Settlement agreements

In July last year, I reported the case of Hurst Stores & Interiors -v- ML Europe Property, which
concerned whether a purported settlement agreement was binding on the parties (CJ 30 July 2003).
ML Europe was the corporate vehicle used by Merryl Lynch for the development of its new European headquarters in the City of London.
The works were being procured on a construction management arrangement and Hurst was contracted as package contractor for toilet fit-out works in the amount of approximately £2.4m. In the event, the works were extensively altered and delayed, and shortly after completion, almost a year later than planned, Hurst prepared a final account that claimed a total of £6.5m for the works.
ML's construction manager, Mace, was unimpressed with the final account document. It was returned to Hurst as rejected. Mace claimed that it should be ignored since there was a prior agreement between the parties in settlement of the final account for the package works. Whether Mace was correct in that assumption was the subject of a decision of the Technology and Construction Court in June last year.
At the heart of the dispute lay a procedure that Mace had instituted for the commercial management of all trade contract packages on the project. The contract provided that Mace would issue to Hurst interim statements of accounts (ISAs) each month, which would detail all instructions issued to Hurst. Hurst was required to value the ISA and return it within seven days, accompanied by all necessary information, measurements and calculations.
The contract went on to say that Hurst would be required to signify its agreement and acceptance of the valuation of the instructions detailed in the ISA.
As the works progressed, more than 500 instructions were issued to Hurst, and the ISAs therefore became weighty documents. Nevertheless, Hurst's project manager diligently returned the form each month duly completed and signed, believing that by his signature he was indicating agreement to the net value of the instructions received by Hurst, but no more than that.
Six months before the works had finished, an ISA was issued by Mace with two significant changes. First, the word "final" was substituted for "interim". And second, in place of the standard wording normally included on the last page, a different last page had been inserted that said that the calculated amount payable to the contractor was to be accepted by Hurst in full and final settlement of all claims arising out of, or in connection with, the trade contract works.
Hurst's project manager paid little attention to these changes and proceeded on the basis that it merely reflected the prior agreements already reached between the two parties in previous ISAs. He signed and returned the document to Mace.
When the matter came before an adjudicator, he held that that document was binding on Hurst and that no further claims could be entertained for events that occurred up to the date of the document. This was a shocking finding for Hurst, for it meant that, among other elements of its final account, its claim for loss and expense amounting to £2.5m would effectively be barred.
The dispute proceeded to court where Hurst argued that the document should not be binding on it for two principal reasons. First, Hurst argued that its project manager did not have authority to enter into such an agreement because it was outside the terms of the trade contract.
Second, Hurst complained that the document was entered into on the basis of a unilateral mistake on the part of its project manager and that the document should accordingly be rectified, so as to remove the reference to it being made in full and final settlement of all claims accruing up to the date of the document.
On both those points, the court agreed with Hurst. The project manager acting for Hurst did not have authority to vary the contract. No authorised representative of Hurst had agreed to such a document and accordingly the agreement shown in it could not be binding on the parties. The court also agreed that the document should be rectified to remove the words that attempted to make the document a full and final settlement of all claims.
At the beginning of this month, these matters were heard again in the Court of Appeal.
ML challenged the decision of the earlier judge, arguing that the evidence did not support the finding that Hurst's project manager had been mistaken as to the nature of the document that it had signed.
The Court of Appeal was not prepared to overturn the findings of the earlier trial judge. There was ample evidence for the judge to reach the conclusion that Hurst's project manager had been mistaken as to the true nature of the document that Mace had prepared as a final statement of account.
The judge was therefore entitled to rectify the document and entitled to find on the evidence that Hurst's project manager had no authority to commit Hurst to an agreement that effectively wrote off large sums that might otherwise be proved to be due under the terms of the trade contract.
The appeal was therefore dismissed.