HH Judge Pelling QC:
Introduction
- This is the hearing of an application by the Claimants for a Declaration that the parties reached a binding settlement of these proceedings by an exchange of emails between solicitors on 29 June 2014 by which the Claimants agreed to settle these proceedings in return for a payment by or on behalf of the defendant to the Claimants collectively of Y +2[1]. I record at the outset my gratitude to counsel for the skill and restraint with which they conducted the hearing before me.
- I heard oral evidence from the two very experienced solicitors who have and have had conduct of these proceedings on behalf of the parties being Mr Damon John Parker, a partner in the firm of Harcus Sinclair, the solicitors who act and at all material times have acted on behalf of the Claimants and Mr Christopher John Warren-Smith, a partner in the firm of Norton Rose Fulbright LLP, the solicitors who act and at all material times have acted on behalf of the Defendant, its insurers and liquidator. The true issues in respect of which oral evidence was admissible were narrow. To the extent that it is necessary for me to do so, I resolve those issues in the course of the narrative that follows.
Background
- As is common ground these proceedings are immensely complex. That complexity is largely irrelevant for present purposes however. In summary, the claimants consist of about 220 high net worth individuals who invested in a series of film and television production partnerships formed by the Defendant and which were known as the "Take" partnerships. Broadly, the aim of the Take partnerships was to invest in television and film productions so as to take advantage of tax concessions made available under a series of Finance Acts between 2000 and 2007. Take 2 to Take 4 consisted of multiple general partnerships each of which had up to 20 partners, the final number of partnerships within each series depending on the level of subscription. Take 5 and Take 6 were each limited liability partnerships.
- The idea behind the schemes was that the investors would achieve an attractive rate of tax relief on their investments and ultimately a commercial return on their investment. In fact the schemes were failures because most of the productions that were financed failed commercially and none generated the tax relief that had been intended. The claimants consider that this was the result of default on the part of the Defendant. The claimants have pursued their claims collectively by reference to the particular scheme they had invested in. The result is that these proceedings consist of 5 claims being one brought by the investors in each of the Take 2, Take 3, Take 4, Take 5 and Take 6 schemes.
- The claims were started in September 2009. The claims have been formulated in a variety of different ways but in the end depend on a central assertion that the schemes failed as investments because of default on the part of the Defendant by failing to invest in productions that fulfilled the criteria set out in the investment memoranda by which the investments were promoted to potential investors including the claimants. The total value of the claims inclusive of interest and costs is said to be about £20 million.
- The Take products were either wholly or mostly offered to high net worth investors through Independent Financial Advisers ("IFAs"). Some claimants have pursued or threatened to pursue claims against the IFAs who introduced them to the Take products. After the commencement of the proceedings, by a letter dated 10 October 2011, the defendant's solicitors responded to a Part 36 offer that had been made on behalf of the claimants. That response included a request for information as to whether the claimants were pursuing or intended to pursue any "Take related claims against any of their IFAs and any advisors of the Take Partnerships
". The claimants' solicitors responded by a letter dated 17 October 2011 in these terms:
"The claimants are not pursuing and do not intend to pursue any claims against any IFA or any advisor to the Take partnerships. One client [Mr D] has agreed a standstill with his IFA which is still running. No decision to pursue that claim has been made"
There were no further communications between the parties of any sort concerning these issues until after the exchange of emails that the claimants allege constitute the agreement settling these proceedings.
- The funds available to meet the claims were and are limited. The Defendant is in insolvent liquidation. The Defendant's available estate is said to be about £18.8 million against admitted unsecured creditor claims (excluding the Take claims) totalling in excess of £30 million. Aside from proving in the liquidation the only resource available to meet the claims is an insurance policy. It provides cover for the claims up to an aggregate value of £10 million but inclusive of the defendant's costs. Costs have become a major and perhaps the major consideration in this claim. By January 2014, the defendant had incurred defence costs of W, thereby reducing the funds available to settle the claims to £10m minus W. The predicted costs to trial took the likely defence costs figure to W +1. Thus aside from anything recovered by proving in the liquidation, the funds available to settle claims valued at £20 million odd was no more than £10m minus W +1 assuming that the claims proceeded to trial. If there was to be a settlement of in excess of what remained available under the insurance policy, that would necessitate individual investors being admitted to proof in the liquidation which in turn would require a value to be placed on their individual claims. A settlement for an aggregate sum of less than that sum would not require individual investors to be admitted to proof in the liquidation.
- Such was the complexity of this litigation that a judicial case management Order was made and Norris J was assigned to manage and try the claims. There was a preliminary issue concerning whether investors' funds were held on trust by the defendant for the investors. That was tried by Norris J, who dismissed the claimants' claim that the funds were held on trust. Norris J gave the claimants permission to appeal but the appeal was dismissed. That left the balance of the claims to be tried. On22 July 2013, Norris J gave directions that were to lead to a trial the following year. The directions that are material for present purposes were that
i) Trial bundles were to be lodged by 26 June 2014;
ii) Skeleton Arguments were to be exchanged and lodged by 11 July 2014;
iii) Judicial pre-reading was set for 17 and 18 July 2014; and
iv) The trial was fixed to take place over a period of 15 days between 21 July and 7 August 2014.
- On 21 May 2014, a facilitative mediation took place. The parties were not able to reach a settlement. It is common ground that the discussions proceeded no further than a discussion of figures, with the defendant seeking a "drop hands" settlement and the claimants seeking a global settlement sum of X a sum that far exceeded the insurance cover that remained by that date once defence costs had been taken into account. Mr Warren-Smith took a long form settlement agreement with him to the mediation but it is common ground that he did not at any stage disclose its existence or the terms it contained to the claimants' representatives. It is also common ground that he did not then or at any other stage identify any issues which would need to be addressed before the defendant would enter into a binding settlement agreement.
