I have done my fair share of marathon mediations, working into the small hours of the night before the ever important breakthrough arises that finally leads to a settlement of the dispute. The relief in the parties’ separate rooms when verbal agreement is finally reached is palpable. But, as I always say at the outset of any mediation I am conducting, the mediation is not over until the terms of settlement are reduced to writing and the settlement agreement is signed by all the parties to the mediation.There is something quite frightening about trying to draft a settlement agreement in the middle of the night. Everybody, including the Mediator, will be exhausted by then and yet it is at this very point in the mediation when maximum concentration is needed. Most Mediators will encourage the parties to draw up and sign a settlement agreement before they leave for that well-earned night’s sleep. After all, a new day might lead a party to see a new perspective on the dispute and what it was willing to agree to last night is no longer on the agenda and, in those circumstances, the mediation will fail.
It never ceases to amaze me just how often, when the parties and the lawyers begin to put down in writing what has been agreed, a new point or problem comes to light that needs to be negotiated and settled. Then there is the agreement itself. Just what do the settlement terms mean? Could they be open to misinterpretation by any of the parties in the future? Will that post-midnight drafting come back to haunt you?
The Judgment in Point West London Ltd v Mivan Ltd (2012) demonstrates just how important it is to get the terms of a settlement agreement absolutely right. The case is not specifically about mediation but is about how what parties agree may not be what one or more of them actually intended.
The case concerned a dispute over a final account for work done and liability for defects in work done by Mivan for Point West on a project in London in 2000 which involved converting an existing building into apartments. By 2007 remedial works undertaken by Mivan had not corrected defects but nevertheless the parties entered into a settlement agreement which included the following terms.
“The agreement comprises a further payment of £50,000 (including VAT), representing the final assessment of monies due or to become due thus achieving full and final settlement in respect of the above works, together with any and all outstanding matters.
We would confirm that this final agreement concludes Mivan's responsibilities and obligations in respect of their works at the above project.
We appreciate your assistance in this matter, and now look forward to receipt of the final payment as agreed in due course."
Point West became involved in a court case with the owner of a penthouse apartment which it lost and had to pay damages to him for the defects.
Point West therefore brought proceedings against Mivan seeking a declaration that the settlement agreement it had entered into with Mivan did not include settlement of Mivan’s liability to pay damages in respect of defects which it had or would in the future have under its contract with Point West, including any liability in respect of defects which existed at the date of the agreement.
The court declared that the settlement agreement released Mivan from any liability for defects which both parties were aware of at the date of the agreement, including in relation to the unascertained defects relating to the heating and cooling system. It was clear to the court that at the time the parties entered into the settlement agreement the “outstanding matters” were the questions of payment to Mivan and the defects. Both parties were fully aware that further remedial works were likely to be required.
Mr Justice Ramsey held that the outstanding matters therefore included liability for such defects as they were clearly evident at the date of the agreement. Those were the outstanding matters corresponding to the words “all works carried out” by Mivan and the financial settlement was in respect of these.
Mr Justice Ramsey also confirmed that as the agreement was stated to be “in full and final settlement in respect of the above works, together with any and all outstanding matters”, it was clear that it was intended to achieve just that, a full and final settlement in respect of all works and all outstanding matters. The combination of phrases used in the agreement was intended to take the settlement further than a pure financial settlement and included releasing Mivan from having to attend to defects that were outstanding at the date of settlement.
How many times have you see the words “in full and final settlement of all claims and causes of action arising between the parties both prior to and after the execution of this agreement” in a settlement agreement? Are you sure that these words mean what you think they do?
This case is a timely reminder to think very carefully about what terms should be included in a settlement agreement and to ask yourself two very important questions. Just what claims and counter-claims are you actually settling? Are there any potential existing future claims that you are not settling?
Be careful what you wish for and remember that the devil is in the detail!
Peter Vinden is a practising arbitrator, adjudicator, mediator, expert and conciliator. He is Managing Director of Vinden and can be contacted by email at firstname.lastname@example.org