Much of the procedures that courts in WA require litigants to follow before their claim goes to trial is designed to encourage settlement of claims. Have you ever wondered, though, what happens once a claim has settled and the terms of compromise have been agreed? What happens if the Defendant (the party who was sued) reneges on the settlement agreement or fails to perform some part of it?  Does this entitle the Plaintiff (the party who brought the action or made the claim that was settled):

1. to proceed with that claim as if there had been no settlement agreement;
2. to enforce the terms of the settlement agreement; or
3. to choose from these two options?

This question was recently considered by the WA Court of Appeal in Scaffidi v Perpetual Trustees Victoria Ltd [2011] WASCA 159 at [26] and [32].  Essentially, the Court’s answer to this question was that it depends on how the deed of release, which is the legal document that sets out binding terms of settlement, has been worded.  The key is to look at what the document says about the intentions of the parties to the agreement.

If the deed points to an intention that the Plaintiff’s right to sue should be substituted for nothing more than the Defendant’s promise to carry out the terms of settlement, then the Plaintiff can only enforce the settlement agreement and the compromised claim is extinguished. 

Alternatively, the deed may point to an intention that the Plaintiff’s right to sue should be substituted for the things that the Defendant agrees to do or give in exchange for the Plaintiff’s agreement to stop suing the Defendant. In that case, the Plaintiff’s only right is to make the claim unless and until the Defendant carries out the terms of settlement, at which time, the Defendant’s legal obligations to the Plaintiff will be satisfied, or discharged, and there will be nothing left for the Plaintiff to claim.

Finally, the deed may be read as a contract whereby the Plaintiff promises to end the court case in exchange for the Defendant’s promise to do or give the Plaintiff something of value.  In that case, the Defendant’s failure to perform his or her promise will be treated as a serious breach of contract. Like the other party to any contract which has been breached in a serious way, the Plaintiff can then choose between:

1. terminating the settlement agreement and proceeding with the court case as if it had never been compromised; and
2. making a fresh claim against the Defendant for an order that the settlement agreement be performed in accordance with its terms or seeking damages to compensate the Plaintiff for the Defendant’s breach of the settlement agreement.

Since so much depends on how the settlement agreement is worded, you should take legal advice if you are a party to court proceedings and wish to settle your claim or a claim made against you.

Related Havilah Legal service(s): Commercial Litigation