During settlement discussions, it is commonplace for offers and counteroffers to be made between rival parties. While settlement offers are usually reduced to writing in a letter or formal Offer of Compromise, they are often communicated verbally or via email. These seemingly ‘less formal’ modes of communication can create a situation where one party asserts that a legally enforceable settlement agreement has been made, while the other says it has not.
This article looks at recent case law, Sully v Englisch [2022] VSCA 184 and Manny v Rose [2022] NSWSC 1671, which draws upon the principles of Masters v Cameron (1954) 91 CLR 353.
The principles of Masters v Cameron (1954) 91 CLR 353
In Masters v Cameron, the High Court identified four broad categories of contract in respect of settlement discussions, depending whether the parties:
- intend to be bound immediately, though express a desire to draw up their agreement in a more formal document at a later stage;
- intend to be bound immediately, but may wish the operation of a particular clause or term to be delayed pending the drawing up of a more formal document;
- intend to postpone the creation of contractual relations until a formal contract is drawn up and executed; or
- intend to be bound immediately by terms which they have agreed upon, while expecting to make a further contract in substitution for the first contract containing, by consent, additional terms.
Far too often, there is a confusion as to what has actually been agreed to between parties, especially where there is a confusion involving the first and third categories above. In both categories, the Court must assess the objective intention of the parties, having regard to the actual words used, the surrounding circumstances, and their specific conduct in respect of what and how the offer was made, and what and how it was accepted.
Ultimately, the fundamental question of whether an enforceable agreement was made is determined by whether, in all the circumstances, the parties objectively intended to reach a binding agreement.1
Sully v Englisch [2022] VSCA 184: When a verbal agreement is made during mediation
Facts
During a mediation held at VCAT, the parties reached an ‘agreement’ to settle a dispute but did not prepare any written terms on the day.
The mediation was left ‘open’ by the Judicial Registrar (who was mediating) and the matter was listed for a directions hearing later that month.
There was further correspondence between the parties after the mediation concerning the terms of settlement. Ultimately, no written terms were signed by the parties.
One party maintained that an enforceable agreement was reached at the mediation, and the drafting of terms of settlement was merely intended to document what was already agreed and binding (category 1 of Masters v Cameron). The other party maintained that the parties did not intend any enforceable agreement until terms were signed (similar to category 3 of Masters v Cameron).
Court’s finding
The Court held that a binding agreement was made at the mediation. The creation of formal terms after the mediation was intended only to document what was already agreed.
The Court stated that:
“Viewed objectively, each party plainly intended that the dispute between them was irrevocably resolved and the agreement reached was binding. Nothing further was to be achieved by making the terms conditional or the agreement provisional. The fact that thereafter the parties appear to have found things to argue about does not change what had already occurred.”2
Importantly, in reaching its decision the Court focused on the two file notes taken by the solicitors at the mediation, which both recorded that an offer to settle the claim was “accepted”.
In deciding the case according to its own fact, the Court was not persuaded by argument that it should have regard to the ‘“common practice’ for settlements at mediation to be contained in writing.
Manny v Rose [2022] NSWSC 1671: When an offer to settle is made via email
Facts
The Manny Parties and the Rose Parties sought to organise a mediation of various disputes between them including the disputes the subject of these proceedings. Iridium was invited to participate in the mediation, however it declined to do so.
The first email
At 1.55 pm on the day of the mediation, Mr Toufic Bazouni, who represented the Manny Parties, sent an email to Ms Williamson saying:
We refer to the recent telephone discussion today between yourself and our George Bazouni.
We confirm the Manny parties are in a mediation today with the Rose parties.
We seek that your client agrees to the following:
1. The above proceedings be dismissed; and
2. No order as to costs with the intent that each party pays their own costs.
We would be grateful if you would obtain your client’s instructions as a matter of urgency.
The second email
Ms Williamson replied at 4.09 pm saying:
We are instructed that Iridium Developments Pty Limited in its own right and as trustee for the Iridium Development Trust (Iridium), would be willing to agree to the proceedings 2021/346395 (Proceedings) being dismissed with no order as to costs (with the intent that each party bear its own costs) conditional upon:
1. Iridium’s willingness to bear its own costs as you have proposed would be done in consideration for releases from the plaintiffs in favour of Iridium in respect of all matters alleged in the Proceedings; and
2. A similar release also being provided by the plaintiffs to Robert (Roy) Manassen; Manno Cronulla Pty Ltd in its own right and as trustee of the Cronulla Unit Trust and Manno Kingsway Pty Ltd in its own right and as trustee for the Manno Kingsway Trust, formerly being the eighth to tenth defendants, respectively, in the Proceedings.
If necessary, mutual releases can be provided.
The third email
Mr Bazouni responded to that email at 11.12 pm saying:
We refer to your email below [which was a reference to Ms Williamson’s email sent at 4.09 pm].
We are instructed the Plaintiffs agree to the below and mutual releases.
We will communicate with you further in relation to documenting the agreement.
Court’s finding
The Court held that a binding agreement made and enforceable between the parties (offer at 4.09 pm – acceptance at 11.12 pm).
The email was sought Iridium’s agreement to the proposed terms to settle the whole proceedings.
Although the response was contained in an email, the drafting of that email was formal. It contained:
- the full name of the parties and stated their capacity and standing in the proceeding;
- the proceedings number; and
- terms of sufficient precision that acceptance of the terms proposed would give rise to an enforceable contract.
The last paragraph of the 11.12 pm email suggests that there was agreement, but that it was intended that it would be documented.
The Court accepted that an agreement can be made over an exchange of emails (with precise terms to be documented later).
In conclusion
Both cases demonstrate the careful approach that must be taken when conveying offers of settlement having regard to whether or not the offer is intended to give rise to a binding agreement immediately upon acceptance or only when a formal document is signed.
The above examples demonstrate the very real risk of unknowingly creating a legally enforceable settlement agreement. To avoid any unintended consequences following a negotiation or settlement agreement, it is highly important that proper legal advice and representation is sought. Our Litigation & Dispute Resolution team is regularly involved in matters such as these, and are more than willing to assist.
Contact us
If you require advice, or would like to discuss any aspects of settlement agreements and enforceable contracts, please contact a member of our Litigation & Dispute Resolution team.
References
1. Tasman Capital Pty Ltd v Sinclair [2008] NSWCA 248 at [25].
2. Sully v Englisch [2022] VSCA 184 at [3] per Niall J.
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