Settling Disputes: Settling "All Claims" Includes Unknown Claims Related To Fraud

• Published date: 27 January 2023
• Subject Matter: Litigation, Mediation & Arbitration, Criminal Law, Trials & Appeals & Compensation, Professional Negligence, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Gowling WLG
• Author: Ms Catherine Naylor, Tom Cox, Christopher Richards and Alistair Connor

In a recent judgment, the Court of Appeal ruled that an agreement for the settlement of "all and any claims" extended to unknown claims based on dishonesty and fraud. This is despite the release failing to expressly refer to such claims. In dismissing the claimant's appeal, the Court emphasised that the usual principles of contractual construction apply to settlement agreements and reiterated that there is no rule of law that express words are required in order to release claims in fraud. In this update, we consider the implications of this ruling and the importance of carefully considering the drafting of such releases.

Background

In this case, the claimant company (MRL) purchased a collection of 71 classic cars valued at over '150 million. MRL purchased the cars with the intention of selling them on for a profit at auction. MRL financed the deal by borrowing '90 million from the first defendant. It was agreed that the cars would be sold via the third and second defendants, Bonhams auction house (Bonhams). In total, 25 cars remained unsold and '35 million remained outstanding under the facility agreement.

MRL claimed that the total amount raised was less than the assurances given by Bonhams and argued wrongdoing in the conduct of the auction. MRL wrote to Bonhams setting out its claim for in excess of '20 million for negligence and breach of contractual and common law duties in relation to the conduct of the auction. Although the pre-action letter was focused on allegations of negligence and breach of duty, the letter also made allegations of duress, bad faith and illegality, and that Bonhams had acted in its own interest, rather than in the interests of MRL. Following negotiations, the parties entered into a settlement agreement by which MRL released the defendants from "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 [the] Agreement...)". Crucially, the definition of 'claims' did not explicitly refer to claims of fraud or conspiracy.

The proceedings

MRL subsequently issued proceedings against the defendants, arguing that new information had come to light which revealed that the defendants were party to a conspiracy to injure MRL by unlawful means and that the settlement agreement had not settled any claims in dishonesty, fraud or conspiracy. The defendants made summary judgment and strike out applications. At first instance ([2021] EWHC 2452...