Standstill Agreements in Litigation

Elton John sings ‘I’m Still Standing’ on his tour ‘Farewell Yellow Brick Road’ and it seems that civil litigants in England and Wales are still standing too after a recent Court of Appeal decision that backs limitation ‘standstill’ agreements.

The case of Cowan v Foreman (as executor) and others FD18F00079 is a contentious probate claim where the wife of the deceased claimed against his estate under the Inheritance (Provision for Family and Dependents) Act 1975.  The estate has been valued at just under £16 million as at the date of death. Under section 4 of the 1975 Act a claim cannot be made after the end of the period of 6 months from the date of the grant of probate, except with permission from the Court. Here the claim was issued nearly 17 months after the 6 month period had ended, but part of those 17 months was subject to a ‘standstill’ agreement.

Standstill agreements are common in litigation and have the effect of suspending or extending the limitation period.  The limitation period is the period of time (under contract or statute) within which the claim may be issued at Court.  Different types of claims have different limitation periods.  A claim issued at Court after the limitation period has expired is likely to be struck out as being time-barred.  Therefore Claimants often propose standstill agreements in order to provide further time for settlement discussions or to investigate/take advice on their claim without being under the pressure of deciding whether to issue Court proceedings.

The case of Cowan v Foreman came before the High Court and Mr. Justice Mostyn dismissed the Claimant’s Application to extend time, making the following comments regarding standstill agreements:-

“I was told that to agree a stand-still agreement of this nature is 'common practice'  If it is indeed common practice, then I suggest that it is a practice that should come to an immediate end.  It is not for the parties to give away time that belongs to the court…

"But I suggest that in no future case should any privately agreed moratorium ever count as stopping the clock in terms of the accrual of delay”.

The comments were made on an obiter basis but caused concern to litigants who had entered into such agreements in other claims.

The case has now come before the Court of Appeal, who gave permission for the proceedings to be commenced out of time, and made the following comments in support of properly drafted standstill agreements:-

“It seems to me that although the judge was correct to conclude that the effect of section 4 is that the legislature has determined that the power to extend the six-month period belongs to the court, and that any agreement not to take a point about delay cannot be binding, without prejudice negotiations rather than the issue of proceedings should be encouraged. Although    the potential claimant will have to take a risk if an application is made subsequently to extend time in circumstances where negotiations have failed, if both parties have been legally represented, it seems to me that it would be unlikely that the court would refuse to endorse the approach”. (Lady Justice Asplin).

“That this [the issuing of proceedings within 6 months and then making an application by consent for an adjournment] will often be the appropriate course is undeniable but, for my part, I would not wish to go so far as the judge and to say that there is no place for stand-still agreements in what are often highly distressing and sensitive cases and in which a decision to issue is otherwise to be made whilst bereavement is still very raw and emotions high. In such circumstances the issue of proceedings can, rather than providing a safety net if agreement cannot be reached, lead to a hardening of attitudes and a focus on the litigation with the  consequent cost to the estate and delay in its distribution.

"I agree with Asplin LJ, that whilst the final decision always rests with the court, where there is a properly evidenced agreement to which no objection has been taken by the Executors and beneficiaries, it is unlikely that in the ordinary way, a judge would dismiss an application for an extension of time.

"I would stress however, that if the parties choose the ‘stand-still’ route, there should be clear written agreement setting out the terms/duration of such an agreement and each of the potential parties should be included in the agreement”. (Lady Justice King).

Claimants will welcome the comments made by the Court of Appeal Judges. The issuing of Court proceedings often involves incurring a substantial Court fee and once proceedings are issued they are subject to the Court timetable and, unless a stay is agreed, they must be served within the time periods provided by the Civil Procedure Rules (CPR). Also, once a claim is served the Claimant becomes at an adverse cost risk and can expect to pay the Defendant’s costs if the claim is later discontinued or dismissed. There are other factors that can dissuade a party from commencing proceedings including the publicity from proceedings and the escalation of the dispute.  Indeed agreeing a standstill agreement extends the opportunity for parties to explore alternative dispute resolution (ADR) and seek to resolve their dispute outside of Court proceedings. There are various options of ADR available including mediation and arbitration.  Sometimes a claim can only be resolved through recourse to the Court but the Court of Appeal Judge’s comments should encourage the use of ADR.

A standstill agreement can only preserve the position on the date that the agreement is entered into so it is important that potential Claimants consider their claims at the earliest opportunity and, if necessary, take legal advice on limitation date and on the available steps to protect their position. One of those steps is to seek a standstill agreement and the recent comments by the Court of Appeal will be of encouragement to litigants approaching expiry of their limitation period.