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Case No: A2/2000/0193
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR C. MACKAY QC
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: Wednesday 15 November 2000
B e f o r e :
LORD JUSTICE SIMON BROWN
LORD JUSTICE MUMMERY
and
LORD JUSTICE LATHAM
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|
CAPE
& DAGLEISH (A firm)
|
Appellant
|
|
-
and -
|
|
|
FITZGERALD
& ANR
|
Respondents
|
- - - - - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -
Mr J Dagnall (instructed by Halliwell Landau of Manchester M2 2JF) for
the Appellant
Mr N Tozzi (instructed by Cameron McKenna of London EC3N 4BB) for the
Respondents)
- - - - - - - - - - - - - - - - - - - - -
JUDGMENT
(As Approved by the Court)
© Crown Copyright
LORD JUSTICE SIMON BROWN:
1. This is an appeal against the order of Mr Colin Mackay QC sitting as a
judge of the High Court on 2 February 2000, made on the trial of preliminary
issues, holding that a settlement agreement between the appellant and the IM
Group of Companies (IMP) constituted no bar to a subsequent claim by IMP
against the respondents, which in turn led to the issue of a contribution
notice by the respondents against the appellant under the Civil Liability
(Contribution) Act 1978. The case, therefore, arises in the same area of law
as was recently considered by the House of Lords in Jameson v CEGB
[2000] 1 AC 455 and by this Court in Heaton v AXA Equity & Law
[2000] 3 WLR 1341 and in Kenburgh Investments v Minton [ 2000] LlR (PN)
736.
2. Before identifying the particular questions arising, it is convenient first
to set out the central facts of the case. These can, I think, sufficiently
be summarised as follows.
3. IMP develop and deal in real property. The appellant, until his summary
dismissal on 17 May 1993, was their managing director. He was dismissed for
gross misconduct, the perpetration of large scale systematic fraud upon the
company. This was committed in two main ways: first, a lot of work was done
on two properties in which the appellant had a beneficial interest and the
cost of it was then charged to IMP; secondly, he caused a £70,000 debt
due from one of his companies to IMP to be simply written off. On 19 May
1993 IMP issued a writ against the appellant alleging breach of contract and/or
breach of fiduciary duty and/or breach of statutory duty and obtained a
Mareva injunction. Within days a settlement of the disputes between
them was agreed, both parties, as the judge below found, "want[ing] most of all
to be rid of each other". The settlement agreement (a detailed document
extending to 19 pages, drawn by lawyers on both sides) was signed on 18 June
1993 and contained as its principal terms:
(1). The appellant would surrender to IMP his 10% holding in the group (clause
2).
(2). "Each of the IM Parties hereby irrevocably and unconditionally (save as
provided below) waives and releases, and agrees to procure that each other
member of the Group waives and releases, any and all claims, rights and
remedies which it has now or may have in the future, known or unknown, against
Mr Fitzgerald, arising from his employment or office as director with, or as a
shareholder of, any of them, or from the matters referred to in the Action, or
under the Shareholders' Agreement, or in any other way whatever, and any and
all claims for expenses, legal costs or damages, arising from any of the same."
(Clause 7.1)
(3). "The IM Parties and Mr Fitzgerald irrevocably and unconditionally covenant
not to sue each other in any forum or form in connection with the claims and
rights released under clauses 7 and 9 [by which Mr Fitzgerald irrevocably and
unconditionally waived and released any claims he might have against the
Group], (without limiting the effect of those clauses)." (Clause 10.2).
4. I move on some fourteen months to 12 August 1994 when IMP issued
proceedings against the respondents, their auditors, claiming damages for
breach of contract and/or breach of statutory duty consisting in their failure
to detect the appellant's fraudulent activities. That action came for trial
before Judge Rivlin QC sitting as a deputy High Court Judge and on 6 February
1997 judgment was given for IMP. The respondents admitted breaching their
duty of care as auditors but contended that IMP had suffered no loss because,
they argued, the appellant's shares which IMP received under the settlement
agreement were worth more than the £704,568 which the judge held to be
IMP's damage caused by the appellant's frauds and the cost of investigating
them. That argument failed. Having heard lengthy expert evidence, the judge
held that the true value of the shares as at June 1993 was £430,000.
