High Court: Enforcement of settlement agreement must be pursued in fresh proceedings

About this case:

• Citation:
  [2024] IEHC 522
• Judgment:
  External link
• Court:
  High Court
• Judge:
  Mr Justice Garrett Simons

Delivering judgment for the High Court, Mr Justice Garrett Simons stated that “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”.

The court also warned: “It is open to the parties to negate the default position by putting in place a procedural mechanism which allows for the enforcement of a settlement agreement, by way of a summary application, within the very proceedings which have been compromised. The parties must, however, obtain a court order to this effect.”

Martin Hayden SC and Roland Rowan appeared for the plaintiffs instructed by Joynt & Crawford LLP, and Paul Comiskey O’Keeffe appeared for the defendant instructed by John P. O’Donohoe Solicitors.

Background

The plaintiffs issued summary proceedings in 2020 seeking to enforce a debt owed to the first plaintiff. As a condition of the subject loan agreements AIB was to obtain a valuation in respect of the properties to be mortgaged.

AIB exhibited the valuations dated 2007, which the defendant claimed were backdated forgeries. The defendant contended that he would never have entered the subject loans had he been aware that no valuation of his lands had been conducted prior to so entering.

The defendant also alleged that he became aware subsequent to the purported settlement of the proceedings in October 2023 that AIB had valued certain lands at €600,000, notwithstanding that the special conditions of the relevant loan had prescribed a minimum valuation of €3 million.

Following the commencement of the hearing, the parties entered settlement negotiations and on 25 October 2023, the court was asked to adjourn the matter for four months to allow the implementation of the settlement agreement.

The deed of settlement recorded inter alia that on the adjourned date and upon discharge of the settlement sum, the proceedings would be struck out with no further order, save where the sum was not paid, in which case on the adjourned date the defendant would consent to judgment in the sum of €5,073,138.74.

Only the defendant executed the deed and his wife made an initial payment of €150,000 to the second plaintiff’s solicitors, who returned the sum on the basis that anti-money laundering requirements had not yet been satisfied. The defendant sought to rescind the deed by letter dated March 2024.

The plaintiffs applied to the High Court to enforce the deed of settlement and release, on the basis that the proceedings had been compromised.

The High Court

Mr Justice Simons determined that the principal issue was whether the application to enforce the deed could be determined in the existing proceedings or whether it was necessary to institute fresh proceedings seeking to enforce the settlement as a matter of contract.

The judge explained that this issue would largely turn on whether the giving of consent to the adjournment of the existing proceedings constituted a sufficient act to permit the proceedings to be used thereafter as a vehicle to enforce the purported settlement.

Noting that an agreement to settle litigation is essentially a contract between the parties, the court stated that where one party fails to comply with a settlement agreement, the innocent party must usually seek to enforce it by fresh proceedings unless provision is made in the agreement to allow enforcement within the compromised proceedings.

Mr Justice Simons highlighted that one such procedural mechanism involves asking the court for an order striking out the proceedings with liberty to re-enter them for the purpose of enforcement, or to stay the proceedings for that purpose.

The court considered that “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. This avoids the necessity, which would otherwise arise, of having to institute separate proceedings.”

Noting that the only order made was to adjourn the proceedings on consent, the High Court considered Solicitors Mutual Defence Fund Ltd v. Costigan [2021] IECA 20 (SMDF) and McCaughey v. McCaughey [2024] IECA 135 on the public interest in the settlement of proceedings and the enforcement of same by the court, and on the re-entry of proceedings.

Distinguishing the case before him, Mr Justice Simons outlined that the court had not been asked to make any order on 25 October 2023 and he could not interpret the adjournment as allowing for the summary enforcement of the agreement on the basis that:

1. There was no doubt or ambiguity as to the effect of the adjournment. The transcript indicated that the parties had been asked whether an order was required, and confirmed that none was required;
2. The deed had not been executed by the parties by the time of the adjournment, rather the court had been told that it was in the process of being signed.

The judge determined that in the absence of a provision in the deed specifically providing for the summary enforcement of the settlement within the compromised proceedings, the institution of fresh proceedings was required along with a court order to that effect, stating that “the mere adjournment of proceedings, without more, is too neutral a procedural step to be treated as having such effect”.

Conclusion

Accordingly, the refused the application and invited submissions on whether the parties wished to pursue the existing proceedings or to issue fresh proceedings.

Allied Irish Banks plc & Anor v Thomas J Doran [2024] IEHC 522