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The enforceability of mediation agreements?

By Bryn Thomas. Increasingly mediations are used as a mechanism to conclude a dispute to avoid the cost and expense of issuing proceedings. They also compromise a dispute on known terms thus achieving certainty of outcome (at least one would hope) avoiding the unpredictability of a trial or what is often known as litigation risk.

They are regularly used in farming disputes when parties will mediate over substantial land assets within the context of farm partnership and proprietary estoppel cases. 

Mediations can be protracted and it might be the case that the parties, after a long and tiring day, do not achieve a position where detailed and clear sets of terms are signed off. For example, in many instances, only an agreement in principle is achieved. So, what is the position when a dispute arises in respect of a mediation over whether what has been agreed can be said to be enforceable or not. 

s.2 of the Law of Property (Miscellaneous Provisions) Act 1989 provides (so far as relevant) as follows:

Bryn Thomas (1)A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each.

(2)The terms may be incorporated in a document either by being set out in it or by reference to some other document.

(3)The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract.

The above section applies to compromise agreements, there being nothing inherent in a compromise that takes it outside s.2. The key question for the purposes of s.2 is whether or not Heads of Terms contain all the expressly agreed terms, or whether they do not. If the agreed terms are not reduced to writing in the Heads of Terms, then it will fall foul of the section, and, even if a contract, would be void as it is not in the statutorily required form. 

Where questions are asked about the enforceability of a mediation document, one will require clear evidence of what was agreed, and what was left unagreed, by the time the Heads of Terms were drawn up, if that is possible. Indeed, the term “Heads of Terms”, in ordinary language, signals that the document embodies a summary of what has been agreed, which is to be fine tuned and worked out in a later document containing fuller terms. 

If a document is regarded as tentative or an agreement is expressed to be in outline rather than a full contract, which may or may not be supported by subsequent dealings and correspondence after the mediation, a court is likely to take the view that the Heads of Terms were subject to contract and thus, not binding. 

Heads of terms can be too vague to enforce, even if there was an intention to be bound legally. We must also remember that where problems arise and questions are asked, extrinsic evidence can be relied upon to resolve issues. 

Frequently, parties will be represented by solicitors and/or Counsel who ordinarily will have authority to sign agreements in principle but who are not entitled to enter into binding contracts. 

The courts are keen to strive to uphold compromises between parties because they do not like arguments that deals done, can be set aside due to one party deciding the contract was too vague. Here, the court will perhaps assume an ulterior motive.

In summary, and so far as practically possible:  

  • ensure a proper agreement (rather than a mere memorandum of points to be agreed, to be further fleshed out in a contract to be completed at a later date);
  • that is sufficiently certain to take effect as a contract;
  • is backed up by consideration; and
  • compliant with all applicable formality provisions. 

On a final note, it is worth highlighting that reported cases serve as a reminder to professional advisers who attend mediations to warn clients about any limitations on the perceived enforceability of a mediation agreement. One should check in the closing stages of a mediation that each party is clear about the status of what they have agreed and what needs to happen next to secure final resolution of the dispute. We understand that there are lots of things to think about in regards to mediation, but staff at Agri Advisor are available to discuss with you your specific needs from start to finish.

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