Summary

A claim had been settled in pre-trial negotiations where a "subject to contract" umbrella, under which the terms of the settlement had earlier been approved, was lifted by necessary implication so as to make the negotiations binding.

Facts

The court was required to determine whether an action brought by the claimant companies (J) against the defendants (B) had been settled in pre-trial negotiations. J had made serious allegations of fraud against B. Six days before the trial was due to start, the parties' solicitors had a conversation about a proposed settlement. An exchange of emails followed in which B proposed, and J approved, the terms upon which they were prepared to settle. The emails were marked "without prejudice and subject to contract". Proposed orders were subsequently drafted, one of which related to an associated action, known as the QBD action, in which J were the defendants. In their emailed response, B stated that they would agree to the proposed QBD order provided it was endorsed as a consent order by J. Later that day negotiations took place over the phone between J's counsel (K) and B's solicitor (T) whereby all the terms of the agreement were agreed and the form of the agreed statement was reached. The next day, the listing office was informed that the case had been settled. Both sides stood their counsel down and K even agreed to represent another client during the window of the trial. However, T later expressed the view that the QBD action was not settled and sought a further £25,000 from J to settle the action. It was J's case that the case had been settled on terms which enabled them to produce a consent order in respect of the QBD action within a reasonable time, and not the morning after the negotiations as T had contended. B eventually agreed to settle the QBD action on a drop hands basis, but J was no longer willing to settle on those terms. The court had to determine whether (i) the parties had concluded a binding agreement; (ii) the QBD action was included in the settlement; (iii) if there was a binding agreement, either party had committed a breach of that agreement.

Held

(1) The parties were in agreement as to the terms as a result of the lengthy negotiations. However, the issue was whether those negotiations took place under a "subject to contract" umbrella so that the results were agreed but not binding. Where a "subject to contract" qualification was introduced into negotiations it could only cease to apply to the negotiations if the parties expressly or by necessary implication agreed that it should be expunged, Cohen v Nessdale Ltd (1982) 2 All ER 97 CA (Civ Div) applied. In the instant case, there was no suggestion that the subject to contract expression had been expressly lifted, but the circumstances of the negotiations between K and T were such that they could only be understood as being on the basis that, for many reasons, there was a necessary implication that the subject to contract restriction, which had been present in the email correspondence, was lifted at the time of the negotiation. Firstly, K was not alive to any subject to contract restriction during the negotiations. He was negotiating on behalf of his clients and had ostensible authority as counsel to negotiate a final compromise in respect of the subject matter of the dispute in which he was retained irrespective of the earlier subject to contract limitations. Secondly, both K and T were anxious to achieve finality and both believed that they had done so. All that remained was to put in a form of writing the agreement which had been negotiated over the telephone. Thirdly, the parties afterwards acted as if a final settlement had been achieved; K in particular accepted instructions which would have made it impossible for him to appear at the trial. Fourthly, when parties shortly before a trial instructed their lawyers to conclude a settlement it could only be on the basis that if there was an agreement it was a necessary implication of that agreement that any previous subject to contract umbrella had been lifted. For all of those reasons there was a necessary implication that the words "subject to contract" no longer applied to the negotiations. The settlement was concluded following the negotiations, and once the subject to contract umbrella had been lifted neither party could unilaterally reinstate it in an attempt to remove the binding nature of the agreement. (2) It was plain that there was an agreement that the parties would drop hands in respect of the QBD action if J signed the consent order, but there was nothing which made time of the essence. The settlement of the QBD action was not a condition precedent to the settlement of the main action, nor was it a term of settlement to the main action. Furthermore, J's lawyers in the main action were not authorised to enter into a contract which would bind them in the QBD action; K was not instructed in the QBD action and had no ostensible authority as counsel to negotiate a settlement in that regard. Accordingly, the QBD action was settled, subject to a signed consent order being produced, hopefully the day after the negotiations, but if not, within a reasonable time thereafter. (3) T's conduct in asserting that there was no concluded agreement of the QBD action and in seeking extra money was not a repudiatory breach capable of acceptance by J, Woodar Investment Development Ltd v Wimpey Construction UK Ltd (1980) 1 WLR 277 HL considered.

Judgment accordingly