Proctor : November 2017
30 PROCTOR | November 2017 Reaching a binding agreement to compromise litigation A recent decision of Flanagan J in the Supreme Court of Queensland raises some interesting questions about whether and when a binding agreement to compromise litigation has been reached between parties. Gailey Projects Pty Ltd v McCartney & Anor (Gailey)1 demonstrates some of the pitfalls of rapid and informal negotiations conducted between legal representatives outside a courtroom during the course of a trial, as well as the circumstances in which a court might nonetheless find that a binding agreement to compromise has been reached. Two practical messages for practitioners are: 1. A detailed file note regarding the course of negotiations, including details of the terms of any offers made, may assist the court in making findings of fact in the event of a dispute. 2. It may be helpful to clearly identify in an email regarding the terms of an agreement to compromise reached between the parties, which terms have been agreed and which are merely seeking clarification, proposing new terms, or attempting to give content to an implied term. In Gailey, the parties had commenced a two- week trial in the Supreme Court concerning an alleged consultancy agreement. After returning from the luncheon adjournment on the first day of trial, the parties asked that the matter be stood down to allow discussions to occur. The trial judge granted the request. The parties, through their legal representatives, began negotiating in the conference rooms outside the courtroom. The plaintiff was represented by senior counsel and an instructing solicitor. The defendants were represented by senior counsel, junior counsel and an instructing solicitor. The question before Flanagan J was whether the litigation had been compromised by a verbal agreement reached at approximately 5pm on the first day of the trial. The defendants submitted that it had been compromised. The plaintiff submitted that there was no agreement to compromise, or in the alternative, that any agreement had been conditional upon execution of a deed of settlement, repudiated by the defendants, or made unenforceable by operation of sections 11(1)(a) and 59 of the Property Law Act 1974 (Qld) (PLA). All five legal representatives gave evidence before Flanagan J about the negotiations and the verbal agreement. The evidence was not uniform, and the court was not able to identify the precise order in which relevant events occurred. 2 His Honour found that the defendants had made an offer of $450,000 to be paid to the plaintiff within 24 hours and a call option to be exercised by the plaintiff’s nominee over a two-bedroom unit (to be chosen by the plaintiff from a range of units available in a particular development). The plaintiff’s senior counsel accepted the offer by saying words to the effect of, ‘we accept’, ‘we have a deal’, ‘you must have worked hard on your guy’ or similar.3 The defendants’ senior counsel suggested that the solicitors exchange emails recording the terms of the settlement that evening, and the trial judge be informed of the development the following morning.4 Intention to create legal relations Flanagan J relied on the following circumstances to hold that the parties had intended to create legal relations: 1. The negotiations were conducted on each side by senior counsel. 2. There had been previous attempts to settle at mediation. 3. The negotiations took place on the first day of trial, while the matter had been stood down to allow discussions to occur. 4. In the circumstances, the language used by the plaintiff’s senior counsel to accept the offer was that of a concluded agreement. 5. The terms of the agreement required action to be taken within 24 hours.5 Certainty The parties had not however, expressly decided some terms, including the timing of various steps. Further, as contemplated, after the agreement had been reached, the defendants’ solicitor sent an email to the plaintiff’s solicitor about the terms of the settlement. That email differed from the terms of the verbal agreement in some respects, including providing specific times for certain steps to be taken. Flanagan J observed that, “courts are always loathe to hold a condition bad for uncertainty and will strive to give effect to the intention of the parties’ agreement, no matter what difficulties of construction arise”. 6 His Honour held that implied terms of reasonable time and requiring reasonable steps to be taken were sufficient to overcome any uncertainty in relation to the timing of various steps, such that a binding agreement of compromise had been reached. 7 His Honour was able to resolve the other relevant terms on the facts. Deed of settlement Flanagan J found as a matter of fact that the parties had not made the agreement conditional upon the execution of a deed of settlement.8 In circumstances where the parties were negotiating on the first day of trial while the matter had been temporarily stood down, it was “hardly surprising that no condition requiring a deed of settlement prior to there being a concluded agreement was discussed” 9 , in that time was essentially ticking on the court’s indulgence. Repudiation His Honour concluded that the defendants’ solicitor’s email (containing terms that differed in part from the verbal agreement) did not amount to a repudiation of the terms of the agreement to compromise. The email had expressly stated that it “recorded the terms of settlement” (a reference to the terms verbally agreed that afternoon) and the inclusion of different terms did not evince any intention by the defendants not to be bound by the existing terms of the agreement. Rather, the different terms were properly construed as seeking clarification, proposing new terms that may or may not be accepted, and an attempt to give more precise content to the implied term of reasonable time. 10 PLA Finally, Flanagan J considered sections 11(1)(a) and 59 of the PLA. Section 11(1)(a) relevantly provides that no interest in land can be created or disposed of except in writing. Section 59 relevantly provides that no action may be brought upon any contract for the sale of land or other disposition of land or any interest in land, unless the contract is in writing.