A reminder of the need to be clear whether settlement negotiations are subject to contract

The 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).

The decision acts as a reminder of the importance of making a settlement offer 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.

Background

The underlying claim was brought by high net worth individuals relating to investments in a series of film and television production partnerships formed by the defendant. The claim was said to be worth about £20 million including interest and costs. The defendant was in insolvent liquidation. It had insurance cover for the claims, but only up to an aggregate of £10 million inclusive of the defendant's costs. Any payment in excess of the insurance would require the individual claimants being admitted to proof in the liquidation.

The claimants alleged that a binding settlement was reached, for a confidential sum, by an exchange of e-mails between the parties' solicitors some three weeks before trial. The relevant series of correspondence began with an e-mail dated 20 June 2014 which included the following:

"... If the offer is in principle acceptable, we will produce a Tomlin Order, which will record and break down the amounts payable to each claimant."

That offer was rejected and there were subsequent e-mails in which various offers and counter-offers were made. Ultimately a settlement figure was accepted by the claimants in an e-mail on Sunday 29 June, in response to a message stating that the defendant would incur the next tranche of brief fees on the Monday and it was unlikely the offer would last beyond that time.

Following that exchange of e-mails the claimants' solicitor sent the defendant's solicitor a draft consent order for signature. The defendant's solicitor responded with a long form settlement agreement containing additional terms, including an indemnity in respect of any contribution claims that might be made against the defendant as a result of the claimants pursuing third parties for their remaining losses. The claimants refused to agree these terms and, in subsequent negotiations, did not reach agreement on the terms of a formal settlement agreement.

Decision

The judge (HH Judge Pelling QC sitting as a High Court judge) held that a binding settlement had been reached. Applying an objective test, and considering the whole of the negotiations, he said the claimants had clearly established that the parties had intended to be bound by their agreement even though they anticipated documenting the agreement in subsequent documentation.

He rejected the defendant's submission that the parties had intended there to be a two-stage process which involved first agreeing a figure and then negotiating all the other terms before a binding settlement was reached.

• Although the defendant relied on the e-mail of 20 June quoted above, the judge said the words "in principle" in that e-mail were not an acknowledgement that the process was a two-stage one. Rather, it was an acknowledgement that if the settlement sum exceeded the available insurance cover then the order would have to apportion the claim between the claimants so that each could prove in the liquidation.
• There had been no mention of what other terms and conditions had to be agreed. Although the possibility of the claimants pursuing third party claims had been mentioned in correspondence nearly three years earlier, it had not been raised as an issue since then.
• The terms of the e-mail exchanges were contradictory to the notion that the discussions were subject to contract, including references to the offers and counter offers being in full and final settlement and payment being made within 28 days. References to the offer as "a take it or leave it offer" and "a final gesture to reach settlement" also implied that acceptance would lead to settlement being reached.
• A two-stage process was also inconsistent with the time pressures identified in the correspondence, in particular the fact that a further tranche of counsel's fees would become payable unless settlement was reached then.

The judge also considered whether events after 29 June were admissible for the purpose of deciding whether a contract was concluded on that date. In Newbury v Sun Microsystems [2013] EWHC 2180 (QB) (considered here) the High Court held that where a contract is said to be contained in documents, conduct occurring after the date of the documents is not a legitimate aid in determining whether those documents gave rise to a binding contract. The judge in the present case said that it would only be appropriate not to follow that analysis if he was satisfied that it was plainly wrong, which he was not. In any event, the parties' conduct after 29 June would not have led him to conclude that an agreement had not been reached on that date. The fact that parties are prepared to negotiate concerning the terms of a settlement agreement does not necessarily mean they had not earlier entered into a binding agreement to settle the dispute.