In two recent decisions(1) the courts have emphasised their readiness to look at the circumstances behind the 'full and final' wording of a settlement agreement, with each case yielding a different result.
Mr Kazeminy pursued Mr Siddiqi for sums that he had loaned to, or invested in, Siddiqi's business ventures. In a settlement agreement dated November 22 2010, made on the first day of trial, the parties had agreed as follows:
"This Agreement is entered into in full and final settlement of all and any claims, actions, liabilities, costs or demands that the Claimants have or may have against the Defendants or [named third parties] whether past, present or future and whether or not known or contemplated at the date of this settlement agreement arising under or in any way connected with... the proceedings... or with any dealings between the parties concerning loans to or investments in the defendants... or by any person whosoever."
It was commented that the settlement agreement was a detailed document drafted by lawyers.
On July 29 2011 Kazeminy issued proceedings against Siddiqi for a second time, for similar relief, based on the matters which had been the subject of the settled action. However, this time Kazeminy sued as the assignee of a claim from a Mr Grano. Grano had threatened proceedings previously and had intended to appear as a witness for Kazeminy at the first trial, but had not been party to the settlement negotiations and had not agreed to give up his claims against Siddiqi.
The Court of Appeal(2) had no hesitation in allowing Kazeminy to pursue the claim assigned to him by Grano. It was accepted that the wide wording used in the settlement agreement "demonstrated a clear intention on the part of the parties to capture every possible claim... whether either of them was aware of it or not", and that these words "had been chosen as a means of ensuring that Mr Siddiqi would never need to fear another claim from Kazeminy in relation to the technology in question". However, it was held that the parties had clearly never turned their minds to the rights of third parties, such as Grano, and could not possibly have intended their agreement to cover those third-party rights.
The court confirmed that the rules of construction of settlement agreements are no different from those of other contracts,(3) and that the words must be interpreted as they would be understood by reasonable people who were aware of the factual background known to both parties.(4) This was particularly the case where broad terms such as "in any way connected with" were used in the settlement agreement.(5)
Relevant factors to consider in the factual background were that Grano had not been involved in the settlement negotiations, despite having claims which he had asserted had a value. Had Siddiqi been able to strike out the assigned claims, he would have reaped a windfall, having effectively settled two claims in November 2010 for the price of one.
Point West pursued its tenant trust company for an unpaid service charge. The tenant successfully counterclaimed for damages for defects in the air-conditioning and heating systems at the property and was awarded substantial sums against Point West. Therefore, Point West commenced a claim against Mivan Ltd, the contractor that had built the property. Mivan pointed to a settlement that it had made by exchange of letters with Point West four years earlier. Mivan had stated in that correspondence that although £63,000 remained due for all work under the main building contract and for carrying out any remedial work, it would accept £50,000 as "representing the final assessment of monies due or to become due thus achieving full and final settlement in respect of the above works, together with any and all outstanding matters".
The settlement was agreed on this basis, subject to Mivan also agreeing to provide reasonable assistance to Point West in its attempts to recover the unpaid service charge from its tenant.
Point West argued that the settlement did not preclude a claim for damages in respect of defects under the building contract, including in relation to latent defects. When settling with Mivan, Point West said it had believed the defects to be very minor, but they had now been established to be "widespread fundamental defects in the design and installation which necessitated complete replacement at very substantial cost".
The court confirmed the West Bromwich principles(6) and held that it had to consider the background knowledge reasonably available to the parties at the time that the settlement letters were exchanged:
"The general rule is that words should be given their natural and ordinary meaning but this has to yield to business common sense if detailed semantic and syntactical analysis... would lead to a conclusion which would flout business common sense."(7)
The judge also stated that "it is not the function of the court to remedy any lacunae in the parties' bargain or to improve or make a contract which the parties did not make for themselves".(8)
On that basis, the judge held that the settlement agreement released Mivan from all patent defects as at the time of the agreement - namely, the defects in the heating and cooling system of which all the parties were aware at the time. The "outstanding matters", to which reference was made in the settlement agreement, were the payment to Mivan and the defects.
Relevant to the decision was Mivan's argument that it had accepted less than it had originally requested for the certainty of a clean break.
Although the analyses undertaken in these two cases reveal nothing surprising or new, they are reminders of the proper approach to the construction of settlement agreements, and of the importance of documenting a settlement with language that clearly indicates which rights are being compromised and which, if any, are being preserved.
In Kazeminy it must be right in principle that Grano's claims remained unaffected, but Siddiqi could have included wording to preclude Kazeminy from pursuing third-party or assigned claims against him. Siddiqi might have assessed the chances of Grano pursuing him as minimal for any number of reasons - some people are simply more prepared than others to take on the risks and rigours of litigation.
In Point West there is force in the argument that Mivan would not have accepted less than its full entitlement if it had thought that it would remain open to claims in relation to defects in future. However, there was no specific or clear wording settling a claim of this nature. The first time around, Point West preferred what appeared - on its face - to be a straightforward claim against its tenant to a more difficult claim against its contractor. However, it is assumed that the Point West settlement agreements, which ultimately provided absolute protection from further suit for Mivan, were not drafted by lawyers,(9) and this may have assisted the judge in giving Mivan the benefit of the doubt.
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