MARANELLO ROSSO LIMITED v LOHOMIJ BV

all of MRL’s claims in existence on 31 July 2015, including claims for conspiracy to injure by unlawful means and dishonest assistance, were compromised by a settlement agreement made between the parties on that date (“the Settlement Agreement”) (Footnote: ¹ ) ; and

even had they not been compromised, MRL’s claims for breach of fiduciary duty, breach of a duty of good faith and dishonest assistance (being the alleged unlawful means used in the alleged conspiracy) had no real prospect of success; and

freestanding claims arising after the Settlement Agreement (including for breach of the Settlement Agreement) were not credible.

On 29 May 2014 MRL executed a Facility Agreement with the first respondent (“Lohomij”), a company in the Louwman Group based in the Netherlands, by which Lohomij agreed to provide MRL with a loan facility of €90m (repayable in full at the end of the year) for the purpose of acquiring Stelabar. MRL also agreed to pay Lohomij an arrangement fee of €10m, to pay fixed interest of €3.6m and to sell the cars through Bonhams.

On the same date MRL executed a Debenture in favour of Lohomij by way of security for the loan and Mr Sullivan provided a personal guarantee.

MRL immediately drew down the loan and completed the purchase of Stelabar pursuant to the SPA.

On 30 June 2014 MRL, Lohomij and Bonhams entered an agreement (“the Commercial Agreement”) providing for the sale of the cars, expressed to have retrospective effect to 29 May 2014. It was agreed that the cars would be consigned to be sold by Bonhams (or one or more of its affiliates) at one or more sales to be determined by Lohomij and Bonhams in their discretion. 10 identified cars were to be sold without reserve price by the third respondent (“B&B”), Bonhams’ USA affiliate, at Quail Lodge, California, on or about 14 August 2014. Otherwise reserve prices were to be determined by Lohomij and Bonhams, in consultation with MRL, but the former were entitled to determine that cars valued under £1m be sold without a reserve price.

Also on 30 June 2014 MRL entered an agreement with B&B (“the Consignment Agreement”) for the consignment to B&B of the 10 cars to be sold at Quail Lodge.

Bonhams owed MRL a “special duty of care as experts and specialist auctioneers of vintage cars and as MRL’s agents. The unique circumstances of the transaction whereby a significant shareholding in Bonhams is held by the same beneficial owners as [Lohomij], MRL’s secured lender, means that MRL was beholden to Bonhams in a way that they would not have been with any other auctioneer”. The letter also referred to “the connected relationship between Bonhams and Lohomij”.

“Bonhams … forced MRL into a position where they had no option but to rely on Bonhams as to the timing and strategy of the sales process. There was no doubt that any expert in this field would recommend a reserve price”. The letter also alleged that “MRL was coerced into agreeing a sale of the Cars without reserve and in the USA”.

“…Bonhams were engaged in a dispute with a Mr Wexner who would have been the buyer of many of the Cars at much higher prices…Bonhams withheld this crucial information from MRL”.

“Mr Brooks…proposed to Mr Sullivan that a mutual contact who was present in California be asked to bid on [the Ferrari 250 GTO] and he would be financed if required if successful. Such practice is unlawful in California and Mr Brooks withdrew his proposal the morning of the Auction…”.

“…Bonhams were solely motivated by the publicity that would be generated for Bonhams itself in selling the Cars without reserve and in the USA…Bonhams went against their own recommendation in selecting the USA, the simple rationale being that it suited their own purposes and not those of the client”. The letter also alleged that “Bonhams …merely cherry-picked the Cars that suited its own purposes best for promotion of itself in the USA. Bonhams has under-valued the remaining cars…” and that “the disaster [the outcome of the auction] for MRL still netted in excess of US$6m for Bonhams in fees”.

“(D) MRL has: (a) made numerous allegations as regards the conduct of [Bonhams] (and its Agents) in relation to [the Commercial Agreement] and particularly as regards the promotion and execution of the Auction; and (b) threatened to issue legal proceedings. All of the allegations are denied by the Bonhams Parties.

