To Waive Or Not To Waive Future Claims In Settlement Agreements?

The decision of the Commercial Court in Khanty-Mansiysk Recoveries Limited v. Forsters LLP [2016] EWHC 522 (Comm) may not, at first sight, be of obvious importance to HR practitioners. However, this decision highlights important considerations for the drafting of settlement agreements in the employment sphere.

The claim

Forsters LLP (Forsters) entered into a (non-employment) settlement agreement in relation to its unpaid professional fees and a right to call on a personal guarantee which was created by a director of the company to secure the payment of those fees. The purpose of the settlement agreement, on its terms, was as follows:

"...in full and final settlement of all or any Claims which the parties have, or could have had against each other (whether in existence now or coming into existence at some time in the future, and whether or not in contemplation of the Parties...)"

The term "Claim" was defined 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...".

The company went into liquidation in 2015 and a recovery company pursued Forsters for in excess of £70 million for alleged negligence in providing its legal advice. The Commercial Court was asked to consider, as a preliminary issue, whether Forsters could rely on the existence of the settlement agreement as a defence to this claim.

The Commercial Court held that on the construction of the settlement agreement, the claim was caught by its terms and Forsters was released from any potential claims.

Waiving future claims in settlement agreements

When entering into settlement agreements with your current or former employees, employers typically identify any "live" claims and alleged claims that the employee may have against the company and include a catch-all provision to the effect that, as the employee having had legal advice from his/her legal adviser, the employee has no other claims against the company or its officers, employees or shareholders, arising out of or in connection with his/her employment or its termination or otherwise. It is standard practice that certain claims are also excluded from scope i.e. future claims for loss of pension rights, any claim to enforce the terms of the settlement agreement, personal injury claims and, with the new whistleblowing regime (discussed elsewhere in this newsletter) clauses which prevent an employee from making...