Fraud-Based Claims Can Be Released Without Express Language

Background

The Court of Appeal has confirmed that an agreement to settle “all and any claims” may be interpreted to cover claims in fraud, dishonesty and conspiracy which were not specifically referred to.

The case of Maranello Rosso Ltd v Lohomij B.V. & others [2022] EWCA Civ 1667 related to the purchase of a large collection of vintage cars by Maranello Rosso Ltd (“MR”) utilising a loan facility provided by Lohomij B.V. (“Lohomij”), the first defendant, and then immediately consigned the cars to an auction house for onward sale, in the belief that would attract a higher price when sold individually and would thus obtain a substantial profit.

However, the outcome was not fruitful that only just over half of the collection were sold and hence MR’s solicitors wrote to the auction house claiming negligence and breach of contractual and common law duties regarding the promotion and conduct of the auction which had led to the cars being sold at undervalue and causing losses to MR, as well as a conflict of interest due to a pre-existing connection between Lohomij and the auction house.

Despite its allegations, MR has negotiated and entered into a settlement agreement with Lohomij and the auction house, which included a widely drafted provision for releasing Lohomij and the auction house and their affiliates from all present, actual, prospective or contingent claims, whether or not known to the parties and whether arising in contract, tort, under statute or otherwise. In return for the release, Lohomij advanced further funds to MR, extended the repayment date for the outstanding loan and waived its facility fee.

Nevertheless, MR subsequently commenced proceedings against Lohomji and the auction house in reliance on new evidence showing the defendants’ conspiracy and dishonest assistance to injure MR’s interest by unlawful means.

Decision

The Court of Appeal upheld the decision at first instance to dismiss MR’s argument that the release did not contain an express exclusion of fraud or dishonesty claims because:

• after cautiously considering the factual matrix (in particular the pre-action correspondence and the drafting of the settlement agreement was formal and high quality), the normal principles of contractual construction apply to the settlement agreement that the wide-ranging release clauses would objectively be interpreted to cover all kinds of claims, whether known or unknown, even in the absence of express words; and
• on the assumed facts, MR was fully aware, and had alleged in the pre-action correspondence, that the auction house had acted deliberately in breach of its duties as agent, but chose to settle those claims for receiving valuable consideration pursuant to the settlement agreement and therefore it was ‘unconscionable’ for MR to try and avoid the release.

Our recommendation

This case is an important reminder of the care required when negotiating settlements, in particular the pre-action correspondence and the drafting of a precise release clause. In addition, when construing the relevant settlement language, the courts would consider the wider factual circumstances and the parties’ genuine intentions behind their actions and it would be unsafe to assume that the courts will provide equitable remedies as it is now established that there are no special rules for releasing fraud-based claims, whether known or unknown at the material time, if the context points to that conclusion.

How can we help

Our firm has extensive experience in drafting and advising on settlement agreements to ensure that suitable language will be properly incorporated to record the specific types of claims that the parties intend to compromise and to provide carve-outs for reserving the right to bring possible future claims, particularly about unknown eventualities.

We would be delighted to offer a complimentary 20-minute no-obligation call to discuss your circumstances and how we can help, following which we can provide a relevant fee quote. Please do get in touch if you would like to utilise our expertise for your legal needs with a commercially focused approach.

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited 2023.