For those engaged in High Court litigation, an acceptable offer of settlement is often a great relief which promises to lift the burden of stress and work the process causes. However, the end of the recent proceedings brought by Vincent Tchenguiz against the liquidators of Kaupthing Bank, Grant Thornton UK (“GT“), provides a salutary lesson. When considering the terms of which a dispute should be settled, a careful and clear approach should be taken, especially if future, related litigation is contemplated.
The Tchenguiz brothers are globally wealthy British businessmen who began their careers in the Middle East, specifically Iraq and Iran. At various times, their business empire has included the Odeon chain of cinemas, the pub chain Mitchells and Butlers plc, real estate assets and substantial shareholdings in Sainsbury’s, Somerfield and Kaupthing Bank. After that bank’s spectacular implosion at the height of the global financial crisis in 2008 (it was at the time Iceland’s largest bank), a body known as the Resolution Committee appointed GT to recover funds for Kaupthing’s creditors. Following investigations of Kaupthing’s affairs, and a referral of several loans made to companies owned by the Tchenguiz brothers to the Serious Fraud Office (the “SFO“), warrants for the arrest of the Tchenguiz brothers and the search of their Mayfair offices were issued. The collapse of the subsequent police case against the brothers, at the end of which no charges were made, was perhaps as dramatic as the collapse of Kaupthing Bank that gave rise to the SFO investigation, and led to Judicial Review proceedings in the Administrative Court in which the arrest and search warrants were quashed.
The Tchenguiz brothers ultimately reached a negotiated settlement of the proceedings with the SFO. The terms agreed provided that the parties waive any claim or cause of action arising out of or in relation to the dispute between them, whether known or unknown. It also created a group of identified people who were specifically protected from any future law suit and created a category of specific claims that were explicitly released. Additionally, the settlement agreement made clear that it did not relate to future claims between the parties that arose after the date of that agreement.
However, not content with victory against the SFO and his entitlements under the settlement agreement, Vincent Tchenguiz and several trust companies controlled by him (together, the “Claimants“), took further legal proceedings, against Mr Johannes Johannsson of the Resolution Committee and the Committee’s advisors, GT, (together, the “Defendants“). The Claimants alleged malicious conspiracy, stating that the Defendants instigated and then directed the SFO investigation by making false allegations against Mr Tchenguiz. The Claimants said the aim of the alleged conspiracy was to obtain documents and information that would allow the liquidators of Kaupthing to enforce security over assets owned by the brothers’ companies.
Both Mr Johannsson and GT applied for summary judgement in the proceedings and won. Both applications were made on the basis that the terms of the settlement agreement prohibited Vincent Tchenguiz and his companies from making claims against Mr Johannsson and GT. The applications were opposed on slightly different grounds. However, the Judge who heard both applications applied the same reasoning in deciding them.
Mr Johannsson’s application came before the Court first and was opposed on the grounds that (i) the claim against him related to matters arising after the date of the settlement agreement; (ii) the settlement agreement was only signed because of “sharp practice” by which Mr Johannsson had concealed a good claim against him (being the alleged conspiracy to obtain documents and information) in order to benefit from the protection of the settlement agreement; (iii) the doctrine of illegality (i.e. the Court will not allow a person to found a claim or a defence on an illegal act) prevented Mr Johannsson from relying on the settlement agreement because the agreement was the result of a conspiracy between Mr Johannsson and GT; and (iv) there had been a breach of fiduciary duty. This article concerns itself with only issues arising from points (ii) and (iii).
In dismissing the arguments made in relation to “sharp practice”, the Judge referred to the legal principle (as stated in the House of Lords case of BCCI v Ali & others  IKHL 8) that where one party to a settlement does not disclose the existence of a claim against them about which the other was not aware before an agreement is entered into containing a general release (i.e of all claims whether known or unknown), this would be considered unacceptable – the law would then provide a remedy to the wronged party. The Judge concluded that this principle did not apply to the settlement agreement in this case. It was drafted in a sufficiently detailed way. Crucially, it included specific releases of claims in relation to investigations and actions by the authorities and provision of documents and information to authorities, which covered Mr Johannsson.
In respect of illegality, the Judge held that it could not be argued that Mr Johannsson relied on this as the settlement agreement was not an illegal document, as was not the purpose of the agreement (i.e. the end of the dispute) nor the carrying out of the agreement’s obligations. The Judge therefore found that Mr Johannsson was acting legally when relying on the settlement agreement which settled claims alleging illegal conduct.
After losing the summary judgment application made by Mr Johannsson, the Claimants altered their position when opposing GT’s application. This time, “illegality” was the main ground on which the application was opposed (although there were others). The issue of “sharp practice” was presented and decided in the same way. In deciding this issue, the Judge repeated his previous reasoning but added further points:
- The Claimant’s remedy for suffering loss from a legal contract made by illegal means or a legal contract used for illegal means was damages, as a result of a successful claim for conspiracy – they could not rely on illegality alone to set the settlement agreement aside;
- It was crucial the Claimants argued that the Court should rule that GT could not enforce the settlement agreement whilst maintaining they themselves could enjoy its benefits – they were seeking partially to set aside the obligations the settlement agreement placed only on them; and
- If the Courts treated a legal contract as illegal because it was achieved by illegal means on the part of one contracting party, the innocent party to the contract would suffer by not being able to enforce the contract once they learned of the illegal means. However, if the agreement was recognised as legal (even if achieved by illegal means) then the innocent party has the choice of electing to enforce or set the agreement aside. There is no place in the law of England & Wales for an innocent party to a contract to be entitled to call for the provisions of a legal contract that are in his favour to be enforced while the others that are not innocent to be refused enforcement of the contract.
Following the successful applications, the proceedings were brought to a close. However, Vincent Tchenguiz and the other Claimant companies have vowed to appeal the Judge’s decisions.
As in any dispute involving personal issues (such as reputation) or substantial amounts of money, it is clear that the perceived harm he suffered as a result of the SFO investigation and insolvency of Kaupthing Bank made this a bitter clash for Vincent Tchenguiz.
In such circumstances, it may be tempting for a party to attempt to leave the door open for continued litigation against individuals they hold responsible for wronging them, either as a deliberate, aggressive strategy or as a cautionary approach to a scenario of incomplete information. The above decisions show that anyone wishing to settle against some but not all protagonists in a dispute will need to pay close attention to the wording of any settlement agreement. Any such agreement would need clearly and frankly to set out future potential claims that are to be preserved, or limit the settlement to disputes that the parties are aware of at a certain time.
Similarly, those settling claims made against them who are holding information up their sleeve that could give rise to future claims against them should either make a clean breast of matters during settlement negotiations or include categories of disputes that are explicitly settled. Failure to do so risks future action in respect of their “sharp practice”.
If the promised appeals of the Judge’s decisions are unsuccessful, this will restrict the abilities of a party to a settlement to rely solely on the doctrine of illegality to overturn an agreement, even if there was a conspiracy to force them to settle. The remedy for any such situation will lie in a separate claim in respect of that conspiracy. Given his apparent appetite for litigation, it may be that Mr Tchenguiz follows this course of action. We shall soon find out.
This article should not be taken as definitive legal advice on any of the subjects covered. If you do require legal advice in relation to any of the above, please contact Tom Spiller on 020 7955 1444 or any member of the Rosenblatt Dispute Resolution Department.