Several recent decisions in the courts have demonstrated and highlighted the need to ensure that when parties are drafting documents which purportedly settle claims they draft those documents with care to ensure that it does in fact carry into effect the terms of the agreed settlement.
The cases in question are:
- HMRC -v- Botleigh Grange Hotel Ltd  EWHC 3081 (Ch)The court considered the scope of a consent order which had been agreed between a company and HMRC. The dispute arose out of a winding-up petition and the court needed to determine whether the extent of the consent order was such that the company had preserved its right to subsequently bring a cross-claim against HMRC. The High Court determined that a reasonable person with the relevant knowledge could not have concluded that the company’s right to a cross-claim had been preserved. Consequently the company lost its right to bring the cross-claim because of the finality in the wording of the consent order;
- Marsden -v- Barclays Bank Plc  EWHC 1601 (QB) Mr Marsden claimed he had been mis-sold interest rate swap agreement products (‘swap agreements’) by Barclays. Having complained to the Financial Ombudsman Service the bank subsequently offered Mr Marsden a fresh loan on the basis that the swap agreements were terminated. Mr Mardsen accepted that offer and the parties signed an agreement which stated that by entering into the new loan Mr Marsden acknowledged ‘full and final settlement of all complaints, claims and causes of action that arose directly or indirectly or may arise out of or are in any way connected with the swaps’. Following the FCA’s decision that certain swap agreements were to be reviewed by the banks, Barclays reviewed Mr Marsden’s swap agreements and made an offer of redress to him. Mr Marsden failed to provide additional evidence of certain losses within the required time and subsequently issued a claim against Barclays for the alleged mis-selling of the swap agreements and in respect of the conduct of the review. The court was required to determine whether the wording of the ‘full and final settlement’ agreement was such that Mr Marsden could not pursue his claim. The court concluded after consideration of the wording of the settlement agreement that Mr Marsden could not continue with his claim;
- McGill -v- The Sports and Entertainment Media Group & Ors  EWCA Civ 1063The court was required to consider whether a previous settlement agreement (‘settlement agreement’) with a party who had breached a contract also disposed of Mr McGill’s claims against various other parties, who he alleged had also induced a breach of the same contract which was the subject of the previous settlement agreement. The Court of Appeal determined that Mr McGill would be allowed to pursue the claims against the other defendants on the basis that there were two separate causes of action: a claim for breach of contract which had been previously settled pursuant to the settlement agreement and the remaining claims for inducing a breach of contract and conspiracy.
These cases demonstrate that care should be taken when considering precisely what the parties intend to be included in any settlement and what, if any, causes of action are preserved. It is important to ensure that any documents reflecting any settlement terms are both accurate and clear so as to avoid any unintentional consequences. The following useful guidance can be drawn from these cases:
a. When interpreting the contents of any settlement agreement which is in dispute, the courts will try to determine the extent of the agreement between the parties by giving consideration to what a reasonable person with the background knowledge of the parties would have understood from the terms.
b. If it transpires that more than one interpretation of the settlement document is possible then the court will attempt to give the agreement a meaning which is consistent with business common sense.
c. Care must be taken to identify the causes of action that have been settled and the parties that are bound by the settlement. Where there is potentially more than one cause of action or party involved, clear wording will be required to ensure certain claims are not unintentionally concluded. Unless clear words are used in the agreement to preserve any future rights against other parties a settlement agreement with one party will generally be assumed to have released all others;
d. To minimise any potential confusion, if a party wants to preserve a right to pursue others, an express clause to that effect should be included;
e. The court has held more generally that it is in the public interest for there to be finality in litigation and, unless there are very clear grounds settlement agreements, will not be undermined.