The letter of the law is not always as final as you might think; the wording of settlements can leave room for claimants to come back for seconds
When Lord Denning finally hung up his wig, many feared that it marked the end of justice as we knew it: no longer was there a judge prepared to do somersaults with the law to give a morally fair result. But the fears were misplaced – at least in relation to settlement agreements. There is still a certain liberty of interpretation on the part of our learned justices to prevent reliance on a "full and final" settlement agreement when those terms might result in injustice to the claimant.

Consider the following settlement wording: "… in full and final settlement of all or any claims whether under statute, common law, or in equity of whatsoever nature that exist or may exist and in particular, all or any claims, rights or applications of whatsoever nature that [the claimant] has or may have or has made or could make."

In that quaint, archaic and repetitious style peculiar to lawyers, it makes the point ad nauseam: no more claims. That was the settlement wording disputed in BCCI vs Ali (House of Lords 2001).

A settlement in 1990 had concluded a claim concerning a Mr Naeem's redundancy. A year later, it was widely known that the bank was suspected of questionable dealings. Mr Naeem felt that his former employment by BCCI was doing his CV no favours. He launched a second claim against the bank for the stigma of association with it. You might think that, in view of the all-bells-and-whistles settlement agreement, this subsequent claim would not be worth the paper it was printed on. At the very least, Mr Naeem must have felt a bit sheepish at the door of the House of Lords.

But the Law Lords, maybe with a little nudge from Lord Denning's ghost, decided in favour of Mr Naeem. They were loathe to infer an intention on a claimant's part to forgo its right to pursue claims of which it could not have been aware at the time of the settlement, without very clear wording to that effect. They felt Mr Naeem could never have imagined this stigma claim arising at the time he settled his redundancy claim, not least because no such course of action existed in law at the time. The principles of the case should apply equally to any construction settlement.

The law may have bid farewell to Latin maxims, but do not presume it will share a tongue with the common man

Now precisely where does the wording "except where the parties were unaware of the potential existence of such a claim" appear in the settlement wording above? Excluding any claim the claimant "has or may have or could make" seems pretty all-embracing in anyone's language. But no. The law of the land may have bid a fond farewell to its favoured Latin maxims, but do not presume that it will now share a tongue with the common man.

How can you side-step such banana skins in your own settlement agreements? Much depends on the particular case and you should always seek legal advice, but here are some thoughts to ponder.

As a defendant:

  • Word your settlement agreement as widely as the claimant will tolerate.
  • A bar of "all claims, whether or not in the contemplation of the parties", might help you avoid the particular hole BCCI fell into.
  • Reserve your right to claim against third parties from whom you hope to receive compensation.
  • Require wording that the claimant indemnify you against any third-party claims. Otherwise, the claim may come back to haunt you by another's hand, such as the claimant's purchaser.

As a claimant:

  • Try to narrow the settlement terms only to the claim matter in hand to enable you to pursue unrelated matters later.
  • Recent cases suggest your settlement might bar you from claiming against a third party for the same damage. It would help to record in the settlement (and in advance to the third party) your intention to claim any outstanding amount.