How to settle a claim…and how not to

Alexander Kleanthous

• Concurrent liability

• Cheque in full and final settlement

• Mistake

• Misrepresentation

• Enforcement

• Third party rights

What is a settlement?

• Settlement is a contract

– Offer

– Acceptance

– Consideration

– Certainty

– Intention to create legal relations

Concurrent liability

• A and B are both liable to X

– Tort

• Jointly

• Severally

– Contract

• Jointly

• Severally

The opposing interests

• X’s interest: wants to settle with A and

then pursue claim against B

• Does A care?

– B might claim against A, e.g.

indemnity, Civil Liability (Contribution)

Act 1978

– A’s interest: to prevent X suing B

The “full satisfaction” question

• Where A and B separately cause X the

same loss, does X still have a cause of

action against B after accepting a sum in

full satisfaction of his claim against A?

• The issue – does the claim still exist?

The “final settlement” question

• Is it inconsistent with X’s full and final

settlement with A to permit X to pursue

B for the same heads of loss, leading B

to seek a contribution from A?

• The issue – did the settlement cover

the full loss?

• Question of construction of the

agreement between X and A

Final settlement – principles

• Releasing one tortfeasor/contract-breaker will

(joint) or may (several) 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

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 against claims by B

Being specific – BCCI v Ali [2001] UKHL 8

“In full and final settlement of all or any claims

whether under statute, common law or in

equity of whatsoever nature that exist or may

exist and, in particular, all or any claims, rights

or applications of whatsoever nature that the

applicant has or may have or has made or

could have made or could make in or to the

Industrial Tribunal except the applicant’s rights

under the respondent’s pension scheme”

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?

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

Mistake

• 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

Misrepresentation

• Usual contractual principles

• Types of misrepresentation

– Innocent

– Negligent

– Fraudulent

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

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

Enforcement

• Two types of settlement

– Court order/judgment

– No court order/judgment

Court order or judgment

• When proceedings have been issued

• By consent

• Only orders within the court’s jurisdiction

– Tomlin orders

• Ordinary execution/enforcement

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

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

Existing third party rights

• Parties may require a third party’s consent to a

settlement

• Protection of promisor from double liability

• may not protect promisor if he gives benefit rather than

pays money

Creating third party rights

• Act may give right to third party

• Parties can contract out

A settlement is a contract

• All the usual rules apply

• Think about boilerplate

• Think about enforcement

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.

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