(E) Lohomij has agreed to extend the maturity of the Facility and grant various other amendments to the Facility and Bonhams 1793 has agreed to vary the terms of [the Commercial Agreement] in certain respects in favour of MRL. In connection with those amendments, the Parties have, subject to the terms of this Agreement, agreed to settle MRL’s claims against the Bonhams Parties and/or Lohomij and/or any of their Affiliates or Agents relating to, arising from or otherwise connected with the initial acquisition of the Collection and its financing, the sale of the Collection, or the 30 June Agreement, including all claims alleged in Spring Law’s letter to [Bonhams] dated 13 April 2015.”

“3.1 The Parties agree (for themselves and on behalf of each of their Affiliates and Agents) that this Agreement shall constitute full and final settlement, and irrevocable and unconditional waiver and release, of all and any Claims.

3.2 MRL covenants and undertakes in favour and for the benefit of each of the Bonhams Parties, Lohomij and their Affiliates and Agents that:

(A) they shall not make or maintain, and shall procure that none of their Affiliates or Agents make or maintain, any Claim against any of the Bonhams Parties, Lohomij and/or any of their Affiliates and/or Agents…

and MRL will indemnify, and keep indemnified, the Bonhams Parties, Lohomij and their Affiliates and Agents against all costs and damages (including interest and reasonable legal costs and disbursements) incurred as a result of any breach of this clause 3.2.”

“‘Claims’ means all claims, causes of action, rights or other interests (whether present, actual, prospective or contingent, whether or not known to the Parties at the date of this Agreement, and whether arising in contract, tort, under statute or otherwise), in any jurisdiction by MRL and/or any of its Affiliates or Agents against the Bonhams Parties and/or Lohomij and/or any of their Affiliates or Agents which relate to, arise from, or are otherwise connected with, the initial acquisition of the Collection and its financing, the sale of the Collection and/or the 30 June Agreement, including all claims alleged in Spring Law's letter to [Bonhams] dated 13 April 2015, and which in each case relate to the existence or occurrence of facts, matters or circumstances at or prior to the date of this Agreement, but excluding for the avoidance of doubt, any claims that the Bonhams Parties and/or Lohomij and/or any of their Affiliates or Agents may have against MRL and/or any of its Affiliates or Agents”

“The Parties covenant with each other (for themselves and on behalf of each of their Affiliates and Agents) not to do or say anything which is harmful to the reputation of any of them or which may lead a person to cease to deal with any of them.”

“Each Party shall at all times act in good faith in exercising their rights and undertaking their obligations under this Agreement in order to ensure that this Agreement is fully and properly implemented and that the Parties receive the full benefit and effect of the provisions of the Agreement.”

“[MRL] acknowledges that the Cars comprise Charged Property (as defined in the Debenture) and accordingly acknowledges, in accordance with Clause 7.2(A) of the Debenture, that no disposition of any of the Cars or any other car in the Collection shall take place without the prior written consent of the Lender such consent not to be unreasonably withheld.”

“a) In June and July 2016 Bonhams and Lohomij sabotaged a proposed sale of four vehicles, by disclosing to the prospective buyer that they were subject to a debenture and leading it to believe that the vehicles were likely to be repossessed and to become available at a lower price;

b) In November 2016 a proposed sale of a valuable car collapsed because of Lohomij’s persistent and unreasonable refusal to consent to the sale;

c) In June 2017 a transaction involving the sale of a total of four vehicles and a refinancing of the existing debt was abortive because Lohomij refused to consent, subsequently justifying its decision on the specious ground that the proposed sale was at an undervalue.”

