England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		20/10/2009

Peter Smith J :

INTRODUCTION

1. The parties to this action have indulged in very costly litigation which covered a wide ranging number of allegations in 3 related cases (togrther "the action" or "the Chancery action"). Serious allegations of fraud against the Defendants were raised by the Claimants. On the strength of their claims the First and Second Claimants obtained a freezing injunction before Morgan J on 7th June 2007. That remained in place until it was discharged by Proudman J on the Defendants' application on 16th July 2009. The Claimants consented to that application.
2. As well as raising serious issues of fraud the litigation raised a number of difficult legal and factual issues. The Defendants allege that the litigation was driven by an English solicitor a Mr Stephen Jones (although he does not actually feature before me). He is alleged to have bought the action from his client which was maintainable against the First Defendant. The First and Second Claimants are corporate vehicles through which Mr Jones carries on practice as a solicitor. The Third Claimant is the client whom Mr Jones later joined as a Claimant out of concern that otherwise the action would not have been properly constituted.
3. It is difficult to see the commercial purpose of the litigation. By 2007 the Claimants' then leading Counsel estimated that the cost of taking it to trial would be £1,500,000. Mr Jones parted with his solicitors Mischon de Reya later in May/June 2009. A few days later new solicitors and Counsel had been instructed.
4. Nothing is served by becoming embroiled in an analysis of the details of the background action. It was listed in a 5 day window commencing on 29th June 2009 with an estimate of 13 days.

ISSUES: PRELIMINARIES

5. The issue before me is whether or not the action (and an associated action "the QBD Action") was settled in negotiations between Mr Kremen Counsel for the Claimants and Mr Treon the Defendants' solicitor in negotiations late on 29th June 2009.
6. There was a subsidiary issue as to whether or not this action alone was settled or whether there was also a settlement of the QBD action and in addition whether or not the Defendants were in breach of any terms of the settlement.
7. The terms appeared to be satisfactory to both parties. Listing was told on 30th June 2009 that the case was settled (although there is a dispute as to who informed them). Both sides stood their Counsel down. Mr Kremen was so confident that the case had settled that he accepted instructions from a regular solicitor of his to represent a client in a case which was within the window of the trial. The case as I say was listed in a 5 day window and could have come on during that week which would have put Mr Kremen in difficulties. The Defendants also stood their Counsel down.
8. All of the terms were agreed so far as I can see; the primary question is whether or not they were agreed on a binding basis or on a "subject to contract" basis. All the terms had been negotiated and were agreed in my view. The issue is whether the terms were agreed in a binding way or were terms agreed to be incorporated in a document and to become binding only then.
9. However, the Defendants' solicitor (wrongly, as I shall set out in this judgment) contended that there was a term affecting the QBD action which meant that it did not settle.
10. He attempted (again wrongly in my view) to exploit this by seeking an extra £25-30,000 from the Claimants to settle the QBD action. He perceived that the Claimants were desperate to settle and would pay a bit of extra money. They declined to do so. Their stance was that the case had been settled on terms which enabled them to produce a consent order in respect of the QBD action not the next day i.e. 30th June 2009 (as contended by the Defendants' solicitor) but within a reasonable time.
11. The present application is to determine whether or not the actions in whole or in part have been compromised. The Defendants (perhaps realising the folly of incurring more costs about a dispute about whether or not the actions have been settled) expressed a willingness to allow the QBD action to be compromised on the terms agreed (namely a drop hands settlement). The Claimants (for reasons which are not known to me) are now no longer willing to settle on those terms.
12. In some ways, as I have observed during the hearing both parties deserved each other. They were plainly willing to agree a compromise of all the disputes between them but now both sides have apparently attempted to extract further advantages by in effect misreading the willingness of the other side to capitulate. It is a matter of regret that the parties incur expenditure in this way and that Court time is wasted in this kind of wasteful exercise. Nevertheless that is what the parties wish to have resolved and this judgment is my determination of the issues raised by the present application.

