THE LAW AND PRACTICE OF COMPROMISE

LITIGATION LIBRARY THE LAW AND PRACTICE OF COMPROMISE WITH PRECEDENTS by The Hon. Sir David Foskett, LL.B., EC.I.Arb., F.K.C. A Justice of the High Court, Queen's Bench Division Bencher of Gray's Inn and contributors Seventh Edition SWEET & MAXWELL igj$ THOMSON REUTERS

Foreword to the First Edition Foreword to the Fourth Edition Foreword to Settlement under the Civil Procedure Rules Preface Table of Cases Table of Statutes Table of Statutory Instruments vii ix xi xiii xxxi Ixxxv xci PART 1: LEGAL FOUNDATION AND CONSEQUENCES OF COMPROMISE (David Foskett QC) para. 1. Introduction 1-01 2. Nature of a dispute Must be a dispute before a compromise 2-01 Actual dispute 2-02 Potential dispute 2-08 The unarticulated dispute? 2-12 Law or fact 2-15 Must be bona fide 2-19 3. Essential Requirements of a Valid Compromise Introduction 3-01 Consideration 3-02 Promised or actual forbearance to sue 3-03 Compromise proper 3-07 No consideration 3-10 An identifiable agreement 3-22 xv

General Some examples Presentation of cheque sent in settlement A complete and certain agreement General principle Failure to agree all material terms Terms too vague Agreement to agree and the "future document" Problem of the "conditional" compromise Compromise of part of dispute Agreement reached in "without prejudice" negotiations Intention to create legal relations Formalities Land Guarantee Deeds 4. Impeachment of a Compromise Incapacity Children Persons with impaired mental functioning Legal advisers Non-legal advisers and representatives Expert witnesses Companies Local authorities Partners Representative parties Representated parties acting personally Mistake General Relief sought or given Mistake in compromise Misrepresentation General Are compromises contracts uberrimae fidei? Some examples Relief available Duress and undue influence General Examples in the context of compromise Effect Illegality General 3-22 3-23 3-30 3-49 3-49 3-50 3-51 3-55 3-58 3-65 3-67 3-68 3-71 3-72 3-74 3-75 4-02 4-02 4-03 4-06 4-07 4-08 4-09 4-10 4-11 4-12 4-13 4-14 4-14 4-15 4-16 4-37 4-37 4-38 4-42 4-51 4-52 4-52 4-54 4-70 4-71 4-71 XVI

Compromise of disputes involving issues of illegality 4-72 Illegal compromises 4-75 5. Terms of a Compromise Preliminary 5-01 Construction 5-02 General problems and approach 5-02 Subjective intentions of understandings, negotiations and extrinsic evidence 5-10 Post-compromise words and deeds 5-17 "Rules" of construction 5-18 Releases 5-22 The "contra proferentem" rule 5-34 Relevance of jurisdiction of court when construing consent order or judgment 5-36 Implied terms 5-42 General 5-42 Implications as to time 5 43 "Permission to apply" omitted 5 45 No implication of consent order or judgment 5-47 Implied term pending agreed order? 5-48 Costs 5-60 6. Effects of a Compromise Effects as between the parties 6-01 End of dispute 6-01 Identifying the disputes resolved 6-03 Matters left out 6-07 Other effects of a compromise 6-18 Financial accounting involving other parties following a settlement 6-55 Preservation of rights against other parties in partial settlements of multi-party litigation some illustrations 6-59 Effects upon and in connection with third parties 6-62 Imposition of liability 6-63 Acquisition of rights 6-64 Impeachment by or on behalf of third parties 6-74 Effects of impeachment by parties on third parties 6-82 Effects in connection with assignment 6-85 7. Satisfaction and Discharge of Obligations Under a Compromise Performance 7-02 Payment by cheque 7-03 XVII

Payment by instalments 7-04 "Entire" compromise 7-05 Agreement collateral to compromise 7-06 Mutually dependent obligations 7-07 Discharge other than by performance 7-08 8. Effects of a Breach of a Compromise General 8-01 Promised or actual acts 8-03 Anticipatory breach of a compromise 8-11 Renunciation 8-12 Self-created impossibility 8-13 Implied term as to co-operation 8-14 Innocent party's choice if available 8-15 PART 2: MACHINERY, PRACTICE AND ENFORCEMENT OF A COMPROMISE (Sir David Foskett) 9. Means by which Compromises are Effectuated General and preliminary 9-01 The aim 9-02 Costs 9-03 The methods of compromise 9-07 Exchange of written communications 9-07 A deed or memorandum of agreement 9-08 Making an agreement an order or rule of court 9-09 Simple consent judgment for the payment of money 9-10 Consent judgment providing time for payment 9-13 Payment of money without judgment 9-16 Consent judgment or order involving terms other than mere payment of money, including Tomlin order 9-18 Other cases 9-34 10. Practice of Compromise General 10-01 Attitude of the courts to compromise 10-02 Reality of the consent 10-03 Recording of the consent 10-04 Indorsement of counsels' briefs 10-05 Jurisdiction 10-06 xvin

