Kevin Ralph William Riley & Anor v National Westminster Bank Plc

A professionally drafted release may compromise unknown fraud claims without using the word fraud. The court must construe the release by a unitary assessment of its language, subject matter and factual matrix. A cautionary principle applies, but it is not a rule requiring express words. Where the settlement’s background includes allegations of deliberate wrongdoing closely related to the later fraud claim, wide words releasing known and unknown claims connected with the relevant relationship may bar that claim. A sharp-practice argument will generally fail where the claimant knew of and had alleged closely related wrongdoing and freely settled it for valuable consideration. Limitation issues involving actual and constructive knowledge, reasonable diligence and the professional propriety of pleading fraud ordinarily require trial investigation.

The claimants alleged that the Bank had fraudulently represented between 2009 and 2012 that it would support and rehabilitate their businesses, would not transfer assets to West Register, and would release money to a creditor. Their businesses entered administration, and the parties later executed a Settlement Deed dated 12 November 2014.

The Bank applied to strike out the claim or obtain reverse summary judgment, relying on the Settlement Deed and limitation. It also sought summary judgment on its counterclaim for indebtedness under personal guarantees. The central issues were whether the Settlement Deed released the alleged fraud claims, whether reliance on it involved sharp practice or fraud, whether rescission was barred by affirmation, whether claims assigned from Riley Holdings were released, and whether limitation required a trial.

1. Settlement and release. The claim was struck out and/or reverse summary judgment was entered for the Bank. Clause 7 released all claims, whether known or unknown, arising from or connected with the relevant facility agreements, guarantees, NDA, Riley Holdings and its properties. Applying ordinary contractual construction, the court considered the wording, subject matter and factual matrix together. The release was intended to draw a line under the dispute.
2. The factual background included allegations of deliberate wrongdoing. The Nabarro correspondence referred to LIBOR manipulation, malpractice, reckless conduct and a possible ploy to acquire assets for West Register at a cut price. The Tomlinson Report, adopted by the claimants, alleged that viable businesses were artificially distressed and their assets acquired at a discount. These matters were closely related to the later fraud allegations. The absence of express reference to fraud was therefore not determinative. The claim was caught by the Settlement Deed.
3. Sharp practice and fraud inducing the settlement. The sharp-practice argument had no real prospect of success. The claimants knew of and had alleged deliberate misconduct concerning the same relationship and transactions, and had chosen to settle for valuable consideration. Once the release was construed as covering unknown fraud claims, the alleged failure to disclose such a claim could not, without more, constitute a misrepresentation inducing the settlement. The rescission argument was circular.
4. Riley Holdings claim. Although Riley Holdings was not a party to the Settlement Deed, the assigned claim was brought by Mr Riley and was a future claim which he acquired against the Bank. It fell within the wide words of the release.
5. Affirmation and limitation. The Bank failed to obtain summary judgment on affirmation. Whether the claimants knew the relevant facts, knew of a right to rescind, and unequivocally affirmed the Settlement Deed by later payments required trial investigation. The limitation defence likewise required a trial if it arose, because actual and constructive knowledge, reasonable diligence and the professional propriety of pleading the particular fraud case remained fact-sensitive.
6. Counterclaim. Summary judgment was entered for the Bank on the counterclaim. The claimants accepted that, once the alleged misrepresentation claims were released and discharged, their equitable set-off defence fell away. Consequential orders were to be determined at a further hearing.