AB v CD Ltd [2013] EWHC 1376

Claimants sought a declaration that their professional negligence claim against an architect was settled by agreement reached through mediation. The court held that a binding settlement was concluded when the claimants accepted the defendant's offer via the mediator, despite the defendant's argument that negotiations were 'subject to contract' and required formal written agreement.

Facts

The claimants brought a professional negligence claim against the defendant architect concerning work on their property. The trial was scheduled for April 2013. In February 2013, the parties entered mediation with Mr Colin Manning as mediator. The mediation hearing on 27th February 2013 concluded without settlement, but the claimants left their offer open for the defendant to consider.

Subsequent negotiations occurred via email and telephone, with Mr Manning acting as an intermediary. On 7th March 2013, the defendant’s solicitors made an offer marked ‘without prejudice and subject to contract’. The claimant’s solicitor queried the ‘subject to contract’ marking on 8th March 2013, noting that settlement would simply require a Tomlin order. On 12th March 2013, through telephone conversations via Mr Manning, the defendant confirmed their offer of a damages figure plus costs to be assessed if not agreed. The claimants communicated their acceptance of this offer through Mr Manning.

The defendant subsequently disputed that a binding agreement existed, arguing the offer remained ‘subject to contract’ and that under the mediation agreement, no settlement was enforceable without a written agreement signed by the parties.

Issues

Primary Issues

1. Whether a binding settlement agreement was concluded on 12th March 2013

2. Whether the defendant’s offer remained ‘subject to contract’

3. Whether clause 9 of the mediation agreement required a written signed agreement for enforceability

4. Whether the purported acceptance introduced new terms invalidating it

Judgment

The Mediation Agreement

The court held that the mediation process ended at the conclusion of the hearing on 27th February 2013, subject to the limited extension while the claimants’ offer remained open. Mr Justice Edwards-Stuart found:

“I therefore reject the submission that clause 9.4 remained binding on the parties once the claimants’ offer made during the hearing had been withdrawn or had been rejected by a counter offer made by the defendant. In my judgment, the purpose of clause 9.4 is to prevent misunderstanding.”

Subject to Contract

The court found that the ‘subject to contract’ umbrella no longer applied after 8th March 2013. The judge stated:

“In these circumstances, I find that the ‘subject to contract’ umbrella no longer applied to the offers made by either side after 8th March 2013. The defendant could have reinstated it, but, by failing to do so or to respond to the claimant’s solicitor’s query, I conclude that the defendant can no longer be taken, by reference to an objective assessment of its conduct, to be relying on the ‘subject to contract’ umbrella.”

Correspondence Between Offer and Acceptance

The defendant argued the acceptance introduced new terms regarding the Tomlin order and 14-day payment period. The court rejected both arguments. Regarding the Tomlin order:

“If anyone had asked the defendant how the action would be disposed of, it would have said, ‘By a Tomlin order, of course’. The claimants would probably have said the same, recognising that a professional defendant such as the defendant would almost certainly expect a Tomlin order.”

Regarding the payment period, the court relied on CPR 40.11 which provides for 14 days as the default payment period.

The Claimants’ Counter-Offer Regarding Costs

The court held that the claimants’ indication of willingness to accept a specific sum for costs was not a counter-offer but merely an indication of what they would accept if offered, citing Chitty on Contracts:

“It is also possible for a communication which contains new terms to amount at the same time: (1) to a firm acceptance of the offer; and (2) to a new offer to enter into a further contract. In such a case, there will be a contract on the terms of the original offer, but none on the terms of the new offer, unless that, in turn, is accepted.”

Implications

This case provides important guidance on several matters:

1. Mediation agreements: Provisions requiring written settlement agreements typically apply only during the mediation process itself, not to subsequent ad hoc negotiations using the mediator’s services.

2. Subject to contract: Such reservations can be implicitly waived if not maintained in subsequent communications, particularly where one party queries the need for such reservation and receives no response.

3. Settlement certainty: Standard terms typically included in Tomlin orders (confidentiality, full and final settlement provisions) need not be expressly agreed for a binding settlement to exist in professional negligence claims.

4. Payment terms: In the absence of contrary agreement, CPR 40.11 implies a 14-day payment period for settlements.

The judgment also contains a significant observation regarding solicitors’ professional conduct, with the judge stating that introducing new terms after agreement in principle would amount to ‘sharp practice’ which ‘no reputable solicitor should countenance’.

Verdict: The court declared that a binding settlement agreement was concluded on 12th March 2013 when the claimants accepted the defendant’s offer of a specified damages figure plus costs to be assessed on the standard basis if not agreed, with payment within 14 days and disposal by Tomlin order containing standard provisions.

Source: AB v CD Ltd [2013] EWHC 1376