Australia: But I changed my mind... — When a verbal settlement agreement is binding

It is important for lawyers and their clients to understand at what point a binding agreement is reached in a negotiation, as the Fair Work Commission will hold parties to a verbal settlement agreement.

This was recently reinforced by the commission, when it refused to allow an applicant to renege on a verbal settlement agreement reached at an unfair dismissal conciliation conference

Verbal agreement to settle

In Csontos v QT Hotels & Resorts Pty Ltd [2016] FWC 3632, Mr Csontos had made an unfair dismissal application after he was dismissed by QT Hotels & Resorts Pty Ltd (QT) after just over six months of employment as a chef.

The commission conducted a conciliation conference in line with its usual dispute resolution processes. The parties attended via telephone and neither was legally represented, although Mr Csontos was assisted by an interpreter.

QT made a verbal offer to settle the matter on terms that included a payment of $1000 to Mr Csontos. Mr Csontos accepted the offer.

Later that day, the commissioner's associate drew up the written terms of settlement and emailed them to the parties for signing. QT signed the deed and returned it to the commissioner's associate. It also paid Mr Csontos $1000, however Mr Csontos did not sign the deed.

The matter was then listed for a subsequent telephone conference, at which time Mr Csontos said the money paid to him was inadequate and, unless he was paid $3000, he would like to have a hearing.

Application to dismiss

QT applied to have Mr Csontos' unfair dismissal application dismissed, arguing that the matter was at an end because the parties had entered into a binding verbal settlement agreement. Mr Csontos' position was that he had verbally agreed to the terms of settlement, which included payment of $1000 to him, but that he had not considered the matter finished until he signed the written terms of agreement.

What constitutes a binding settlement?

This dispute centred on the legal effect of the verbal agreement between Mr Csontos and QT. The key issue was whether the parties intended to be bound by the verbal agreement which was reached during the conciliation conference, or whether the parties intended for the agreement to be put into writing and signed.

In considering whether the parties' verbal agreement was a binding contract, the commissioner considered the three classes of negotiations described by the High Court in Masters v Cameron (1954) 91 CLR 353. The High Court described the classes as:

  1. The parties have agreed on all terms and intend to be immediately bound to perform those terms, "but at the same time purpose to have the terms of their bargain restated in a form which will be fuller or more precise but not different in effect".
  2. The parties have agreed on all terms and intend no departure from, or addition to, that which the agreed terms express or imply, "but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document".
  3. The parties do not intend "to make a concluded bargain at all, unless and until they execute a formal contract".1

In the first two classes, the High Court said there was a binding contract. The third class was not a binding contract. In allowing QT's application to dismiss Mr Csontos' unfair dismissal claim, the commission said that the agreement made by the parties could not be categorised in the third class described by the High Court. The evidence highlighted that QT considered it had reached a binding agreement and Mr Csontos understood that he had reached a verbal agreement during the conference.

In the circumstances, the commission found that Mr Csontos verbally entered a binding settlement agreement at the conference and, as a result, the cause of action for unfair dismissal relief no longer existed.

A binding settlement does not have to be in writing

The commission reinforced that a binding settlement agreement does not have to be made in writing and can be reached entirely by spoken words or conduct engaged in by the parties.2

Frivolous or vexatious finding not necessary

Section 587 of the Fair Work Act 2009 (Cth) provides the commission with a broad discretion to dismiss an application. Subsections 587(a), (b) and (c) provide a non-exhaustive list of reasons for it to dismiss an application, including if the application is frivolous or vexatious, or has no reasonable prospects of success.

Section 587 does not limit the commission's power to dismiss an application for other reasons. In Rebecca Tomas v Symbion Health,3 Commissioner Gooley said:

"In this matter I find that section 587 empowers Fair Work Australia to dismiss an application for relief in circumstances where the parties have reached a binding agreement settling a claim and one party reneges on that agreement and seeks to have their claim determined. It is not necessary to make a finding that the application is frivolous or vexatious or that the application has no reasonable prospects of success as section 587 provides Fair Work Australia with a broad discretion to dismiss an application."

Conclusion

Parties must be clear in a negotiation if they do not intend to make a concluded bargain until they sign a deed. If the parties fail to do so, the legal effect of the verbal agreement will be that the parties have settled the matter.

Footnotes

1 91 CLR 353 at 360.

2 Csontos v QT Hotels & Resorts Pty Ltd [2016] FWC 3632 at [39].

3 [2011] FWA 5458 at [59].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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