ISSUES

13. The first issue to be determined is whether or not the parties concluded a binding agreement. As I have said earlier in this judgment the parties were in agreement as to the terms as a result of the lengthy negotiations which took place on 29th June 2009. The issue is as to whether or not those negotiations took place under a "subject to contract" umbrella so that the results are agreed but not yet binding.
14. The second issue is whether or not the QBD action was included in the settlement.
15. The third issue is whether or not either party (in the event that I determine there was a binding agreement) has committed a breach of the same and what the consequences of such a breach are.

THE INITIATION OF THE NEGOTIATIONS

16. The parties' respective solicitors (Mr Woolf for the Claimants and Mr Treon for the Defendants) had an initial conversation about a proposed settlement on 23rd June 2009. There were then various discussions between Mr Michael Driscoll QC (for the Defendants) and the Claimants' then counsel Mr Kremen. That led to Mr Treon sending an email to Mr Woolf on 24th June 2009 timed at 10:47. That email set out terms upon which the Defendants were prepared to settle the case by way of a "last opportunity". It will be recalled that the trial was floating in the following week.
17. Following that email Mr Driscoll QC sent an email on 24th June 2009 timed at 12:01 to Mr Kremen. The subject heading is marked "without prejudice"; in the text he referred to the prior email of Mr Treon's to Mr Woolf. In the later email he set out his clients' response to 4 matters that were raised. At the end of the email the following is set out:-

"It does not represent an offer capable by acceptance of becoming contract or settlement.

Clearly any settlement whether it incorporates all or any of the 4 terms needs to be carefully drafted and for that reason the terms of this email should be treated as subject to contract terms "

18. Mr Woolf replied to the various emails on 25th June 2009 at 11:25. He raised an issue in respect of what were called the L&E matters and required the Defendants to forgo any claims in respect of that. Subject to that all of the terms proposed by Mr Treon were agreed. However the email itself was headed "without prejudice". While the terms were agreed paragraph 5 of the email stated "this does not represent an offer capable by acceptance of becoming a contract or settlement. Any settlement whether it incorporates all terms needs to be carefully drafted and for that reason the terms of this email should be treated as subject to contract terms". He was thus echoing precisely the wording in Mr Driscoll QC's email which he clearly saw. The next day Mr Treon sent an email to Mr Woolf and his associate Mr Sichel (26th June 2009 timed at 09:48). The subject was described as being "without prejudice and subject to contract" as was the heading to the email. Proposals were then set out for agreement.
19. The 26th June 2009 was a Friday. Mr Kremen then spent the weekend drafting proposed orders. They were sent and were considered by Mr Treon and Mr Driscoll QC on Sunday 28th June 2009. The wording was not acceptable as Mr Treon set out in an email sent on Monday 29th June 2009 timed at 10:24 to Mr Woolf. That email is marked "without prejudice and subject to contract". Mr Treon attached a proposed draft order to that email.
20. Mr Treon sent a further email on 29th June 2009 timed at 16:48. This was also headed "without prejudice and subject to contract". He enclosed various settlement documents and referred (inter alia) to an agreed statement lifted from Atkins Court Forms – Libel and Slander. He also stated that his clients was happy with the proposed draft order in respect of the QBD action prepared by Mr Kremen and that provided it was endorsed as a consent order by the Defendants in the QBD action, his client would sign it. The final sentence of the letter is important:-

"Needless to say there is no settlement until all the documents are executed".

21. He apparently sent the same documents to Mr Kremen on an email timed 16:50. That email was also marked "without prejudice and subject to contract". In an email timed 16:58 sent from Mr Kremen to Mr Treon he raised the question of the agreed statement in the action and its effect as regards the prohibition against complaints to professional bodies. That email was marked "without prejudice and subject to contract". Mr Treon replied by an email timed 17:10 also marked "without prejudice and subject to contract" conceding the points raised by Mr Kremen. By an email timed 17:24 Mr Woolf acknowledged the earlier email of Mr Treon and said that the position was being considered by his clients with Mr Kremen. That email was also marked "without prejudice and subject to contract". Mr Kremen suggested the wording for the agreed statement in an email timed 17:44 also marked "without prejudice and subject to contract". In an email timed 18:23 Mr Treon attached the wording for an agreed statement and asked the Claimants' advisors to let him know where they stood with the settlement. That email was marked "without prejudice". Further emails were exchanged between Mr Kremen and Mr Treon that evening. By that time the only outstanding issue was the form of the agreed statement. After that exchange of emails there was a final discussion over the telephone between Mr Kremen and Mr Treon when agreement over the form of the agreed statement was finally reached.

