Schofield v Smith

This Court of Appeal considered whether a multi-party settlement agreement between Barclays and three Rhino group companies operated to release claims brought subsequently against the joint administrators (the JAs) and their solicitors, Clyde & Co. The court applied ordinary principles of contractual interpretation (relying on authorities discussed in the judgment) and concluded that the settlement’s definitions of "Released Parties", "Affiliate" and "Employee" must be read naturally and give rise to releases of claims against the JAs and against Clyde & Co because they were within those definitions. The court also held that evidence of the claimant-owner’s subjective intentions and pre-contractual negotiations was inadmissible to alter the objective meaning of the agreement. Finally, the court rejected the contention that the principle in Ex p James prevented the JAs from relying on the contractual release and refused to keep the struck-out proceedings stayed pending a rectification claim.

This appeal concerned three sets of proceedings arising out of administrations and a later settlement between Barclays and three companies in the Rhino group (REL, Properties and Askwith). Barclays had agreed a settlement dated 1 December 2015 with those companies; the settlement included wide release provisions (clauses 2 and 3) and definitions of "Released Parties", "Affiliate" and "Employee". After the administrations, claimants (including Mr Schofield and Rhino companies) pursued misfeasance and advisor claims arising from the administrators' conduct and advice given by Clyde & Co.

Procedural history:

• The Rhino appellants had obtained the court's permission to pursue misfeasance claims under paragraph 75 of schedule B1 to the Insolvency Act 1986 (permission granted by HHJ Simon Barker QC: [2020] EWHC 2370 (Ch)).
• Clyde & Co and the JAs subsequently obtained a copy of the Settlement Agreement and applied to strike out/for summary judgment, contending their alleged liabilities had been released by the Settlement Agreement. The substantive strike out/summary judgment application was decided by His Honour Judge Davis-White QC in the High Court ([2021] EWHC 2533 (Ch)), who struck out the misfeasance claims in their entirety and struck out the Clyde & Co claim in part (only permitting non-agent advice claims to proceed).
• Three appeals were brought to the Court of Appeal: by Mr Schofield and Holdings, by Properties and Askwith, and by Clyde & Co.

Issues:

1. Whether the Settlement Agreement, properly interpreted, released claims against the JAs and Clyde & Co.
2. Whether the Settlement Agreement released a party's own affiliates (or only affiliates of other parties) and whether the JAs and Clyde & Co fell within the defined categories of "Affiliate" or "Employee" (the definitions including "agents" and "officers").
3. Whether evidence of the claimant's subjective intention and pre-contractual communications was admissible to construe the Settlement Agreement.
4. Whether the Ex p James principle barred the administrators from relying on the release in the settlement.
5. Whether the proceedings should be stayed to await a rectification claim recently issued by the Rhino companies.

Reasoning and outcome:

• The court applied ordinary objective principles of contractual interpretation and held that the natural reading of clauses 2 and 3 released all "Released Parties" from "all Claims" and that the defined terms included a party's own affiliates; the judge's literal reading was coherent and consistent with the commercial purpose of preventing "ricochet" or contribution claims.
• Evidence from Mr Schofield about what Barclays representatives had said in earlier negotiations was inadmissible to alter the objective meaning of the settlement; subjective intentions were excluded by the authorities on contractual interpretation.
• The court held the JAs were "officers" and "agents" of the companies within the settlement definitions and that Clyde & Co acted as agents for the companies in relation to the Swap Claims; accordingly both were "Released Parties".
• Because the Settlement Agreement defined "Claims" and "Liability" broadly and expressly covered liabilities arising "in whatever capacity", the release extended to Clyde & Co in all relevant respects; the Court of Appeal therefore allowed Clyde & Co's appeal against the High Court's partial refusal and concluded the claim against Clyde & Co should have been struck out in its entirety.
• The Ex p James principle did not preclude the JAs from relying on the contractual release and there was no reason to order a stay pending rectification proceedings.

The Court of Appeal dismissed the appeals by Mr Schofield and the Rhino companies and allowed the appeal by Clyde & Co. The court held that (i) the Settlement Agreement, when interpreted objectively, released claims against the joint administrators and their advisors because they fell within the definitions of "Employee"/"Affiliate"/"Released Parties", (ii) evidence of the claimant’s subjective intentions and pre-contractual statements was inadmissible to alter that construction, (iii) the release covered liabilities in whatever capacity, so Clyde & Co were fully released, and (iv) the Ex p James principle did not bar the administrators from relying on the contractual release; no stay was ordered pending rectification proceedings.

Appeal to the Court of Appeal from the High Court (insolvency and companies list) decision of His Honour Judge Davis-White QC [2021] EWHC 2533 (Ch). Permission to pursue misfeasance was granted earlier by His Honour Judge Simon Barker QC [2020] EWHC 2370 (Ch). The Court of Appeal delivered judgment on 21 June 2022 ([2022] EWCA Civ 824).