- David Edgar Heaton, Robert
Cheetham and Jack Taylor ("the Claimants") were directors of and shareholders
in a company called Glyne Investments Limited ("Glyne"). It traded under the
name "Inter City" as agents and representatives in the sale of investment
products. Until 29 April 1988, Glyne was an agent of Target Life Assurance
Limited ("Target"). Between that date and 4 July 1991, Glyne was an agent
of National Financial Management Corporation Plc ("NFMC"), a member of the
same group as Target. At the end of June 1991, Target and NFMC closed for
new business and a joint marketing group was established between Target and
the defendants in this action ("Equity & Law").
- By a written agreement
dated 4 July 1991 ("the Target Agreement"), Glyne was made an Appointed Representative
of Target with a view to enabling its representatives to continue to service
Target/NFMC clients. On the same date by another written agreement ("the Equity
& Law Agreement"), Glyne was made an Appointed Representative of Equity
& Law, selling Equity & Law's financial products to members of the
public. Target summarily terminated the Target Agreement on 29 January 1993,
on the grounds, inter alia, that Glyne had been engaged in conduct
prejudicial to the business of Target. The justification for this action was
an allegation by Target that Glyne had been engaged in "churning" business.
Equity & Law summarily terminated the Equity & Law Agreement on 8
February 1993. These actions caused great damage to both Glyne and the Claimants
personally.
- By Writ issued on 1 March
1993, Glyne sued Target ("the Target Action") claiming damages for breach
of contract in respect of the alleged unlawful termination of the Target Agreement
by Target on 29 January 1993. The scope of the allegations made and the heads
of damage sought in those proceedings will be considered in some detail below.
It is sufficient at this stage to note that Glyne alleged that it was that
termination and the accusations of churning by Target which in turn had caused
Equity and Law to terminate the Equity & Law Agreement and that the damages
sought by it in the Target Action included damages flowing from Equity &
Law's termination of its agreement. Glyne also claimed unpaid commissions
owed by Target.
- On 18 July 1996 Glyne
went into liquidation and, by assignment dated 18 July 1996, Glyne, acting
by its liquidator, assigned absolutely to the Claimants all of Glyne's rights
of action against Target in connection with the termination of the Target
Agreement and against Equity & Law in connection with the termination
of the Equity & Law Agreement. It should be noted that although at that
date proceedings had been brought against Target, none had been commenced
against Equity & Law. In November 1993, Equity & Law had commenced
proceedings against Glyne and the Claimants for the repayment of £25,000 advance
commissions. In correspondence in 1993, solicitors acting for the defendants
in that action asserted that their clients were entitled to a set off and
had a substantial counterclaim arising out of the termination of the Equity
& Law Agreement. In fact no defence and counterclaim were served. Equity
& Law obtained judgment in default of defence in December 1993 but this
appears to have been obtained in error and in breach of an agreement between
the parties allowing further time for the service of a defence. Save in this
respect, the case has remained effectively dormant. On 29 July
1996, Maurice Kay J ordered that Glyne cease to be a plaintiff in the Target
Action and that the Target Action thereafter be carried on by the Claimants
as assignees against Target.
- In June 1997, a number
of preliminary issues were tried by Moses J. in the Target Action. It is not
in dispute that those proceedings went badly for Target. On the tenth day
of the hearing, Target withdrew its allegations of systematic churning and
serious misconduct. Target effectively conceded liability and was ordered
to pay costs on an indemnity basis.
- On 3 February 1998 the
Claimants' solicitors sent a draft Statement of Claim to Target's solicitors
pleading further claims against Target in connection with the termination
of the Target Agreement ("the Draft Second Target Statement of Claim"). These
claims were advanced by the Claimants both as assignees of Glyne and in their
own right. The Draft Second Target Statement of Claim concerned claims by
the Claimants, acting both in their own right and as assignees of Glyne's
rights, for damages in tort and for breach of contract in connection with
the preparation and publication by Target of reports and references concerning
Glyne and the individual Claimants after the termination of the Target Agreement.
- The Target Action and
the proceedings threatened on the back of the Draft Second Target Statement
of Claim were settled on the terms set out in a written agreement ("the Settlement
Agreement") for the sum of £10 million which has been duly paid by or on behalf
of Target. The Settlement Agreement was contained within an order of the court
dated 23 April 1998 which brought the Target Action to an end. The parties
to the Settlement Agreement were each of the Claimants in the present proceedings,
together with their companies, Glyne and Abbey Life Assurance Company Limited
("Abbey Life") which by then had assumed the relevant assets and liabilities
of Target. Equity & Law was neither a party to the Settlement Agreement
nor was it made a party for the purpose of the court order of 23 April.
The current
proceedings
- On 23 November 1998,
the Claimants issued the writ in these proceedings, which are brought in their
personal capacities and as assignees of Glyne. In it they claim that on 8
February 1993 Equity & Law wrongly and in breach of contract terminated
the Equity & Law Agreement. In addition, the Claimants assert that after
the termination of the Equity & Law Agreement, Equity & Law (in breach
of contractual and tortious duties allegedly owed to them personally and to
Glyne) gave false and untrue reports and references in respect of each of
Glyne and the Claimants. On 27 January 1999, Equity & Law issued Third
Party proceedings claiming a contribution against Abbey Life because it had
by then assumed the relevant assets and liabilities of Target.