“1) The purpose of the conspiracy included: (a) to further the interests of Bonhams, at the expense of the interests of MRL, by selling several of the premium Cars, including the Ferrari 250 GTO, at auction in California; (b) to prevent MRL from repaying the moneys due under the Amended Facility Agreement by refusing to consent to sales and by preventing MRL from refinancing the debt; (c) as stated by Mr Brooks “on multiple occasions”, to “destroy” Mr Sullivan and thereby MRL; (d) to force MRL to sell Cars to Lohomij’s or Bonhams’ associates or preferred collectors, by refusing to consent to proposed sales by MRL and thereby damaging MRL’s reputation in the classic car market. (Paragraph 117)

2) All defendants except B&B are said to have been privy to the combination from at least May 2014. B&B is said to have been involved in the conspiracy only at the stage of the decision to sell the 10 Cars at the [Quail Lodge] Auction and in the carrying out of that sale. Facts said to evidence the conspiracy include both the events prior to the Settlement Agreement and the matters of complaint relating to the attempted sales thereafter. (Paragraphs 117 and 119)

3) The defendants are said to have intentionally injured MRL by, in particular: (a) forcing it to accept the terms of the Facility Agreement, which altered the prior agreement as to the nature of the transaction; (b) forcing it to accept the last-minute change to the terms of the Commercial Agreement, whereby 10 premium cars were to be sold at the Auction; (c) carrying out the Auction in a manner contrary to MRL’s interests; (d) forcing MRL to abandon its claims against Bonhams and enter into the Settlement Agreement; (e) thereafter, sabotaging MRL’s attempts to sell the remaining Cars and to refinance the debt to Lohomij. (Mr Louwman’s retention of one Car, which is the sole cause of action not subject of the present applications, is also relied on as injury caused by the conspiracy.) (Paragraph 120)”

“1) Breach of the Exclusivity Agreement by Bonhams: The breach is said to consist of the facts (a) that the “transaction between Bonhams, Lohomij and MRL” was not, as it was agreed it would be, on substantially the same terms as the deal agreed with RM, (b) that the Cars were not sold, as it was agreed they would be, at a single auction at the Goodwood Revival or such other venue as might be agreed, and (c) that the 10 Cars sold at the Auction were sold without reserve. (Paragraphs 26 and 123)

2) (Alternatively) Fraudulent or negligent misrepresentation: If the Exclusivity Agreement was not a contract, it comprised representations (presumably, by Mr MacLean and/or Mr Brooks acting as a servant or agent of Bonhams) that were fraudulently, alternatively negligently, made and were relied on by MRL. (Paragraph 124)

3) Breach of fiduciary duty and/or a duty of good faith by Bonhams (and, possibly, Mr MacLean and Mr Brooks) in respect of the making of the Commercial Agreement: MRL avers that, by reason of the Exclusivity Agreement in May 2014, Bonhams owed to MRL a fiduciary duty (and/or a duty of good faith) to act in its best interests as its agents in the transaction and/or to obtain the best price for the Collection (Paragraphs 28 and 45). Bonhams’ change of position between 27 June and 30 June 2014 amounted to a breach of fiduciary duty and/or a breach of the duty to negotiate in good faith, because Bonhams was seeking to profit from the fact that, in compliance with the Exclusivity Agreement, MRL had terminated its negotiations with RM and so had no alternative but to contract with Bonhams. (Paragraph 125) (The same paragraph alleges that Mr MacLean and Mr Brooks were in breach of fiduciary duty and/or a duty of good faith, but there is no plea that they owed such duties.)

4) Dishonest assistance by Lohomij and/or Mr Louwman in Bonhams’ breach of fiduciary duty: The dishonest assistance took the form of insistence that the sale of the Cars should take place in California and not in London, when it knew that a sale in London would achieve the highest price. (Paragraph 126)

5) Breach of fiduciary duty by Bonhams, Mr Brooks and/or B&B in agreeing to sell Cars at the Auction: The act of “accepting instructions” to sell the Cars at the Auction is said to constitute a breach of fiduciary duty because (a) there was a conflict between Bonhams/B&B’s interests and those of MRL and (b) there was a conflict between Lohomij’s interests and those of MRL. (Paragraph 127: the plea is against not only Bonhams but also Mr Brooks and B&B as those who conducted the Auction, but there is no express plea that Mr Brooks and B&B owed to MRL a fiduciary duty or as to the basis of such a duty.)

6) Breach of fiduciary duty by Bonhams, Mr Brooks and/or B&B in the conduct of the Auction: The various matters complained of in the conduct of the Auction were, it is said, “deliberately designed to harm MRL and so amounted to a deliberate breach of fiduciary duty”. (Paragraph 128)

7) Breach of contract by Bonhams in respect of the conduct of the Auction: The matters of complaint were a breach of Bonhams’ implied contractual duty under the Commercial Agreement to act with reasonable skill and care, honestly and/or in good faith. (Paragraphs 45 and 129)

8) Negligence by Bonhams, Mr Brooks and/or B&B in the conduct of the Auction: The matters of complaint constituted negligence. (Paragraph 129)

9) Breach by Bonhams of the Commercial Agreement: Bonhams was in breach in that it failed to set a reserve price for cars valued at over £1 million (contrary to clause 2.6), it failed to keep MRL informed of offers and expressions of interest (contrary to clause 6), and it failed to sell 43 of the remaining Cars at the Goodwood Festival (contrary to clause 2.3) (Paragraph 130).”

“…MRL avers that Lohomij was in breach of clause 6 (reputational damage etc) and clause 8 (good faith) of the Settlement Agreement in respect of refusal of consent to Sales 1, 2 and 3 and attempts to prevent MRL refinancing. (Paragraph 132)

…MRL avers that by its conduct in respect of Sales 1, 2 and 3 Lohomij was in breach of (i) clause 9 of the Amended Facility Agreement, (ii) an implied term of the Amended Facility Agreement that Lohomij would not prevent and/or interfere with any proposed sale of the Cars and/or would act in good faith and/or (iii) its common law duty not to interfere with the release or potential release of the security. (Paragraphs 67A and 134)

…MRL avers that, by reason of Mr Knight’s intentional overvaluation and undervaluation of Cars in respect of Sales 2 and 3, (i) Bonhams was in breach of clauses 6 and 8 of the Settlement Agreement and (ii) Bonhams and Mr Knight procured Lohomij’s breach of the Amended Facility Agreement. (Paragraph 135).”

The issue

The authorities

The circumstances in which this general release was given are typical. General releases are often entered into when parties are settling a dispute which has arisen between them, or when a relationship between them, such as employment or partnership, has come to an end. They want to wipe the slate clean. Likewise, the problem which has arisen in this case is typical. The problem concerns a claim which subsequently came to light but whose existence was not known or suspected by either party at the time the release was given. The emergence of this unsuspected claim gives rise to a question which has confronted the courts on many occasions. The question is whether the context in which the general release was given is apt to cut down the apparently all-embracing scope of the words of the release.”

I consider first the proper construction of this release. In construing this provision, as any other contractual provision, the object of the court is to give effect to what the contracting parties intended. To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties. To ascertain the parties’ intentions the court does not of course inquire into the parties’ subjective states of mind but makes an objective judgment based on the materials already identified. The general principles summarised by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896,912-913 apply in a case such as this.

A party may, at any rate in a compromise agreementsupported by valuable consideration, agree to release claims or rights of which he is unaware and of which he could not be aware, even claims which could not on the facts known to the parties have been imagined, if appropriate language is used to make plain that this is his intention ...

But a long and in my view salutary line of authority shows that, in the absence of clear language, the court will 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…

17…Some of the cases, I think, contain statements more dogmatic and unqualified than would now be acceptable, and in some of them questions of construction and relief were treated almost indistinguishably. But I think these authorities justify the proposition advanced in paragraph 10 above and provide not a rule of law but a cautionary principle which should inform the approach of the court to the construction of an instrument such as this…”

[T]here is no room today for the application of any special ‘rules’ of interpretation in the case of general releases. There is no room for any special rules because there is now no occasion for them. A general release is a term in a contract. The meaning to be given to the words used in a contract is the meaning which ought reasonably to be ascribed to those words having due regard to the purpose of the contract and the circumstances in which the contract was made. This general principle is as much applicable to a general release as to any other contractual term. Why ever should it not be?

That said, the typical problem, as I have described it, which arises regarding general releases poses a particular difficulty of its own. Courts are accustomed to deciding how an agreement should be interpreted and applied when unforeseen circumstances arise, for which the agreement has made no provision. That is not the problem which typically arises regarding a general release. The wording of a general release and the context in which it was given commonly make plain that the parties intended that the release should not be confined to known claims. On the contrary, part of the object was that the release should extend to any claims which might later come to light. The parties wanted to achieve finality. When, therefore, a claim whose existence was not appreciated does come to light, on the face of the general words of the release and consistently with the purpose for which the release was given the release is applicable. The mere fact that the parties were unaware of the particular claim is not a reason for excluding it from the scope of the release. The risk that further claims might later emerge was a risk the person giving the release took upon himself. It was against this very risk that the release was intended to protect the person in whose favour the release was made. For instance, a mutual general release on a settlement of final partnership accounts might well preclude an erstwhile partner from bringing a claim if it subsequently came to light that inadvertently his share of profits had been understated in the agreed accounts.

This approach, however, should not be pressed too far. It does not mean that, once the possibility of further claims has been foreseen, a newly emergent claim will always be regarded as caught by a general release, whatever the circumstances in which it arises and whatever its subject matter may be. However widely drawn the language, the circumstances in which release was given may suggest, and frequently they do suggest, that the parties intended, or, more precisely, the parties are reasonably to be taken to have intended, that the release should apply only to claims, known or unknown, relating to a particular subject matter. The court has to consider, therefore, what was the type of claims at which the release was directed … Echoing judicial language used in the past, that would be regarded as outside the "contemplation" of the parties at the time the release was entered into, not because it was an unknown claim, but because it related to a subject matter which was not "under consideration".

This approach, which is an orthodox application of the ordinary principles of interpretation, is now well established. Over the years different judges have used different language when referring to what is now commonly described as the context, or the matrix of facts, in which a contract was made. But, although expressed in different words, the constant theme is that the scope of general words of a release depends upon the context furnished by the surrounding circumstances in which the release was given. The generality of the wording has no greater reach than this context indicates.”

“Such guides to construction as have been identified in the past should not be allowed to constrain an approach to construction which looks to commercial reality or common sense. If they are elevated to anything approaching the status of rules they would deservedly be regarded as impedimenta in the task of construction. But they may be seen as reflections upon the way in which people may ordinarily be expected to express themselves. Generally people will say what they mean. Generally if they intend their agreement to cover the unknown or the unforeseeable, they will make it clear that their intention is to extend the agreement to cover such cases. If an agreement seeks to curtail the possible liabilities of one party, he, if not both of them, will generally be concerned to secure that the writing clearly covers that curtailment.”

My Lords, the lesson which I would draw from the development of the rules for construing exemption clauses is that the judicial creativity, bordering on judicial legislation, which the application of that doctrine involved is a desperate remedy, to be invoked only if it is necessary to remedy a widespread injustice. Otherwise there is much to be said for giving effect to what on ordinary principles of construction the parties agreed…

The disappearance of artificial rules for the construction of exemption clauses seems to me to be in accordance with the general trend in matters of construction, which has been to try to assimilate judicial techniques of construction to those which would be used by a reasonable speaker of the language in the interpretation of any serious utterance in ordinary life…”

Two points of particular importance on which all of their Lordships [in BCCI v Ali] were agreed emerge from the speeches. The first is an insistence that the same approach is to be adopted when construing a general release as when construing a contract of any other kind. No special rules apply. The second is the emphasis which all their Lordships placed on the importance of the context in which the release is given. However wide the language in which it is cast, it is always necessary to understand the context in which a release was agreed in order to decide what the parties intended its true scope to be.

The context in which the release is given will inevitably vary from case to case. I accept that the court should be cautious in coming to the conclusion that a person has given up rights of which he was not and could not have been aware, but it may be clear having regard to language used and the context in which the agreement was made that that is indeed what was intended. … The release [in this case] is not worded in very general terms or in terms which suggest that the parties intended to waive all claims of any kind that might subsequently be discovered. … On the other hand, the expression ‘current, past and future claims … that MAN may have, or may otherwise have had’, together with the exclusion in paragraph 4 of environmental and taxation claims, strongly suggests that the parties did intend to compromise claims of which MN was still unaware.

Mr. Kendrick submitted that the parties cannot have intended to compromise claims for misrepresentation or breach of warranty based on fraud, both because of the fact that they were grounded in fraud and because they were claims whose existence was unknown at the time. In my view, having regard to the context in which the parties entered into the settlement agreement and the language in which they expressed themselves, it was their intention that Western Star should be discharged from any further liability under section 4.1 of the Share Purchase Agreement, whether the possibility of a claim was known to MN at the time or not. I find it more difficult to say that they intended to release Western Star from liability for claims arising out of its own fraud, however. I am satisfied that neither party had the possibility of fraud in mind. As Rix LJ said in HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2001] EWCA Civ 1250, [2001] 2 Lloyd’s Rep. 483 at page 512, fraud is a thing apart because parties contract with one another in the expectation of honest dealing. Moreover, the manner in which fraud is treated in Article 12 of the Share Purchase Agreement reinforces the conclusion that the parties in this case regarded it as giving rise to fundamentally different considerations. If, therefore, Mr. Ellis’s knowledge is to be imputed to Western Star so as to render any of the representations not only false but fraudulent, I do not think that the settlement agreement was intended to deprive MN of its right to pursue a claim in respect of them.”

I do not accept this submission. I would agree that the exclusion clause cases should not be automatically imported into the area of releases, but that is not what either Moore-Bick LJ did in the  MAN Neufahrzeuge AG case, or what Flaux J did in the present case. Lord Bingham said ( Bank of Credit and Commerce International (in liquidation) v Ali  (at [10]) that 'a long and … salutary line of authority shows that, in the absence of clear language, the court will 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.' Lord Browne-Wilkinson agreed, and Lord Clyde (at [86]) expressed substantially the same view. It seems to me to be clear that the same principle must apply to fraud-based claims. If a party seeking a release asked the other party to confirm that it would apply to claims based on fraud, it would not, in most cases, be difficult to anticipate the answer.

It is not, I think, very helpful to consider whether the release/covenant not to sue applies in the abstract to unknown claims, and then separately whether it applies to fraud-based claims. The true question is whether on its proper construction it applies to claims of the type made in the Texas proceedings, namely that, unknown to Upaid when the Settlement Agreement was entered into, Upaid was supplied by Satyam with forged assignments. To that question it seems to me that there is only one possible answer. In my judgment, express words would be necessary for such a release….”

It was agreed that the 2014 Releases must be construed in accordance with the principles in Arnold v Britton [2015] AC 1619. Those principles were endorsed by the Supreme Court in Wood v Capita Insurance Services Ltd [2017] AC 1173. As Lord Hodge explained at [10] of his judgment, the court must ascertain the objective meaning of the language which the parties have used and in doing so ‘must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning.’ He also reiterated the principle that the interpretation of contracts is a unitary exercise, stated that the process is an iterative one and added at [12]:

…

It seems to me that the definition of ‘Claims’ in clause 2(a) viewed in the context of the Revised Redress Offer as a whole and clause 2(a) in particular, and in the light of its relevant factual context, is extremely wide and is sufficient to include the claim of unlawful means conspiracy. ‘Claims’ are defined to include ‘all complaints, claims and causes of action in any way connected to the sale of the IRHPs’ (emphasis added). The language used is broad and unambiguous and it seems to me to be inescapable that it is sufficiently wide to include the claim as pleaded in the proposed amended pleading which contains numerous references to the sale of the IRHPs and their effects upon the Appellants.”

The Judgment

“…clearly fall within the scope of the release according to its natural meaning. All of them relate to, arise from or are connected with one or more of MRL’s acquisition of the Collection, the financing of the acquisition, the Commercial Agreement, and the sale of the Collection. All of them, including the claims in conspiracy, dishonest assistance and breach of fiduciary duty, relate to facts, matters or circumstances existing or occurring prior to or at the date of the Settlement Agreement.”

