Case shows importance of attention to detail in settlement agreements

Bruce Craig of Pinsent Masons said: “The wording may be crucial and in the worst case may result in inadvertent release of otherwise valid and compelling claims.” His comments came after the Sheriff Court of Appeal overturned an earlier decision in a dispute over whether a claimant had settled his case against both, or just one, of the defenders.

In October 2015, Thomas Ward suffered a workplace injury while he was employed by ADR Network as an HGV driver in vehicles operated by Morrisons supermarket. While ADR was responsible for Ward’s pay, Morrisons controlled other aspects of his working conditions. After Ward took legal action against both ADR and Morrisons in October 2018, all parties attended a pre-trial meeting in December 2019.

According to minutes taken at the meeting, counsel for Ward argued that the full value of his client’s claim was more than £360,000. While Morrisons agreed to settle the claim and pay £110,000 to Ward, subject to Compensation Recovery Unit (CRU) deductions, counsel for ADR indicated that his client was not prepared to contribute to any settlement and left the meeting.

Ward and Morrisons then lodged a joint minute in court advising that the action as directed against Morrisons had settled out of court. They asked the court to find Morrisons liable for Ward’s expenses of process and to release Morrisons from the action.

Ward’s case against ADR for the remaining portion of the claim proceeded to the Sheriff Court in September 2021. There, the Sheriff asked himself whether the settlement agreement, “when viewed in its surrounding circumstances”, indicated that Ward had accepted the £110,000 sum in “full and final satisfaction” of all his claims for the harm allegedly done – not only against Morrisons but also against ADR.

Ward argued that the wording of the settlement agreement was specifically directed at Morrisons and does not indicate that he had waived his rights to pursue his claim against ADR. He added that the settlement with the supermarket was agreed at roughly one third of his valuation, indicating that he did not consider that he had exhausted his claim against both companies.

ADR argued that the claim against it, as Ward’s legal employer, was subsumed by the claim against Morrisons, as his de facto employer. If Morrisons had been found to have been negligent, ADR would have been found to have been in breach of its common law duty to take reasonable care for the safety of Ward.

Therefore, ADR argued, there would be no rational reason for Ward to accept less money from Morrisons than he was prepared to accept in full satisfaction of his claim. It also pointed to the terms of the joint minute recording the settlement which recorded that it was agreed that Morrisons should be found liable to Ward in the expenses of process without restriction.

The Sheriff agreed with ADR, concluding that the paragraph in the joint minute that dealt with expenses between Ward and Morrisons was “a clear agreement to pay the whole expenses of the action, as taxed” – not just the expenses of Morrisons. But handing down the decision of the Sheriff Appeal Court (8 pages / 488KB PDF) in December, Sheriff Principal CD Turnbull held that the Sheriff’s conclusion had been factually wrong.

“On any view…that paragraph did not address the expenses of the respondent. The whole expenses of the action were not, as a matter of fact, provided for,” Turnbull told the court. He added that, when applying the test set out in a case between Kidd and Lime Rock Management LLP, the terms of the settlement agreement, viewed in its surrounding context, did not indicate that Ward had accepted the £110,000 sum in full and final satisfaction of all his claims against both Morrisons and ADR.

The Sheriff Principal also said that there can be many reasons why someone making a claim may accept less than the full amount claimed in a settlement. He said the fact that Ward expressly did not accept the settlement in full satisfaction of his claim was demonstrated by the position he took before the Sheriff, adding that the onus was on ADR to establish whether Ward had been fully indemnified.

Craig said: “This case demonstrates the importance of paying close attention to the scope of the release in a settlement agreement and whether the release is restricted to the proceedings in dispute or should have wider application.”

“The terms of the joint minute must also be subject to careful consideration. Here they played a significant part in determining the extent of the release. Best practice dictates that these things should not be left to chance. Attention to detail and documented agreement on all aspects of any settlement will avoid confusion and cost later,” Craig said.

He added: “The High Court in England and Wales recently grappled with a similar issue in a case between  Abdullah Nasser Bin Obaid and Khalid Abdullah Al-Hezaim, with the same result; the outcome depended on a proper construction of the settlement agreement.”