- On 26 April 1999 pursuant
to CPR Rule 3.1(2)(i) and on the application of Equity & Law, Master Bragge
ordered the following preliminary issue to be tried by a judge of the High
Court:
"What
is the consequence for the Plaintiffs' claims in these proceedings of the
settlement agreement contained within the Order dated 23 April 1998 in the
High Court Queen's Bench Division action number 1993 G. No. 610 and made between
the Plaintiffs and Abbey Life Assurance Limited and satisfied by payment of
£10 million paid thereunder."
- The Defendants, represented
by Mr. Jonathan Hirst Q.C., argue that the effect of the Settlement Agreement
is to extinguish the Claimants' claims against Equity & Law and to prevent
them from pursuing this action. They invite me to dismiss these proceedings.
This outcome is said to flow from a recent decision of the House of Lords;
Jameson v. Central Electricity Generating Board [1999] 2 WLR 141.
- The Claimants, represented
by Mr. Leslie Kosmin Q.C., say that the defendants' argument is misconceived.
In substance they argue that, when properly construed, the Settlement Agreement
was not intended to and did not give Equity & Law immunity from suit and
that Jameson has no application to the facts of this case. Further,
they argue that if the defendants' argument prevails it will have presented
them with a windfall. They will get away without having to pay a penny of
compensation for the harm they have inflicted on the Claimants. This unexpected
bonus to Equity & Law is matched by injustice to the Claimants because,
unlike Target, Equity & Law has neither retracted or apologised for the
allegations of churning and has not undertaken to desist from making such
allegations in the future. Furthermore the Claimants will be deprived of the
opportunity to raise the set off and counterclaim to Equity & Law's dormant
advance commission claim.
- Abbey Life were not represented
before me and no submissions were advanced on their behalf.
- I will consider the parties'
respective arguments in greater detail below, but both sides accept that their
arguments are dependent on or affected by what actual or potential litigation
was compromised by the Settlement Agreement. Therefore each relies upon or
accepts that its arguments have to be set against the background of what was
in issue in the Target proceedings and would have been in issue if the Draft
Second Target Statement of Claim had progressed to proceedings.
The Target
Proceedings (1993 G. No. 610).
- The introductory paragraphs
in the Re-Re-Amended Statement of Claim set out the engagement of Glyne by
Target, NFMC and then by Equity & Law. It is alleged that Equity &
Law agreed to buy all the relevant Target and NFMC business and that was given
effect to in early 1991. Equity & Law was to take over Target's and NFMC's
agents and representatives. Paragraph 11 of the pleading states that by the
Equity & Law Agreement, Equity & Law appointed Glyne as its appointed
representative. That agreement contained certain provisions, including Clause
8.1.2, allowing Equity & Law to terminate forthwith in certain defined
circumstances. Paragraph 12 of the pleading states that on the same day the
Target Agreement was entered into between Target, NFMC and Glyne to replace
the previous agreements between those parties. It was in short form, incorporating
essentially all the terms of the Equity & Law Agreement as if they had
been set out in full, the only differences of note being the identities of
the contracting parties. Paragraph 22 asserts that on 29 January 1993, Target
wrongfully purported to terminate the Target Agreement alleging that Glyne
had engaged in prejudicial conduct and that it, Target, was of the view that
Glyne;
"... was in breach of
the terms of Schedule 2 of the Equity & Law Agreement in that inter
alia it had failed to comply with LAUTRO regulations and had used sales
techniques which in the opinion of [Target] brought into disrepute the name
and goodwill of [Target]"
- Paragraphs 23 to 26 allege
that Target wrongfully withheld certain payments due to Glyne. Target's actions
are pleaded to have inflicted severe damage on Glyne (and, of course, the
Claimants). In particular, under the heading "Destruction of the Plaintiff's
Business" the following is pleaded in paragraph 28:
"[Target's] unlawful
termination of the Target Agreement on the basis of wholly unsubstantiated
and misconceived allegations of serious misconduct on the part of the Plaintiff
was the effective and dominant cause of the following events, each of which
was a natural and reasonably foreseeable consequence of the said unlawful
termination:
(1) by a letter
dated 8 February 1993 and signed by Mr. G A Markham (Equity & Law's
Head of Associates), Equity & Law purported to terminate the Equity
& Law Agreement pursuant to clause 8.1.2. thereof but without otherwise
specifying the grounds of such termination;
(2) [Target] refused
to pay any further commissions to the Plaintiff;
(3) Equity &
Law refused to pay any further commissions to the Plaintiff
(4) ...
(5) The Plaintiff
was forced to cease trading, and to dispose of its staff, equipment and
premises.
(6) The Plaintiff
was (or would have been) unable to obtain appointment as a appointed representative
of any other Member of LAUTRO or of the PIA, or certification as an independent
financial adviser by FIMBRA or the PIA; and
(7) on 18 July 1996,
consequent upon being deprived of its commission income, the Plaintiff went
into creditors' voluntary liquidation on the ground that by reason of its
liabilities it was insolvent and unable to pay its debts."
