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Have we Settled Yet? By Trish Cassimatis | May 2011 Area of Expertise | Commercial Disputes & Insolvency

Summary The Supreme Court of New South Wales was recently asked to determine whether a settlement agreement had been reached in relation to proceedings involving a building company and a party who had dealt with it despite that other party failing to execute a formal agreement. The Court applied the well-established principles on the formation of binding agreements as prescribed in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 when deciding whether a binding agreement between the parties had been reached.

Who Does This Impact? Litigation lawyers and in-house legal counsel of institutions involved in litigation

What Action Should Be Taken? Parties to proceedings should be cautious in how they communicate in the negotiation process. If a party to the agreement does not intend to be bound by the performance of a settlement agreement until the agreement is formally executed, this intention must be clearly demonstrated. A Court deciding a dispute concerning the existence of the agreement will consider the facts from an objective perspective. The Court will take a broad view of the actions and language employed and the conduct of the parties prior to the alleged settlement agreement. Representatives of parties should therefore tailor their pre-settlement negotiations accordingly.

Background Blazevic Holdings Pty Ltd (‘Blazevic’) obtained a default judgment in the sum of $120,232.08 against Warwick Grave in relation to a dispute over payment for building work carried out by Blazevic at Mr Grave’s dental surgery. Mr Grave unsuccessfully applied for the default judgment to be set aside. He then applied to the Court of Appeal for a stay of the judgment pending the hearing of an appeal application. The Court granted the stay of the judgment until the hearing of the appeal application. The Court also ordered that Mr Grave should pay Blazevic an amount of $48,000 on the condition that it be returned to him if the default judgment were set aside. The default judgment was ultimately set aside. Also on foot was a contest as to whether in reality Mr Grave was a party to the building contract. The Supreme Court made orders for this issue to be tried separately prior to any other issue. Mr Grave also filed a motion for security for costs in the sum of $50,530.14.

Facts Concerning Negotiations and ‘Settlement’ During the course of the proceedings and prior to the hearing of motion for security for costs the parties engaged in settlement negotiations. Settlement proposals were canvassed in numerous telephone conversations and written communications between the parties, which resulted in Mr Grave’s solicitors providing a draft deed of release to Blazevic’s solicitors.

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Have we Settled Yet? Blazevic Holdings Pty Ltd v Grave [2011] NSWSC 287 by Trish Cassimatis

The draft deed of release: • included additional parties to the settlement who were not parties to the proceedings; • provided a mechanism for settlement funds in the sum of $25,000 to be paid to Blazevic by instalments by Mr Grave’s service company, Gradenco Pty Ltd (‘Gradenco’); • provided that Blazevic retain the payment received in the sum of $48,000; and • provided for releases of all claims against Mr Grave or Grandenco.

The draft deed was attached to a covering email in which there was a proposal that the motion for security of costs and the substantive proceedings be adjourned for two months pending the payment of the instalments pursuant to the deed of release. Blazevic agreed to adjourn the motion and proceedings, and the matter was stood over for two months. Following the adjournment, communications between the parties broke down and whilst Blazevic executed the Deed, Mr Grave failed to do so. Blazevic applied to the Court for a declaration that the parties had reached a settlement agreement to finalise all matters between them. The question for the Court to determine objectively was whether Blazevic and Mr Grave had reached a settlement agreement and whether they intended to be bound by the agreement.

Application of Masters v Cameron Justice Nicholas applied the long established principles set out in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 when determining whether there was a binding agreement notwithstanding that the Deed was never entered. Masters v Cameron stands for the proposition that there are three classes of scenarios involving ‘informal’ agreements that are proposed to be followed by formal agreements may fall: 1. The parties have reached finality as to the terms of their bargain and intend to be immediately bound but it is contemplated that the terms of the bargain will be expressed in a more formal document later. 2. The parties have agreed on all the terms of their bargain but intend to have performance of one or more of the terms dependent on the execution of a formal document. 3. The parties do not intend to be immediately bound but instead intend only to be bound when a formal agreement has been executed. In the first two classes the parties are immediately bound (albeit that in the second case the appropriate relief involves gaining an order for the settlement and execution of a formal agreement). In the third class of case there is no binding agreement.

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Have we Settled Yet? Blazevic Holdings Pty Ltd v Grave [2011] NSWSC 287 by Trish Cassimatis

Decision Justice Nicholas considered the factual circumstances of the case and observed that: • the terms of the draft deed of release recorded the parties’ earlier discussions; • Mr Grave’s solicitors prepared the draft deed of release, and when providing the draft to Blazevic stated it was ‘prepared to record the settlement that has been reached in this matter.’ • Mr Grave’s solicitor informed the Court on 3 December ‘that the whole of the proceedings had been settled’. The statement was unqualified and there was no use of words such as ‘settled in principle’. • the only explanation provided for Mr Grave’s delay in executing the deed was that he was overseas but he would execute it upon his return.

Justice Nicholas did not accept Mr Grave’s submissions that the communications flowing between the parties revealed no intention to settle the proceedings unless and until the payment of $25,000 had occurred. Accordingly, Justice Nicholas found that the settlement agreement fell into the first category under the principles in Masters v Cameron and made a declaration that the parties had reached a settlement agreement. He made an order for costs in favour of Blazevic.

Implications Settlement negotiations, especially when undertaken in written correspondence or telephone communications moving backwards and forwards between the parties can often be conducted immediately before a hearing with consequent time and costs’ pressure. Notwithstanding the stress of litigation and the sometimes fluid nature of negotiations, litigants and their legal counsel should pay close attention to the language they use in dealing with each other and also the Court when striking a settlement deal. If the parties to the proceedings do not intend to be bound by an agreement until the agreement is ‘signed, sealed and delivered’, then appropriate language with the necessary qualifications should be employed. In cases of this type the Court will review the surrounding circumstances of the settlement negotiations, including the existence of any draft settlement agreements or the part performance of the settlement agreement.

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Have we Settled Yet? Blazevic Holdings Pty Ltd v Grave [2011] NSWSC 287 by Trish Cassimatis

For more information, please contact: Trish Cassimatis Lawyer T: 02 8257 5783 trish.cassimatis@turkslegal.com.au

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Have we Settled Yet?