The Court in the case of Bieber v Teathers Limited (in liquidation)(2014) considered whether an exchange of emails by parties' solicitors constituted a binding settlement agreement.

Background

The Claimants consisted of approximately 220 high-net-worth individuals who had invested in a series of film and television production partnerships formed by the Defendant's financial advisers. The purpose of the partnerships was to take advantage of attractive rates of tax relief on their investments (available under the 2000 and 2007 Finance Acts), along with an eventual commercial return on their capital contribution. Due to the commercial failure of the productions financed by the partnership, investors under the schemes found that no tax relief was generated. The Claimants pursued their claim against the Defendant on the ground that this failure was the result of default on the part of the Defendant.

During an exchange of emails shortly before the trial was due to start, the parties agreed a settlement package. The Claimants' acceptance email indicated that they would circulate a draft Tomlin Order (the "Consent Order") containing the terms of the agreement which the parties had reached. The Defendant's reply was "Noted, with thanks." The Consent Order, which was subsequently provided by the Claimants, was rejected by the Defendant who sent their own long-form settlement agreement. The ensuing negotiations to agree a formal settlement agreement failed, predominantly due to the Claimants' refusal to accept the Defendant's provisions that the Claimants indemnify the Defendant in respect of any contribution claims that might be made against the Defendant as a result of similar claims made by any of the Claimants against third parties. The Claimants argued that these negotiations were unnecessary as the claims had already been settled by an agreement which was contained or evidenced in the exchange of emails that had been sent before trial.

Decision

The Judge held that any agreement should be determined objectively considering the whole course of the parties' negotiations. At the point at which the parties agree terms, a contract will have been formed even if it is understood by the parties that the terms of the agreement would be recorded by a formal agreement at a later date. As long as parties intended to conclude a legally binding agreement, the fact that certain terms had not yet been finalised does not prevent an agreement being concluded. The Judge held, therefore, that an agreement had been reached by the parties by way of email exchanges and the subsequent negotiations did not undo that agreement because the negotiations did not concern a variation or rescission of the original terms of the agreement.

Moreover, during the course of the email exchanges, during which the Claimants averred that a binding agreement was reached, the Defendant did not raise the matter of third party claims. The fact that the Defendant sought to reserve their position in relation to this matter after the parties had informally agreed the contents of the Consent Order was immaterial to the question of whether a binding agreement had been reached.

The Defendant had argued that the exchange of emails only constituted agreement with respect to the settlement sum not the full terms of the settlement, which would be agreed through further negotiations. However, the Judge disagreed, and held that if the Defendant's solicitors genuinely believed that the purpose of the negotiations before the trial was only to agree the amount of the settlement, the response to the Claimants' email stating that the Consent Order would be circulated would not have been "Noted. With thanks". The fact that a Consent Order was required indicated to the Court that agreement had been reached and no further negotiation was required. The alternative would have been to confirm that an agreement relating to the settlement sum had been reached and that it was now necessary to consider the remaining terms to conclude a full settlement agreement. Further, the Court found that time was of the essence in these settlement negotiations, both parties intended to settle the claim before trial, because settlement at that stage would avoid the next tranche of Counsels' brief fees which the parties would have had to pay if the case proceeded to trial.

Therefore, given that the parties exhibited the requisite intention to settle and had actually agreed the terms of the settlement, a valid and binding contract had been formed, despite the fact that the Defendant sought, subsequently, to add further indemnity provisions into the final settlement agreement.

Commentary

This decision highlights the importance of expressly stating that a settlement agreement is subject to written contract, especially if the issues in dispute or settlement terms are complex, and not everything you intend to agree is included in the offer.  It also highlights that agreement through an exchange of emails can be binding, and if that is not the intention of the parties, then the email correspondence needs to make it clear that the settlement is "subject to contract" and that a formal settlement agreement will follow (the terms of which are still to be agreed).