Khanty-Mansiysk Recoveries Ltd v Forsters LLP

JurisdictionEngland & Wales
JudgeSir James Munby, P,Lord Justice Lewison,Lady Justice Eleanor King
Judgment Date07 February 2018
Neutral Citation[2018] EWCA Civ 89
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A3/2016/1546
Date07 February 2018

Neutral Citation Number: [2018] EWCA Civ 89

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE BUSINESS AND PROPERTY COURTS OF

ENGLAND AND WALES, COMMERCIAL COURT (QBD)

CL-2015000770

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Sir James Munby, THE PRESIDENT OF THE FAMILY DIVISION

Lord Justice Lewison

and

Lady Justice King

Case No: A3/2016/1546

Between:
Khanty-Mansiysk Recoveries Limited
Appellant
and
Forsters LLP
Respondent

Mr Simon Davenport QC & Mr Robert Strang (instructed by Humphries Kerstetter LLP) for the Appellant

Mr Jamie Smith QC & Mr Anthony Jones (instructed by Womble Bond Dickinson LLP) for the Respondent

Hearing date: 30 January 2018

Lord Justice Lewison
1

The issue on this appeal from Sir Bernard Eder is the scope of a settlement agreement. I can take the facts from the judge's clear judgment, which can be found at [2016] EWHC 522 (Comm).

2

Forsters is a firm of solicitors. In that capacity they were instructed on behalf of and acted for a company, Irtysh Petroleum plc (“Irtysh”), in relation to the acquisition of an oil exploration opportunity in Russia and, in particular, in a share purchase agreement (the “SPA”) entered into on 20 May 2010.

3

Irtysh was in fact incorporated only shortly before the execution of the SPA i.e. on 12 April 2010 for the purpose of acquiring and developing the oil exploration opportunity. Before the incorporation of Irtysh, Forsters had already been retained in January 2007 by one of Irtysh's directors and shareholders, Rupert Galliers-Pratt (RGP), to carry out work preparatory to the incorporation of Irtysh and the acquisition.

4

The oil opportunity took the form of three oil exploration licences in the Khanty-Mansiysk region of Russia. Under the terms of a privatisation agreement, a Russian company Yugra Balt Invest LLC (“YBI”) owned 49% of three companies each holding an oil field exploration licence (the other 51% was owned by the regional government and there was a mechanism in place by which YBI could increase its ownership to 99.9%). By the SPA, Irtysh agreed to buy 100% of the shares in YBI from Interguarantee Limited (“Interguarantee”) in return for the allotment of shares in Irtysh. Interguarantee was controlled by Dr Alexander Shadrin.

5

In the period January 2007 to the end of June 2010, Forsters incurred fees and disbursements in respect of this project for which they issued an invoice (Invoice No. 301594 dated 1 July 2010) to Irtysh in the sum of £110,557.61 plus VAT (£19,295.61) totalling £129,853.22 (the “Invoice”). On its face, the Invoice expressly stated that it was in respect of Forsters' “Professional Services” and “Disbursements” for the period “January 2007 to June 2010”. This sum remained unpaid for some time and eventually became the subject of the settlement agreement.

6

In about July 2010, Irtysh/RGP wished to move from Forsters to Fladgate LLP. Forsters insisted on a personal guarantee from RGP in respect of the outstanding fees. In the event, RGP did provide a personal guarantee in the form of a letter dated 12 July 2010 expressed to be executed as a deed and signed by him. The guarantee was in short form and stated simply as follows:

“I hereby guarantee to pay to you on demand the invoices issued by you to Irtysh in respect of your fees and disbursements on or around today but so that my maximum liability in respect of this liability is limited to a total of £74,837.18 plus VAT charged thereon.”

7

The figure of £74,837.18 plus VAT is significantly lower than the total sum of £110,557.61 plus VAT stated in the Invoice and was calculated by reference to the work done by Forsters on the instructions of RGP in relation to the project before Irtysh's incorporation.

8

July 2010 marked the cessation of relations between Forsters and Irtysh/RGP. It is Forsters' case that thereafter they did not know what was going on with the project but, unsurprisingly, they continued to press for payment of their outstanding fees.

