Bristows’ SnippITs - The importance of “splitting hairs” in your settlement agreements: Zaloumis v Steele

This post is the latest in the Bristows’ SnippITs series, which pulls together the key practical takeaways from recent court decisions for the tech sector and beyond.

Zaloumis v Steele serves as a useful reminder to parties when negotiating settlement agreements to carefully consider the payment mechanisms surrounding any settlement sum and to give thought to the consequences that flow from late payment.

Key takeaways

• No limits of liability in settlement agreements: In this case, the damages being sought of £1.4 million dwarfed the settlement sum of £200,000. Settlement agreements rarely contain exclusions of liability (including for indirect losses) or liability caps for breaching the terms of the settlement itself. Parties should therefore be aware that a failure to make timely payment could prove a costly mistake if the other party suffers losses as result, including as a result of known special circumstances. 
• Communication is key: If the receiving party under a settlement is relying on timely payment such that late payment may have serious financial consequences (like the collapse of a business deal), they should make this known to the other party to the settlement.  In the court’s eyes, express provisions in the settlement agreement to this effect would be prudent in ensuring a breach of the payment terms under the settlement is actionable – even if we suggest it would be unusual to include such detail.

Background

The dispute arose between a father (the Defendant, Mr Steele) and son (the Claimant, Mr Zaloumis) concerning Mr Steele’s failure to make maintenance payments provided for under a consent order following Mr Steele’s divorce from Mr Zaloumis’ mother. Following mediation, Mr Steele agreed to pay the sum of £200,000 to Mr Zaloumis. The parties entered into a settlement agreement on 26 January 2022, which required the settlement sum to be paid within 30 days (25 February 2022). Mr Steele set up a standing order to pay in instalments at a rate of £10,000 per day, beginning on 7 March 2022. This meant that full payment was not completed until 30 March 2022.

Mr Zaloumis brought a claim of damages exceeding £1.4 million based on the impact he claimed the delay in payment had on his haircare business. At the time of the settlement, Mr Zaloumis had two important business deals: (i) a licensing agreement allowing him to purchase certain ingredients needed to manufacture his haircare products; and (ii) an investment agreement by which he had secured $350,000 of funding, contingent on the timely manufacture and marketing of his haircare products.  

Mr Zaloumis argued that the late payment had prevented him from completing the terms of the licensing agreement by the date specified, which had led to the licence being revoked and ultimately caused funding to be withdrawn under the investment agreement.  

The Court’s findings

In our view, these losses would likely have been indirect or consequential losses.  Consistent with this, the court found that in order for his claim to succeed, Mr Zaloumis had to show that Mr Steele had known about the intended use of the settlement monies to such extent that the losses that did arise would have been reasonably foreseeable as resulting from his breach of the settlement agreement.

The High Court dismissed the claim:

1. The court found that Mr Steele did not have the necessary knowledge when the settlement agreement was entered into.
2. The court was particularly critical of Mr Zaloumis’ reliance on an inference that information he had shared with the mediator during the mediation had been relayed to Mr Steele, commenting that the information could have been expressed in the settlement agreement.
3. Mr Zaloumis’ actions implied a lack of urgency on his part, inconsistent with needing the money as soon as possible. This included accepting a change to the payment terms in the settlement agreement from 7 days to 30 days, his delay in signing the settlement agreement and raising no objections to being paid in instalments, even though this would have meant that full payment would be made after the 30-day deadline.