The recent UK case of Bieber & Others -v- Teathers Limited (In Liquidation) [2014] has brought to the fore an issue which applies to many settlement negotiations between disputing parties.

Context

Ordinarily, where parties wish to ensure a contract (otherwise capable of being made orally) is only made in a formal document, they expressly stipulate that any negotiations taking place beforehand are “subject to contract”. Where there is such a stipulation, no binding agreement exists until a formal written agreement has been duly executed.

Facts

In the immediate case, the parties came to an impasse as to whether agreement had in fact been reached on settlement terms discussed via e-mail. The Defendant had proposed a payment within 28 days in full and final settlement of the dispute, without entitling its offer as “subject to contract”. The Claimant responded “In the circumstances, my client will accept [the offer]. We will send around a draft Consent Order in the morning”. The Defendant replied “Noted, with thanks”.

Subsequently, the Defendant’s solicitors sent a formal agreement proposing terms other than those allegedly agreed in the e-mail exchange. The Claimant asserted that the agreed settlement terms were already contained in, or evidenced by, the chain of e-mails – and thus did not depend on the parties agreeing on the terms of a formal document thereafter.

Ruling

The Court found that there was nothing within the Defendant’s offer to render it incapable of immediate acceptance – it had not contemplated any further negotiation required to be undertaken if the terms proposed were acceptable to the Claimant.

Reviewing the matter objectively, the Court opined that the parties intended to reach a final and binding agreement via the e-mail exchanges ending with “Noted, with thanks”. Neither party had indicated that issues of substance remained to be agreed thereafter. Their exchanges had consistently referred to offers being in full and final settlement of the entirety of the claims involved.

The “take it or leave it” proposals carried the clear inference that they were unqualified. Although a Consent Order remained to be agreed, this was viewed by the Court not to be “of substance” in the particular context – other than the form of words necessary to carry into effect the agreement already reached.

The offer being described as “a final gesture to reach settlement” also clearly implied that if the offer was accepted, a settlement would have been reached. The exchange of e-mails constituted the agreement between the parties, having not been marked “subject to contract”.

Beware…

This decision is an important alert for commercial entities and practitioners alike when proposing (or accepting) settlement offers. Parties must remain extremely mindful of the necessity to use “subject to contract” wording to caveat negotiation proposals against finality before a formal agreement is signed, if that is what is actually intended to be conveyed. Otherwise, and without such a caveat, settlement terms objectively found to be agreed by way of correspondence are likely to be interpreted as conclusive. This is clearly the case even where an ancillary Consent Order is still required to action the settlement terms.