This case warns of the perils of a settlement agreement that is too wide, and the consequential loss of rights.

In Point West London Ltd v Mivan Ltd  [2012] EWHC 1223 (TCC) the Claimant (a property developer) had engaged the Defendant (a builder) to carry out curtain walling and heating system works at a property. After the works were completed, the parties entered into a settlement agreement (by correspondence) to resolve final issues about payment. It was agreed that a further payment of £50,000 was to be made to the builder “representing the final assessment of monies due or to become due”. This was said to be “achieving full and final settlement in respect of the above works, together with any and all outstanding matters”.

A number of issues had by this time arisen between the purchaser of the property and the developer. These issues related to the works which had been undertaken by the builder. The fact, but not scope or extent, of these defects was known to both the builder and developer at the time of the settlement agreement. The purchaser obtained judgment in 2011 against the developer in respect of these defects, and the developer, in turn sought a declaration that the settlement agreement did not cover the builder’s liability for the defects in question. It submitted that the agreement simply effected the quantification of a final account and a release from any continuing obligation to carry out further works. It did not, it was argued, discharge the builder from any existing liabilities.

Mr Justice Ramsey held that no special principles apply to settlement agreements: words should be given their natural and ordinary meaning in light of business common sense; the court will consider the background knowledge reasonably available to both parties in the situation they were in at the time of contracting; and it is not the function of the court to remedy or improve a bad bargain. However, the court should be slow to infer that a party to a settlement agreement was intending to surrender rights and claims of which it was unaware and could not have been aware.

With these principles in mind, the Judge found that the words “any and all outstanding matters” did in fact take the settlement further than a financial settlement and was intended to refer to any and all outstanding defects. The developer could not therefore claim against the builder, represented by Sean Brannigan QC of 4 Pump Court, in respect of its liability to the purchaser.

The case provides a strong warning about the importance of parties investigating potential liabilities that may arise prior to concluding a full and final settlement, and ensuring that the terms of the settlement are very carefully drafted to avoid losing any potential rights.