Alliance & Anor v Tishbi & ors

The effect of a settlement agreement is determined objectively, by asking what a reasonable person with the relevant background knowledge would have understood the words to mean. The agreement must be read as a whole and in its practical context.

A settlement expressed as a withdrawal of claims and a full and final settlement will generally be treated as resolving the substantive dispute, unless the wording clearly transfers a substantive issue for later determination. An auditors’ power to determine the company’s accounts ordinarily concerns verification and accounting treatment, not the reallocation of profit shares or adjudication of the parties’ underlying rights.

The parties had litigated disputes arising from a joint venture for the acquisition and sale of Barnes Hospital. During the trial before HHJ Hodge QC, they entered into a Tomlin settlement. The agreement provided, among other things, that claims would be withdrawn, specified payments would be treated as interest for accounting purposes, and Barnes’s accounts and tax liability would be prepared and reviewed by accountants.

A dispute later arose as to whether the settlement required the parties’ previous distributions to be returned and the profit shares recalculated, or whether each party could retain what it had received subject to accounting, tax and specified adjustment provisions. The court was also asked to consider rectification and related alternative arguments.

1. Construction. The compromise was construed objectively, applying the reasonable-person test and reading the Schedule as a whole in its commercial and litigation context. Paragraphs 1 and 9 operated as the general framework: the claims and counterclaim were withdrawn and the agreement was in full and final settlement of the parties’ claims.
2. Mr Alliance and Mr Tishbi were each entitled to retain the sums already received. The agreement imposed continuing liabilities concerning corporation tax shortfalls, the payment determined by Lord David Alliance, accountants’ fees, and any necessary adjustment arising from the verification of development or administration expenditure or from post-sale income.
3. Paragraph 5 treated sums paid to Mr Alliance as discharging Barnes’s liability to pay interest, but only for the purpose of auditing the accounts. It did not define the parties’ substantive rights inter se, nor did it imply that Mr Tishbi had surrendered the distribution he had received or that his management-charge claim was transferred to the accountants.
4. Paragraphs 6 and 7 authorised Chadwicks and, if invoked, Deloittes to verify expenditure, prepare or review the balance sheet and determine corporation tax liability. They did not authorise those accountants to decide whether a co-venturer was entitled to a management charge or to realign the parties’ profit shares.
5. Alternative rectification finding. If the construction conclusion had been wrong, the Order would have been rectified. There was a clear, common, communicated and continuing intention that the compromise was a walk-away settlement, with each party retaining what it had received and sharing specified future liabilities.
6. The defendants’ case that their legal representatives lacked authority to compromise on those terms was rejected. The representatives had authority, and the defendants were bound by the Order and Schedule. The court directed the parties to agree the form of declaration and invited written submissions on costs.

The judgment records that the underlying action had been tried before HHJ Hodge QC, sitting as a High Court judge, but was settled during the trial. This judgment determined the subsequent application concerning the construction and effect of the Tomlin settlement.