- Paragraph 29 of the pleading
then sets out particulars to support the allegation that Target's actions
were the "effective and dominant cause" of those events. Those particulars
include;
(i) a reference
to an internal memorandum within Target that "Equity & Law will find
it very difficult to refuse termination as our evidence as to current churning
is strong",
(ii) a further internal
memorandum in which Target is said to have recognised that its termination
of the agreement on the basis of serious allegations made against the Plaintiff
would put the Plaintiff out of business and that "it is unlikely that any
other Life Company could take them on",
(iii) an alleged
representation made by Target to Equity & Law that the Plaintiff had
committed serious regulatory breaches,
(iv) two conversations
between Target's Managing Director and Equity & Law's General Manager
in which the former informed the latter that the Target Agreement had been
terminated on the grounds of serious misconduct,
(v) communications
with LAUTRO in which Target asserted that the Plaintiff was guilty of serious
misconduct,
(vi) letters sent
by Target to "substantially the whole of the Plaintiff's client base" informing
those clients that the Plaintiff was no longer authorised to provide investment
advice in relation to their policies,
(vii) an expression
by Mr. Markham to a third party that, notwithstanding Equity & Law's
sympathy for the position of the Plaintiff in the light of Target's termination
of the Target Agreement on the basis of allegations of serious misconduct
by the Plaintiff, "Equity & Law had itself been forced to terminate
the Equity & Law Agreement",
(viii) letters sent
by Target to clients warning them that they may have suffered a reduction
in the value of their investments which entitled them to substantial compensation,
(ix) As the result
of the operation of LAUTRO rules Target's "summary termination of the Target
Agreement on the basis of wholly misconceived and erroneous allegations
of serious misconduct substantially impugned the good character, competence
and suitability of the Plaintiff to manage the marketing of investment contracts
on behalf of Equity & Law or any other member of LAUTRO."
- The Re-Re-Amended Statement
of Claim ends with a section particularising Glyne's loss and damage. This
includes the loss of the value of its business, including its goodwill as
a going concern and the costs and expenses of the creditors' voluntary liquidation
including legal expenses.
- It is not necessary to
analyse the defence in any detail. It is sufficient to record that Target
denied that it was responsible for Equity & Law's decision to terminate
the Equity & Law Agreement. It pleaded that Equity & Law had made
its own inquiries. This denial was not accepted and the assertion that Target
was the effective and dominant cause of Equity & Law's termination and
that such termination was foreseeable was maintained by Glyne and, after assignment,
by the Claimants throughout. Similarly the Claimants maintained throughout
that Target was responsible for the total loss of the Glyne business as a
going concern.
The Draft
Second Target Statement of Claim
- Whereas the Target proceedings
were framed in contract, the draft second Target Statement of Claim was framed
in terms of a contractual and common law duty of care. Essentially it alleged
that Target was under a duty to ensure that any references or reports it prepared
and issued concerning any of the Claimants were prepared with reasonable care
and skill and would be accurate and properly researched. It alleges that in
making assertions of churning, Target breached that duty. Paragraph 36 of
the draft statement of claim alleged that it was foreseeable as a result of
the provision and publication by Target of untrue statements in its reports
and references concerning the Claimants;
"(i) that [the Claimants]
would be unable to obtain employment or engagement elsewhere in the financial
services industry or other responsible management position elsewhere either
commensurate with their positions in relation to Inter City or at all;
(ii) that [the Claimants]
would be forced to borrow monies and realise assets in order to meet their
living expenses and the costs of any legal proceedings to clear their names
and enforce the legal rights of Inter City;
(iii) that the Equity
& Law Agreement would be terminated by Equity & Law;
(iv) that Inter
City would be unable to obtain appointment as an appointed representative
of any other Member of LAUTRO or of the PIA or certification as an independent
financial adviser by FIMBRA or the PIA, and
(v) that Inter City,
consequent of (sic) being deprived on (sic) its commission income, would
be put out of business and forced into insolvent liquidation."
- The draft went on to
allege that as a result of the publication of the various Target reports and
references concerning the Claimants;
"(i) [the Claimants]
were unable to retain their appointments as Company Representatives of Equity
& Law or to obtain appointment as Company Representatives of any other
Member of LAUTRO or of the PIA or unrestricted certification as independent
financial advisers by FIMBRA or the PIA. Each of the [Claimants] suffered
a period of unemployment and was forced to realise personal assets and incur
substantial borrowings;
(ii) by letter dated
8 February 1993 signed by Mr. G. A. Markham (Equity & Law's Head of
Associates) Equity & Law purported to terminate the Equity & Law
Agreement pursuant to clause 8.1.2 thereof but without otherwise specifying
the grounds of termination;
(iii) Inter City
was unable to obtain appointment as the Appointed Representative of any
other Member of LAUTRO or of the PIA or certification as an independent
financial adviser by FIMBRA or the PIA unable to resume trading. ...
(iv) Inter City
was deprived of its commission income from Target and Equity & Law and
was forced to dispose of its staff, equipment and premises; and
(v) ... Inter City
went into creditors' voluntary liquidation."
- The damages alleged to
have flowed from these actions covered a wide field including the loss of
personal income as a result of being unable to continue in employment, loss
of future earnings, losses incurred by being forced into the firesale of various
assets and losses incurred as a result of having to borrow money.
- One other point should
be made about the draft Statement of Claim. As with the Target proceedings
themselves, the whole thrust of the pleading was that Target bore primary
or dominant responsibility for all losses suffered by the Claimants, including
the losses incurred as a result of Equity & Law terminating the Equity
& Law Agreement. In the draft Statement of Claim this responsibility was
emphasised by paragraphs which referred to the fact that Equity & Law's
expressed view, before Target disseminated its assertions of impropriety against
the Claimants, was that the Claimants were not guilty of churning (paragraph
33(6)(iv)) and that their selling methods and practices were proper (paragraph
33(8)(ii)).
