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(F) SETTLEMENT AND COMPROMISE

Where the claimant settles or compromises[1] the defendant’s claim for payment, the claimant will be barred from obtaining restitution from the defendant because the policy of the law is to uphold the settlement of claims, which constitute a legally effective basis for receipt of an enrichment.[2] A settlement constitutes a bargain between the parties and should only be invalidated in extreme circumstances, namely where the contractual test for mistake is satisfied,[3] or where the defendant induced the settlement by fraud, duress, undue influence, or absence of good faith.[4]

In determining whether the claimant has settled or compromised the defendant’s claim, Andrews identified four key principles:[5]

  • (1) A settlement may consist either of an agreement to pay the defendant or actual payment in response to a claim by the defendant. Payment may itself constitute a contractual settlement of the claim, since the consideration for the settlement will be the defendant’s promise to abandon the claim, at least where the defendant believes that he or she has a claim against the claimant.[6] Where the defendant does not believe that he or she has a valid claim, new consideration will need to be provided for the settlement to be valid.[7] To avoid the suggestion that the claimant has settled the claim, he or she should protest at the time of paying the defendant.
  • (2) A settlement may exist even though the parties have not commenced litigation.[8]
  • (3) There may be a settlement even though the defendant could not have sustained a proper legal claim against the claimant.
  • (4) The parties can settle a dispute which has not yet been fully spelt out. In determining whether there has been a settlement of such a dispute, it is necessary to see whether a promise to pay or an actual payment was made by the claimant when there was some doubt as to whether the money was due, so that it was reasonable for the defendant to suppose that the payment closed the matter.

  • [1] ‘Mistake and the Role of the “Submission to an Honest Claim”’ in AS Burrows (ed), Essays on the Law ofRestitution (Oxford: Clarendon Press, 1991), 29-32. The terms ‘settlements’ and ‘compromise’ are not terms ofart and can be used interchangeably.
  • [2] For analysis of the arguments in favour of the policy in favour of upholding settlements see Andrews,‘Mistaken Settlements of Disputable Claims’, 432-5.
  • [3] Holmes v Payne [1930] 2 KB 301. This includes a mistake of law: see Brennan v Bolt Burdon [2004]EWCA Civ 1017, [2005] QB 303, p 193, below.
  • [4] See The Universe Sentinel [1983] AC 366, 387 (Lord Diplock).
  • [5] Andrews, ‘Mistaken Settlements of Disputable Claims’, 435-8 and 449.
  • [6] J Beatson, ‘Duress as a Vitiating Factor in Contract’ (1974) CLJ 97, 103.
  • [7] E MacDonald, ‘Duress by Threatened Breach of Contract’ (1989) JBL 460, 466.
  • [8] Brisbane v Dacres (1813) 5 Taunt 143, 160; 128 ER 641, 648 (Heath J).
 
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