Khan v Khan

An agreement resolving some disputes does not compromise every connected claim unless the parties objectively reached that wider consensus. For an oral compromise, the decisive question is what was said and done at the meeting, read with contemporaneous documents and admissible background facts. Undisclosed intentions and pre-contractual negotiations do not establish the agreement’s meaning, although objective facts known to both parties may form part of the factual matrix. The absence of full and final settlement wording is not conclusive, but its significance depends on context. Cultural practices may also be admissible evidence of context, but they remain equivocal unless they clearly support the alleged scope of settlement. An appellate court should not disturb the trial judge’s evaluative finding unless it is plainly wrong.

The parties were brothers who had operated businesses and held properties through, among other ventures, the Khan and Co partnership. After the partnership was dissolved, they attended a family meeting at which they agreed that each would cease involvement in the other’s businesses and that specified jointly held properties would be divided.

The respondent nevertheless claimed an account and a share in the assets of Khan and Co. The appellant argued that the meeting had produced a full and final compromise of that claim. Hart J decided the preliminary issue in favour of the respondent, holding that the agreement did not extend to the claim concerning the partnership assets. The appeal concerned the scope of the oral agreement and the evidence admissible to determine it.

The appeal was unanimously dismissed.

1. Nature of the inquiry. The question was what the brothers had agreed at the meeting. It was a question of fact, determined from what was said and done, including the documents prepared and signed at the meeting. The appellant had to establish a positive consensus that the agreement disposed of all remaining claims. The parties’ undisclosed hopes or intentions before the meeting could not establish that consensus.
2. Evidence and interpretation. The principles governing written contractual interpretation also apply to oral agreements. Background circumstances reasonably available to the parties may form part of the factual matrix, but subjective intentions and pre-contractual negotiations are excluded on questions of interpretation. Thus, the appellant’s earlier proposals and communications formed part of the bargaining sequence and could not be relied upon to interpret the final agreement. This approach was based on Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 and The Square Mile Partnership v Fitzmaurice McCall Ltd [2006] EWCA Civ 1690.
3. Application to the agreement. The documents dealt with identified properties, bank accounts and future participation in the respective businesses. Agreement that the appellant could continue trading under the name Khan and Co, and that the respondent would have no further part in its business, did not itself compromise the respondent’s claim to partnership assets on dissolution. The absence of a full and final settlement formula was not conclusive, but, in the circumstances, its omission from documentation prepared to record the agreement was a legitimate inference against the alleged wider compromise. Cultural traditions and practices may be relevant to the factual matrix and must receive appropriate regard, consistent with pluralism under the European Convention on Human Rights. Here, however, the family celebration and reconciliation were equally consistent with a partial settlement and were therefore equivocal. The principle of pluralism was discussed by reference to Kokkinakis v Greece [1994] 17 EHRR 397.
4. Appellate review. The trial judge’s evaluation of written and tested oral evidence was not to be overturned unless plainly wrong, meaning that it exceeded the generous ambit within which reasonable disagreement was possible. Hart J’s conclusion was tenable and carefully reasoned. There was no basis for interference. The appeal was dismissed.

• Court of Appeal (Civil Division): dismissed the appeal in Khan v Khan [2007] EWCA Civ 399.
• High Court, Chancery Division: Hart J determined the preliminary issue in favour of the claimant, holding that the oral agreement did not compromise the claim to a share in the assets of Khan and Co arising on dissolution.