The Settlement
Agreement
- The Settlement Agreement
is scheduled to a Tomlin Order made on 23 April, 1998. The parties to it include
the Claimants and various Target companies. It records the payment of £10m
to the Claimants and then provides at Clause 2.1:
"This Agreement is in
full and final settlement of all claims and potential claims of whatsoever
nature and kind (including interest and costs) which the Parties have or
may have against each other under or in respect of or arising out of or
in connection with, whether directly or indirectly:
(1) the termination
on 29 January 1993 of the Target Agreement (as defined in paragraph 12 of
the Re-Re-Amended Statement of Claim in action number 1993 - G- No. 610);
(2) the termination
on 8 February 1993 of the Equity & Law Agreement (as defined in paragraph
11 of the Re-Re-Amended Statement of Claim in action number 1993 - G- No.
610);
(3) the personal
references, reports and statements made to third parties that were provided
in respect of any of the Claimants following the termination of any of the
Target Agreement and the Equity & Law Agreement (or either of them);
(4) the matters at
issue in action number 1993 - G- No. 610
(5) any claims or
matters identified in the draft Statement of Claim provided by the Plaintiffs'
solicitors to the Defendant's solicitors under cover of a letter sent on
or about 3 February 1998;
and without prejudice
to the generality of the foregoing, the Parties hereto agree not to commence
or prosecute any proceedings against one another arising out of or in connection
with such matters."
The allegations
against Equity & Law in the current proceedings
- Some months after the
Settlement Agreement, the Claimants commenced the current proceedings. The
issues and assertions raised are very similar to those raised or asserted
against Target. The proceedings are brought in the name of the Claimants suing
both in their personal capacities and as assignees of Glyne. The causes of
action are for breach of contract, i.e. breach of the Equity & Law Agreement,
and breach of contractual and common law duty of care. As with the Target
pleadings, the Claimants assert that, prior to Target's allegations of churning,
Equity & Law had expressed satisfaction with the Claimants' and Glyne's
method of conducting business. They plead that it was Equity & Law's view
that termination by Target of the Target Agreement "put Equity & Law in
a very difficult position" (paragraph 35). It was only after Target's assertions
of churning and termination of its agreement that Equity & Law terminated
the Equity & Law Agreement. In paragraph 46, the Claimants rely upon an
assertion by a senior employee of Equity & Law that the latter's decision
to terminate the Equity & Law Agreement "had been made on the basis of
information supplied to Equity & Law by Target". The statement of claim
also contains allegations of contractual and common law duties of care and
breach of them by Equity & Law which mirror the equivalent allegations
against Target.
- The pleading of loss
and damage also mirrors that in the Target proceedings and the Draft Second
Target Statement of Claim. It includes Glyne's inability to obtain an appointment
as an appointed representative or certification as an independent financial
adviser and the fact that Glyne was forced to cease trading and into creditors'
voluntary liquidation (paragraph 76). It also includes loss of the value of
the business, including goodwill as a going concern (paragraph 77). The claims
for losses suffered by the Claimants in their personal capacities appear to
be indistinguishable from those raised against Target even down to the minutiae
of the losses incurred as a result of the firesale of assets. In relation
to this, in paragraph 52(C) of its Amended Defence and Counterclaim, Equity
& Law asserts that the Claimants have claimed that the same loss was caused
by Equity & Law and Target. The Claimant's denial of this in the Amended
Reply is illuminating;
"Further it is denied
that each of Equity & Law and Target caused the same loss to the Plaintiffs
as alleged in paragraph 52C. The following losses were caused to the Plaintiffs
(either in their personal capacities or as assignees of [Glyne]) by Target
which were not caused by Equity & Law - ..."
In other
words some losses were caused by Target alone. Nowhere is it suggested that
any loss caused by Equity & Law was not also covered by the claims against
Target. The losses claimed against Equity & Law are entirely encompassed
within what was sought against Target.
The application
of Jameson to the facts in this case
- In Jameson an
asbestos worker, formerly employed by company A, developed malignant mesothelioma.
He said that this had been caused by his exposure to asbestos dust while working
at various premises on behalf of A. They included the premises of company
B. The ex-employee sued A for negligence and breach of statutory duty. Shortly
before his death, he accepted a sum of money in full and final settlement
and satisfaction of all the causes of action in respect of which he had claimed
in his statement of claim. After his death, his executors sued B on behalf
of his widow. Similar allegations of negligence and breach of statutory duty
were advanced in relation to the same acts of exposure to asbestos. B denied
liability, pleaded that it was released as a result of the settlement of the
proceedings against A and also issued third party proceedings for a contribution
against A. The House of Lords held, Lord Lloyd dissenting, that B succeeded
on the release argument.
- Lord Hope, with whose
speech the majority of their Lordship agreed, explained that a claim of damages
in tort (which was all that was in issue in Jameson) is a claim for
unliquidated damages. It remains unliquidated until the amount has been fixed
either by the judgment of the court or by an agreement as to the amount which
must be paid to satisfy the claim. A plaintiff is barred from going on with
a separate action against another tortfeasor if the judgment which he has
obtained in the first action has been satisfied.
