3. What should I note if I would like to reach settlement through negotiations? Are there any procedural protections or safeguards?

If you would like to conduct negotiation through legal representatives, you should understand that lawyers acting for the parties have ostensible authority to settle the case on their client’s behalf. This means that one party normally would not need to make enquiries about whether the other party’s lawyer has actual authority to make the settlement for their client.

However, if the settlement introduces extraneous subject matter, then the matter may not be covered by the ostensible authority, and with that the other party’s solicitor should be put to proof of the other solicitor’s actual authority. For example, if the disputes between the parties concern an alleged breach of contract, but the settlement terms proposed include the sale of the defendant’s flat to the plaintiff. The sale of the flat is supposedly unrelated to the dispute itself, and that is when the solicitor of the other party should step in and make inquiries as to his counterpart’s authority.

Also, generally speaking, reaching a binding settlement agreement with the other party based on the solicitors’ ostensible authority without actual authority from the client may give rise to issues between the lawyer and his own client. Therefore, if you, as a litigant, would like to authorise a lawyer to attend negotiation meetings on your behalf, you should always give clear instructions to the lawyer as to whether he is authorised to conclude the settlement. The lawyer must also clarify with you (usually in writing) the precise extent of his authority to conclude a settlement on your behalf, to prevent further disputes.

Negotiation can also be conducted between parties themselves, without the knowledge or intervention of their solicitors on record. Nevertheless, direct settlement between the parties without legal advice is not encouraged. The lay parties should be fully aware of the risks and the legal implications of engaging in direct discussions with the other side in the absence of lawyers, as any agreement reached between the parties may not constitute a legally binding settlement agreement recognised by the court, particularly if essential terms are missing or if the agreement is expressed in uncertain language.

Further, there is real risk that any agreement reached may be incomplete, ambiguous, or incapable of enforcement. For example, the parties may fail to address all matters in dispute, such as costs, interest, confidentiality, future obligations, and withdrawal or discontinuance of proceedings. This may leave room for further disagreement and uncertainty. There is also a risk that statements made during direct discussions may be treated as admissions of fact or liability, or that the parties may misunderstand whether their communications are protected by “without prejudice” privilege.

It is generally advisable for any proposed settlement to be reviewed by the parties’ solicitors before it is finalised, so that the terms are clear, comprehensive, enforceable, and properly recorded.

“Without prejudice” / “Subject to contract” correspondence

“Without prejudice” correspondence and discussions (made orally or in writing) are correspondences and discussions that are genuinely aimed at facilitating settlement of a case. The “without prejudice” rule prevents any party from unilaterally referring to these “without prejudice” communications in evidence at trial, or from using them to establish an admission.

This rule is to encourage the settlement of disputes by enabling the parties to speak freely and frankly without any fear that their words may be used against them later at trial if settlement fails.

However, in some circumstances, evidence of “without prejudice” communications may be admissible, for example, in deciding the following issues:

whether a settlement has been reached at all;
whether a concluded settlement should be set aside on grounds of fraud or misrepresentation;
where without prejudice correspondence is being used as a “cloak” for perjury or blackmail;
whether any delay on the part of a plaintiff in prosecuting an action was due to ongoing settlement negotiations (and is therefore excusable)

When an offer marked “without prejudice” is accepted by another party, the acceptance should be made by an open letter. The rationale is that once the offer is accepted, the settlement is concluded and that the whole chain of “without prejudice” correspondence will no longer be privileged and can be referred to at any subsequent court hearings as evidence of a settlement.

If you would like to avoid a binding settlement being concluded and losing privilege before all details are finalised, you may label the discussions “subject to contract”. No settlement will then be concluded until it has been reduced into writing and signed by all the parties.

Making negotiation “subject to contract” can also prevent the parties from any unnecessary disputes as to whether any binding settlement has been concluded and the terms thereof. For example, in the absence of a formal settlement agreement, the court has to consider the conflicting recollection of the solicitors for the parties and construe the “without prejudice” correspondence in order to decide whether a binding settlement was reached. Accordingly, marking the negotiation as “subject to contract” would eliminate uncertainties like these.