- The mediation agreement between the parties contained a provision by which the parties agreed that terms of settlement agreed at the mediation would not be binding until set out in writing and signed by the parties. Although there was a suggestion that the Defendant relied on that provision as preventing a settlement agreement being concluded as alleged by the claimants that was not pursued in the end. In my judgment that concession was sound for at least two reasons first, the term was expressly confined to a settlement reached at the mediation. The settlement that is relied on by the claimants was allegedly arrived at long after the mediation had come to an end. Secondly I consider it at least arguable that an exchange of emails by the parties' solicitors would have satisfied the requirements of the term in any event.
- This dispute is concerned with what happened thereafter down to 29 June 2014, when the claimants maintain that the claims were settled by an exchange of emails between Mr Parker and Mr Warren-Smith. The defendant denies that this is so and maintains that what was agreed on that date was no more than the sum that the claimants would accept subject to contract or in principle subject to the parties agreeing the terms of, and entering into, a detailed settlement agreement to be negotiated as the second stage of a two stage process, the first stage of which was confined to agreeing the sum that would be paid to the claimants in settlement of their claims.
- Thereafter, as I explain in more detail hereafter, Mr Parker submitted a short form Tomlin Order to Mr Warren-Smith for agreement, that was rejected and a revised version of the long form agreement that Mr Warren-Smith had taken with him to the mediation was sent to Mr Parker for agreement. The claimants refused to agree the contents of that document. The parties then attempted to agree the terms of a formal settlement agreement but failed. Although there were a number of issues, what proved to be irresolvable was the insistence of the defendant that the claimants indemnify the defendant in respect of any contribution claims that might be made against the defendant as a result of claims made by any of the claimants against third parties in respect of the same subject matter as the claims against the defendant. This was the issue mentioned in the 2011 correspondence referred to above but not subsequently mentioned until after 29 June 2014. Mr D was not prepared to forego the benefit of his reserved claim against the IFA that had promoted the Take scheme to him. That being so, had the claimants agreed in the terms sought by the defendant, the global settlement sum might ultimately have been eroded to a substantial extent at some indeterminate period in the future if Mr D's claim against his IFA was activated and succeeded and the IFA served and succeeded in contribution proceedings against the defendant. The defendant was not prepared to proceed other than on the basis of an indemnity because it meant that the defendant's insurer would have to continue to reserve against the claim and the liquidator was at risk if she paid a final rather than an interim dividend.
- This impasse resulted in Mr Parker asserting on behalf of the claimants that the claims had been settled by an agreement contained in or evidenced by the exchange of emails on 29 June 2014 and thus was not dependent on the parties agreeing on the terms of a settlement agreement thereafter, much less one that introduced new terms that impacted on the true value of the settlement that had been agreed. The defendant and its solicitors do not agree.
The Applicable Principles
- In summary the applicable legal principles are as follows:
i) Whether the parties have reached a concluded agreement is to be determined objectively by considering the whole course of the parties' negotiations. Once the parties have to all outward appearances agreed in the same terms concerning the same subject matter, a contract will have been formed and that is so even though it is understood that a formal agreement will be entered into that records or even adds to the terms agreed. However, where it is understood that a formal agreement will be entered into, whether the parties intended to be bound immediately or only when a formal agreement has been executed depends on an objective appraisal of their words and conduct see Air Studios (Lyndhurst) Limited v. Lombard North Central Plc [2012] EWHC 3162 (QB) [2013] 1 Lloyds Rep 63 per Males J at [5] following RTS Ltd v. Molkerei Alois Muller GmbH & Co AG [2010] UKSC 14 [2010] 1 WLR 753 per Lord Clarke at [45] and Pagnan SpA v. Feed Products Limited [1987] 2 Lloyds Rep 601 per Lloyd LJ at 619;
ii) Generally the subjective state of mind of a party to negotiations and thus any subjective reservations that have not been communicated to the other party to an alleged agreement are irrelevant and evidence of their existence is inadmissible - see RTS Ltd v. Molkerei Alois Muller GmbH & Co AG (ante) per Lord Clarke at [45]. This is so because subjective reservations do not prevent the formation of a binding contract see Air Studios (Lyndhurst) Limited v. Lombard North Central Plc (ante) per Males J at [5]. At most subjective belief may be relevant and thus is admissible to demonstrate that objectively a particular term has been agreed where the consensus depends on oral exchanges or conduct see Carmichael v. National Power Plc [1999] 1 WLR 2041 cited by Lord Hoffmann in Chartbrook Limited v. Persimmon Homes limited [2009] UKHL 38 [2009] 1 AC 1101 at [64] [65];
iii) If, on an objective appraisal of the parties' words and conduct, the parties intended to conclude a legally binding agreement, the fact that certain terms of economic or other significance had 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 see Pagnan SpA v. Feed Products Limited (ante) per Lloyd LJ at 619 (proposition 6) and RTS Ltd v. Molkerei Alois Muller GmbH & Co AG (ante) per Lord Clarke at [45]. In the context of settlement agreements, this may mean that the failure to agree terms concerning confidentiality and other allied matters will not prevent a court from concluding that the parties have objectively entered into a binding settlement agreement see by way of illustrative example AB v. CD Limited [2013] EWHC 1376 (TCC) per Edwards-Stuart J at [31];
iv) Where the parties wish to ensure that a contract otherwise capable of being made orally is only made in a formal document the parties may ensure that is so by expressly stipulating that their negotiations will take place "subject to contract". Where there is such a stipulation then there is no binding agreement until a formal written agreement has been duly executed see Winn v. Bull (1877) 7 Ch.D 29 per Sir George Jessel MR at 32;
v) It is not essential that there be an express stipulation that the negotiations are to be conducted "subject to contract" if that was nevertheless the mutual understanding of the parties see Winn v. Bull (ante) per Sir George Jessel MR at 32, Whitehead Mann Ltd v. Cheverny Consulting Ltd [2006] EWCA Civ 1303 [2007] 1 All E.R. (Comm.) 124 per Sir Andrew Morritt C at [42], RTS Ltd v. Molkerei Alois Muller GmbH & Co AG (ante) per Lord Clarke at [46] to [49] and Investec Bank (UK) Limited v.Zulman [2010] EWCA Civ 561 per Longmore LJ at [17];
vi) Whilst negotiations being conducted "subject to contract" are most commonly encountered in transactions concerning land, the rule is capable of applying to any contractual negotiation see RTS Ltd v. Molkerei Alois Muller GmbH & Co AG (ante) per Lord Clarke at [48];
vii) Whether there was a mutual understanding that negotiations would proceed on a "subject to contract" basis is a question of fact in each case:
"
where as here, solicitors are involved on both sides, formal written agreements are to be produced and arrangements made for their execution the normal inference will be that the parties are not bound unless and until both of them sign the agreement. In a sense this case is an a fortiori case in that on any view there are at least three agreements to be executed and the respective parties are not the same"
- see Whitehead Mann Ltd v. Cheverny Consulting Ltd (ante) per Sir Andrew Morritt C at 45; but
viii) Even if the parties have initially agreed to proceed "subject to contract" it is open to them subsequently to agree either expressly or by necessary implication to remove that qualification or waive that stipulation see the authorities noted at footnote 582 in Chitty On Contracts, 31st Ed., Vol.1 Para.2-121; however, whether the parties have so agreed is a question of fact that needs to be approached with care since the Court should "
not impose contracts on the parties which they have not reached
" - see RTS Ltd v. Molkerei Alois Muller GmbH & Co AG (ante) per Lord Clarke at [55].