SUBSEQUENT DISCUSSIONS

22. Following the exchange of emails referred to above discussions took place through the late afternoon and evening of Monday 29th June 2009. For the Defendants the discussions were conducted by Mr Treon. He spoke both to Mr Woolf and Mr Kremen who were together with Mr Clegg junior counsel in Mr Kremen's chambers.
23. What was under consideration was the revised documents which Mr Treon had circulated earlier and which itself reflected as I have said, drafts which Mr Kremen had prepared over the weekend. I am quite satisfied that an agreement was finally arrived at in that evening and that all the terms of the agreement were "agreed". The difficulty is whether or not they were agreed in a binding way. Mr Treon's evidence was lamentably brief. There were extensive negotiations over that evening and paragraph 8 and 9 of his witness statement simply does not address them with sufficient detail. Fundamentally he did not address the obvious issue as to whether or not the subject to contract provision which had appeared in virtually every piece of correspondence (and significantly his own) still applied. The Defendants' case of course is that it did not. He did not explain how he believed that that umbrella provision did not apply to the negotiations that ensued in the evening of 29th June 2009. He volunteered for the first time when giving evidence that he accepted that the subject to contract restriction applied initially but that the negotiations were not subject to contract. This arose he said because Mr Kremen had telephoned him and said that the case must be settled that day and that the negotiations must lead to a concluded settlement and must be carried out however long that exercise entailed. In the ensuing telephone discussions Mr Treon said that agreement was reached and they congratulated everybody as to the conclusion. All that was left was for Mr Treon to send the documents to Mr Woolf.
24. There remained the issue of the settlement of the QBD action. It will be appreciated that Mr Kremen and Mr Woolf not being instructed in that case had no ostensible authority as counsel and solicitors to negotiate a settlement in that regard. Mr Treon's evidence is that the agreement with respect to the QBD action was that if a consent order in the QBD action was provided by the Claimants the following morning (Tuesday 30th June 2009) the QBD order would then be duly endorsed by Mr Beller as the Claimant in the QBD action but if not then there would be no settlement of the QBD action. This seems somewhat surprising at first blush because the parties appeared to be agreed on a drop hands settlement of the QBD action. I cannot for the life of me see what was the urgency for making time of the essence for the production of this order by the morning of the next day. Mr Treon was equally unable when cross examined to explain this apparent urgency.
25. Mr Woolf's evidence concerning the discussion was set out in paragraph 19 of his witness statement. He did not recall turning his mind in any great detail to whether the negotiations on that evening remained without prejudice and subject to contract. Mr Kremen was equally brief in his witness statement (paragraph 15) about the events of the evening. That was enlarged in cross examination. Although he gave evidence to the effect that he was not aware of the subject to contract umbrella that clearly was not correct as he was copied in to some of the emails marked subject to contract. Indeed his email dated 29th June 2009 timed at 16:58 was similarly marked "without prejudice and subject to contract". He clearly overlooked these on the evening and in his evidence.
26. Mr Clegg who was junior counsel to Mr Kremen was also present in these discussions. He was aware of the subject to contract limitation in the correspondence but he never discussed it with Mr Kremen or Mr Woolf and never raised it. I therefore found Mr Clegg's evidence of no assistance. I go on now to consider the evidence of Mr Kremen.
27. I have already referred to Mr Kremen's evidence above. It was supplemented in cross examination. He was clearly anxious to conclude a final settlement on the day and it is clear from his evidence that he did not have the subject to contract provisions in mind (although as I have said he had been copied in to and had sent a document so marked). As far as he was concerned all that needed to be done was a document recording what had been agreed. He said in response to a question from Mr Driscoll QC "as far as I was concerned a settlement was reached." Later he said that there was a deal struck and that he wanted finality and that the agreement he struck he did not understand to have been subject to contract. He later concluded that as far as he was concerned he had a deal. As I have set out above he accepted another brief.
28. I found Mr Kremen's evidence compelling. I find as a fact that when he negotiated with Mr Treon he intended there to be a final agreement and that this in his mind was the last chance of concluding a final agreement to avoid the expensive trial that was scheduled to start that week. As such he would not have wanted there to be any possibility of further documents to be drawn up and further negotiations. That too in my view was the position of Mr Treon although I found his evidence on the subject to contract issue unsatisfactory. Mr Woolf's evidence was careful but I do not accept the subject to contract restriction was in his mind either. If it were he would have communicated that to Mr Kremen and it is quite clear that Mr Kremen did not consider that he was negotiating on behalf of the Claimants on a subject to contract basis. I am quite satisfied that Mr Woolf did not expressly address the issue either and that he like all the lawyers for quite commendable reasons was anxious to take one last opportunity to achieve finality. I do not accept that that could have happened if the matter was subject to contract. I believe all the lawyers were anxious to conclude a final agreement and at the end of the evening they thought they had done so.
29. All the lawyers conducted themselves as if the matter was finally concluded in the sense that all the counsel were stood down and the parties made alternative arrangements. Mr Kremen and Mr Treon as I have said congratulated themselves on having a done deal.
30. Mr Woolf sent an email to Mr Treon on 30th June 2009 timed 00:53. It is marked without prejudice but is not marked subject to contract.
31. In the first sentence he says "I refer to our conversations earlier this evening when agreement was reached in the above matter to conclude the same".
32. He refers to the proposed consent order in the QBD action and stated that he would be able to inform Mr Treon of the position prior to lunch and then set out the terms of the agreed statement to be referred to in the settlement of the Chancery action. The next morning Mr Treon by an email timed 08:49 sent all the documents out for consideration. His email is marked "without prejudice and subject to contract" the text of the email says as follows:

