Civil procedure and the CPR: collateral oral agreements

This final part of a consideration of the law of contract in civil procedure looks at two very different contexts and finds a lukewarm adoption of the general law.

Settlement and subject to contract

Newbury v Sun Microsystems [2013] EWHC 2180 (QB) is a case in point. Here, nine days before trial, the defendant's solicitors sent a letter setting out terms of settlement of a dispute, stating: "such settlement to be recorded in a suitably worded agreement". The letter used the word 'offer' and stated that the offer was open until 5pm (later extended to 5.30pm) on a specified date. The claimant responded before expiry, stating that the offer was accepted and that a draft agreement would be forwarded. The parties subsequently failed to agree on the wording of the draft agreement.

The claimants then argued that there was nonetheless a binding settlement and the High Court agreed. The letter constituted an offer which was capable of acceptance and which had been accepted by the claimant. The parties had then failed to agree on suitable wording but that did not alter the fact that there was a binding contract of settlement. Where it is understood that a formal document recording the terms will need to be executed, the question of whether the parties intend to be bound immediately, or only when the formal document is executed, depends on an objective appraisal of their words and conduct. It was relevant that the letter was not expressed to be 'subject to contract'; the presence of those words would have been a clear indication that the terms were not intended to be binding.

So this application of what might be said to be ordinary principles of contract formation, offer and acceptance is a lesson for all litigators to ensure that any offer is stated to be 'subject to contract' if there is any doubt as to the finer details of the settlement. The court held that in the phrase "such settlement to be recorded in a suitably worded agreement", the reference to "such" settlement was a reference back to the terms set out in the earlier part of the letter. If the offer was accepted, the terms set out would constitute the terms of the settlement agreed between the parties and the words "such settlement" were not a reference to terms still to be negotiated and agreed.

Oral agreement to sign a written settlement

Along similar lines to Sun Microsystems is the decision of Teare J in Universal Satspace North America) LLC v Kenya (unreported, 20 December 2013). Here, a mediation agreement provided that no settlement reached in mediation would be binding unless reduced to writing and signed by both parties. At mediation the parties orally agreed upon a 21-day delay period after which each would sign a written agreement. The defendant subsequently refused to sign the written agreement and consequently the claimant sought to have the defence and counterclaim struck out.

In the strike out application it was argued that although the claimant could not rely on the mediated agreement because it had not been signed, it could rely on the oral agreement to sign it and that oral agreement could be taken into account by the court in arriving at its decision on the application to strike out. Teare J, relying on the principles of the law of contract, concluded that the mediation agreement requiring any settlement to be reduced to writing was not concerned with a collateral agreement to sign the agreed form of settlement. Therefore, the collateral oral agreement could be taken into account by the court. On that basis the court acceded to the application to strike out.

Conclusion

The Supreme Court in Dunhill accepted the proposition that the CPR can indeed modify the substantive law. It is clear that Part 36 does modify the ordinary law of offer and acceptance, and equally the 'compromise rule' applicable in Dunhill departs from the general principles of contract. The message then must be that where the ordinary law of contract is being relied upon as the basis for any argument, great care needs to be taken to consider if there are procedural rules that might modify that position.

David Chalk is a consultant for DAS LawAssist

www.daslawassist.co.uk

He is a senior fellow in the faculty of business, law and sport at the University of Winchester

Chalk was the university's founding head of law from 2006 to 2009 having joined from Anglia Ruskin University where he was principal lecturer in law. He has taught law at undergraduate level for more than 30 years and has also taught at Master's level and at the vocational stage for both barristers (BBPTCC) and solicitors (LPC)