Mediation heads of terms can be a binding contract
In the recent case of Abberley v Abberley, they used mediation to try and solve a long-lasting family dispute.
Mediation is a form of alternative dispute resolution. A neutral third party (the mediator), seeks to guide the parties to a negotiated settlement of the issues between them. Mediation is an important and often effective way of resolving disputes avoiding court and related costs.
Background information
The Abberley family had a dispute relating to the family farm and the division of the land and assets between a husband, wife and two sons. The parties engaged mediation in 2011 and agreed that any settlement reached would not be legally binding until it’s in writing and signed by, or on behalf of, each of the parties.
After a long day of discussing the terms, by about 8.30pm, the parties got to a general consensus and the mediator typed an agreement. Unfortunately, after they had spent about an hour on this, the document was lost. The mediator then produced handwritten heads of terms. He read these to the parties and the solicitors signed the document on behalf of their clients.
The heads of terms referred to land marked on a plan. However, no plan was attached. One of the parties’ solicitors produced an attendance note of the mediation which included points that were not addressed in the heads of terms. These included the need for property transfers, a tenancy agreement and cross indemnities.
This led to more negotiations around the precise terms of the deal, which continued for a year and a half. The defendant then changed legal representation and argued that the heads of terms were not binding on him.
The claimants sought a declaration from the court that the heads of terms were in fact a binding contract. The defendant claimed that the heads of terms merely contained some matters agreed in principle as part of a full and effective compromise on all issues. In addition, the heads of terms did not comply with s.2 of the Law of Property (Miscellaneous Provisions) Act 1989 (“the 1989 Act”), which provides that a contract for the sale or other disposition of an interest in land has to be in writing, contain all agreed terms and be signed by or on behalf of the parties.
Court’s decision
The court found that the heads of terms constituted a binding contract. This required the Judge to be persuaded that, amongst other things, there was an intention to create legal relations and certainty of terms. Also, there had to be compliance with the 1989 Act.
- The parties intended to create legal relations
- All terms agreed were included in the heads of terms, which complied with the 1989 Act.
- The terms were sufficiently certain. The parties also understood the land to be transferred even though there was no plan.
- The heads of terms anticipated that there would be further documentation, including a transfer and a tenancy agreement. Case law indicated that there can be a binding agreement even where more formal documents are envisaged.
What we can take away from this case
Mediation is an important and often effective means of resolving disputes without costly litigation. The process can be lengthy and, in difficult cases, continue long into the night. In this case, there was the added dimension of some unfortunate events (such as the loss of the typed agreement before it could be printed).
The parties should properly plan for the day and think about the structure of any settlement documentation in advance. This should help to ensure that all terms are covered and dealt with.
Consideration must also be given as to whether any agreement is intended to bind the parties immediately or whether matters are ‘subject to contact’.
A party in similar circumstances who signs an agreement at the conclusion of a mediation, is likely to be bound by its terms. There will not be an opportunity to ‘walk away’ after the dust has settled and for second thoughts to creep in. That said, if the parties have adequately prepared and considered their settlement position, this should be less likely to occur.
If you have a property dispute and are considering mediation, GA Solicitors’ property ligation team can provide expert guidance. Email me directly via jonathan.bouchta@GAsolicitors.com or call 01752 203500.
Jonathan Bouchta, partner