Sold: The Irving Road property. Photo: Ken Irwin

The British government has settled a legal feud with Melbourne businessman Peter Lew over the disputed $11 million sale of the former consul-general's residence in Toorak.

The bitter stoush was expected to be heard in the Supreme Court after the British Foreign Office denied it had sold the former diplomatic residence to Mr Lew, who offered £6 million last October and paid a deposit.

The £600,000 deposit was returned in November last year and the Irving Road property was removed from the market.

Melbourne-based lawyers for the British Foreign Office said Mr Lew and his representatives never signed contract-of-sale or section-32 documents.

They also denied that verbal representations and email correspondence between the respective parties could be construed as a contract, according to a statement of claim.

But a spokeswoman for the British Foreign Office confirmed yesterday that court action had been dropped.

''We have reached a mutually satisfactory agreement on the sale of the property to Mr Lew. The details of the agreement are private.''

Mr Lew's lawyers did not respond to requests for comment. It is not known if Mr Lew was required to increase remuneration to buy the residence, which is on almost 2000 square metres of land.

Mr Lew, who is the son of retail billionaire Solomon Lew, is expected to demolish the former diplomatic residence and merge the 2000-square-metre block with his adjoining Ottawa Road property.

Mr Lew is building a $25 million mansion and will now control one of Toorak's largest and most valuable land holdings.

The Ottawa Road property was also at the centre of a recent legal dispute over $363,680 in land taxes that was overpaid between 1990 and 2002.

The Lew family is also believed to own another neighbouring mansion on Irving Road, which has sat vacant for 26 years in what is one of the most famous examples of generational land-banking in Melbourne's luxury property market.

If all three lots controlled were combined, the estate would likely be the largest landholding in Toorak.