Future claims | Renew Legal

Keeping future claims out of a settlement release

Renew Legal specialises in renewables, construction, engineering and technology projects

September 2024

Execution teams on live projects will frequently negotiate settlement of disputes to keep the works going and to try to avoid delay. During these negotiations, there can be disagreement over whether the parties will be able to bring claims in the future if new information comes to light. Often the parties simply want to draw a line in the sand to have a clean slate going forward, so the releases will include future claims.

A future claim is one where the facts giving rise to the claim have not yet occurred, or have already occurred but are not known, or fully known, by the affected party. A lawyer would typically advise against exclusion of future claims from a release because the client may be giving up valuable rights, or is exposing itself to unknown risk. Commercial considerations tend to rule here.

A court will construe the meaning of the words of the release that would be conveyed to a person having the background knowledge or factual matrix reasonably available to the parties at the time they signed the document containing the release (Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98).

It is possible to release claims or rights about which the holder is unaware it has, provided very clear language is used to make plain this intention (Salkeld v Vernon (1758) 1 Eden 64). But in the absence of very clear language, courts will be reluctant to infer the parties intended to surrender rights and claims they did not know they had, or could not have been aware of (Grant v John Grant & Sons (1954) 91 CLR 112).

The party giving the release must be careful in relation to the cautionary principal in Grant, that “a release shall not be construed as applying to something of which the party executing it was ignorant”. If ‘general words’ are used in the release, there is a risk that the release will be read down to include only what was specifically in the minds of the parties at the time of the release (Shepherds Producers Co-operative Ltd v Lamont [2015] NSWSC 294).

The above principles were confirmed in Karam v ANZ Banking Group Ltd [2001] NSWSC 709 and in IBM Australia Pty Ltd v State of Queensland [2015] QSC 342, where the Court made the following statements on the interpretation of release clauses:

In construing a release, the court ascribes the meaning that the release would convey to a reasonable person having all the background and contextual knowledge of the parties at the time they signed the document;

General words in a release are limited to what was specifically in the contemplation of the parties at the time the release was given (usually what is set out in the recitals / background). That said, a party may agree to release claims or rights about which it is unaware and of which it could not be aware, provided clear language is used to make plain this intention;

In the absence of clear language, courts are reluctant to determine that a party intended to release claims about which it was unaware and could not have been aware; and

Where it is clear that the parties intend to release unknown claims, courts may imply an obligation upon the beneficiary of such a release to disclose the existence of claims of which it actually knows and which it also realises might not be known to the other party to prevent advantage being taken of the known ignorance of the conceding party.

Under UK law, it is possible to release claims the releasor is unaware of at the time of settlement and claims of which it could not be aware (BCCI v Ali [2001] 1 All ER 961), however, in the absence of clear language, a court will be slow to infer that the releasor intended to surrender rights and claims of which it was unaware and could not have been aware. The release in BCCI v Ali concerned a cause of action at law which was not available to Ali until after the settlement and could not have been in the parties’ contemplation at the time.

When settling proceedings, care should be taken as to what exactly is being released. In Brazier v News Group Newspapers [2015] EWHC 125 and Leslie v News Group Newspapers [2016] EQCA Civ 79, the claimants had entered into settlements with News Group Newspapers concerning phone hacking allegation proceedings. Further hacking evidence was discovered after settlement and the claimants sought to bring new claims. The release drafting in the settlement agreements was narrow and referenced the specific claim numbers of the original proceedings. There was no release covering future or unknowns claims. However, the Court of Appeal found that the claims in the original proceedings were drafted so wide that they (and consequently, the releases) covered the new allegations. The claimants could not say that they were ignorant of possible new claims. They had said in their pleadings that there were wider phone hacking activities, although they could not particularise them. At the time of settlement, the further hacking claims were matters of which they knew they were ignorant.

In Khanty-Mansiysk Recoveries Ltd v Forsters LLP [2016] EWHC 522, a release was found to have caught future claims even though it was agreed that at the time of the first settlement, Khanty-Mansiysk was totally ignorant of the facts giving rise to future claims that were later pursued. In Khanty, the claim was for negligence and the definition of ‘claim’ was broad. The grounds for a negligence claim were not suspected at the time of the settlement, but the Court found that an objective bystander would not have considered such claims to be impossible and not within the contemplation of the parties. The Court considered the professional negligence claims were among the type of claims that a person would consider that a client could have against a firm of solicitors in relation to work performed by the solicitors, but which they had no knowledge.

Australian courts will not reject broad drafting of a release so long as it is clear what the parties intended to settle and whether this can be said to include future unknown claims. Obviously we can’t imagine every possibility and what hypothetical future scenarios may arise.

Further considerations include:

Claims being released: this could be only the claim currently in dispute, or also claims which might arise in the future in connection with the contract / works / project out of facts, matters and circumstances up to the date of settlement;

Matters not being released: these must be expressly excluded from the release (for example latent defects or negligence) and should be expressly listed. If the project is live and the contractor will continue to perform work, the work still to be performed should be excluded from the release;

Things that cannot be excluded by law: for example, implied warranties contained in the Domestic Building Contracts Act 1995 (Vic) or the Home Building Act 1989 (NSW). These warranties run with the building and a provision of an agreement that purports to restrict or remove rights to bring proceedings for breach of any of these implied warranties is void.

To achieve a clean slate when settling a dispute, the definition of ‘claim’ in a settlement agreement should be drafted widely to capture as many things as possible and the document should make it clear that the intention is to eliminate all forms of dispute based on all current circumstances, known or unknown, past, present or future.

This article is a summary and general overview of matters of interest. It is not comprehensive and does not constitute legal advice.

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