"Gentlemen

Draft settlements are attached for your final consideration. All terms have been agreed. I am available on my mobile as I will be away from the office until 12 noon".

33. The final version for execution was sent out on 1st July 2009.
34. These two emails were put to Mr Treon. His answer in respect of the email timed 00:53 was that he did not accept there was no agreement. The only issue if it be an issue outstanding was the settlement of the QBD action. When questioned about his email of the next morning he emphasised the words "for final consideration" he` stated that as far as he was concerned all that was required was to check that the wording of the written documents reflected the agreement made with Mr Kremen the night before. He stated that he had just copied the phrase "without prejudice and subject to contract" from the earlier emails and had not addressed it. This is a weak answer in my view given his extensive use of the expression in earlier correspondence. It is difficult to see how it can be said that it was overlooked or simply repeated without thought given the fact that the earlier emails came into existence only hours before. Mr Treon's evidence is justifiably criticised for this. I found his answers in relation to his understanding of subject to contract unconvincing.
35. Nevertheless the key witness in my view is Mr Kremen. He plainly did not have the subject to contract umbrella in his mind at the time of the negotiations. It was not explained to him either by Mr Woolf or Mr Clegg who were in the room when he was conducting the negotiations over the telephone that any agreement he concluded was subject to contract. Mr Treon was anxious to conclude a deal just like the other lawyers. As I have said in my judgment the parties via Mr Kremen and Mr Treon concluded all the terms of settlement of the Chancery action and the QBD action. In respect of the latter I will set this out further in my judgment below.

