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Binding agreements in TOLATA claims

Alexander Chandler, barrister, 1 King’s Bench Walk, considers the law and practice of agreements to settle TOLATA claims.

Alexander Chandler, barrister, 1 King's Bench Walk

"…The past is a foreign country; they do things differently there"
L.P. Hartley, The Go-Between

In his lecture "Family Law At A Distance" (2016), Lord Sumption referred to the "…process of assimilating family law with general principles of law", manifest in the Supreme Court decisions in Radmacher v Granatino [2011] AC 534, Prest v Petrodel Resources [2013] 2 AC 415 and Sharland v Sharland [2015] 3 WLR 1070. In Prest, Lord Sumption commented at [37]: 

"…courts exercising family jurisdiction do not occupy a desert island in which general legal concepts are suspended or mean something different. If a right of property exists, it exists in every division of the High Court and in every jurisdiction of the county courts. If it does not exist, it does not exist anywhere."

Yet, in several respects, family law remains, if not a desert island, then a foreign country compared with civil procedure: we do things differently here.

A good example is the law relating to agreements. The procedure in financial remedy applications is very different from the civil procedure that applies to a TOLATA claim. This article considers two questions from the point of view of a family practitioner:

1) How is an agreement between the parties in a TOLATA claim made into an order? and

2) What steps can be taken in a TOLATA claim where a party resiles from terms recorded in correspondence or in heads of agreement?

The position in financial remedies
Under the Matrimonial Causes Act 1973 it is not possible for parties to '…oust the jurisdiction of the court' (Radmacher v Granatino at [2]). Section 34(1) provides that any provision in a maintenance agreement 'purporting to restrict any right to apply to a court for an order containing financial arrangements … shall be void'.

Where the parties submit a draft consent order for the court's approval, 

"…the fundamental principle is that 'an agreement to compromise an ancillary relief application does not give rise to a contract enforceable in law'. Furthermore, 'the court does not either automatically or invariably grant the application to give the bargain [the] force of an order. The court conducts an independent assessment to enable it to discharge its statutory function to make such orders as reflect the criteria listed in section 25 of the Matrimonial Causes Act 1973 as amended': see Xydhias v Xydhias [1999] 1 FLR 683, per Thorpe LJ, at 691" (Sharland, per Baroness Hale at [19])

A judge has the discretion to approve or reject the terms and may list a further hearing at which the parties should attend. The precise nature of the judge's role was considered by Mr Justice Munby (as he then was) in L v L [2008] 1 FLR 26 at [73]

"…If epigrammatic phrases are preferred, the judge is not a rubber stamp. He is entitled but is not obliged to play the detective. He is a watchdog, but he is not a bloodhound or a ferret".

The procedure where one party seeks to resile from an alleged agreement was summarised in S v S (Financial Remedies: Arbitral Award) [2014] 1 FLR 1257 by Munby P at [14]

"Where, in contrast, one of the parties seeks to resile, the court has long sanctioned use of the abbreviated 'notice to show cause' procedure utilised in Dean v Dean [1978] Fam 161, [1978] 3 WLR 288,  Xydhias v Xydhias [1999] 1 FLR 683,  X and X (Y and Z Intervening) [2002] 1 FLR 508 and S v S (Ancillary Relief) [2008] EWHC 2038 (Fam), [2009] 1 FLR 254"

At a notice to show cause hearing, the court will consider:

(1) have negotiations led to an accord for the court to conduct an abbreviated hearing (Xydhias at 692F); and if so;

(2) are these terms vitiated by one of the factors set out in Lord Justice Ormrod's time-honoured speech in Edgar v Edgar [1980] 3 All ER 887 at 392

(3) finally, the court must exercise its independent discretionary review, applying the Section 25(2) factors, to ensure that the terms are (broadly) fair.

The court's role in TOLATA consent orders
By contrast, in most areas of civil litigation (with exceptions under CPR Part 21 for child settlements and agreements involving protected parties) the court has no supervisory function to ensure the fairness of the terms of settlement. The public policy in ensuring that proper provision is made for dependent family members (Hyman v Hyman [1929] AC 601, (1929) FLR Rep 342), which applies on divorce, does not apply to cohabitants. There is no need to support a draft order with a Statement of Information to explain the fairness of the agreement.

The extent of the court's involvement will be to ensure that orders are properly drawn. In the Chancery Division, consent orders are referred to the Master for approval before the order is sealed (see Practice Guidance of 2 January 2015: Chancery Division – Production of Orders for Masters and Judges).

Tomlin Orders
Indeed, in many TOLATA claims, the precise terms of the settlement will not be put before a judge, as they will appear in a schedule to a Tomlin Order.

