Key Practice Areas
A Binding Agreement to Compromise
“Let us never negotiate out of fear. But let us never fear to negotiate.” John. F. Kennedy.
One unavoidable aspect of commercial litigation is the fast and furious nature of negotiations. Regardless of whether negotiations are face-to-face or over the phone, the importance of following strict procedures and officially recording all information when negotiating outside of the courtroom was highlighted in the case of Gailey Projects Pty Ltd v McCartney (“Gailey”).
The Case at Hand
Gailey involved a dispute relating to an alleged consultancy agreement.
What was to be a two week trial, turned out to be a negotiation exercise on the first day of the trial. The plaintiff was represented by senior counsel and an instructing lawyer, and the defendants were represented by senior counsel, junior counsel and an instructing lawyer.
Negotiations ensued between the five legal representatives and resulted in the defendant making an offer of $450,000, payable to the plaintiff within 24 hours. A call option (an agreement to buy assets at an agreed price on or before a particular date) was also to be exercised by the plaintiff’s nominee over a two-bedroom unit, which the plaintiff could choose from a range of units available at a particular development.
The plaintiff’s senior counsel accepted the offer by saying the words “We accept”, “We have a deal” and “You must have worked hard on your guy.”
The defendant’s senior counsel then recommended that the next steps would be confirming the settlement terms by email that evening and advising the judge of the agreement the following morning.
The defendants argued that a compromise had been reached at 5pm on the first day of trial. The plaintiffs argued there was no verbal acceptance of that compromise, or in the alternative, any agreement had been conditional upon execution of a deed of settlement, repudiated by the defendants or made unenforceable by sections 11(1)(a) and 59 of the Property Law Act 1974 (Qld) (“the Act”) which require certain agreements to be in writing.
The evidence that was presented by all five legal representatives contained several discrepancies and, as a result, the court was unable to determine the sequence of events.
The main consideration for the trial judge was whether the litigation had been compromised by a binding verbal agreement made at 5pm on the first day of the trial.
The Parties’ Intentions
The judge took into consideration a number of factors, particularly:
- senior counsel from each side conducted the negotiations,
- previous attempts to settle at mediation had occurred,
- negotiations occurred on the first day of trial, while the matter had been stood down to allow for discussions,
- language used by the plaintiff’s senior counsel constituted acceptance of the offer, and
- the terms of the offer were to be actioned within 24 hours.
The judge found that, although the parties did not use specific times for certain steps to be taken, the implied terms of “reasonable time” and requiring “reasonable steps” to be taken were sufficient to overcome any uncertainty regarding the defendant’s lawyer’s timing of certain steps in the email.
Despite the plaintiff’s claim that the offer had been conditional upon execution of a deed of settlement, the judge found that the offer was not dependent on a deed of settlement being executed.
The judge noted that it was “hardly surprising that no condition requiring a deed of settlement prior to there being a concluded agreement was discussed.”
The Alleged Rejection of Offer
The plaintiff alleged that the defendant’s solicitor’s email contained terms differing from the verbal agreement and that that amounted to rejection of the offer.
The judge found that the differing terms within the defendant’s lawyer’s email did not constitute a rejection of the offer, but was instead merely seeking further clarification, proposing new terms that may or may not be accepted, and attempting to be more precise regarding the implied term of reasonable time.
Regarding the call option for the two-bedroom unit, the judge considered sections 11(1)(a) and 50 of the Act. These sections state that no interest in land can be created or disposed of unless in writing and that no action can be taken regarding contracts for sale of land, unless the contract is in writing.
It was noted that there is a difference between an agreement to compromise and formal execution of written documentation regarding the creation or transfer of land interests.
The judge determined that a binding agreement to compromise the litigation had indeed been reached.
In order to avoid confusion, lawyers are urged to record detailed file notes of the circumstances of negotiations, particularly any terms of offers made.
If a compromise is reached, the best safeguard is to set out all the details in an email. Key information should include the terms of compromise reached, any terms that have been agreed, terms that require further clarification and any clarification required regarding any implied terms.
How We Can Help
Quinn & Scattini Lawyers’ Commercial Litigation Team are highly experienced entering into formal, and informal, negotiations and securing the best possible outcome.
Our expert litigation lawyers are available at any of our local offices.