Frost v Wake Smith & Tolfields Solicitors

[2013] EWCA Civ 1960

Mediation should allow for maximum flexibility. Solicitors cannot be held responsible for parties’ failure.

The Facts

The claimant had instructed the defendant (a firm of solicitors) in relation to a dispute with his brother. That dispute, which was acrimonious, was mediated and at the mediation the parties reached an agreement in principle.

At the mediation, the brothers agreed on certain terms and Mr Frost’s solicitor, Mr Serby, was left to reduce the terms to writing. The brothers signed a document which set out what they had agreed, but it was clear that Mr Serby had only been able to provide a draft which agreed things in principle – effectively a “heads of terms” document. For example, it was clear that there were certain elements of the agreement which were uncertain, and areas in which the precise terms of any agreement would need further negotiation. There were also key pieces of contractual “machinery” which were not sufficiently defined to result in a binding agreement. There were terms which were yet to be defined (and over which there might easily be substantial disagreement). No precise description of the relevant properties was included, and there were no terms setting out how the relevant charges over the properties would be resolved. The provisions as to how the parties were to allocate the risk of tax consequences also obviously required further drafting. Perhaps most fundamentally of all, a jointly-owned company (through which the brothers had conducted their business) was the legal owner of several of the properties included in the agreement, but the company was not expressly made party to the agreement, which raised real questions about whether and how some of the key terms could be effectively enforced.

Mr Frost had left the mediation believing that an enforceable agreement had been reached and Mr Serby apparently said nothing to the contrary. However, the other side subsequently raised a number of issues and difficulties as to how the agreement in principle / heads of terms could be carried into effect. Those negotiations broke down, and they were only subsequently retrieved at a further mediation.

Mr Frost claimed his solicitors had been negligent in not ensuring that a legally binding agreement was entered into at the end of the first mediation.

The Court of Appeal confirmed the defendant solicitor owed no duty to his client to ensure that such an agreement resulted. The mediation had resulted in an agreement in principle. The parties had not reached a final agreement because the agreement left so much unsaid. The solicitor could not, without the parties’ further involvement, ensure that agreement was binding.

The Court of Appeal emphasised that mediation was a flexible process. In some situations, immediate and binding agreement might be possible. However, in others, and this was a good example, “flesh needed to be put upon the bones”. It would be regrettable if it were to make a decision which would cause practitioners to approach the mediation process with anything other than maximum flexibility. However, the court added a warning: it was part of a solicitor’s duty to advise his client of the nature of the process and the status of any agreement reached as a result.

Comment

Mediation is an almost omnipresent feature of modern litigation; few are the cases that do not at least actively contemplate mediation, and many parties prefer a mediation to a trial (to the mystification and chagrin of their lawyers, who often want to know the answer). To a businessman in particular, a thin settlement is often preferable to a fat lawsuit, with all the delay, cost and risk that entails, and the fact that key personnel will be taken away from profitable activities and closeted with the lawyers and experts, often for extended periods.

This case demonstrates what mediation can, and cannot do, and the risk for everyone concerned. Very often a mediation will result in a binding settlement. Very often the parties will get 90% of the way there, but recognise that they have not (quite) settled the case, and the mediator will be asked to stay involved after the mediation breaks up, to perform shuttle diplomacy by telephone and email over the days and weeks following the mediation in an attempt to bridge that last, vital 10% gap.

This case falls into the third, and perhaps most dangerous category – everything was agreed in principle, but no one had sat down and precisely worked through how that was going to happen in practice. Sometimes that does not matter; there are plenty of mediations which end with binding and enforceable agreements, even though there are some mechanics to work out after the event. But the more there is left over to be hammered out after the event, the greater the risk that the parties will discover at some point (to their horror) that they are not really ad idem at all, and that their settlement in principle is just that – an agreement in principle, and of no binding effect. 

There is much then to be said for sitting in a room until everything is hammered out, no matter what time of the day or night that is. But sometimes that is impossible (because e.g. tax advice is needed). In those circumstances everyone needs to be absolutely clear about where things have got to – and what still needs to be done. At its most fundamental level, this case was the result of poor expectation management by the solicitor; he appears to have left his client under the mistaken impression that it was a “done deal” when it was nothing of the kind.

TEDR Volume & Issue

TEDR Volume: 
18
TEDR Issue: 
2