In the recent case of Newbury –v- Sun Microsystems the Court provided some words of caution in relation to the formation of contracts and the need for clarity when parties are seeking to settle proceedings.

It is a common aspect of litigation that parties will make offers in an attempt to settle. Indeed, throughout litigation the parties are encouraged by the Court to seek to settle the dispute by alternative methods of dispute resolution. Instead of engaging in more formal methods of alternative dispute resolution, such as mediation, parties often negotiate settlement in correspondence.

In the Newbury Case the Claimant had issued proceedings against the Defendant in sum of $2,028,760 in respect of unpaid commission. The Defendant issued a counterclaim against the Defendant alleging overpayment. The proceedings had been ongoing since 2011 and previous attempts at settlement had been unsuccessful.

However on 3 June 2013, shortly before the parties were due to commence an 8 day trial, the Defendant’s Solicitor wrote to the Claimant’s Solicitor putting forward an offer to compromise the entirety of the claim. That offer letter was not marked ‘subject to contract’. The offer put forward by the Defendant was a payment of £601,464.98 to the Claimant in full and final settlement plus an additional payment in respect of the Claimant’s legal fees. The letter expressly stated ‘such settlement to be recorded in a suitably worded agreement’.

The Claimant’s Solicitors wrote back to confirm that the offer was accepted and they would forward a draft agreement for approval in due course.

On 5 June 2013 the Claimant’s Solicitor sent a formal Order which recorded the compromise of the proceedings and provided for a payment to be made to the Claimant in full and final settlement of the claim together with an additional payment in relation to legal fees.

The Defendant’s Solicitor responded to confirm that the proposed Order was not agreed. Instead the Defendant’s Solicitor had drawn up a separate Order and a formal Deed of Waiver in which additional terms in relation to taxation and a requirement of confidentiality were inserted. Such terms were not included in the offer and as a result the Claimant’s Solicitor rejected the new proposed Deed of Waiver and the additional terms incorporated it in.

A dispute arose between the parties as to whether or not the correspondence exchanged on 3 June 2013 led to the creation of a binding contract. The Claimant contended that the letters were clearly demonstrative of a contract, the parties had an intention to create legal relations and the acceptance of the offer created a binding contract. The Defendant’s position was that the use of the words ‘such settlement to be recorded in a suitably worded agreement’ meant that the offer was not an offer which was capable of acceptance as further terms (i.e. the settlement agreement) needed to be negotiated and until such an agreement had been approved and signed, the offer was not binding.

The Court agreed with the Claimant and held that the correspondence gave rise to a binding legal contract. The Judge stated that had the Defendant’s Offer letter been marked ‘subject to contract’ it would have been clear that the terms of the Offer were not binding until a formal agreement was entered into.

This case acts as an important reminder of the need to ensure that you are not unintentionally creating a contract and for the terms of any offer letter to be clear. Ideally any offer made should state clearly all of the conditions which are attached to that offer because once the offer is accepted it may be too late to seek to impose additional terms into that compromise.


Please contact Luke Patel
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