Khanty-Mansiysk Recoveries Ltd v Forsters Llp

A general release is construed as an ordinary contractual term. Its apparently broad language may be limited by the surrounding context, but clear words can release claims that are unknown, unsuspected or outside the parties’ contemplation. Where the release expressly covers potential claims arising out of or connected with identified litigation or services, a later claim concerning those same services may be caught even though the parties’ actual dispute concerned only the amount of an invoice. The phrase “in connection with” has a wider scope than “arising out of”.

Forsters, a firm of solicitors, had acted for Irtysh Petroleum plc in connection with an oil exploration acquisition. Following a dispute about unpaid legal fees, Forsters, Irtysh and a director entered into a tripartite Settlement Agreement providing for full and final settlement of broadly defined Claims connected with the action or the relevant invoice.

After Irtysh discovered that it did not own the relevant shares, its assignee, Khanty-Mansiysk Recoveries Ltd, brought a substantial claim alleging breach of contract and negligence by Forsters. The central issue was whether that claim was released by the Settlement Agreement.

1. The claim was caught by the Settlement Agreement. The court granted Forsters a declaration to that effect and directed the parties to agree a draft order dealing with costs and further directions.
2. A general release is construed in accordance with ordinary principles of contractual construction. There are no special rules applicable merely because the term is a general release. The court must identify the objective meaning of the words in their contractual and factual context, applying the approach confirmed in Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 and Arnold v Britton [2015] AC 1619 (UKSC).
3. The caution that courts should be slow, absent clear language, to infer the surrender of claims of which a party was unaware did not assist KMR. The Agreement expressly covered all or any Claims, including potential claims, claims whether known or unknown, claims arising in the future, and claims outside the parties’ contemplation.
4. The wording nevertheless had a subject-matter limitation: the Claims had to arise out of or be connected with the Guarantee Action or the invoice. The phrase “in connection with” was wider than “arising out of”. KMR’s claim concerned the same legal advice and services that were the subject of the invoice and the Guarantee Action. It was therefore connected with both, notwithstanding that the parties’ known dispute had concerned only the invoice’s quantum.
5. The professional regulatory material relied upon by KMR did not form part of the relevant factual matrix and, in any event, did not govern this type of settlement agreement. Nor was this an “unknown unknown” of the kind considered in Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251: a contractual or negligence claim concerning the solicitors’ services was not objectively impossible.