Deal, or no deal? Do you have a binding settlement agreement?

On 25 May 2017 the NSW Court of Appeal handed down its decision in Feldman v GNM Australia Ltd.¹ This case illustrates how the manner in which parties conduct their settlement negotiations can have a direct impact on whether a binding settlement agreement is reached.

Below we outline key aspects of the decision and comment on how you should approach settlement negotiations to ensure that you reach a binding agreement.

Original dispute and settlement negotiations

In February 2015, the Guardian (the publisher respondent) published a number of articles on its website written by Melissa Dave (the journalist respondent), concerning Rabbi Yosef Feldman (the appellant), and evidence he gave to the Royal Commission into Institutional Responses to Child Sexual Abuse.

On 27 March 2015, Rabbi Feldman served on the Guardian and Ms Davey a defamation concerns notice pursuant to the Defamation Act 2005 (NSW), s 14(2) in relation to two of the articles.

On 2 April 2015, the respondents’ solicitors sent an email in which the Guardian offered to remove the articles from its website and publish a statement made by Rabbi Feldman (Statement) on the basis that he released the respondents from all liability.  The email stated that “[a]n agreement reflecting the above would be documented in a Deed of Release which would also include obligations of confidentiality”.

Further correspondence followed and on 30 April 2015 the respondents’ solicitors confirmed that their client accepted the terms detailed in the correspondence and forwarded a draft deed of release documenting what they described as “the parties’ agreed terms”.  During May 2015 there was further communications between the solicitors regarding the effect of the confidentiality clause in the draft deed.

On 7 July 2015, the applicant’s solicitors wrote to the respondents’ solicitors and informed them that their client “withdraws his offer to settle the matter”.  The respondents’ solicitors responded, contending that as at 30 April 2015 the parties had a concluded settlement agreement.

On 30 December 2015, the applicant commenced defamation proceedings against the respondents with respect to three of the articles published in February 2015.  By notice of motion, the respondents sought a permanent stay of the proceedings, which was granted by McCallum J on 30 June 2016.

The appeal

The Court allowed Rabbi Feldman’s appeal against the decision permanently staying the defamation proceedings.

In deciding the appeal, the Court considered whether a binding settlement agreement had been reached between the parties in 2015 and whether the appellant’s solicitors had ostensible authority to bind their client to any settlement agreement.

Had the parties reached a binding agreement?

Were the terms of the agreement complete?

A contract will fail for incompleteness where some essential or important part is yet to be agreed.

The appellant submitted that no contract as alleged by the respondents, had been entered into because its terms were incomplete.  He said that no time frame had been specified for the performance of each of the matters alleged to have been agreed.  This was contrasted with the terms of the deed, which contained specific times within which the required steps were to be performed.  Rabbi Feldman further pointed out that no agreement had been reached as to the terms of the “obligations of confidentiality”.

The respondents argued that the agreement was complete and further, that a court could have, and in fact would have, implied a reasonable time within which matters alleged would have taken place (such as publishing the Statement in the Guardian).  They also argued that if the date specified for acts to take place in the draft deed did not constitute a “reasonable time”, this would not indicate lack of agreement by the parties, but would have resulted in a breach of the agreement the parties had reached by their solicitors’ email exchange.

The respondents also argued that it was apparent from the parties' email correspondence and ‘boilerplate’ confidentiality clause in the draft deed that the issue of confidentiality was not regarded as essential by the parties.  They further submitted that an obligation of confidentiality was not an element of the alleged agreement but an “optional extra” for later agreement.

The Court found that:

• Objectively viewed, the correspondence between the parties’ solicitors indicated that confidentiality obligations were to be part of any binding agreement between the parties.²
• The fact that the alleged agreement did not contain a term as to confidentiality indicated that there was no concluded agreement.³
• The significance of obligations as to confidentiality was further supported by consideration of the commercial context in which the parties were negotiating.⁴

Did the parties intend to be bound?

