Key Takeaways

In this case, the NSWSC dismissed an application by an insurer to enforce a settlement agreement on the basis that the parties did not intend for the settlement to be binding until a formal deed of release had been entered into.

The decision reinforces the need for parties to be sufficiently clear with offers of settlement to ensure they will be sustainable.

Brief Facts

We previously discussed the TPD decision in MX v FSS & MetLife (NSWSC 2018) being a split TPD case, in which Slattery J vitiated the insurer’s decision to decline the claim on a Stage 1 hearing, and the decision of MetLife v MX (NSWCA 2019), in which the insurer’s appeal was dismissed.

In this case, Robb J considered whether a Calderbank offer served by the insurer’s solicitor on MX’s solicitor's (the Offer) and MX’s solicitor’s acceptance (the Acceptance Email) constituted a binding contract.

In the judgment, Robb J subjects the Offer, the Acceptance Email and other relevant settlement communications to an extensive textual analysis and considers the objective interpretation of the words of the relevant documents and the conduct of the parties during the negotiation process.

Judgment

Robb J ultimately concluded that the parties had not entered into a binding agreement. His Honour found that the objective circumstances were such that the parties had only entered into a provisional settlement of MX’s claim, which was subject to the negotiation and execution of a formal deed of release so as to bind the parties.

Rights of Other Parties in the Litigation

The Court noted that the First Defendant trustee was not a party to the Offer and that the Offer did not deal with the rights of the trustee. His Honour stated that the absence of any resolution of MX’s claims as against the trustee ‘may be a practical reason for doubting that the parties had agreed to an immediately binding settlement’.

The Deed of Release

Robb J found that on its proper construction, the Offer was subject to MX, the insurer and the trustee entering into a formal deed of release, and therefore the settlement process was only intended to be complete at that time. Whilst paragraph one of the Offer was expressly limited to bring to an end the proceedings in their entirety against the insurer, the introductory words or ‘chapeau’ of the actual terms in the Offer specified that the proceedings would be resolved in their entirety on the following condition:

‘MX, [the insurer and the trustee] will enter into a mutually agreed Deed of Release reflecting these terms of settlement and on the basis that such Deed of Release shall contain releases, confidentiality, non-disparagement provisions and such other provisions as are commonly contained in such Deeds of Release’.

Having made that finding, his Honour found that the settlement agreement contained warranties encompassing tax advice and tax consequences of any payments to be made to MX. His Honour considered these were not obviously provisions commonly contained in such Deeds of Release.

Robb J therefore found that the objective circumstances demonstrated that the negotiation and execution of a deed of release was significant and that there was no binding contract until that stage was reached.

Costs Component of the Offer

His Honour decided that the lack of clarity as to how the Offer was intended to operate as to the costs component of the settlement sum was significant to the question of whether a binding agreement was reached. Briefly:

• The Offer was expressed to be ‘inclusive of costs and interest’, objectively meaning all of MX’s costs of the proceeding.
• The Acceptance Email restricted acceptance of the offer to ‘stage 2’ costs.
• The insurer’s solicitors clarified that the offer was inclusive of stage 2 costs and that stage 1 costs would be a matter that remained for determination.
• However, his Honour determined that the explanation of the insurer as to the intended meaning of ‘inclusive of costs’ introduced material uncertainty as to ‘what was meant by stage 1 and stage 2 and what costs were encompassed within each stage’.
• This ‘element of uncertainty’, the Court said, ‘may have been significant if MX and the insurer objectively intended to be immediately bound by…the Acceptance Email’ and could not be addressed in the process of agreeing on the final cost components of the Settlement Sum. His Honour concluded that, ‘the lack of clarity is therefore consistent with the parties in reality only intending to make a partial in principle settlement of their dispute’.

Ultimately, the Court concluded that it was objectively improbable that a plaintiff in MX’s position would have intended to be immediately contractually bound given that there were issues left to be agreed between MX, the insurer and the trustee that were capable of substantially reducing the settlement money that MX received.

In Principle Settlement

The Court also considered the parties’ conduct after the Acceptance Email and found that the parties, in their communications to the Court, expressed that MX and the insurer ‘had reached an in principle settlement of the proceedings’ and that ‘there remained issues to be agreed upon so as to finalise the question of costs and agree to the terms of the settlement’. The Court said that the ‘very use of the words [in principle settlement] is a definite indication’ that there is no binding settlement until the remaining issues are agreed upon.

The Court therefore dismissed the insurer’s application to enforce the settlement.

Implications

This case is a timely reminder that settlement agreements may not be binding in the absence of an executed deed of release.

Whilst the negotiation of further, additional terms, in a more formal agreement is not necessarily inconsistent with an intention to be immediately bound¹, the objective circumstances in this case, in Robb J’s view, contained elements of uncertainty as to some of the aspects of the Offer which were considered to be significant and prejudicial to the plaintiff if the parties were immediately bound.

It follows that when preparing offers of settlement, insurers need to ensure that their language in the relevant settlement communications is clear and illuminates their intention as to whether further documentation is required to finalise the dispute.

Terms suggesting that the offer is ‘subject to the parties entering into a deed of release’ would generally mean that there is no binding contract before the execution of a deed in final form.

Certainly, as Robb J stated, experience suggests that the general practice and expectation of parties is that a settlement will not be binding until a Deed of Release is negotiated and entered into. A clear indication to the contrary is required where parties wish to be immediately bound.

¹ Nurisvan Investments Ltd v Anyoption Holdings Ltd (VSCA 2017)