"The critical question
... is whether the claim has in fact been satisfied. I think that the answer
to it will be found by examining the terms of the agreement and comparing
it with what has been claimed. The significance of the agreement is to be
found in the effect which the parties intended to give to it. The fact that
it has been entered into by way of a compromise in order to conclude a settlement
forms part of the background. ... The essential point is that the meaning
which is to be given to the agreement will determine its effect." ([1999]
2 WLR 151)
He also
pointed out that the judge could only embark on a limited inquiry if a subsequent
action is raised against another concurrent tortfeasor;
"He may examine the
statement of claim in the first action and the terms of the settlement in
order to identify the subject matter of the claim and the extent to which
the causes of action which were comprised in it have been included within
the settlement. The purpose of doing so will be to see that all the plaintiff's
claims were included in the settlement and that nothing was excluded from
it which could properly form the basis for a further claim for damages against
the other tortfeasors. The intention of the parties is to be found in the
words of the settlement. The question is one as to the objective meaning
of the words used by them in the context of what has been claimed.
"... The question therefore
is ... not whether the plaintiff has received the full value of his claim
but whether the sum which he has received in settlement of it was intended
to be in full satisfaction of the tort." (p. 154)
Mr. Hirst
argues that the Settlement Agreement could not be more clear. All the claims,
including those arising out of Equity & Law's actions, are settled. That
covers all the claims made in the current proceedings.
- Mr. Kosmin advances three
arguments. First he says that on its true construction the Settlement Agreement
was intended to settle the Claimants' claim against Target only and was not
intended to, and did not, extinguish the claim against Equity & Law. He
says that this is clear from the wording of the Settlement Agreement. Secondly,
he says that if there is any doubt on this issue, it is an implied term of
the Settlement Agreement that rights against Equity & Law were preserved.
Finally he argues that Jameson was concerned only with liability of
concurrent tortfeasors for the same harm. It has no application to a case
such as this concerned with breaches of different contracts. It is convenient
to consider the first two of these arguments together.
- Mr. Kosmin invites me
to construe the Settlement Agreement just like any other contract. He says
it was designed to settle claims only against Target. This can be seen from
a number of its provisions. In particular he relies on the fact that clause
2.1, which is set out at paragraph 23 above, only refers to the settlement
of claims which the parties have or may have "against each other" and that
they agreed not to commence or prosecute proceedings "against each other".
He also relies on Clause 5 which provides:
"Each of the Parties
hereto hereby unconditionally and irrevocably releases and discharges
each other, and their respective directors, officers and employees from
all or any liabilities, actions, causes of action, suits, demands of whatever
nature or kind and howsoever and whenever arising which any of them may
be entitled to make, assert or pursue in any jurisdiction whatsoever in
relation to or in any way connected with the matters specified in clause
2.1 above" (Mr. Kosmin's emphasis)
- He says that this shows
that the Claimants turned their minds to who, besides Target, were to be released.
The category of non-parties who were to benefit from the Settlement Agreement
was limited to the various officers and employees of Target referred to in
this Clause. He says that the point is reinforced by Clause 3 which imposes
a blanket of confidentiality over the Settlement Agreement. He asks rhetorically,
how could Equity & Law be released from the claims against it by a settlement
with another party of which it has no knowledge. He also relies on Clause
6:
"The Defendant and Lloyds
TSB hereby agree to withdraw or to procure the withdrawal of the proof of
debt lodged in the liquidation of Glyne and hereby agree not to prove or
seek to make any claim whatsoever in the liquidation of Glyne."
- Mr. Kosmin points out
that no similar undertaking has been sought from or given by Equity &
Law. Further the default judgment obtained in error and referred to at paragraph
4 above, was used as the basis of a claim submitted by Equity & Law in
the liquidation of Glyne. With interest, that claim is in the region of £32,000.
It has not been withdrawn. As a result it remains a contingent liability in
the liquidation. As the liquidator has pointed out, the liquidation cannot
be finalised until that claim has been resolved. Mr. Kosmin says that if the
Settlement Agreement has the effect for which Equity & Law contend, then
his clients will be debarred from putting forward their set off and counterclaim.
He says that it is not credible that his clients would have intended to settle
all their claims, including the claims against Equity & Law, without requiring
the withdrawal of Equity & Law's proof of debt in the liquidation.
- Finally Mr. Kosmin says
that if his submissions on construction are not right, a term must be implied
in the Settlement Agreement to the effect that the Claimants' rights as against
Equity & Law are reserved. He says that the implication of such a term
is consistent with the Court of Appeal's approach in Watts v. Aldington
The Times, 16 December, 1990.
- It appears to me that
the arguments on construction advanced by Mr. Kosmin came close to asking
whether Equity & Law were intended to be parties to the Settlement Agreement.
His approach appears to me to concentrate too much on the identity of the
parties to the settlement and insufficiently on what it was that was intended
to be settled. Although the extent of party A's release from litigation may
be determined or shaped by a contract of settlement entered into between his
opponent and party B, it is not a contractual entitlement not to be sued.
There is no privity of contract between A and his opponent in relation to
the settlement. As in Jameson, the settlement may not expressly purport
to confer any rights on A. On the contrary, the interests or liabilities of
that party may not have been considered by any of the signatories to the settlement.
A will have given no consideration. If that is so, then how can A rely on
the settlement to avoid the litigation? It appears to me that the proper analysis
is that this is one of those areas where the courts prevent a litigant from
doing something which is inconsistent with the fair conduct of litigation.