9

RGP disputed the amount of the Invoice. He complained that much of it represented time allegedly spent by Forsters with Dr Shadrin, the director of Interguarantee who acted on behalf of Interguarantee in the SPA. On 13 April 2012, Forsters emailed RGP seeking confirmation of when Irtysh expected to execute financing facilities and when it would be paying the Invoice. RGP replied the following day copying in Dr Shadrin, saying that “We are scheduled to complete all the documents … on Monday. I will confirm when all done. I am copying Alexander [Dr Shadrin] on this as the vast majority of the time that you have billed relates to the many hours that he spent with your colleagues”. There then followed further exchanges (including with Dr Shadrin) and, after some further delay, on 22 June 2012, Forsters chased RGP again for payment on his guarantee, enclosing a draft Claim Form and reminding him that he had assured them that the completion of Irtysh's loan facility had been imminent. RGP replied again disputing the quantum of the Invoice, saying “As you know, I did not see any breakdown of these statements at the time that I was requested by your firm to sign document with Forsters. Since I was not present when the majority of the ‘billed’ hours were recorded, I have no way of knowing whether they are correct. Alexander Shadrin does not agree with your costings”.

10

In early July 2012, Forsters then issued proceedings against RGP (the “Guarantee Action”). The Particulars of Claim endorsed on the Claim Form stated:

“[Irtysh] owes [Forsters] £129,853.22 pursuant to [the Invoice]. By a Deed of Guarantee … [RGP] guaranteed to pay [Forsters] on demand the amount due from [Irtysh] up to a maximum liability of £74,837.18 plus VAT.

[Forsters'] claim is for £74,837.18 plus VAT pursuant to [the Invoice]. The sum is due in respect of legal services provided to [Irtysh] from January 2007 to June 2010.”

11

On being informed that the Guarantee Action had been issued, RGP responded saying:

“This will be vigorously defended. As you know, your bill relates to time that was allegedly spent by Alexander Shadrin in your offices. He disputes it. I was not present for most of the time and did not see the breakdown until you sent it last week. It is unfortunate that you have decided to take this course of action thus jeopardising the chance for the account to be agreed in quantum and settled from the PSB loan.”

12

Thereafter, following negotiations, the settlement agreement dated 3 December 2012 was executed. The settlement agreement is a tripartite agreement between Forsters, RGP and Irtysh respectively designated as Party A, Party B and Party C. It consists of 5 typewritten pages which began by reciting:

“(1) [Forsters] has commenced proceedings … in claim number 2YK73888 (“the Action”) … (For the avoidance of doubt, the Action relates in part to the invoice dated 1 July 2010 addressed to [Irtysh] by [Forsters].)

(2) To date [RGP] has not defended the Action to enable the Parties to enter into settlement negotiations.

(3) [RGP] is a director and shareholder of [Irtysh].

(4) The Parties now wish to agree a full and final settlement of the Action in consideration of the mutual covenants and other valuable consideration set out below.”

13

The main operative clause, clause 2, provided (so far as relevant) as follows:

“2.1 This Agreement and the terms set out herein shall be in full and final settlement of all or any Claims which the Parties have, or could have had, against each other (whether in existence now or coming into existence at some time in the future, and whether or not in the contemplation of the Parties on the date hereof).

2.2 In consideration of the abandonment of all or any Claims, the Parties hereby agree as follows:

(a) Party B and/or Party C shall pay to Party A by way of bank transfer to the [specified account] as follows:

(i) the Settlement Sum on or before 31 October 2012.

(b) …

(c) …

(d) for the avoidance of doubt, Party B and Party C are jointly and severally liable to pay the Settlement Sum plus any interest that may accrue.”

14

Clause 1.1 defined the “Settlement Sum” as being £90,000 inclusive of VAT (whether or not chargeable) and costs.

15

The scope of the settlement agreement is clearly tied to the definition of “claims” because it was those that were compromised. Clause 1.1 defined “Claims” as:

“… any claim, potential claim, counterclaim, potential counterclaim, right of set-off, or potential right of set off, right of contribution, potential right of contribution, right to indemnity, potential right to indemnity, cause of action, potential cause of action or right or interest of any kind or nature whatsoever, whether known or unknown, suspected or unsuspected, however and whenever arising in whatever capacity or jurisdiction, whether or not such claims are within the contemplation of the Parties at the time of this Agreement arising out of or in connection with the Action or the invoice dated 1 July 2010 addressed to [Irtysh] by [Forsters] and referred to in the Action”.

16

Clause 3.1 provided for a covenant not to sue:

“The Parties to this Agreement covenant in favour of each other that following the execution of this Agreement, they will not, and will procure that none of their subsidiaries shall take any step or proceeding or make or assert any claim (whether by way of litigation or otherwise) against one another in connection with or in relation to (either directly or indirectly) the Claims.”

17

The remainder of the settlement agreement contained various other provisions which the judge accepted were (at least in part) “boilerplate”.

18

In February 2013 Irtysh found out that there had never been an actual transfer of YBI shares from Interguarantee to Irtysh according to Russian law; and that it did not own YBI. Much later, in 2015 Irtysh (by now a private limited company and no...

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