Settlement agreement found to be full and final settlement, releasing administrators from liability: Schofield v Smith  EWCA Civ 824
The Court considered three appeals concerning a group of four companies (C1, C2, C3 and C4) which were owned and controlled by the same individual (A) in relation to whether a settlement agreement ("the Settlement") between a bank and its client, compromising litigation between them, also had the effect of releasing the administrators and their solicitors of liability.
Background of the case
A bank had advanced loan facilities to C1 and C2, with C3 standing as guarantor. The bank demanded payment and appointed joint administrators of C1, C2 and C3 when repayment was not made. However, C1 and C2 brought claims that the loans had been mis-sold; claims which the administrators reviewed with the assistance of solicitors. The administrations of C1 and C2 came to an end and administrators were discharged. At a later date, the litigation between C1, C2, C3 and the bank concluded by way of the Settlement.
The Settlement contained a clause that it was made "in full and final settlement of all claims by any Party… ["Party" meaning any of C1, C2, C3 or the bank] … has or may have against any other Party or any other Released Party" ["Released Party" meaning C1, C2, C3 or the bank and their affiliates].
The Settlement also contained clauses that the Released Parties were "forever released and discharged from all claims", and that the "Parties would not bring claims against any Released Party".
A and C4 subsequently brought a misfeasance claim against the administrators. C1 and C2 also brought an appeal against the solicitors of the administrators, alleging they should not have accepted instructions and had breached fiduciary duties in assessing the claim for the mis-sold loan.
The Judge at first instance found that the Settlement had released all claims against the administrators, and that the claim against the solicitors whilst they had acted for the administrators had also been released by the Settlement. However, the claim for alleged breaches of duties was allowed to continue.
A and C4 appealed against the striking out of their claim against the administrators (the "First Appeal"). The solicitors appealed against the decision partially striking out C1 and C2's claim against them, which left them with some residual liability (the "Second Appeal").
The First Appeal was dismissed. A's evidence supporting the view that it was not the intention of C1, C2 or C3 that the Settlement should release claims against the administrators or their solicitors, was inadmissible. This was because A sought to rely on pre-contractual negotiations before the claim against the bank was issued. The administrators were found to be "affiliates" of the bank and were therefore within the definition of Released Parties under the Settlement.
The Second Appeal was allowed, and it was found the solicitors were released from all claims. The construction of the clause in the Settlement meant that the solicitors were released from all relevant claims, not just from their liability whilst acting as the administrator's agent. It was relevant that "Liability" was specifically defined in the Settlement as any obligation "however and whenever and in whatever capacity".
This case highlights to insolvency practitioners that there may be a risk of continued liability after discharge, should their appointer be embroiled in litigation. Had the drafting of the Settlement been different, the administrators and solicitors may have continued to be open to claims, despite being discharged from the administration.
It may be prudent in similar situations for insolvency practitioners to consider seeking an agreement from their appointer that they and their advisors will be included in the protection afforded by any settlement agreement reached.