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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Cape &Amp; Dagleish (A Firm) v Fitzgerald & Anor [2000] EWCA Civ 287 (15 November 2000)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/287.html
Cite as: [2000] EWCA Civ 287
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Case No: A2/2000/0193
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR C. MACKAY QC
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: Wednesday 15 November 2000
LORD JUSTICE SIMON BROWN
LORD JUSTICE MUMMERY
and
LORD JUSTICE LATHAM
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CAPE & DAGLEISH (A firm) |
Appellant | |
- and - |
||
FITZGERALD & ANR |
Respondents |
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
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Mr J Dagnall (instructed by Halliwell Landau of Manchester M2 2JF) for the Appellant
Mr N Tozzi (instructed by Cameron McKenna of London EC3N 4BB) for the Respondents)
JUDGMENT
(As Approved by the Court)
LORD JUSTICE SIMON BROWN:
1. This is an appeal against the order of Mr Colin Mackay QC sitting as a judge of the High Court on 2 February 2000, made on the trial of preliminary issues, holding that a settlement agreement between the appellant and the IM Group of Companies (IMP) constituted no bar to a subsequent claim by IMP against the respondents, which in turn led to the issue of a contribution notice by the respondents against the appellant under the Civil Liability (Contribution) Act 1978. The case, therefore, arises in the same area of law as was recently considered by the House of Lords in Jameson v CEGB [2000] 1 AC 455 and by this Court in Heaton v AXA Equity & Law [2000] 3 WLR 1341 and in Kenburgh Investments v Minton [ 2000] LlR (PN) 736.
2. Before identifying the particular questions arising, it is convenient first to set out the central facts of the case. These can, I think, sufficiently be summarised as follows.
3. IMP develop and deal in real property. The appellant, until his summary dismissal on 17 May 1993, was their managing director. He was dismissed for gross misconduct, the perpetration of large scale systematic fraud upon the company. This was committed in two main ways: first, a lot of work was done on two properties in which the appellant had a beneficial interest and the cost of it was then charged to IMP; secondly, he caused a £70,000 debt due from one of his companies to IMP to be simply written off. On 19 May 1993 IMP issued a writ against the appellant alleging breach of contract and/or breach of fiduciary duty and/or breach of statutory duty and obtained a Mareva injunction. Within days a settlement of the disputes between them was agreed, both parties, as the judge below found, "want[ing] most of all to be rid of each other". The settlement agreement (a detailed document extending to 19 pages, drawn by lawyers on both sides) was signed on 18 June 1993 and contained as its principal terms:
(1). The appellant would surrender to IMP his 10% holding in the group (clause 2).
(2). "Each of the IM Parties hereby irrevocably and unconditionally (save as provided below) waives and releases, and agrees to procure that each other member of the Group waives and releases, any and all claims, rights and remedies which it has now or may have in the future, known or unknown, against Mr Fitzgerald, arising from his employment or office as director with, or as a shareholder of, any of them, or from the matters referred to in the Action, or under the Shareholders' Agreement, or in any other way whatever, and any and all claims for expenses, legal costs or damages, arising from any of the same." (Clause 7.1)
(3). "The IM Parties and Mr Fitzgerald irrevocably and unconditionally covenant not to sue each other in any forum or form in connection with the claims and rights released under clauses 7 and 9 [by which Mr Fitzgerald irrevocably and unconditionally waived and released any claims he might have against the Group], (without limiting the effect of those clauses)." (Clause 10.2).
4. I move on some fourteen months to 12 August 1994 when IMP issued proceedings against the respondents, their auditors, claiming damages for breach of contract and/or breach of statutory duty consisting in their failure to detect the appellant's fraudulent activities. That action came for trial before Judge Rivlin QC sitting as a deputy High Court Judge and on 6 February 1997 judgment was given for IMP. The respondents admitted breaching their duty of care as auditors but contended that IMP had suffered no loss because, they argued, the appellant's shares which IMP received under the settlement agreement were worth more than the £704,568 which the judge held to be IMP's damage caused by the appellant's frauds and the cost of investigating them. That argument failed. Having heard lengthy expert evidence, the judge held that the true value of the shares as at June 1993 was £430,000. Thus IMP was entitled to judgment for the difference, namely £275,568 plus interest (assessed by him at £249,876 but subsequently reduced by the Court of Appeal to £138,500), i.e. a final total of £414,068.
5. Thereafter, on 21 October 1997, the respondents issued contribution proceedings against the appellant claiming damages and/or a contribution amounting to a complete indemnity under the 1978 Act. It is within these proceedings (the third in the sequence of actions), that the preliminary issues were ordered to be tried.
