see further rule 42 of the Uniform Rules of Court.

[2]        Gbenga-Oluwatoye v Reckitt Benckiser South Africa (Pty) Limited and another 2016 JOL 36648 (CC) para 24.

[3]        See for example rule 82(6) of the Magistrates’ Court Rules of Court.

[4]        Barkhuizen v Napier 2007 (7) BCLR 691 (CC) para 30.

[5]        Beadica 231 CC and others v Trustees for the Time Being of the Oregon Trust and others 2020 (9) BCLR 1098 (CC) 1100 – 1101.

[6]        Barkhuizen v Napier 2007 (7) BCLR 691 (CC) para 29.

[7]        Arend and another v Astra Furnishers (Pty) Ltd 1974 1 All SA 522 (C) 532; Hunt and Milton South African Criminal Law and Procedure: Common-law crimes 204; Joubert and Kuhne LAWSA Volume 11 234.

[8]        Joubert and Kuhne LAWSA Volume 11 234.

[9]        Joubert and Kuhne LAWSA Volume 11 234.

[10]       Wells and Another v Du Preez (1906) 23 SC 284 293

[11]       Hunt and Milton South African Criminal Law and Procedure: Common-law crimes 205.

[12]       See for example City of Tshwane Metropolitan Municipality By-Law on the Keeping of Bees.

[13]       See for example Burchell and Milton Principles of Criminal Law 968; In Smits v Pienaar 1928 TPD 450 453 Judge Krause obiter mentioned that it would seem that crimes for which the only penalty is a fine, will not amount to compounding; in Cadle v Rex (1914) 35 NPD 356 358 Judge Broome was of the view that: “For the compounding of a crime it seems first of all to be requisite that a crime punishable not only by a fine, but by imprisonment or corporal punishment, has been committed.”

[14]       Joubert and Kuhne LAWSA Volume 11 236.

[15]       Hotz v Standard Bank (1906-1909) 3 Buch AC 53 59.

[16]       Section 20 of the National Prosecuting Authority Act 32 of 1998

[17]       51 of 1977.

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