Fri 20 Feb 2015

Settlement agreements and High Court decisions

There have been two recent decisions of the High Court in England and Wales which are worth considering in the context of advising clients on settlement agreements.

Has a binding settlement agreement been formed?

The first decision was given in the case of Bieber and others v Teathers Limited (in liquidation) [2014] EWHC 4205. In this case Bieber had invested in a series of film and television production partnerships formed by Teathers Limited. Unfortunately the schemes failed and Bieber raised proceedings against Teathers Limited who were now insolvent.

The Claimant, Bieber, indicated that he would be willing to reach a settlement and lawyers for both parties began negotiating via email. The emails dealt exclusively with the settlement sum and no other terms. Following a series of emails, lawyers on behalf of Teathers Limited accepted Bieber's last offer and lawyers on behalf of Bieber replied, "noted, with thanks". Those acting for Teathers Limited then sent a draft consent order (required in England to make an agreement legally binding) to Bieber's lawyers, who in response sent a long form Settlement Agreement. The Settlement Agreement contained an indemnity in favour of Teathers Limited in respect of any third party claims. Therefore Bieber refused to sign the Agreement. Bieber nevertheless argued that a binding settlement had been entered into by way of email exchange between the parties' lawyers.

The High Court held that a binding settlement had indeed been formed through the email exchange without the need for a settlement agreement to be entered into or further terms to be agreed. It was thought by the High Court that on an objective assessment of all the negotiations, the intention had been to reach a full and final settlement by way of email exchange alone. The agreement was stated to be in full and final settlement of all claims between the parties, counterclaims and costs. The response of Bieber's lawyers ("noted, with thanks") did not suggest that there were any further terms to be agreed; lawyers on behalf of Teathers Limited had not previously raised the indemnity issue; and crucially, the offer accepted by Bieber's lawyers was not expressed as being subject to contract.

Although a decision of the High Court in England and Wales, it is relevant to those practicing in Scotland. The decision acts as a stark reminder to practitioners to ensure that when negotiating a settlement sum or other terms of a settlement, they make clear that the negotiations are subject to a settlement agreement being agreed and entered into. The term "subject to contract" does not have any legal meaning in Scots law and therefore appropriate wording should be used in emails and letters during negotiations, to make clear that any proposal is subject to a satisfactory settlement agreement being entered into.

Have future claims been settled?

The second High Court decision which I suggest is worth highlighting is that of Brazier v News Group Newspapers Ltd [2015] EWHC 125 (Ch) which involved the high profile issue of phone-hacking.

The two Claimants (Jeff Brazier and John Leslie) had each raised claims for phone-hacking against News Group Newspapers Limited ("NGNL"), who used to publish the now defunct News of the World. However, the Claimants had previously raised claims of phone-hacking against NGNL which had been settled out of court. Therefore NGNL argued that the latest claims brought by the Claimants should be struck out. On the other hand the Claimant's representatives argued that the latest claims should not be struck out as they were based on new evidence which showed wider phone-hacking practices at News of the World.

The High Court in coming to their decision that the latest claims had been compromised by the earlier agreement, had regard to the principles laid down by the House of Lords in BCCI v Ali [2001] UKHL 8. In particular, Justice Mann held that in order to determine the matter before him he had to firstly consider exactly what was the nature of the claim which had been settled previously and secondly, whether ignorance of the latest claims at the time of settlement excluded them from that settlement.

The settlement which had been entered into expressly referred to the claim number of the previous claim in order to describe what it was settling. Justice Mann found, from looking at the pleadings in the first claim, that while they did focus mainly on phone-hacking by one person, they also referred to wider phone-hacking by other journalists. On this basis Justice Mann found that the previous settlement did cover the type of claim now being brought by the Claimants. In terms of whether or not the Claimants' ignorance of the claims should nevertheless preclude them from the settlement, Justice Mann found that the Claimants were not ignorant of the fact that other claims in relation to wider phone-hacking might exist. Instead the Claimants did appear to be aware that such other claims could exist but simply did not, at that stage, have evidence in relation to them and thus did not know their extent. Consequently the High Court held that the settlement did cover the most recent allegations of phone-hacking.

In terms of what we can learn from this decision, it demonstrates that when advising clients on settlement agreements, you cannot assume that future claims are excluded from the settlement because there is reference to a specific claim number. Secondly, it highlights the distinction made in Ali that while future claims may be excluded when the parties can be said to be truly ignorant of them, they may not be excluded where the parties anticipate that there will be future claims and are only ignorant of their extent. 

Of course, arguably, much will depend upon the particular drafting of the settlement agreement. In Ali there was a general waiver in the agreement which provided that he was accepting a compensation sum "in full and final settlement of all claims of whatever nature that exist or might exist against the employer". The House of Lords held that this did not preclude claims which could not have been known about at the time of the settlement because they were now available due to a change in the law. However, many settlement agreements now expressly state that they settle future claims, including those which arise due to a change in the law. Arguably if the agreement in Ali had said something to this effect, the decision might have been different. Certainly in Hilton UK Hotels Ltd v McNaughton EATS/0059/04 the Employment Appeal Tribunal held that future claims can be settled by way of a settlement agreement, albeit the language would have to be clear and unequivocal to do so.

While this was again a decision of the High Court in England, if nothing else it serves as a reminder to carefully consider both the drafting of any waiver of claims in settlement agreements; and the advice given in relation to whether future claims have been settled.  

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