Utilise TDS Ltd v Davies & Ors

A release given to one of several joint contractors ordinarily discharges the claim against the others. A reservation of rights will not be implied merely because the parties settled with one defendant while litigation continued against others.

Contractual implication is distinct from construction. The express terms must first be construed. A term may then be implied only if the applicable requirements of necessity or obviousness are met, the implication is just and reasonable, and the term is consistent with the express agreement. A detailed settlement agreement that operates coherently without the proposed reservation will not support implication, particularly where the settlement payment cannot readily be reconciled with continuation of the claim.

The claimant sought declarations concerning a one-third shareholding in Watertrain Limited. It had originally sued Mr Davies, Bolton College and Watertrain Limited. Bolton College later transferred its shareholding to Watertrain Acquisitions Limited, which was joined as a defendant.

The claimant and Bolton College entered into a written compromise agreement for £35,000. The agreement contained a broad release and a covenant not to sue. Proceedings continued against the other defendants. The preliminary issue was whether, properly construed or by implication of a term, the compromise preserved the claimant’s claims against them.

1. Preliminary issue. The court held that the compromise agreement compromised the claims against the first and fourth defendants as well as the claim against Bolton College. The claim was dismissed.
2. The claimant accepted that, absent a formal qualification of the release in clause 4, the general law operated to release claims against the remaining joint contractors. Its only viable argument was that a reservation of rights should be implied.
3. Following Marks & Spencer Plc v BNP Paribas Securities Services [2015] UKSC 72, the judge held that implication follows ascertainment of the meaning of the express terms and is not simply part of construction. The express terms must therefore be interpreted first, subject to the limited qualification identified by Lord Neuberger concerning possible reconsideration of interpretation after the implication question has been examined.
4. The pleading was sufficiently clear to permit consideration of an implied reservation, although it could have been pleaded more precisely. On the merits, however, no reservation could be implied. The agreement was detailed, negotiated with legal advice and capable of operating perfectly well without the proposed term.
5. The officious bystander test was not satisfied. It was not obvious that the parties intended the claims to continue against the other defendants, particularly because the agreement provided for £35,000 in full and final settlement without explaining how that payment would be treated if the claim for a third of the shares continued. The proposed term would also restrict the ordinary legal effect of the express release.
6. The separate covenant not to sue supported the conclusion that the release was intended to have an additional effect beyond merely restraining proceedings against Bolton College. The preliminary issue was therefore answered affirmatively, with the claimant ordered to pay the costs of defendants one, three and four. A payment of £70,000 on account of costs was ordered from funds held in court.

This was a first-instance decision on a preliminary issue. The proceedings had originally been issued against Mr Davies, Bolton College and Watertrain Limited; Watertrain Acquisitions Limited was later joined. The compromise with Bolton College was recorded in a Tomlin order, while the proceedings against the remaining defendants continued until this judgment.