When a settlement isn’t really a settlement

On 15 December 2015 a decision was handed down in the Supreme Court of NSW in The Owners- Strata Plan No. 58087 v Matthews. The dispute related to whether or not a lot owner was entitled to park in a visitors’ parking space.

In this case, the Owners Corporation claimed that the dispute and associated legal proceedings had been settled by agreement. The lot owner took a different view. The Owners Corporation sought a declaration under section 73 of the Civil Procedure Act 2005 (NSW) that a binding settlement agreement had been reached on the basis of either:

  1. A deed of settlement emailed by the Owners Corporation to the lot owner on 5 June 2015; or
  2. Correspondence from the Owners Corporation to the lot owner in May 2015.

In a letter dated 1 May 2015, the Owners Corporation made a settlement proposal to the lot owner which was subject, among other things, to a deed being put to a meeting of the Owners Corporation for approval.

On 2 May 2015, the Owners Corporation informed the lot owner’s solicitor that the lot owner had “agreed to accept all of the conditions contained in our letter dated 1 May 2015”. That same day the Owners Corporation informed the Supreme Court that the matter had been settled “in principle”.

In July 2015 the lot owner informed the Owners Corporation that he had engaged new legal representation and intended to resume the legal proceedings.

Justice Black quickly dismissed the first alternative posited by the Owners Corporation. He found that the deed of settlement was a draft which had not been executed by either party to the proceedings, and was therefore not binding. Further, the email from the Owners Corporation attaching the draft deed expressly noted that it was subject to the final approval and a formal resolution of the Owners Corporation.

Justice Black identified three categories of cases where parties may agree to prepare a contract to formalise an agreement reached between them. Those categories are:

  1. Where the parties intend to be immediately bound by their agreement, but at the same time propose to have the terms of that agreement recorded in a more precise or full form;
  2. Where the parties have reached agreement and intend to make no departure from that agreement, but nevertheless make performance of that agreement conditional upon the execution of a formal document; and
  3. Where the parties do not intend to make a concluded bargain until they execute a formal contract.

Justice Black decided that the third category applied in this case. The phrase “in principle” used by the Owners Corporation in its correspondence with the Supreme Court was significant, and denoted something less than complete settlement. The conditional language used in the 1 May 2015 letter meant that the Owners Corporation did not intend to be immediately bound by the agreement. Further, the Owners Corporation could not be immediately bound by the 1 May 2015 letter when the possibility existed that the Owners Corporation could decline to pass a resolution approving the deed.

The Owners Corporation’s motion was dismissed and it was ordered to pay the lot owner’s costs.

This case demonstrates how the complexities of litigation can be further complicated by the distinct procedural requirements of owners corporations. Strata managers, owners, and lawyers should bear in mind the need to obtain the authority of the owners corporation and properly execute any settlement agreement before it is considered binding.

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