UK: Supreme Court Upholds Effectiveness Of Clause Requiring Signed Writing

Last Updated: 5 December 2018
Article by Tony Allen

Tony Allen Senior Consultant to CEDR explains what this means for the requirement for written signed agreements for a binding mediated settlement.

In an article I wrote about a year ago under the title "Oral variation of mediation agreements" I expressed concern about the possible effect of several recent decisions on the important standard provision in most well-drafted mediation agreements which requires that, to be binding, settlement terms must be in writing and signed by the parties. Those cases were United Bank Ltd v Asif and World Online Telecom v I-Way Ltd (both appeals from decisions about summary judgment, but decided in opposite ways) which were reviewed fully (albeit technically obiter1) in Globe Motors Inc v TRW Lucas [2016] EWCA Civ 396. Although all those decisions were about commercial contracts which had provided that any variation of terms had to be in writing and approved by both or all parties for them to take effect, there is an obvious parallel with the similar provision in mediation agreements.

The reasoning in Globe Motors was adopted by the Court of Appeal in MWB Business Exchange Centres v Rock Advertising [2016] EWCA Civ 553, where the Court unanimously found that parties could, as a matter of principle, always override orally the requirements of an earlier "No Oral Modification" (NOM) contractual term that variations could only be effective if in signed writing. The effect of this precedent was to make it possible for parties to agree to waive the requirement for signed writing and seek to assert the existence of enforceable terms after a mediation, even though only oral.

However, the Supreme Court in [2018] UKSC 24 has now reversed the Court of Appeal's decision in MWB, ruling that parties can bind themselves to an agreed type of formality for any variation to be binding, and thus giving full force to the status and enforceability of NOM clauses.

As Lord Sumption says of commercial NOM clauses in the MWB majority judgment:

There are at least three reasons for including such clauses. The first is that it prevents attempts to undermine written agreements by informal means, a possibility which is open to abuse, for example in raising defences to summary judgment. Secondly, in circumstances where oral discussions can easily give rise to misunderstandings and crossed purposes, it avoids disputes not just about whether a variation was intended but also about its exact terms. Thirdly, a measure of formality in recording variations makes it easier for corporations to police internal rules restricting the authority to agree them.

While these comments relate to commercial agreements, the same reasons apply to securing certainty in mediated agreements, which, after all are often themselves renegotiated commercial agreements. Even when they are not, such as in injury, employment claims, trust and inheritance, and boundary disputes, the certainty which signed written terms should create is highly desirable. He refers to the similar concept of "entire contract clauses" which are intended to negate the purported effect of any prior collateral agreement which might be alleged later. Of course, the effect of entire contract clauses is retrospective, whereas NOM clauses operate to protect against future uncertainties.

In a minority judgment, Lord Briggs is slower to abandon the "freedom of contract" principle that parties can agree orally to override the requirements of a NOM clause, but he agrees that, to do so effectively, the parties must turn their minds to the NOM clause and probably agree to vary its effect in writing before amending the contract orally, something that did not happen in MWB, hence his agreement that the appeal succeeded

How might this impact previous decisions?

What might have been the effect of this decision if it had pre-dated the few cases where this topic has arisen in the past? My earlier article discussed several of these, and I repeat the facts of each with fresh commentary in the light of MWB v Rock.

In Brown v Rice and Patel [2005] EWHC 625 (Ch), the trial judge rejected initial submissions that, simply because there was no signed written settlement, he was barred from considering what happened during the mediation. He treated mediation as "assisted without prejudice negotiation", subject to the usual exception to privilege that if one party argued that agreement had been reached, a judge was entitled to admit otherwise privileged material to decide whether this was so. This includes consideration of whether waiver or estoppel arose over the signed writing clause, or whether a collateral contract agreeing an oral settlement had been made to circumvent its effect. Having heard the evidence, he found that no estoppel or waiver had subverted the signed writing clause. He also found that no sufficiently clear offer had been made during mediation capable of acceptance by noon next day (as one party argued), so that no collateral contract as to leaving an offer open could be construed. But, he also ruled that because the offer had not been put in writing and signed, it could not be relied on.

