Agreement to settle court proceedings found binding

In the Supreme Court decision of Humphris-Clark v Lazaridis [2010] NSWSC 318 handed down on 27 April 2010 the court was asked to determine whether an agreement to settle bitterly disputed proceedings was binding even through the deed of settlement envisaged in the negotiations was never executed. The plaintiff sought orders for specific enforcement of the settlement and a declaration as to its enforceability.

The evidence showed the following sequence of event:

a) The plaintiff’s barrister made a verbal offer inclusive of costs stating: “I am instructed that the offer is to be made on the basis that the plaintiff gives a verdict for the defendant in the proceedings, with each party to bear his own costs. The settlement monies will be paid under a separate Deed of Release which the parties will need to enter into. The offer is only open for acceptance until 5 pm today.”

b) The defendant’s barrister asked for time to get some instructions. Then called stating: “I have spoken to the client and I am instructed to accept your offer. What will we do on Monday?”

c) The plaintiff’s barrister said: “My solicitor is based in Newcastle, so I am sure that she can appear and inform the court the matter is settled.

d) The defendant’s barrister said: “That should be fine. I will let my solicitor know.”

On Monday the Court was advised the matter had settled and were ordered to file consent orders.

The plaintiff claimed his instructions were: “Well I’ll take the offer at least it means that he is taking responsibility for what he did to me.” The judge held this evidence was not relevant as it was undisputed that the plaintiff’s solicitor was authorised to bind his client. What was disputed was whether a binding agreement had been reached.

The court noted there were four classes into which a case may fall where parties have been negotiating to settle proceedings:

  1. where parties intend to be immediately bound to the performance of the terms agreed, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect;
  2. where the parties have reached complete agreement on all the terms and intend no departure from or addition to those terms, but nevertheless may have made performance of one or more of the terms conditional upon the execution of a formal document;
  3. where the parties are content to be bound immediately and exclusively by the terms which they had agreed whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms; and
  4. the parties do not intend to make a concluded bargain unless and until they execute a formal contract.

The court noted ii is perfectly effective to make a bargain containing certain terms which one is content with, dealing with what are regarded as essentials, and at the same time to say that one would have a formal document drawn up with the full expectation that one would by consent insert in it a number of further terms uncontentious terms.

The plaintiff argued the case fell into the fourth class where the parties intended they would not bound unless and until they execute a formal contract because there was no agreement on the content of the Deed of Release. In particular the statement “the settlement moneys will be paid under a separate Deed of Release which the parties will need to enter into” was to the same effect as saying that the agreement was “subject to contract”. This was unenforceable as pointed out by the High Court in Booker Industries Pty Ltd v Wilson Parking 149 CLR 600:

It is established by authority, both ancient and modern, that the courts will not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement of the parties to agree at some time in the future.

The court held that there was never any suggestion in the communications between the barristers or between the solicitors that the Court was to be informed that the parties had only settled their differences “in principle”. The parties agreed that the Court was to be informed that the parties had settled the case. Accordingly the parties’ agreement that there would be a “separate” Deed, in the context of the communications, was simply a mechanism for the implementation of their agreement. His Honour holding:

The conduct of the parties in having the Court note that the matter was settled, rather than informing the Court that the matter was settled in principle, and in abandoning the trial, is conduct that evidences an intention to be immediately bound by their agreement. I am satisfied that when the parties used the expression “enter into a Deed of Release” they understood and intended that they would sign a Deed providing: (a) for the payment of the agreed amount to the defendant: and (b) releasing the plaintiff from all claims arising out of or relating to the matters the subject of litigation. This was not an agreement to agree at some time in the future. There were no further matters to be agreed. All that had to occur was that the Deed had to be prepared consistently with the agreement. The defendant is entitled to require the plaintiff to remove any provisions of the Deed that go beyond such a release.

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