A UK court examined whether a construction dispute had been settled in the course of without prejudice correspondence between the parties’ lawyers. The letter of acceptance of the offer said the settlement was subject to approval by the board of the builder and would only become valid and binding when executed by authorised signatories.

The words of the alleged settlement contract indicated that the parties did not intend to be bound until a formal contract was executed.

Where a party concludes an agreement on behalf of a company which is stated to be subject to board approval, it is clear that the person does not have authority to commit the company until approval is given. There is no implied promise that the approval will be forthcoming or that it is a mere formality or a ‘rubber stamping’ exercise.

The court found that it was abundantly clear from the exchanges between the parties that there was no shared understanding that a binding settlement had been reached.

The case is Goodwood Investments Holdings Inc v Thyssenkrupp Industrial Solutions AG.