Settlement Agreements – Please don’t (help anyone else to) sue us

So your client thinks that a departing employee or disgruntled franchisee/sub-contractor (“Y”) who is eager to settle may nonetheless assist a colleague/co-franchisee (“Z”) in due course who is more likely to fight to trial; and your client says that they only want to settle with Y if they can prevent them assisting Z by giving evidence. Whilst we are all familiar with enforceable clauses which prohibit disparaging comment(s) by Y, whether to Z or anyone else, can you draft a legally enforceable clause in a settlement which will stop Y from providing evidential assistance to Z at trial?

This is a not altogether uncommon conundrum facing employment and commercial lawyers and, perhaps more through bluster than legal certainty, such a clause is often seen in lengthy settlement agreements for PLC’s and other large entities. But can an entity really stop Y from giving what they believe to be honest evidence at trial or any other court/tribunal hearing which may (or, is designed to) assist Z?

There is a very short answer to this question. No.

If you think about it another way; if Y was witness ordered/summonsed to be at Z’s trial, does Y merely refuse to attend or provide an explanation and risk going to prison, or does she attend and then not give truthful evidence and risk going to prison because of that, instead? Both options are ludicrous and, for Y, not really ‘options’ at all. So when Y says that she wants to challenge the applicable clause, what approach might be taken by the Courts? The jurisprudence is, subject to an outstanding query identified below, emphatic.

Lord Justice Neal in Fulham Football Club Ltd v Cabra Estates plc [1993] 1 PLR 29 said (at 43 and 44) with emphasis added:

“Clearly, no covenant or undertaking can lawfully require a covenantor to give false evidence. Accordingly, even if para (r)(vi) were not unenforceable on the ground of uncertainty, it could almost certainly be objected to on the ground that, if enforced, any “reciprocal response” which involved the giving of oral evidence might put the witness in an impossible position if, for example, he were asked questions about recent meetings of the club’s directors. Nor can a covenant or undertaking prevent a witness from attending to give evidence in response to a subpoena.”

And Lord Denning in Harmony Shipping Co SA v Davis and Others [1979] 3 All ER 177 (at 182) also said this, with emphasis added:

“To my mind no such contract, express or implied, is to be found. At most there was a statement by Mr Davis of his practice, namely that, having been instructed by one side, he would not accept instructions from the other. That is a statement of a proper professional practice. It is no doubt very valuable in order to save embarrassment to him and others like him when they are placed in a situation like this: as handwriting experts often are because there are not many of them. But it is not a contract. It is not a binding contract at law, express or implied. But I would go further. If there was a contract by which a witness bound himself not to give evidence before the court on a matter on which the judge said he ought to give evidence, then I say that any such contract would be contrary to public policy and would not be enforced by the court. It is the primary duty of the courts to ascertain the truth: and, when a witness is subpoenaed, he must answer such questions as the court properly asks him. This duty is not to be taken away by some private arrangement or contract by him with one side or the other.”

With ‘public policy’ patently being a critical feature when answering such a question, it is important also to consider a modern statement of ‘absolute immunity from suit’ and it would be difficult to do better than that which is contained in paragraphs 17 and 52 of Auld LJ’s judgment (who was in the majority with only Neuberger LJ dissenting, on one issue) in Heath v Commissioner of Police for the Metropolis – [2004] EWCA Civ 943 where he said:

“17.          Mr Hand submitted, and I agree, that there is no basis for the proposition that the absolute immunity rule only attaches to defamatory statements. As the Employment Tribunal well described in paras 9(o) to (q) of its extended reasons, and as the Employment Appeal Tribunal also found, it attaches to anything said or done by anybody in the course of judicial proceedings whatever the nature of the claim made in respect of such behaviour or statement, except for suits for malicious prosecution and prosecution for perjury and proceedings for contempt of court. That is because the rule is there, not to protect the person whose conduct in court might prompt such a claim, but to protect the integrity of the judicial process and hence the public interest. Given that rationale for the rule, there can be no logical basis for differentiating between different types of claim in its application. The width of its application in this respect has been judicially stated many times, most notably in: Munster v Lamb (1883) 11 QBD, 588, 47 JP 805, CA per Fry LJ at 607-608; Marrinan v Vibart [1963] 1 QB 502, per Sellers LJ at 535 and per Diplock LJ at 538-9.

52.            Looked at, for the moment, solely through the eyes of our domestic law, I have no hesitation in agreeing with Mr Hand’s stance. The absolute immunity from suit is a core immunity in our system, critical to the integrity and effectiveness of our judicial system, which, save for a few well defined exceptions identified in paragraph 17 above, applies to all forms of collateral action however worthy the claim and however much it may be in the public interest to ventilate it. Claims of unlawful discrimination are clearly of that importance, but no more than many others, such as the citizen’s right to protect his own good name or good character or to claim for conspiracy to injure or for misfeasance in public office, say, in giving evidence in a criminal trial resulting in the claimant’s loss of liberty.”

The only aspect which is still subject to some uncertainty and possibly in need of appellate determination therefore is whether there has to be an order compelling Y to attend to give evidence so as to come within the Harmony Shipping express protection; or, whether the absolute immunity from suit afforded to witnesses at a trial as adumbrated by Auld LJ in Heath affords protection to those who attend voluntarily just as it does to those who are judicially forced. Z’s advisers may therefore wish to consider a witness order/witness summons merely to ensure that there is guaranteed Harmony Shipping protection for Y, albeit this does not seem strictly necessary.

Thus, in short, there is nothing lawfully enforceable that a legal document can encapsulate so as to absolutely prevent, or indeed to retrospectively condone in damages, Y attending to give honest evidence in Z’s legal proceedings. So why include it at all? Well, baseless legal aberration aside, there can be no good reason. If you do, then an effective severability clause is essential so as to stave off an argument that the entire agreement ought to be struck down because it is contrary to public policy.