Beware of "settling" for standard form settlement wording

16 July 2012

The recent decision of the Court of Appeal in the case of Kazeminy v Siddiqi1 highlights the potential pitfalls that await parties who rely on standard form settlement wording to settle complex multi-party disputes.

The claim was between Mr Kazeminy (C) who had part-financed Mr Siddiqi (D) to enable him to exploit technologies that he had developed.  The following standard form wording had been used to settle the proceedings on the first day of the trial:

"This Settlement Agreement is entered into in full and final settlement of all and any claims, actions, liabilities, costs or demands that the Claimants have or may have against the Defendants, whether past, present or future and whether or not known or contemplated at the date of this Settlement Agreement arising under or in any way connected with these Proceedings or with any dealings between the parties concerning the Project."

A third party, G, who had not been a party to the court proceedings had also provided finance to D and had intimated that he may have a claim against D.  After the settlement agreement between D and C had been entered into, G assigned his rights against D to C.  C subsequently commenced fresh proceedings against D as assignee.

D attempted to rely on the settlement agreement with C and applied to have the claim struck out.  At first instance, Flaux J refused to strike out the claim, and held that the settlement agreement did not extend to any rights of third parties that C subsequently acquired by assignment or otherwise.

The Court of Appeal upheld the first instance decision and dismissed the appeal.  It held that the words of the settlement agreement should be interpreted in the way in which they would be understood by reasonable persons who were aware of the factual background known to both parties (pursuant to the approach set out in Investors Compensation Scheme Ltd v West Bromwich Building Society2).  A key factor in the Court of Appeal's decision was that both parties had been fully aware that G might assert similar claims against D, and D had not joined G to the proceedings or the settlement agreement.  The Court of Appeal held that it must have been "obvious" to the parties that settlement could not have affected G's rights, which he had remained free to enforce or assign.

1.  [2012] EWCA Civ 416

2.  [1988] 1 WLR 896

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