How to settle a claim and how not to
- 1. How to settle a claim ...and how not to Alexander Kleanthous ak@gannons.co.uk
- 2. Overview • Concurrent liability • Cheque in full and final settlement • Mistake • Misrepresentation • Enforcement • Third party rights
- 3. What is a settlement? • Settlement is a contract – Offer – Acceptance – Consideration – Certainty – Intention to create legal relations
- 4. Concurrent liability • X and Y are both liable to A • Could be under a contract, in tort (eg negligence) or otherwise • Very complex area
- 5. The opposing interests • A’s interest: wants to settle with X and then pursue claim against Y • A’s interest: wants to be sure he is out of it – Y might claim against X, e.g. indemnity, Civil Liability (Contribution) Act 1978 – X wants to prevent A suing Y • A and X can’t stop Y suing X
- 6. Final settlement – principles • Releasing one tortfeasor/contract-breaker will (joint liability) or may (several liability) release another • Agreement between X and A does not affect X’s rights against B • Clear language between X and A says little about whether agreement covers X’s full loss • Absence of reservation of right by X to sue B is not conclusive
- 7. When settling • Be clear and be specific! • Reservation of rights – X settles with A but reserves right to sue B • Covenant not to sue – X does not settle the claim against B, merely agrees not to pursue it • Undertaking by X not to sue B • Indemnity from X to A against claims by B against A
- 8. Questions to ask • If paying: – Is there anyone else who might claim against me? – What is going to stop them or how will I deal with that? • If receiving: – Is there anyone else I might want to claim against? – What in this settlement might stop me?
- 9. The cheque in full and final settlement 1. Open admission of amount due? – No consideration for a settlement 2. Offer of sum in compromise? – Accord and satisfaction? – Consideration for the accord? • Is there an offer to settle a dispute which is accepted? • Beware of third party funds
- 10. Mistakes • Usual contractual principles • Unilateral mistake – upheld unless other party aware and tried to take advantage • Mutual mistake (parties think different things) – court will do its best to find a reasonable interpretation but that will be binding • Common mistake – same mistaken belief, contract void only if fundamental
- 11. Misrepresentation • Usual contractual principles • Types of misrepresentation • Innocent • Negligent • Fraudulent
- 12. Fraudulent misrepresentation • False representation of a material fact, made prior to the compromise and which induces it, may, at the instance of the party misled, operate to vitiate the compromise
- 13. Misrepresentation examples • Assertion of claim known to be baseless • Representation true at the time made but becoming false before the compromise • Statement of intention of future conduct is not a representation (unless false when made) – no duty to disclose change of mind • BUT representation of settled intention when no such intention exists can be a misrepresentation
- 14. Enforcement • Think about how you’re going to enforce a settlement • Two types of settlement –Court order/judgment –No court order/judgment
- 15. Court order or judgment • When proceedings have been issued • By consent • Only orders within the court’s jurisdiction –Tomlin orders • Ordinary execution/enforcement
- 16. No order or judgment • Either where –proceedings issued –no proceedings • Settlement operates as a defence to the original claim • Must sue on the contract for settlement –agreement for order
- 17. Rights of third parties • General contractual rule –only parties can enforce –privity of contract • BUT Contracts (Rights of Third Parties) Act 1999 –Existing third party rights –Creating third party rights
- 18. A settlement is a contract • All the usual rules apply • Think about boilerplate • Think about enforcement
- 19. SUMMARY This information is designed to provide a summary of the issues addressed. Therefore, it is not intended as a detailed commentary on the relevant law and any comments made should not be acted upon without first taking specific legal advice.
- 20. Any questions? Slides: ak@gannons.co.uk Visit www.gannons.co.uk for further information
Editor's Notes
- #2: Introducing Gannons
- #3: BUT FIRST – a settlement is a contract
- #5: Hellish complicated subject Several House of Lords cases Aim is to raise awareness of the issues Joint: both liable for the whole Several: each liable for only a part Commonly joint and several
- #6: What they CAN’T DO: can’t prevent B claiming from A
- #7: Agreement between X and A effective if X agrees to forgo rights against B, which is enforceable by A and possibly by B under the Act (later) The more inadequate the compensation agreed by A, the greater A’s need to protect himself from possibility of further action by X to obtain full redress X does not need to reserve right to sue B, because he has that right. Inclusion of express right would tend to show settlement does not represent full loss
- #8: Being specific avoids presumptions and implications Deal expressly with third parties Reservation of rights – works because basis of settlement is contractual. Reservation may be implied – but better to make it express! Covenant not to sue – answers the full satisfaction question – the claim has not been satisfied
- #10: If sum is admitted, then acceptance by claimant gives no consideration (past consideration is no consideration). (Ferguson v Davies 21.11.96, CA) If not admitted, then is there an accord? Law is unclear and depends on the facts. Stour Valley Builders v Stuart, 21.12.92, CA. On one hand, if no accord, then no settlement. Acceptance of a cheque is not settlement if accompanied by notice of rejection. Practical advice – bank the cheque and write rejecting the offer, second class! Third party funds – good consideration
- #12: Innocent – rescission or damages in lieu Negligent – rescisison and damages Fraudulent – same
- #13: Eg Smith New Court
- #14: “if you don’t pay we’re going to sue you” – if not true (bluffing) = misrep
- #17: A and B settle on B promising to pay A £100 A and B settle only if B actually pays A £100 In the first case, A must sue on the settlement. In the second, A can either accept the repudiation or affirm the settlement