SETTLEMENT CRACKS

Settlement is usually an attractive option - but beware the consequences of a Tomlin order, warns Stephen Gerlis


I cannot recommend settlement highly enough. Think of all the costs and aggravation that are saved. OK, you may lose something on fees if the matter does not go to a full-blown battle, but you will have a grateful client and you can get on to the next case.

To encourage settlement, I often tell punters that while I appreciate that a compromise means one side may have to agree to something a little less than they hoped to achieve, the other may likewise be giving away more than they anticipated. Nevertheless, not only are the costs and aggravation of litigation avoided, but experience and statistics tend to show that a negotiated settlement is much more long-lasting than a judgment handed down by the court with which either or both of the parties may be unhappy.

And I am not the only one saying this. Those clever people who dreamt up the Civil Procedure Rules are saying it too. Consideration of settlement and alternative dispute resolution are written into practically every stage of proceedings. Add in possible costs sanctions for failure to properly consider settlement, and you do not need a magnifying glass to read what the rules are saying - don't litigate, mediate.

If you do take the sensible step by pursuing and achieving settlement, what next? Putting the settlement into an effective form is a priority, and for this I recommend a careful reading of the guidance in the White Book at 40.6.2 and, for those of you with well-stocked libraries, an article by my colleague Neil Hickman (see 2002 Gazette, 30 August, 22). Likewise, another article by another colleague, Peter Glover, provides valuable guidance on the use and misuse of Baron Tomlin's famous order (see 2006 Gazette, 11 May, 28).

However, there is one important question that must not be overlooked: what exactly should be the terms of the settlement? Are you giving up too much?

In Carphone Warehouse UK Limited v Cyrus Malekout 2006 EWCA Civ 767, 2006 All ER (D) 134 (Jun), (2006) The Times, 28 June, Dr Malekout was a statutory residential tenant of premises, protected by the old Rent Act 1977, so long as he continued to occupy the premises as his residence. The premises fell into disrepair many years ago. Proceedings for possession were taken against the tenant for arrears of rent but were discontinued. The premises became uninhabitable, and from about 1998 or 1999 no one occupied them. Nor was any rent paid or repairs carried out.

The new landlord, Carphone Warehouse, commenced proceedings for possession in 2002, based on arrears of rent and the non-occupation of the premises by the tenant. The tenant defended on the ground of disrepair. In May 2003, the proceedings were compromised by a Tomlin order. The schedule to the order recited, among other things, that the landlord would carry out stated works of repair and that, on completion to the satisfaction of the tenant, the tenant would become liable for rent. That should have been an end to the matter.

However, the tenant was not happy with the works of repair and refused to pay the rent. The premises remained unoccupied. The landlord took proceedings for possession again based on arrears of rent and non-occupation by the tenant. The tenant defended and counterclaimed on the basis of disrepair.

As a question of fact, Judge Walker in Wandsworth County Court found for the landlord on the question of the repairs, stating that to all intents and purposes they were completed, and the tenant should have started paying rent from April 2004. However, that was not the main issue in the case and was not vigorously pursued by the landlord, possibly because the amount of arrears was small. The main issue was with regard to the tenant's non-occupation of the premises.

The case then took a very strange turn. There was ample evidence that the tenant had not occupied the premises for some years. Indeed, Judge Walker found against the tenant on that point.

The problem was the Tomlin order. Its effect was to quash any argument as to the tenant's status up to the date of the order. The landlord tried to argue that the court could take events leading up to the order into account, but this was not accepted by the judge in the court below nor by Lady Justice Smith, delivering the only reasoned judgment in the appeal court. The landlords' appeal failed.

In J Wright and H Wright v Newcastle Ltd and others (Lawtel 25 May 2000, CA), Lord Justice Waller said that where proceedings were compromised, one could not say that the issues settled were res judicata - but nonetheless it would be an abuse of process to allow the same issues to be re-litigated later. He said that, if in later proceedings a party raised an issue that had been raised in earlier proceedings, it was necessary to decide what issues had been settled in the first litigation. If proceedings were stayed pursuant to a Tomlin order, all issues arising in those proceedings were stayed. Therefore, in the present case, the landlords probably had a good case on non-occupation but relinquished it by entering into the Tomlin order.

By way of completeness, the Court of Appeal also said in Wright that it might not be an abuse of process to pursue a claim that had not be raised in the original statement of claim and had not been covered by any subsequent settlement. That was not the case here.

Carphone Warehouse is a classic example of one party which actually had a distinct advantage failing to capitalise on it and possibly jumping into settlement prematurely. A Tomlin order works effectively to put a seal on all that has gone before. The lesson to be learned is obvious - by all means pursue settlement, but consider your position carefully before you do so.

District Judge Stephen Gerlis sits at Barnet County Court