Reminder that binding settlement can be reached by exchange of emails

Bieber and others v Teathers Limited (in liquidation) [2014] EWHC 4205 (11 December 2014)

Following an unsuccessful mediation, there was an exchange of emails between the parties' solicitors. The Claimants said that this exchange settled the case. The Defendant argued that this was simply agreement of the sum that the Claimants would accept, and that this agreement was subject to contract or in principle only, and the parties would need to negotiate and enter into a detailed settlement agreement. Who was right and why?

The court held that a binding settlement had been reached in or evidenced by an exchange of emails. Although the emails contemplated that a consent order would carry the agreement into effect, failure to agree the terms of the consent order did not affect the binding settlement. No formal settlement agreement was required and the exchange of emails made the settlement binding. Had the Defendant intended the offer to be subject to conditions, such as a signed consent order, this should have been expressly stated.

Practical Implications

  • If everything you want to agree is not specified in the offer and you need a formal agreement, you should set out that the offer is "subject to contract". This applies even where a case is complex and it seems obvious that a detailed agreement will be needed. It is only not essential for this to be stated if the parties' mutual understanding is that negotiations are to be "subject to contract". In any case, it is safest to include this wording if this is what you intend.
  • Be clear about the basis on which any settlement has been agreed and any ancillary terms which will apply. Will you require a formal settlement agreement? If so, say so in any correspondence.
  • A binding agreement can be concluded in an exchange of emails.
  • Attendance notes can be key evidence so make sure they are full and precise.

The disputed communications

In June 2014, there was an exchange of emails between the parties' solicitors. The Claimants sought a declaration that this exchange constituted a binding settlement agreement. None of the communications were marked "subject to contract".

  • 18 June: C suggested to D by email that the Claimants were willing to settle, and should do so within the week before 'the next tranche of money' under funding arrangements was incurred.
  • 19 June: in a telephone call between D claimed to have said that agreeing the settlement sum was key to progressing the discussions further. D's brief note of the call was referred to the Court.
  • 20 June: C's Part 36 offer letter to D offered to settle all claims, counterclaims and costs for £4.2m payable within 28 days. If the "offer is in principle acceptable, we will produce a Tomlin Order" which would break down the amounts payable to each Claimant.
  • 23 June: D's "without prejudice save as to costs" response rejected this and counter-offered £1.5m.
  • 23 June: C rejected £1.5m and offered to accept £3.2m on the terms of the letter of 20 June.
  • 24 to 26 June: telephone conversations focused exclusively on the sum, and D offered £2m.
  • 27 June: in an exchange of emails D made clear that the Defendant's offer would not survive beyond 30 June when the next tranche of counsel's brief fees were due.
  • 29 June: C accepted the offer and stated that they would send a draft consent order in the morning. D replied, "Noted, with thanks".

The parties subsequently failed to agree the terms of a formal settlement due to the Defendant's insistence on an indemnity in respect of third party claims. The Claimants asserted that the claims had been settled by agreement and were not dependent on the subsequent settlement terms.

Decision

Judge Pelling QC found that the parties intended by their communications to reach a final and binding agreement.

Settlement was being driven by time-related cost issues lending "real urgency" to the situation. There was no indication in any of the emails after 23 June that negotiations were taking place subject to contract or that the settlement would be a two-stage process or that anything else needed to be agreed. This was inconsistent with D's (honest) understanding that he had qualified the discussions by indicating that the settlement figure was key, with the implication that details could be agreed and reduced to writing later. Nor did D make any attempt to reserve his client's position in relation to third party claims in relation to the IFAs or otherwise. This was not an agreement in principle. The fact that a consent order was required implies there was nothing substantive left to discuss. D at no stage attempted to introduce the issue of a settlement agreement until after all essential terms had been agreed. If a binding agreement had been reached on 29 June, then what happened afterwards could not undo the agreement unless it amounted to a rescission or variation of what had previously been agreed.

Discussion

This is a real reminder to make sure that what is said in written and telephone communications reflects your intentions or those of your client. This applies to every communication that is sent. A binding agreement can be reached on exchange of emails if objectively all the essential elements have been agreed. Do not assume that the other party has the same subjective intention as you.
It is easy to understand how the situation facing these parties arose given the added pressure of approaching deadlines for fees being incurred, and concurrent preparations for trial. Terms that are important to the client can easily be missed out in this way. To avoid terms which are important to your client being missed out, these terms should be flagged before any agreement is made and all communications marked "subject to contract". The settlement may otherwise leave you or your client feeling dissatisfied and your client could face additional satellite litigation after thinking that the case had come to an end.