Disputes Quick Read: A cautionary tale – settlement agreement (un)wittingly releases all claims for fraud

In Maranello Rosso Limited v Lohomij BV [2022] EWCA Civ 1667, the Court of Appeal sounded a word of caution when it confirmed that a release clause in a settlement agreement released all fraud claims (whether known or unknown to the parties) despite the absence of any express wording to that effect.

This case illustrates the importance of expressly setting out any claims that are to be released (or not released) under a settlement agreement, particularly where detailed letters of claim have already been sent. If you wish to retain the right to pursue certain claims then those claims should be expressly excluded from the release clause.

Background

Maranello Rosso Limited (MRL) Lohomij BV (Lohomij), Bonhams 1793 Limited and Bonhams & Butterfields Auctioneers Corporation (together, Bonhams) entered into contractual arrangements whereby MRL purchased a collection of classic cars, Bonhams auctioned the cars, and Lohomij provided the financing.

Bonham's auctions realised less than expected for the cars. MRL alleged that Bonhams had been negligent and acted in breach of the duties it owed to MRL in the way it conducted the auctions. Shortly thereafter, the dispute was resolved by way of a settlement agreement entered into by all three parties.

MRL subsequently issued new proceedings in which it claimed that Bonhams and Lohomij (and others) had unlawfully conspired to injure it. The defendants applied for the claim to be struck out or determined by way of summary judgment on the basis that MRL's claims had already been released under the settlement agreement.

MRL claimed that the release did not apply to its new claims as it did not contain an express exclusion of fraud claims. Alternatively, MRL claimed that the release should not apply because of sharp practice on the part of the defendants.

First Instance 

Judge Keyser QC held that MRL's new claims had been released under the settlement agreement.

The Judge held that the release clause was so widely drafted that the parties had "meant business" in seeking to draw a line under the matter. He was satisfied that the parties had objectively intended to release all claims, whether known or unknown, including claims for fraud.

A party may be prevented from relying on a release clause if, at the time the release was agreed, it was aware of its fraudulent conduct and the other party wasn't. However, the Judge was satisfied that this was not the case here. MRL's letter before action which preceded the settlement agreement had set out effectively the same alleged wrongdoing that gave rise to MRL's new claims.

MRL's appeal 

MRL appealed on the basis that on a proper construction, the settlement agreement did not release claims for fraud; or, if it did, the court should not give effect to the release clause because of the "sharp practice" by Bonhams and Lohomij. The Court of Appeal dismissed the appeal on the basis that the Judge had correctly decided both issues.