https://www.lawtel.com/UK/FullText/AC9301498QBD(Comm).pdf

In Satyam Computer v Upaid (see Weekly Update 20/08), the Court of Appeal concluded that the clearest possible specific language is required to exclude a claim for fraud from a settlement agreement (the existence of which was unknown at the time the settlement agreement was signed).

In this case, the agreement in question was a standstill, rather than a settlement, agreement. It was expressed to cover claims which were defined as "any alleged claims, rights or causes of action existing at the date of this Agreement that either party has or may have against the other in the Dispute either now existing or accruing before …the date of the Standstill Period".

The parties to the agreement were two sub-brokers being sued for negligence by insurance companies when they failed to place a valid reinsurance contract. Cooke J concluded that the evidence was now clear that one of the parties to the agreement (HIS) had not appreciated that the other, HIB, had been deceiving both HIS and other entities as to the level of commission which it had received. The issue was therefore whether the standstill agreement covered that claim (and so could not be pursued until the conclusion of the main action between the insurance companies and the brokers).

HIB sought to argue that standstill agreements are different from settlement agreements because they do not prevent the pursuit of claims, they merely postpone their pursuit until a given time. However, the judge said that the court must still "approach a standstill agreement with caution in deciding whether claims for unknown fraud are encompassed by it".

Although the wording in the agreement here was very wide, it was held that it "cannot be taken to encompass a previously unknown claim for fraud, particularly where that fraud has allegedly resulted in the ignorance of the victim at the time of concluding the Standstill Agreement".

COMMENT: This case may be contrasted with the Court of Appeal's decision last year in Mortgage Express v Countrywide Surveyors, where it was held that the standstill agreement in question did cover a claim in deceit. There the wording of the standstill agreement had been "any claim …in any way connected with [the background to the case]", and the claim for deceit had been so connected (and the alleged deceit had not resulted in the ignorance of the victim at the time of concluding the standstill agreement). Accordingly, care should be taken when defining a "claim" in a standstill agreement, to ensure it reflects the parties' intentions.