In the case of Abdullah Nasser Bin Obaid and Ors v Khalid Abdullah Al-Hezaimi and Ors [2024] EWCA Civ 612,[1] the Court of Appeal handed down a judgment highlighting the importance of carefully drafting settlement agreements and, in particular, which claims are released.
Background
2017 Proceedings
In 2017, Mr Bin Obaid, a Saudi Arabian national and businessman, brought proceedings in the English High Court against Dr Al-Hezaimi (the 2017 Proceedings). His case was that he had orally agreed with Dr Al-Hezaimi to invest in the English property market using an offshore corporate vehicle of which Mr Bin Obaid would be the majority shareholder. Under the alleged oral agreement, Mr Bid Obaid would provide the funds and Dr Al-Hezaimi would manage the investments. Mr Bin Obaid listed 24 payments in his Particulars of Claim, which he (or an associated company) made to Dr Al-Hezaimi or a property developer.
On the basis of these allegations, Mr Bin Obaid and his companies started the 2017 Proceedings by bringing a without notice application against Dr Al-Hezaimi and his companies for both a proprietary injunction and a worldwide freezing order, which was duly granted by Barling J (the Barling J Order).
Dr Al-Hezaimi’s response was to apply to discharge the Barling J Order on the grounds of material non-disclosure (the Discharge Application). In the Discharge Application, Dr Al-Hezaimi claimed that, in breach of the obligation of full and frank disclosure, the claimants had failed to make any, or any adequate, mention of various matters related to a medical business established in Saudi Arabia and Egypt by Dr Al-Hezaimi, Mr Bin Obaid and a Dr Al Atiyah called United Industrial Medical & Plastics Co (UIMP) and that most of the payments were made either (i) to fund the establishment and development of UIMP, (ii) to remunerate Dr Al-Hezaimi in respect of his work for UIMP, or (iii) to buy out his 30% share in it.
Mr Bin Obaid responded to the Discharge Application asserting that Dr Al-Hezaimi’s explanations were untrue but at the time of the application to Barling J he was unable to expressly identify which payments were made for which purposes, but that with the benefit of further time to review his financial records, he had been able to do so and sought permission to file an Amended Particulars of Claim. The Amended Particulars of Claim made substantial amendments to the particular payments relied on, specifically 15 were deleted (the Deleted Payments), 8 were kept and a further 6 were added.
The Discharge Application was adjourned to trial, during which time a settlement was agreed, and a Settlement Deed was signed.
The Settlement Deed
The Settlement Deed was made between the parties to the 2017 Proceedings and was governed by English law, with an exclusive jurisdiction clause in favour of the English Courts.
Under the heading “Background” it contained two recitals:
“(1) The Parties have been in dispute in relation to the beneficial ownership of the real property and money described below as the Identified Assets.
(2) The Parties wish to fully and finally resolve those disputes on the terms of this Deed.”
The substantive compromise was in clause 3.1 which provided that the parties agreed that the “KAH Parties” (Dr Al-Hezaimi and his companies) were the legal and beneficial owners of the “KAH Assets”, and that the “ANBO Parties” (Mr Bin Obaid and his companies) were the beneficial owners of the “ANBO Assets”, which together formed the “Identified Assets”.
Clause 4.1.1 provided for a release on the following terms “this Deed shall constitute full and final settlement of all Claims against each of the other Parties and their respective Affiliates”.
“Claim” was defined in clause 1.1 to mean:
“all and any claim or cause of action (other than arising out of a breach of this Deed) of any kind (including without limitation by way of correspondence, allegation, defence, counterclaim or set off and/or for any fees, costs or expenses) in any jurisdiction whether under English or foreign law, whether civil or criminal in nature, arising out of or in connection with (i) the English Proceedings (including for the avoidance of doubt any counterclaims in those proceedings and any orders for the payment of costs); or (ii) and [sic] claim for rental payments or other proceeds of the Identified Assets arising prior to the date of this Deed. For the avoidance of doubt, this clause shall not prevent the Parties from pursuing the litigation in other jurisdictions currently pending between them, except to the extent that there is an overlap with the claims in the English Proceedings” (emphasis added).
“English Proceedings” meant, as one would expect, the 2017 Proceedings.