- Although the claimants relied on Peter Smith J's conclusion in Jirehouse Capital and others v. Beller and Owen [2009] EWHC 2538 at [38] that where parties shortly before trial instruct their lawyers to conclude a settlement it can only be on the basis that if there is an agreement it is a necessary implication of that agreement that any previous subject to contract umbrella is lifted, in my judgment Peter Smith J did not intend to state a general proposition of law in that passage but only a conclusion that arose on the particular facts of the case he was deciding. Thus whilst the facts of that case may have resulted in that inference being the necessary one to draw, it does not follow that such is the position in all cases concerning settlement negotiations. That this is the correct approach to this case was in my judgment confirmed by Peter Smith J in Morgan Walker Solicitors LLP v. Zurich Professional and Financial Lines [2010] EWHC 1352 at [9], where he described his conclusion in Jirehouse as being an exceptional one.
The Facts
- Following the breakdown of the mediation described above, the next communication between the parties that is material is a letter from the defendant's solicitors to the claimants' solicitors dated 27 May 2014. The material parts of that letter are:
"
Since the mediation, we have made an offer on behalf of our clients to settle all Take related claims by your clients against Teathers on a full and final basis. Our clients value this offer at Z. It comprises a lump sum payment of Y; a full and complete waiver of all our client's counterclaims for unpaid management fees (valued conservatively at £855,000); and a full and complete waiver of all our clients' claims in respect of adverse costs of this litigation (valued conservatively at£750,000).
Having regard to the above, we reiterate our clients offer to settle all your client's Take related claims against Teathers on the basis set out above (and subject to the agreement of final terms).
This offer will remain open until 5 p.m. on Wednesday 28 May 2014 and will lapse immediately if not accepted by then
"
- There was a suggestion made on behalf of the defendant that the phrase "
all Take related claims
" was intended to encompass and in fact encompassed not only claims made by the claimant against the defendant (Teathers) but claims made against third parties including IFAs. I reject that contention. The inclusion of the words "
against Teathers
" in the first and penultimate paragraphs of the letter quoted above renders that contention clearly unsustainable. It was accepted by Mr Simpson QC on behalf of the claimants that the inclusion of the phrase "
subject to the agreement of final terms
" in the penultimate paragraph made the offer conditional in the sense that it contemplated that there would be a formal agreement. I consider that the point goes further than that: the use of the phrase "
subject to
" makes it clear that this offer even if accepted was intended by the defendant to be one capable of leading to a binding agreement only when agreement on the other terms had been reached. In my view this is supported by the fact that the letter was copied to the mediator and thus was regarded as part of the mediation process, albeit that the letter was sent after the mediation had taken place, and thus at least arguably still subject to the terms of the mediation agreement.
- By a letter dated 28 May 2014, the offer referred to above was rejected. There were no further communications with the mediator thereafter other than an exchange of notes between the principals to the dispute via the mediator under cover of emails on 2 and 9 June 2014.
- The next development was an email from Mr Parker to Mr Warren-Smith dated 18 June 2014 in these terms:
"
The purpose of my call was merely to say that we are conscious on this side of time passing. It may be that there is no appetite on the part of the insurer and liquidator for any further discussion and it may be that we are anyway too far apart, in which case we are clearly heading for trial. However, my clients are, and always have been, prepared to compromise at a sensible level. If your client does want to see 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. Realistically, it seems to me that if we are to get anywhere we are going to have to meet; and that should be before the end of this week.
"
This email must be read in context. Not merely was there the funding issue that Mr Parker mentions expressly but as I said earlier trial bundles were to be lodged by 26 June 2014 (8 days after the date of the email), and Skeleton Arguments were due to be lodged by 16 July 2014, just over 3 working weeks from the date of this email. The first of these steps was likely to represent a significant cost to the claimants who will have had carriage of the preparation of the bundle and the second would represent a significant cost for both parties. In my judgment these factors coupled with that identified specifically by Mr Parker in his email meant that there was a much greater sense of urgency that would need to be adopted if significant further time related cost was to be avoided.
