Heads of Terms

Iain Travers Law, Tips Leave a Comment

In this post Iain looks at a recent case, which dealt with  Heads of Terms reached at a mediation. Were they binding? He reflects upon some possible lessons for mediators and parties to a mediation arising out the case.

In Abberley v Abberley [2019] EWHC 1564 (Ch), there was nothing particularly unusual about the mediation. There was a family dispute relating to farm land, and the mediation appeared to be successful. Heads of Terms were signed by the parties. As is common in such circumstances, there were a few other documents that had to be entered into subsequently but the main issues had been dealt with.

A few points about the mediation itself:

  • The Agreement to Mediate said that any settlement would not be legally binding until it had been reduced into writing and signed by or on behalf of each of the parties.
  • At about 8.30pm the Mediator went into the parties’ respective rooms, one after the other, and announced that a deal had been arrived at.
  • As he often did, the Mediator typed out the agreement. He did it on the desktop computer of the solicitor for one of the parties. This took about an hour.
  • Before it could be printed, the draft disappeared from the screen and could not be retrieved.
  • The Mediator then wrote out the Heads of Terms in his own hand.
  • All those present were invited into the mediator’s room. When they were all there, he read out the Heads of Terms.
  • The Mediator and the two solicitors then signed this written document. By then, it was after 10pm.
  • Following the mediation, the parties and the mediator exchanged correspondence concerning the precise details of the agreement. An attendance note of the mediation discussed the need for transfers, a tenancy and cross indemnities, which did not feature in the Heads of Terms.

The Judge said that the issue which was at the heart of the dispute was whether the Heads of Terms were sufficiently certain to constitute a binding agreement. In Wells v Devani [2019] UKSC 4 it was stated that:

“Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a pre-condition to a concluded and legally binding agreement.”

The Judge in our case held:

“… on any view the Heads of Terms contemplated further documents such as a Transfer and a Tenancy, but on its face did not contemplate a further formal agreement”.

In his opinion, the essentials of the Heads of Terms were set out in the signed document with sufficient certainty.

It had also been contended by one of the parties that the Heads of Terms did not contain all of the terms agreed by the parties at the mediation. If that were the case, then they would not comply with the requirements of s2 of the Law of Property (Miscellaneous Provisions) Act 1989. On this issue, the Judge held that the contemporaneous documents showed that there was no agreement on these points on the day of the mediation. Section 2 had therefore been complied with.

What points might parties learn from this case?

  • Do you really want to rely on the mediator to type out or write out the agreement?
  • Have you been clear on the face of the document as to whether or not you intend the agreement to be binding, or subject to contract?
  • Have you been very careful to ensure that s2 has been fully complied with?
  • Have you made it clear in the heads of terms that it contains all the terms agreed by the parties?
  • If land is to be transferred, has it been clearly identified?
  • If there are other documents to be completed after the mediation, have you clearly listed in the agreement what those documents are?
  • It is in many ways in the best interests of the parties to reach a finally concluded agreement at the end of the mediation. Where however it is late and everyone is tired, is it not better expressly to head any agreement as in principle only and subject to contract, so that matters can be finalised more carefully a day or two later when everyone is fresh?

What points can Mediators learn from this?

  • Is it ever appropriate to be involved in the drafting of a Settlement Agreement? Is it not particularly dangerous where technical issues such as s2 of the 1989 Act might come into play?
  • Is it appropriate to be a party to the Settlement Agreement?
  • What type of note or record of the mediation should be kept, if at all?
  • What should the mediator do with documents relating to the mediation after it is finished?

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