Mediation - The Settlement Agreement

© Daniel Atkinson 2002 13 October 2002

Practice Note

If a Mediation is successful it is important to reduce the agreement to writing and in a form which is enforceable.

A mediation process has not necessarily failed simply because there has been no compromise. The process itself may allow the issues to be refined and more clearly identified. Nonetheless if a compromise is reached, it needs to be in a form which is enforceable. Two recent cases highlight the main issues.

The decision in Oil and Mineral Development Corporation Limited -v- Mahdi Sajjad, Oasis International LLC (1999) emphasises the importance of properly recording any settlement in the mediation in a formal written agreement. There was continuing dialogue between the Mediator and the parties. Morison J deciding the matter held that the documents showed a clear intention that whatever was orally agreed would need to be reduced to a formal written agreement. The written document was not to be a mere formality. There were important details which required clarification and further agreement. It was held that the parties never reached a binding settlement agreement as alleged. The mediation failed to produce a compromise.

The decision in Kirit Lalji Thakrar -v- Ciro Citterio Menswear Plc in administration (2002) ChD raises the interesting issue whether a settlement agreement expressed as a Tomlin Order was binding even if the Tomlin Order was not enforced by the Courts. A Tomlin Order is a form of consent order by the Judge in which further proceedings in the action are stayed, except for the purpose of carrying into effect the terms of the agreement in the schedule to the Order.

The mediation was successful. The draft order in Tomlin form was signed by solicitors for Kirit and for Ciro and the Administrators and by the mediator. The Court of Appeal was not minded to make an order in the agreed form.

In these most unusual circumstances Kirit sought a declaration before the Vice Chancellor that Ciro was bound by the terms of the settlement reached in the mediation. It was common ground that the court was entitled to conclude that Ciro was so bound because it was clear that Court of Appeal did not conclude that there was no immediately enforceable contract. It was also common ground that an agreement to settle contained in a draft Tomlin order was not of its nature conditional on the making of the order; it may or may not be depending on its true construction. It was common ground that the contract of settlement is capable of being distinct from the Tomlin order or any agreement to procure it. An example of such distinct contracts is afforded by Horizon Technologies Ltd v Lucky Wealth Consultants Ltd [1982] 1 WLR 24. The Vice Chancellor concluded that the agreement contained in the schedule to the draft Tomlin order was not conditional on the making of that order.

The further point was whether a compromise is enforceable if the underlying contract is illegal.

Ciro then argued that the court should not enforce the compromise any more than it would the underlying illegal transaction. For those propositions it relied on Chitty on Contracts 28^th Edition Vol 1 pp843 - /844 and Foskett, the Law and Practice of Compromise 5^th Edition pp 71 - 72.

Kirit argued that the decision of the Court of Appeal in Binder v Alachouzous [1972] 2 QB 151 established that the court will enforce bona fide compromise of a dispute whether or not the underlying agreement was illegal, at least if it included an issue of fact.

The Vice Chancellor held that the compromise arising from the mediation was one which the court could and should uphold. The mediation was genuine and the resulting agreement arrived at on a proper commercial basis. Each side was represented by experienced solicitors and had the assistance of skilled accountants. The Vice Chancellor did not consider that Binder restricted the issue solely to one of fact. The Vice Chancellor did not accept that it was permissible to subdivide the basic issue, isolate a pure point of law and then avoid the application of the principle of Binder v Alachouzos however bona fide the compromise may be.