The effect of a settlement agreement between two parties to litigation may
create benefits for third parties who are not in contractual relationship
with the plaintiff. The contract acts as a statement, effective against the
parties to it, which determines not only the extent of the settlement between
them but also acts as a concession of general application which restricts
the parties' right to litigate the same or similar issues again against others.
So the court looks at the contract of settlement to see whether and to what
extent it would be improper to allow the plaintiff to assert rights against
a non-party to it. Having settled claims with one defendant it would be contrary
to public policy to allow the plaintiff to continue to litigate or to raise
the same issues against another. This is part of the public policy against
multiplicity of proceedings.
- When a party settles
a claim, the courts look to the terms of the settlement to see whether the
intention was to settle the claim in its entirety or only to settle a part
of the claim. Although it is possible for a plaintiff to choose the latter
course, thereby reserving part of the claim against a number of defendants,
he must make it clear that that is what he is doing. This appears to me to
have been the view of the majority of the House of Lords in Jameson;
"In the typical case
the plaintiff agrees to accept the sum which the defendant is willing to
pay in full and final settlement of his claim. Such a settlement normally
involves an element of compromise on both sides. ... The effect of the compromise
is to fix the amount of his claim in just the same way as if the case had
gone to trial and he had obtained judgment. Once the agreed sum has been
paid, his claim against the defendant will have been satisfied. Satisfaction
discharges the tort and is a bar to any further action in respect of it
... I think that it follows that, if the claim was for the whole amount
of the loss for which the defendant as one of the concurrent tortfeasors
is liable to him in damages, satisfaction of the claim against him will
have the effect of extinguishing the claim against the other concurrent
tortfeasors.
There
may be cases where the terms of the settlement, or the extent of the claim
made against the tortfeasor with whom the plaintiff has entered into the settlement,
will show that the parties have not treated the settlement as satisfaction
for the full amount of the claim of damages. In the same way a judge, in awarding
damages to the plaintiff in his action against one concurrent tortfeasor,
may make it clear that he has restricted his award to a part only of the full
value of the claim." (p. 152)
The same
point was made, perhaps more forcefully, by Lord Clyde; see page 160 C to
G and page 162 B to E.
- The obvious way to make
such an intention clear is to use express words to that effect. But the intention
may be apparent from a consideration of the surrounding circumstances. Although
Lord Hope referred to looking at the extent of the claim made against the
tortfeasor, this does not mean that the court is free to assess whether the
settlement of the whole claim on the agreed terms was a good deal from the
plaintiff's point of view. This is can be seen from another passage in Lord
Hope's speech;
"What the judge may
not do is allow the plaintiff to open up the question whether the amount
which he has agreed to accept from the first concurrent tortfeasor under
the settlement represents full value for what has been claimed. That kind
of inquiry, if it were to be permitted, could lead to endless litigation
as one concurrent tortfeasor after another was sued on the basis that the
sums received by the plaintiff in his settlements with those previously
sued were open to review by a judge in order to see whether or not the plaintiff
had yet received full satisfaction for his loss. Different judges might
arrive at different assessments of the amount of the damages. The court
would then have to decide which of them was to be preferred as the basis
for the apportionment between the various tortfeasors. I do not think that
this can be regarded as acceptable. The principle of finality requires that
there must be an end to litigation."
- So, in determining whether
the settlement was intended to release or has the effect of releasing other
defendants, the court must not consider whether the plaintiff would have received
more had he pursued the case to judgment or could have held out for more.
There are all sorts of reasons, including the nature of the advice he gets
from his lawyers and their assessment of the likelihood of various witnesses
acquitting themselves well at the trial, all matters of which the judge will
be ignorant, which may have led him to conclude that settlement on one package
of terms now is preferable to the hope of more later. He could simply have
negotiated poorly. This does not mean that the size of the settlement is always
irrelevant. A settlement of an apparently good claim against one of multiple
defendants for an apparently nominal sum may lead the court to the conclusion
that the settlement was not intended to assess the value of the claim or give
the plaintiff full compensation. It may, for example, simply be a way of excluding
from the dispute a defendant who has no money or who played a peripheral role.
This is illustrated by Watts v. Aldington. This was yet a further stage
in the dispute between Lord Aldington on the one hand and Count Tolstoy and
Mr. Watts on the other. Lord Aldington had obtained a judgment for £1.5M in
his favour arising out of libels published by the defendants. Both Count Tolstoy
and Mr. Watts petitioned for their own bankruptcies. There were numerous further
applications to court but eventually Lord Aldington entered into a settlement
with Mr. Watts in the sum of £10,000 which was to be paid by Mr. Watts' family.
Lord Aldington always made it clear that he intended to get more than this
from Count Tolstoy's Trustee in Bankruptcy. He had already rejected an offer
on behalf of the Count of £20,000. Once the settlement had been entered into,
Mr. Watts brought proceedings against Lord Aldington seeking a declaration
that the settlement agreement constituted a release by Lord Aldington of all
rights which he might have against either Mr. Watts or Count Tolstoy arising
out of the judgment for £1.5M. The settlement agreement did not expressly
refer to Count Tolstoy being released.
