What does your settlement agreement really cover?
Published on 23rd Jan 2023
A recent case has considered what claims were released by the words used in a settlement agreement
The settlement agreement in Maranello Rosso Ltd v Lohomij BV & Ors 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. That wording is commonly used in settlement agreements. 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.
Prior case law, including the Court of Appeal decision in Satyam Computer v Upaid Systems (2008), has held that express wording is needed to release unknown or fraud-based claims. However, the Court of Appeal in this case found that the wording of the release was wide enough to cover those sort of claims. Relevant factors in reaching this conclusion included the fact that there had already been suspicion of bad faith before the settlement agreement was signed and the claimant had chosen not to investigate further and instead accepted a substantial settlement sum. Also, the "entire agreement clause" in the contract had excluded claims for fraudulent misrepresentation and so the parties were perfectly able to exclude fraud if they wanted to.
It was held that there is no general rule that parties do not readily give up claims of fraud or dishonesty. An argument that the release was ineffective because of the defendants' "sharp practice" also failed. It was not unconscionable on the facts here for the defendants to rely on the release having settled claims in fraud and conspiracy. In any event, there was "little scope" for a finding of sharp practice where parties have released unknown claims in fraud: "such construction entails a finding that the parties mutually intended to settle such claims".
Accordingly, it cannot be assumed that judges will always look for express wording to release unknown or fraud-based claims – the context of the settlement may lead to a conclusion that they are released by the type of wording that was used in the settlement agreement in this case.