6. The argument advanced by the appellant can, I think, be summarised essentially as follows:
i. The contribution proceedings brought against him are by definition "in respect of the same damage" as that for which he himself was liable to IMP - see s.1(1) of the 1978 Act. Only then does the right to contribution (to the extent found "just and equitable" under s.2(1)) arise.
ii. IMP had already received full satisfaction for this damage under the settlement agreement of 18 June 1993.
iii. Accordingly, when later IMP sued the respondents, their claim could and should have been resisted (to the extent that it consisted, as largely if not entirely it did, of the same damage), on the basis that it had already been fully satisfied and so was no longer recoverable.
iv. Alternatively the respondents could and should have resisted IMP's claim on the basis that it was inconsistent with their having reached a final settlement with the appellant.
v. Having failed to defeat IMP's claim on one or other of those bases, the respondents cannot establish their claim for contribution against the appellant: they themselves were never in law liable in respect of the relevant damage.
7. The respondents do not quarrel with the first and last stages of the argument: the battle ground is stages ii, iii and iv. The respondents' case in a nutshell is that IMP did not receive full satisfaction for their damage under the agreement with the appellant (even assuming, which they contest, that the concept of full satisfaction has any relevance to this case), that the agreement did not preclude IMP from bringing a fresh action in respect of the same claims and that neither such defence was accordingly available to the respondents when IMP subsequently sued them.
8. Before considering the rival arguments it is necessary first to indicate something of what was decided in each of the three leading cases to which I referred at the outset of this judgment.
Jameson v CEGB [2000] 1 AC 455
9. Jameson was concerned with concurrent tortfeasors liable in respect of the same loss and held essentially that where a claimant includes within a settlement agreement with one concurrent tortfeasor all the claims that he is entitled to bring, then, once the agreed sum has been paid, his claim must be regarded as fully satisfied, with the result that his cause of action against any other concurrent tortfeasor is necessarily extinguished. Damage is an essential element of any claim in tort so that, by definition, once a claimant's damages claim has been fully satisfied, no further action can lie.
10. Mr Jameson had agreed with his employers, Babcock, to accept £80,000 "in full and final settlement and satisfaction of all the causes of action in respect of which the plaintiff claims in the statement of claim". It was held that he could not thereafter have sued (and nor, therefore, could his dependents sue following his death) the CEGB as concurrent tortfeasors with a view to recovering the larger sum which it was asserted he was properly entitled to. Lord Hope (with whose speech Lord Browne-Wilkinson and Lord Hoffmann agreed) said this:
"The critical question ... is whether the claim has in fact been satisfied. I think that the answer to it will be found by examining the terms of the agreement and comparing it with what has been claimed. The significance of the agreement is to be found in the effect which the parties intended to give to it. The fact that it has been entered into by way of a compromise in order to conclude a settlement forms part of the background. But the extent of the element of compromise will vary from case to case. The scope for litigation may have been reduced by agreement, for example on the question of liability. There may be little room for dispute as to the amount which a judge would award as damages. So one cannot assume that the figure which the parties are willing to accept is simply their assessment of the risks of litigation. The essential point is that the meaning which is to be given to the agreement will determine its effect" (p.473)
"I think that these cases [most notably, Carrigan v Duncan [1971] SLT (ShCT) 33, Dillon v Napier, Shanks & Bell (1893) 30 SLR 685, Crawford v Springfield Steel Co. Ltd. (unreported, 18 July 1958), and Balfour v Baird & Sons [1959] SC 64] demonstrate the limits of the inquiry which the judge may undertake in the event of a subsequent action being raised against another alleged concurrent tortfeasor. He may examine the statement of claim in the first action and the terms of the settlement in order to identify the subject matter of the claim and the extent to which the causes of action which were comprised in it had been included within the settlement. The purpose of doing so will be to see that all the plaintiff's claims were included in the settlement and that nothing was excluded from it which could properly form the basis for a further claim for damages against the other tortfeasor. The intention of the parties is to be found in the words of the settlement. The question is one as to the objective meaning of the words used by them in the context of what has been claimed. What the judge may not do is allow the plaintiff to open up the question whether the amount which he has agreed to accept from the first concurrent tortfeasor under the settlement represents full value for what has been claimed. ... The question therefore is ... not whether the plaintiff has received the full value of his claim but whether the sum which he has received in settlement of it was intended to be in full satisfaction of the tort. In this case the words used cannot be construed as meaning that the sum which the deceased agreed to accept was in partial satisfaction only of his claim of damages. It was expressly accepted in full and final settlement and satisfaction of all his causes of action in the statement of claim. I would hold that the terms of his settlement with Babcock extinguished his claim of damages against the other tortfeasor" (p.476)
