Key considerations for settling disputes

It is well-known that a significant majority of disputes are settled before they ever see a Courtroom.

This article takes a look at the reasons why disputes are so often settled, how a settlement is reached and the key considerations for your business when negotiating and documenting a settlement.

Why consider settlement?

The legal rules which govern disputes require parties to engage with one another to attempt to settle their dispute. These rules apply at all times, meaning that parties will need to engage with one another even before a Court claim has been started.

Failure to comply with these rules is generally dealt with strictly, and the Courts have been known to impose financial penalties on a party that does not properly engage in attempting to settle its dispute. It is therefore common for parties to explore, at an early stage, whether settlement can be reached.

In addition to the rules outlined above, disputes in the manufacturing sector are usually high value and often in the public eye. Pursuing disputes through the Court therefore not only represents a financial drain, but also distracts key staff from their day-to-day responsibilities and may result in negative publicity.

There are also more sensitive commercial considerations, particularly in circumstances where a dispute has arisen in the context of an ongoing commercial relationship which neither party wishes to jeopardise.

How to settle your dispute

Parties can at any time enter into negotiations to explore whether a mutually acceptable compromise to end the dispute can be reached.

There are various ways to negotiate a settlement, the most common of which is negotiations made in writing. There are a number of practical steps which your business can take to protect itself when entering into negotiations in writing. In particular, letters and other correspondence should be marked as “without prejudice save as to costs” so that any admissions made cannot be disclosed to the Court until the conclusion of the claim.

In some cases, particularly where one party wishes to make a commercially sensitive admission in negotiations, marking correspondence as “without prejudice” (and omitting the phrase “save as to costs”) will be more appropriate. In these cases, the correspondence cannot be disclosed to the Court at any stage of proceedings unless both parties agree to its disclosure.

In addition to the above, negotiations in writing should also be marked as “subject to contract” to avoid a settlement being reached unintentionally, for example in circumstances where your business is making an offer in principle which is subject to the finer points being agreed upon acceptance.

An agreement to settle will generally only be binding where (1) the parties intend for their agreement to be legally binding; (2) the terms of the agreement are clear and complete; and (3) there is consideration, meaning that both parties are giving something of value to the other under the agreement. In practice, consideration is often Party A making a settlement payment to Party B, and in return Party B agreeing not to continue its claim against Party A.

If there is any doubt as to whether a party is giving something of value, the settlement agreement should be made in writing as a deed, with its specific legal formalities, as deeds do not require consideration.

Different rules apply where a Court claim has been commenced, and in these circumstances the parties will usually need to agree and send to the Court a formal Settlement Agreement.

Key considerations for a Settlement Agreement

Agreeing a settlement is often a relief for the parties involved. However, Settlement Agreements should generally be documented in writing to ensure that all parties are clear on what has been agreed and to prevent further disputes arising from the same facts.

Whilst the terms to be documented will often be specific to the facts of the dispute, there are a number of general drafting tips that should be considered.

First, any payment provisions should be clear and specify the method of payment, the account to which payment is being made and the timing of payment.

In addition, the parties should make provision for how their respective legal costs are to be dealt with, for example who is to pay the claiming party’s legal costs or whether each party will each bear their own legal costs.

Second, the parties should consider whether they wish to make the facts of the dispute and the terms of settlement confidential to prevent the disclosure of sensitive commercial information.

The settlement of disputes can often be more complex than it first seems and this article provides only a brief overview of some of the key considerations for your business.

If your business requires further advice on the settlement of commercial disputes, please contact Richard Coates or Josh Middleton.