The Court of Appeal has handed down a significant judgment on the interpretation of settlement agreements; and specifically, whether a settlement agreement was intended to, and has the effect of, precluding or releasing claims arising from fraud, conspiracy or other intentional wrongdoing despite not expressly referring to such claims.
The proceedings concerned (amongst other claims) a claim for approximately £70 million for alleged conspiracy to defraud. The claim was brought in relation to the auction of an extremely valuable collection of vintage Ferraris and the Defendants included the Bonhams auction house and some of its former directors.
The claimant (“MRL”) had, on 13 April 2015, sent a letter before action to the defendants, intimating claims “for negligence and breach of contractual and common law duties” in respect of the defendants’ conduct of auction(s) and/or sales of a vintage car collection owned by MRL. Whilst the letter did not allege fraud or conspiracy in terms, it made accusations of ‘coercion’, ‘withholding of information’, ‘unlawful practices’ and being motivated solely by their own self-interests. The parties then entered into a settlement agreement by which MRL released the defendants from all “Claims”, which were broadly defined in that agreement. The definition did not however specifically refer to claims in fraud or conspiracy.
Proceedings were subsequently commenced in which MRL alleged (amongst other things) that the defendants were parties to an unlawful means conspiracy, with allegations of wrongdoing both preceding and following the settlement agreement.
The Defendants made summary judgment and strike out applications. At first instance ( EWHC 2452 (Ch)), HHJ Keyser QC (sitting as a Judge of the High Court) dismissed all the principal claims following a four day hearing of those applications: the Judge held (amongst other things) accepted that the conspiracy claim was barred by the settlement agreement; and that certain post-agreement causes of action had no real prospect of success. The only claim that remained was a claim in conversion in relation to one vehicle brought against one of the defendants.
Following a three day hearing of MRL’s appeal, the Court of Appeal upheld that decision. Phillips LJ (giving the judgment of the Court) held (in summary) that the usual principles of contractual construction apply to settlement agreements and there is no rule of law that express words are required to release claims in fraud (see -). His Lordship rejected MRL’s assertion argument that the first instance judgment adopted an overly literalist approach to construction, and lacked regard to the commercial context. Phillips LJ addressed the authorities concerning the supposed ‘sharp practice’ principle, which may prevent a settlement agreement from being effective where one party has used sharp practice to exclude liability, whilst keeping the counter-party in the dark (see -). At paragraph 67, obiter, Phillips LJ cast doubt on whether such a principle exists at all. His Lordship then addressed and rejected the argument that, in respect of post-settlement agreement causes of action, the first instance judge inappropriately undertook a “mini-trial”.
The full judgment appears here.