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Mediation update: settlement agreements and drafting in advance

Recent weeks have brought a further decision on settlement agreements in the form of Caroline Gibbs v Lakeside Developments Ltd.

Gibbs v Lakeside Developments Ltd

Gibbs v Lakeside Developments Ltd concerned forfeiture of a lease of a property. Ms Gibbs lost her claim for damages in the County Court, but was granted permission to appeal. Subsequently the parties corresponded about a compromise.

Ms Gibbs sent a letter to Lakeside offering to accept a sum of £90,000 with each party bearing its own costs, provided that:

“(1) this offer is accepted by no later than 4pm on Wednesday, 9 March 2016; and (2) the monies are transferred into an account nominated by me before 4pm on Wednesday 16 March 2016.”

Lakeside replied by email saying “the claimant accepts your offer” and attaching a draft consent order for Ms Gibbs’ consideration and approval. That consent order contained a different date to the terms of Ms Gibbs’ offer in that it provided for payment of the sum by 8 April 2016.

There was then a hearing to consider whether the parties had, by this exchange, concluded a compromise or not.

The first instance judge held they had not. On appeal, Arnold J agreed.

The test

It was common ground that the relevant principle to be applied was that stated in Foskett’s Law of Compromise (at paragraph 3.22), namely that:

“The essential task is to determine whether the parties’ negotiations have crystalized into a contractually binding agreement. In order to achieve this the traditional test applying an objective test is to seek to identify a definite offer by one party and a definite acceptance of that offer by the other party.”

The offer was a package

Arnold J held Ms Gibbs’ offer contained two limbs:

  • Limb 1 was that there had to be acceptance of the offer to accept the sum of £90,000 in full and final settlement of all claims by no later than 4pm on Wednesday 9 March 2016.
  • Limb 2 was that payment must be made by transfer to an account nominated by Ms Gibbs before 4pm on 16 March 2016.

This, the judge said, was a package and “as a package, it fell to be accepted in whole or not at all”.

Because Lakeside’s email reply attached a draft consent order with a different date for payment, there was no consensus on the date. Therefore, Lakeside’s reply was a counter-offer and, as such, a rejection of Ms Gibbs’ offer. This was the case even though the covering email attaching the draft consent order stated “the claimant accepts your offer”.

What the court can consider

Arnold J went on to say what the court could look at when considering this question. He disagreed with the first instance judge that the court could only look at the offer letter and the email reply, finding instead that it is well established that, in considering whether an agreement has been concluded, the court is entitled to have regard to all the communications between the parties. He quoted from RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH, where Lord Clarke approved the well-known summary of the relevant principles given by Lloyd LJ in Pagnan SPA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601 (at 619) and, in particular, the first principle:

“In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole…”

Looking at the subsequent correspondence confirmed and reinforced Arnold J’s conclusion that the letter amounted to a counter-offer.

Drafting in advance

Although Gibbs v Lakeside Developments Ltd did not involve a mediation (as far as I can tell from the judgment), the facts in the case reinforce the necessity to draft in advance of the mediation day.

As I’ve discussed previously, drafting in advance allows parties to gain an early understanding of what the desired or necessary terms of any settlement are, including:

  • The precise scope of the dispute being settled (such as, in a defects claim, whether the claim set out in a pleading or letter of claim is being settled or it is something more, such as defects that are yet to be discovered or yet to be pleaded).
  • What the form of the agreement should be and if any steps need to be taken for an agreement to work (such as, in a boundary dispute, consulting a conveyancing professional about any steps that may need to be taken with the Land Registry).
  • Each and every term that is required to be included in any deal (such as a confidentiality clause, no admissions clause or a clause allowing payment in instalments).
  • Where desired terms fit in the pecking order and which are “deal breakers”.

Of course, having such a draft agreement (or agreements) ready in your mediation toolkit does not mean that the terms of that draft are set in stone. Also, the draft does not have to be disclosed to the other party. Instead, it can be tweaked as the mediation evolves.

Such advance planning also assists the mediation or negotiation process. Even requirements that may seem minor (such as when or how payment will be made) can derail the mediation process if raised late in the mediation day. In Gibbs v Lakeside Developments Ltd, when payment was to be made derailed the whole compromise.

Keating Chambers Elizabeth Repper

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