Settling disputes is part and parcel of the commercial director or manager’s job. But not all disputes have escalated to the point where a lawyer needs to be involved. This seminar provides an overview of some possible pitfalls in the settlement of commercial claims and disputes and advises how to avoid them.

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