Settlement agreements
Published on 4th Oct 2021
Most disputes settle and getting the settlement agreement right is a key step in order to ensure that it covers what the parties want and prevents any further disputes about whether the agreement has been observed. Two recent cases have looked at clauses and issues which commonly crop up.
Where parties settle a claim after proceedings have been started, there is a presumption (in the absence of express wording) that the settlement covers everything relating to the claim being litigated (if the matter or issue could or should have been raised during the proceedings). However, there is no such presumption where proceedings have not yet been started: the settlement covers only those matters referred to in the release and not necessarily everything relating to the dispute.
The recent case of Global Display v NCR is an example of that principle. The defendant (allegedly wrongfully) terminated a purchase agreement between the parties and a later settlement agreement between them (entered into before proceedings had started) stated that it was in "full and final settlement of any claims, damages or losses whatsoever that [the claimant] has or may have, arising directly or indirectly from all orders placed by [the defendant] pursuant to the purchase agreement…and the termination or [those] orders".
Despite the apparently wide wording of this release, the judge said that there was no presumption that the parties intended to "wipe the slate clean". The release referred only to orders that had actually been placed and not also to orders that had not been placed. So claims relating to the defendant's allegedly false forecasting (which left the claimant with a substantial pipeline on its hands) were not excluded.
The settlement agreement in Maranello Rosso v Lohomij BV settled "all claims, causes of action, rights", which may be "prospective or contingent" and "whether or not known to the Parties" at the date of settlement. The claimant sought to argue that this wording did not prevent a claim for unlawful means conspiracy (which it did not know about at the time of settlement) from still being bought.
That argument was rejected by the judge. Although the House of Lords in BCCI v Ali (2001) left open the issue of whether there is an equitable "sharp practice" principle that prevents a party relying on a release where it was aware of a claim, the wording of the release in this case was wide enough to cover unknown claims based on an alleged deliberate wrongdoing.
That decision was somewhat surprising, because prior cases (including the Court of Appeal decision in Satyam Computer v Upaid Systems (2008)) have found that express wording is needed to release unknown or fraud-based claims. In considering Satyam, the judge said that "I reject the submission that Lawrence Collins LJ at [86] was purporting, even obiter, to state any principle of law that express words are required for a release of either unknown claims or claims in fraud".
Accordingly, to be on the safe side, it is best to expressly exclude unknown claims based on fraud from the release clause in a settlement agreement, should that be the parties' intention (which it often will be).