We are approaching the ninetieth anniversary of the Tomlin Order, named after the case of Dashwood v Dashwood [1927] WN 276 which concerned the dissolution of a partnership trading as undertakers.  In Dashwood, Mr Justice Tomlin clarified the status of an order which stayed the action on agreed terms, save for the enforcement of the terms. A Tomlin order normally involves a short order (e.g. "…all further proceedings in this claim are stayed upon the terms set out in the schedule to this Order, except for the purpose of carrying those terms into effect") with an often lengthy schedule annexed, setting out the agreed terms.

As the Chancery Guide (2016) explains at §22.12 " is not the normal practice of the Judges or Masters of the Chancery Division to inspect schedules or agreements annexed to Tomlin Orders. The judge who makes the order undertakes no responsibility for the scheduled terms and cannot be taken to have approved them." Where the terms of the schedule are confidential, the order should identify the agreement which forms the schedule and explain where it is held, but the schedule need not be lodged at court (Chancery Guide § 22.10(b)).

Where both parties are represented, it may even be possible, pursuant to CPR Pt. 40.6(3)(b)(ii) for a Tomlin Order (described below) to be entered and sealed by a court officer, rather than a judge.

Vitiated agreements in TOLATA
Since the court in TOLATA has no independent duty to consider the fairness of an agreement, the law relating to a party resiling from heads of agreement is very different. It is a bad idea to refer to Xydhias in a TOLATA claim.

Where one party purports to resile from an agreement, the other party can seek a declaration from the court that a binding agreement has been reached (see, e.g. Bieber v Teathers Ltd [2014] EWHC 4205 (Ch))

As opposed to the more discretionary approach in ancillary relief principles of contract law apply, as summarised in Air Studios (Lyndhurst) Ltd v Lombard North Central [2012] EWHC 3162 (QB) per Myles J.

[5] In deciding whether the parties have reached agreement, the whole course of the parties' negotiations must be considered and an objective test must be applied: Chitty on Contracts, 31st edition (2012) Vol 1, paras 2-028 and 2–029. Once the parties have to all outward appearances agreed in the same terms on the same subject matter, usually by a process of offer and acceptance, a contract will have been formed. The subjective reservations of one party do not prevent the formation of a binding contract. Further, it is perfectly possible for the parties to conclude a binding contract, even though it is understood between them that a formal document recording or even adding to the terms agreed will need to be executed subsequently. Whether they do intend to be bound in such circumstances, or only as and when the formal document is executed, depends on an objective appraisal of their words and conduct.

[6] These principles are well established. They were summarised, for example, by Lord Clarke giving the judgment of the Supreme Court in RTS Flexible Systems Ltd. v  Molkerei Alois Muller Gmbh [2010] UKSC 14 at [45]:

"The general principles are not in doubt. Whether there was a binding contract between the parties and if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement."

The court proceeded (at [7]) to recount the six 'Pagnan principles', derived from Lloyd LJ's judgment in Pagnan S.p.A. v Feed Products Ltd. [1987] 2 Lloyd's Rep 601:

"(1) In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole …

(2) Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. That is the ordinary 'subject to contract' case.

(3) Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed …

(4) Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled …

(5) If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty.

(6) It is sometimes said that the parties must agree on the essential terms and it is only matters of detail which can be left over. This may be misleading, since the word 'essential' in that context is ambiguous. If by 'essential' one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by 'essential' one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by 'essential' one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge [at page 611] 'the masters of their contractual fate'. Of course, the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called 'heads of agreement'."

Impeachment of an agreement
Similarly, where a party seeks in TOLATA to justify resiling from an agreement, the applicable principles are not those set out in Edgar (supra), but general contractual principles.

The circumstances in which an agreement may be impeached is beyond the scope of this article (and are dealt with comprehensively in Foskett on Compromise) but by way of overview, a court may conclude that an agreement has been impeached by reason of:

a) Incapacity;

b) Mistake;

c) Misrepresentation;

d) Duress or undue influence; and

e) Illegality

Family practitioners who undertake TOLATA claims should bear in mind that for all of the resemblances to family law (a quasi-matrimonial home, a relationship akin to marriage) a TOLATA claim is a civil claim. The procedure is civil and the familiar litany of authorities relating to binding agreements (Rose v Rose [2002] EWCA Civ 208; [2002] 1 FLR 978, Xydhias, and Edgar) have no application.

Five points should be noted:

a) There is generally no need in a TOLATA claim for the court's approval of an agreement

b) The terms of agreement are generally set out in a schedule to a Tomlin order which the court may not even inspect;

c) Where one party seeks to resile from an agreement, a declaration may be sought;

d) Contractual principles will apply to such an application (cf. the opposite position in financial remedies where Thorpe LJ's "cardinal conclusion" was that they did not: Xydhias at 691);

e) Similarly, where a party seeks to argue that that an agreement is vitiated (or 'impeached'), whereby no order should be made, the relevant principles will be contractual.

27 July 2017