THE SUBJECT TO CONTRACT UMBRELLA

36. It has long been held that where a "subject to contract" qualification is introduced into negotiations it can only cease to apply to the negotiations if the parties expressly or by necessary implication agree that it should be expunged see Cohen v Nessdale Ltd [1982] 2 All ER 97.
37. It is not suggested that there was an express lifting of the subject to contract expression. The issue is whether or not it is to be "necessarily implied" that the restriction is lifted.
38. I have come to the conclusion that the circumstances of the negotiations between Mr Treon and Mr Kremen are such that they can only be understood as being on the basis that there was a necessary implication that the subject to contract restriction was lifted. The reasons are as follow. First Mr Kremen was not alive to any subject to contract restriction during the negotiations. He was negotiating on behalf of his clients and he had ostensible authority as counsel to negotiate a final compromise in respect of the subject matter of the dispute in which he was retained (not the QBD action) irrespective of the earlier subject to contract limitations. Second both he and Mr Treon were anxious to achieve finality that night and both of them believed they did so. I have concluded that on the basis of Mr Treon's and Mr Kremen's evidence in particular all that remained was to put in a form of writing the agreement which had been negotiated over the telephone conversations. This would not be a big exercise as drafts had been circulated well before hand. Third the parties afterwards acted as if a final settlement had been achieved. Mr Kremen in particular accepted instructions which would have made it impossible for him to appear in this trial if it had been listed during that week. It will be recalled that the case was floating during that period. If the listing office had not taken the case out there would clearly be a possibility that the case could have come on when Mr Kremen was no longer available. Fourth it seems to me that when parties shortly before the trial instruct their lawyers to conclude a settlement it can only be on the basis that if there is an agreement it is a necessary implication of that agreement that any previous subject to contract umbrella had been lifted. There is no point in negotiating immediately before a trial commences if the parties have to go away and draw up documents which then have to be considered if the parties are not prepared to implement the agreement. Such actions lead to further difficulties. It makes it possible for someone with hindsight seeking to resile thus seeking to take an advantage. This is what Mr Treon actually did.
39. For all of those reasons therefore I conclude there is a necessary implication that the words subject to contract no longer applied to the negotiations and the settlement that was concluded on the evening of 29th June 2009.
40. I do not overlook Mr Woolf's email timed 00:53 and Mr Treon's email timed 08:49 the next day.
41. They are irrelevant to my mind for two reasons. First I have determined that the subject to contract umbrella was lifted by necessary implication earlier so as to make the negotiations which were agreed binding. Once that umbrella has been lifted neither party can unilaterally reinstate the subject to contract umbrella to remove the binding nature of the agreement that was concluded earlier. It is not suggested that Mr Woolf and Mr Treon together agreed to tear up any binding agreement and revert to further negotiations. Second I am not convinced that either solicitor at that time seriously had in mind the subject to contract umbrella despite the wording of their respective emails. It was in my view and I so find a simple repetition of a phrase which appeared in the earlier emails without any thought as to what it was intended to cover. The old observation that solicitors' typewriters had 2 extra keys marked "subject to contract" and "without prejudice" (suitably adapted to the modern world) is not without a modicum of truth. In my view that is the way in which those 2 emails should be considered.

