The Meaning of Tomlin Orders

A ‘Tomlin Order’ is a type of Court order used to conclude civil proceedings when the parties have reached a settlement. The order will have the effect of staying all further proceedings on agreed terms, while still allowing either of the parties to resurrect those proceedings should a party need to enforce the terms of settlement. These types of orders are characterised by the terms agreed upon being separate to the order itself, often included as a separate schedule to the order, or some other separate document annexed to the order.

As with any type of settlement agreement, it is a common drafting technique for the Defendant to try and extend the terms of the settlement as far as possible to capture any other potential claims arising from the same events or, in some circumstances, to try and limit their exposure to future claims too. In attempting to do this, the drafter must take care to use clear and consistent language throughout to ensure that the agreement has the desired effect – as Dawnvale Cafe Components Limited recently found to their detriment.

Background

In February 2020, Dawnvale Café Components Limited (‘Dawnvale’) and Hylgar Properties Limited (‘Hylgar’) entered into a contract for the design, supply and installation of the mechanical works at ‘The Beacon’ in Hoylake, Wirral (as an aside, ‘The Beacon’ project has been fraught with difficulties and has effectively split the local community since very little progress has been made since the development was approved). The Contract price was £631,435 plus VAT and provided for a payment of 40% on appointment (£252,574). However, by October 2020 the relationship between the parties had broken down, and the contract was terminated in November 2020 – each party alleging that the other had committed the relevant repudiation.

Hylgar referred the dispute to adjudication, seeking a determination as to the ‘true value’ of Dawnvale’s work, and repayment of £180,322.92 plus VAT with interest. Dawnvale attempted a counterclaim of £147,289.25 in the absence of a payless notice.  The adjudicator, Mr Smith, decided that Dawnvale had repudiated the contract, the true value of their work was £272,251.08 plus VAT, they had been overpaid and should therefore repay Hylgar £180,322.92 plus VAT, ordered they were to pay the adjudicators fees, and also decided that Dawnvale’s counterclaim had no effect on Hylgar’s claim.

Dawnvale failed to pay the outstanding sum, and so Hylgar issued enforcement proceedings. In those proceedings, Hylgar sought the recovery of the adjudicators award, plus VAT, the adjudicators fees, plus VAT, together with statutory interest and costs. By way of a Tomlin order, dated 24 August 2021, those proceedings were compromised.

However, a little more than two years from the date of the order resolving those proceedings, Hylgar issued a letter of claim to Dawnvale seeking a total of £641,594.76 all relating to the original contract.

The Tomlin Order

As described above, Dawnvale made some additions to the draft order in order to try and stem their liability. The terms in dispute are found at paragraph 2 of the order, and paragraph 4 of the Schedule:

“(2) all further proceedings in this action be stayed upon the terms set out in the Schedule hereto except for the purpose of enforcing those terms.”

“4. This Settlement Agreement shall immediately be fully an effectively binding on the parties. The payment of the Settlement Sum is in full and final settlement of any and all claim the Claimant may have against the Defendant arising from or in connection with these proceedings.”

The Present Proceedings

Dawnvale rejected the new claim on the basis that the Tomlin order had resolved “any and all claims arising from the dispute between the parties.” They then went on to issue Part 8 proceedings seeking to prevent Hylgar from referring their new claim to adjudication. These Part 8 proceedings were, relatively, uncontroversial and were solely a question of the contractual construction of the Tomlin order.

The law on construction is set out succinctly in EE Limited v Mundio Mobile Limited which provides that that the Court’s role is to identify the intention of the parties by reference to what a reasonable person would have understood them to be using the language in the contract to mean, in its documentary, commercial, and factual context. The question, therefore, was what was the meaning of “these proceedings,” and “arising from or in connection with.”

The meaning of “proceedings” has been considered by the Supreme Court previously in Plevin and its meaning can be further informed by the phrase “all further proceedings in this action” in paragraph 2 of the order. Applying Plevin, the Court held that the term “these proceedings” refers to the action in which the order was made (i.e. the enforcement proceedings and not the adjudication). Dawnvale had attempted to argue for a much wider construction, suggesting that “proceedings” should be defined as including “the underlying dispute the subject matter of the adjudication including the finding repudiatory breach.” The Court rejected this, finding that interpreting it this way would require the words “these proceedings” in paragraph 4 of the schedule to take on a different meaning – a meaning which they clearly were not intended to have.

Dawnvale’s second point, was that “arising from or in connection with” was sufficiently broad enough to catch the new claims raised by Hylgar. The Court dismissed this argument for a number of reasons, finding that the way the clause was written indicated that it was intended to prevent Hylgar from re-arguing the true valuation of Dawnvale’s works, not to prevent them from raising further claims in general. The fact that Dawnvale was paradoxically forced to try and argue that the paragraph would have bound them too, despite the wording expressly identifying claims the Claimant might have, did not help their case.

The wording used in paragraph 4 was inconsistent with words intended to bind both parties and resolve any potential claims. Referring to ‘these proceedings’ explicitly linked the provision to the enforcement proceedings whereas, the Court found, words referring ‘the contract,’ ‘the works,’ or ‘the dispute’ would be needed to extend the scope of the paragraph sufficiently to catch the new claims.

Consequently, the Court held that Hylgar was able to bring the new claims for adjudication as the wording of the Tomlin order was not intended to resolve the new claims. Further, Dawnvale’s argument that the dispute was the same or substantially the same also failed since the first adjudication was to determine whether there was a repudiation, and this second adjudication would be to determine the scope and extent of losses arising from that repudiation.

All of this could have been avoided with the implementation of a carefully drafted Tomlin order, with specific regard for what the words actually meant in context. This serves as a cautionary tale to anyone drafting such an order, though it must be remembered that the order is a mutual agreement, and the other side must also agree to the proposed wording and most Claimants are going to be unwilling to sign away their rights to any potential further action.