- Following this email there was then a discussion between Mr Parker and Mr Warren- Smith. What was said in the course of that conversation is largely agreed. There is one issue of factual difference between the two participants. Mr Warren-Smith says in paragraph 57 of his witness statement and it is agreed that in the course of the conversation he said that there was no point in discussing the merits of the dispute. Mr Warren-Smith says that Mr Parker said that "
a deal would need to be done within the week". That is not in dispute either. It reflects the effect of the passage of time and the approach of the various milestone events in the progress of the litigation that I have referred to earlier. It is common ground that Mr Warren-Smith suggested that an offer be made on behalf of the claimants at their lowest possible figure and that he also said that it was agreed that a personal principal to principal meeting would not bridge the gap between the parties. Mr Warren-Smith then says that he said that "
agreeing figures was the key to progressing the discussions further". This conversation was not mentioned by Mr Parker in his initial statement. In his 7th statement, Mr Parker sets out his recollection as being that Mr Warren-Smith said that agreeing figures "
was the key to settling the case". Shortly before trial, Mr Warren-Smith produced his attendance note of this conversation. He was asked why it had not been produced earlier. He said that he had not considered the conversation a particularly important one. I accept that explanation. In relation to the point in issue, the note says simply "I said figures the key".
- Before setting out my conclusions as to the factual difference between Mr Warren- Smith and Mr Parker, it is necessary that I refer to the letter that Mr Parker sent to the defendant's solicitors dated 20 June 2014 that is the day following this conversation and Mr Warren-Smith's response to that letter. The letter was marked "Without Prejudice save as to costs". In so far as is material that letter was to following effect:
"As we have said in emails and in our recent telephone conversation, our clients believe that it would be sensible for the parties to explore whether it is possible for them to agree an acceptable compromise before the financial mechanisms, of which you are aware, make it unpractical for the case to settle before trial. In order to break the apparent deadlock
we are instructed to make an offer, pitched at our clients' bottom line figure, in the hope that it may be possible at this late stage to bridge the gap between the parties.
Our clients will settle the claims for a payment of X -2, payable in 28 days. This represents a significant movement from their last offer and is below the level we have previously indicated would mean that their costs were repaid, since when costs have risen
and insurance premiums increased. Our clients have been prepared to move below X -1, in response to Mr Warren- Smith's indication that it would be necessary for them to do so.
For the avoidance of doubt, the offer requires a cash sum to be paid which will be in full and final settlement of all claims arising from each of the five actions comprising the Take litigation, including any claims for costs and counterclaims. Our clients leave it to your clients what proportions should be borne by the liquidator and the insurers and deliberately do not specify what sum they propose should be paid from the liquidation or at what rate
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. Since the obligation to pay will be recorded in a court order, we do not anticipate there will be any difficulty in respect of proofs of debt.
Because of the time constraints our client is under, they will require a response to this offer by noon on Monday 23 June 2014. "
The defendant's solicitors responded to this letter by a letter dated 23 June 2014. That letter too was marked "Without prejudice save as to costs". The material part of that letter was to following effect:
"Your clients' offer is rejected. Our clients are prepared to pay the figure of Y +1 in full and final settlement of this matter, payable in 28 days. For all the reasons previously articulated to you, this figure reflects the commercial settlement value of this claim and the counterclaim to our clients on the basis they are resolved now. We confirm that the Y +1 would be a cash payment made to your clients within the 28 day period."
- In my judgment there are a number of points that emerge from this correspondence that assist me to resolve the factual issue between Mr Parker and Mr Warren-Smith. They also assist in reaching a conclusion as to whether the parties were at this stage proceeding on the basis that any agreement reached would be subject to a formal agreement or order or whether it was intended that any agreement reached would be binding although it would be necessary for a formal order to be agreed. However, in relation to this last mentioned question I emphasise that any views I express at this stage in the factual narrative are provisional in the sense that it is necessary for me, applying the principles I summarised earlier, to consider the whole of the correspondence and other communications between the parties before reaching a final conclusion.
- In my judgment the evidence of Mr Parker is to be preferred over that of Mr Warren- Smith concerning what was said in the conversation that took place on 19 June 2014. In reaching that conclusion I make clear that I do not regard any aspect of Mr Warren- Smith's evidence to me as being anything other than his honest belief as to what he now thinks occurred. My reasons for preferring Mr Parker's evidence on this issue are as follows.
- First there was nothing known to the parties or made known to the claimants by the defendant that would cause Mr Parker to believe that it was necessary for negotiations to be conducted in the two stage manner that it is suggested was the mutual understanding of the parties, much less that Mr Warren-Smith was proceeding on that basis. The only information that had been supplied concerning claims by the claimants against third parties is that which I have summarised above. The issue surfaced in 2011, an answer was provided and no attempt was made to follow up that issue at any stage thereafter. It was not an issue between the parties at any stage after the exchange of the correspondence in 2011.
- Secondly, what Mr Warren-Smith says he said on 19 June is not supported by the terms of his attendance note. I accept that what appears in the attendance note if looked at in isolation is capable of being read as supporting either version of what was said and thus does not assist the claimants other than to the limited extent of not unambiguously supporting what Mr Warren-Smith says he said. However when read in context what the note says is more significant than this. The relevant context is that by this stage in the mind of Mr Warren-Smith and his clients what mattered was agreeing a settlement that "
reflects the commercial settlement value of this claim
" as the defendant's solicitors put it in their letter of 23 June 2014. Given the time related pressures to which I have referred all that mattered was agreeing a figure the claimants would accept in order to bring this litigation to an end and thus avoid further costs being incurred. In this context therefore it is more likely that the word "key" was used by Mr Warren-Smith in the sense identified by Mr Parker in his statement. That sense is reflected in the letter of 23 June. Nothing changed between 19 and 23 June that is significant to the point I am now considering.
- Thirdly, the letter that Mr Parker wrote on the day after this conversation took place is not consistent with the tenor of his conversation with Mr Warren-Smith being as Mr Warren-Smith says it was. The first sentence of the first paragraph of that letter speaks unambiguously of the need for the parties to "
agree an acceptable compromise
" before the "financial mechanisms" make settlement impractical. This is I think a reference back to the "next tranche of money" point made in Mr Parker's letter of 18 June. This rationale for settlement is not consistent with the notion either of a two stage process or of a process that precluded settlement until after negotiation of a long form settlement agreement given the time constraints that applied.