Practice of obtaining consent order 10-17 Information required by court 10-20 Settlements reached just before or during trial 10-21 Settlements requiring approval of the court 10-22 Notification of settlement to court 10-25 Settlement of appeals 10-27 Confidentiality 10-28 11. Enforcement of a Compromise General 11-01 Where the compromise is entirely contractual 11-02 Where there is a consent order or judgment 11-04 Where an agreement is filed and made a rule of court 11-06 Where the terms are incorporated in a Tomlin order 11-22 Where the terms are part of an order that does not reflect finality 11-29 Agreed order that recites the terms of agreement 11-30 Injunction by consent or undertaking 11-34 PART 3: PRACTICE ON IMPEACHMENT OF A COMPROMISE (Sir David Foskett) 12. Practice on Setting Aside a Compromise Setting aside a compromise agreement 12-02 Setting aside a compromise embodied in a consent order or judgment 12-03 Interim order 12-05 Tomlin order 12-06 Costs when agreement or order set aside 12-07 PART 4: THE SETTLEMENT PROCESS IN CIVIL JUSTICE (Sir David Foskett) 13. Present Landscape in Civil Litigation Negotiation 13-04 Exchange of information 13-05 Pre-action costs 13-08 Indemnity costs 13-09 xix

14. Structure of CPR Part 36 Introduction 14-01 Not a complete code for effective offers of settlement 14-02 Freedom of contract 14-03 Privileged nature of offers within Part 36 14 05 Inadvertent disclosure to trial judge 14-07 Exceptions to the rule as to non-disclosure provided for in rules 14-09 Application to accept or withdraw a Part 36 offer before or during trial 14-11 15. The Making, Acceptance and Consequences of an Effective CPR Part 36 Offer Introduction 15-01 Form 15-03 Matters to which a Part 36 offer can relate 15-04 "The whole of the claim" 15-05 Interest 15-07 Personal injury claims 15-08 Interim payments 15-09 Time for acceptance 15-10 The making of the offer 15-12 Clarification of the offer 15-14 Acceptance of a Part 36 offer 15-17 The effect of acceptance of a Part 36 offer 15-19 16. The Court's Supervisory Role in CPR Part 36 Introduction 16-01 The test applied to the withdrawal or late acceptance of a Part 36 offer 16-03 The revised version of Part 36 16-05 The costs when such an application is successful 16-08 Other instances where the court's permission to accept is needed 16-09 17. The Effect of a CPR Part 36 Offer After a Trial Introduction 17-01 The withdrawal or altered offer 17-02 The effect of failing to match or beat an extant Part 36 offer 17-07 An extant Part 36 offer 17-07 xx

The general position 17-08 Claimant achieves no advantage over defendant's offer 17-10 Defendant fails to achieve advantage over claimant's offer 17-14 Unjust to make the order? 17-31 The "tactical offer" 17-34 18. Offers outside CPR Part 36 A "without prejudice" offer 18-04 A Calderbank offer 18-05 An open offer 18-08 19. The "Without Prejudice" Rule Introduction 19-01 The issues that arise for consideration 19-05 When are negotiations without prejudice? 19-06 Express stipulation 19-08 Implied stipulation 19-09 "Opening shots" 19-12 "Parting shots" and responses to "without prejudice" communications 19-16 Acknowledgments and admissions 19-18 When will the without prejudice veil be lifted or disregarded? 19-23 The fact of agreement 19-28 The interpretation of the agreement 19-29 Delay and adverse inferences from apparent lack of communication 19-30 Where a without prejudice document would prejudice the recipient 19-31 Matters independent of or collateral to the subject matter of the dispute? 19-35 "Unambiguous impropriety" 19-39 Estoppel 19-56 Waiver and mutuality 19-57 When will the disclosure of documents be protected by operation of the rule? 19-58 When can without prejudice material be referred to at interim applications? 19-63 Want of prosecution 19-63 Security for costs 19-65 Interim payment applications 19-67 xxi

