Novoship (UK) Ltd & Ors v Mikhaylyuk & Ors

A settlement agreement must be construed as a whole, by asking what a reasonable person would understand the parties to have intended in its language and context. Business common sense may assist where more than one interpretation is available.

Where staged payments are contractual obligations and a payment is missed, a clause releasing the creditor from a standstill obligation may permit enforcement of the underlying judgment debt in full, subject to credit for sums paid or collected. Late payment does not necessarily revive the standstill. The settlement and release may nevertheless take effect when the agreed payment obligation is fully satisfied. A right of election to terminate the settlement will not be implied merely to avoid possible double recovery where crediting mechanisms already address that risk.

The claimants had obtained substantial judgments against the Ruperti defendants in the London proceedings. In September 2013 the parties entered into a settlement agreement, later recorded in a Tomlin order. The Ruperti defendants agreed to pay US$40 million by instalments, while the claimants agreed to stand still from enforcement provided the payment obligation was complied with. The agreement stated that receipt of the agreed sums would constitute full and final satisfaction of the claims.

After instalments were missed, the claimants obtained a worldwide freezing order and sought to enforce the judgment debts. The Ruperti defendants later paid the overdue instalments and tendered the balance, seeking declarations that the settlement remained effective and that the judgment debts would be released upon full payment. The central issue was the interaction between the payment, enforcement, standstill and release provisions.

1. Construction. The court applied the ordinary principles of contractual interpretation. There were no special rules for settlement agreements: the agreement was to be read as a whole, in its commercial context, by reference to what a reasonable person would understand the language to mean. Where more than one interpretation was properly available, business common sense could be considered.
2. Payment obligation and enforcement. The staged payments in paragraph 2 created contractual obligations, rather than merely conditions for obtaining the release in paragraph 4. Paragraph 3 released the claimants from their standstill obligations if any amount was not paid in full when due. Paragraph 12(b) preserved their right to enforce the judgments once the standstill had been lifted. The claimants were therefore entitled, while the defendants remained in breach, to enforce the outstanding judgment debts in full, subject to credit for monies paid or collected.
3. Effect of late and complete payment. Late payment did not revive the standstill because the condition in paragraph 3 remained satisfied once a payment had not been made when due. However, paragraph 4 took effect upon receipt of the amounts specified in paragraph 2. The word payment did not naturally include sums collected through enforcement proceedings, since the agreement distinguished between monies paid and monies collected. Once the payment obligation was fully met, the judgment debts and the other specified claims were discharged, released and settled.
4. No implied election. The agreement did not give the claimants an election permanently to terminate the settlement merely by enforcing the judgments. The risk of double recovery could be addressed by giving credit for sums paid or collected. No more elaborate implied term was necessary for business efficacy or common sense.
5. Penalty issue. The judge considered, but did not decide or rely upon, an argument that paragraph 3 might be penal. The conclusion on construction was reached without determining that issue, particularly given the developing law on penalties and the limited argument presented.

The claimants were entitled to enforce the outstanding judgment debts when the applications were brought. Subject to confirmation that the remaining instalments had been tendered, full payment would settle the judgment debts and prevent further enforcement.