Legal Briefing

Can noted 
mean accepted?

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Corporate and commercial | 01 March 2015

The High Court’s judgment in Raymond Bieber & ors v Teathers Ltd [2014] has made waves as a result of its interpretation by some as a recognition of a binding settlement agreement concluded with an e-mail that simply stated: ‘Noted, with thanks’. This interpretation ignores an inconsistency in the judgment as to the precise point at which the settlement became binding. However one interprets this issue, the judgment provides a helpful summary of the principles of interpretation in respect of the conclusion of settlement agreements and a reminder of the importance of clarifying both expressly and impliedly what one considers the status of the negotiations to be throughout the course of negotiations. 


BACKGROUND

The claimants were a group of individuals who had been advised to invest in a series of film and television production partnerships formed by the defendant, Teathers Ltd, for tax purposes. The schemes failed commercially and none generated the tax relief that had been intended. The claims totalled in excess of £30m.

Teathers was in insolvent liquidation and, aside from proving in the liquidation, the only resource available to meet the claims was an insurance policy providing cover for claims up to an aggregate value of £10m.

Shortly before trial the parties took part in a mediation that proved unsuccessful. The dispute which is the subject of this judgment concerned the subsequent correspondence between the parties. This correspondence was primarily conducted by two individuals at the firms representing the parties: Mr Parker for the claimants and Mr Warren-Smith for Teathers.

On 27 May 2014, Mr Parker wrote to 
Mr Warren-Smith, setting out an offer in respect of the total damages to be paid in settlement. The letter was copied to the mediator and stated that the offer was ‘subject to the agreement of final terms’. That offer was rejected.

Twenty days later, on 18 June, Mr Parker e-mailed Mr Warren-Smith, proposing a meeting to explore the possibility of settlement. That e-mail was not copied to the mediator and stated that:

‘… if there is any possibility of concluding the case before trial, there is real urgency, as the claimants’ funding arrangements are such that we will enter the next tranche of money early next week.’

Further e-mail and telephone communication ensued. On 27 June, Mr Parker sent a letter to Mr Warren-Smith setting out the following proposals: the total amount of damages; that the figure included costs and counterclaims; and that:

‘… if the offer is in principle acceptable, we will produce a Tomlin order, which will record and break down the amounts payable to each claimant.’

It made a further reference to the time constraints and required a response within three days. Mr Warren-Smith responded 
by letter rejecting the offer and making 
a counter-offer. That counter-offer was 
also rejected.

Again there were telephone discussions between the solicitors. Following these, on 27 June, Mr Warren-Smith sent an e-mail to Mr Parker, reiterating an offer made during the discussions. This e-mail was sent a day after the trial bundles were due to be, but were not, lodged. Mr Parker rejected the offer. Mr Warren-Smith replied on the same day stating that the offer previously made would not last beyond the date that the next tranche of brief fees due in three days’ time.

On 29 June, Mr Parker e-mailed Mr 
Warren-Smith confirming that ‘In the circumstances, my client will accept the… offer. We will send round a draft consent order in the morning.’ Mr Warren-Smith replied, by e-mail, ‘Noted, with thanks’.

Following this e-mail correspondence, a draft consent order was sent to Teathers’ solicitors. Two days later, they sent an agreement in entirely different terms to the consent order to the claimants’ solicitors. Negotiations concerning its terms ensued but broke down when the claimants would not agree to the indemnity sought by Teathers regarding third-party claims. This indemnity was sought as a result of Teathers’ concern that claims made against third parties would result in contribution claims being made against Teathers. Early in the proceedings Teathers enquired whether the claimants were pursuing or were intending to pursue claims against third parties. The claimants had replied that they were not (bar one undecided).

The claimants issued an application seeking a declaration that an agreement had been reached as evidenced or contained in the e-mail exchange of 29 June. Teathers submitted that there was no binding agreement as the negotiations were subject to contract. Among other arguments, Teathers relied on the following: the phrase ‘subject to the agreement of final terms’ in Mr Warren-Smith’s letter of 27 May; the reference to an agreement ‘in principle’ in Mr Parker’s letter of 20 June; the fact that the litigation was so complex it could not be settled simply on the basis of the amount 
of damages; the fact that the subject of third-party claims had been previously raised and was a significant issue for Teathers; the fact that there were negotiations regarding the settlement agreement following the alleged agreement on 29 June.

