Newbury v Sun Microsystems provides a salutary tale for those who are at all unclear in their approach to finalising terms for settlement.

Mr Malcolm Newbury issued a claim against his employer for contractual commission for the year to June 2009 in the sum of $2,028,760. The employer, Sun Microsystems, counterclaimed in respect of an alleged overpayment. The proceedings were issued in June 2011 and listed for an eight day trial commencing on 12 June 2013.

On 3 June Sun’s solicitors wrote a letter to Mr Newbury’s solicitors including the following:

Terms of the Offer

To reach a compromise between the parties, our client has agreed to make a further offer of settlement to the Claimant. The offer reflects the strength of its evidence on the QBM but does not seek to place a discount on the Claimant’s assertion of revenue of $173 million.

Our client is willing to settle the entire proceedings by paying the Claimant within 14 days of accepting this offer, the sum of £601,464.98 (the “Settlement Sum”) inclusive of interest by way of damages, by means of an electronic transfer into his nominated bank account, in full and final settlement of the Claim and counter-claim plus the sum of £180,000 in relation to his legal costs such settlement to be recorded in a suitably worded agreement.

This offer is open for acceptance until 5pm this evening after which it will be automatically withdrawn without further notice to you.

Mr Newbury’s solicitors replied:

We thank you for your letter dated 03 June 2013.

We are instructed that the Claimant accepts the terms of your client’s offer, being payment of the Settlement Sum of £601,464.98 plus £180,000.00 in relation to his legal costs.
We will forward a draft agreement for your approval on Tuesday 04 June.

Mr Newbury’s solicitor duly sent a draft order reflecting the terms agreed to Sun’s solicitor. This was revised by Sun’s solicitor who supplied a “draft waiver agreement”, purported to deal with tax and national insurance arrangements and introduced a gagging clause. Sun’s solicitor maintained that this was a “suitably worded agreement” as referred to in the exchange on 3 June. Unsurprisingly Mr Newbury’s solicitor maintained that the settlement deal was made in the exchange of correspondence on 3 June. Sun’s solicitor maintained that this was not a concluded agreement since it was an offer seeking to resolve a dispute rather than being an offer capable of acceptance and was in any event contingent on the signing of a suitable worded agreement.

Sitting in the High Court Mr Justice Lewis was satisfied that, viewed objectively, the exchange of correspondence on 3 June did give rise to a binding legal contract between the parties. By “suitably worded agreement” was meant one which reflected the terms of the agreement but execution of such an agreement was not a condition of the terms of settlement taking effect.

Further the offer letter set out terms of an offer, available to be accepted by a specified time. If accepted by that time payment would be made within 14 days of that acceptance. However, had the offer been headed “subject to contract” that would have been a different matter since that would make clear that the terms were not yet binding or agreed until a formal contract was agreed. It was not and the absence of such a heading was a relevant factor. Further, there was no need to look at the subsequent conduct of the parties once a binding agreement has been made.

The claim was accordingly declared settled in accordance with the terms agreed in the initial exchange on 3 June.