No I’m not talking about Brexit for a change but rather the risks of not recording all the terms of a deal after a mediation but relying upon simple “heads of agreement” or an agreement to agree. Frequently in property cases, for example, the parties cannot finalise deeds of easement or conveyances after a mediation. There simply isn’t time.
Well it is a risky path to follow as although in a recent case it was held that heads of terms could be binding, it took a lot of cost and time to get to that decision as the parties had to give evidence about the mediation and explain to the Court what was intended, which is never a good situation to be in. T
The case of Abberley v Abberley concerned a farm in Wales being divided between family members. A dispute arose which the family attempted to resolve at a mediation in 2011. The mediation started at 10 am and continued until after 10 pm.
The mediation agreement stated 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 parties were able to reach a resolution and the mediator typed up an agreement. However before it could be printed, the draft disappeared from the screen and could not be retrieved.
Believe me, this kind of situation does sometimes arise. Instead the mediator wrote out the heads of terms and read them aloud in front of all the attendees. Both he and the solicitors representing the parties then signed the terms. The terms referred to various parcels of coloured land but no coloured pens were available to demarcate these at the time. Instead a pencil was used to draw on a plan previously drawn up by valuers.
Following the mediation, the parties exchanged correspondence concerning the precise detail of the agreement. An attendance note of the mediation discussed the need for transfers, a tenancy and cross indemnities, which did not feature in the heads of terms. There was discussion of the desire for a formal deed but none was ever completed.
The claimants issued proceedings for a declaration that the heads of terms constituted a binding contract between the parties. The defendants argued that the terms merely set out some matters agreed in principle or, if they did form a binding contract, that the contract was not sufficiently comprehensive to comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (‘second 2’) which provides that agreements concerning land have to be in writing, contain all the terms that the parties have expressly agreed and be signed by or on behalf of each party.D
The claimants were therefore entitled to a declaration that the heads of terms formed a binding agreement, and to enforcement of that agreement.
Conclusion
Although the Claimants were lucky in this case, another Court might take the opposite view, as the decision is not binding. The judge obviously felt that it would be unjust to undo the results of the mediation and put the parties back to square one.
It is not unusual for mediations to continue long into the night and for agreements to be drafted rapidly to enable the mediation to be completed in a day, which can lead to parties having second thoughts later. Sometimes parties have to rely on goodwill to cross the t’s and dot the i’s afterwards, confident that both parties want to see the end of a dispute. There always remains a risk that an incomplete agreement could unravel but this decision illustrates the fact that the Courts are unwilling to re-open a dispute after a mediation has apparently concluded matters. It is always best to try to finalise an agreement insofar as possible at the mediation, which is what we at ProMediate always try to do.
Case Report
Abberley v Abberley [2019] EWHC 1564 (Ch).