When compromising a dispute or litigation it is common for the parties to agree to a full and final settlement and include a release clause in the settlement agreement. Release clauses can be narrow - confining the settlement to the facts of the particular dispute. However, they can also be very wide and seek to incorporate any dispute between the parties, whether known or unknown at the time of entering into the agreement.

A recent Commercial Court decision has held that a £70 million negligence claim against a firm of solicitors was caught by the terms of a release clause in a settlement agreement relating to a dispute for unpaid invoices for professional services provided in relation to the acquisition of an oil exploration opportunity in Russia.

The release clause

The release clause stated that the agreement was:

“… in full and final settlement of all or any Claims which the parties have, or could have had against each other (whether in existence now or coming into existence at some time in the future, and whether or not in contemplation of the Parties…)”.

Claims was defined in part as:

“…any claim, potential claim … whether known or unknown, suspected or unsuspected … however and whenever arising … arising out of or in connection with the Action or the invoice…”

Two years after the agreement was entered into the Claimant issued a claim against Forsters alleging that the advice they provided in relation to the acquisition was negligent.

Forsters asserted that the negligence claim was caught by the terms of the earlier settlement agreement.

The judgment

The court agreed with Forsters that the claim for negligence had already been compromised. The alleged negligence related to the same legal services as were the subject of the invoice dispute and it, therefore, “inevitably” followed that for the purpose of the release clause the claim was “connected with” the Action and the invoice (see the definition of Claim above).

The court also notes that the phrase “in connection with” was wider than the phrase “arising out of”. As such, although the negligence claim did not arise out of the Action or the invoice it was connected to them for the purpose of the release clause.

Comment

This judgment is only a first instance decision and, given the value at stake, it is anticipated that it will become the subject of an appeal. However, it serves as a stark reminder that although release clauses are common in settlement agreements they should not be considered simply as “boiler plate” clauses. They do need careful consideration.

Often, the breadth of a release clause will be a matter of negotiation dependent upon the bargaining position of the parties. However, the basic rule of “offer and acceptance” should not be forgotten. If you wish to settle a dispute on terms that are wider than the facts in issue then you should state this in your settlement offer – or, at the very least, express your offer as “subject to contract”. Otherwise, the other party is entitled to assert that it has accepted your offer as drafted and refuse to agree to any additional terms.

Khanty-Mansiysk Recoveries Ltd –v- Forsters LLP [2016] EWHC 522 (Comm) (22 March 2016) (Bailii)