Settlement terms fueled further litigation!

Posted: 27th November 2012

In a case which underlines the benefits of careful professional drafting in the settlement of commercial disputes, a lack of clarity in a compromise agreement reached between parties to a breach of contract claiConstruction sitem resulted in an outbreak of renewed litigation.

In settlement of a £4 million claim for alleged non-payment of professional fees in respect of a Middle Eastern construction project, the defendants agreed to pay the claimants £1.5 million by cash instalments and to enter into fresh contracts to make use of the claimants’ services for a guaranteed number of hours over a two-year period.

The claimants argued that the latter requirement of the agreement had not been met in that further contracts had not been entered into. However, the defendants submitted as a matter of interpretation of the settlement agreement that they had complied with its obligations to offer an appropriate volume of work to the claimants, although that offer had not been taken up.

Ruling in favour of the claimants, the High Court decided that that the settlement had required the defendants to award a contract or contracts to the claimants up to a certain value and that the defendants’ obligations could not be fulfilled by a mere offer of a contract, let alone the offer of an opportunity to bid for a possible contract. In circumstances where the settlement agreement had not been complied with, the defendants were liable to pay the claimants a lump sum of £498,750.