Thus IMP was entitled to judgment for the difference, namely £275,568 plus
interest (assessed by him at £249,876 but subsequently reduced by the
Court of Appeal to £138,500), i.e. a final total of £414,068.
5. Thereafter, on 21 October 1997, the respondents issued contribution
proceedings against the appellant claiming damages and/or a contribution
amounting to a complete indemnity under the 1978 Act. It is within these
proceedings (the third in the sequence of actions), that the preliminary issues
were ordered to be tried.
6. The argument advanced by the appellant can, I think, be summarised
essentially as follows:
i. The contribution proceedings brought against him are by definition "in
respect of the same damage" as that for which he himself was liable to IMP -
see s.1(1) of the 1978 Act. Only then does the right to contribution (to the
extent found "just and equitable" under s.2(1)) arise.
ii. IMP had already received full satisfaction for this damage under the
settlement agreement of 18 June 1993.
iii. Accordingly, when later IMP sued the respondents, their claim could and
should have been resisted (to the extent that it consisted, as largely if not
entirely it did, of the same damage), on the basis that it had already been
fully satisfied and so was no longer recoverable.
iv. Alternatively the respondents could and should have resisted IMP's claim on
the basis that it was inconsistent with their having reached a final settlement
with the appellant.
v. Having failed to defeat IMP's claim on one or other of those bases, the
respondents cannot establish their claim for contribution against the
appellant: they themselves were never in law liable in respect of the relevant
damage.
7. The respondents do not quarrel with the first and last stages of the
argument: the battle ground is stages ii, iii and iv. The respondents' case
in a nutshell is that IMP did not receive full satisfaction for their damage
under the agreement with the appellant (even assuming, which they contest, that
the concept of full satisfaction has any relevance to this case), that the
agreement did not preclude IMP from bringing a fresh action in respect of the
same claims and that neither such defence was accordingly available to the
respondents when IMP subsequently sued them.
8. Before considering the rival arguments it is necessary first to indicate
something of what was decided in each of the three leading cases to which I
referred at the outset of this judgment.
Jameson v CEGB [2000] 1 AC 455
9. Jameson was concerned with concurrent tortfeasors liable in respect
of the same loss and held essentially that where a claimant includes within a
settlement agreement with one concurrent tortfeasor all the claims that he is
entitled to bring, then, once the agreed sum has been paid, his claim must be
regarded as fully satisfied, with the result that his cause of action against
any other concurrent tortfeasor is necessarily extinguished. Damage is an
essential element of any claim in tort so that, by definition, once a
claimant's damages claim has been fully satisfied, no further action can
lie.
10. Mr Jameson had agreed with his employers, Babcock, to accept £80,000
"in full and final settlement and satisfaction of all the causes of action in
respect of which the plaintiff claims in the statement of claim". It was
held that he could not thereafter have sued (and nor, therefore, could his
dependents sue following his death) the CEGB as concurrent tortfeasors with a
view to recovering the larger sum which it was asserted he was properly
entitled to. Lord Hope (with whose speech Lord Browne-Wilkinson and Lord
Hoffmann agreed) said this:
"The critical question ... is whether the claim has in fact been satisfied. I
think that the answer to it will be found by examining the terms of the
agreement and comparing it with what has been claimed. The significance of
the agreement is to be found in the effect which the parties intended to give
to it. The fact that it has been entered into by way of a compromise in order
to conclude a settlement forms part of the background. But the extent of the
element of compromise will vary from case to case. The scope for litigation
may have been reduced by agreement, for example on the question of liability.
