Advising on the meaning and effects of settlement is a task faced by most litigators on a daily basis, often in time-pressurised conditions. And yet the effects of getting it wrong can be serious, for client and practitioner alike. The recent Court of Appeal decision in Frost v Wake Smith and Tofields Solicitors [2013] EWCA Civ 1960 is therefore important reading for litigators. It gives a helpful review of a solicitor’s duties arising out of a mediation and the potential negligence actions and claims for wasted costs which could result from a breach of those duties. 

Background

This was a claim against a solicitor arising out of a mediation in 2003. The mediation related to a bitter and long-running dispute between two brothers, DF and RF over the division of their shared property and business interests. Remarkably, an agreement was reached and the brothers went out to dinner to celebrate. DF’s solicitor (SWT), stayed on to draw up the settlement agreement. After dinner the brothers returned to sign the agreement (the 1st Agreement).

DF left the mediation believing that an agreement had been reached, from which RF could not resile.

Following the mediation, however, RF raised various objections to the 1st Agreement and it became clear that RF did not regard himself as bound by it. SWT obtained advice from Counsel that the 1st Agreement was unenforceable because of it was too vague because it purported to deal with the interests of third parties. A further mediation meeting took place at which a second, more detailed, agreement was drawn up (the 2nd Agreement).

The Claim

In 2009, DF sued SWT for, among other things, failing secure finality in the 1st Agreement and sought damages amounting to the difference in value to him between the 1st and 2nd Agreement. The Court of Appeal upheld the first instance decision that the 1st Agreement would have been impossible to perform. There was not sufficient information to achieve finality. The 1st Agreement merely provided a framework for any future agreement.

Although not pleaded, the Court of Appeal went on to comment that a solicitor in SWT’s position would be under a duty to warn their client as to the status of any agreement reached at a mediation; whether it was final and binding or anything less than that. The proper measure of damages flowing from a breach of such duty would be at best the expenditure wasted in attempting to explore the enforceability of the agreement.

Comment

The fact that this was a complex, long-running dispute made a final agreement impossible at the first mediation. However there will clearly be times when a practitioner could have, and ought to have secured a final, binding agreement and so to a large extent Frost turns on its facts.

When mediations run late into the night and parties are keen to “lock down” an agreement there and then, mistakes are far more likely to be made in the drafting of complex settlement agreements. What is needed is thorough preparation and communication with all parties about what can be achieved at a mediation, and what information or authority is necessary to do so. Parties should certainly consider exchanging draft settlement agreements in advance and bringing digital copies with them.