Greece is the word: a commercial interpretation of settlement provisions

A recent Court of Appeal decision has highlighted the importance of well-drafted settlement agreements and, in particular, their effect on the ability of a party to pursue in another jurisdiction claims in respect of a loss already settled.

In a unanimous judgment, the court ruled that the claims in question fell within the scope of settlement and indemnity provisions in the relevant settlement agreements, and upheld the first instance decision giving summary judgment to that effect. The court also confirmed that the claims should have been brought in England, and not Greece, as they fell within the scope of exclusive English jurisdiction clauses in the settlement agreements. However, it was for the Greek court to decide whether to recognise the English court’s judgment on that issue.

In reaching its decision, the Court of Appeal explained that settlement clauses are analogous to both arbitration and jurisdiction clauses and should likewise be given a sensible commercial meaning. In particular, the court held that the words “full and final settlement” pointed to an intention of the parties to settle all claims in relation to the loss in question, without having to deal with further litigation. Accordingly, it was not open to one party to argue that fine distinctions in the drafting enabled it to bring new claims in respect of the same loss and/or to do so in another jurisdiction.

Background

Starlight Shipping Company v Allianz Marine & Aviation Versicherungs AG and others

concerned long-running litigation involving claims by the owners of a ship (the “Alexandros T”) against insurers for losses arising from the total loss of the vessel. The owners originally pursued their claims in the English courts and the proceedings were eventually settled in December 2007 and January 2008, pursuant to two settlement agreements (the “Settlement Agreements”).

The Settlement Agreements were subject to English law and jurisdiction (one settlement agreement specified that the jurisdiction was exclusive, whereas the other did not). Under the terms of both agreements, the owners agreed to accept payment in full and final settlement of all and any claims that they might have “under” the policy in relation to the loss of the vessel. Additionally, the owners agreed to indemnify the insurers against any claim that might be brought against them “in relation to” the loss of the vessel “or under” the policy. Therefore, the indemnity appeared to be drafted in wider terms than the settlement provision.

More than three years later, the owners began proceedings in Greece claiming damages from the insurers for late payment and in respect of alleged misconduct in relation to the claim. The insurers sought to enforce the Settlement Agreements in England and at first instance Burton J gave the insurers summary judgment for, amongst other matters, a declaration that the matters in Greece were covered by the previous settlement and that the owners were bound to indemnify the insurers against all costs in respect of the Greek proceedings. The owners appealed and also sought to stay the proceedings in England, seeking to rely on Article 27 of EU Regulation 44/2001 (the “Regulation”), which provides that a member state court must stay proceedings where proceedings involving the same cause of action and between the same parties had already been commenced in another member state (in this case, Greece).

The issue of a stay was ultimately heard by the Supreme Court, which held that there should be no stay under the Regulation primarily because the proceedings in Greece (being based in tort) did not involve the same cause of action as English proceedings brought by the insurers in reliance on the Settlement Agreements (claims in contract). The dispute then returned to the Court of Appeal to hear the owners’ appeal against the summary judgment granted in favour of the insurers.

Judgment

The Court of Appeal dismissed the appeal, finding that the Greek claims were clearly brought in relation to the loss of the ship (whether they were made in tort or otherwise) and were therefore within the scope of the indemnity provisions of the Settlement Agreements. The court explained that it was the obvious intention of the parties that both the indemnity and settlement provisions “should march together and complement one another” and that there was no basis for the owners to argue to the contrary, based on the terms as drafted.

As a matter of construction, the court explained that settlement clauses are analogous to arbitration and jurisdiction clauses and should likewise be given a sensible commercial meaning. The settlement clauses in both Settlement Agreements contained the words “full and final settlement of all and any claims it may have under Policy… in relation to the loss of “Alexandros T””. The Court held that the words “full and final settlement” indicated the parties’ intention that all claims in relation to the loss of the vessel should be compromised. The insurers were therefore entitled to rely on the settlement and indemnity in their favour.

Once that was established, it followed that the Greek claims must also fall within the English jurisdiction clauses in the settlement agreements and so should have been brought in England. However, it was for the Greek court to consider those claims and decide whether to recognise an English judgment that the Greek claims fell within the terms of the Settlement Agreements and had therefore been released. The Court of Appeal explained that, contrary to the claims of the owners, this was not an interference with the jurisdiction of the Greek court and the declarations sought by the insurers did not infringe EU law.

The court also concluded that it was not too early to invoke the protection of the indemnity provisions in the Settlement Agreements, as expenses had already been and were continuing to be incurred as a result of the proceedings wrongly brought in Greece.

Comment

This decision demonstrates the court’s willingness to adopt a sensible commercial interpretation to the construction of settlement clauses. Parties often want to draw a line in the sand with certainty that they are protected should the other side subsequently seek to pursue claims that have already been settled. It is for this very reason that parties usually insist on an indemnity from the other party should it try to pursue claims already compromised, in breach of a settlement agreement. (In this case, the indemnity actually also served a wider purpose as the owners were also indemnifying the insurers against potential claims by third parties not covered by the settlement.) It is vitally important that the scope of the settlement is sufficiently broad to encapsulate all claims that the defending party wishes to settle. In this case, the court confirmed that the drafting stood up to scrutiny and took a commercial approach reflecting the objective intentions of the parties at the time.

Further reading:

Click here to read the judgment in Starlight Shipping Company v Allianz Marine & Aviation Versicherungs AG and others.