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Settlement agreements: the need for caution and care

There can be many good reasons for reaching a settlement agreement when faced with the prospect of trial. Escalating legal costs and the uncertainty of the outcome are often two important factors. Indeed, the vast majority of commercial disputes, including those in the construction industry, are resolved this way.

But when does an agreement to settle become full, final and binding? Is agreeing a settlement sum sufficient, or are more details needed? These were precisely the questions that concerned the court in the recent case of Bieber and others v Teathers Limited 2014 EWHC 4205 (Ch).

The case

The facts of Bieber did not concern the construction industry, but the principles relating to settlement agreements certainly will. The claimants were a group made up of in excess of 200 individuals who had invested in financial products provided by the defendants, Teathers. The investments failed, and the investors claimed that this was due to the default of Teathers. The combined value of the investors' claim was in excess of £20m.

Although the parties had been involved in on-going settlement negotiations since 2011, in light of impending trial, solicitors for both parties entered into further talks in June 2014. During these 'steps of the court' discussions, a settlement sum was agreed by email on 29 June 2014. As a result, trial preparations were abandoned, along with the trial itself. However, the parties' solicitors were unable to agree the form of settlement agreement.

Attempting to break the deadlock, the investors sought a declaration that a binding agreement had been reached in the email exchange of 19 June 2014. Teathers argued that the terms were not sufficiently certain to constitute a binding agreement.

The decision

The court found that a binding settlement had been reached in the email exchange. In making this decision, His Honour Judge Pelling said: "If, on an objective appraisal of the parties’ words and conduct, the parties intended to conclude a legally binding agreement, the fact that certain terms of economic or other significance had not been agreed does not prevent it being concluded that the parties had concluded a binding agreement." Therefore, if the documents suggest that the parties have agreed all the terms necessary for there to be an enforceable contract, the court would have difficulty concluding otherwise, even where the parties may not consider themselves formally bound.

This is a general common law principle. The judge noted that, "in the context of settlement agreements, this may mean that the failure to agree terms concerning confidentiality and other allied matters will not prevent a court from concluding that the parties have objectively entered into a binding settlement agreement."

Lesson learned

The decision only emphasises the need for caution and care when settling a construction dispute. Agreement to a settlement sum, especially reached just before trial, is likely to be binding, unless it is clearly expressed to be otherwise. Therefore, although it can be tempting for parties to relax from the formality of crystallising an agreement in the relief of reaching settlement, it is nonetheless important for parties to accurately record what is agreed.