Moraitis Investments (Pty) Ltd v Montic Dairy (Pty) Ltd

The appellants, Moraitis Investments (Pty) Ltd and the Moraitis Trust (represented by Mr Apostolos Moraitis and his two brothers as trustees), had been in a business relationship with the respondents (Karl Kebert and various companies). The business was conducted through Montic Dairy and related companies. After the parties fell out in 2006, extensive litigation ensued involving liquidation applications, valuation disputes, and claims relating to property in Greece. In September 2013, a comprehensive settlement agreement was reached, signed by Mr Moraitis on behalf of all entities on his side and by Mr Kebert on behalf of his entities. The settlement was made an order of court by Mojapelo DJP. The agreement provided for transfer of shares held by Moraitis Investments to Kebert's side for R600,000, which was paid. However, when transfer of shares was demanded, Mr Moraitis sought to set aside both the settlement agreement and the court order, claiming he lacked authority to conclude the agreement on behalf of Moraitis Investments and the Moraitis Trust. He also argued the agreement violated sections 75, 112 and 115 of the Companies Act 71 of 2008. The application succeeded at first instance but was overturned by the full court. The matter came before the SCA with special leave.

• Whether lack of authority to conclude a settlement agreement provides grounds for rescinding a consent order
• What are the grounds upon which a consent judgment can be set aside
• Whether Mr Moraitis had authority to represent the Moraitis Trust and Moraitis Investments in concluding the settlement agreement
• Whether the settlement agreement contravened sections 75, 112 and 115 of the Companies Act 71 of 2008
• Whether the principle of unanimous consent applies to validate the transaction
• What is the correct approach to determining whether a consent order should be set aside

The appeal was dismissed with costs.

The binding legal principles established are: (1) A consent order has the same legal standing as any other court order and operates as res judicata between the parties; (2) A consent order can only be set aside on the narrow grounds of fraud, justus error, or proof that a party did not in fact consent to the order; (3) When seeking to set aside a consent order on the basis of lack of authority, the party alleging lack of authority bears the onus of proving it; (4) The correct approach is to first determine whether grounds exist to rescind the court order, rather than starting with the validity of the underlying settlement agreement; (5) Lack of authority to conclude a settlement agreement can provide grounds for rescinding a consent order, but only if the lack of authority is proven; (6) The principle of unanimous consent applies under the Companies Act 71 of 2008 and can validate transactions by a sole shareholder that would otherwise require special resolutions under sections 112 and 115; (7) Court orders may not be ignored and bind all people to whom they apply in accordance with section 165(5) of the Constitution.

The court made several non-binding observations: (1) There may be merit to the proposition that lack of authority alone may not suffice to set aside a consent order unless there is a reasonable explanation for how the consent judgment came to be entered, though the court did not express a final view on this; (2) The court noted with disapproval the unusual situation of counsel charging their own client with fraud in seeking to set aside an agreement; (3) The court observed that Mr Moraitis's statements about lack of authority were, in the absence of full explanation of how the trust operated, assertions of legal conclusions rather than factual evidence; (4) The court distinguished cases involving rescission of default judgments from those involving judgments in contested proceedings, noting that different and more stringent tests apply to the latter; (5) The court rejected the broad proposition in Kruisenga that "when a judgment derives its existence from an agreement, its continued existence is subject to the validity of the agreement" as being over-broad and inconsistent with established authority; (6) The court noted that while non-fraudulent misrepresentation may provide grounds for avoiding a contract, it does not provide grounds for rescission of a judgment.

This case is significant for establishing important principles regarding the rescission of consent orders in South African law. It clarifies that: (1) A consent order cannot be disregarded simply because the underlying settlement agreement may be voidable - the order must first be set aside; (2) The grounds for rescinding a consent order are narrow and stringent, limited to fraud, justus error, or lack of consent; (3) A party seeking to set aside a consent order on the basis of lack of authority bears the onus of proving that lack of authority; (4) Bare assertions of lack of authority, without evidence of the factual circumstances and past practices, are insufficient to discharge this onus; (5) The principle of unanimous consent remains applicable under the Companies Act 71 of 2008 and can validate transactions that might otherwise require special resolutions where a company has a single shareholder. The case demonstrates the courts' strong policy of upholding the finality of judgments, particularly consent orders, and their reluctance to allow parties to resile from settlements they have entered into, especially where there is evidence of prior consistent conduct. It reinforces section 165(5) of the Constitution by emphasizing that court orders bind all persons and cannot be ignored.