The perils of failing to document an oral agreement at mediation – a cautionary tale

Mediation is meant to be a process to avoid costly court proceedings. But what if the parties don’t agree that they actually resolved their dispute in mediation? A recent case shows the dangers of not putting your agreement in writing or signing it promptly (Sully v Englisch [2022] VSCA 184).

A mediation settles the dispute – or does it?

Ms Sully obtained an order in the Victorian Civil and Administrative Tribunal against Mr Englisch for damages for misleading and deceptive conduct. As part of Mr Englisch’s appeal. the parties attended a judicial mediation; a dispute then arose as to whether a binding settlement had been reached at the mediation, with Ms Sully arguing that it had and Mr Englisch that it had not. This ended up in the Victorian Court of Appeal.

The Court of Appeal noted that there was no dispute between the parties over the relevant legal principles, or that the trial judge had correctly articulated them.

These principles (as summarised at first instance and endorsed by the Court of Appeal judgment) are:

• “Whether an agreement is reached which is intended to be immediately binding falls to be determined objectively, having regard to the presumed or inferred intention of the parties.”
• Objective intention is fact based and determined having regard to all surrounding circumstances.
• “The ultimate question to be answered is what each party, by its words or conduct, would have led a reasonable person in the position of the other party to believe”.
• The relevant intention or belief is that obtained at the time an alleged agreement was made.
• subjective intention or belief is not determinative but may be relevant.
• An oral agreement must be complete, certain and enforceable on its own terms to be immediately binding.
• In certain circumstances, regard may be had to subsequent conduct of the parties, including, in the present case, where the parties agreed they would prepare a written document setting out the terms of agreement. In such a case, the Court may consider the three categories of contract set out by the High Court in Masters v Cameron (1954) 91 CLR 353, 360 and a fourth category recognised by Courts subsequently. However, these categories are “taxonomic and should not distract from the fundamental inquiry” as to “whether, in all the circumstances, the parties objectively intended to reach a binding agreement”.
• Parties may leave aspects of an agreement to be decided at a later date while agreeing to be immediately bound in respect of other, concluded terms.

Court of Appeal: the dispute was settled

Justice Walker (with whom the rest of the Court agreed) noted that it was not in dispute that:

• the parties had reached an agreement as to three key terms;
• the agreement was oral in nature;
• the parties had agreed that it was to be reduced to writing by way of a deed of settlement; and
• other documents would need to be drafted.

However, on the facts, a reasonable observer of the mediation would have concluded that, by the end of the mediation, the parties had made a binding agreement, albeit one that was later to be reflected in a written document.

Interestingly, this conclusion was reached notwithstanding that:

• the agreement was not reduced to writing on the day of the mediation and no written terms were subsequently signed by the parties;
• the mediation was left “open” by the Judicial Registrar who facilitated it;
• the proceedings were listed for a directions hearing at the end of the month; and
• there was further correspondence between the parties after the mediation concerning the terms of settlement.

Justice Walker instead relied upon the following:

• As the trial judge found, the parties had reached agreement on the key terms of the settlement, leaving only the machinery for implementation of those terms to be worked out.
• what was said and done by each party at the mediation is important in ascertaining whether the parties intended to be immediately bound by their agreement – the use of the words “offer” and “accept” by the parties, and in contemporaneous notes taken by their lawyers, was relevant. Furthermore, the final communication from Mr Englisch to Ms Sully at the conclusion of the mediation was “he was pleased that they had settled and wished to “put the matter to bed”. His Honour held that: “Considered objectively, that conveys the proposition that the matter was resolved in a binding manner …”. Further, the context of the statement, uttered at the end of a formal mediation the parties had each attended for the express purpose of seeking to resolve their dispute was “strongly probative” of an intention to be immediately bound.
• limited weight was given to the fact that the mediator left the mediation “open” given the parties’ direct communications with each other.
• little weight was given to what was not said at the mediation (ie the fact that neither party said the agreement was not binding). “What is more important is what was said at the mediation, not what was not said”.
• “…the existence of a common practice amongst lawyers of reducing any agreement reached at mediation to writing does not compel a conclusion that at a mediation where the parties do not reduce their agreement to writing, they do not intend to be immediately bound. Rather, in my opinion, the common practice is better understood as a matter of prudence, directed to avoiding the kind of dispute that has arisen in this case.”
• “… the settlement as agreed was uncomplicated, it involved a small quantum, and there was no history of formal negotiations documented in writing that would suggest the parties would not have intended a less formal agreement to be binding. In addition, the time constraints on the mediator meant that the parties were left with no time, within the mediation, to document their agreement; that assists in explaining why the parties, having reaching a binding agreement, left the documentation of that agreement to a later date.”
• limited weight was given to the parties’ correspondence after the mediation (including the use of the term “in principle” by Mr Englisch’s solicitor) given its equivocal nature and the fact it was “post-contractual conduct”.

While agreeing with Justice Walker, Justice Niall further noted that the settlement reached on the day appeared to achieve a favourable outcome for both parties which supported the contention that whatever further steps or documentation were contemplated were to be “procedural or facultative in nature… The fact that thereafter the parties appear to have found things to argue about does not change what had already occurred.”