In two recent decisions1 the court has emphasised its readiness to look behind the “full and final” wording of a settlement agreement at the background circumstances, with each case yielding a different result.
Kazeminy v Siddiqi – the facts
Mr Kazeminy pursued Mr Siddiqi for sums he had loaned to or invested in Mr Siddiqi’s business ventures. In a settlement agreement dated 22 November 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 29 July 2011, however, Mr Kazeminy issued proceedings against Mr Siddiqi for a second time, for similar relief based on the matters which had been the subject of the settled action. This time, however, Mr Kazeminy sued as the assignee of a claim from a Mr Grano.
Mr Grano had threatened proceedings previously and had intended to appear as a witness for Mr Kazeminy at the first trial but had not been party to the settlement negotiations and had not agreed to give up his claims against Mr Siddiqi.
The Court of Appeal2 had no hesitation in allowing Mr Kazeminy to pursue the claim assigned to him by Mr Grano.
Whilst 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 Mr Kazeminy in relation to the technology in question,” it was held that it was clear the parties had never turned their minds to the rights of third parties, like Mr Grano, and could not possibly have intended their agreement to cover those third party rights.
It was confirmed that the rules of construction of settlement agreements are no different from those of other contracts3 and that the words must be interpreted in the way in which they would be understood by reasonable people aware of the factual background known to both parties4. This was particularly the case where wide language like “in any way connected with” was used in the settlement agreement5.
Relevant factors to consider in the factual background were that Mr Grano had not been involved in the settlement negotiations, despite having claims which he had asserted had a value. Were Mr Siddiqi able to strike out the assigned claims then he would have achieved a windfall having, effectively, settled two claims in November 2010 for the price of one.
Point West London v Mivan Ltd – the facts
Point West pursued its tenant trust company for unpaid service charge for a property of which it was landlord. 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. Point West, therefore, commenced a claim against Mivan, the contractor who had built the property, but Mivan pointed to a settlement it had made by exchange of letters with Point West four years earlier.
In those letters Mivan had stated that although £63,000 remained due for all work under the main building contract and for carrying out any remedial work, Mivan would accept £50,000 “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 agreeing also 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 it settled 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 principles6 and held that it must consider the background knowledge reasonably available to the parties at the time 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
Ramsey J also stated “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 learned judge held that the settlement agreement released Mivan from all “patent” defects as at the time of the agreement, those patent defects being the defects in the heating and cooling system of which all the parties were aware at the time. And that 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 originally requested for the certainty of a clean break.
Whilst there is nothing surprising or new in the analyses undertaken in these two cases, they remind us of the proper approach to construction of settlement agreements and are a reminder of how important it is to document any settlement with language which clearly indicates what rights are being compromised and what rights, if any, are being preserved.
In Kazeminy it must be right in principle that Mr Grano’s claims remained unaffected but Mr Siddiqi could have included wording to preclude Mr Kazeminy from pursuing third party or assigned claims against him. Mr Siddiqi might have assessed the chances of Mr Grano pursuing him as minimal for any number of reasons; some people are simply more prepared to take on the risks and rigours of litigation than others.
In Point West there is force in the argument that Mivan would not have accepted less than its full entitlement if it had thought it remained open to claims in relation to defects in the future. But there was an absence of specific or clear wording settling a claim of this nature. Equally, 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.
It is assumed, however, that the Point West settlement agreements, which ultimately provided absolute protection from further suit for Mivan, were not lawyer drafted9 and this may have assisted the judge in giving Mivan the benefit of the doubt.