blog
Settle Smart series part four: Setting aside a settlement agreement for fraud – allegations of fraud not “some kind of open sesame”
Laurence Clarke
Our series focused on the settlement of disputes considers issues encountered by practitioners across a range of dispute resolution specialities. This blog explores when court approval may be required in order for a settlement agreement to be binding.
At first glance, the parties to a settlement agreement can seem quite straightforward. Indeed, of all the terms and possibilities a party has to consider when entering into settlement discussions, who and more particularly, how, a party should sign up to any potential agreement can sometimes be one of the last things to consider and can sometimes lead to a derailment (or at least a delay) of all of the hard work.
It is fairly common in trust and estate disputes that potential parties who may be bound by an agreement could be minors, ‘unborns’ (i.e. people not yet born who may, at some point in the future, benefit from a trust for example) and ‘unknowns’. It is also possible that the parties involved may be incapacitated – either because settlements are being entered into on their behalf as part of Court of Protection litigation or because they are bound by terms of a potential settlement agreement.
Minors or Incapacitated parties
Civil Procedure Rule 21.10 confirms that, unless it is approved by the Court, any settlement, compromise or payment arising from a claim by, on behalf of or against a child or protected party is not binding.
There are several reasons that the agreement needs to be approved by the Court including:
- The court needing to be satisfied that the compromise is fair and that children or protected parties are safeguarded from mistakes or pressure to settle a case for less than it is worth.
- To protect parties and ensure they are properly discharged from the claim and;
- To ensure that money is protected and properly looked after, by being invested on behalf of the child or protected party. The court can give directions as to how money should be paid (or to whom) and how the money is to be managed. This may be by a court-appointed deputy in the case of an incapacitated individual.
If the claim has already been issued, this approval can be sought by an application to court. However, if a settlement is reached before a claim is issued, then a Part 8 claim must be made to seek approval.
In practical terms, this will usually involve (except in very clear cases) obtaining an opinion on the merits of the settlement from a barrister or solicitor acting on behalf of the protected party and including this with the application. If a litigation friend is appointed on behalf of the protected party, they must also confirm that they approve the terms of the settlement.
In the case of EXB (a protected party by his mother and litigation friend) v FDZ it was directed that the amount of the settlement sum be kept confidential from the protected party; particularly as they may be vulnerable to exploitation from third parties if they were to find out the settlement sum. This sort of decision will be fact-specific and the Court will consider what is in the best interests of the protected party in making this type of decision.
Unborns or Unknowns
As above, there are circumstances (particularly in respect of trusts) where potential beneficiaries of a trust are not yet born but may, in due course, become a beneficiary. It is therefore important to consider whether the settlement being negotiated is in the interests of all the beneficiaries (even those potentially unknown or not yet born).
In these circumstances, whilst the trustees have the authority to settle litigation on behalf of the trust it may be sensible for them to seek the court’s blessing of a settlement to avoid potential criticism or liability in the future.
The trustees can only avoid this if they feel that they are capable of safeguarding the interests of unborn or unascertained beneficiaries, and only where they have no interest of their own to protect.
Legal advisors should be alive to potential ‘tricky’ parties to a settlement. It is important to keep in mind who may, moving forward, be bound by any potential settlement agreements in order to make sure that they can be properly enforced.
Further information
If you have any questions, please contact Laura Phillips in our Dispute Resolution team.
About the author
Laura Phillips TEP, is a Legal Director in the Dispute Resolution team. Laura has particular expertise in Contentious Trust and Estate and Court of Protection Disputes.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
You may also be interested in:
blog
Settle Smart series part three: Non-disclosure agreements – are they still effective in the post #metoo era?
Jessica Cattrall
blog
Settle Smart series part two: Tax liabilities in relation to settlement monies
Krishna Mahajan
Share insightLinkedIn X Facebook Email to a friend Print