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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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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