UK: That’s Settled Then – Or Is It?

To avoid costly and time consuming litigation and preserve goodwill parties to construction contracts often do deals at the end of projects resolving matters, so that they can draw a line under how much is due to the Contractor and move on to the next job. Such deals are usually recorded by means of a Settlement Agreement.  The devil is often in the detail in such agreements, and great care needs to be taken to ensure that they capture what you think they do and leave the parties with sufficient remedies.

A recent court case from May this year, Point West London Ltd v Mivan Ltd (2012) serves as a salutary warning that in one project the phrase "full and final settlement in respect of any and all outstanding matters" was, on the facts, sufficient to release a contractor from liability to pay damages in respect of defects which both sides knew about in its work at the date of the Settlement Agreement, but which had been left unresolved.

On 22 August 2000, Point West London Ltd, a developer and landlord had contracted with Mivan Ltd, a building contractor, to build 400 apartments at the site of the old West London air terminal on Cromwell Road, London. Practical completion was achieved in June 2001 but problems arose in relation to curtain walling to two of the floors and the installation of a heating and cooling system in the penthouse flat. By October 2007, the remedial works had not remedied the defects, but the parties entered into a settlement agreement for the sum of £50,000. Both parties knew that there were persistent and unresolved defects in the curtain walling, and that there were also as yet unascertained defects in the heating and cooling system.

The settlement agreement was stated to be "regarding Mivan's Final Account in respect of all Works carried out and any corresponding outstanding matters" and comprised a further payment of £50,000  "...representing the final assessment of monies due or to become due this achieving full and final settlement in respect of the above works, together with any and all outstanding matters".

Point West were also involved in a court  case with the penthouse owner which they lost and had to pay damages to him for the defects,

Point West then brought proceedings against Mivan seeking a declaration that the settlement  agreement did not include settlement of Mivan's liability to pay damages in respect of defects which it had or would in the future have under its contract with Point West, including any liability in respect of defects which existed at the date of the agreement.

The court disagreed and declared that the settlement agreement released Mivan Ltd from liability for defects which both parties were aware of at the date of the agreement, including in relation to the unascertained defects relating to the heating and cooling system.

The Court looked at the intention of the parties by looking at the exact words they had used in the settlement agreement.

It was clear that by the date of the agreement, the "outstanding matters" were the questions of payment to Mivan Ltd and the defects. Both parties were fully aware that further remedial works were needed to the curtain walling and to the heating and cooling system and Mr Justice Ramsey therefore held that the outstanding matters therefore included liability for such defects as they were evidently patent at the date of the agreement. Those were the outstanding matters corresponding to "all works carried out" by Mivan Ltd and the financial settlement was in respect of the same.

Mr Justice Ramsey also confirmed that as the agreement was stated to be "in full and final settlement in respect of the above works, together with any and all outstanding matters", it was clear that it was intended to achieve just that, a full and final settlement in respect of the all the works and all the outstanding matters. The combination of phrases used in the agreement was intended to take the settlement further than a financial settlement and was intended to refer to all the defects that were outstanding.

This conclusion was strongly supported by the term in the agreement that it concluded Mivan's "responsibilities and obligations in respect of their works". Analysing the terms used made it clear that the parties had envisaged a full and final settlement in respect if Mivan's responsibilities and obligations regarding the defect that were patent at the date of the Settlement Agreement.

This case demonstrates the importance of careful drafting in the context of settlement agreements and that in interpreting the intentions of the parties to a dispute, the words used in the particular background or context of the agreement will be key.

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