Top tips for reaching an effective settlement

Practical advice for effective settlement

Drafting successful settlements draws on fundamental contractual principles. It requires an understanding of technical and tactical aspects. It often arises following stressful and hard-fought disputes. Getting a settlement agreement wrong, however, can be devastating – to businesses who believed their battles were resolved, to commercial relationships, and to relations between clients and their legal representatives. The following (non-exhaustive) practical advice should assist:

• Terms such as ‘without prejudice’, ‘without prejudice save as to costs’ and ‘subject to contract’ can have technical meanings and implications. These phrases must be appreciated and applied as appropriate in settlement negotiations, correspondence and documents.

• For a settlement to be effective and enforceable, any offer and acceptance must be clear, comprehensive and capable of binding anyone on which it places obligations.

• A settlement agreement needs to clearly express which claim, or parts of a claim, are being settled.

• If you are making an offer, make sure that it clearly and comprehensively sets out all of the key terms.

• If you wish to accept an offer, make sure that you are entirely happy (a) with all of the terms proposed; and (b) that there are no other terms which need to be included.

• When accepting an offer, do so clearly and without qualifications.

• If your acceptance is conditional on other events or circumstances, set out specifically what these are.

What happened in the particular case?

The case [1] involved a group of companies which entered in to various agreements with a bank. After defaulting on payments, the bank required the group’s guarantors to pay debts due under the agreements. The guarantors were also companies in the same group. The guarantors argued that they were not liable. The bank therefore appointed administrators. The group of companies then brought claims against the bank for misselling and manipulation of rates. The administrators instructed a solicitor to review these claims, which ultimately settled by agreement. The group of companies subsequently brought claims against: 1) the administrators, alleging that they should not have concluded the administration in the way that they did; and 2) the solicitor, alleging negligent advice in respect of the claims.

The solicitor and administrators applied to strike out the claims on the basis that any claims against them had been settled.

The Court of Appeal analysed the settlement agreement.

The settlement agreement said that “This Agreement is made in full and final settlement of all Claims any Party has or may have against any other Party or against any other Released Party”.

(“Released Parties” were defined as “the Parties and their Affiliates”. “Affiliates” were defined as “in relation to any person, a Subsidiary of that person, a Parent of that person, any other Subsidiary of that Parent, and an Employee of that person, of its Subsidiaries and of its Parents”.  “Employees” were defined as “any former, present or future directors, officers, employees, shareholders and agents”).

The court therefore concluded that, on a normal and correct reading of the settlement agreement, the administrators and solicitors had been released.

The court’s findings also reiterate:

• A court will not take pre-contractual negotiations in to account when deciding how to interpret the terms of an agreement.

• A court may consider what a reasonable person would have intended in the same situation but will not consider what individuals themselves may have thought.

• Terms of an effective, enforceable settlement agreement should be comprehensive and clear.

How we can help with settlement

Parties’ agreement of terms to resolve a dispute might not be the conclusion of a case. It can be the beginning of a new settlement negotiation, which requires consideration and care in itself. When it comes to fully and finally settling a case, it is safest to take expert advice.

Walker Morris’ Commercial Dispute Resolution team specialises in all forms of conflict resolution. For advice or assistance in relation to the preparation of an effective, enforceable settlement agreement, or if you require representation at an upcoming settlement meeting, please contact Gwen or Nick, who will be very happy to help.

[1] Schofield & Anor v Smith & Anor [2022] EWCA Civ 824.