- Fourthly, in my judgment the effect of the proposal contained in this letter is entirely clear: it is a proposal to settle all the claims, counterclaims and costs claims by a net payment to the claimants collectively on behalf of the defendant of X -2 within 28 days. Although the defendant submits that the description of the offer as being one "in principle" means that this was not intended to be an offer capable of acceptance, I do not read it as having that effect when the phrase is read in context. The offer, if accepted, would have required the defendant to pay a sum in excess of the funding available under the defendant's insurance policy and thus would have to be funded in part out of the defendant's estate. That in turn required the payments to be made to each claimant to be broken down so that it could be admitted to proof. The only qualification made in the offer was that it would require a Tomlin Order that dealt with that issue. That qualification identified is not incompatible with an agreement being reached if the offer had been accepted. All the essential terms in the sense described in my summary of the applicable principles would have been agreed the sum to be paid, the time by which it was to be made (it being a necessary implication that in the absence of agreement to the contrary 28 days would run from date of acceptance) and the effect on the litigation of the agreement on payment being affected. None of this is consistent with the conversation on the 19 June being as described by Mr Warren-Smith.
- Whilst it might be said that either the letter is reflective only of the subjective belief of Mr Parker or that he misunderstood the tenor of what Mr Warren-Smith said to him on 19 June, I do not consider such an analysis to be correct. As I have said the effect of the 20 June letter was entirely clear. Although the underlying litigation was undoubtedly complex, the offer contained in the letter was not. Had Mr Warren-Smith thought that the letter was inconsistent with what he had said in the conversation on 19 June, not merely could he have said so but in my judgment he would have done so. The reason for this is obvious: if the erroneous understanding was not corrected then it could undermine a future settlement.
- In fact Mr Warren-Smith did not do anything of the sort. As is apparent from the terms of his letter of 23 June 2014, he rejected the offer and then made a counter offer. The counter offer was not one that was structured in a manner that reflected a two stage process. There was no mention of a long form settlement agreement or of the need as he put it to "due diligence" various outstanding issues. Significantly he did not head his letter "Subject to Contract" even though that is commonly done in settlement negotiations that are considered to be subject to formal agreement. The offer the defendant's solicitor made was an unqualified offer "
to pay the figure of [Y +1] in full and final settlement of this matter, payable in 28 days
". In my judgment the acceptability of the counter offer was entirely unqualified and was made in full and final settlement, which is inconsistent with the offer being made subject to the agreement of other terms and conditions. The counter offer was thus inconsistent with the sort of reservation that Mr Warren-Smith thinks he articulated on 19 June 2014.
- I now return to the chronology. On 23 June 2014, the claimants' solicitors rejected the offer made by the defendant's solicitors and made a counter offer to accept "
[X -3] payable on the terms set out in our letter of 20 June 2014
". The terms set out in the letter were (a) that the sum concerned would be paid within 28 days, and (b) would be in full and final settlement of the claims, counterclaims and costs. If and to the extent that the "in principle" point applied it applied only to the limited extent set out above in relation to the 20 June offer.
- Following further discussions by phone on 24 to 26 June in which various offers and counter offers were made focussing exclusively on the sum to be paid to the claimants, on 26 June an offer was made by the defendant's solicitors of Y +2. It was this that led to the exchanges of email that has led to this dispute. The trial bundle should have been but was not lodged on 26 June 2014.
- The first of these emails that is material is that sent on 27 June at 10.33 by Mr Warren-Smith in which he responded to an earlier email from Mr Parker concerning the response of the claimants to the Y +2 offer. That email was in these terms:
"
I'm afraid this is a take it or leave it offer at [Y +2]. There really can't be a higher settlement value for this claim, which nobody seriously doubts will fail at trial. The additional [+1] on top of [Y +1] was seen as a final gesture to reach settlement. "
At 13.06 on the same day, Mr Parker responded in these terms:
"
My clients are affronted; having done everything they can do to achieve a settlement, they have gone below their bottom figure and will not move below it. Please can you take instructions and come back to me by 2.30? We have now run out of time much beyond that."
Clearly this email contemplated that if agreement was reached as to a settlement figure that would result in settlement. Mr Warren-Smith responded to this at 21.47 in these terms:
"
I'm not sure it's helpful to discuss how our respective clients feel about where we are, as you have done. To say the least, our clients resent how yours have elected to pursue this dispute and that message is unhelpful and not well received. Your clients have taken their own decisions about how they wish to pursue this claim and the commerciality has been more than a little difficult to understand at times.
We incur the next tranche of brief fees on Monday. I expect our offer will not last beyond that time. We will confirm the position on timing early on Monday."
The implications of this final paragraph are entirely clear. The offer could not survive the requirement that the defendant pay the next tranche of brief fees. In context this was obvious to both parties because of course the defendant's defence costs reduced the amount available from insurers to settle the claims. However, an obligation to pay fees that had otherwise became payable could only be avoided (other than by agreement with counsel) if counsel were instructed to cease work. Such an instruction could only sensibly be given if final settlement had been reached. Mr Parker responded to this at 15.05 on Sunday 29 June 2014 in these terms:
"In the circumstances, my clients will accept the [Y +2] offer. We will send round a draft consent order in the morning."
It was at that point that an agreement was concluded unless the discussions had expressly or impliedly been conducted on a subject to formal contract basis. Mr Warren-Smith replied:
"Noted, with thanks."
