The High Court has granted a bank’s application to strike out a defendant customer’s counterclaim, finding that it was barred by a settlement agreement relating to an earlier set of proceedings between the parties, and that the customer could not demonstrate any real prospect of showing that the settlement agreement should be set aside: Bank of Scotland plc v Hoskins [2021] EWHC 3038 (Ch).

The decision adds to a body of case law demonstrating that the court is prepared to take a robust approach to upholding the terms of prior settlement agreements between the same parties to bar subsequent related claims or counterclaims (see our previous blog posts here, here, and here). The decision is reassuring for financial institutions, highlighting that it will be difficult for claimants to take a “second bite of the cherry” where the settlement agreement is drafted in sufficiently wide terms.

In the present case, the court was satisfied that it is possible for parties in English law to enter into a contract to release claims which they do not know that they have, or which have not yet been recognised by English law, provided that they intended to do so. On the true construction of the words used in the settlement agreement, the court held that the parties must have intended to cover claims of the kind subsequently introduced into the counterclaim in the current proceedings. In the court’s view, it was also not possible to rely on claims that were covered by a particular settlement agreement as the basis for rescinding that settlement agreement, and therefore a claim for rescission was unsustainable.

We consider the decision in further detail below.

Background

In 2013, there was a dispute between the claimant bank and the defendant in relation to an overdraft facility. The bank brought proceedings against the defendant and his wife for repayment and for possession of a property secured against the overdraft facility (the First Proceedings). The defendant counterclaimed for damages in respect of losses claimed to have been suffered by an alleged failure on the part of the bank to honour its lending commitments.

The First Proceedings were eventually compromised and recorded in a settlement agreement dated December 2013 (Settlement Agreement). This contained a clause that provided for the full and final settlement of the claim and counterclaim in the First Proceedings between the parties and of all claims, past, present and future, that the defendants may have against the bank arising out of or in any way relating to the First Proceedings or the subject matter thereof, whether or not such claims were presently known.

In May 2019, the bank brought a different claim arising out of a loan made to the defendant in order to purchase the property on which the overdraft facility was secured, on the basis that the mortgage repayments were in arrears (the Second Proceedings). The defendant counterclaimed for damages for alleged breaches of contract (duties of good faith) and in fraud.

While the Second Proceedings arose out of a different claim by the bank, the defence and counterclaim raised issues based on similar facts as the counterclaim in the First Proceedings. The bank therefore asserted that the counterclaim was barred by the Settlement Agreement and applied to the strike out the defence and counterclaim or, in the alternative, for summary judgment on the counterclaim on the basis that it had no real prospect of success and that it was an abuse of process.

Decision

The court found in favour of the bank and granted the strike out application for the reasons explained below.

1. Construction of the Settlement Agreement

The court said that it is possible for parties in English law to enter into a contract to release claims which they do not know that they have, or which have not yet been recognised by English law. The only question is whether, as a matter of construction, that is what they intended to do. The court held that, on the true construction of the words which the parties used in the Settlement Agreement, they must be taken to have intended to cover claims of the kind subsequently introduced into the counterclaim in the Second Proceedings.

In its consideration, the court noted the well-known principle in Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 (BCCI) that in the absence of clear language, the court should be very slow to infer that a party intended to surrender rights and claims of which he was unaware and could not have been aware. However, in the court’s view, the words used in the Settlement Agreement went further than those in BCCI, extending to claims “past, present or future“, and to claims “whether or not such claims are presently known” to the defendant. In the court’s view, it was clear that unknown and future claims arising out of or relating to the subject matter of the First Proceedings were intended to be covered by the Settlement Agreement.

The court also observed that although the causes of action pleaded in the counterclaim in the Second Proceedings were said to be different from those in the First Proceedings, the events out of which the defendant now sought to raise his counterclaim were the same events out of which the counterclaim in the First Proceedings was born, and the parties had deliberately compromised those proceedings, including that counterclaim. On that basis, the court said the counterclaim would have been barred by the application of the abuse of process rule in Henderson v Henderson (1843) 3 Hare 100, but it was not necessary to consider this further given that the counterclaim fell within the scope of the Settlement Agreement in any case.

2. Setting aside the Settlement Agreement

The court held that the claim to rescission of the Settlement Agreement as pleaded was unsustainable, and must be struck out. The defendant could not demonstrate any real prospect of showing that the Settlement Agreement should be set aside.

The court underlined that it was not possible to rely on claims which are being given up by a particular settlement agreement as a basis for rescinding that settlement agreement. On the true construction of the Settlement Agreement all claims arising out of or relating to events which were the subject of the compromise, were given up, even if they were not then known to the defendant.

Accordingly, for the reasons above, the court granted the bank’s strike out application.

Appeal

The High Court refused the defendant’s application for permission to appeal to the Court of Appeal.