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On 11 December 2014, HHJ Pelling QC, sitting as a judge in the Chancery Division, held in the case of Beiber and others v Teathers Ltd (in liquidation)  EWHC 4205 (Ch);  All ER (D) 168 (Dec) that the parties had settled their litigation by an agreement contained in, or evidenced by, an exchange of emails between their solicitors. Although the settlement agreed by the parties contemplated that a Tomlin order would be filed at court, the judge found that settlement was not conditional upon the agreement of the terms of that order or the terms of a formal settlement agreement, ie. it was not 'subject to contract'.
As many of you will understand, negotiating the settlement of a dispute can be challenging and is rarely straightforward. In the heat of negotiations, it can be easy for both sides to focus attention on agreeing the settlement figure and to lose track of the important, and practical, matter of ensuring that the ancillary terms of the settlement are also agreed and, if appropriate, recorded accurately in a formal settlement agreement.
In many cases, such an approach won't result in any adverse consequences if the parties are able to agree any ancillary matters or formal documentation after agreement on the settlement figure has been reached. However, as this case clearly demonstrates, failure to be clear about the basis on which a settlement is 'agreed' may result in one party (at least) being bound by a settlement that they may not have intended.
To avoid uncertainty and the risk of being unintentionally bound by a settlement, it is crucial to expressly state if any agreement reached in respect of settlement is intended to be 'subject to contract'. In this case, the parties were found to have agreed to settle their dispute for £2m unconditionally, even though they were subsequently unable to agree to the terms of the settlement agreement to be annexed to the Tomlin order to be filed at court. Having considered the facts and circumstances surrounding the relevant emails exchanged by the parties' senior lawyers, the judge found that the parties had reached agreement on all essential terms and had not objectively proceeded on the basis that agreement of a settlement figure would be the first stage of a two stage process to be completed before settlement would be agreed.
Making statements during the course of extended negotiations that a settlement is conditional on the agreement of final terms may not be sufficient to prevent a court determining on an objective assessment of the facts and circumstances, that an unconditional binding settlement has been reached when the relevant offer and acceptance is expressed to be in full and final settlement.
Accordingly, the lesson for practitioners is to be absolutely clear at all times if the agreed settlement is 'subject to contract' and/or the agreement of any further terms.
The claimants were individuals who invested in a series of film and TV production partnerships formed by the defendant, known as the Take partnerships. The aim of the Take partnerships was to invest in TV and film productions so as to take advantage of tax concessions made available under a series of Finance Acts between 2000 and 2007. The schemes were failures because most of the productions that were financed failed commercially and none generated the tax relief that had been intended. The claimants considered that to be the result of default on the part of the defendant. They pursued their claims collectively by reference to the particular scheme they had invested in. A number of orders were made by the court to manage the complex litigation.
A mediation took place in May 2014, but was unsuccessful. The claimants sought a declaration from the court that the parties had reached a binding settlement by an exchange of emails between their solicitors on 29 June 2014, by which the claimants had agreed to settle the proceedings in return for a payment by or on behalf of the defendant to the claimants collectively of £2m.
Two main questions arose: first, whether the parties had reached a concluded agreement; and, secondly, if an agreement had been reached, whether the agreement had been subject to contract. The defendant disagreed that a binding settlement had been agreed as the parties had failed to agree final terms. When it came to agreeing the formal settlement agreement, the defendant was particularly concerned to reserve its position in relation to claims against it by third parties.
The judge provided a useful summary of the principles applicable when determining whether or not the parties have reached a binding settlement agreement:
On an objective assessment of the relevant facts and circumstances, the judge considered that the parties agreed to the full and final settlement of the claims, counterclaims and costs claims by and between the parties by the exchange of emails between their lawyers on 29 June 2014.
Counsel for the defendant suggested that a case as complex as the underlying litigation could not be settled other than on the basis of a careful consideration of all the relevant ramifications and in particular the impact of future contribution claims brought against the defendant as a result of claims brought by the claimants or some of them against third parties in respect of the same losses. The judge stated that this factor was of 'limited weight' in his objective assessment. He considered that although the underlying litigation was complex, settlement of the dispute was not. In his view, there was no complexity in the settlement negotiations that led necessarily to the conclusion that the parties could not have intended that a binding settlement could be reached other than by formal agreement signed by the parties.
In relation to the defendant's desire to reserve its position in relation to claims by third parties, the judge stated that there had never been at any stage any attempt by the defendant to do so. The judge was clear that if the defendant was to reserve its position then it needed to be made clear in the course of negotiations as a 'subjective and internal reservation of position is entirely immaterial to the question of whether in fact agreement [had] been reached'.
Having agreed on the settlement figure, the solicitor for the claimants stated in email that he would send across a 'consent order' the next day. The defendant's solicitor replied, 'Noted, with thanks'. The judge interpreted the 'consent order' email as implying that there was nothing of substance left to agree other than the form of words necessary to carry into effect the agreement reached. The judge continued that if this had not accorded with defendant's solicitor's understanding, he would not have 'said simply "Noted, with thanks." He would have responded at that point by identifying at least the issues concerning which agreement needed to be reached before a final agreement could be made.' The judge was influenced by the fact that timing was crucial for the purposes of settling due to the availability of finance and the need to incur more costs in the next stage of the litigation.
Note: there was an issue between the parties as to whether as a matter of law what happened after the 29 June 2014 was admissible for the purpose of deciding whether or not a binding settlement was agreed on that date. In this regard, the judge stated:
' In my judgment, if on an objective analysis a binding agreement had been reached on 29 June 2014, then what happened thereafter cannot undo that agreement unless what happened amounts to a rescission or variation of what had been agreed previously. Since it is common ground that nothing was agreed after 29 June, on any view what occurred could not be either. Thus the only significance of conduct after 29 June is for the purpose of informing a conclusion as to whether an agreement was in fact reached then. If, as here, all other factors point to the conclusion that a concluded and binding agreement was reached on that date, only conduct which very clearly and unambiguously demonstrates that no final agreement had been reached is likely to assist.
 The conduct after 29 June relied on by the defendant does not in my judgment lead to the conclusion that an agreement had not been reached on the 29 June. In essence, the defendant submits that the parties engaged in protracted negotiations concerning the terms of a settlement agreement that in the end broke down. It was submitted that this conduct on the part of the claimants is consistent only with the mutual understanding of the parties being that the agreement reached on 29 June was subject to contract or was an agreement in principle subject to the agreement of all other terms and conditions. I do not agree. That parties are prepared to negotiate concerning the terms of a settlement agreement does not lead necessarily to the conclusion that the parties had not earlier entered into a binding agreement to settle the dispute. It might be thought convenient for agreement to be reached on outstanding points if at all possible but there is nothing in such conduct that is necessarily inconsistent with an agreement having been reached earlier.'
Originally featured on LexisPSL Dispute Resolution
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