- What happened thereafter I can summarise shortly. A draft consent order was sent by the claimants' solicitors to the defendant's solicitors under cover of an email on 30 June 2014 at 17.37. The consent order contained the standard Tomlin provisions in the main body of the draft and attached a schedule which provided for payment within 28 days of the date of this order of Y +2 in full and final settlement of the claims and counterclaims. Costs had been provided for in the main body of the order by a provision that there be no order as to costs. Bank account details were provided, there was a clause to the effect that the agreement was made without admission of liability and there was a confidentiality provision. The defendant's solicitors were invited to sign and return the order. On 2 July the draft long form agreement was sent by the defendant's solicitors and there then followed the negotiations concerning its terms down to 18 July 2014 when Mr Parker informed the defendant's solicitors that he could not agree to the indemnity sought and that he had instructions to issue what became the application before me.
- During the currency of the negotiations, and at a time before they became aware that the claimants' solicitors had vacated the trial, the defendant's solicitors took no steps to obtain delivery of the trial bundle, to file skeleton arguments or make any enquiries of the claimants' solicitors as to how the trial might be effective in the absence of these materials. Mr Warren-Smith was pressed on these points in the course of cross examination. His explanation was that he considered that settlement would eventually be achieved in the form of a settlement agreement acceptable to his clients and that he was confident that a skeleton could be produced at short notice because everyone involved had been involved in the litigation for many years.
- Whilst I have great difficulty in accepting that anyone could have thought that a case of this complexity could be treated in quite the cavalier manner that Mr Warren-Smith describes (particularly in the absence of a trial bundle that was by 18 July 2014 overdue by 22 working days) I am un-persuaded that these factors of themselves assist in resolving the issues I am now concerned with. They are not sufficiently unambiguous to form the basis of any conclusions in relation to those issues. The failure to chase for bundles and re-instruct counsel to get on with the work of preparing the skeleton openings does not necessarily lead to the conclusion that the defendant considered the case had been settled as the claimants allege. That is certainly an inference but such conduct is equally consistent with a risk being taken in the belief that agreement on the terms of the settlement agreement would be reached and that in any event the risk of harm in terms of the trial date being lost lay more with the claimants than the defendant in circumstances where it might be hard for a court to attribute blame to one side over another until after any trial and the harm caused by delay would be more keenly felt by the claimants than the defendant.
Discussion
- The first issue that arises is whether objectively, and considering the whole course of the parties' negotiations, the parties have reached a concluded agreement or have done so intending to be bound even though further documentation of the agreement was anticipated. In my judgment the claimants have clearly established that to be so. I say that for the following reasons.
- Although it was suggested very strongly on behalf of the defendant that a case of this complexity could not be settled other than on the basis of a careful consideration of all the relevant ramifications and in particular the impact of future contribution claims brought against the defendant as a result of claims brought by the claimants or some of them against third parties in respect of the same losses, in my judgment this factor is of limited weight in an objective assessment of the sort I am required to carry out.
- First, although the underlying litigation was complex, as I have said settlement of the dispute was not. It is true that settlement in the terms contemplated by Mr Parker's letter of 20 June was more complicated than what was agreed on 29 June, but that was only so because the settlement figure that Mr Parker offered in that letter was one that would or might reasonably have been thought by him to exceed what could be recovered from insurers and thus that a portion would have to come from the estate of the defendant. That this was Mr Parker's view is reflected by the third paragraph of that letter in which he refers in terms to part of the settlement sum he was proposing being met by insurers and part by the liquidator. It was because settlement at the figure he was suggesting would involve in part a payment from the defendant's estate that Mr Parker qualified the offer by referring to a Tomlin Order breaking down payments to be made to each claimant. Once the settlement figure dropped beneath the maximum sum available under the defendant's insurance policy this problem disappeared. In those circumstances, I do not accept that there was any complexity about the settlement negotiations that lead necessarily to the conclusion that the parties could not have intended that a binding settlement be reached other than by a formal agreement signed by the parties.
- Secondly, and specifically in relation to the potential impact of future third party claims against the defendant, there had never been at any stage any attempt by the defendant to reserve its position in relation to claims by third parties. Two sources of potential third party claims are relied on by the defendant. The first concerns the fact that some claimants had assigned their interest under the relevant partnerships to third parties for various mitigatory purposes. That is entirely immaterial because it had not been suggested at any stage that any of the claimants had in fact or even might have assigned the claims against the defendant. If the defendant was to reserve its position in settlement negotiations by reference to a point of that sort then it needed to be made clear in the course of the negotiations that such was the position. As I have explained when summarising the applicable principles, a subjective and internal reservation of position is entirely immaterial to the question of whether in fact agreement has been reached. It is common ground that this point had not been mentioned at all by or on behalf of the defendant.
- The other type of third party claim relied on by the defendant concerns the effect of contribution claims. In my judgment this point suffers from the same difficulty. It is true to say that the possibility of claims by claimants against third parties had been raised in correspondence between solicitors in the terms I described earlier in this judgment. However that question was asked and answered in correspondence that passed in 2011. It is entirely unreal to suggest that this material was or ought reasonably to have been in the contemplation of the parties in 2014 as a reason why settlement could be achieved only by adopting a two stage negotiation process as asserted by the defendant. It is common ground that it was not mentioned at any stage during the course of the mediation. Whilst the point might have become apparent had the draft long form settlement agreement in the possession of Mr Warren-Smith been shown to the claimants' solicitors, it is common ground that this course was not taken. The draft agreement (apparently in a revised format) was shown to the claimants' solicitors for the first time only after the receipt by the defendant's solicitors of the draft Tomlin order prepared by the claimants' solicitors following the exchange of e- mails on 29 June.
- None of the correspondence relevant to whether a concluded agreement had been reached after the letter of 27 May letter contained any form of relevant reservation. I fully accept that the letter of 27 May was made conditional on the agreement of final terms. I accept that for that reason, had the offer contained in the letter been accepted by the claimant no concluded agreement would have arisen. It is noteworthy however that the offer contained in that letter was expressed to be in full and final settlement of the claims counterclaims and costs claims in these proceedings. There was no reservation of any sort in relation to contingent claims that might be made against the defendant by parties other than the claimants. However, as I have explained, I consider that this letter was perceived by all parties to have been sent and received as a last attempt to revive the mediation that had already taken place and at which no agreement had been reached. Negotiations failed at that point when the proposal contained in the 27 May letter was rejected. It is noteworthy that whilst this letter was subject to an express qualification, none of the communications that passed on and after 20 June were subject to such a qualification.
