Australia: 'In principle' settlement agreement upheld by the Supreme Court

In a recent decision of the NSW Supreme Court in National Australia Bank Limited v Sayed (No 3), the Court confirmed the binding nature of an 'in principle' settlement agreement, and held that disagreement as to terms did not mean that there was "no agreement".

Background

The proceedings were commenced by NAB as mortgagee for possession of land. The parties reached an agreement "in principle" to settle the proceedings on day three of the hearing. The agreement was reduced to writing and signed by the legal representatives of NAB and by the defendants. A copy of the agreement was handed up in Court, and the balance of the days set aside for hearing vacated.

Following the agreement in principle, a deed was prepared by NAB's solicitors. After some negotiation, the defendants agreed with the terms of the deed, excluding a clause that the defendants would "immediately, unconditionally and absolutely" release NAB, "its employees, officers and agents" from all claims. Although the defendants agreed to release NAB, they would not agree to release NAB's agents.

As the matter could not be resolved by agreement, NAB filed a motion seeking specific performance of the settlement agreement.

Arguments on hearing of the motion

NAB argued that:

1. the correspondence immediately preceding and following the signing of the in principle agreement showed the parties had agreed on mutual releases;
2. the agreement in principle contemplated a more extensive formal document which would contain terms not inconsistent with the express terms of the agreement in principle, therefore falling within the description of the "fourth category of agreement" described in Baulkham Hills Private Hospital Pty Limited v GR Securities Pty Limited (1986) 40 NSWLR 622;
3. NAB only act by its servants and agents (Northside Developments Pty Limited v Registrar General [1990] HCA 32), so it was obvious that the release would be seeking release of servants and agents; and
4. it was clear NAB expected that settlement would bring an end to any litigation concerning the matter.

In response the defendants argued that:

1. they did not understand what "mutual release" meant; and
2. there was no agreement on the outstanding matters raised in the correspondence.

Findings

The Court found that the fact there was disagreement between NAB and the defendants did not mean there was "no agreement" (Godecke v Kirwan (1973) 129 CLR 629), and the Court needs to determine objectively whether the words in dispute are consistent with the agreement in principle.

The Court found there was "no doubt" that mutual releases were to be included in any agreement. The Court accepted NAB's submission that, objectively, it must have been envisaged by all parties that all matters relating to the proceedings were to be brought to an end by the settlement.

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