The categories of case recognised in Masters v Cameron⁵ describe the circumstances in which a binding contract may or may not have come into existence.

Generally, where parties have been in negotiation and reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the transaction may fall into any of four classes

• where the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect (First Category);
• where the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document (Second Category);
• where the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract (Third Category); and
• where the parties are content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract containing additional terms (Fourth Category).⁶

The four categories of case recognised in Masters v Cameron describe circumstances in which a binding contract may or may not have come into existence and are neither strict nor prescriptive.  Which category a transaction will fall into depends on an objective interpretation of the words and conduct of the parties during the negotiation process.

In this case, the appellant said it was improbable that solicitors would seek to bind their clients to a contract (such as that alleged by the respondents) through email correspondence and that the parties did not intend to be bound until they had formally executed the deed of settlement.

The respondents submitted that this case fell within the First Category, alternatively, in the Fourth Category of agreements recognised in Masters v Cameron:

The Court found that:

1. The language used in the correspondence between the parties’ solicitors in this matter, objectively viewed, did not indicate that the appellant intended to be immediately bound, prior to the execution of the deed.⁷
2. The fact that the parties had not reached agreement on the nature of the confidentiality obligations was significant in coming to this conclusion.  It was apparent from the email correspondence that the parties intended that their agreement would contain a confidentiality clause and was not an incidental aspect of the parties’ agreement.
3. The respondents’ reliance on the first category of Masters v Cameron was inconsistent with its argument that a reasonable time would be implied for the performance of the steps contemplated by the contract for which it contends.  The absence of any confidentiality obligations in the alleged agreement further supported this.
4. For essentially the same reasons, the case did not fall within the fourth category of Masters v Cameron.⁸  It was found that the email communications did not evince an intention to be immediately bound by some of the terms specified in the emails and to then have a substituted contract with additional agreed terms.
5. Conduct occurring after the date of an alleged agreement is admissible on the question as to whether a contract has been formed.  Here, the communications between the parties’ solicitors and the failure of the respondents to take steps to implement the agreement were indicative that the parties did not believe they were already bound.⁹

Did the appellant’s solicitors have ostensible authority?

Whether or not a person has ostensible authority (also described at times as ‘apparent authority’) is a question of fact.¹⁰  It usually involves an inference based upon a representation or representations made by the principal that the agent has authority to contract within the ambit or scope of the ‘apparent authority’.¹¹

The general proposition is that a solicitor does not have ostensible authority to bind his or her client to a contract.  However, that proposition is subject to the qualification that, in the context of litigation, a legal practitioner has ostensible authority to bind his or her client to a contract which relates to and, in particular, compromises that litigation.  In the context of litigation the practitioner’s authority to bind his or her client to a contract is confined to a contract that actually and genuinely relates to the litigation.

In this matter a majority of the Court found that the appellant’s solicitors did not have ostensible authority to bind their client to the alleged agreement as nothing in the communications between the solicitors constituted a representation or a holding out by the appellant that his solicitors had authority to enter into an agreement on his behalf as opposed to an authority to negotiate the terms of any agreement.

In this case the concerns notice intimated that legal proceedings would be commenced if the Rabbi’s demands were not met.  Also, the correspondence between the solicitors made clear that it was the applicant himself who would enter into the contract and that he would not do so through the authority of his solicitor.¹²

Lavan Comment

When negotiating to settle a dispute, make sure that your correspondence, communication and conduct with the other parties makes clear:

• which terms of any settlement agreement are important/essential and need to be part of any binding settlement agreement; and
• the point at which you agree to be bound by the terms of any bargain reached and whether any formal agreement needs to be executed.

If you are negotiating with a party’s representative to settle a dispute where litigation has not been commenced, ensure that they have the authority to bind their client to any agreement reached.

Also remember, even where litigation is on foot, a practitioner’s authority to bind his or her client to a contract is confined to a contract that actually and genuinely relates to the litigation.