[2019] EWHC 1564 (Ch) 

A mediation took place where the parties, in dispute over a farm partnership, agreed heads of terms which were written out by the mediator and signed by the parties’ respective solicitors. HHJ Jarman QC had to establish whether the heads of terms constituted a binding contract between the parties or was intended merely to set out some matters agreed in principle as part of a process of arriving at a full and effective compromise. Clause 1.3 of the mediation [agreement] provided that:

“Any settlement reached in the mediation will not be legally binding until it has been reduced to writing and signed by, or on behalf of, each of the parties.”

The Judge referred to the case of RTS Ltd v Molkerei Alois Muller GmbH where Lord Clarke said this:

“Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a pre-condition to a concluded and legally binding agreement.”

The mediation commenced about 10 am. As is often the case, the negotiations continued beyond 6pm when the mediation was expected to finish. By about 8.30pm a deal was done and the mediator went to type out an agreement. The draft was lost and could not be retrieved so the mediator wrote out the heads of terms himself. All those present were invited into the room which he had been using, and when they were all there, he read out the heads of terms. The mediator and the two solicitors then signed this written document. It was after 10pm and everyone then left.

The next morning, one of the parties, copying in the mediator, said that there were three “small points” that needed to be addressed. Further emails followed from both parties which lead to one of the parties taking the position that the mediation heads of terms were not binding. The Judge considered that the heads of terms contemplated further documentation but it did not on its face contemplate a further formal agreement. That said, the Judge recognised that: “in circumstances where it had been somewhat hurriedly written out when the draft typed version had been lost, it was in my judgment not surprising, and indeed sensible…to contemplate a more formal agreement.” But that was not a strong indication in the Judge’s view that the heads of terms were not intended to be binding. What mattered was whether or not the heads of terms were certain enough for a binding agreement. Having considered the specific facts of the dispute, HHJ Jarman QC held that:

“the essentials of each of the heads of terms were set out in the signed document with sufficient certainty to be capable of amounting to a binding agreement. The fact that attempts were then made to agree further details, and that subsequent documentation submitted for agreement contained variations of how the heads of terms were to be put into effect, does not detract from that certainty.”

The Abberley v Abberley case reinforces the inherent risks brought about when the mediator opts to draft any settlement terms at the conclusion of a mediation. A safer option, for both mediator and the participants, is to have the participants or their solicitors take responsibility for the drafting of any settlement terms. If the participants need to go away and clarify any points or seek further information, an alternative option might be to adjourn the mediation for a set period to allow for this to take place.