There may be little room for dispute as to the amount which a judge would award
as damages. So one cannot assume that the figure which the parties are
willing to accept is simply their assessment of the risks of litigation. The
essential point is that the meaning which is to be given to the agreement will
determine its effect" (p.473)
"I think that these cases [most notably, Carrigan v Duncan [1971] SLT
(ShCT) 33, Dillon v Napier, Shanks & Bell (1893) 30 SLR 685,
Crawford v Springfield Steel Co. Ltd. (unreported, 18 July 1958), and
Balfour v Baird & Sons [1959] SC 64] demonstrate the limits of the
inquiry which the judge may undertake in the event of a subsequent action being
raised against another alleged concurrent tortfeasor. He may examine the
statement of claim in the first action and the terms of the settlement in order
to identify the subject matter of the claim and the extent to which the causes
of action which were comprised in it had been included within the settlement.
The purpose of doing so will be to see that all the plaintiff's claims were
included in the settlement and that nothing was excluded from it which could
properly form the basis for a further claim for damages against the other
tortfeasor. The intention of the parties is to be found in the words of the
settlement. The question is one as to the objective meaning of the words used
by them in the context of what has been claimed. What the judge may not do is
allow the plaintiff to open up the question whether the amount which he has
agreed to accept from the first concurrent tortfeasor under the settlement
represents full value for what has been claimed. ... The question therefore
is ... not whether the plaintiff has received the full value of his claim but
whether the sum which he has received in settlement of it was intended to be in
full satisfaction of the tort. In this case the words used cannot be
construed as meaning that the sum which the deceased agreed to accept was in
partial satisfaction only of his claim of damages. It was expressly accepted
in full and final settlement and satisfaction of all his causes of action in
the statement of claim. I would hold that the terms of his settlement with
Babcock extinguished his claim of damages against the other tortfeasor"
(p.476)
Heaton v AXA Equity & Law [2000] 3 WLR 1341
11. In contrast to Jameson, the two defendants in Heaton were,
as Chadwick LJ put it in the leading judgment in the Court of Appeal,
"successive contract breakers". The defendants (respectively Target and
Equity & Law) were each a large group in the financial services sector
which, successively, had summarily terminated their respective contracts with
the claimants thereby destroying the claimants' business and reputation.
After the first group (Target) had paid £10 million in settlement of their
claims, the claimants then proceeded against the second group (Equity &
Law) claiming contractual damages which, it appears, were substantially but not
wholly encompassed within the damages claimed previously against Target.
Laddie J held that the Jameson principle barred the action. The Court
of Appeal reversed his decision. As Robert Walker LJ (a member of the court
in Heaton) subsequently observed in Kenburgh Investments v
Minton, Chadwick LJ drew an important distinction between what he called
the "full satisfaction" question and what he called the "final settlement"
question, a distinction to be found in paragraph 45 of his judgment:
"45. More difficult questions arise where A sues B alone, compromises the
action for a sum payable by B to A `in full and final settlement and
satisfaction,' and then sues C. The first question is whether A has, any
longer, a claim against C. If the amount payable by B to A does, indeed,
represent a `full' satisfaction of A's claim against B, then (where C is a
concurrent tortfeasor with B in respect of the same damage) it may be said that
A's claim against C in tort will have been extinguished by the compromise which
A has made with B - at least, where B actually pays to A the sum due under the
compromises. The reason is that, if A has recovered an amount from B as
`full' compensation for his loss, there is no remaining loss upon which A can
found a claim against C. The second question is whether, if A does,
notwithstanding the compromise with B, continue to have a claim against C, it
is consistent with A's `final' settlement with B to allow A to pursue that
claim. If A does pursue C, then C will be entitled to seek contribution
against B under section 1(1) of the Act of 1978; and it will be no defence to
that contribution claim for B to assert that he is no longer liable to A by
virtue of the compromise: see section 1(3). It may be said that it is
inconsistent with the `final' settlement which A has made with B for A to
pursue a course of action (by suing C) which will expose B to the risk that he
will have to make a further payment - indirectly, as a result of a contribution
claim brought against him by C - in respect of the same damage. For
convenience I will refer to the first of those questions as the `full
satisfaction' question, and to the second of those questions as the `final
settlement' question."
