Summary
A court may enforce a Tomlin order by declaring the meaning and effect of the settlement agreement scheduled to it. Commercial settlement agreements are construed objectively, by considering the language used, the agreement as a whole, its purpose, the relevant background and commercial common sense, while excluding subjective intentions and inadmissible subsequent conduct.
Where a settlement agreement gives one party a quantified entitlement from property sale proceeds and makes the parties’ beneficial interests subject to that arrangement, the quantified entitlement may be exhaustive. The court must construe the agreement as a whole and should avoid an interpretation that makes a material clause meaningless.
Factual background
The defendant applied for declarations concerning the meaning and enforcement of a settlement agreement scheduled to a Tomlin order made in earlier partnership proceedings. The parties had operated a property business and were joint legal owners of properties acquired for that business.
The central dispute concerned whether the claimant’s entitlement was limited to £400,000 from the net sale proceeds, or whether he retained a 50% beneficial interest in unsold properties after receiving that sum. The court also considered statutory formalities and an admitted overpayment.
Held
- Application granted in substance. The court had jurisdiction to grant declaratory relief concerning the construction of the settlement agreement in a Tomlin order, applying Ali Gurgur v Amanda Rees [2021] EWHC 2181 (Ch).
- The settlement agreement had to be construed objectively and as a whole. The court adopted the summary in Network Rail Infrastructure Ltd v ABC Electrification Ltd [2020] EWCA Civ 1645, including the importance of the contractual language, the wider context, the purpose of the agreement and prospective commercial common sense. Subjective intentions and inadmissible pre-contractual negotiations were excluded. The principles concerning pre-contractual negotiations in Merthyr (South Wales) Limited v Merthyr Tydfil County Borough Council [2019] EWCA Civ 526 and Schofield v Smith [2022] EWCA Civ 824 were applied.
- Clauses 3, 4 and 6, read with the agreement as a whole, established a clean-break arrangement. Clause 4 entitled the claimant to receive £400,000 from the net sale proceeds, subject to the arrangements for mortgage and partnership liabilities. It did not entitle him to more than £400,000 overall from those proceeds.
- Clause 6 was subject to clause 4. The claimant’s beneficial interest in unsold properties, or their sale proceeds, automatically determined once his clause 4 entitlements had been met and the relevant liabilities discharged. Clause 3’s reference to income did not confer on the defendant an independent entitlement to sale proceeds; those proceeds were governed by clause 4.
- The settlement agreement itself satisfied any applicable formalities under section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 and section 53(1)(b) and (c) of the Law of Property Act 1925. No further instrument was required.
- The claimant was ordered to repay the mistaken overpayment of £1,781.04. Further directions concerning the sale of remaining properties and the precise form of order were reserved.
The court’s approach to earlier authorities
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Appellate history
The application concerned the construction and enforcement of a settlement agreement scheduled to a Tomlin order made on 19 June 2020 in the parties’ earlier proceedings. No appellate decision was stated.
Key cases cited
8 authorities cited.
- Wood v Capita Insurance Services Limited [2017] UKSC 24
- Sirius International Insurance Company (Publ) (Appellants v. FAI General Insurance Limited and others (Respondents) [2004] UKHL 54
- Investors Compensation Scheme Ltd v West Bromwich Building Society (Investors Compensation Scheme Ltd v Hopkins & Sons) [1997] UKHL 28
- Robert Nicholas Jason Scholfield & Anor. v Matthew David Smith & Anor. [2022] EWCA Civ 824
- Abc Electrification Ltd v Network Rail Infrastructure Ltd [2020] EWCA Civ 1645
- Merthyr (South Wales) Ltd (FKA Blackstone (South Wales) Ltd) v Merthyr Tydfil County Borough Council [2019] EWCA Civ 526
- Ali Gurgur v Amanda Rees [2021] EWHC 2181 (Ch)
- Whitworth Street Estates (Manchester) Ltd v James Miller and Partners Ltd [1970] AC 583
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Cases citing this case
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