Heaton v AXA Equity & Law [2000] 3 WLR 1341
11. In contrast to Jameson, the two defendants in Heaton were, as Chadwick LJ put it in the leading judgment in the Court of Appeal, "successive contract breakers". The defendants (respectively Target and Equity & Law) were each a large group in the financial services sector which, successively, had summarily terminated their respective contracts with the claimants thereby destroying the claimants' business and reputation. After the first group (Target) had paid £10 million in settlement of their claims, the claimants then proceeded against the second group (Equity & Law) claiming contractual damages which, it appears, were substantially but not wholly encompassed within the damages claimed previously against Target. Laddie J held that the Jameson principle barred the action. The Court of Appeal reversed his decision. As Robert Walker LJ (a member of the court in Heaton) subsequently observed in Kenburgh Investments v Minton, Chadwick LJ drew an important distinction between what he called the "full satisfaction" question and what he called the "final settlement" question, a distinction to be found in paragraph 45 of his judgment:
"45. More difficult questions arise where A sues B alone, compromises the action for a sum payable by B to A `in full and final settlement and satisfaction,' and then sues C. The first question is whether A has, any longer, a claim against C. If the amount payable by B to A does, indeed, represent a `full' satisfaction of A's claim against B, then (where C is a concurrent tortfeasor with B in respect of the same damage) it may be said that A's claim against C in tort will have been extinguished by the compromise which A has made with B - at least, where B actually pays to A the sum due under the compromises. The reason is that, if A has recovered an amount from B as `full' compensation for his loss, there is no remaining loss upon which A can found a claim against C. The second question is whether, if A does, notwithstanding the compromise with B, continue to have a claim against C, it is consistent with A's `final' settlement with B to allow A to pursue that claim. If A does pursue C, then C will be entitled to seek contribution against B under section 1(1) of the Act of 1978; and it will be no defence to that contribution claim for B to assert that he is no longer liable to A by virtue of the compromise: see section 1(3). It may be said that it is inconsistent with the `final' settlement which A has made with B for A to pursue a course of action (by suing C) which will expose B to the risk that he will have to make a further payment - indirectly, as a result of a contribution claim brought against him by C - in respect of the same damage. For convenience I will refer to the first of those questions as the `full satisfaction' question, and to the second of those questions as the `final settlement' question."
12. Chadwick LJ then explained that in Jameson only the "full satisfaction" question had arisen. Although Lord Clyde had appeared to approach the case from a different standpoint - suggesting that, as a matter of public policy, where settlement is reached with one "co-obligant" the intention of the parties should usually be taken to be that they are achieving a complete termination of any claims by the creditor and a complete freedom for the future for the debtor - that approach, observed Chadwick LJ:
"... is not reflected in the speech of any other member of the House. The conclusion that the settlement with Babcock extinguished the claim against the CEGB made it unnecessary to consider what I have described as the `final settlement' question. That question only arises in a case where the settlement with one wrongdoer does not extinguish the claim against the other wrongdoer." (para 55).
13. Chadwick LJ then said that the authority on the "final settlement" question was to be found in the decisions of the Court of Appeal in Watts v Aldington, The Times, 16 December 1993 and Johnson v Davies [1999] Ch 117 and that:
"The question, in each case, is what did A and B intend should be the effect of the agreement which they made. And, given that, in any case where A settles for less than the full amount of his claim against B, A and B will have opposing interests in relation to the effect of the agreement on A's right to pursue C, it seems to me wrong in principle to approach that question on the basis that (in the absence of clear words to the contrary) they must be taken to have intended that the agreement would favour the interests of one rather than interests of the other." (para. 61).
14. That view, he concluded, was in no way inconsistent with Lord Hope's observations in Jameson to which I have already referred.
