What are you looking for?

4 April 2016 | Comment | Article by Richard Locke

Be careful what you settle for: £70 million negligence claim caught by settlement agreement entered into years earlier

In the recent case of Khanty-Mansiysk Recoveries Ltd v Forsters LLP [2016] EWHC 522 the court considered whether a professional negligence claim against a firm of solicitors had been inadvertently settled following the execution of a settlement agreement two years previously.

The settlement agreement had been concluded in relation to the defendant’s (‘D’’s) claim for unpaid fees relating to professional services provided in connection with the acquisition of an oil exploration opportunity in Russia. The initial claim related to both the unpaid invoices and a guarantee. This claim was settled by agreement.

However, what was not contemplated at the time of settlement was that nearly two years after the agreement was executed a potential claim against D would materialise for negligent advice arising from the transaction.

D argued that C’s claim was caught by the settlement agreement and was inevitably doomed. C argued that the claim in negligence was not known at the time of settlement and therefore could not be covered by the agreement.

The court agreed with D that, on a proper construction of the general release clause in the agreement, the claim for negligence/breach of duty had been compromised. This was because the breaches alleged by C, related to the very same legal services which were the subject of the invoices and the settlement reached.

The settlement agreement defined the settled claims as:

“…any claim, potential claim … whether known or unknown, suspected or unsuspected … however and whenever arising … arising out of or in connection with the Action or the invoice”

It was held that as C’s claim was “connected with” both the dispute over the invoices and guarantee it was caught under the agreement. The explanation being that the use of the words “in connection with” invited a much wider interpretation than the words “arising out of”. Accordingly, although C’s claim did not arise out of the guarantee action and the invoice, it was “connected with” them for the purpose of the settlement agreement.

This finding is significant because it goes against the court’s usual approach that in the absence of clear language, the court will be slow to infer that a party intended to surrender rights and claims of which it was unaware and could not have been aware. The key factor appears to be that in this case a claim of negligence was always a possibility, even if it were not known to the parties at that time and therefore careful drafting of the release clause was required in order to exclude a potential claim.

The decision highlights the importance of taking care when drafting release clauses in settlement agreements to ensure that future unsuspected claims are not inadvertently compromised.

Author bio

Richard is a Partner and an elected partner on the firm’s board of management.  He is also Group Head of the ever expanding dispute resolution team at Hugh James. He conducts major commercial disputes frequently with an international flavour including commercial claims, mining disputes, shareholder and partnership disputes, professional negligence claims, contentious IT disputes, injunctive relief and insolvency.

Disclaimer: The information on the Hugh James website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. If you would like to ensure the commentary reflects current legislation, case law or best practice, please contact the blog author.

Contact one of our experts

Fill in the form and one of our experts will get in touch with you shortly.