Commercial Litigation – Be Careful when "Concluding" Settlement Negotiations
BE CAREFUL WHEN “CONCLUDING” SETTLEMENT NEGOTIATIONS
The recent superior court judgment serves as a timely reminder that a party to litigation who intends a settlement offer to be “subject to contract” should expressly say so in order to avoid the risk of being bound to the agreement reached during the informal settlement communications or to an exchange of emails between lawyers.
The legal decision concerned an exchange of emails between the lawyers of parties which followed a failed mediation. Even though the mediation had failed, settlement negotiations between the lawyers continued. About one week before the trial, the plaintiffs’ lawyers accepted by email a settlement offer sent by the lawyers for the defendant which focused only on the sum to be paid to the plaintiffs. The plaintiffs’ lawyer said in the response email that he would send a draft consent order. The defendant’s lawyer responded with the words “noted, with thanks” in a further email in response.
However, the lawyer for the defendant received not only the draft consent order but a detailed settlement and release agreement which included an indemnity in favour of the defendant in the event of any third party claims. The plaintiffs refused to sign the indemnity release.
The plaintiffs then argued that the exchange of emails between the lawyers for the parties in fact constituted settlement of the dispute at law. The defendant denied that any settlement had taken place. The defendant argued that the parties had agreed to a two-stage process. The first step was to agree the sum of money the plaintiffs would accept. This had been agreed but this payment was subject to a contract which depended upon the parties agreeing to a detailed settlement agreement as the second step.
Ultimately, the court decided that the parties had reached the concluded agreement on the terms of the email exchange. This email exchange was neither explicitly nor impliedly made “subject to contract” which is lawyer-language to mean that no legal agreement has in fact been reached and that the parties must set out their in-principle agreement in a detailed written contract.
The court decided that the offer the plaintiffs had accepted was not express to be subject to contract and could not be construed as including any such qualification. The court held that the plaintiffs and the defendant had mutually intended to reach a final and binding settlement on the exchange of emails via their lawyers when the entire course of negotiations was considered.
Importantly, the defendant had made no attempt to preserve its position relating to third party claims during the negotiations. Seen in this light, the defendant’s lawyers response of “noted, with thanks” clearly indicated that no further terms had to be considered or agreed between the parties.
The moral of this case is that it is best to leave nothing to chance or to an implicit understanding. When conducting settlement negotiations by email or by other correspondence, it is best that all negotiations should be headed “subject to contract” if the parties intend to enter into a formal written contract at a later date.
Judicate Lawyers can provide expert advice in relation to the conduct of commercial litigation and can assist businesses with timely and cost-effective dispute resolution processes.
This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.
For any further information concerning this article, please contact Michael Pickering, Principal, Judicate Lawyers – Barristers and Solicitors of Unit 11 / 233 Cardigan Street, Carlton, Victoria, 3053. His contact details are as follows: