When and how can a settlement agreement be set aside?

Feb 1, 2024

What is a settlement agreement? 

A settlement (or “compromise”) is the result of an agreement between two (or more) parties to resolve their differences to bring a dispute to an end. Once parties have negotiated the terms of their settlement it is then reflected in writing.

A settlement agreement should not be confused with a non-disclosure agreement (NDA). NDAs are confidentiality clauses, which are often also included in settlement agreements.

Generally, settlement agreements are treated as contracts and, as such, there are circumstances in which they may be ineffective, and can be set aside…

When can a settlement agreement be set aside?

Typical grounds upon which a settlement can be set aside include:

  • Incapacity: If one party lacks legal capacity, for example they are deemed to be vulnerable, a minor, or suffering from a mental health disorder
  • Mistake: If the agreement contains a fundamental mistake rendering it impossible, or unconscionable, to perform
  • Illegality: If it was obtained with criminal intent/criminal purpose
  • Fraud/misrepresentation: If one (or more) parties has knowledge that the claim is false or fraudulent before entering into the agreement, or withholds crucial information
  • Duress/undue influence: If the agreement was entered into as a result of duress or undue influence by another party or external parties.

The Courts generally take the view that in deciding to settle, each party has taken into account the risks and has forgone the opportunity to challenge it. In fact, a search in Google will quickly deliver many cases where the courts have refused to set aside settlements for all of the reasons listed above.

Fraud/misrepresentation and duress/undue influence in particular have a high evidential threshold, especially if the agreement was reached with the benefit of independent legal advice available at the time it was signed. However, the recent ruling in Finzi v Jamaican Redevelopment Foundation Inc [2023] UKPC 29 resulted in the Privy Council clarifying the rules for setting aside a settlement agreement on the basis that it had been obtained by fraud. This confirmed that a settlement can be set aside when a claimant can show that evidence is new, in the sense that it has been obtained since the settlement, or if the evidence is not new, any matters relied upon to explain why the evidence was not deployed in the original action.

Why are we talking about his now?

One particular high-profile settlement has recently come to the fore again, following the order by a US judge to release hundreds of court documents relating to the defamation lawsuit brought by Virginia Guiffre against Gislaine Maxwell in 2015.

The detail within these documents prompted former lawyer Alan Dershowitz to say that not only did Prince Andrew, the Duke of York, make a “terrible mistake” in settling the case (with a confidential payment believed to be worth millions), but that he suspects he was “pressured by his mother”, the late Queen Elizabeth II, to settle the civil sexual assault claim against him. It has previously been reported by press outlets that the Prince wanted to fight Guiffre’s allegations, but was forced to settle so as not to distract from the celebrations around the Queens Platinum Jubilee in 2022.

Could the release of these new pieces of evidence be used by the Prince to attempt to set aside the settlement agreement he reached with Ms Guiffre in 2022?

In conclusion

Settlement agreements are essential to the proper administration of justice. Indeed, the vast majority of disputes settle rather than go to trial. But setting aside a settlement is a heavily nuanced area of the law. The safest course of action for any party wishing to challenge a settlement on any grounds is to ensure you have the best possible legal advice.

Come and speak to Leverets.

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