Kenburgh Investments v Minton [2000] LlR(PN) 736
15. The facts of this case, like those in Heaton, were of some complexity. Essentially, however, the liquidators of a company, having made a "full and final settlement" by deed of compromise of an application under s.212 of the Insolvency Act 1986 against its parent company and a number of its directors, then sued its solicitors who had been acting for it in the relevant transactions. The solicitors issued contribution notices against the parent company and the directors, all of whom contended that they had expected the deed of compromise to mark the full extent of their liabilities. The effect of the compromise was considered as a preliminary issue. It was held not to bar the subsequent action. Robert Walker LJ (with whom Nourse and Latham LJJ agreed) said this:
"... at the time of the compromise the summons under s.212 ... attacked the transaction as a preference and not as a bare-faced misappropriation. `The action' referred to in the deed of compromise was constituted in that way when the deed was executed. The claim against the solicitors, by contrast, is a claim for breach of professional duty which relies on all the facts or allegations already mentioned. For these reasons I cannot accept ... that the directors and the solicitors are (on the pleaded cases) in a position closely analogous to concurrent tortfeasors liable for negligence (and breach of statutory duty in relation to the safety of the workplace). The causes of action were, as the judge said, different, and it is by no means obvious that the claim against the solicitors, if proved, might not exceed the pleaded claim in the s.212 pleadings. That is sufficient to dispose of this appeal and in this difficult and developing area it is probably better not to go much further. Although in Jameson Lord Hope seems to have been careful to restrict his observations to the case of concurrent tortfeasors liable for the same damage, I would not exclude the possibility of the principle being extended to closely analogous situations (although where the two actual or potential defendants are not liable in respect of precisely the same damage, abuse of process may be a safer foundation for the court to restrict further proceedings, as Laddie J seems to have thought in Heaton). The extension which the appellants seek in this case is however exorbitant."
16. Against that juridical background let me now consider in a little more depth the rival arguments advanced on this appeal. I shall refrain from consideration of the judgment below: the case was argued and decided at first instance before Laddie J's judgment in Heaton had been overturned by the Court of Appeal and before the Court of Appeal's judgments in Minton. Although the Deputy Judge, rightly as now appears, treated the first instance decision in Heaton as wrongly decided, the general legal landscape now looks rather different.
The Appellant's arguments
17. As stated, it is the appellant's first and main contention that IMP received full satisfaction for their damage under the settlement agreement. If and insofar as IMP's subsequent claims against the respondents were in respect of losses for which they had already sought recovery from the appellant, those claims, he submits, should have been resisted as having been fully satisfied under the agreement. The agreement in terms released the appellant from "any and all claims ... which it has now or may have in the future, known or unknown, against Mr Fitzgerald ... " Nothing, he submits, could be wider, and accordingly those claims are to be regarded as satisfied. True, Mr Dagnall acknowledges, IMP's claims, both against the appellant and thereafter against the respondents, were in contract rather than tort so that there was no technical barrier to the bringing of a second action even assuming that the damages claim had been fully satisfied by the agreement. (That, incidentally, is why his argument is no longer that IMP's cause of action against the respondents had been extinguished - the argument reflected in the terms of the preliminary issue as formulated - but is rather that IMP's claim had been satisfied and was, therefore, no longer recoverable against the respondents). But, submits Mr Dagnall, the House of Lords decision in Jameson was not dependent upon the respective defendants being concurrent tortfeasors; the critical underlying analysis was that, in the light of the settlement terms, the claimant could not be heard to say that his damages in fact exceeded the sum accepted from the first defendant in full satisfaction. And that analysis, he argues, has no less force and application in the present case. IMP were prepared to release the appellant from all claims in exchange for his shares. Their claims might have been worth more than the shares or they might have been worth less. That mattered not. What mattered was that his shares were accepted in full satisfaction of all IMP's losses.
18. The appellant's alternative argument is that, even assuming IMP's claim was not fully satisfied by the settlement agreement, nevertheless the final settlement of the dispute between them precluded IMP from then suing the respondents and thereby putting him at risk of a further liability under contribution proceedings.
The respondents' arguments
19. The respondents' first answer to the appellant's main argument is that the concept of full satisfaction simply has no application to a contract case like the present. IMP's cause of action against the respondents in contract would not have been extinguished whatever sum had been recovered under the settlement agreement. The only relevance of that sum (or share value) was to the calculation of IMP's damages entitlement in their further action against the respondents and, of course, credit was duly given for it. In short, there is no reason in a contract case why the question whether the claimant has already received full satisfaction for his claim should ever arise save in the context of a later damages assessment.
20. Mr Tozzi's second and alternative answer to the appellant's "full satisfaction" argument is that IMP's claims were not in fact fully satisfied under the settlement agreement and, even if the court limits its inquiry and construes that agreement in the manner prescribed by Lord Hope in Jameson, there is no good reason to conclude that IMP intended the contrary.
21. As to the appellant's alternative argument based on the "final settlement" question, Mr Tozzi says simply that the settlement agreement is not to be construed as intending to prevent IMP subsequently suing the respondents so as to recover the balance of their losses.