- The mediation having failed, negotiations resumed following Mr Parker's email to Mr Warren-Smith of 18 June 2014. In my judgment by then the dynamic that was driving the negotiations had changed. The real urgency that by then had arisen was that identified by Mr Parker in his email namely the implications for the claimants of their funding arrangements and by the case management directions relating to the trial that I summarised earlier in this judgment. This email is not consistent with Mr Parker considering that there was a mutually understood two stage negotiating process between the parties which involved first agreeing a figure and then all the other terms with no agreement being reached until agreement on all points had been reached much less set out in a written agreement signed by or on behalf of all parties. Such a process was unlikely to meet the time related problems identified in the email of 18 June.
- In the end the defendant's case that the mutual understanding of the parties or at any rate the understanding of the defendant's position by the claimants depends upon me accepting that the conversation that took place on 19 June was in the terms suggested by the defendant. I am not able to accept that premise for the reasons given earlier in this judgment. The conversation did not therefore establish or confirm an earlier understanding that there would be a two stage negotiation of the sort relied on by the defendant.
- There was nothing in the communications that followed that gave rise to such an understanding. Although the defendant relies on the letter of 20 June, the qualificatory words "in principle" in the penultimate paragraph of that letter are not an acknowledgement that the process was a two stage one it was a simple acknowledgement that if the case was to be settled for a global sum that exceeded the available insurance cover then the order would have to be drafted in a manner that enabled each individual claim to be properly processed through the liquidation. That letter makes it perfectly clear that what is being proposed is a payment in full and final settlement of the claims by and between the claimants and defendant in these proceedings.
- Exactly similar considerations apply in relation to the letter dated 23 June from the defendant's solicitors. There is absolutely no suggestion within that letter that the offer contained within it is not capable of immediate acceptance. Indeed the contrary is the case. It contemplates a payment of Y +1 in cash within 28 days. There is no mention of any sort of further negotiation that had to be undertaken in the event that this figure was acceptable. What was offered was a cash payment within the 28 day period mentioned in full and final settlement of "this matter" that is the claims, counterclaims and costs claims in these proceedings. This approach is then consistently adopted throughout all the exchanges that follow, each of which I have set out earlier in this judgment. Critically in my judgment the email exchanges on 29 June are objectively consistent only with the parties intending to reach a binding agreement as to settlement and to do so under the time related pressure of a further tranche of brief fees becoming payable something that was likely to be material enough to bring about the withdrawal of the Y +2 offer, given the terms of the insurance cover available to the defendant.
- Had the understanding of the defendant's solicitors been that the negotiation was a two stage process of the sort suggested in the course of the hearing before me, the reaction to Mr Parker's email at 15.05 on 29 June 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. Indeed, given that Mr Parker said he was sending round a draft consent Order, I cannot see why Mr Warren-Smith would not have said that there could be no final agreement until all other terms had been agreed and indicating that he had a draft settlement agreement "on the stocks" as it was put in the course of the hearing before me. Although Mr Warren-Smith said in the course of his evidence that he wanted to see what was in the draft consent Order because it might have been more advantageous to the defendant, I consider that unlikely in reality, particularly given the time related pressures to which all parties were subject. The long form agreement had covered all possibilities to the satisfaction of the defendant. Had the understanding been that there could be no settlement until agreement had been reached concerning issues that had yet to be identified then I think the overwhelming likelihood is that Mr Warren-Smith would have said something to that effect and said that he would send over a draft agreement for consideration on Monday.
- In my judgment following the exchange of emails on 29 June, the parties had reached agreement on all the essential terms (as that phrase is properly to be understood) of a settlement agreement settling these proceedings. The sum payable had been agreed and it had been agreed that, when made, the payment would be in full and final settlement by and between the claimant and the defendant of the claims, counterclaims and costs claims in these proceedings. The parties had not objectively proceeded on the basis that agreement of the figure would be the first stage of a two stage process. There is simply no objective material to justify such a conclusion.
- The next issue that has to be resolved therefore is whether notwithstanding the parties appear to have entered into a binding agreement it was nonetheless one that was subject to contract in substance if not by being subjected to express wording to that effect. It was on any view clear that there would have to be a consent order made bringing the proceedings to an end and the final email from Mr Parker on 29 June said that he would send one to Mr Warren-Smith the next day.
- In my judgment viewed objectively it was plain that the parties intended by their communications to reach a final and binding agreement by the exchanges that ended with Mr Warren-Smith's email on 29 June 2014, notwithstanding the reference by Mr Parker to a consent order. My reasons for reaching that conclusion are as follows.
- First, there was no indication by either party to the other at any stage that there were issues of substance that remained to be agreed after the exchange of emails on 29 June had been completed. As I have explained, the defendant's solicitors had raised questions concerning claims by claimants against third parties in correspondence in 2011 that had been answered. No further points were raised nor any reservations made concerning this issue at any stage thereafter. The letter of 27 May was written in the context of a mediation that was the subject of a mediation agreement that provided that there was to be no settlement unless in writing. The mediation related negotiations finally broke down when the conditional offer contained in the letter of that date was rejected by the claimants' solicitors by letter dated 28 May 2014.
- As I have explained already the negotiations that led ultimately to the exchanges on 29 June started with the email to Mr Warren-Smith from Mr Parker of 18 June 2014. Whatever the position had been prior to that date, by then settlement was being driven by the time related issues to which I have already referred including those referred to expressly in the 18 June email (described therein as giving rise to "real urgency"), the case management directions concerning bundles and skeleton arguments and, ultimately, the issue concerning the next payment due to counsel instructed on behalf of the defendant. The conversation that took place on 19 June did not either expressly or impliedly lead to a mutual understanding that the discussions concerning a settlement figure were the pre-cursor to further discussion that would have to lead to consensus before a concluded agreement could be reached.
