Settling disputes in the current climate is a commercial necessity; however, finding the cash to do so can be difficult and, as such, parties are having to find creative ways to resolve the issues between them.
It is becoming increasingly common for parties to settle agreements on the basis that one agrees to give work to the other up to a specified value as part of the settlement. However, unless settlement agreements are drafted in the clearest of terms, agreements such as these can lead to further disputes between the parties.
This was illustrated in the case of Jacobs UK Ltd v Skidmore Owings & Merrill LLP  EWHC 3293. This case involved the interpretation of terms contained in a settlement agreement.
As part of the settlement agreement it was agreed that Skidmore would award Jacobs “33,500 hours of construction, design and engineering services”. The parties then fell into a further dispute as to whether Skidmore had fulfilled its obligations in this respect.
Jacobs argued that it had only been awarded 250 hours of work and consequently 33,250 hours of work was outstanding.
Contentious shortfall provision
The settlement agreement provided that if this work was not awarded by Skidmore then Skidmore must pay Jacobs “£15 per hour per every hour of shortfall up to a maximum of 33,500 hours”.
Jacobs submitted that it was entitled to £498,750. However, Skidmore argued that within the two-year period, they had sought a fee proposal from Jacobs which would have been worth at least 33,250 hours of work. As such, Skidmore argued that their obligation had been discharged.
“In all settlement agreements, parties need to include detailed terms to ensure what is agreed is accurately reflected”
The judge had to determine whether Skidmore’s obligation under the settlement agreement was to simply offer contracts worth up to 33,500 hours or to enter into contracts up to that amount. The settlement agreement stated that Skidmore “will award Jacobs” work up to the specified hours.
The judge decided that Skidmore could not fulfil this obligation by merely making an offer to Jacobs but rather that the term award means “the award of a concluded contract”. In any event, Skidmore had not awarded or offered the work but merely given Jacobs the opportunity to bid for a contract.
If parties can negotiate a settlement this can help preserve their future working relationship and avoid costly, time-consuming and adversarial litigation or arbitration proceedings.
Potential scenarios require consideration
In this case, the judge stated that the settlement agreement was entered into against the background of both parties broadly agreeing that they could “profitably collaborate in the future for their mutual benefit”.
However, to avoid further disputes occurring, parties need to consider the potential issues that may arise from the proposed settlement and ensure that the settlement agreement clearly deals with these issues.
In all settlement agreements, parties need to include detailed terms to ensure what is agreed is accurately reflected.
In this case, the judge concentrated on the wording the parties used in the settlement agreement, stating: “The difficulty with arguing the word ‘award’ actually means ‘offer’ is an obvious one: if that was what was meant, why did the parties not say so?”.
Therefore, parties need to ensure that their settlement agreement is drafted in the clearest of terms. Otherwise they may find themselves involved in litigation to determine what was agreed – something they had tried to avoid.
Andrew Jones is partner in the construction team at SNR Denton