Goodwood Investments Holdings Inc v Thyssenkrupp Industrial Solutions AG (M/Y PALLADIUM)

Settlement correspondence headed without prejudice save as to costs can still be subject to contract and subject to board approval. Those expressions ordinarily mean that neither party is bound until the formal settlement agreement is executed and the required approval is given. The court must assess the whole course of negotiations objectively. A party cannot ordinarily convert such a conditional arrangement into an immediately binding contract by describing approval as a formality, nor can an implied interim obligation require a company to procure its own board’s approval. An adjournment of arbitration proceedings may be consistent with an agreement in principle awaiting formalisation and does not, without more, establish a binding settlement.

The claimant purchaser and defendant builder were parties to an arbitration concerning alleged defects in the paint system of a luxury superyacht. During settlement negotiations, the builder made a without prejudice save as to costs offer involving repair works and a payment for costs. The offer required board approval and a formal settlement agreement. The purchaser’s response purported to accept it, proposed logistical clarifications, and requested an adjournment of the arbitration. The parties later exchanged draft agreements and disagreed about whether a binding settlement had been reached. Under section 45 of the Arbitration Act 1996, the court determined whether the correspondence, the adjournment, or the surrounding conduct created a binding settlement or an interim obligation concerning board approval.

The court answered No to each of the four questions identified at paragraph [55]. There had been no settlement of the arbitration dispute.

1. The builder’s 9 October offer was not capable of acceptance so as to create an immediately binding contract. Its express terms made final settlement subject to both approval by the builder’s board and execution of a formal settlement agreement. The provision for payment of the builder’s contribution to costs only upon conclusion of that formal agreement reinforced that construction.

2. Even if the offer had been capable of acceptance, the purchaser’s 11 October response was not a clean acceptance. It introduced terms concerning the yard, timing, supervision and consultant involvement, and itself acknowledged the need for board approval and a formal agreement to be executed once consent was obtained.

3. The adjournment of the arbitration did not amount to acceptance of a counter-offer or otherwise dispense by necessary implication with the subject-to-contract qualification. The parties’ agreement that the arbitration might resume, and that the arbitrators should remain available, was inconsistent with a concluded binding settlement.

4. There was no legally binding interim obligation requiring the builder to seek board approval or refrain from preventing it. The board’s decision required independent judgment. The proposed obligation was in substance an unenforceable agreement to agree and was conceptually impossible in the circumstances.

5. Objective consideration of the parties’ exchanges as a whole confirmed these provisional conclusions. References to agreement in principle, ongoing settlement negotiations, a draft agreement marked subject to contract, and possible resumption of the arbitration outweighed the purchaser’s later assertion that a binding agreement already existed.

The answers to all questions were No, and the arbitration settlement claim therefore failed.