Lessons in drafting ‘full and final’ settlements
Global Display Solutions v NCR (High Court) [2021]
This case considers the scope of a ‘full and final’ settlement and demonstrates that, in drafting terms at least, sometimes ‘less is more’.
Facts:
For in excess of 25 years Global supplied screen displays to NCR to incorporate into cash machines (ATMs) and point of sale systems. For much of that period Global were NCR’s sole supplier.
As part of the contractual arrangements, NCR were required to provide monthly forecasts setting out their projected demand for screens to be supplied by Global over the next 12 months. The forecasts were, subject to certain very limited exceptions, expressly non-binding.
The Purchase Agreement had an initial term of 3 years and then automatically renewed for successive 1-year periods unless either party provided written notice to terminate 120 days prior to the end of the then current term. Seemingly NCR decided against terminating the Agreement pursuant to this provision as it would have had the effect of cancelling all unfulfilled purchase orders, thereby placing in jeopardy any continuity of supply for any deliverables which NCR needed during any transitional period.
NCR provided a forecast on 14 January 2013. It was for over 176,000 displays over the next 12 months. The forecast demand had a value of over US$50 million.
Two days after this forecast, and without prior warning, NCR informed Global by telephone that it had taken the manufacture of displays in-house. It reduced all forecasts to zero and cancelled around US$5.1m of existing (selected) purchase orders.
NCR’s action put Global in a parlous financial position, not least because it had a substantial pipeline in place ready to satisfy NCR’s forecast demand.
Discussions took place between NCR and Global which led to the parties signing a “Letter of Agreement, Release and Waiver”. As part of this agreement, NCR agreed to purchase a significant volume of stock from Global, albeit at substantially reduced prices. The Letter of Agreement (which was drafted by an in-house lawyer from NCR) included the following provision
“Global and NCR agree that the amounts set forth in this offer are in full and final settlement of any claims, damages or losses whatsoever that Global has or may have, arising directly or indirectly from all orders placed by NCR pursuant to the Purchase Agreement between NCR and Global on or before 16 January 2013 ("Orders"), and the termination of Orders pursuant to the Purchase Agreement. In consideration for payment by NCR of the amounts set out in this offer, Global waives and releases NCR from all claims, liabilities, demands and causes of action, known or unknown that Global has or may have against NCR relative to the Orders”.
Global brought claims for: (a) breach of contract alleging that (as a matter of construction or implied term) NCR’s forecasts had to reflect their genuine and honest belief as to their estimated future requirements; and (b) deceit (amongst other claims). Deceit requires the making of false representations either knowing that they were false or being reckless as to whether they were false or not, with the intention that they should be relied upon and upon which the party placed reliance and suffered damage. It was common ground between the parties that NCR was obliged to supply forecasts which reflected NCR's genuine and honest belief as to its estimated future requirements.
In the event Global did not actively pursue a broader breach of contract claim because they took the view that it ‘tracked the deceit claim’. There was therefore no real discussion in the judgment as to implied terms or good faith which is a pity as the contractual arrangements have many of the hallmarks of a ‘relational’ contract and certainly the conduct complained of would seem to demonstrate a lack of good faith.
NCR argued that the Letter Agreement extinguished all claims that Global potentially had i.e. it was intended in full and final settlement of all claims. It is clear from the correspondence that Global management seemed to believe that signature of the Letter Agreement would have that effect although their legal counsel did identify that the drafting (specifically the words ‘relating to the Orders’) potentially opened up the possibility that claims based on the false forecasts could survive signature.
NCR argued that if the Letter Agreement was not interpreted so as to have effectively extinguished all of Global’s claims, the Letter Agreement should be rectified for common or unilateral mistake. That case required scrutiny of the written and oral exchanges between the parties as well as internal communications on each side in order to establish the state of mind of relevant participants.
Decision:
The judge accepted Global’s case that their claims were not all settled by the Letter of Agreement. The court accepted that there should be no presumption that the parties had intended the document to ‘wipe the slate clean’ but that ordinary contractual principles of interpretation should apply. The language of the Letter Agreement… is the most significant factor in the unitary exercise of construction. [This was] clearly a document drafted with the benefit of legal advice. The court went on to say that NCR’s argument was not supported by the ordinary and natural meaning of the words used [in the Letter Agreement].
Such was the nature of NCR’s conduct that the judge awarded exemplary damages in the sum of £125,000 in addition to any compensatory damages that may subsequently be awarded. Such an award is only made very exceptionally.
NCR’s request that the wording of the Letter Agreement be ‘rectified’ on the grounds of a mutual mistake so as to make it an all-encompassing settlement also failed. The court referred to the need for “convincing proof to displace the natural presumption that the written contract is an accurate record of what the parties agreed". The court is concerned with what the parties actually communicated to each other in order to demonstrate that a mistake has occurred. It found no evidence of a mutually shared understanding being evidenced.
Notwithstanding the burden on NCR (the party seeking rectification) to provide convincing proof of the facts which are said to make rectification appropriate, there was a relative paucity of evidence which NCR sought to adduce to establish their claim for rectification. In contrast, Global waived privilege in all communications between its representatives and lawyers. It was emphasised that contemporaneous documentary evidence is of considerable importance in any rectification case.
The court also looked at the possibility of rectification on the basis of a unilateral mistake by only one party, a mistake of which the other party was aware but failed to draw the attention of the other side to it. In this respect the court concluded that the party must either know the other has made a mistake or wilfully shut its eyes to the obvious, or wilfully and recklessly failed to make such enquiries as an honest and reasonable man would make. There was no evidence NCR had made a mistake and no evidence that Global knew of a mistake or wilfully shut its eyes to the obvious. In reality, although at one point some doubt was expressed by Global about whether the settlement was comprehensive, at no point was the possibility that NCR might have made a mistake even considered. This claim therefore also failed.
Points to Note:
- Pre-contractual negotiations are generally inadmissible, but they can be relied upon to establish an objective fact known to both parties, to show the genesis or aim of a transaction or in the context of a claim for rectification. However, it is not easy to draw the line between inadmissible evidence of pre-contractual negotiation and admissible evidence of background facts which became known to the parties as a result of those negotiations.
- By including more language than was necessary, NCR had actually restricted the scope of the full and final settlement letter.