2019 Proceedings
At the time of the Settlement Deed, there were already several actions that had been commenced on various dates in 2018 by Dr Al-Hezaimi (or others) against Mr Bid Obaid, and vice-versa in Saudi Arabia. In 2019, after the Settlement Deed had been executed, further claims were issued by Mr Bin Obaid in 2019 in Saudi Arabia in respect of certain payments (the 2019 Saudi Proceedings). In his defence of the 2019 Saudi Proceedings, De Al-Hezaimi contended that the payments concerned had been the subject of judicial determination in the 2017 Proceedings and/or that any claim in respect of them had been released by the Settlement Deed.
In those circumstances, Mr Bin Obaid (and his associated companies) brought a second claim in the English High Court in 2020 against Dr Al-Hezaimi (and his associated companies) for a declaration that the Settlement Deed on its true construction did not compromise or release any claim in respect of the Deleted Payments (and one payment that had never been pleaded). The English Court largely accepted Mr Bin Obaid’s case on construction, but gave Dr Al-Hezaimi permission to appeal on the construction of the term “Claim” in the Settlement Deed.
Court of Appeal Decision
The critical question in the appeal was the true construction of the definition of Claim in clause 1.1 (as detailed above) and whether claims related to the Deleted Payments properly fell within this definition.
Nugee LJ confirmed that the question of construction of the Settlement Deed fell to be decided by the ordinary principles applicable to contractual construction, i.e. “that a contract is by interpreted by reference to the way that the reasonable objective reader, armed with the background knowledge reasonably available to the parties, would understand the language they have chosen to use”. There was one potential reservation: per Lord Nicholls in Bank of Credit and Commercial International SA v Ali [2001] UKHL 8 at [23], that parties who enter into a general release “want to wipe the slate clean”. However, Nugee LJ found that this was not a case of a general release but a release of particular claims.
In looking at the construction of the Settlement Deed, Nugee LJ looked first at the recitals, which indicated that the purpose of the deed was to settle the particular disputes referred to, and that on the basis of the recitals “before proceeding any further the reader expects the general effect of the settlement to be to settle (only) those disputes”. Nugee LJ continued to clause 3, the first operative provision, which “does exactly what the recitals have led one to expect”, in that it divides up the Identified Assets.
In relation to clause 4, which provided for the full and final Settlement of all Claims – this of course depended on the exact definition of Claims, as defined in clause 1.1. In this regard, Nugee LJ held:
“A claim is within the definition, and hence fully and finally settled by the Settlement Deed, if it is a claim arising out of or connect with the matters litigated in the [2017 Proceedings], those matters being identified by reference to the claims made (including counterclaims) and defences advanced in the [2017 Proceedings]”.
In light of this finding, Nugee LJ held that claims relating to the Deleted Payments were not settled by the Settlement Deed as: (i) the Deleted Payments were taken out of the Amended Particulars of Claim; (ii) none of the relief sought was concerned with the Deleted Payments; (iii) none of Dr Al-Hezaimi’s counterclaims were concerned with the Deleted Payments; and (iv) although the Deleted Payments were referenced in the Amended Defence, they were not relied upon by way of defence to the claims in the Amended Particulars of Claim. Further, the List of Principal Issues for trial did not include any issues relating to the Deleted Payments and there was no disclosure given in this regard. Therefore, Nugee LJ held that the Deleted Payments were not among the matters that were the subject matter of the trial.
Comment
This judgment serves as a reminder of the importance of carefully drafting settlement agreements. Settlement agreements fall to be construed on the same principles of interpretation as other contracts and the natural meaning of the words will be given their effect.
In the past, the courts were reluctant to allow new proceedings in respect of issues which were clearly part of the subject matter of a previous litigation. However, this trend was reversed by Johnson v Gore Wood & Co [2000] UKHL 65. In the present case, Nugee LJ held that the fact that the claims had been amended to remove those relating to the Deleted Payments did not mean that they had been abandoned and “meant no more than that they had decided not to pursue the claims in the [2017 Proceedings]”.
When drafting settlement agreements, there will be a balancing act between settling all of the claims which the parties know about (and want to settle), and potentially leaving the opportunity open to be able to bring claims based on facts not yet known.
[1] https://www.bailii.org/ew/cases/EWCA/Civ/2024/612.html
