Court of Appeal considers undertakings to court given in settlement agreements

In Smith v Backhouse [2023] EWCA Civ 874 the Court of Appeal overturned the High Court’s decision refusing to accept certain undertakings in a settlement agreement as undertakings to the Court because they were too wide and uncertain. (The High Court decision is explained here.) The Court of Appeal held that a court may decline to accept undertakings, even if they form part of a settlement agreement. However, the circumstances in which it should do so are limited. The High Court judge had erred in law in his approach to whether the undertakings should have been accepted, and the undertakings were not too broad or vague to be enforced by the court.

Background

The Claimant brought a claim against the Defendant in connection with alleged online harassment. The claims were for misuse of private information and breaches of data protection regulation.

The Claimant applied to the High Court for a Consent Order which reflected that the parties had reached an agreement to settle the dispute upon acceptance of a Part 36 offer. The proposed settlement included undertakings to the Court which were designed to prevent the Defendant from continuing to harass, impersonate and/ or monitor the Claimant. The Order was endorsed with a penal notice outlining the Defendant’s potential liability for contempt should the undertakings be breached.

The High Court accepted some of the contractual undertakings from the Defendant but refused to accept certain undertakings as undertakings given to the Court because they were too wide and uncertain. In particular, the High Court did not accept undertakings 1 to 3, by which the Defendant undertook not to: (1) publish by any means any express or implied reference to the Claimant; (2) impersonate the Claimant; and (3) monitor the Claimant’s activities. As a result of this refusal by the Court, if the Defendant breached any of these undertakings, the Claimant would only be entitled to contractual remedies. The Claimant appealed.

Court of Appeal decision

The Court of Appeal held that the undertakings should have been accepted at first instance.

Asplin LJ confirmed the established principle that a court may decline to accept undertakings even if they form part of a settlement agreement. However, the circumstance in which it may do so are limited. The Court of Appeal had to consider whether the first instance judge had erred in law in his approach to whether the undertakings should have been accepted.

Asplin J referred to Mionis v Democratic Press SA [2014] EWHC 4104 in which the Court of Appeal emphasised that when determining whether undertakings are to be accepted or enforced, it is essential that proper weight be given to: (i) the settlement agreement itself; and (ii) the public interest of parties to litigation being encouraged to settle their disputes in the confidence that the terms of their settlement will be upheld. Further, where a defendant’s right to freedom of expression under Article 10 of the European Convention of Human Rights is impacted, proportionality is a key question (i.e. whether the proposed restrictions are a disproportionate interference with the defendant’s rights):

“It follows that although the court will not accept undertakings which are contrary to public policy, illegal or uncertain, proper weight must be given to the terms of a settlement agreement and, as Sharp LJ put it, it would require a strong case for the court to conclude that such a bargain restricting Article 10 rights was disproportionate and should not be enforced other than on ordinary contractual or equitable principles.”

The Court of Appeal held that the judge had failed to give proper weight to the parties’ settlement agreement and failed to apply the test of proportionality. He had based his decision on the breadth of the undertakings and the likelihood of future disputes. However, breadth in itself was no reason to decline to accept an undertaking when it arises from a settlement agreement. The High Court judge’s specific criticisms of the relevant paragraphs in the undertakings were also unfounded.

Key Takeaways

1. Undertakings to the court are a powerful tool in dispute resolution, particularly as their breach can be reinforced by proceedings for contempt of court which could result in a fine or imprisonment.
2. The Court of Appeal emphasised that the courts should give proper weight to the terms of a settlement agreement and highlighted the public policy reasons for upholding settlement agreements.
3. When drafting undertakings specificity is still very important. The more imprecise the terms of an undertaking, the less likely it is to be effective, and it could lead to disputes over interpretation and whether breach has occurred.
4. Where a court refuses to accept a contractual undertaking as an undertaking to the court, contractual remedies will still be available to the parties in the event of breach.