At what stage in proceedings may objection be taken to a proposal to adduce evidence of the content of without-prej udice negotiations? 19-6 8 PART 5: ROLE OF LEGAL ADVISERS IN COMPROMISE (Sir David Foskett) 20. Professional Ethics and Responsibilities General 20-01 "Confidential" matters disclosed by client or opponent 20-03 Conflicts of interest 20-05 Unfounded claims 20-07 Informing client of offer of settlement 20-09 Overall duties to client in compromise 20-10 Keep court informed 20-12 21. Authority to Compromise and the Liabilities of Legal Advisers Arising from Compromise Authority to compromise general 21-01 The law 21-04 Actual authority and ostensible (or apparent) authority to compromise 21-04 Ostensible (or apparent) authority 21-15 Misunderstandings between client and legal adviser 21-17 Liabilities of legal advisers arising from compromise 21-22 What constitutes negligence in this context? 21-25 Legal advisers in the investigation of negligence 21-32 PART 6: INSURANCE INTERESTS AND COMPROMISE (Sir David Foskett) 22. Insurance Interests and Compromise Introduction 22-01 Settlements with third party the effects for the third party 22-03 The general principle 22-03 Insured and uninsured losses 22-04 Settlements with third party the effect as between insurer and insured 22-11 Settlement with third party the effect on a co-insurer 22-14 xxn

Reinsurance and "follow the settlements" clauses 22-15 Nature of the "settlement" of an insured's claim 22-18 PART 7: CHANCERY LITIGATION (His Honour Judge David Hodge QC) 23. The Settlement of Chancery Litigation Insolvency Companies Individuals Appeals Liquidators and trustees in bankruptcy Unfair prejudice Restoration of a company to the register Disqualification orders Court-appointed receivers Trustees and personal representatives Charities Probate claims (1) By obtaining an order for the claim to be discontinued or dismissed under CPR r.57.11(2) (2) By means of an order under section 49 of the Administration of Justice Act 1985 (3) Following a trail of the claim on written evidence Practice and procedure Agreed orders Tomlin orders Appeals Declarations Interim applications Masters Release from undertaking 23-03 23-03 23-06 23-10 23-11 23-12 23-13 23-14 23-19 23-20 23-26 23-28 23-29 23-30 23-31 23-33 23-33 23-34 23-35 23-37 23-38 23-44 23-46 PART 8: MATRIMONIAL, FAMILY AND INHERITANCE DISPUTES (Jonathan Cohen QC and Sir David Foskett) 24. Compromise of Disputes between Husband and Wife Agreements not necessarily involving divorce or judicial separation 24-02 Compromise of proceedings under Married Women's Property Act 1882 section 17 24-03 Maintenance (and separation) agreements 24-08 xxiii

Agreements concerning disposal of divorce or judicial separation suit itself Agreements involving interim stages of divorce or judicial separation proceedings including interim financial provision Interim applications proper Interim financial provision Agreements relating to final disposal of financial and property applications Preliminary Nature and relevance of an agreement in this context Securing an order reflecting a prior agreement Disregarding agreements and setting aside consent orders Agreements made "a rule of court" and variations Agreements relating to children 25. Settlement of Inheritance Act Disputes Preliminary Contracting out Effect of previous compromise or consent order Effect and variation of previous "maintenance agreement" Compromise proper of claims under the Act Setting aside and enforcement Practice Tax considerations 26. Offers of Settlement in Matrimonial Finance Cases Preliminary General approach to costs Making an offer that may affect the costs order Children's cases 24-20 24-23 24-23 24-27 24-31 24-31 24-33 24-45 24-63 24-121 24-129 25-01 25-02 25-06 25-09 25-10 25-16 25-17 25-20 26-01 26-04 26-10 26-11 PART 9: SETTLEMENT OF SERIOUS PERSONAL INJURY CLAIMS INVOLVING CHILDREN OR PROTECTED PARTIES (William Edis QC) 27. Settlement of Serious Personal Injury Claims Involving Children or Protected Parties Introduction Consequences of failing to obtain approval 27-01 27-13 XXIV

Effect of approval and setting aside consent orders on the basis of a change of circumstances Court of protection Various principles in settlement in personal injury cases A. Provisional damages B. Orders for periodical payments C. The recoupment of benefits D. Costs E. Exaggeration PART 10: EMPLOYMENT CONTRACTS AND COMPROMISE (Adrian Lynch QC) 28. Employment Contracts and Compromise CONTENTS 27-17 27-26 27-30 27-31 27-37 27-48 27-50 27-55 Introduction 28-01 Contractual claims 28-04 General release 28-05 Stress-related personal injury 28-07 References 28-09 Statutory claims 28-14 Settlement achieved through intervention of conciliation officer 28-25 Compromise agreements 28-29 Independent advisers 28-31 The particular complaint or proceedings 28-33 Statutory compromise agreements, ACAS conciliation and continuity of employment 28-34 Transfer of Undertakings (Protection of Employment) Regulations 2006 28-35 Mechanics of settlement in employment tribunals 28-39 Setting aside an agreed settlement 28^3 Setting aside a consent order 28-44 Statutory arbitration scheme 28-47 Conclusion 28-51 PART 11: LANDLORD AND TENANT DISPUTES OVER LAND (Michelle Stevens-Hoare) 29. Landlord and Tenant Business tenancies 29-04 Introduction 29-04 XXV