CASE LAW

His Honour Judge Pelling QC, sitting as a High Court Judge, outlined the principles relevant to the consideration of whether parties to settlement negotiations have reached a binding agreement:

  • Whether parties have reached agreement is to be determined objectively; uncommunicated subjective reservations of a party are irrelevant (Air Studios (Lyndhurst) Ltd v Lombard North Central Plc [2012] and RTS Ltd v Molkerei Alois Muller GmbH & Co AG [2010]).
  • The fact that certain terms of economic or other significance have not been agreed does not prevent it being concluded that the parties had concluded a binding agreement: ‘the only requirement is that the parties shall have agreed all the terms necessary for there to be an enforceable contract’ (Pagnan SpA v Feed Products Ltd [1987]and RTS v Molkerei Alois Muller).
  • Where the parties wish to ensure that a contract otherwise capable of being made orally is only made in a formal document it should be expressly stipulated that their negotiations will take place ‘subject to contract’ (Winn v Bull (1877))
  • It is not essential that there be an express stipulation that the negotiations are to be conducted subject to contact if that was nevertheless the mutual understanding of the parties (Winn v Bull, Whitehead Mann Ltd v Cheverny Consulting Ltd [2006], RTS v Molkerei Alois Muller and Investec Bank (UK) Ltd v Zulman [2010]).
  • Where parties have agreed to negotiate on a subject to contract basis, they may agree either expressly or by necessary implication to remove that qualification or waive that stipulation.

JUDGMENT

Pelling J held that the parties had intended to enter into a binding agreement on 29 June and that the agreement contained all the essential terms so as not to require any further agreement to be effective.

Pelling J held that the offer contained in the letter of 27 May was not only expressly stated as being subject to contract but also, given that it was copied to the mediator, could arguably be seen to be still subject to the terms of the mediation agreement. However, he found that there was a clear break between that letter and its rejection and the subsequent negotiations that were not copied to the mediator were not stated to be subject to contract and were conducted within the context of particular funding and timetable pressures. Accordingly, the reservations made in the letter of 27 May did not apply to future negotiations.

With regard to Mr Parker’s reference to an agreement ‘in principle’, Pelling J found that that was not a reference to a need for a negotiated settlement agreement but the need (as expressed) to set out the amounts to be allocated to each claimant. This was not a matter that required the parties’ agreement prior to settlement as it was 
a matter for the claimants alone.

Pelling J rejected the argument that the complexity of the litigation meant that the settlement would be complex. The one did not necessarily follow from the other: this case could be settled on the basis of a simple payment of damages. While Pelling J acknowledged that the issue of third-party claims was a material issue for the defendant, there was no evidence that it was in the contemplation of the parties and the defendant would have had to have made it clear that this was a material issue for it to be an essential term preventing a binding agreement.

On the basis of the above, together with additional analysis of the wording of the correspondence between the parties and the fact that the defendant had failed to comply with (or insist on the compliance with) directions in preparation for the impending trial, Pelling J found that the e-mail correspondence of 29 June represented a binding contract. During the course of his chronological analysis of the facts, Pelling J stated in respect of Mr Parker’s e-mail of 29 June that: ‘It was at that point that an agreement was concluded’. However, later in his judgment, he appears to rely on Mr Warren-Smith’s response as concluding the agreement:

‘Had the understanding of the defendant’s solicitors been that the negotiation was a two-stage process… the reaction to Mr Parker’s e-mail… would not have been “Noted, with thanks”. It would have been to say that with agreement having been reached as to the sum to be paid, it was now necessary to consider all the remaining issues before an agreement could be concluded.’

Pelling J went on to consider the admissibility of the subsequent negotiation of the settlement agreement. By reference to Mr Justice Lewis’s judgment in Newbury v Sun Microsystems [2013], he was of the opinion that, as he had held that the agreement was evidenced in writing (rather than orally or only partially evidenced in writing), evidence as to the subsequent conduct of the parties would not be admissible. By way of obiter comment he found that the subsequent negotiation did not, in any event, prove that there was not already a binding agreement on the essential terms.

COMMENT

Much has been made of the apparent finding that the settlement was concluded by way of Mr Warren-Smith’s e-mail of acknowledgement. However, it is by no means clear that this e-mail was in fact the decisive factor. The apparent discrepancy in the judgment as to when the agreement is said to have become binding is somewhat unsatisfactory. On the basis of his findings as to the objective intentions of the parties, Pelling J’s initial assessment that the agreement became binding on the sending of Mr Parker’s e-mail confirming acceptance of the defendant’s offer must be right. 
The subsequent suggestion that it would have been open to Mr Warren-Smith to state that the parties must now negotiate additional terms clouds the issue. This is compounded by the subsequent rejection of evidence of matters subsequent to that agreement. It would, for obvious reasons, be best for practitioners to interpret this judgment cautiously and conclude that there was no opportunity for the defendant to insist on further negotiations once the amount of damages had been accepted 
by the claimants.

In the heat of negotiations immediately prior to trial, formality of correspondence can suffer, particularly when those negotiations are conducted by e-mail and telephone. This is a salutary reminder of the utmost importance of formally and continually stating the status of negotiations. Moreover, it indicates the importance the courts can place on parties’ conduct in respect of preparation for trial: if in doubt, the parties must continue to follow directions applicable to them and insist that the other side does the same or face the possibility that their conduct will indicate an intention to be bound.