The Limits of Compromise: Tudor Grange Holdings Ltd v Citibank N.A
| Date | 01 November 1992 |
| Author | Jeff Cumberbatch |
| DOI | http://doi.org/10.1111/j.1468-2230.1992.tb00947.x |
| Published date | 01 November 1992 |
The Modern
Law
Review
[Vol.
55
The Limits
of
Compromise:
Tudor Grange Holdings Ltd
v
Citibank
N.A.
Jeff Cumberbatch
*
In
spite of its undeniable value as a method of dispute resolution,’ the agreement
to compromise an existing claim is not treated as exempt from the general rules
of contract law.* The Unfair Contract Terms Act
1977
(UCTA) was enacted
primarily to regulate the use of exemption clauses in certain contracts and in
section
10,
side-noted ‘Evasion by means of secondary contract,’ it provides:
A person is not bound by any contract term prejudicing or taking away rights of his which
arise under,
or
in connection with the performance
of,
another contract
so
far as those rights
extend
to
the enforcement of another’s liability which this Part of this Act prevents that other
from excluding or re~tricting.~
The issue of whether this section serves to
nullify
agreements to compromise those
claims
in
respect of liabilities which, under the Act, cannot
be
excluded
or
restricted
arose,
inter uliu,
for decision
in
the recent case of
Tudor Grunge Holdings Ltd
v
Citibank
N.A4
The problem had already been adverted to by Professor G.H.
Treitel’ who was of the view that, though an affirmative answer was suggested on
a literal reading of the section,
it
could ‘hardly be supposed that the section was
intended to strike at genuine out of court settlements,’ and he expressed the hope
that the courts would be prepared ‘to cut down its wide language
so
as to restrict
it
to its intended scope
-
“evasions” of the principal provisions of the Act.’6 This
hope would seem to have been fulfilled to some extent by the decision of Browne-
Wilkinson VC
in
the instant case.
In
Tudor Grunge,
the plaintiff group of companies embarked on an ambitious
expansion programme which required long-term financing and entered into certain
commitments, allegedly
in
reliance on representations made by the defendant banks
as to their preparedness to grant a substantial loan facility to fund the plaintiffs’
projects. These projects did not prosper and the plaintiffs defaulted
in
repaying the
interest on the loans. The plaintiffs were
in
urgent need of further finance and the
banks agreed to make further advances provided all claims against them were
released.
A
deed of release was executed in March
1989.
However, the plaintiffs
subsequently became insolvent and the first defendant bank was appointed adminis-
trative receiver of the companies in September
1989.
The plaintiffs brought an action
against the banks, claiming,
inter uliu,
that the deed of release was not binding
unless there was an investigation of whether
it
satisfied the requirement of reasonable-
ness as provided for by the UCTA. Since the banks could not exclude or restrict
their liability for breach of their contractual duties of care unless such exclusion
or restriction was reasonable
(s
2(2)),
and since the release purported to take away
*Faculty
of
Law, University
of
the West Indies.
1
2
3
Generally Foskett,
The
Law
and
Prucrice
of
Compromise
(2nd ed. 1985).
37 Halsbury’s
Laws
of
England (4th ed, 1982) paras 383-392.
Described
by
Cheshire,
Fifoot
andFurmsrons’LawofContrucr
(1
Ith ed, 1986.
M.P.
Furmston, ed)
p 182 as ‘not a masterpiece
of
lucidity’; and by
Chirry
on
Conrraets
(25th ed, 1983) para 925 as
’enigmatic.’
[I9911
4
All
ER
1.
The
Law
of
Contract
(7th ed, 1987).
ibid
at
p
206. See also Chirry
on Contracrs
(25th ed, 1983) para 925.
4
5
6
866
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