Will The Court Enforce All Of The Terms In Your Settlement Agreement?

In the recent case of Smith v Backhouse [2022] EWHC 3011 (KB), the High Court considered whether the Court can refuse to accept undertakings that a party has agreed to give to it as part of a settlement of a civil claim.

Background

The claimant in the case launched an action in harassment, misuse of private information, and breach of data protection rights against the defendant committed in a campaign of online harassment.

The claimant made a settlement offer (in the form of a Part 36 Offer) in full and final settlement of her claim which was accepted by the defendant. The terms of the settlement offer were made into a consent order. The consent order contained a schedule of undertakings given by the defendant which reflected the terms of the Part 36 Offer. The consent order also endorsed a penal notice in the conventional terms that if the defendant breaches the undertakings he had given to the Court, he may be found in contempt.

The High Court’s decision

The Court reiterated that parties to litigation are free to settle on terms that are beyond what a Court could order by way of relief and the effect of such agreement is akin to a contract that is enforceable (Mionis v Democratic Press SA [2014] EWHC 4104 (QB)). However, the Court is not bound to accept all of the terms and undertakings. The Court used an interesting example of an undertaking that the defendant would never again eat bananas and would sing the Marseillaise in Trafalgar Square each Wednesday.

Whilst the parties can agree to such undertakings between themselves, a Court would not impose such terms by way of injunctions or enforce them by way of punishment in contempt of the Court. The Court highlighted that there may be circumstances where the terms and undertakings agreed may not be desirable for a Court to enforce, as they may reflect the imbalance in the parties’ relative bargaining power, where one party may extract terms as a price of settlement from the other.

The Court expressed understanding that when parties seek to settle disputes, they tend to obtain protection as wide-ranging as possible, but emphasised that undertakings given to the Court must be precise as to what is required or prohibited. The Court, upon an application for contempt aimed at enforcing those undertakings, will consider whether the terms of the undertakings are too ambiguous to be enforced.

In this case, the Court considered the undertaking that the defendant would not “otherwise engage in any activity that amounts to harassment of the claimant or any other activity that is likely to cause her distress” to be too imprecise for enforcement. In order for the undertaking to be enforceable by way of an injunction, its terms must be clear as to what the defendant can or cannot do.

The Court also considered other undertakings. For instance, the defendant would not “Publish by any means, including but not limited to on the worldwide web, social media, telephone or any form of text, email, instant electronic messaging service, any express or implied reference to or any pictorial depiction of the Claimant”, as this can mean that the defendant is prohibited from ever mentioning the claimant again in any context, even in an apology. Not only are undertakings such as this hard to enforce, but they also increase the likelihood that, if the Court makes an injunction in those vague terms, the parties will have to go back to the Court by way of contempt applications for a resolution. The Court’s time and resources should not be used to inquire extensively into facts alleging contempt or to enforce trivial terms agreed between the parties.

Comment

The important message in this judgment is that, when considering terms of settlement and deciding what should be included in the consent order, care must be given to the scope and language used if those terms are important and enforcement by the Court may be required in the event of a breach. Agreeing to terms that the other party may likely breach but compliance cannot be enforced by the Court may lead to further legal proceedings and is a waste of time and costs. It is therefore important that expert legal advice is sought before you enter into a formal settlement agreement, even if there is no substantial dispute of the terms between the parties.