Smith v Backhouse

The parties had agreed a consent order giving effect to a Part 36 offer in which the Claimant had sought and the Defendant had agreed to give undertakings to the court. Nicklin J accepted certain five paragraphs of the undertaking but refused three paragraphs.

The Claimant appealed on the basis that the judge was (i) was wrong in law not to accept proper and enforceable undertakings which had been agreed between legally represented parties on the acceptance of a Part 36 offer where they were not illegal, immoral or equivocal and there were no “other exceptional circumstances”; (ii) in any event, the judge was wrong in law to find that the undertakings were too broad; (iii) further and in any event, he was wrong to find that they were too vague; and (iv) he was wrong to reject the undertakings entirely rather than accepting them subject to provisos narrowing their terms to meet his concerns.

The Court of Appeal set out the applicable principles:

• The court could decline to accept undertakings even if they formed part of a settlement agreement but the circumstances in which it could do so were limited.
• Where undertakings are offered in lieu of injunctive relief sought, the court would be cautious about accepting them in terms that it would not itself have granted by way of injunction to restrain the conduct complained of. However, there was no firm rule about the extent of the undertakings which could be accepted, the court must be careful not to impose undertakings in wider terms than necessary to do justice but was entitled to restrain conduct that was not itself tortious or otherwise unlawful if satisfied that such a restriction was necessary to afford effective protection to the relevant rights in a particular case.
• There was no test of “exceptional circumstances” which determined when the court would decline to accept undertakings where they form part of a settlement.
• The court will decline to accept undertakings which are contrary to public policy, illegal or uncertain, proper weight must be given to the terms of a settlement agreement and it would require a strong case 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 therefore allowed the appeal on grounds (i)-(iii) on the basis that the Judge declined the relevant undertakings on the basis that they were too wide which was not a permitted basis in the context of a settlement agreement and the Judge’s specific criticisms of the undertakings were unfounded, including that they were too vague.

The Court dismissed the appeal on ground (iv) on the basis that although the Judge could have explained these concerns about the relevant undertakings and given the parties an opportunity to consider the position, he was not under any duty to do so and so did not err in law.

Naina Patel acted as Advocate to the Court

A copy of the judgment is available here.