12. Chadwick LJ then explained that in Jameson only the "full
satisfaction" question had arisen. Although Lord Clyde had appeared to
approach the case from a different standpoint - suggesting that, as a matter of
public policy, where settlement is reached with one "co-obligant" the intention
of the parties should usually be taken to be that they are achieving a complete
termination of any claims by the creditor and a complete freedom for the future
for the debtor - that approach, observed Chadwick LJ:
"... is not reflected in the speech of any other member of the House. The
conclusion that the settlement with Babcock extinguished the claim against the
CEGB made it unnecessary to consider what I have described as the `final
settlement' question. That question only arises in a case where the
settlement with one wrongdoer does not extinguish the claim against the other
wrongdoer." (para 55).
13. Chadwick LJ then said that the authority on the "final settlement"
question was to be found in the decisions of the Court of Appeal in Watts v
Aldington, The Times, 16 December 1993 and Johnson v Davies [1999]
Ch 117 and that:
"The question, in each case, is what did A and B intend should be the effect of
the agreement which they made. And, given that, in any case where A settles
for less than the full amount of his claim against B, A and B will have
opposing interests in relation to the effect of the agreement on A's right to
pursue C, it seems to me wrong in principle to approach that question on the
basis that (in the absence of clear words to the contrary) they must be taken
to have intended that the agreement would favour the interests of one rather
than interests of the other." (para. 61).
14. That view, he concluded, was in no way inconsistent with Lord Hope's
observations in Jameson to which I have already referred.
Kenburgh Investments v Minton [2000] LlR(PN) 736
15. The facts of this case, like those in Heaton, were of some
complexity. Essentially, however, the liquidators of a company, having made
a "full and final settlement" by deed of compromise of an application under
s.212 of the Insolvency Act 1986 against its parent company and a number of its
directors, then sued its solicitors who had been acting for it in the relevant
transactions. The solicitors issued contribution notices against the parent
company and the directors, all of whom contended that they had expected the
deed of compromise to mark the full extent of their liabilities. The effect
of the compromise was considered as a preliminary issue. It was held not to
bar the subsequent action. Robert Walker LJ (with whom Nourse and Latham LJJ
agreed) said this:
"... at the time of the compromise the summons under s.212 ... attacked the
transaction as a preference and not as a bare-faced misappropriation. `The
action' referred to in the deed of compromise was constituted in that way when
the deed was executed. The claim against the solicitors, by contrast, is a
claim for breach of professional duty which relies on all the facts or
allegations already mentioned. For these reasons I cannot accept ... that
the directors and the solicitors are (on the pleaded cases) in a position
closely analogous to concurrent tortfeasors liable for negligence (and breach
of statutory duty in relation to the safety of the workplace). The causes of
action were, as the judge said, different, and it is by no means obvious that
the claim against the solicitors, if proved, might not exceed the pleaded claim
in the s.212 pleadings. That is sufficient to dispose of this appeal and in
this difficult and developing area it is probably better not to go much
further. Although in Jameson Lord Hope seems to have been careful to
restrict his observations to the case of concurrent tortfeasors liable for the
same damage, I would not exclude the possibility of the principle being
extended to closely analogous situations (although where the two actual or
potential defendants are not liable in respect of precisely the same damage,
abuse of process may be a safer foundation for the court to restrict further
proceedings, as Laddie J seems to have thought in Heaton). The
extension which the appellants seek in this case is however exorbitant."
16. Against that juridical background let me now consider in a little more
depth the rival arguments advanced on this appeal. I shall refrain from
consideration of the judgment below: the case was argued and decided at first
instance before Laddie J's judgment in Heaton had been overturned by the
Court of Appeal and before the Court of Appeal's judgments in Minton.
Although the Deputy Judge, rightly as now appears, treated the first instance
decision in Heaton as wrongly decided, the general legal landscape now
looks rather different.
