UK High Court: be clear whether settlement negotiations are subject to contract

A recent decision of the English High Court has held that a binding settlement was agreed in an exchange of e-mails between the parties’ solicitors despite their subsequent failure to agree formal terms: Bieber v Teathers Limited [2014] EWHC 4205 (Ch).

"Subject to contract"

The case underlines the need for parties who have agreed to settle a dispute to specify very clearly if they intend that the terms agreed will not be immediately binding on them and will be subject to the negotiation of a more formal contract. A settlement offer should be made expressly “subject to contract”, where it is not intended that a binding agreement will be reached by simple acceptance. Here the absence of those words was significant, as were references to the offer being “a take it or leave it offer” and “a final gesture to reach settlement”. Even a reference in the correspondence to the offer being “in principle” did not, in the context, mean that the offer was conditional. The fact that, subsequently, the parties were prepared to negotiate the terms of a formal settlement agreement also did not mean they had not already entered into a binding agreement.

Mediation context

Although the case was in the context of bilateral settlement negotiations via solicitors’ correspondence, the message applies equally (if not more so) to settlements reached through mediation or other structured forms of conciliatory ADR.  It highlights that, provided the agreed terms are sufficiently clear and certain as to the parties’ obligations, the court will be loath to accept that the parties did not intend them to be immediately binding on them in the absence of clear words indicating that. Applied to the mediation context, it also underlines the importance of the parties giving proper forethought to all the issues that will need to be addressed in a settlement agreement if the mediation is successful.

This case is likely to be a persuasive value in Hong Kong in relation to construction of settlements.

Read our full briefing on this case on our Litigation Notes blog, here. For analysis from a mediation perspective, see our ADR blog post here. For more on the Australian position, see our earlier blog post ‘Australia: Enforceability of heads of agreement following mediation’.