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Is your settlement sound?

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14/11/2017

Creating a binding settlement is often the crucial conclusion of a case. Gwendoline Davies, Walker Morris’ Head of Commercial Dispute Resolution, looks at some recent cases which highlight important points for concluding settlements.

Dealing with disputes and litigation can be fraught with difficulty and risk. Litigation lawyers are therefore well practised in approaching their clients’ cases with the care, skill and competence they deserve. As several recent cases have demonstrated, it is equally important to ensure that solicitors do not take their eye off the ball at the conclusion of a case, when the parties finally reach a compromise or resolution. Creating a binding, solid settlement can itself be a complex matter and it can be a disastrous outcome for all involved if a supposed settlement turns out to be flawed. The last thing that parties want is a fresh dispute arising out of what they thought was a done deal.  Several recent cases highlight the importance of being accurate when it comes to settlements.

What have you settled?

In McGill v The Sports and Entertainment Media Group [1] (a football agency dispute), the Court of Appeal had to determine whether a settlement agreement that Mr McGill had previously concluded also had the effect of disposing of his claim against the defendant, whom he alleged had induced a breach of the same contract.  The court held that Mr McGill had had two separate causes of action: one for breach of contract; and one (the subject of the current proceedings) for conspiracy and inducing the breach.  Luckily for Mr McGill, the court decided that, as the claims were legally different, clear language would have been required in order for the settlement agreement to cover both.  That clear language was missing; Mr McGill was found not to have settled all his loss; and so the claim against the defendant was allowed to proceed.

The case highlights how important it is for parties to be clear and specific when it comes to defining exactly what claim[s] is [are] caught by any settlement agreement.

…on what terms?

In Adibe v Natwest Bank plc [2], the customer had settled prior proceedings brought by his bank on condition that his credit record would be amended.  However, the Tomlin Order which was entered into by the parties to record their settlement did not make any mention of the credit record condition.  The bank subsequently failed to take steps to amend the customer’s credit record, which prompted this claim by the customer for damages for failure to comply with the settlement agreement.

The court was able to find for the customer in this case because email and telephone note evidence was available and made clear that the agreement to amend the credit record was indeed a condition of the settlement deal. Had that evidence not been available or conclusive, however, the case could have gone the other way.  Even with the existing outcome, it bears noting that the parties have incurred significant time and expense litigating to establish the terms of the settlement, all of which would have been avoided had the terms simply been clearly and comprehensively expressed.

…and who with?

A recent rent arrears dispute, Christina Properties v Annauth [3], concerned a landlord, a tenant and a guarantor who was also the tenant’s sister.  Following a surrender of the lease, a settlement was entered into whereby the arrears would be paid in instalments of £50 which, even ignoring interest, meant that it would take over 120 years for the debt to be cleared.  The landlord argued that that agreement was with the guarantor only, such that the tenant could still be pursued for payment.  The tenant argued, however, that the solicitors who had negotiated the settlement had been acting on behalf of both his sister and himself.  The settlement was made in an exchange of correspondence only, and so there was no settlement contract/document to consult.

The Court of Appeal reviewed the evidence. Whilst the solicitors in question had acted on behalf of both the tenant and his sister during the surrender negotiations, correspondence concerning the arrears and settlement was headed “Our client: Anoushka Annauth” and the client was generally referred to in the singular and feminine.  Furthermore, the liability of the guarantor and the tenant were distinct, but there was nothing communicated nor reflected which clearly indicated that both liabilities were covered [4] by the [very low] settlement.  The court therefore concluded that the settlement agreement only covered the guarantor, and so the landlord remained free to pursue the tenant.

The case is a clear example of the problems that can arise if parties fail to specify exactly with whom any settlement is concluded. In addition, apart from this rather too-relaxed approach to settlement causing friction between the parties themselves, it is possible that the solicitors could potentially be faced with a professional negligence claim if any further analysis revealed that they should have been acting for both the guarantor and the tenant in the settlement negotiations after all.

Practical advice

Settlement agreements, in whatever form they may be, are contracts, just like any other commercial bargain between parties. Drafting successful settlements therefore draws on fundamental contractual principles; it requires an understanding of technical and tactical aspects; it involves a language all of its own; and it often arises at the end of a long and hard-fought dispute. It is impossible to advise comprehensively in this article on all the pitfalls and points of which all settling parties should be aware, and in any event individual cases will, of course, turn on their own facts.  However these recent cases (and those flagged in our previous briefing) demonstrate some important, practical points to note:

  • for a settlement to be binding it must be clear, certain, comprehensive and capable of binding all of those on which it places obligations;
  • whilst completion of a formal document is not legally necessary for a binding settlement agreement to come into being, it is certainly advisable so as to help avoid disputes as to its terms, scope or enforceability later down the line;
  • as a general rule, always consider whether your agreement covers, and accurately reflects your intentions as to: exactly what causes of action you have settled; on what terms; and who with;
  • be aware that terms such as ‘without prejudice’, ‘without prejudice save as to costs’ and ‘subject to contract’ can have technical meanings and implications. These must be appreciated and applied appropriately in settlement negotiations, correspondence and documents;
  • the parties’ agreement of terms to resolve a dispute might not be the conclusion of a case. It can be the beginning of a whole new settlement negotiation, which requires consideration and care in itself.

WM Comment

Don’t scrimp on settlement. When it comes to fully and finally resolving a case, it is safest to take specialist advice.  If you would like any further advice or assistance in relation to negotiating or documenting the settlement of any dispute, please do not hesitate to contact Gwendoline Davies or any member of Walker Morris’ Commercial Dispute Resolution team.

In the meantime, please feel free to take a sneak peak at the Settlement Chapter from our forthcoming Little Green Book of Dispute Resolution.

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[1] [2016] EWCA Civ 1063
[2] [2017] EWHC 1655 (Ch)
[3] [2017] EWCA Civ 1070
[4] This reasoning mirrors that set out in the McGill case, mentioned above.

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