The Appellant's arguments
17. As stated, it is the appellant's first and main contention that IMP
received full satisfaction for their damage under the settlement agreement.
If and insofar as IMP's subsequent claims against the respondents were in
respect of losses for which they had already sought recovery from the
appellant, those claims, he submits, should have been resisted as having been
fully satisfied under the agreement. The agreement in terms released the
appellant from "any and all claims ... which it has now or may have in the
future, known or unknown, against Mr Fitzgerald ... " Nothing, he submits,
could be wider, and accordingly those claims are to be regarded as satisfied.
True, Mr Dagnall acknowledges, IMP's claims, both against the appellant and
thereafter against the respondents, were in contract rather than tort so that
there was no technical barrier to the bringing of a second action even assuming
that the damages claim had been fully satisfied by the agreement. (That,
incidentally, is why his argument is no longer that IMP's cause of action
against the respondents had been extinguished - the argument reflected in the
terms of the preliminary issue as formulated - but is rather that IMP's claim
had been satisfied and was, therefore, no longer recoverable against the
respondents). But, submits Mr Dagnall, the House of Lords decision in
Jameson was not dependent upon the respective defendants being
concurrent tortfeasors; the critical underlying analysis was that, in the
light of the settlement terms, the claimant could not be heard to say that his
damages in fact exceeded the sum accepted from the first defendant in full
satisfaction. And that analysis, he argues, has no less force and
application in the present case. IMP were prepared to release the appellant
from all claims in exchange for his shares. Their claims might have been
worth more than the shares or they might have been worth less. That mattered
not. What mattered was that his shares were accepted in full satisfaction of
all IMP's losses.
18. The appellant's alternative argument is that, even assuming IMP's claim
was not fully satisfied by the settlement agreement, nevertheless the final
settlement of the dispute between them precluded IMP from then suing the
respondents and thereby putting him at risk of a further liability under
contribution proceedings.
The respondents' arguments
19. The respondents' first answer to the appellant's main argument is that the
concept of full satisfaction simply has no application to a contract case like
the present. IMP's cause of action against the respondents in contract would
not have been extinguished whatever sum had been recovered under the settlement
agreement. The only relevance of that sum (or share value) was to the
calculation of IMP's damages entitlement in their further action against the
respondents and, of course, credit was duly given for it. In short, there is
no reason in a contract case why the question whether the claimant has already
received full satisfaction for his claim should ever arise save in the context
of a later damages assessment.
20. Mr Tozzi's second and alternative answer to the appellant's "full
satisfaction" argument is that IMP's claims were not in fact fully satisfied
under the settlement agreement and, even if the court limits its inquiry and
construes that agreement in the manner prescribed by Lord Hope in
Jameson, there is no good reason to conclude that IMP intended the
contrary.
21. As to the appellant's alternative argument based on the "final settlement"
question, Mr Tozzi says simply that the settlement agreement is not to be
construed as intending to prevent IMP subsequently suing the respondents so as
to recover the balance of their losses.
Conclusions
22. It seems to me here that the appellant and the respondents are indeed "in
a position closely analogous to concurrent tortfeasors" (to use the language of
Robert Walker LJ in Minton). Insofar as IMP's claims against the
respondents precisely mirrored those pleaded against the appellant, there was
little distinction in principle between these actions and comparable actions in
negligence or deceit. Certainly the same essential heads of loss would be
recoverable in each. That to my mind is the strength of the appellant's
argument.
23. Its weakness, however, is apparent once one comes to construe the
settlement agreement, whether with a view to answering the first of Chadwick
LJ's questions or the second, i.e. the question whether the shares were
intended to be received in full satisfaction of the claim or the question
whether a further claim was intended to be precluded by the settlement.
