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Have you settled without knowing it?

A recent High Court case provides a cautionary tale for those who are not careful in finalising terms of settlement.

It is often tempting to avoid the expense of instructing lawyers, particularly in a dispute where it appears that a settlement can be agreed fairly swiftly. However, the case of Newbury v Sun Microsystems underlines the importance of taking care when settling disputes and highlights the pitfalls and the difficulties the parties can get themselves into.

In the above case the Claimant pursued court proceedings against the Defendant claiming unpaid commission. The Defendant, in turn, counterclaimed for recovery of an alleged overpayment.

Shortly before a long trial was due to commence, the Defendant’s solicitors wrote to the Claimant’s solicitors offering the sum of £601,464.98 in settlement of Mr Newbury’s claim and the letter stated that the settlement was “to be recorded in a suitably worded agreement”. The Claimant’s solicitors accepted the offer.

However the draft settlement agreement subsequently sent across to Mr Newbury’s solicitors by Sun Microsystems’ solicitors contained clauses relating to income tax and National Insurance contributions as well as a clause imposing an obligation of confidentiality on the Claimant. The Claimant rejected the Defendant’s draft agreement stating that it did not reflect the agreed terms specified in the settlement letter, which he claimed was binding following his acceptance of the Defendant’s offer. Further, the Claimant argued that the execution of a written agreement was not a condition to the agreement coming into effect.

The Defendant disagreed and asserted that the offer letter was not capable of acceptance as it was an agreement in principle only and that it was conditional upon agreement of the other matters which were to be included in the “suitably worded agreement”. According to the Defendant, a “suitably worded agreement” meant that the parties were still negotiating the finer details of the settlement.

The Court ruled in favour of the Claimant. It said that the Defendant’s offer and the Claimant’s acceptance of that offer included all the essential elements of a contract and that once the Claimant accepted the Defendant’s offer, the parties had reached a binding agreement. The Judge pointed out that the offer letter was not expressed as being “subject to contract” and said that “had those words been used, it would have been clear that the terms were not yet binding or agreed until the formal contract was agreed. In the absence of such wording, the Judge found that it was too late for any further (additional) terms to be negotiated by the Defendant.

This case highlights the need for the parties in settlement negotiations to be very careful what they state in correspondence so as to ensure that a binding contract is not inadvertently created.
If you are involved in a dispute then you should consider seeking professional advice from the outset to make certain that the settlement which you are trying to achieve is what you are actually agreeing to.

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Yat Wong

Commercial Dispute Resolution
0113 227 9346
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Yat Wong Blacks Solicitors LLP