Settlement Negotiations & Oral Agreements

31-10-2011 16:33

It is generally the case (with a few exceptions, for example, in the case of most contracts involving interests in land) that parties can reach a binding agreement orally. In the midst of litigation and with a trial imminent, the pressure to settle a claim can be immense, particularly in view of the likely costs of and risks associated with a trial. It is however important to ensure that settlement discussions, unless you wish to be bound by any agreement reached in those discussions, are expressed to be strictly “subject to contract” and are only concluded once a binding written agreement is entered into, so that you are not bound by any unsatisfactory oral agreement reached.

In Thameside Construction Company Ltd v Arthenella Ltd [2011] EWHC 2695 (TCC) (20 October 2011) a three day trial was fixed to commence on 24 October 2011. The parties’ Managing Directors discussed settlement on 9 September 2011 in an attempt to avoid the costs of the trial. The Claimant (Thameside) alleged that those discussions resulted in a binding settlement being reached that the Defendant (Arthenella) would pay Thameside £275,000 with a further £25,000 if Thameside could provide convincing evidence that part of its claim would succeed. The Defendant (Arthenella) alleged that no such agreement had been reached.

Mr Justice Ramsey considered evidence given by the Managing Directors of the respective parties and looked at what was said and done before during and after the settlement discussions in order to judge whether there was a binding agreement.

Mr Justice Ramsey considered that what happened after the conversation on 9 September 2011 is that the Managing Director of Arthenella had second thoughts about whether £275,000 was too much to pay in settlement and wanted to keep the negotiations going. Settlement had however been agreed during the discussions on 9 September 2011.

The parties agreed that during the course of those settlement discussions, the Managing Director of Thamside disclosed to the Managing Director of Arthenella that Thameside had problems with their bank overdraft and needed to settle before January 2012. This may have been the reason the Managing Director of Arthenella had second thoughts about the settlement figure. Mr Justice Ramsey considered that the disclosure of this sensitive information was further evidence of a binding agreement as, he considered, the Managing Director of Thamside would only have disclosed that information after settlement by way of explaining that the settlement reached by the parties allowed Thameside to overcome those banking difficulties.

A link to the judgement in this case is below:

If you require any further information on this subject, please contact Philip Vickers.

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