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Settlement Agreements

Author: Nicola Sharp  25 January 2023
2 min read

Nicola Sharp of Rahman Ravelli details a case that emphasises the need to assess the wording of settlement agreements.

On 21st December 2022, the Court of Appeal handed down a judgment upholding the decision of the High Court that a release clause in a settlement agreement included unknown claims of fraud and dishonesty, despite not expressly referring to such claims.

In the judgement, in Maranello Rosso Ltd v Lohomij BV and others, the Court of Appeal gave guidance on the construction of settlement agreements and, in particular, on the release of unknown claims.

The Case

In 2014, Maranello Rosso Limited (MRL) acquired a collection of classic cars using financing provided by Lohomij B.V., with the intention of selling them separately at auction. Bonhams auction house, which acted in the sale of cars, sold a number of cars from the collection.

In April 2015, MRL sent a Letter Before Action to Bonhams, intimating claims for ‘negligence and breach of contractual and common law duties’. The Letter made a number of assertions: duress, bad faith and ‘unlawful practices’, whilst not alleging fraud or conspiracy expressly. Following negotiations, the parties entered the settlement agreement, by which MRL released the parties from all claims which were defined in the agreement.

In May 2020, MRL issued proceedings in which it alleged (amongst other things) that Lohomij, Bonhams and their agents were parties to unlawful means conspiracy and dishonest assistance. The High Court struck out the claims, concluding that all alleged claims - including the claim in conspiracy - had been released by the settlement agreement; and that most causes of action relating to the post-settlement period had no real prospect of success.

The Court of Appeal upheld the High Court’s decision that the principles of contractual constructions apply to a settlement agreement and that ‘there is no rule of law requiring that express words referring to claims based on fraud or dishonesty be used.’

Phillips LJ went on to consider whether the ‘sharp practice[1] principle that could render the release ineffective could be relied upon based on the facts of the case. The Court of Appeal rejected this ground of appeal, agreeing with the High Court’s decision that the principle did not apply in this case. Moreover, commenting obiter, Phillips LJ noted that even if it did, it should not be given effect because the respondents themselves were guilty of sharp practice.

Commentary

This case highlights the importance of paying special care and attention to the wording of a settlement agreement - in particular, to the wording of the release of claims. It should be noted that fraud allegations may be released by generic words of the release and are not treated as a special category.

 

[1] Situation where one party knows that the other party has a claim of which he is unaware and they conclude a settlement agreement that includes such a claim without the "aware party" disclosing his knowledge to the other (Lord Nicholls in BCCI v Ali [2000] ICR 1410 (CA); [2002] 1 AC 251 (HL))

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Nicola Sharp

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Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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