Mostcash Plc & Ors v Fluor Ltd

A general settlement release is construed objectively in its factual and contractual context. It may release claims unknown to the parties when the language shows that intention. The mere fact that a latent defect was unknown does not remove a claim from a release where such claims were within the parties’ contemplation.

Where a professionally drafted settlement excludes only a cause of action that may in future accrue, that expression bears its established legal meaning. A contractual cause of action accrues on breach, not on discovery of the damage. A contractual claim based on an earlier breach was therefore barred.

An agreed clause limiting remedies in contract or otherwise may exclude a co-extensive tort claim. Rectification should not be ordered on a basis lacking evidential support or in a form not sought by the pleaded case.

UK Paper and Fluor entered into an engineering, procurement and construction management agreement for a paper-recycling facility. In 1998 they compromised existing litigation by a settlement expressed to be in full and final settlement of all claims connected with the project, subject to specified exceptions for causes of action that might in future accrue, including latent design defects.

In 2001 UK Paper and related claimants alleged defects in the design of the building cladding. They claimed for breach of contract and negligence. Fluor contended that the claims were barred by the settlement and, alternatively, by contractual limitations on remedies.

Judge Thornton held that the claims were not excluded and later ordered conditional rectification, estoppel and statutory-reasonableness relief. Fluor appealed from the orders of 11 January and 19 April 2002. The central issue was whether the settlement preserved claims for latent defects merely because they were unknown when the settlement was made.

1. Appeals allowed unanimously. Lord Justice Chadwick gave the judgment, with which Waller LJ and Douglas Brown J agreed. The court set aside the answer that the settlement did not bar the contractual claims, removed a potentially confusing qualification to the answer on the second preliminary issue, and set aside the rectification-related order of 19 April 2002.

2. The settlement covered all claims and causes of action arising out of or connected with the project unless expressly excepted. Applying the principles in Bank of Credit and Commerce International SA v Ali [2001] UKHL/8, the court held that a release may cover unknown claims if that is objectively shown by the language and context. The parties had contemplated latent design defects, as the proviso itself demonstrated. The exceptional result in Ali, concerning a claim not then known to the law, did not apply.

3. The phrase “any cause of action that may in future accrue” retained its established legal meaning. It did not mean a cause of action of which UK Paper later became aware. A contractual cause of action accrues on breach. Accordingly, the contractual claims, based on alleged breaches before 15 January 1998, were barred. The court left open whether any pleaded tort claim had accrued after that date.

4. Section 10.7 of the EPCM agreement limited rights and remedies concerning the services, whether in contract or otherwise, to those expressly provided. On the parties’ common position, that excluded a tortious duty of care concerning Fluor’s performance or non-performance. The court did not disagree with the first-instance view that section 5.3 did not exclude contractual damages for breach of the warranty in section 5.1, but that issue was immaterial because the contractual claims were settled.

5. There was no evidential basis for the pleaded rectification. Further, a judge should be very slow on a preliminary-issue hearing to order rectification in a form not sought in the pleadings. The proceedings were directed to continue before a different Technology and Construction Court judge because Fluor’s concern as to the appearance of injustice was genuinely held, although the court made no finding that Judge Thornton would conduct an unfair trial.

• Court of Appeal (Civil Division): In [2002] EWCA Civ 975, allowed Fluor’s appeals. It held the contractual claims barred by the 1998 settlement, varied the order of 11 January 2002, set aside the order of 19 April 2002, and directed that any further proceedings continue before another Technology and Construction Court judge.
• Technology and Construction Court: Judge Thornton QC, by orders of 11 January and 19 April 2002, held that the claim was not barred by the settlement, made declarations concerning the EPCM agreement, and ordered conditional rectification, estoppel and statutory-reasonableness relief.