The agreement, whose terms are bound by confidentiality clauses, sees the property company buying out the insurer's stake in the retail scheme for pounds 162m and withdrawing from a High Court hearing that started last week.
The deal brings to a close a wrangle that gained prominence last September after it emerged that TransAtlantic, Capital & Counties' parent, had taken a notifiable stake in Sun Alliance.
At the time, TransAtlantic's chairman, Donald Gordon, described the holding as 'a strategic stake in embryo', prompting a flurry of takeover speculation in the light of TransAtlantic's 50 per cent holding in Sun Life, a rival insurer.
His comments puzzled Sun Alliance because the cost of TransAtlantic's purchase of 1.5 million shares (the amount required to take its holding over 3 per cent) was only pounds 5m, compared with Sun Alliance's market value of pounds 3bn.
Arthur Hayes, general manager of Sun Alliance, said at the time that Mr Gordon's remarks 'seemed a little extravagant in relation to the investment commitment'.
He suggested that the stake, rather than heralding a bid, had been intended to concentrate minds on the legal dispute.
The argument over the Harlequin centre arose because of a complex formula in the lease agreement between Capital & Counties and Sun Alliance that determined how much rental each party should receive.
Capital said falling rents and rising costs meant that the formula had produced the 'absurd' result that it received no return whatsoever.
Brian Jolly, Capital & Counties' managing director, said: 'The formula proved defective when the market deteriorated.' Sun Alliance pointed out that the agreement was signed in 1988 after two years' negotiations between the companies' lawyers.
David Fischel, TransAtlantic's managing director, said yesterday that the resolution of the dispute had no implication for the stake in Sun Alliance, 90 per cent of which is held through Sun Life, the insurance company jointly owned by TransAtlantic and the French insurer UAP.
Sun Alliance shares closed yesterday 2p higher at 406p. TransAtlantic fell 11p to 229p.Reuse content