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Avoiding unsettling settlements

The legal system prefers it if you settle differences yourself before reaching court – but it’s important to ensure you understand the implications of your settlement agreement or there may be unexpected consequences.

The legal system prefers it if you settle your differences without the assistance of a civil court judge.

To this end it does what it can to encourage everyone involved to keep talking to try to come to a mutually acceptable compromise before they end up in court.

Settling a dispute saves the parties the considerable time, energy and costs associated with court hearings so, in the right circumstances, it has much to recommend it.

Recent cautionary case

The recent case of Newbury v Sun Microsystems [2013] EWHC 2180 (QB), however, is a useful reminder that settlement agreements, as they are themselves contracts, must be approached with as much caution as any other contract.

Otherwise, as in this case, there is a risk you will still end up in court, only you will be asking the judge to sort out the settlement agreement rather than the original dispute.

“For most of us, such circumstances are not ideal for clearheadedly negotiating an important contract”

The parties in this case thought they had reached an agreement to settle their claim.

Their lawyers had exchanged letters. The first letter contained “Terms of the Offer” and a deadline for acceptance. The responding letter accepted the offer and the terms.

Almost immediately it became apparent that each side had a rather different understanding about what the exact terms of their agreement were.

Negotiations failed to bridge the gap and everyone wound up in court arguing about whether the matter had been settled or not.

The arguments

One side argued that there was a binding agreement as soon as the offer was accepted because all of the legally required elements were in place – offer, acceptance, intention to be legally bound and consideration.

The other side countered that there was no binding agreement because either:

  • There was no offer capable of acceptance – the original letter was not an offer, just an indication of what might lead to agreement; or
  • That a statement included in the offer that the settlement was to be “recorded in a suitably worded agreement” made the offer subject to the execution of that suitably worded agreement and no such agreement had been executed.

The judge applied well-established legal principles and decided there was a binding agreement concluded on the date of the lawyers’ letters and that the terms of that agreement were those set out within the letters.

The agreement was not conditional on a “suitably worded agreement” being executed and the parties continuing to try to negotiate the terms of the agreement after it had been concluded was not relevant to the existence or terms of that agreement.

Understanding the implications

Nothing in the Newbury judgment is new law, so why write about it you might ask?

“Remember that once a settlement offer is accepted, that’s likely to be the end of it. Don’t assume that the details can be ironed out later”

Well, settlement agreements are often negotiated in high-pressure situations, be it time pressure, commercial pressure or both. For most of us, such circumstances are not ideal for clearheadedly negotiating an important contract.

Should you find yourself in the situation, remember Newbury. Remember that once a settlement offer is accepted, that’s likely to be the end of it. Don’t assume that the details can be ironed out later.

Make sure you fully understand the implications of what you are offering or accepting.

If the consensus is that settling is the right way to go, make sure you and your legal team are absolutely clear about precisely what you want out of the settlement and what you are prepared to give in return.

This must then be fully communicated in any correspondence.

If there are issues that require further negotiation then make sure that correspondence makes it clear that agreement remains “subject to” the outcome of those further negotiations.

Settling is a good thing but only on the right terms.

Kasia Dickson is a paralegal at Thomas Eggar

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