Tchenguiz & ors v Grant Thornton UK LLP & ors [2016] EWHC 865 (Comm) considers the circumstances in which the court may be prepared to conclude that a party intended to release fraud-based claims. A settlement agreement in respect of earlier proceedings was held to cover potential claims of conspiracy, malicious procurement and execution of search warrants, and malicious prosecution relating to an SFO investigation.  Although a court will be very slow to infer that a party intended to surrender rights and claims of which he was unaware and could not have been aware, or that a party intended to release fraud-based claims, the words used in the settlement agreement were sufficiently express to cover the claims.

The case is part of a long-running dispute arising out of the investigation carried out by the Serious Fraud Office (SFO) into the affairs of Vincent Tchenguiz.

After the collapse of Kaupthing Bank HF (Kaupthing) in 2008, Mr Tchenguiz and related parties sued certain Kaupthing parties in England and Iceland. However, in September 2011 a settlement agreement was reached between the claimants and the Kaupthing parties which contained various releases (the Settlement Agreement).

However, in 2014 the claimants sued Johannes Johannsson (a member of the winding up committee at Kaupthing) in England (the Claims) arising from what they allege to be his involvement in instigating, encouraging and/or directing an SFO investigation into the collapse of Kaupthing and Mr Tchenguiz and others.

Mr Johannsson’s defence was that the Settlement Agreement precluded the Claims. Even though he was not a party to the Settlement Agreement, he was entitled to rely on the Settlement Agreement under the Contracts (Rights of Third Parties) Act 1999. There was no further reference to this in the judgment.

The Settlement Agreement

The Settlement Agreement contained wide-ranging releases in favour of the Kaupthing parties:

• Kaupthing was released from "any claim arising out of or in connection with the Dispute, whether known or unknown, howsoever and whenever arising, and whether presently existing or arising in the future". Dispute was defined to include "all actual or potential claims…based upon any act or matter…prior to the execution of the Settlement Agreement, including, but not limited to, the Specified Disputes".
• Kaupthing was also released from "any claim arising out of or in connection with Specified Disputes". Amongst other matters, Specified Disputes included claims concerning "the [Tchenguiz parties] Icelandic and London claim…investigations carried out by any authorities in relation to the [Tchenguiz parties] or the affairs of Kaupthing or its counterparties…and the provision of any documents or information to any authority" (emphasis added).

Approach to construction of releases – BCCI v Ali

The claimants argued that the Claims should be treated as, or in the same way, as fraud-based claims, and that that should take them outside the scope of the releases. The claimants also argued that the releases did not extend to claims, the existence of which was not known and could not have been known to the claimants.

Knowles J referred to the guidance in BCCI v Ali & ors [2001] UKHL 8 where Lord Bingham said that a party might, in a compromise agreement, agree to release claims or rights of which he was unaware and of which he could not have been aware, even claims which could not, based on the facts known to the parties, have been imagined, if appropriate language is used to make plain that this was his intention. Knowles J also referred to Lord Bingham's "cautionary principle"; that in the absence of clear language, the court will be very slow to infer that a party intended to surrender rights and claims of which he was unaware and could not have been aware.

According to Satyam Computer Services Ltd v Unpaid Systems Ltd [2008] 2 CLC 864, the same principle applied to fraud-based claims and express words would be necessary for such a release.

Express release wording covers unknown claims and SFO investigation

Knowles J held that the words in the Settlement Agreement were sufficiently express and the parties had chosen to expressly state that the Specified Disputes released were "unknown" as well as "known".

The Specified Disputes also included "investigations carried out or actions taken by any authorities" and there could be no doubt that this included the SFO investigation commenced some six months before. Although there was no reference in the Settlement Agreement to claims based on misconduct or deliberate wrongdoing, Knowles J considered that this reflected the fact that the parties had chosen to use language directed at a subject area rather than a cause of action. In the subject area of investigations or actions by the SFO, an allegation of misconduct or deliberate wrongdoing would be what, objectively, the parties would have in contemplation. By including this in the drafting, the parties were putting out of reach claims in that subject area even if and when they found out more.

Knowles J considered that the Settlement Agreement, on its true interpretation, compromised the Claims and Mr Johannsson was entitled to a summary judgment. 

Alleged "sharp practice"

The claimants argued that, if on its true interpretation, the Settlement Agreement did compromise the Claims, they still had a remedy because there had been "sharp practice". In BCCI v Ali, Lord Hoffmann stated that a person would not be allowed to rely on a release in general terms if he knew that the other party had a claim and if he knew that the other party was not aware that he had a claim. Knowles J considered that these comments only applied to a general release, whereas here there was a specific release covering investigations and actions by authorities.

Comment

The decision follows another recent judgment on release clauses in Khanty-Mansiysk Recoveries Ltd v Forsters LLP [2016] EWHC 522 (Comm) (covered in the May Edition of the Litigation Review), where a settlement agreement was found to have had a much wider scope than the invoice payment dispute which existed between the parties when it was executed. Both cases serve as good reminders of how important it is to consider the drafting of a release clause and claims definition when entering into a settlement.

It is important to understand what is and what is not being released and parties should be aware that widely drafted clauses, identifying a specific subject area, can include a release of fraud-based claims. Any desire for the final resolution of a dispute needs to be balanced against the risk of unintentionally settling potential future claims.