The recent decision in Maranello Rosso Ltd v Lohomij BV and others affirms the applicability of the normal principles of construction to the interpretation of contractual releases and, crucially, indicates that the lack of express wording referring to claims based on fraud or dishonesty will not prevent the release of such claims. The wide-ranging and comprehensive language in the settlement agreement reflected the intention of the parties to leave no loopholes.
The claimant, MRL, was a Guernsey company which had been incorporated to purchase the company that owned a classic collection of 71 Ferraris and Abarths, in the Violati Maranello Rosso Museum in San Marino. The claimant intended to sell the cars at auction once it had acquired the collection.
The first defendant, Lohomij, was a Dutch company, which was controlled by the fourth defendant. It had lent EUR 90 million to MRL to enable it to acquire the collection, on the basis that MRL sold the cars through the second defendant. The second defendant was the well-known London auction house, Bonhams, and the third defendant was Bonhams’ US affiliate. The remaining defendants were the now deceased former chairman of Bonhams (Mr Brooks), a classic car specialist at Bonhams (Mr Knight) and a former non-executive director of Bonhams who had also subsequently assisted MRL as a consultant (Mr MacLean).
In 2015, MRL had threatened to bring a claim against Bonhams “for negligence and breach of contractual and common law duties relating to the significant losses suffered by MRL directly resulting from Bonhams promotion and conduct of the Auction.” This related to the sale of 10 cars from the collection at an auction at Quail Lodge, California. It was alleged by MRL that Bonhams had, inter alia, recommended and insisted that the cars be sold without reserve and had failed to allow for a sufficiently long marketing period, such that MRL had suffered losses in excess of £20 million.
Following without prejudice negotiations, MRL, Bonhams and Lohomij entered into a settlement agreement dated 31 July 2015 (the “Settlement Agreement”).
Some five years later, in the current proceedings, MRL now alleged that the defendants were privy to an unlawful means conspiracy since May 2014 (except for the third defendant) to advance Bonhams’ interests and to cause MRL financial harm, in addition to damaging MRL’s reputation in the classic car market. MRL’s position was that the Settlement Agreement had been entered into on the basis that the defendants’ actions were negligent but that it now had knowledge which had led it to conclude and plead that the defendants were acting dishonestly. MRL’s claims also included free-standing causes of action relating to the period after the Settlement Agreement.
The defendants applied to strike out the claims, or for reverse summary judgment in their favour, on the basis that the release in the Settlement Agreement precluded all claims made by MRL with the exception of the free-standing causes of action.
Principles of construction
The court undertook a detailed case law analysis regarding the approach to the construction of contractual releases. From Bank of Credit and Commerce International SA v Ali, it has been well-established that the normal principles of construction, rather than any special rules, apply in the case of general releases. In considering whether a party had agreed to give up rights of action of which they were unaware, the court should carefully consider whether this was indeed what the release was intended to achieve, albeit again doing so by applying the normal principles of construction.
Regarding fraud-based claims, it had been suggested by reference to the obiter comments of Lawrence Collins LJ in Computer Systems Ltd v Upaid Systems Ltd that the release of such claims may require express wording. However, the court considered that Lawrence Collins LJ had not purported to state a principle of law but was simply applying the normal principles of construction to the facts of the case, in line with the approach in BCCI v Ali.
It remains unclear whether an equitable “sharp practice” principle exists, which will, where suitable, operate to prevent a party from relying upon a general release in circumstances where it knew that the other party had a claim and knew that the other party was not aware that they had a claim.
The court held that the terms of the Settlement Agreement had the effect of releasing all of the claims now brought by MRL, with the exception of those based on the freestanding causes of action arising after July 2015.
This decision turned on the language of the Settlement Agreement which was “clear, precise, wide-ranging and comprehensive.” Further, the drafting of the contract had “obviously been carefully considered and is of a high order”. In short, the parties “meant business” (quoting from Lord Hoffmann’s speech in BCCI v Ali) and had been seeking to draw a line under events. Further, the lack of express wording referring to claims based on fraud or dishonesty was not dispositive. The absence of this express wording was “explicable not only by the very comprehensive words actually used but by the way in which the release is framed by reference to subject matter rather than specific causes of action”.
The court also considered the relevant factual matrix, concluding that there was nothing to displace the position that had been reached on a plain reading of the text.
MRL had sought to argue as a fallback position that the “sharp practice” principle should operate to preclude the defendants from relying on the release. This argument was dismissed in short order; even if such a principle did exist, this was not a case where it might be engaged. The case now advanced by MRL was substantially the same as that which had been advanced by them in 2015, the difference now being that the claims had been “re-packaged” into a claim in unlawful means conspiracy.
What can be taken from this decision?
Maranello is a valuable reminder of the importance of paying careful attention to the language when negotiating a release clause, and of considering all possible future eventualities when doing so.
Little sympathy is likely to be had for a party which has agreed to all-encompassing release language but who subsequently seeks to bring a claim regardless.
Parties should certainly not assume that the court will be willing to import equitable principles to provide them with a way out simply because new facts have subsequently come to light.
In particular, it is now clear that there are no special rules for the release of fraud-based claims.
Potential claimants wishing to reserve the right to bring such claims after settling should therefore ensure to incorporate express language providing a suitable carve-out. Equally, potential defendants who wish to bar such future claims would be advised to consider the wording from this case as an example of a judicially approved route to achieving this objective.