THE SETTLEMENT OF THE QBD ACTION

42. I can deal with this quite shortly. As Mr Halpern QC set out in his closing submissions this only arises if the subject to contract condition was expunged. It is plain that there was an agreement that the parties would drop hands in respect of the QBD action if the QBD Defendants signed the Chancery Division Order by a certain deadline.
43. I accept that the settlement of the QBD action was not a condition precedent to settlement to the Chancery action. Nor was it a term of settlement to the Chancery action. Further the lawyers to the Claimants in the Chancery litigation were not authorised to enter into a contract which would bind the Defendants in the QBD action. I should say that those Defendants are not the same as the Claimants in the action but there is a connection through Mr Jones to all of them.
44. There was a settlement agreement to sign a drop hands settlement. I do not accept that there was a requirement to have the consent order produced by a particular time and that for that purpose time was of the essence. Mr Woolf in his email of 30th June 2009 timed 00:53 expressed the view that he would be able to inform Mr Treon of the position prior to lunch that day. By that in my view he meant whether or not he would be in a position to produce the signed order by that time. It was not a clearly defined time. "Lunchtime" is capable of being more than one time.
45. At 12:58 Mr Woolf sent Mr Treon an email saying he had a telephone conversation with Mr Treon earlier and that he was awaiting his clients' instructions and would revert to him when he had them. Mr Woolf produced an attendance note of the earlier conversation and as that attendance note shows there were discussions between him and Mr Treon where Mr Woolf made it clear that he would not be able to get back until the next day. A further conversation took place between them in the early afternoon and Mr Woolf sent an email timed 15:59 saying that his clients had been unable to deal with the documents but should be doing so shortly. Mr Treon waited until the next day and then sent an email dated 1st July 2009 timed 13:38 where he said "as agreed, there is now no compromise on the QBD action and I have advised my clients accordingly…." Further down he said "so that the position is clear, I reiterate what Mr Kremen told me on Monday 29th June 2009 that if by the following day (lunchtime) that is by 30th June 2009 the QBD action was not compromised then that would not be part of the settlement compromise. The QBD action has not been compromised and it is therefore no longer part of the settlement". Mr Sichel another partner in Mr Woolf's firm sent an email timed 17:09 on 1st July 2009 to Mr Treon informing him that some of his clients had signed the agreements but others had not been able to do so and suggested an exchange of the documents in the Chancery action on Monday 6th July 2009. Mr Treon on the next day in his email timed 09:21 demanded that the documents be signed that day and that if not he would make the necessary arrangements to have the action listed in the applications court.
46. The reason for his aggressive stance appears from his email of 3rd July 2009 timed 08:41. Having set out his belief that time was of the essence in effect for the signing of the consent order in respect of the QBD action by the morning of Tuesday 30th June 2009 he expressed the view that the QBD action was no longer settled. He therefore sought another £35,000 from the Claimants (later reduced to £25,000). This was in response to an earlier email from Mr Woolf timed 06:40 where Mr Woolf said the agreement was to include a dismissal of the QBD action if that could be organised for which time was not of the essence. Given that stand off his clients were not prepared to release the consent order.
47. In my view the parties agreed a compromise of the QBD action on the night of 29th June 2009. The agreement in this sense was that it was understood that the terms of the settlement of the QBD action would be drop hands with a consent order signed by all parties to the QBD action. However the Claimants' lawyers had no authority to settle it as they were not retained in the QBD action. The parties hoped that the consent order in the QBD action would be signed in the next day if possible so that it could take effect the same time as the Chancery action.
48. However there is nothing in the QBD consent order agreement which makes time of the essence in my view. Mr Treon could not explain what the urgency was.
49. In my judgment there was an agreement that the Claimants would produce a consent order if possible the next day but if not then the Chancery action would be compromised by the order that day. The parties would then have a reasonable time thereafter to conclude the QBD action. Mr Treon was wrong in asserting that the compromise of the QBD action had not taken place by the time of his email of 1st July 2009 timed 13:38. It is not suggested that that was a repudiatory breach by him which was capable of acceptance by the Claimants. It was a breach but it caused the Claimants no loss.
50. Equally in my view the Claimants provided the consent order for the QBD action within a reasonable time after 30th June 2009. By 2nd July 2009 Mr Woolf was in possession of a signed consent order and he told Mr Treon of that in a telephone call after 5pm on that day. Mr Treon accepted that in cross examination. Notwithstanding that Mr Treon sought the further sum of £35,000 as set out above and then reduced it to £25,000.
51. Therefore I conclude that the QBD action was settled on the evening of 29th June 2009, subject to a signed consent order being produced hopefully the day after but if not within a reasonable time thereafter. The Claimants had such an order by 2nd July 2009 and that was within time. I therefore conclude that that action too was compromised as the parties to the other action had signed the consent order.
52. I do not accept Mr Treon's conduct in asserting there was no concluded agreement of the QBD action seeking extra money was a repudiatory breach capable of acceptance by the Claimants see Woodard v Wimpey Constructions [1980] 1 WLR 277 at page 282A - 283A. It has the effect of extending the reasonable time for fulfilling the condition precedent until that issue is determined. The Claimants can therefore send the consent order and that will conclude the agreement. Conversely the Defendants can request the consent order from the Claimants and that too would conclude the agreement. I accept that there is a possibility that it can be argued in the Queen's Bench Division that the action is not finally concluded until there has been an exchange. It would be a matter of great regret if either of the parties chose to go down that road because as I have set out above they have plainly in my view one way or another agreed terms of compromise in the QBD action. I do not know what communications took place between Mr Woolf and his clients and the lawyers and associated parties in the QBD action. However as they have signed the consent order it is plain that they have "agreed" to a settlement of that action although it has not been finally implemented.
53. That is not strictly before me but there is no other material which could lead to a different decision. As Mr Driscoll QC observed in paragraph 20 of his closing submissions it would be hoped that sense would prevail and that there would be a settlement of the QBD action. In my view the action was agreed to be compromised but as I have said as that action is not before me (nor is one of the parties) that does not bind the parties to that action. Nevertheless the position ought to be clear and I can only hope that this time the litigation will cease.