- All three members of
the Court of Appeal rejected Mr. Watts' arguments. They accepted that a release
of one tortfeasor could and frequently would release another. They also appear
to have approached the case on the basis that if Lord Aldington was to be
permitted to continue with his proceedings against Count Tolstoy, it was necessary
for him to show that he had reserved a right to do so when entering into the
release with Mr. Watts. As Simon Brown LJ said, parties who intend to reserve
a right to sue or continue with proceedings against another wrongdoer are
well advised to include an express reservation to that effect (Transcript
p. 41). But the absence of such an express reservation was not an end to the
matter. A reservation could be implied. In holding that such an implied term
existed, Neill LJ said that any other result would offend commonsense in the
light of the surrounding circumstances in that case. Steyn LJ, having commented
that the touchstone of implication is strict necessity, said:
"I therefore turn to
the question whether the test of strict necessity is satisfied, or, putting
it another way, whether it is so obvious that it goes without saying that
Lord Aldington was reserving his right to proceed against Count Tolstoy.
Here one must credit the reasonable man with knowledge of the surrounding
circumstances. The contextual scene included the following matters. First,
Lord Aldington's willingness to settle with Mr. Watts was the result of
Lord Aldington's belief that Mr. Watts was impecunious. Secondly, Lord Aldington
rejected an offer of £20,000 from Count Tolstoy, on the basis that he thought
that he would be able to recover substantially more than £20,000 from Count
Tolstoy. Thirdly, Lord Aldington was energetically pursuing his remedies
against Count Tolstoy at all material times before the agreement made on
20 March 1991. Fourthly, Lord Aldington entered into the negotiations with
Mr. Watts alone. There circumstances were known to both contracting parties.
It is
important to formulate the right question to be posed by the notional bystander.
In my judgment the right question is the following: is Lord Aldington reserving
the right under his agreement to sue Count Tolstoy? In my judgment the objective
setting of the contract convincingly shows that the answer of both parties
to that question would have been 'Yes, of course'." (Transcript p. 35-6)
- This appears to me to
be consistent with the approach adopted by the House of Lords in Jameson
namely that it is possible for a plaintiff to reserve his claim against
some of a number of defendants but it must be clear that that is what he is
doing. If he does not make the reservation by express words, it must be a
reservation which is made by necessary implication. How, then, do the facts
of the present case fit in with those principles?
- First, the fact that
the Settlement Agreement was only entered into by the Claimants and Target
is one factor but, as Jameson illustrates, is not determinative of
whether the Claimants intended to reserve their rights of action against Equity
& Law. Secondly, the overall structure of the Settlement Agreement and
the claims made against Target point strongly against any such intention.
Target was purchasing peace at a high price. One of the core allegations made
against it was that Equity & Law originally did not challenge the Claimants'
commercial practices but it was persuaded to do so by Target's wrongful acts
and statements. All the damage flowing from Equity & Law's breach of contract
and wrongful assertions of churning flowed directly and foreseeably from Target's
actions. It follows that any reasonable observer at the time of the Settlement
Agreement would have recognised that if the Claimants were to bring or reactivate
proceedings against Equity & Law, it was inevitable that Equity &
Law immediately would seek a contribution for the majority if not the whole
of its liability from Target and would rely on just those allegations of responsibility
which permeate the Claimants' Statement of Claim. So, if the Claimants reserved
their rights against Equity & Law, Target would have paid the price for
peace but without achieving it. This appears to me to be the antithesis of
the full and final settlement which Clause 2.1 of the Agreement promised.
This point is reinforced by the provisions of Clause 2.1(2), (3), (4) and
(5) each of which clearly are intended to give Target peace in respect of
the activities of Equity & Law.
- I am also not persuaded
by Mr. Kosmin's argument based on the confidentiality clause in the Settlement
Agreement. The issue, as formulated by Steyn LJ, is whether the notional bystander
would believe that the Claimants were reserving the right under the agreement
to sue Equity & Law. In my view the confidentiality clause does not help
to answer that question. The fact that the parties to the Settlement Agreement
agreed to keep the terms of their compromise secret says nothing about the
Claimants' right to continue claims against Equity & Law. On the contrary,
if they were to pursue such claims it was inevitable that the terms of the
Settlement Agreement would become known to Equity & Law even if they did
not know them earlier. The Agreement itself would have had to be disclosed
on discovery and the terms would also have become known as soon as Target
put in its defence to the contribution notice. In fact in this case the terms
of the Agreement were pleaded by Equity & Law and responded to by the
Claimants. It was not suggested that Equity & Law were not allowed to
know them.
- I am also not persuaded
by the argument relating to the continued contingent liability arising from
Equity & Law's claim for £32,000 in the liquidation. I am by far from
convinced that the Settlement Agreement, even if it precludes the Claimants
from making further claims against Equity & Law, has the effect of preventing
them from defending Equity & Law's claim for reimbursement of commissions
paid. But even if it does, I do not think this would lead anyone to believe
that the Claimants had impliedly reserved their general rights of action against
Equity & Law. At the most it means that the Claimants would need to pay
£32,000, a sum which is trivial compared to the £10M settlement, to resolve
that issue in the liquidation.
- Finally I should deal
with two other points which Mr. Kosmin advances as showing that it would be
unfair to deprive his clients of the right to make their claims against Equity
& Law and that a reservation therefore should be implied. He places particular
emphasis on the fact that Equity & Law has not retracted its accusations
of churning. This appears to me to be more theoretical than real. Mr. Kosmin
does not suggest that they have repeated them since the date of the Settlement
Agreement. In view of what happened to Target before Moses J, it stretches
the imagination to think that Equity & Law will make any further allegations.
