Are Heads of Terms binding?

The recent case of Abberley-v-Abberley [2019] EWHC 1564 (Ch) illustrates the importance of taking care when the parties are drawing up the terms of a mediation settlement agreement at the conclusion of a mediation. The document entitled “Heads of Terms” was found to be binding on the parties in relation to a dispute involving a family farming partnership.

Mediation Settlement Agreement

The situation will be a familiar one for litigation lawyers who have been involved in mediation. Typically, the day will have had a “stop-start” feel to it but with any luck the parties will eventually get to a point where they have reached an “agreement in principle”. The lawyers are then tasked with setting down in writing in a mediation settlement agreement.

In order to avoid further dispute, the terms of the mediation settlement agreement need to be set out as clearly and concisely as possible. However, it is interesting to note that in cases involving property issues, in order for the mediation settlement agreement to be binding on both parties it will, at the very least, also need to comply with Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.

It is also worth noting that these agreements are often drafted long after the notional time for conclusion of the mediation and by the litigation lawyers in attendance not their property colleagues. If one compares this with the process and documentation adopted by property lawyers to implement an average property transaction, one can see that this must be a danger area for the lawyers concerned.

To finalise or not to finalise: that is the question

In summary, therefore, the mediator and the lawyers need to discuss carefully with the parties the competing risk propositions ahead of them.

• On the one hand, they have the option of agreeing Heads of Terms “subject to contract” in order that these can be presented to the property lawyers to finalise in more familiar form. This runs the risk that the deal will fall apart during the subsequent negotiations on the precise details of the binding agreement. The risk is a real one: the mediator will no longer be on hand and the negotiations may now involve property lawyers who were probably not present at the mediation.

• On the other hand, drafting a settlement agreement intended by both parties to be final and binding, but doing so late in the evening may also lead to incompleteness, uncertainty or practical unenforceability in the terms and although the written terms will be binding they may still give rise to disputes later on.

Litigation lawyers beware!