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In Abberley and others v Abberley  EWHC 1564 (Ch) it was held that heads of terms agreed at a mediation constituted a legally binding contract between the parties, rather than an agreement in principle as part of a process of arriving at a full and effective compromise. The heads of terms also complied with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 and so were enforceable. Christopher Boardman, barrister at Radcliffe Chambers, considers the judgment and its practical implications.
The heads of terms did not record all the terms discussed by the parties at the mediation, or all the terms likely to be included in a later formal agreement intended to be executed by the parties. The court nevertheless concluded that they gave rise to legally binding obligations. The case is an important illustration of:
farming family fell out and the eldest son went to farm land on his own. A partnership dispute arose and the family eventually agreed to attend a mediation. As the mediation came to a close, the mediator drew up in manuscript heads of the terms which the parties had been able to agree during the course of the day. Solicitors acting for the parties signed the heads in the presence of the mediator and their clients. Delay in drawing up the formal agreements to put into effect the terms then followed. The defendant argued that the heads of terms were not intended by the parties to be legally binding, they did not identify by reference to a plan or otherwise the land which was intended to be transferred, they were insufficiently certain or complete in other respects to amount to a binding contract and they did not set out all of the terms that had been agreed in principle in any event and so were unenforceable.
In determining whether there was a binding contract between the parties, specialist chancery judge, HHJ Jarman QC, applied the principles set out by Lord Clarke in RTS Ltd v Molkerei Alois Muller Gmbh  UKSC 14,  1 WLR 753 at para , which was approved by the Supreme Court in Wells v Devani  UKSC 4. That required consideration of the communications between the parties by words or conduct. Even if some terms remained to be agreed, an objective appraisal may lead to the conclusion that agreement of such additional terms was not meant to be a pre-condition to a binding agreement. Also, the fact that a more formal document is envisaged does not preclude the existence of a binding agreement.
The judge held that the heads of terms were set out with sufficient certainty to be capable of amounting to a binding agreement. He held that, although the plan referred to in the heads of terms was missing, the land could be identified by extraneous evidence given by the witnesses who attended the mediation. He held that, although the heads of terms lacked many of the details subsequently proposed in the formal agreements, they were sufficiently certain to give rise to legal obligations. He was also satisfied that the heads of terms were intended to create legal relations, having been entered into and signed on behalf of the parties during a mediation which had been arranged by the parties to settle their partnership dispute. Finally, he found that although other terms had been discussed during and after the mediation, there was no clear evidence that they had been agreed between the parties at the mediation and become terms of the agreement. Accordingly, the heads of terms were legally enforceable.
This analysis was first published on Lexis®PSL Dispute Resolution on 10 July 2019. For a free trial, click here.
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