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Settlement of Disputes

Author : Kinshuk Chatterjee

13 December 2011

A legal settlement must be conducted and finalised with caution, particularly in the food industry where unnecessary expenses should be avoided at all costs.

In any business, particularly one that involves cross-dealings with third parties, disputes invariably arise and businessmen get involved in legal suits. There is an apprehension that once a case has begun it will continue for ages, and that litigant will have to bear the costs of the litigation and the legal costs of their adversary, should the claim be decided against them. Therefore, it is advisable that parties should aim to settle the dispute.

A legal settlement must be conducted and finalised with caution. There have been numerous examples in the past where parties have approached the Court to decide what the terms were of the settlement that was made by the two sides themselves. This negates the purpose of concluding a settlement in the first place.

The terms of the settlement should be clear and well-understood between the parties; in other words, the parties should be ad idem. A legal settlement is in essence a contract by itself. A promise is made by one party to the other that if the latter forgoes a legal claim, the former will suffer some detriment. It is in consideration of this promise that the party intending to litigate its dispute settles the matter.

It is a myth that a legal settlement has to exist as a single, signed legal document. Settlement agreements are governed by principles of contract law, and so a chain of emails exchanged between two parties can result in legal settlement so long as the requirements of contract formation are present.
English Courts have a strong propensity towards upholding contracts.

Therefore, a party who raises an argument subsequent to the contract that it was not its intention to enter into a binding agreement has to make a very strong argument in Court. This can be a daunting task, especially if there is no written communication to this effect. Therefore, parties should make their intentions very clear in writing/correspondence, stating that they do not consider themselves to be contractually bound if that is actually how they feel.

Likewise, consideration is also an important aspect when negotiating a legal settlement. A party should understand the value it will receive in exchange for its agreement to relinquish its right to bring or continue its claim in a Court of law. Courts do not make judgements on the value of the consideration that moved from one contracting party to the other, only on the question of whether consideration was present.

In other words, a Court of law will seldom adjudicate on the issue of whether the value exchanged between parties was adequate, but rather whether it was sufficient to fulfil the mandates of a valid consideration under the law of contract. The result of that is that a party who makes a bad bargain cannot look to the Courts to help them out.

In a celebrated case, the House of Lords confirmed the doctrine that a court does not investigate the adequacy of consideration when it upheld the ruling that chocolate wrappers sent by members of the public to obtain a music record from the company making this offer, were part of the consideration, notwithstanding that the company would throw away the wrappers once received.

Therefore, parties should make their intentions very clear even in informal exchanges: a simple "yes" or "no" in written communications could be said to reflect a party's intention to settle a matter. One should bear in mind that not all legal disputes can be settled in the same manner as disputes which involve some kind of pecuniary consideration.

There may be legal disputes involving infringement of compliance measures (product liability cases) imposed by a regulator or infringement of an intellectual property where permanent injunction from using the trademark or copyright is the standard remedy.

For instance in the manufacturing industry the company may often find itself in a dispute defending its intellectual property or defending itself against a personal injury claim or even a dispute involving breach of compliance measures. In such cases an out of court settlement is plausible only in the second case where the compensation amount can be negotiated with the Claimant.

Manufactures are also faced with trade union actions and often a settlement between the management and the union may result in striking of potential industrial action. For instance plans for industrial action were called off by workers of Heinz in the Kitt Green unit when a revised pay structure increasing basic pay by 3.9% was accepted by a majority vote. This apart manufacturing industries operating in the retail market are faced by claims by unhappy consumers. In such cases too the company should aim at concluding a legal settlement with the complainant, of course bearing in mind what has been discussed earlier.

* Kinshuk Chatterjee is a Lawyer at Zaiwalla & Co Solicitors.
Kinshuk Chatterjee, Zaiwalla & Co: 0207 312 1000

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