![Cautionary (principle) tale for the construction of settlement agreements: Maranello Rosso Ltd v Lohomij B.V. & others [2022]](/media/4680/contracts-commercial-law-best-practice-hero-inline-8.png)
In this recent decision on the interpretation of settlement agreements, the Court of Appeal has confirmed that, where the wording of a settlement agreement and its factual matrix indicate that it is objectively intended to cover claims in fraud and dishonesty, that agreement will be given effect, even where these is no express reference to such claims.
The proceedings related to a collection of 71 valuable vintage cars which the Claimant, Maranello, had purchased in 2014 using finance provided by the First Defendant, Lohomij. The Claimant later entered agreements with the Second and Third Defendants, Bonhams auction house and companies and individuals associated with it, to sell the cars at auction.
The Claimant was unhappy with the sales of the cars that took place. In April 2015, the Claimant's lawyers sent a letter before action intimating a claim for "negligence and breach of contractual and common law duties" in respect of the Defendants' conduct of the auctions / sales. The letter did not expressly assert claims in fraud or conspiracy, but it did make numerous broader assertions of duress, bad faith, illegality and that Bonhams had acted in its own self-interest rather than that of the Claimant, its principal.
Following negotiations, the parties entered into a settlement agreement "in full and final settlement, and irrevocable and unconditional waiver and release, of all and any Claims". "Claims" was very widely defined.
The Claimant and First Defendant continued to try to arrange sales of the remaining cars from the collection, so that the Claimant could repay the loan owed to the First Defendant. They continued to seek the view of Bonhams in respect of proposed sales.
In May 2020, the Claimant commenced proceedings, alleging that the Defendants were party to a conspiracy to injure it by unlawful means. The claim related to the period before and after the settlement agreement.
The Defendants applied to strike out the claims and/or for summary judgment, inter alia on the basis that the claims had been compromised and released by the settlement agreement.
The Claimant contended that claims in fraud, dishonesty, and conspiracy fell outside the scope of the agreement, and that such unknown claims could only have been released if that was "spelt out" or there was some other specific indication that claims in fraud and dishonesty were included. In the alternative, it argued that, even if the settlement agreement did cover such claims, the Defendants' conduct in seeking a release that extended to claims for conspiracy amounted to sharp practice that offended the conscience of the court for which the court should grant the Claimant equitable relief.
Both HH Judge Keyser QC, at first instance, and Phillips LJ, on appeal, dismissed the claim. They held that, as a matter of construction and taking into account the commercial context, the settlement agreement did cover the claim.
HH Judge Keyser QC took as the starting point the "clear, precise, wide-ranging and comprehensive" language of the settlement agreement, which he noted to be of a "high order", showing that the draftsman, and therefore the parties "meant business" and were seeking to draw a line under events up to the date of the settlement agreement. He also noted that the agreement had to be interpreted in the context of the factual matrix, including the 2014 letter before action.
He concluded that all of the Claimant's claims clearly fell within the scope of the settlement release according to its natural meaning and there was nothing in the factual matrix that indicated the release ought to bear anything other than its natural meaning. To the contrary, the contents of the 2014 letter before action, with its allegations of breach of duty, illegality and duress, reinforced that interpretation.
He rejected the Claimant's contention that the release should not extend to claims based on fraud or dishonesty in the absence of express wording to that effect. There was no such rule of law, and if the normal principles of construction lead to the conclusion that a release does extend to such claims, that conclusion must be respected.
On appeal, the Claimant contended that the trial judge had erred in starting with the wording of the settlement agreement, and only then looking to see if there was anything in the factual matrix which undermined the literal meaning. Instead, he should have started with the position that parties would not readily agree to settle unknown fraud and dishonesty claims (the "cautionary principle"), and only after that looked to see whether there was an objective basis for finding that they had nevertheless done so.
Phillips LJ disagreed. The judge had properly considered both the wording of the relevant clauses and the factual matrix, it being irrelevant which he started with. He also agreed with the trial judge's conclusions as to the construction of the agreement. The Claimant had made express allegations of illegality and duress, and the widely worded release of all claims had arisen out of matters which included claims of deliberate and dishonest breaches of fiduciary duty.
He also found that the judge had had full regard to the cautionary principle, which did not require a settlement to make express reference to claims for fraud or dishonesty in order to release them.
Phillips LJ also rejected the Claimant's sharp practice argument. This was not a case where the Defendants knew that the Claimant had claims of which it was unaware and took advantage of that ignorance by obtaining a release which settled those claims surreptitiously. Instead, the Claimant was fully aware of and had alleged deliberate breach of duty, but had chosen not to investigate that wrongdoing, instead settling those claims for valuable consideration.
This case provides a useful reminder of the principles that a court will apply when construing release wording in a settlement. In particular, claims in fraud and dishonestly will not be given special treatment, and may be released by general wording if construction of the wording and the factual matrix allow. It is trite to say that parties to a settlement should pay particular attention to the wording of the key settlement and release clauses, but this judgment highlights that parties should also take care in the claims that they assert in pre-action correspondence, as the court may take that into account as part of the factual matrix when deciding what claims the parties had in mind at the time of the settlement.
