Khanty-Mansiysk Recoveries Ltd v Forsters LLP

Settlement agreements are construed as ordinary contracts. Clear words can release unknown, unsuspected and future claims, including claims not in the parties’ contemplation, but the court remains cautious about inferring surrender of rights of which the parties could not have been aware.

Where a settlement releases claims arising out of or connected with an action or invoice for professional services, a later negligence claim concerning the same services may fall within the release. Relevant considerations include the overlap with the fee claim, potential set-off, dependence on the alleged defective performance and, where relevant, causation. Unrelated claims remain outside the settlement.

Forsters LLP brought proceedings against Rupert Galliers-Pratt under a guarantee for unpaid legal fees invoiced to Irtysh Petroleum plc. The proceedings were resolved by a tripartite settlement agreement containing a wide release of claims and a covenant not to sue.

After Irtysh entered liquidation, Khanty-Mansiysk Recoveries Ltd acquired its claims and sought substantial damages from Forsters for alleged negligence and breach of contract concerning the acquisition of oil exploration interests. The Commercial Court, in [2016] EWHC 522 (Comm), held that the claim was within the settlement. The central issue on appeal was whether the claim was connected with the earlier action or invoice.

Disposition

Lewison LJ delivered the leading judgment. Sir James Munby P and King LJ agreed. The appeal was dismissed.

1. Ordinary contractual interpretation. Settlement agreements are interpreted in the same way as other contracts. Following BCCI v Ali [2001] UKHL 8, [2002] 1 AC 251, clear language may release unknown or future claims, including claims outside the parties’ contemplation. The court remains cautious where the wording does not clearly show an intention to surrender unknown rights.
2. Scope of the release. The possibility of a professional negligence claim was legally conceivable, unlike the retrospective stigma-damages claim considered in BCCI v Ali. A negligence claim concerning the services for which fees were claimed would also have been capable of operating as a set-off. The settlement’s references to all or any claims, potential claims, unknown claims, future claims and claims outside the parties’ contemplation were sufficiently wide and clear.
3. Connection with the action or invoice. The phrase “in connection with” is protean and takes its meaning from context. Coventry and Solihull Waste Disposal Co Ltd v Russell [1999] 1 WLR 2093 and HMRC v Barclays Bank plc [2007] EWCA Civ 442, [2008] STC 476 supported that approach. The claim concerned the same legal services, had already accrued, overlapped with the fee claim, depended on the allegedly defective performance and involved losses said to have been caused by that performance. It was therefore connected with both the action and the invoice.
4. The release did not extend to wholly unrelated claims, such as domestic conveyancing negligence or personal injury at the solicitors’ offices. The relevant limitation was the subject matter identified by the action and invoice.

• Court of Appeal (Civil Division): On 7 February 2018, dismissed the appeal and upheld the conclusion that the negligence and breach of contract claim was caught by the settlement agreement.
• Commercial Court: Sir Bernard Eder held in [2016] EWHC 522 (Comm) that the claim fell within the definition of “Claims” and that the proceedings asserted a claim connected with those claims.