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Prettys Solicitors Ipswich
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Standstill Agreements

July 2017 - Issue 95

Introduction

In the recent case of Russell v Stone the court considered the interpretation of three standstill agreements and found that they operated to suspend, rather than extend, time for the purposes of limitation.

What is a standstill agreement?

A standstill agreement can be drafted in either of two ways –

  1. It can suspend time for the purpose of limitation; in this case, if, for example, one month was remaining to issue proceedings when the standstill agreement was concluded, then the claimant still has one month to issue at the end of the standstill period; and
  2. It can extend time; in this case, if time runs out during the standstill agreement, the claimant can still commence proceedings up until the end of the standstill agreement.

Facts

The Russells engaged Stone to manage a construction project. The project ran into a number of difficulties, for which the Russells blamed Stone. The parties entered into three standstill agreements, the third of which expired on 30 November 2016. On 1 December 2016, the Russells issued proceedings. Stone sought to strike out certain claims on the grounds that they were time-barred.

The operative part of the standstill agreement in question provided for time to be suspended, and it also provided that neither party would issue or serve proceedings during the period of the standstill agreement. However, the recital to the second standstill agreement provided that “the parties have agreed to further extend the period in which proceedings can be issued”. An issue therefore arose as to whether time had been suspended or extended.

Decision of the Court

The court had to determine whether the standstill agreements operated to suspend or extend time.

The court held that –

The judge held that the parties here had agreed to suspend time, given the clause in the agreement which prevented either side from starting proceedings during the period of the standstill agreement: “It is an untenable construction of any agreement if it requires one party to breach its terms in order to make the agreement work in the way contended for.”

Accordingly, the claimant had not been required to commence proceedings on or before the very last day of the last standstill agreement. The “extension” referred to by the parties only meant that they were extending the time to issue proceedings. Even if that was wrong, it is an established principle that the operative part of an agreement always takes precedent over a recital.

Conclusion

Accordingly, the standstill agreements operated to suspend time for the purposes of limitation and the Russells had issued their claims in time.

It should be noted that most standstill agreements are drafted to suspend time. This case makes it clear that if you wish to instead extend time to issue proceedings but not stop time running, you need to draft that agreement very clearly, by providing that the parties agree to extend the time to issue proceedings to ‘X’ day, and by not including a term about the parties agreeing that they will not commence proceedings until the end of the standstill agreement.

The judge warned against the increasing use of standstill agreements and said that although they might be regarded as a positive development as they encouraged settlement, a safer option might be to issue proceedings and then seek a stay in order to complete any Protocol process. However, this option would necessarily involve the payment of a court issue fee which, at 5% of a high value claim up to a maximum of £10,000, is a significant factor in deciding how to proceed.

Anna Mulholland

Trainee Solicitor

e amulholland@prettys.co.uk

t 01473 298218

 

 

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