Walsh & Anor v Hall & Anor

A compromise agreement must be construed objectively, by reference to its language, contractual context, commercial purpose and the background known to both parties. Where parties agree to present an order to effect the terms of their compromise, the order should reflect all material obligations, including an agreed payment obligation. An apparent tension between dismissing proceedings and ordering payment may be resolved by construing dismissal as taking effect upon payment. The court may dismiss claims after determining a preliminary issue, but should retain an issue for determination where there is a compelling reason to resolve the remaining dispute at a hearing.

The claimants sought declarations concerning the beneficial ownership of shares held by Redmayne Bentley. The defendants counterclaimed. The parties later entered into a written compromise under which the claims would be dismissed, the claimants would relinquish any interest in the assets, and the defendants would pay £275,000 within 28 days after service of an order giving effect to the agreement.

The parties agreed that the litigation had been compromised but disputed the form of order. The defendants sought dismissal without an order for payment. The claimants sought an order recording the payment obligation. The court determined the defendants’ application and the claimants’ preliminary issue application.

1. Applications. The defendants’ application to strike out or dismiss the claims without reference to the payment obligation was refused. The claimants’ application was substantially accepted.
2. Case-management power. The court had power under Civil Procedure Rules 1998, r 3.1(2)(l), to dismiss a claim after deciding a preliminary issue. Although there is overlap between r 3.4 and Part 24, the court should exercise its discretion with the principle in r 24.2(b) in mind: even a hopeless case need not be disposed of summarily where there is a compelling reason for a hearing. The dispute about the terms of the admitted compromise was such a reason: paras [35]-[40].
3. Construction of the compromise. Applying the principles in Arnold v Britton 2015 AC 1619, including the approach stated by Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd (2009) AC 1101, the agreement was construed by reference to its natural language, its provisions as a whole, its commercial purpose, the parties’ shared background and commercial common sense. Commercial common sense could not displace clear language or be applied retrospectively: paras [41]-[44].
4. Clause 3 required the parties to present an order which effected the terms of the agreement. That meant the order had to record the defendants’ obligation to pay £275,000 within 28 days of service. The fact that the claimants’ interest in the assets was relinquished immediately did not prevent a later payment obligation. The apparent anomaly between dismissal and payment was reconciled by construing dismissal as conditional upon payment: paras [45]-[50].
5. The distinction discussed in Foskett on Compromise between a promise to perform and actual performance did not determine whether the agreement required an order for payment. If the parties could not agree the wording, a declaration would be necessary; the court could not order them to file a consent order: paras [49]-[51].

This was a first-instance decision. The action had been commenced in March 2014. Following the written compromise dated 18 May 2016, the parties made competing applications concerning the terms of the order required to give effect to the compromise.