Settlements

General

A settlement of proceeding is in agreement in respect of a dispute prior to the final determination by a court of the matters in issue. The settlement is an agreement and contract law applies. A court or court order may or may not be made embodying the settlement. If it is made, then it is enforceable as a court order.

The laws strongly encourage the settlement of litigation and the vast majority of cases are settled. Settlements may take place prior to commencements of or in the course of litigation. They are commonly entered on the eve of or during the trial. Settlements may also take place at the appeal stage.

A Court ruling is required in relation to certain settlements. Where the person is an infant [under 18 or of unsound mind], the rules of court acquire that the settlement be approved by the court. This is sometimes referred to as ruling the settlement.

If a settlement agreement does not deal with costs, the default position would be that each side bears its own cost. Typically, however, if the settlement involves a concession by one party or the other, that he should bear the costs to be taxed in default of agreement as to costs.

Settlement as Contract

In order to be a valid contract for the settlement of a dispute, there must be a dispute in existence between the parties.A valid settlement requires that there is a dispute. In some cases, there may be a dispute as to whether there has been a settlement. The requirements for a valid contract must be met. If any element is missing there is no contract and settlement.

Proceedings need not have issued. Provided that the claimant has a bona fide claim and acts in good faith believes he has a claim, this is a sufficient basis. Even if the claim is very weak and, in fact, has no basis whatsoever, it will constitute good consideration provided the bona fide belief that the claim of right exists.

A settlement as a contract requires an agreement on all key issues. If it does not do so, there may be held to be no agreements or settlements at all. Settlements are sometimes drafted hastily on the doorsteps of the court in circumstances which are not conducive to a full and proper consideration of the matters to be agreed, if the parties are at odds over key issues, the upon settlement may not be a valid agreement.

Sending a cheque stated to be in a full and final settlement, which is accepted, may constitute a settlement. This depends on whether, in the circumstances, taking and lodging the cheque amounts to acceptance of an offer.

Contract Only

A settlement agreement may simply be a contract. In this case, the breach would acquire separate legal proceedings for breach of contract in order to implement the agreement.

A settlement agreement in itself gives rise to a claim for breach of contract only. This would require the initiation and conclusion of separate proceedings to secure a further court order in order to enforce.

In other cases, the settlement may be incorporated by agreement in whole or in part in a court order. In this case, it is necessary to apply to the court to have the order made by consent.

Embodied in Court Order

From the perspective of the person in whose favour the settlement is made, it is desirable that the agreement be embodied in the court order. This is because it can be directly enforced by the various remedies available.

A court order is only possible in the context of pending court proceedings. If court proceedings have already been discontinued; the court order will not be possible.

The agreement may be embodied in a court order on the conditions set out therein. The court order must be within the terms of the court’s jurisdiction. In more complex matters, the parties may reserve the right to apply to the court to clarify the extent and application of the court order.

Techniques Where No Court Order

Proceedings may be stayed for a period to enable steps to be taken, for example, to pay money under the settlement. Accordingly, the proceedings will be reactivated if the settlement is not honoured.

Where proceedings are compromised with liberty to re-enter, they may be re-commenced. While liberty is retained to apply to the court only, the existing order may be clarified only.

The parties may adjourn proceedings for the purpose of giving effect to a settlement. The adjournment may be definite or indefinite with liberty to re-enter. The proceedings may be stayed on the basis of a condition. This leaves the proceedings in existence so that they can be renewed if necessary if the agreement is not implemented.

A common technique is to adjourn proceedings to allow the implementation of the settlement. Proceedings may be adjourned generally with liberty to re-enter. This keeps the proceedings in existence so that they can be reactivated if the settlement is not implemented.

Where a party settles without a court order because it is outside the jurisdiction of the courts or where this is otherwise, agreed, the proceedings may be struck out on the basis of the settlement agreement.

Rule of Court

A settlement agreement may be filed and made a rule of court. The proceedings may be stayed and made a rule of court, and liberty may be reserved to apply and enforce it.

Making a term of settlement a rule of court is not the same as making it an order. It facilitates enforcement by way of application by which the order may be made reflecting the terms of the clause or agreement

In this case, there is no directly enforceable order. Instead, the party who suffers default may apply to the court and have them embodied in a court order. An application is made for a court order to direct compliance.

Enforcement of the agreement will involve applying to the court for an order directing compliance and, in the event of non-compliance, taking enforcement action on the basis of the order.

Tomlin Orders

Tomlin orders derive their name from an English case. They are used to embody a settlement in a schedule or referred to in a court order. Proceedings are stayed. The right is reserved to apply to the court to enforce. The terms of the settlement may be embodied in a schedule which is kept confidential.

A Tomlin order keeps proceedings in being and is similar to the last technique. The agreement can be enforced without fresh proceedings. There is a stay of proceedings and terms incorporated by reference in the order save for the purpose of carrying the agreed terms into effect. Permission to apply to the court is reserved.

Unlike the case where the order is filed in court,  the action is not discontinued or dismissed. It is kept in being for the purpose of enforcing the terms of a settlement with liberty to apply allowing for a summary method of enforcement

Effect of Settlement

A contract to settle or compromise litigation will merge with the underlying rights. Generally, it will not be possible to relitigate the matter once there is a valid contract, although the contract may specifically reserve the right to recommence action.

The settlement is presumed to cover and embody all matters in dispute between the parties, which could have been litigated in the original proceedings, but were not.

The default provision at common law was that the release of one jointly liable party releases all. The Civil Liability Act provides that the release of one jointly liable or concurrent wrongdoer or party to a contract releases the others if this is intended by the contract.

If this is not intended or shown, the others are not discharged. The injured person shall be identified as the person with whom the release or accord is made in any action against the other wrongdoers. In any such action, the claim against the other wrongdoers shall be reduced in

• the amount of the consideration paid for the release or accord, or
• in any amount by which the release or accord provides that the total claim shall be reduced, or
• to the extent that the wrongdoer with whom the release or accord was made would have been liable to contribute if the plaintiff’s total claim had been paid by the other wrongdoers,

whichever of those three amounts is the greatest.

Where a person settles with the claimant in such a way that the person’s claim against the other wrongdoers is preserved, the claimant may recover contributions against the other wrongdoers,  provided he satisfies the court that the amount of the settlement was reasonable. If the court finds the amount is excessive, it may fix the amount at which the claim should’ve been settled.

Interpretation

Settlement agreements are often drafted at the door of the court. This is often drafted by counsel in manuscript. Disputes may arise regarding the terms of the settlement agreement.

Disputes regarding the terms of the settlement are decided in accordance with contractual principles. The courts discern the parties’ intention from the wording of the document. The modern approach to contractual interpretation, emphasising the context, may be applied.

The more formal the document the less scope for errors and loose language. Contract documents entered after careful negotiation between experienced lawyers may be given a more literal effect. In other circumstances, the context may be more important

If costs are not expressly mentioned, the presumption is that each side pays its own costs.

Challenging a Settlement

As a contract, a settlement may be terminated or varied by consent. However, in the same way as for contracts generally, a settlement may be impeached or challenged by reason of a breach by one party’s mistake, misrepresentation, fraud, undue influence, illegality, et cetera.

A legal adviser must have the authority to enter a settlement contract. Generally, a retained legal adviser, solicitor or barrister has implied authority to settle an action on behalf of his client.

He will have ostensible authority as between himself and the other party without proof of actual authority. If he does not have actual authority of this client but binds the client, he may be liable to the client for breach of duty.