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Legal representation clause survives terminated settlement agreement

15 June 2018

The Commercial Court has held that a clause in a settlement agreement which required service of proceedings on specified solicitors survived termination of the settlement agreement because it was an ancillary or collateral part of the agreement.

Background

The claimant was a United Arab Emirates (UAE) oil and gas trading company and the defendant was a company based in India.

The claimant and defendant entered into a contract for the sale of liquid petroleum gas. The goods were delivered to the defendant but a dispute arose and the defendant refused to pay the claimant.

The parties entered into a settlement agreement which was governed by English law and jurisdiction, which stated that the defendant should pay the claimant a sum of money, unless it reasonably concluded that it would be unlawful under Indian law. If the defendant did not pay the claimant then the claimant was able to pursue a claim under the settlement agreement in the English courts.

CPR 6.11 stipulates that parties can include a term in a contract between them, an agreed method or specified place for a claim to be served, in the event of a claim being started in relation to that contract.

Two sub-clauses in the settlement agreement which specified method of service were the subject of this judgment:

Clause 10.1 – the solicitors identified in the agreement were instructed to accept service of proceedings; and

Clause 10.2 – if either party engaged alternative solicitors then it should notify the other party within 24 hours.

Firm A were named in the settlement agreement as accepting service on behalf of the defendant. The defendant then instructed new solicitors, Firm B, and gave notice to the claimant in accordance with clause 10.2.

The defendant then notified the claimant that it would not make a payment under the settlement agreement because it feared that this would breach US and EU sanctions. The claimant terminated the settlement agreement.

The defendant informed the claimant that Firm B was no longer instructed. The claimant commenced proceedings for breach of the settlement agreement and served those proceedings on the Firm B.

The question put to the court was whether this was good service of proceedings by a contractually agreed method under CPR 6.11. The defendant argued that clause 10.1 did not survive termination of the agreement. The defendant also argued that the appointment of new solicitors under this clause could not be construed as irrevocable.

Decision

The court held that there had been valid service. 

There had been an effective appointment of new solicitors (Firm B) by the defendant, and that firm’s authority to accept service of proceedings was irrevocable. Whilst it was possible for a contractual appointment to be revocable, if it plainly said so, there was no suggestion that this was the intention of the parties at the time the settlement agreement was drafted and entered into.

Clause 10.1 survived termination of the settlement agreement because it was an ancillary part of the mechanism by which to settle disputes. Clause 10.1 was collateral to the law and jurisdiction clause which was agreed to survive termination of the settlement agreement.

Accordingly, there had been valid service on the defendant.

Comment

The case highlights the importance of careful drafting.

It is well established that arbitration or jurisdiction clauses are ancillary or collateral to settlement agreements, and so survive termination of the settlement agreement, but in this decision the Commercial Court has gone further. 

It has held that the particular legal representation clause was in essence collateral or ancillary to a dispute resolution clause which was itself collateral or ancillary – and so “…. you cannot get much more collateral or ancillary than that.”

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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