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A warning on settlement negotiations

30 March 2012

The recent case Thameside Construction Company Ltd v Arthenella Ltd is a reminder of the lawyer’s mantra to tread carefully in direct discussions with the other side, particularly if these involve potential settlement negotiations.

Thameside was appointed by Arthenella to carry out works to a listed Victorian manor house. There was a disagreement over the sum due to Thameside and each side began legal proceedings.

After unsuccessful written offers made via both sides’ solicitors, the MDs of the two companies decided to speak on the phone to try to reach agreement. After this call, Thameside said a settlement had been reached but Arthenella denied it. After hearing evidence from both MDs, the judge found that agreement had indeed been reached, whereby Arthenella was to pay Thameside £275,000 in full and final settlement.

Disputing parties will often try to resolve matters between themselves without legal advisors present. In principle there is nothing wrong with this – they may feel they can speak more freely without lawyers and it can be useful in identifying areas of common ground. On the other hand, it can be risky to settle a case there and then, without time to reflect on what was discussed and the impact it may have on your position.

As a precaution, it is sensible to make it clear beforehand that the settlement negotiations are ‘subject to contract’ and will take binding effect only on entering into a written settlement agreement. This allows time for parties to seek legal advice if necessary and take steps to ensure the deal is certain, and what was intended.

As always, if you need commercial and pragmatic legal advice, we’re here to help so please get in touch.

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