Sheona Wood and Lauren Maddock discuss the implications of the decision which highlights the importance of careful drafting of unambiguous settlement deeds to reflect the parties' intentions.
Background
This decision arose out of a claim for professional negligence brought by Bin Obaid and Others (" the Claimants") against RLS Solicitors Ltd ("RLS"). RLS had previously acted for two sets of Parties (the ANBO Parties and the KAH Parties) in relation to certain property transactions in which ANBO and KAH had been involved.
A dispute had developed between ANBO and KAH in relation to the property transactions and proceedings were issued in the High Court in London ("the English proceedings").
The English proceedings were eventually compromised by way of a settlement deed.( "the Deed")
Shortly before the Deed was entered into, the Claimants (who were the ANBO Parties), reserved their rights to bring an action in negligence /breach of trust against RLS.
After the Deed was entered into the Claimants brought proceedings against RLS claiming £7.5million being the costs of the English Proceedings including overseas lawyers' fees.
Before a Defence was served, RLS brought an application in response to the proceedings to strike out and/or apply for summary judgment of the Claimants' claim on the basis that the deed had compromised not only the claims of the Claimants and KAH against each other but also any claims which the Claimants had had against their former solicitors RLS.
First Decision – Deputy Master
A Deputy Master initially heard the applications with judgment being handed down in December 2023.
The key relevant provisions of the Deed were as follows (with our emphasis) :
"The Parties have been in dispute in relation to the beneficial ownership of the real property and money described below as the Identified Assets."
"The Parties wish to fully and finally resolve those disputes on the terms of this deed" and "each of the Parties agrees on behalf of themselves and their respective Affiliates that this deed shall constitute full and final settlement of all Claims against each of the other Parties and their respective Affiliates and Covenants and undertakes…that they shall not make or maintain any claim against any of the other Parties or their respective Affiliates…"
"Affiliate" meant "iii) any Agent of any Party"
"Agent" meant "each of the officers, employees…and professional advisors of the Parties…"
The Deputy Master concluded that RLS was an Affiliate (Agent) of both Parties to the Deed because they were an agent retained jointly by them in relation to the purchase of at least one of the developments which was the subject matter of the dispute in the English proceedings.
The Deputy Master took into account that the Parties had drafted the Deed to settle all matters relating to the English proceedings (save for limited specific carve outs) and one of the benefits of this approach was that it avoided so called "ricochet" litigation whereby if the Claimants pursued a claim against RLS, RLS would potentially pursue a contribution claim against the opposing party in the English proceedings (KAH) thereby effectively re-opening those proceedings.
The Deputy Master considered that on an objective construction of the Deed RLS was released from all "claims" including claims by its own clients, the Claimants.
She therefore found in favour of RLS so that they were wholly successful in their claim for summary judgment and/or strike out of the Claimants' claim and the claim was dismissed.
Appeal – Deputy High Court Judge
The Claimants appealed against this judgment and the appeal was heard by the High Court.
The Deputy Judge helpfully set out the relevant legal principles in relation to the construction of the deed and the leading authorities including BCCI SA v Ali [2002] 1 AC 251, ICS Ltd v West Bromwich Building Society [1998] 1 WLR 896; Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; Rainy Sky SA v Cookmin Bank [2011] 1 WLR 2900; Arnold v Britton [2015] AC 1619 and Wood v Capita Services Ltd [2017] AC 1173.
The key principles were summarised as being:
- The meaning to be given to the words used in a contract is the meaning which ought reasonably to be ascribed to those words having due regard to the purpose of their contract and the circumstances in which the contract was made.
- A court is concerned to identify the intention of the Parties by reference to what a reasonable person, having all the background knowledge which would have been available to the Parties, would have understood them to be using the language in the contract to mean.
- A court will consider the natural and ordinary meaning of the clause in question along with any other relevant provisions in the contract, the overall purpose, the facts and circumstances known or assumed by the Parties at the time the document was executed, and commercial common sense but disregarding the subjective evidence of any Party's intentions.
Applying these principles to the present case the Deputy Judge took the view that the aim of the clauses (set out above) was to release RLS from any claims which might be made against them as the other Parties' agent in their capacity as that other Party's agent and not to release claims any Party to the Deed might have against its own agent.
He considered that that interpretation was also consistent with the aim of the Deed being to resolve the Parties' disputes in relation to the beneficial ownership of certain assets (and not to prevent actions between a Party and its own professional advisors). And he rejected the idea that the Claimants should have had a carve out in the Deed to preserve their claim against RLS as he considered that the subject matter of the Deed was limited to resolving the subject matter of the English proceedings.
As was said in the case as part of the submissions, there were two camps in the underlying dispute and the purpose of the settlement deed was to resolve the dispute between the two camps and not to resolve any and all disputes within the two camps (including with professional advisers)
Comments
The decision provides a useful recap of the principles which will be applied to the construction of any document including a settlement agreement. Interestingly and importantly witness evidence submitted by the Claimants' legal representative concerning the circumstances surrounding the negotiation of the Deed were ruled inadmissible
The case also highlights that the courts will construe the language of a Settlement Agreement in an objective way, rather than scrutinising evidence of the detail of the parties' negotiations. The parties and their legal representatives will have to be ever-vigilant to ensure that all claims are extinguished and compromised, and / or preserved by way of carve out in the detailed wording, so as to unambiguously reflect their intentions to compromise or preserve claims.
If it is intended that claims by a party, against their own professional advisers, are to be compromised as part of a Settlement Agreement relating to claims between the parties it seems that very clear wording to that effect will be required.
