Q&As

Is a settlement agreement legally binding as a contract if there is no consideration in the agreement?

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Produced in partnership with Richard Colbey of Lamb Chambers
Published on LexisPSL on 11/12/2018

The following Dispute Resolution Q&A produced in partnership with Richard Colbey of Lamb Chambers provides comprehensive and up to date legal information covering:

  • Is a settlement agreement legally binding as a contract if there is no consideration in the agreement?
  • Settlement in the employment context
  • Settlement in the commercial context

For the purposes of this Q&A, we have focussed on agreements to refrain from instituting or continuing proceedings eg under the Employment Rights Act 1996 (ERA 1996) which satisfies the conditions regulating settlement agreements (see ERA 1996, s 203(2)(f) and (3)). This Q&A also considers settlement in the commercial context.

Settlement in the employment context

There is no specific requirement eg in ERA 1996, s 203(2) and (3) that consideration must be provided. However, a settlement agreement is a contract, and normal contractual principles will therefore apply, ie there must be an offer, acceptance and consideration (in relation to consideration, see Bank of Credit and Commerce International SA v Ali).

For further information on settlement agreements in employment generally, see:

  1. Practice Note: Settlement agreements in employment—legal requirements

  2. Practice Note: Settlement agreements in employment—practical and tax issues

  3. Precedent: Settlement agreement (employment)

For information generally on what is required to ensure that there is a valid contract or agreement capable of being enforced, see: Formation and interpretation—overview.

A promise will only be capable of being contractually enforced if it is either:

  1. made in a deed, or

  2. made in exchange for something of value, known as 'consideration'

The key elements that make up consideration are:

  1. benefit and detriment

  2. mutual promises

  3. sufficiency

  4. economic value

For information on what amounts to valid consideration, see Practice Note: Forming enforceable contracts—consideration.

In order for the settlement agreement to be

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