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Be careful what your settlement agreement covers

A written agreement at the end of a project can provide a means for parties to agree the final account, avoid potential litigation and draw a line under the project. The case of Point West v Mivan serves as a warning that a lack of clarity in drawing up the agreement can lead to problems.

Point West engaged Mivan to construct 48 apartments as part of a development in west London. Practical completion was in June 2001 but problems arose with the curtain walling and air conditioning systems.

By October 2007 remedial works had been unsuccessful and the parties entered into a settlement agreement. A further £50,000 was paid to the contractor in “full and final settlement in respect of…the works, together with any and all outstanding matters”.

The agreement also stated that this “concludes Mivan’s responsibilities and obligations in respect of their works” and went on to state “I am not looking for you to do any further remedial works”.

Point West subsequently sought a declaration from the court that the settlement agreement did not exclude Mivan from liability for defects that existed in October 2007 but only covered the money claims under the contract.

Contextual analysis

The court interpreted the words of the settlement agreement by reference to the background facts and knowledge of the parties. It found that “outstanding matters” was a reference to both the monies due to the contractor and the known defects.

The phrases “full and final settlement” and “concludes Mivan’s responsibilities and obligations” clearly encompassed responsibilities/obligations for defects which were patent at the date of the agreement.

This case demonstrates the importance of taking care when drafting settlement agreements and in particular the need for clarity. The wording here might also have extended (although the court did not specifically address it) to latent defects.

In circumstances where such an agreement is being considered against the background of defects, the parties may wish to consider annexing to the agreement a list of ‘patent’ defects which the agreement is intended to compromise.

Steven Carey is a partner in the real estate, construction and engineering team at Speechly Bircham

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