His finding that there was no offer capable of acceptance seems to render his finding on the effect of the signed writing clause obiter, since if no valid offer was ever made at all, there was nothing to record in writing. But, at least he bestows some significance to the signed writing clause, as a backstop, if not as a front stop or condition precedent. The judge further found (again obiter)that the mediation did not end before the period alleged for any offer to be concluded, so that the signed writing clause would still need to be satisfied in relation to the acceptance next day, which would effectively still be within the mediation and covered by the mediation agreement's terms.

The view that mediation is merely "assisted without prejudice negotiation" is unlikely to stand scrutiny now, as mediation is governed by a mediation contract with terms that introduce terms as to confidentiality enforceable by the mediator as well as the parties, and later cases have recognised this. [See Cumbria Waste Management v Baines Wilson and Farm Assist v DEFRA (No.2).] That being so, it is possible that a fresh decision would simply decline to investigate behind the veil of confidentiality at the mediation when no one could produce a signed written settlement agreement.

In AB v CD [2013]EWHC 1376 (TCC) (heard on 16 April 2013 but not reported for another year), the judge found that certain offers had been left open without a written record for a time, but that the mediation (and the effect of the signed writing clause) ended when the period for accepting those offers expired about a week later. The offer and acceptance which he found led to settlement was later than that, and hence writing was no longer required to bind the parties. Incidentally, he took a much looser view than was taken in Brown as to whether the accepted offer was sufficiently complete to be accepted. There is no suggestion that lapse of time might vitiate the effect of a NOM clause, so this decision might be open to challenge.

In Universal Satspace v Govt of Kenya unrep QBD (heard on 20 Dec 2013), the judge followed Brown in construing an oral collateral contract that the parties had bound themselves during the mediation to agreed terms and would sign it by an agreed date, even though those terms were never written down and signed. The claimants did not try to argue that settlement terms had simply been agreed, because the signed writing clause would have prevented them from binding the parties. The judge regarded the signed writing clause as applying only to settlements: it did not catch what he was persuaded was an agreement made orally to sign a document on agreed terms by an agreed date. There must be considerable doubt as to whether this decision can withstand MWB now.

In Dow v Bombardier [2014] SCC 35 (Canada), a global purchaser/supplier dispute went to mediation with confidentiality provisions but with no signed writing clause in the agreement. After the mediation, one party claimed that the whole global dispute had been settled, whereas the other claimed that the sum agreed covered only a Canadian tranche of the claim, and sought to adduce evidence of what happened at the mediation to prove it. The Supreme Court held that contractual confidentiality could oust the right to rely on exceptions to without prejudice privilege, but only on very clearly drawn terms (another instance of the paramountcy of party autonomy in contract law), and the terms of this mediation agreement were not tight enough to do that. They, therefore, received evidence as to what happened at the mediation. The SCC actually drew attention to the fact that a signed writing clause was a device which might effectively oust the exception to the without prejudice rule allowing evidence whether agreement had been reached, thereby anticipating that such a clause should be used to achieve certainty after a mediation. There is no direct English authority on this point, but the Supreme Court's decision in MWB suggests that the Canadian view may be right.

The practical effect of MWB must be that mediators should always remind parties of the effect of this clause and not let them go away at the end of a mediation without a written signed settlement agreement. Even if they have partly, conditionally or provisionally settled terms, even by leaving an offer open for acceptance for a set period, they must record that agreement, however much less than global, in writing.

Footnote

[1] With apologies to non-Latinists and non-lawyers for using a very useful word to express a more complex idea, as the length of this footnote shows – this means that the decision about oral variation law was not part of the reasoning required to decide the Globe v TRW Lucas case (which was decided on another point) so is not technically binding as a precedent, though it is of highly persuasive significance as an opinion of the Court of Appeal. Latin can be useful sometimes....

Originally published 20 July 2018

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