Conclusions
22. It seems to me here that the appellant and the respondents are indeed "in a position closely analogous to concurrent tortfeasors" (to use the language of Robert Walker LJ in Minton). Insofar as IMP's claims against the respondents precisely mirrored those pleaded against the appellant, there was little distinction in principle between these actions and comparable actions in negligence or deceit. Certainly the same essential heads of loss would be recoverable in each. That to my mind is the strength of the appellant's argument.
23. Its weakness, however, is apparent once one comes to construe the settlement agreement, whether with a view to answering the first of Chadwick LJ's questions or the second, i.e. the question whether the shares were intended to be received in full satisfaction of the claim or the question whether a further claim was intended to be precluded by the settlement.
24. It is appropriate at this stage to return to the judgment below to note certain of the facts found by the judge as part of the background knowledge available to the parties when the settlement agreement was made and, therefore - see Lord Hoffmann's speech in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 - a legitimate aid to its proper construction:
"The predominant intention of IMP was to rid themselves of Mr Fitzgerald and all his works.
Mr Fitzgerald felt his bargaining position was weak but delay was not his friend and that things could only get worse unless he made peace with IMP on the best terms available, even if those represented something less than his ideal outcome.
Neither party knew, even to the nearest £¼ million, what was the `true' value either of the claim against Mr Fitzgerald or the value of the principal consideration passing i.e. his shares.
To the knowledge of Mr Fitzgerald, new joint auditors ... had been appointed and could reasonably be expected to conduct further and fuller investigations into the losses ... The investigation was in its infancy. If Mr Fitzgerald had indeed been systematically defrauding the company, that would not have been music to his ears and would have encouraged him to settle quickly. ...
[Mr Fitzgerald] must, as a seasoned business man, ... have known that the role of Cape as auditors was to detect frauds of this kind and that, therefore, IMP would be, at the very least, considering targets other than him."
25. Stating his final conclusions as to the construction of the settlement agreement, the deputy judge said this:
"I believe if one asked Lord Hoffmann's reasonable man armed with the relevant facts the question, `Do the parties to this agreement intend to prevent Cape from suing anyone else ever against whom they have a contractual claim in respect of the losses they say Mr Fitzgerald caused them?' and with that question the necessary corollary, `Do they intend that Mr Fitzgerald is to be immune from any future claim by any person in relation to his relevant activities?' that quite simply the answer to both questions would be a resounding `Certainly not'".
26. I find myself in full agreement with that conclusion. Had the appellant sought from IMP their assurance that they would never sue anyone else, whatever was found upon their further investigation, they must inevitably have refused. He, of course, had a much better appreciation then they did of the extent of his defalcations.
27. That conclusion, of course, was directed essentially to the second question, the question of "final settlement". The judge decided - and it may well be correctly decided - that their are "powerful reasons for not applying the Jameson principle to contract at all" and so never addressed the "full satisfaction" question as such. Because. however, of the reservations in this regard expressed by Robert Walker LJ in Minton, I prefer to assume, without deciding, that the question of "full satisfaction" has some relevance here and to address it.
28. I pose, therefore, this question: Was IMP's receipt of the appellant's shares intended to be in full satisfaction of all their claims arising out of the appellant's defalcations. To my mind, the same considerations as lead to the conclusion on the "final settlement" question, lead also to a negative answer to this "full satisfaction" question. Of course, as between IMP and the appellant, no further claims could be brought: clauses 7.1 and 10.2 of the agreement make that plain. But the agreement in fact says nothing to the effect that it was "in full and final satisfaction" of all IMP's claims (contrast the agreements in Jameson and Minton) and the waiver and release effected by clause 7.1 was solely in respect of claims "against Mr Fitzgerald".
29. In short, whatever view is taken of the developing legal principles in the light of the recent authorities, there is in my judgment nothing in the provisions of the settlement agreement nor in its surrounding circumstances that could properly lead the court to conclude that IMP were thereafter (a) bound to accept (the fiction) that the true value of their losses did not exceed the value of the appellant's shares (the "full satisfaction" question), or (b) precluded from advancing claims against other contract breakers in respect of the same losses (the "final settlement" question).
30. I would dismiss this appeal.
LORD JUSTICE MUMMERY:
31. I agree.
LORD JUSTICE LATHAM:
32. I also agree.
Order: Appeal dismissed with costs. Permission to appeal to the House of Lords refused. A payment on account of £10, 000 to be paid within 21 days, pending detailed assessment. The second date on the new timetable to be suspended to 27 February to allow for a petition to the House of Lords, with liberty to apply to apply to the trial judge.