30 March 2016Print This Post

Settlement agreement over unpaid fees protects law firm against £70m negligence claim

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Sir Bernard: negligence claim was not an ‘unknown unknown’

A settlement agreement provides a central London law firm with a “complete defence” against a £70m professional negligence claim brought on behalf of a Russian oil company, the High Court has ruled.

Sir Bernard Eder said the main case pleaded by Forsters, based in Mayfair, was that the claim by Khanty-Mansiysk Recoveries (KMR) was caught by the earlier agreement and “therefore inevitably doomed”.

He rejected four arguments put to him by KMR. Sir Bernard said he did not consider that outcome 1.8 of the SRA Code of Conduct, which prevents solicitors excluding liability below the minimum amount of indemnity cover required by the rules, had “any relevance to the proper construction of the settlement agreement”.

He said the agreement “provided expressly” that it included potential claims and it was plain that it “had a much wider scope than the particular dispute which existed at that date”.

The judge said the £70m claim was not an ‘unknown unknown’: “Whilst fully recognising that the present claim was not ‘suspected’ at the time of the settlement agreement, the objective bystander could not and would not, in my view, have said that a claim for damages for breach of contract and/or negligence was ‘impossible’. In my view, that conclusion is reinforced by the clear express terms of the settlement agreement.”

He went on: “At the risk of repetition and even bearing in mind the ‘cautionary principle’ stated by Lord Bingham and the other observations of Lords Nicholls and Hoffmann in BCCI, it seems to me that this tripartite agreement was, and was objectively intended to be, an agreement by all three parties whereby they expressly agreed that the payment of the settlement sum would be in full and final settlement of all other ‘claims’ (as defined) and that such definition covered, and was objectively intended to cover, even a claim such as the one KMR now seeks to advance in these present proceedings.”

The court heard in Khanty-Mansiysk Recoveries v Forsters [2016] EWHC 522 (Comm) that the law firm issued proceedings against one of the directors of Irtysh Petroleum in 2012, Rupert Galliers-Pratt, after the firm’s fees of almost £130,000 “remained unpaid for some time”.

Sir Bernard said that two years before, in 2010, the oil company had switched solicitors to Fladgates.

Following negotiations, in December 2012, a settlement agreement was executed between Forsters, Mr Galliers-Pratt and Irtysh, reducing the amount claimed by the law firm to £74,800 plus VAT.

Sir Bernard said that Irtysh went into liquidation in 2015 but, by a written assignment in May, KMR asserted that it had acquired the oil company’s claims against Forsters.

The judge said KMR launched its negligence action against the law firm in October last year, setting out a number of “alleged breaches”, including failing to ensure a share purchase agreement was effective, and claiming damages “said to be in excess of £70m”.

However, he ruled that KMR’s negligence claim was ‘caught’ by the settlement agreement and the law firm was entitled to a declaration to this effect.

By Nick Hilborne