Setting aside settlement agreements
The High Court’s decision in the recent case of Ackerman v Thornhill and Others is noteworthy in the context of disclosure and settlement litigation.
The claimant and Ms Ackerman (his sister-in-law and the second defendant) had equal interests in a group of companies. They decided to part ways and agreed that Mr Thornhill QC (the first defendant) would be appointed as an expert to determine the basis of the demerger. Mr Thornhill QC came to the view that all of the companies should be transferred to Ms Ackerman, following which the claimant brought a claim against him for bias and collusion. That claim was dismissed and the claimant appealed. The appeal was later settled by way of consent order. As part of the settlement, the claimant agreed not to pursue his claims. Mr Thornhill QC thereafter prepared a final report which was favourable to Ms Ackerman.
Subsequently, the claimant became aware of two transactions that had taken place between Mr Thornhill QC, Ms Ackerman and her son. The claimant alleged that this put Mr Thornhill in a position of conflict. The claimant also alleged that Ms Ackerman and her son had bribed Mr Thornhill QC, and deliberately concealed the two transactions. The claimant then brought a claim to set aside the consent order entered into in respect of the earlier proceedings.
The defendants denied the allegations of bribery, fraud and collusion and applied to strike out the claim on the basis that the claimant was barred from pursuing his claim by the doctrine of res judicata or by the earlier consent order.
The court found that the doctrine of res judicata would not apply if the claimant could satisfy the court that the judgment in the first set of proceedings was obtained by fraud or collusion, such that it ought to be set aside. It was also a requirement that the evidence of fraud or collusion which the claimant was relying upon in the second set of proceedings was not available, and could not reasonably have been discovered, at the time the first judgment was given.
The court struck out the claimant’s claim as the documents upon which he was relying had all been disclosed to him during the first set of proceedings. There was therefore no fresh evidence available which would have allowed the court to set aside the earlier judgment and consent order. The court commented that it is in the public interest for there to be finality in litigation, and that is reinforced where the parties have entered into a settlement agreement. Further, a settlement agreement should not be undermined except on the clearest possible grounds.
A number of useful points can be taken from this decision.
It is reassuring to know that settlement agreements can only be set aside in rare circumstances and that a carefully drafted agreement can be worth its weight in gold. In this case, the schedule to the consent order, settling the first set of proceedings, included the following wording:
For the avoidance of doubt, Joseph Ackerman agrees not to continue to pursue or to seek to revive in these proceedings or in new proceedings the claims which are the subject matter of these proceedings.
Whilst lawyers cannot be expected to gaze into a crystal ball, where a persistent litigant is encountered but a settlement is reached, a clause which prevents later claims arising out of the same issues should be considered. This could prove invaluable later down the line, should a further claim (out of the same circumstances) arise. However, if acting for a claimant, it is important to ensure that any such clause is carefully worded, so as not to be broader than is strictly necessary.
Another point, highlighted by this case, is the necessity of carefully considering the documents received in a claim, be that initial papers or those provided by way of the disclosure process. In this claim, the claimant was not assisted by arguments that Mr Thornhill QC had not disclosed the documents, or that the documents relating to the two transactions had been “tucked away” in the other defendants’ lengthy list of documents in the earlier proceedings, and were described in such a way so as not to draw his attention.
Clearly, if there is any doubt as to the contents of a certain document, it is open to a party to request an inspection or copy of the same. The court commented that there was no obligation upon a disclosing party to describe documents or add commentary to a list of documents to highlight that document’s relevance to an opposing party. Therefore, where there is a suspicion of fraud or dishonesty, a party should act with reasonable diligence in trying to ensure that it has all of the relevant documents, particularly the parties enter into before a settlement. From a professional perspective, a party’s lawyer should ask it for confirmation (preferably in writing) that all of the documents related to the claim have been passed on.
This article was first published by Thomson Reuters’ dispute resolution blog on 28 February 2017