The importance of clarity when it comes to the terms of, and costs associated with, settlement

by Eliza Finch

Three recent High Court decisions highlight the importance of clarity in settlement negotiations. Not only must the terms of any offer made be clear (and exhaustive), the question of costs should also be dealt with.

In both AB and another -v- CD Ltd¹ and Newbury -v- Sun Microsystems² the offeror of a settlement offer which had been accepted, subsequently sought to vary the terms of the offer. In both cases the Court rejected the argument that the settlement offers had been made "subject to contract" and the offers were held to be binding in their original form.

In AB and another, the offer in question was the second offer to have been made by the offeror. Both offers had been made orally and communicated via a mediator (on an ad hoc basis following an unsuccessful mediation). The first offer had been expressly "subject to contract". This qualification had not, however, been made in relation to the second offer, and the court would not infer it. In addition, the offer was not caught by the terms of the mediation agreement (which required any settlement agreement to be in writing). In Newbury, the fact that the offer expressly provided that it was "to be recorded in a suitably worded document", was not sufficient to persuade the Court that there was still scope for negotiation of the settlement terms. The take-away message from these judgments is that if you are in any doubt as to the final form of any settlement, all offers should be marked "subject to contract".

In Northern Oxford Golf Club -v- A2 Dominion Homes Ltd,³ the parties agreed that the mediator's costs and the costs of the facilities would be split equally between them. They failed, however, to make any provision for how the costs of preparing for a mediation should be split. At a subsequent costs assessment, the claimant argued that the costs of preparing for the mediation constituted part of the inter-partes costs. The defendant disagreed, arguing that the costs were separate from the dispute. The Costs Master distinguished between the two types of costs, disallowing the mediator's costs but allowing the costs incurred preparing for the mediation. Such arguments are avoided by providing for how all the costs of the mediation are to be treated in the mediation agreement.

Please click on the links below for the other articles in the commercial litigation newsletter

• Jackson update
• Hot-tub: lessons from Australia
• Third party funder entitled to terminate funding agreement
• Asymmetric jurisdiction clauses valid as a matter of English law
• Service: retrospective validation of the claim form permitted and receipt by fax sufficient for French courts to be seised
• Disclosure and privilege update: increasing transparency and guidance on the dominant purpose test
• Can the corporate veil ever be pierced?
• Part 36: valid acceptance and "near-miss" offers
• CPR 66th update
• Chancery Modernisation Review
• Collective actions update: "opt-out" coming to a competition claim near you
• Judicial Review: reforms made and more to come
• Courts to become self-financing?

_Notes:

_{¹[2013] EWHC 1376 (TCC).
²[2013] EWHC 2180 (QB).
³[2013] EWHC 859.}