It is hardly likely that in the future they will repeat the allegations made
to them by Target and in respect of which Target has now so publicly had to
eat humble pie. The remote possibility that Equity & Law would do such
a thing has no appreciable impact on the answer to Steyn LJ's question. Furthermore
I do not accept that the Claimants would be deprived of a cause of action
if Equity & Law were to make defamatory statements in the future. Those
would give rise to new causes of action not covered by the settlement.
- Finally Mr. Kosmin argues
that if the Settlement Agreement has the effect of releasing Equity &
Law, they will have got away free and that would be unfair. In my view it
is neither unfair nor is it true. If, as the Claimants have consistently asserted,
it is Target which is primarily responsible for the losses they have suffered,
including the losses suffered because of Equity & Law's imitative behaviour,
it is neither unfair nor surprising that they sought compensation from that
prime wrongdoer. Furthermore Equity & Law is not free of liability. Insofar
as the Claimants' losses can be attributed to their actions, no doubt Target
will have a claim for a contribution. I say nothing of the strength of that
claim.
- The other argument advanced
by Mr. Kosmin is that Jameson was a case concerned
with the liability of concurrent tortfeasors for the same harm. The House
of Lords' reasoning was not intended to apply, and cannot stretch, to a case
such as the present which is concerned with independent breaches by two different
financial institutions of two different contracts, terminated unlawfully on
different dates, that have caused not the same, but only partly overlapping,
loss and damage. In support of this he relies upon Townsend v Stone Tonn
& Partners [1981] 1 WLR 1153, a case in which the plaintiffs had sued
a firm of architects and a firm of builders under their respective contracts
in respect of work done on their house. The builders had paid money into court
"in satisfaction of all the causes of action in respect of which the plaintiffs
claim". The sum was taken out by the plaintiffs and judgment was entered against
them. The architects argued that the action against them should be stayed
in so far as it encompassed mutual or overlapping claims. This argument failed
in the Court of Appeal where Eveleigh LJ expressed the law as follows:
"... where there are
two separate causes of action, satisfaction of the one should not be a bar
to proceedings on the other." (p. 1161).
- It is apparent that the
law so stated is inconsistent with Jameson which involved two separate
causes of action, albeit in tort. Mr. Kosmin accepts that to be so. He says
that nevertheless the two authorities can be reconciled. Townsend expresses
the generality of the rule on settlements against one defendant and from it
Jameson has carved out a different rule which applies when the two
causes of action are in tort. He points out that the speech of Lord Hope is
in relation to tort only. On the other hand Mr. Hirst points out that Townsend
was relied upon by Lord Lloyd in his dissenting speech in Jameson as
it had been by the Court of Appeal in their judgment which was reversed on
appeal.
- As Mr. Kosmin accepts,
the unqualified statement in Eveleigh LJ's judgment quoted above cannot stand
in the face of Jameson. However there is nothing in Jameson
which indicates that the House of Lords was intending to create an exception
which applied to torts alone. Furthermore there does not appear to me to be
any reason in principle why Jameson should apply only to torts. If
a party has consented to all his claims being settled, there is no compelling
reason to assume, absent clear indications to the contrary, that he draws
a distinction between claims arising under different causes of action. As
Lord Hope said, there must be an end to litigation. If a litigant wishes to
settle with one opponent but to continue against another, the reservation
of that entitlement must be clear. That should apply whether or not the claims
against the different opponents arise under the same or different categories
of causes of action. It may well be that if the causes of action arise under
contracts which are between different parties, entered into at different times,
cover different activities, give rise to different obligations and are alleged
to have been breached at different times by different actions, those are factors
which can be taken into account in deciding whether it is necessary to imply
a reservation by the plaintiff of a continued right to sue a non-settling
defendant. However in this case, the contractual claims in large part mirror
the claims in tort and they do not drive one to imply any such reservation.
- In addition, even if
Mr. Kosmin is right in this submission, it would not get his clients home.
He emphasises the fact that in Jameson Lord Hope's reasoning was founded
on the principle that damage is an essential element in tort. Therefore if
the claim for damages is satisfied by settlement with one tortfeasor, that
ingredient of the cause of action is no longer satisfied and the second cause
of action in tort withers. He says that an action for breach of contract is
not dependent on damage. It follows that even if no further damages are recoverable,
the cause of action survives. I find this argument unattractive. It would
result in the action being allowed to proceed for no purpose other than to
obtain a declaration that a breach has been committed. No other relief could
be obtained. It appears to me that to allow an action to proceed in those
circumstances would be futile, a waste of the parties' time and money and
would delay the court in disposing of more meaningful disputes. In those circumstances
the court should stay or strike out the proceedings.
- For these reasons I have
come to the conclusion that the Claimants did not expressly or impliedly reserve
rights of action against Equity & Law and that they are therefore precluded
from continuing with these proceedings. I should emphasise that the arguments
before me have proceeded on the basis of Jameson. No argument has been
advanced that the commencement of the current proceedings some months after
the termination of the Target proceedings offends against the principles set
out in cases such as Henderson v. Henderson (1843) 3 Hare 100, Yat
Tung Investment Co. Ltd. v. Dao Heng Bank Ltd. [1975] AC 581 and in the
recent unreported decision of the Court of Appeal: Johnson v. Gore Wood
& Co. (12 November, 1998). However similar principles of public policy
appear to me to be involved.
