The Pentagon Food Group Ltd & Ors v B Cadman Ltd

A settlement agreement made at mediation is construed objectively, with its wording read in the context of the negotiations and the proceedings being settled. Where one party promises to purchase property from another, the agreement may impose a corresponding obligation on the other party to contract to sell it, even if the drafting expressly states only the purchaser’s obligation.

Terms may be implied where necessary to give the settlement commercial or practical coherence. Without-prejudice material admissible for contractual interpretation may, in appropriate circumstances, also be used for implication of terms. Statements made during mediation may be admissible to challenge a settlement for misrepresentation. A party’s later attempt to preserve the transaction does not negate inducement.

The claim arose from a settlement of earlier fire-related litigation concerning Portland House. The settlement required Khan Estates Ltd to enter into a contract to purchase the property from B Cadman Ltd, with staged payments and a personal guarantee from Ashfaq Khan.

Portland House was in fact owned by trustees of a pension scheme, including persons who were not parties to the settlement and an independent trustee whose consent was required. The claimants alleged breach of express and implied terms and misrepresentation. The court tried liability and causation of some loss only, leaving the amount and extent of any remedy for a later hearing.

1. Express term. Paragraph 3 of the settlement imposed a mutual obligation. Khan Estates Ltd had to enter into a contract to purchase Portland House from BCL, and BCL correspondingly had to contract to sell it. Reading the clause as imposing an obligation only on Khan Estates would make the arrangement commercially incoherent. The surrounding settlement terms, the structure of the bargain and the litigation context supported that construction.
2. BCL breached that obligation. It did not contract to sell the property as soon as reasonably practicable. The later proposal made by the trustees in 2023 was materially different from the agreed settlement and did not cure the breach.
3. Implied terms. Alternatively, terms were implied that BCL could obtain the right to sell, or compel the sale of, the freehold interest, and that it could and would sell or procure its sale to Khan Estates. Those terms were necessary to give the agreement business efficacy and commercial or practical coherence. A term that BCL itself owned the property was not necessary and was not implied.
4. Admissibility and privilege. The incorrect pleading in the earlier fire claim was protected by judicial proceedings immunity from being used as a freestanding cause of action, but it remained admissible as contextual evidence. The mediation evidence fell within the established exception permitting evidence of negotiations to challenge a settlement for misrepresentation. No distinct mediation privilege was required for determination.
5. Misrepresentation. BCL made implied representations that it owned Portland House and had the right to sell it or arrange its sale. Those representations were false, material and induced the settlement. The representations were at least negligent under section 2 of the Misrepresentation Act 1967 and were also made recklessly, amounting to fraudulent misrepresentation. The claimants did not have to prove that, had the truth been known, they would have abandoned the transaction altogether.
6. The claimants proved some loss. Khan Estates lost the opportunity to own, use, develop or sell the property at the relevant time. The nature and amount of recoverable loss, including remoteness and mitigation, were reserved for the remedies hearing. The court encouraged further mediation but did not order it.