24. It is appropriate at this stage to return to the judgment below to note
certain of the facts found by the judge as part of the background knowledge
available to the parties when the settlement agreement was made and, therefore
- see Lord Hoffmann's speech in Investors Compensation Scheme Ltd v West
Bromwich Building Society [1998] 1 WLR 896 - a legitimate aid to its proper
construction:
"The predominant intention of IMP was to rid themselves of Mr Fitzgerald and
all his works.
Mr Fitzgerald felt his bargaining position was weak but delay was not his
friend and that things could only get worse unless he made peace with IMP on
the best terms available, even if those represented something less than his
ideal outcome.
Neither party knew, even to the nearest £¼ million, what was the
`true' value either of the claim against Mr Fitzgerald or the value of the
principal consideration passing i.e. his shares.
To the knowledge of Mr Fitzgerald, new joint auditors ... had been appointed
and could reasonably be expected to conduct further and fuller investigations
into the losses ... The investigation was in its infancy. If Mr Fitzgerald
had indeed been systematically defrauding the company, that would not have been
music to his ears and would have encouraged him to settle quickly. ...
[Mr Fitzgerald] must, as a seasoned business man, ... have known that the role
of Cape as auditors was to detect frauds of this kind and that, therefore, IMP
would be, at the very least, considering targets other than him."
25. Stating his final conclusions as to the construction of the settlement
agreement, the deputy judge said this:
"I believe if one asked Lord Hoffmann's reasonable man armed with the relevant
facts the question, `Do the parties to this agreement intend to prevent Cape
from suing anyone else ever against whom they have a contractual claim in
respect of the losses they say Mr Fitzgerald caused them?' and with that
question the necessary corollary, `Do they intend that Mr Fitzgerald is to be
immune from any future claim by any person in relation to his relevant
activities?' that quite simply the answer to both questions would be a
resounding `Certainly not'".
26. I find myself in full agreement with that conclusion. Had the appellant
sought from IMP their assurance that they would never sue anyone else, whatever
was found upon their further investigation, they must inevitably have refused.
He, of course, had a much better appreciation then they did of the extent of
his defalcations.
27. That conclusion, of course, was directed essentially to the second
question, the question of "final settlement". The judge decided - and it may
well be correctly decided - that their are "powerful reasons for not applying
the Jameson principle to contract at all" and so never addressed the
"full satisfaction" question as such. Because. however, of the reservations
in this regard expressed by Robert Walker LJ in Minton, I prefer to
assume, without deciding, that the question of "full satisfaction" has some
relevance here and to address it.
28. I pose, therefore, this question: Was IMP's receipt of the appellant's
shares intended to be in full satisfaction of all their claims arising out of
the appellant's defalcations. To my mind, the same considerations as lead to
the conclusion on the "final settlement" question, lead also to a negative
answer to this "full satisfaction" question. Of course, as between IMP and
the appellant, no further claims could be brought: clauses 7.1 and 10.2 of the
agreement make that plain. But the agreement in fact says nothing to the
effect that it was "in full and final satisfaction" of all IMP's claims
(contrast the agreements in Jameson and Minton) and the waiver
and release effected by clause 7.1 was solely in respect of claims "against Mr
Fitzgerald".
29. In short, whatever view is taken of the developing legal principles in the
light of the recent authorities, there is in my judgment nothing in the
provisions of the settlement agreement nor in its surrounding circumstances
that could properly lead the court to conclude that IMP were thereafter (a)
bound to accept (the fiction) that the true value of their losses did not
exceed the value of the appellant's shares (the "full satisfaction" question),
or (b) precluded from advancing claims against other contract breakers in
respect of the same losses (the "final settlement" question).
30. I would dismiss this appeal.
LORD JUSTICE MUMMERY:
31. I agree.
LORD JUSTICE LATHAM:
32. I also agree.
Order: Appeal dismissed with costs. Permission to appeal to the House of
Lords refused. A payment on account of £10, 000 to be paid within 21
days, pending detailed assessment. The second date on the new timetable to be
suspended to 27 February to allow for a petition to the House of Lords, with
liberty to apply to apply to the trial judge.
(Order not part of approved judgment.)
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