Striking a deal to settle a dispute is one thing; turning that deal into a binding agreement can be another. In between the two, many a deal has unravelled. The recent decision in Goodwood Investments Holdings Inc v Thyssenkrupp Industrial Solutions AG illustrates how an apparent settlement can disappear.
The case concerned the building of a luxury superyacht. The parties fell into dispute and proceeded to arbitration over alleged defects in the yacht’s paint system. During the course of the dispute, they exchanged several settlement offers through their solicitors. Eventually, at the beginning of the arbitration hearing, Thyssenkrupp made an offer to settle which would involve them carrying out repair works, which Goodwood had claimed were necessary, and making a payment as a contribution to Goodwood’s costs.
Among other terms, the offer said that conclusion of the final settlement was subject to ‘conclusion of a formal settlement agreement to include, prior to signature, formal approval of the settlement by the competent corporate body of the builder’. The offer was expressed to be open for acceptance for two days.
Within the time limit set, Goodwood wrote saying they accepted the offer, subject only to some clarifications they needed for logistical reasons. The parties asked the arbitrators to adjourn the hearing, which they did. Goodwood then produced the draft settlement agreement, which they provided ‘subject to contract’.
Thyssenkrupp did not respond for almost two weeks. When they did respond, it was clear that their position was that there was no binding settlement. The main question for the court was whether they were right.
The court held that there is no hard and fast rule as to whether a binding settlement will arise notwithstanding a condition that a formal settlement agreement is to be drawn up later. The court should look at and consider the whole course of the parties’ negotiations when deciding whether, in any particular case, a binding agreement has been reached.
In this case the court held that there were a number of factors that indicated that a binding settlement had not arisen. Aside for the terms requiring board approval and a formal settlement agreement, they included: the request for adjournment of the arbitration and references to it resuming; Goodwood’s ‘acceptance’ referring to an agreement in principle subject to Thyssenkrupp’s board approval and the use of the ‘subject to contract’ label. The court held there was no binding agreement.
Even though Thyssenkrupp had required acceptance within two days and Goodwood had responded saying they accepted, the offer made was not one that was even capable of acceptance in the sense of giving rise to a binding agreement. On the face of it therefore, there was a certain amount of confusion in the language used. That is understandable under the pressure of a hearing that is about to commence, but it does remind us of the need to take great care to be clear in settlement communications we make and in our understanding of those we receive.
When making an offer, one needs to consider carefully whether it is intended that any acceptance is to be immediately binding and, if so, to make sure that the offer is written in a way that makes that clear. Also consider whether a settlement agreement is really needed and whether the required terms can be spelt out in a letter or in an agreement enclosed with it. Many of us will have experienced settlements that have or have almost gone off the rails because of prolonged wrangling over the wording of the settlement agreement.
When receiving an offer, analyse it to see whether acceptance would give rise to a binding agreement. The answer to that question may affect whether you are prepared to put proceedings on hold or, as in this case, adjourn a hearing. When accepting, be wary of imposing conditions which may turn your acceptance into a counter-offer, giving the other party the opportunity to back away. Following a quick acceptance of an offer, many of us will also have been in the position of wondering whether we have been too generous.
The art of closing the deal is focussing on what is important and being crystal clear.