In any litigation, you need to watch out for traps for the unwary. Obviously, you need to set out your case as clearly and concisely as possible, to ensure that all relevant facts and matters are before the court.
A claimant sets out the case, primarily, in what people still often refer to as the Writ (now, properly called the Claim Form and Particulars of Claim attached to it); a defendant set out the response to that case in the Defence.
So what happens, when it comes to settlement?
Litigation should always be a last resort, and the Practice Direction says, clearly: “the parties should consider whether negotiation or some other form of ADR might enable them to settle their dispute without commencing proceedings”; and the “parties should continue to consider the possibility of reaching a settlement at all times”.
With the exhortation to try to “settle their dispute”, you need to be equally careful in defining “the dispute” that you are settling. You might also want to include some other claims, perhaps to enable a continuing business relationship, or otherwise put the matter behind you: but, again, be careful in the definition.
So how far would you go?
In Maranello Rosso Limited –v- Lohomij BV  EWHC 2452 (Ch), the claimant (MRL) evidently went further than it thought it had gone. It serves as a reminder that a settlement agreement can be drafted sufficiently widely, so as to release unknown fraud claims, just as much as any known claims – with a possible exception, only, if it can be proved to the satisfaction of the court that there has been some sort of “sharp practice”. And that is a difficult thing to do, especially where you have commercial parties, dealing at arm’s length.
The case concerned a loan for €90 million. MRL had taken the loan from Lohomij, to buy a collection of classic cars from the Violati Maranello Rosso Museum (some 71 classic cars, which included 33 important Ferrari road and racing cars worth over £150 million) on terms that MRL would then sell the cars, on terms agreed with auctioneers at Bonhams. The sale proceeds were to be used to repay the loan and all interest, and associated fees and costs, and any sums due to Bonhams; with the balance to be retained by MRL.
A dispute arose as to the way in which Bonhams promoted and conducted the sale of the vehicles. MRL said (among other things) that it had suffered significant losses as a result of the way in which Bonhams had conducted the auction – rather than selling the cars as one collection at Goodwood, they had been sold in separate lots in London, the US and at Goodwood. In a letter before action sent in April 2015, MRL alleged, among other things, that Bonhams had been negligent and had acted in breach of its contractual and common law duties.
In July 2015, the parties entered into a Settlement Agreement in respect of the claims that had been made. “Claims” was defined very widely in the Settlement Agreement:
“‘Claims’ means all claims, causes of action, rights or other interests (whether present, actual, prospective or contingent, whether or not known to the Parties at the date of this Agreement, and whether arising in contract, tort, under statute or otherwise), in any jurisdiction by MRL and/or any of its Affiliates or Agents against the Bonhams Parties and/or Lohomij and/or any of their Affiliates or Agents which relate to, arise from, or are otherwise connected with, the initial acquisition of the Collection and its financing, the sale of the Collection and/or the 30 June Agreement, including all claims alleged in Spring Law’s letter to Bonhams 1793 dated 13 April 2015, and which in each case relate to the existence or occurrence of facts, matters or circumstances at or prior to the date of this Agreement, but excluding for the avoidance of doubt, any claims that the Bonhams Parties and/or Lohomij and/or any of their Affiliates or Agents may have against MRL and/or any of its Affiliates or Agents“.
After the Settlement Agreement had been concluded, MRL claimed that it obtained knowledge leading it, reasonably, to conclude and plead that Bonhams, Lohomij and their respective principals had in fact been acting dishonestly. It argued that the parties had entered into the Settlement Agreement to compensate MRL for losses that it suffered on the assumption that the auction was carried out negligently. And it argued that that the Settlement Agreement did not settle any claims in dishonesty, fraud and/or conspiracy, which MRL had against the parties.
MRL alleged, among other things, that Bonhams had dishonestly put its own financial interests above those of its client in sales which (while not achieving the level of sales that it said should have been achieved for the collection), nevertheless achieved the purposes of Bonhams and Lohomij as it generated significant publicity for Bonhams and included a world record price for one car, a 250 GTO. MRL alleged that this had substantially increased the defendants’ market share in the USA.
MRL therefore issued proceedings against Lohomij and Bonhams in 2020.
A key question was whether the Settlement Agreement was wide enough to release unknown fraud claims.
The short answer was “yes”.
The Settlement Agreement was in very wide terms. Remember the definition of “claims” – known claims. Unknown claims. Whether present, actual, prospective or contingent. Arising in contract, tort, under statute “or otherwise”.
HHJ Keyser QC (sitting as a Judge of the High Court) held that MRL’s claims were not reasonably arguable, and could not be pursued. He held MRL to the terms of the Settlement Agreement, as properly construed.
He held that the ordinary principles of construction apply to a settlement agreement. This was summarised in one case as being that the contract should be given the meaning it would convey to a reasonable person who has all the background knowledge reasonably available to the people to whom the document is addressed.
HHJ Keyser QC went on to say that, if the plain meaning of a release would appear to indicate that a party was agreeing to give up rights of action of which he was not aware, and of which he could not reasonably have been aware, the court, before concluding that that is what the release means, ought to pause, ask itself whether that is really what the release means, and carefully examine the context to see whether the words more appropriately bear some more restricted meaning. In reaching its decision, however, HHJ Keyser QC nevertheless repeated that the court will apply normal principles of construction, not especially restrictive ones.
While it did not apply in this case, HHJ Keyser QC said that it is arguable that there is a “sharp practice” principle that will, in suitable circumstances, prevent a party from relying upon a release in general terms if he knew that the other party had a claim and knew that the other party was not aware that he had a claim.
The moral of the story?
If you settle a dispute, make it very clear what you mean by the “dispute”.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at November 2021.