(1) ROBERT NICHOLAS JASON SCHOFIELD, RHINO ENTERPRISES HOLDINGS LTD V MATTHEW DAVID SMITH, CLARE BOARDMAN [2021] EWHC 2533 (CH); (2) SAFE-T-SYSTEMS HOLDINGS LTD AND ANOTHER V ILR SAFETY CC [2021] EWHC 2992 (CH); AND (3) MARANELLO ROSSO LTD V LOHOMIJ BV AND OTHERS [2021] EWHC 2452 (CH)

HEADLINE SUMMARY

In a string of recent cases, the High Court has been tasked with construing settlement agreements in which the purpose and scope are in dispute. These cases emphasise the need for parties to carefully consider the wording of an agreement, prior to signing, to ensure that their intentions are accurately reflected.

FACTUAL BACKGROUND

In each case the dispute had been settled between parties, but parties attempted to issue further proceedings post settlement. The court had to determine whether these proceedings were permitted, or whether they had been released by the settlement agreement.

Rhino Enterprises Holdings

A number of related companies and their bank reached 'full and final' settlement of all claims against 'any other Party or Related Party' after the companies exited administration. The companies' administrators and solicitors later sought to rely on the settlement agreement, despite not being parties to it, by claiming to be 'affiliates' of the companies within the definition of 'Related Party'.

Safe-T-Systems Holdings

Proceedings which involved a claim and subsequent counterclaim for trademark and copyright infringement during the claimant's sale of emergency glass breaking devices were settled in 'full and final' form and the parties had undertaken not to publish any false and defamatory comments to a third-party. The clause setting the scope of settlement (the release) covered all claims, whether or not known at the time, including those arising from 'the underlying facts of the claim'. Subsequent proceedings were issued when, after settlement, the defendant informed third-parties that the claimant had unlawfully copied its devices.

Maranello Rosso

The claimant purchased a collection of classic cars with the assistance of a loan from the defendant, conditional on the cars being sold through specified dealers. The claimant incurred losses from the sale of the cars due to the auction process used by the dealers and issued a claim, which was later settled. The release covered 'all claims, causes of action, rights or other interests, whether or not known to the parties, whether they arose in contract, tort, under statute or otherwise'. The claimant subsequently issued proceedings against the defendant for fraudulent and dishonest conduct during the purchase and sale of the cars.

KEY LEGAL POINTS

Rhino Enterprises Holdings

Held: The former administrators were 'affiliates' of the companies, so were entitled to rely on the settlement agreement.

Evidence of intentions when drafting is not permitted where the terms of the agreement have been drafted by lawyers and are sufficiently clear. Further, it can make complete commercial sense to include internal releases against a party's own affiliates if the intention is for settlement to cover as much ground as possible.

Safe-T-Systems Holdings

Held: The subsequent claim concerned facts surrounding the claimants' unlawful copying of the defendant's devices, such issues arising from the 'underlying facts of the claim'. The claim fell within the release and was struck out.

The phrase 'whether or not known at the time' could clearly be interpreted as an intention for the release to cover future claims, on specified subject matters, for actions which have not yet occurred.

Maranello Rosso

Held: Claims based on fraudulent and dishonest conduct were included in the release.

There is no legal rule that claims based on fraudulent or dishonest conduct can only be included in a release if specifically referred to. The Court will generally consider the natural wording of the agreement and the parties' knowledge at the time it was constructed (the factual matrix) when constructing the agreement. If the Court finds nothing to suggest that the agreement should bear any meaning other than that given by plain reading of the unambiguous wording, it is not entitled to re-write the agreement to benefit an unwise party who has not foreseen the adverse consequences of its agreement.

COMMENTARY

The High Court's approach in each case emphasises the importance of settlement in ensuring finality in disputes, by demonstrating that it is unwilling to depart from the terms of a settlement agreement where the meaning is clear, even if it does not suit the retrospective intentions of a party. These decisions are a warning to parties wanting to settle claims to consider throughout the drafting and negotiating process:

• whether a term is intended to hold its 'natural meaning' or may be ambiguous, and, if so, to ensure it is defined;
• whether the parameters of a release clearly state, in terms as specific as possible:
  • who can rely on it;
  • the type of claim it seeks to cover and exclude; and
  • the time period to which it relates (i.e. past or future claims);
• which rights, if any, you wish to retain in issuing future claims and ensure these rights are not lost;
• each draft of a settlement agreement to determine which rights other parties are seeking to protect; 

and to take time when negotiating and drafting settlement agreements.  A rushed agreement may result in future disputes about its interpretation.