Case law: Agreement to settle dispute over advisor's fees blocked subsequent negligence claim in relation to the advice given
Businesses signing agreements to settle disputes must understand the terms of the agreement they enter into, particularly the scope of the claim being settled and whether it effectively blocks future claims that are neither suspected nor in the parties' contemplation at the time.
This update was published in Legal Alert - April 2018
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A client failed to pay an advisor for its advice. The advisor took legal action to recover the fees owed to it. Eventually, the parties settled their dispute and signed a settlement agreement saying:
'This Agreement and the terms set out herein shall be 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 the contemplation of the Parties on the date hereof).'
The definition of 'Claims' included actual or potential claims of any kind or nature whatsoever, whether known or unknown, suspected or unsuspected, however and whenever arising, whether or not within the contemplation of the parties at the time of the settlement agreement, and arising out of or in connection with the Action (as defined in the recitals) or the outstanding invoice referred to in the Action.
The agreement referred to the 'Action' as: ‘claim number 2YK73888 (‘the Action’)… (For the avoidance of doubt, the Action relates in part to [the solicitors' outstanding invoice]’. This implied that the dispute over the advisor's fees was only part of the 'Action' covered by the settlement agreement.
It was later alleged that the advisor had been negligent. The client argued that the settlement agreement only related to the dispute over the fees, and did not preclude it from suing for negligence in carrying out the work leading to the fees becoming payable. It said it was unaware of the potential negligence claim at the time it signed the agreement, and should not be stopped by the agreement from pursuing that claim when it arose later.
The advisor countered that the settlement agreement precluded any negligence claim against it because it was in full and final settlement of any claims arising out of the 'Action' – which was not limited to the dispute over fees, but included any dispute in relation to the underlying work for which the fees were payable.
The Court of Appeal agreed with the advisor. The settlement was in full and final settlement of the dispute over fees, and any other disputes in relation to the underlying work carried out for the client. The wording of the agreement – which included terms like 'unsuspected' and 'whether or not in the contemplation of the Parties on the date hereof' – was very wide and must have been intended to cover more than the dispute over fees. It went on to rule that it included unknown negligence claims in relation to the work done by the advisor, even though such a claim was not suspected or in the parties' contemplation at the time the agreement was made.
- Businesses settling disputes should ensure they understand the terms of any settlement agreement they sign, including the scope of the claim being settled, and whether the agreement also blocks future claims that are neither suspected nor in the parties' contemplation at the time.
Case ref: Khanty-Mansiysk Recoveries Limited v Forsters LLP  EWCA Civ 89
Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.
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