The Requirements Of A Settlement Agreement
One of the roles of a solicitor is to ensure that agreements between parties are properly documented, both to provide a record of what has been agreed and to ensure that an agreement is legally binding. Whether or not an agreement has not been recorded in this way, clients will often assume that it has been. This is why solicitors have a duty to ensure that agreements are documented legally as soon as possible after a settlement has been reach - and if this is not done to explain to their clients the nature of the agreement that has been reached. The case of David Frost v Wake Smith & Tofields Solicitors  EWCA Civ 1960 highlights this very effectively.
The case involved two brothers who had been in business together for many years but whose relationships had broken down. As a result, a complex mix of business interests, predominantly property and management, needed to be separated. Both brothers had legal representation and mediation was undertaken during which agreement was reached. One of the brothers’ solicitors was left to record what had been agreed during the mediation and this was later signed by the two brothers.
Agreement not legally binding
However, the document that had been signed was not a legally binding document, principally because it contained a number of uncertainties and there were elements of the document that had yet to be finished, for example a lack of description of certain properties caught up in the business and an insufficient dealing with the tax implications. In addition, a company that was jointly owned by the two brothers and which had been set up as the legal owner of a number of the properties mentioned in the agreement, was not a party to the agreement. For these reasons – and more – the agreement was not sufficient to meet the demands of the Law of Property (Miscellaneous Provisions) Act 1989 and so was not legally enforceable. Despite this, both brothers left the mediation assuming they had signed a legally binding document. When one brother highlighted some of the incomplete issues at a later date a second mediation was sought.
A charge of negligence?
Subsequently, the solicitor who was charged with recording the results of the first mediation was charged with negligence for not creating a legally binding agreement after the first mediation. Both the court of first instance and the Court of Appeal agreed that there was no duty on the solicitor to create the legally binding agreement and that it would have been impossible in the circumstances, given the enormously complex matters at play and the fact that at that stage the brothers hadn’t yet reached agreement on certain issues. However, despite this the Court of Appeal made it quite clear that it would be part of a solicitor’s duty to advise a client that a document agreed was not legally enforceable but only an agreement in principle.
To Note: where it is possible to reach agreement, this should be documented in legally binding form as soon as possible after the mediation. Where it is not, then clients should always be informed by their solicitors that a legally binding agreement has not been reached and make it clear that further work will be required to reach it.