IMS SA & Ors v Capital Oil & Gas Industries Ltd

A compromise agreement replaces disputed claims with defined obligations where it is validly concluded. Whether signature is required depends on construction of the agreement in its factual and commercial context. Where the agreement contemplates execution by both parties, and each party undertakes obligations which require the other’s assent, execution by both parties is necessary before legal obligations arise. A party cannot avoid an otherwise binding compromise by showing that its underlying liability was uncertain. Nor is payment conditional on third-party finance unless that condition was agreed and expressed or clearly established.

The claimants sought US$5.8 million under a settlement deed by which the defendant agreed to pay US$6 million in full and final settlement of losses arising from the arrest of the claimants’ vessels. The defendant had paid US$200,000 without admissions but denied liability. It contended that the deed had not been signed by the claimants, was merely an agreement in principle, and was conditional on finance from the Asset Management Corporation of Nigeria.

The issues were whether claims had been asserted, whether the deed was executed by both parties, whether it was intended to be binding, and whether payment was conditional on AMCON finance.

1. Underlying claims. The claimants had clearly asserted claims against the defendant, although the validity and value of those claims were disputed. The purpose of the compromise was to replace uncertain claims with defined payment obligations. The defendant’s alleged lack of original liability therefore provided no defence if the deed was valid and binding.
2. Need for execution. Whether signature was necessary was a matter of construction in the light of the relevant background, applying the general principle identified in Harvey v Dunbar Assets Plc [2013] EWCA Civ 952. The parties intended to record their compromise in a written instrument requiring execution by both parties. The defendant’s signature signified its payment and other obligations, while the claimants’ signature signified assent to the compromise. Until both parties had executed the deed, it remained a draft without legal effect.
3. Execution and intention. On the evidence, Captain Gialozoglou had signed the deed. The parties’ subsequent conduct, including repeated demands for payment and the defendant’s failure to deny the deed’s validity until litigation commenced, strongly supported that conclusion. The deed was intended to be immediately binding, not merely an agreement in principle or a document intended to provide temporary comfort to the claimants’ banks.
4. AMCON condition. No term made payment conditional on approval or funding by AMCON. The deed contained an unqualified payment obligation and made no reference to such a condition. The claimants’ understanding that AMCON might in practice provide funds did not make the defendant’s liability conditional upon AMCON finance.
5. The claimants were entitled to judgment for US$5.8 million, with interest from 24 February 2013 at appropriate US dollar LIBOR rates plus 1%. Costs followed the event.

Not stated in the judgment.