All inclusive ‘full and final’ settlement
POINT WEST v MIRVAN [2012]
A 'full and final' settlement was held to include issues not identified or formulated at the time the parties agreed the settlement so when reaching and documenting a settlement regarding a contractual dispute, it is necessary to be extremely careful to document exactly what is meant to be covered. It needs to be clear whether it is intended to be truly all encompassing or should purely relate to those defects, breaches or liabilities known of at the time the settlement is agreed.
Facts:
- The dispute concerned a property developer and its building contractor and certain defects in the curtain walling, heating and cooling systems of a property. The parties reached a “full and final settlement in respect of the works together with any and all outstanding matters. We would confirm that this final agreement concludes [the contractor’s] responsibilities and obligations in respect of their works at the above project".
- When the full extent of the liability of the property developer to its tenant became apparent, the developer sought to argue that the agreement did not cover any liability to pay damages which the contractor might have in the future.
- The contractor contended it was released from liability for defects already claimed for by the developer and for all defects which could have been discovered through a thorough inspection (referred to as patent defects).
Decision:
- It was held that the settlement agreement extended to cover liability for patent defects at the time of the agreement. The wording was broad enough to encompass all outstanding matters and concluded the contractor’s responsibilities and obligations in respect of the works it had carried out. The Court therefore found for the contractor.
- The Judge made it clear that the ordinary rules of interpretation apply to a settlement agreement as to any other form of contract. Words must be given their ordinary and natural meaning but where words are capable of more than one interpretation, the interpretation which most closely accords with business common sense must be preferred. In construing settlement agreements the Courts will not readily infer that a party is intending to waive rights in respect of claims of which it was unaware and could not have been aware.
- However, a passage from a legal text was quoted concerning use of the phrase ‘full and final settlement’ which seemed to be accepted as representing the law: “The intention of the agreement underlying the use of this formula is that an issue not yet identified or formulated is also to be regarded as [included] in the settlement”.
- Applying those principles, the Judge concluded that the settlement that was reached was intended “to bring to an end the contractor's responsibilities and obligations in respect of any and all outstanding matters including defects which were patent at [the date of the settlement], thereby covering outstanding payment matters and outstanding defects in all of the contractor's works”.
Points to Note:
- Those entering into a settlement agreement must take great care to ensure that it accurately reflects their intentions. In particular, if the possibility of bringing additional claims due to facts or circumstances which have not yet come to light is to be left open, then this must be made clear in the settlement agreement itself. Otherwise there is a danger that the ‘full and final settlement’ wording will mean that any other rights have been irrevocably waived.
- What the case also highlights quite neatly is that it is wise to be cautious when communicating by email in relation to such matters. The settlement was contained in an exchange of emails. There was some suggestion that the settlement was only ever intended to resolve the outstanding amounts payable to the contractor for its work and was entirely unrelated to any question of future liability in damages. Another proposal was that the settlement was just intended to confirm that the contractor was no longer required to undertake additional work to physically resolve the ongoing problems but did not release the contractor from further liability in damages. Neither of these arguments was successful.