Stretchline v H&M (UK)

A settlement agreement is construed objectively as an ordinary contract, in the context in which it was made. Where the parties settled litigation in its entirety, references to proceedings and claims may include defences and counterclaims, not merely the claimant’s claims. A settlement may therefore preclude a party from later relying on the same issue by a different procedural route. Waiver requires a clear and unequivocal indication that the relevant contractual rights are abandoned. Where the agreement conclusively resolves an issue, the court may limit the pleadings and issues for trial to give effect to that agreement.

The claimant alleged that the defendant had infringed its patent and breached a 2011 settlement agreement resolving earlier UK and US patent proceedings. In the earlier UK proceedings, the defendant had challenged the patent’s validity both as a defence and by counterclaim for revocation. In the new proceedings, the defendant again pleaded invalidity. The claimant applied to strike out those parts of the defence, arguing that the settlement agreement had finally resolved the issue. The defendant argued that the agreement did not prevent reliance on invalidity as a defence or pursuit of revocation.

1. The application was allowed in substance. The settlement agreement covered the issue of patent invalidity and precluded the defendant from raising it in the present proceedings, whether by defence or counterclaim.
2. The agreement was construed under the ordinary contractual principles stated in Bank of Commerce and Credit International SA v Ali [2001] UKHL8; [2002] 1 AC 251. There were no special rules for interpreting a release. The parties’ intention was to be ascertained objectively in context.
3. The references to the UK and US “proceedings”, the comprehensive recitals, the definition of “claims”, the release and the agreement not to pursue further proceedings showed an intention to settle all issues in dispute. “Proceedings” was wide enough to include defences. “Claims” was wide enough to include the defendant’s counterclaim for revocation.
4. There was no material distinction between invalidity pleaded as a defence and invalidity pleaded by counterclaim where both rested on the same substantive grounds. The defendant could not avoid the settlement merely by adding a further element to its invalidity arguments in the new proceedings.
5. The claimant had not waived its rights under the settlement agreement. Applying Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The Kanchenjunga) [1990] 1 Lloyd’s Rep 391, neither the claimant’s pleading of patent infringement nor its positive case on validity amounted to a clear and unequivocal election to abandon reliance on the settlement.
6. It was in accordance with the overriding objective to limit the issues before trial once the agreement’s meaning and effect had been determined.

First-instance decision. The judgment itself describes earlier UK patent infringement proceedings resolved by the parties’ 2011 settlement agreement, but no prior judgment citation is stated.