Contracting out and surrendering of 1954 Tenancies Act 29-05 Parties agree upon the grant of a new tenancy or surrender of a current tenancy 29-12 Parties agree that a business tenant will vacate 29-26 Residential tenancies 29-29 Introduction 29-29 No contracting out 29-31 Statutory framework and the court's jurisdiction 29-34 Obtaining an "agreed" order in practice 29-39 Residential occupant without statutory protection or with "restricted contracts" 29-43 Subsequent variation and enforcement of orders 29 45 The status of the tenancy after a possession order 29-49 Forfeiture and relief from forfeiture 29-50 30. Disputes over Land General 30-01 The requirements of section 2 30-09 Boundaries 30-14 During court proceedings 30-17 PART 12: CONSTRUCTION LITIGATION (Michael Black QC) 31. Construction Disputes xxvi Introduction 31-01 Particular issues 31-02 Long-term issues 31-03 Disputes concerning progress 31-04 Disputes concerning existing defects 31-06 Certificates and retentions 31-09 Structure of construction contracts 31-09 Certificates 31-12 Agreements as to the content of certificates 31-13 "Clean break" agreements 31-14 Retentions 31-15 Multiple issues 31-16 Multiple causes of action causative of the same or similar damage 31-17 Cause of action in respect of which damage has not yet accrued or been discovered 31-18

Latent effects 31-21 Effect of offers to settle 31-24 Multiple parties 31-27 "The same damage" and Civil Liability (Contribution) Act 1978 31-28 Indemnities, subrogation rights and assignments 31-32 Claims against joint contractors 31-34 Claims against successive contract breakers 31-35 Impugning settlements for duress 31-36 Global settlements 31-37 Costs 31-38 Claims for contribution to settlements reached with other parties 31-39 The principle in Biggin v Permanite 31^0 What must be proved to demonstrate a reasonable settlement 31^4 Relevance and admissibility of advice received 31-53 Multi-party cases 31-57 Payment in kind 31-60 Indemnities 31-61 Amendment of pleadings between date of offer and judgment or award 31-63 Claimant succeeds on late amendment 31-64 Defendant succeeds on late amendment 31-65 Value Added Tax 31-67 Adjudication 31-68 Interim nature of adjudication 31-68 Adjudication and compromised disputes 31-69 Jurisdiction and duress 31-73 Forbearance from adjudication 31-74 PART 13: ARBITRATIONS (Michael Black QC) 32. Settlement of Arbitrations General 32-01 Essential principles concerning compromise 32-01 Enforcement of compromise 32-06 Who decides whether compromise concluded? 32-09 Setting aside consent award 32-14 Offers and costs 32-15 General 32-15 The form and substance of an effective offer 32-16 xxvn

PART 14: ADMINISTRATIVE COURT PROCEEDINGS (Nigel Giffin) 33. The Resolution by Agreement of Administrative Court Proceedings Introduction 33-01 Alternative Dispute Resolution 33-05 The power to compromise 33-07 Nature, enforcement and effect of compromise 33-11 Withdrawal of proceedings 33-14 Obtaining agreed order 33-16 Costs upon withdrawal or settlement of judicial review proceedings 33-20 Continuation of proceedings after fresh decision 33-24 Agreement at the permission stage 33-27 PART 15: THE SETTLEMENT OF APPEALS AND THE ROLE OF ADR (Sir David Foskett) 34. Settlement of Appeals Court of Appeal 34-02 Judge 34-09 35. Settlement through ADR Introduction 35-01 Court's role in direction and encouraging mediation and the costs consequences to parties of failing to embrace it 35-03 Merits of the case 35-11 Other attempts at settlement 35-12 Whether mediation had reasonable prospects of success 35-13 Failure to act reasonably in the course of a mediation 35-14 Legal parameters of a mediation and mediation settlement 35-15 APPENDIX 1: PRECEDENTS Section 1: Draft Consent Orders and Judgments General Section 2: Chancery Precedents Section 3: Precedents for Serious Personal Injury Claims by Children or Patients Al-01 Al-04 Al-10 xxviii

Section 4: Landlord and Tenant Cases and Boundary Disputes Section 5: Administrative Court Proceedings Al-11 Al-15 APPENDIX 2: CPR PART 36 AND PART 36 PRACTICE DIRECTION CPR Part 36 A2-01 CPR Part 36 Practice Direction A2-16 APPENDIX 3: EXTRACT FROM CPR PART 21 AND PART 21 PRACTICE DIRECTION CPR Part 21 A3-01 CPR Part 21 Practice Direction A3-02 APPENDIX 4: EXTRACTS FROM CPR PART 40 AND PART 23 PRACTICE DIRECTION CPR Part 40 Extract A4-01 CPR Part 23 Practice Direction Extract A4-02 APPENDIX 5: EXTRACT FROM B-T V B-T Extract from B-T v B-T A5-01 XXIX