Drafting settlement agreements requires precision and care, especially if they include agreements about property. Often too much is left unsaid in the settlement agreement, leading to even more uncertain litigation if things go wrong.

It is fairly common to see an agreement that the parties will exchange contracts by a certain date. This would be straightforward if all that was required was the exchange of signed contracts. Normally, however, although the parties will have thrashed out the purchase price and some other terms, they will have left the details of the conveyance up to their solicitors’ conveyancing departments. Much can still go wrong: forms can be left uncompleted, searches can throw up problems; the actual practice of conveyancing still requires time and decision making.

These problems were highlighted by the Court of Appeal in Gateway Plaza Ltd v White and Peace [2014] EWCA Civ 555. The parties had been locked in litigation about the sale of a property. They reached a settlement whereby the litigation would be stayed for six weeks to give Mr White the opportunity to buy another plot. It was made clear in correspondence that Mr White would need mortgage finance to complete the new purchase.

The term of the settlement read that ‘on or before 28 March 2012 [Mr White] shall exchange contracts with [Gateway] for the purchase of Plot 2, Gateway Plaza…’. The price was agreed. If Mr White complied with this term, the proceedings would be discontinued, otherwise they would be continued.

Unfortunately, when it came to exchange of contracts, things went wrong. In particular, the CML form (which provides information for mortgage lenders) was incorrect. The date for exchange passed and Gateway refused to proceed with the sale.

Gateway resurrected the original litigation; Mr White brought a defence and counterclaim asserting that the original claim had been compromised, contending that Gateway had withdrawn from the settlement agreement in repudiatory breach of it.

The Court of Appeal had to decide what was meant by exchange. Gateway argued that it simply meant the actual process of exchange of one signed contractual document for another in matching terms. In the context of this agreement the Court of Appeal disagreed. There was still some way to go before exchange could take place. Although the settlement was expressed as an obligation on Mr White, it still required collaboration from Gateway. In particular, Gateway had to supply to Mr White’s solicitors the appropriate pre-contract documentation in correct terms, including a properly completed CML form.

What this case illustrates is the need for care when drafting settlement agreements that include the sale or transfer of property. Conveyancing is often not straightforward. As much should be done in the settlement agreement as possible to ensure that it can take place. Consideration should be given to a scenario where it simply is not possible to carry out the land transaction in time: what should happen then to the settlement agreement?

Secondly, even if on the face of a settlement agreement only one party appears to be under any obligations, a common sense interpretation might require at least some collaboration from the other party. In this case, whereas Mr White could always elect to abandon the purchase under the settlement agreement, Gateway were obliged to assist with the conveyancing process. As was noted by the Court of Appeal this was the common sense, if not the literal, construction of the settlement agreement.

When drafting a settlement agreement, always ensure that it is simple and clear in its effect and that the obligations of each party are set out. If this is not done and things go wrong, the parties could find themselves involved in even more litigation.