There is helpful guidance on standstill agreements in two recent decisions: Russell and another v Stone (t/a PSP Consultants) and others [2017] EWHC 1555 (TCC) and Muduroglu and another v Stephenson Harwood (a firm) and another [2017] EWHC 29 (Ch) (unrep). This article will explore the practical ramifications of these cases on standstill agreements and the use of standstill agreements in lieu of seeking a stay of proceedings.

In Russell and another v Stone (t/a PSP Consultants) and others [2017] EWHC 1555 (TCC) the parties entered into a standstill agreement on 5 November 2015 to avoid numerous claims becoming statute barred. The standstill period was extended in three subsequent agreements. The claimants issued proceedings on the day following the expiry of the final standstill agreement. The defendants sought to strike out several claims contending that they had become statute barred as the extended limitation period had expired with the standstill agreement.

Coulson J ruled in favour of the claimants, concluding:

  • The effect of the standstill agreements were not to extend limitation periods. Instead, their practical impact on proceedings was to suspend them. For example, if the claimant had 5 months until a claim became statute barred upon commencement of a standstill agreement then they would have 5 months left on its expiry.Although the agreement’s recitals framed the purpose of the agreement as being an agreement to extend, the operative clauses of the agreements exclusively referred to suspension. In accordance with the principles set out in Re Moon (1886), the operative clauses prevailed.
  • “[S]loppy drafting” had contributed to extending all the rights of the original standstill agreement, not just the standstill period. This prevented the defendants from bringing a limitation defence. Coulson J considered the original agreement and the subsequent extensions within the context of the solicitors' discussions and the intentions of the parties. Parties should carefully consider the intended outcome of any agreement (or later amendment) and ensure any draft clearly reflects those intentions. Disagreement arising out of the construction of a standstill agreement will be resolved in accordance with the traditional approach for interpreting contracts.
  • Claimants may find it more convenient to initiate proceedings and then seek a formal stay of proceedings from the court, rather than negotiating a standstill agreement.

In Muduroglu and another v Stephenson Harwood (a firm) and another [2017] EWHC 29 (Ch) the parties entered into a standstill agreement to avoid the claim becoming statute barred as it approached the end of the limitation period. A clause of the agreement required 14 days’ notice if the claimant wished to issue proceedings and was subject to a longstop date. The claimants issued proceedings in breach of this term.

The defendant ran a limitation defence, arguing that the claimant’s breach repudiated the agreement and any suspension of time gained from the standstill agreement should therefore be cancelled.

The Deputy High Court Judge held that the breach was not repudiatory:

  • Avoiding proceedings did not benefit the claimant alone; both parties had gained from agreeing to suspend the limitation period.
  • The term requiring notice was not significant enough to be deemed as the ‘heart of the contract’. Therefore, any breach of this term could not be repudiatory.
  • Even if the breach had been deemed repudiatory, the judge was sceptical that the defendant would not still have to honour the suspension of time in any event.

Conclusion

Parties should approach the drafting of a standstill agreement with great care. Imprecise use of language may lead to unintended consequences, limiting your actions or potentially empowering your opponent. This is especially important when considering the practical use that standstill agreements can have in the face of looming limitation periods.

It is also clear that standstill agreements do not act as a complete safety net from proceedings being commenced. Murduroglu shows that, at least in certain circumstances, it is possible for a party to breach a standstill agreement and still benefit from a suspension of the limitation period. As such, parties should ensure that they are prepared for litigation despite having an agreement in place.

Another option is to use the court's power to stay proceedings in order to overcome the uncertainty caused by ambiguous language. However, parties should consider other factors before opting for the courts: making a dispute “public” by issuing proceedings; costs associated with making an application for a stay; whether an extension of the stay will be granted, if needed (the court may not be so easily negotiated with); and the possibility of the court imposing conditions on granting the stay