Court Of Appeal Finds Defendant Gave Good Consideration For Varied Settlement In Agreeing To Give Up Defence That Was Later Found To Be Without Merit

The Court of Appeal has recently upheld a first instance decision that there was a binding agreement to vary a settlement agreement: Simantob v Shavleyan [2019] EWCA Civ 1105.

The claimant argued that there was a lack of consideration for the variation, as the defence which the defendant had agreed not to pursue was without merit and therefore the defendant had not given up anything of value. The court rejected that argument. It drew a distinction between, on the one hand, a claim or defence which a party knows to be invalid or does not believe to be valid and, on the other, one which may be doubtful but the party believes in and intends to pursue. In the latter case, an agreement not to pursue the claim or defence will be good consideration, even if the court later finds the point to be without merit. This serves the public policy aim of encouraging settlement.

As a practical matter, however, where the only consideration for an agreement (or the variation of an agreement) is a party's agreement not to pursue a particular claim or defence, and there is any scope for doubt as to whether the claim or defence is believed to be valid, it would be advisable to document the agreement (or variation) by deed or provide some additional consideration (eg a token payment of £1).

The decision is also of interest in that the defence in question in this case, which the defendant had agreed to give up, was an argument that the $1,000 per day interest provision in the original settlement agreement was void as a penalty. The Master found that the provision was not penal, even though it was referred to as a penalty and even though (as the Court of Appeal noted) it could have resulted in the defendant paying $1,000 per day in interest even if only $1 remained outstanding by way of principal. The Court of Appeal did not comment on the correctness of the Master's decision, saying that whether she was right or wrong was immaterial. What mattered was that there was clearly genuine doubt on the point at the time the variation was agreed.

Background

The claimant and defendant are both dealers in Islamic antiquities. A dispute arose between them regarding sums due from the defendant to the claimant. On 1 May 2010 the parties entered into a settlement agreement in which the defendant agreed to pay the claimant US$1,500,000 in full and final settlement of all claims between them. The agreement provided that, if the settlement sum was not paid when due (on 21 May 2010)...