- The terms of the email exchanges after 23 June and in particular those that took place on 29 June are flatly contradictory to the notion that the discussions were taking place subject to contract or to agreement of other terms and conditions concerning unidentified issues. There had been no mention at any stage of what other terms and conditions had to be agreed or even of the issues to which they related. The exchanges consistently referred to the offers and counter offers being in full and final settlement of the claims, counterclaims and costs claims in the proceedings. The email from Mr Warren-Smith on 27 June referred to the offer he refers to as being "
a take it or leave it offer
" which carries with it the clear inference that it was there to be taken, not taken subject to the agreement of terms and conditions concerning issues that had not yet even been identified. This analysis is supported by the description of the offer as being "
a final gesture to reach settlement". The very clear implication is that if the offer is accepted a settlement will have been reached.
- In my judgment had the mutual understanding been that the negotiations were taking place subject to contract then the exchange of emails on 29 June would have been very different. Mr Parker referred to a "consent order". That implies that there is nothing of substance left to agree other than the form of words necessary to carry into effect the agreement reached. That is borne out as the understanding of Mr Parker by the terms of the draft Tomlin Order that was eventually sent to the defendant's solicitors. That was the clear implication from what Mr Parker had said in his email on 29 June 2014. Had it not accorded with Mr Warren-Smith's understanding I am sure that he would not have said simply "Noted, with thanks." He would have responded at that point by identifying at least the issues concerning which agreement needed to be reached before a final agreement could be made.
- As I have said a process such as that which the defendant maintains it was understood would be undertaken was inconsistent with the need to settle before the time related issues identified in particular by Mr Warren-Smith were triggered. The problem that counsels' fees and the case management directions relating to the trial represented could not be avoided by a settlement discussion in which a figure was agreed either subject to contract or in principle subject to the agreement of other terms and conditions relating to issues that as I have said already had yet to be identified. However, it was these time related factors that were providing the impetus for settlement and the impetus for the claimants' acceptance of the Y +2 offer.
- The final point that arises concerns what happened after the 29 June. There is an issue between the parties as to whether as a matter of law what happened thereafter is admissible for the purpose of deciding whether a contract was concluded on that date or not. This issue was considered by Lewis J in Newbury v. Sun Microsystems [2013] EWHC 2180 (QB). The facts are not material. The statement of principle on the issue I am now considering was at [27] and was in these terms:
"First, where a contract is said to be contained in a document or documents, I do not consider that it is legitimate to have regard to the parties' subsequent conduct for the purpose of considering whether those documents give rise to a binding agreement. In those circumstances, the question for the court will be whether, considering the whole course of events up to and including the documents in question, the parties, objectively, have reached agreement. That will involve consideration of the meaning of the documents viewed against the whole of the relevant background to the negotiations. But, as Males J. put it in the Air Studios case at para. 5, "Once the parties have to all outward appearances agreed in the same terms on the same subject matter, usually by a process of offer and acceptance, a contract will have been formed". Conduct after that date is not a legitimate aid in determining whether or not the parties had reached an agreement by that date. Such conduct may be relevant if it is said there is a variation or a new agreement or it is alleged that the contract is a sham or in other, limited, circumstances such as claims of estoppel. It may be that evidence of such conduct may be admissible and relevant if there is a dispute as to whether or not particular terms, not included in the written documents, were terms of the agreement. If the contract is oral, or partly in writing and partly oral, the parties' conduct may be relevant to test the evidence as to whether or not the terms were agreed or which terms were included. But where the contract is said to be contained in documents, conduct occurring after the date of the documents will not be a legitimate aid in determining whether, properly construed, those documents were intended to give rise to a binding contract.
It would only be appropriate for me not to follow this analysis if satisfied that it was plainly wrong. I am not so satisfied. However, in case I am wrong to have reached that conclusion, I set out my conclusions as to the effect of what happened after 29 June on my assessment of whether an agreement had been reached between the parties as at that date.
- In my judgment, if on an objective analysis a binding agreement had been reached on 29 June 2014, then what happened thereafter cannot undo that agreement unless what happened amounts to a rescission or variation of what had been agreed previously. Since it is common ground that nothing was agreed after 29 June, on any view what occurred could not be either. Thus the only significance of conduct after 29 June is for the purpose of informing a conclusion as to whether an agreement was in fact reached then. If, as here, all other factors point to the conclusion that a concluded and binding agreement was reached on that date, only conduct which very clearly and unambiguously demonstrates that no final agreement had been reached is likely to assist.
- The conduct after 29 June relied on by the defendant does not in my judgment lead to the conclusion that an agreement had not been reached on the 29 June. In essence, the defendant submits that the parties engaged in protracted negotiations concerning the terms of a settlement agreement that in the end broke down. It was submitted that this conduct on the part of the claimants is consistent only with the mutual understanding of the parties being that the agreement reached on 29 June was subject to contract or was an agreement in principle subject to the agreement of all other terms and conditions. I do not agree. That parties are prepared to negotiate concerning the terms of a settlement agreement does not lead necessarily to the conclusion that the parties had not earlier entered into a binding agreement to settle the dispute. It might be thought convenient for agreement to be reached on outstanding points if at all possible but there is nothing in such conduct that is necessarily inconsistent with an agreement having been reached earlier.
Conclusion
- In my judgment for the reasons set out above, the parties settled these proceedings by an agreement contained in or evidenced by an exchange of emails on 29 June 2014 whereby it was agreed that the claimants collectively would accept the sum of Y +2 in full and final settlement of the claims, counterclaims and costs claims by and between the parties to these proceedings. The settlement contemplated that there would be a consent order in order to carry that agreement into effect but settlement was not conditional upon the agreement of the terms of that consent order or the terms of a settlement agreement. The exchange of emails constituted the agreement between the parties.
