Any lawyer would agree that, wherever possible, it is better to compromise litigation rather than fight on to what may be a bitter end. However, as a High Court case showed, compromise agreements require very careful professional drafting so that all sides fully understand exactly what they are signing up to.
The case concerned a couple who personally guaranteed repayment of £2.6 million in loans made to a property development company. The lender later took action to enforce those guarantees. Resisting the claim, the couple asserted that they had been released from the guarantees, which were in any event unenforceable. A compromise agreement was, however, reached on the first day of the trial of the action.
The agreement stated that both sides would use reasonable endeavours to reach a full and final settlement of the dispute. In the event that such a settlement was not reached by a deadline date, however, it was agreed that the lender would be at liberty to enter judgment against the couple for a total sum of £3.3 million.
The deadline date having passed without a final deal being struck, the lender sought judgment against the couple in that amount. They responded with claims that the lender had failed in its obligation to use reasonable endeavours in order to seek a final resolution. That, they argued, was a fundamental breach that went to the root of the compromise agreement, rendering it unenforceable.
The Court found that, on a true reading of the agreement, the lender was not obliged to use reasonable endeavours as a precondition before it could apply for judgment against the couple once the deadline had passed. Such an obligation could also not be implied into the agreement for reasons of business efficacy or otherwise.
Although the requirement to use reasonable endeavours served as a statement of common intention and to encourage the parties to seek a consensual resolution, it was in practice very difficult to enforce. The Court found that, by entering into meaningful negotiations, the lender had in any event met that requirement. It had not been obliged to accept the repayment proposals put forward by the couple.
The couple having no reasonable prospect of defending the lender’s claim, judgment was entered against them for £3.3 million. The lender was also awarded judgment in the same amount against a company of which the couple were directors and which had also guaranteed repayment of the loans.