Enforcement of Settlement

When settling litigation, it's crucial to include a specific enforcement mechanism in the agreement to avoid the costs and delays of fresh proceedings in case the need to pursue enforcement arises. Without a mechanism, enforcement requires separate litigation. Read the full article, written by our Commercial Disputes team, for essential guidance on making enforcement of settlement agreements as straightforward as possible.

An agreement to settle litigation represents a contract between the parties. In the event of non-compliance, it is open to the innocent party to seek to enforce the relevant terms. This may, depending on the obligations, be by way of specific performance[1] or damages for breach. However, the general position is that, unless the parties provide otherwise, it will be necessary to commence fresh proceedings in order to pursue enforcement. However, parties typically wish to avoid the delays and costs of further litigation. To achieve this, they may include a procedural mechanism within the compromised proceedings to allow for enforcement of any settlement reached.

Although this can take different forms, the:

“essential element is that an order is made by the court which recognises – either expressly or by necessary implication - that the underlying claim has been superseded by the settlement agreement but that the parties are entitled to re-enter the proceedings for the sole purpose of enforcing the settlement agreement.”

The High Court recently considered whether new proceedings were needed to enforce a settlement where the parties did not include a specific enforcement mechanism in their original proceedings.[2]

Background

The underlying proceedings were commenced by way of summary summons – essentially a debt claim - which sought the recovery of a debt arising from two loan agreements. The defendant resisted the summary proceedings. The defence was based on a claimed failure by the initial lender. The defendant argued that lender, AIB, did not obtain a prior valuation of the properties securing the debt. Everyday Finance was also party to the proceedings as creditor as it had subsequently acquired the loans from AIB.

In light of the factual dispute, the proceedings were ultimately sent to a full hearing where the defendant brought a counterclaim. After the first day of trial, settlement negotiations commenced. The Court was ultimately asked to make no order and to adjourn the proceedings. A written agreement was prepared and signed by the defendant, whose wife subsequently made an initial payment to the creditor, Everyday Finance. However, that payment was returned on the basis that the documentation for relevant anti-money laundering legislation was not in place. Although Everyday Finance had not itself executed the agreement, it ultimately made an application to enforce the terms of settlement before Mr Justice Simons. Everyday Finance asserted that all claims were compromised under the settlement. The defendant claimed the agreement was unenforceable as it was not properly executed and was void because of mistake.

Assessment

The Court noted that there was a dispute between the parties as to whether the supposed settlement was enforceable. However, before being in a position to adjudicate that dispute, the court first had to determine the proper procedure for the enforcement of the supposed settlement.

Specifically, Mr Justice Simons had to decide:

• Whether it needed to be determined as part of the existing proceedings, or
• If it was necessary for fresh proceedings to be commenced seeking enforcement of the settlement

He noted the general principle that a settlement of proceedings is effectively a separate contract which is enforceable as a matter of contract law. If parties wish to have the facility to pursue enforcement of a settlement as part of their original proceedings, then specific provision is required to avoid the necessity of having to initiate separate proceedings. However, he acknowledged that “the difficulty in the present case is that no order of this type has been made” and there was only provision for adjournment. Did this permit enforcement of the purported settlement within the existing proceedings? He relied on two Court of Appeal decisions[3] in particular in setting out the general principles regarding the enforcement of settlement agreements which he found relevant, noting that:

1. There is a clear public interest in promoting the settlement of proceedings. That public interest would be significantly undermined if the courts were not also in a position to ensure compliance with the terms of a settlement agreement.
2. The courts should not, without very good reason, obstruct the implementation of lawfully concluded settlements. If there is any doubt concerning the meaning or effect, it should be resolved to uphold the express terms of settlement.
3. A court may make an order striking out proceedings but with liberty to re-enter. If that order is clearly made pursuant to the terms of a written settlement agreement, it should be interpreted as being subject to the condition that the proceedings may be re-entered for the purposes expressed in the terms of settlement. This is so even if those terms are not expressly referred to in the order;
4. The procedure to be adopted on an application to re-enter is flexible, and
5. The existence of an order giving liberty to re-enter proceedings does not preclude a party from issuing separate proceedings seeking rectification,[4] amendment or rescission[5] of the settlement agreement.

The Court considered whether the agreed adjournment here could be interpreted as allowing for the summary enforcement of the settlement within the existing proceedings. The judge ultimately concluded that interpretation was not possible. Critically, there was no doubt or ambiguity about the effect of the adjournment. It had been expressly stated to the Court that no further order was required. Absent doubt or ambiguity, the judge stated that “the consensual adjournment of the proceedings cannot be imbued with any greater significance and treated as allowing for summary enforcement of the (then intended) settlement.”

The agreement itself had not been fully executed at the point of adjournment, so:

“the mere adjournment… cannot not have had the effect of bringing the proceedings to an end, save for the enforcement of an intended settlement agreement.”

It was therefore not possible to resolve the dispute within the existing proceedings without the parties having put in place a mechanism to allow the Court to do so on a summary basis. In simple terms, the:

“default position is that a settlement agreement takes effect as a matter of contract and the enforcement of same requires the institution of separate proceedings”. Adjournment alone is “too neutral a procedural step to be treated as having such effect.”

Conclusion

The decision serves as a clear reminder that parties who settle their case must include a specific procedural mechanism if they wish to avoid fresh litigation to pursue enforcement. Without this, the settlement cannot be enforced through the existing proceedings. Since it is a separate contractual arrangement, separate proceedings will be required. Accordingly, if settlement has been reached and it is intended that enforcement of same in the event of breach might be pursued as part of the same proceedings, that must be provided for expressly. Otherwise, the innocent party will need to commence fresh proceedings to enforce the settlement agreement – or will need to continue the litigation of the original proceedings and original claim if that opportunity is still available. Here, the outcome could have been very different had they expressly provided for the ability to apply to enforce the settlement.

For more information and expert advice on commercial disputes, contact a member of our Commercial Disputes team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

[1] ‘Specific performance’ is an equitable remedy essentially requiring that obligations under the contract be performed or fulfilled.

[2] AIB plc & Everyday Finance DAC v Doran [2024] IEHC 522

[3] Solicitors Mutual Defence Fund Ltd v Costigan [2021] IECA 20; McCaughey v McCaughey [2024] IECA 135

[4] ‘Rectification’ is where a court directs the revision of a written contract which does not accurately reflect the agreement actually reached between the parties so as to make it conform with the agreement actually reached.

[5] ‘Rescission’ is where the contract is set aside and the parties are put back in the position they would have been in had the contract never been made.