“(a) that it is unrealistic of MRL to contend that an allegation of a conspiracy between Bonhams and Lohomij to target MRL was objectively outside the scope of the parties’ contemplation when the Settlement Agreement was made and (b) that allegations that the matters complained of were not merely negligent but deliberate wrongdoing were precisely the sort of allegation which, viewed objectively, the parties would be looking to prevent. Further, the release expressly extended to unknown claims relating to the subject matter specified in the definition of “Claims” and MRL thereby took the risk that the element of bad faith might be worse than it then believed.”

“First, there is no rule of law requiring that express words referring to claims based on fraud or dishonesty be used if a release is to extend to them. As a matter of common sense, in the absence of such words one will not readily conclude that a reasonable person would understand a release to refer to such claims. However, if the normal principles of construction lead to the conclusion that the release does indeed extend to such claims, the conclusion must be respected. Parties are entitled to reach such an agreement if they choose to do so, and it is no business of the court to obstruct their expressed intention. Second, the words of the release seem to me to be unequivocal and unambiguous and to evince a plain intention to omit nothing and leave no loopholes. Third, the absence of express words referring to deliberate wrongdoing or dishonesty is explicable not only by the very comprehensive words actually used but by the way in which the release is framed by reference to subject matter rather than specific causes of action…”

“…first, by keeping firmly in mind that Lord Bingham’s cautionary principle is not a rule of law and does not alter the method of construing contracts; second, by remembering, in line with Lawrence Collins LJ’s suggestion in the Satyam Computer Services case, that the question is not whether certain pre-defined categories of claim are outside the scope of the release but whether these particular claims are outside its scope…”

MRL’s arguments on appeal

Discussion

The Judge undertook a detailed and careful consideration of both the wording of the relevant clauses and the factual matrix, reaching the conclusion that both pointed to the release covering all claims relating to the subject matter in existence as at its date, including those now alleged by MRL. In so doing, he carried out the unitary exercise identified and explained in Wood v Capita Insurance Service Ltd [2017] AC 1181; [2017] UKSC 24 by Lord Hodge at [12], it being unimportant whether the Judge started “with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract”.

In the course of the above exercise, the Judge (as he was both entitled and obliged to) had regard to the nature of the drafting, placing particular weight on the text due to the fact that it was formal and high quality. His detailed consideration of the precise words used by the parties reflected the approach adopted by Asplin LJ in Elite, as did his conclusion.

The Judge had full regard to the “cautionary principle”, reflected in his recognition in [117] that, in the absence of express words one will not readily conclude that a reasonable person would understand a release to refer to fraud or dishonesty claims. His reference in that paragraph to the words of the release being “unequivocal and unambiguous” and evincing a plain intention to omit nothing and leave no loopholes was not the sole justification for his decision, but was the second of three reasons for rejecting the submission that the absence of express words was determinative against the release of claims in fraud. The first reason was that the absence of express words was not determinative given that he had already reached the conclusion, on ordinary principles of construction, that fraud was included in the release (see [116]), and that there was no rule of law that it should be determinative. The third was that the release was framed in terms of subject matter, further explaining why express words were not necessary to incorporate claims in fraud. Again, that third reason was expressed to be an element in the Judge’s overall assessment, not a determinative factor.

I would start by considering the nature of the dispute which was being settled. The Spring Law letter, although framing claims in terms of breach of contract and negligence, made clear and express allegations amounting to breach of fiduciary duty by Bonhams in its role as agent for MRL. The letter asserted repeated and deliberate steps taken by Bonhams to profit considerably at MRL’s expense, including accusations of illegality and duress, to which can be added evidence that Mr Brooks had threatened to “destroy” Mr Sullivan. The connection between Bonhams and Lohomij was referenced numerous times, the clear implication being that that link had been or could be used to prejudice MRL’s position. Combined with the assumption in the without prejudice letter that Bonhams could procure agreement by Lohomij and the subsequent joinder of Lohomij as a party to the Settlement Agreement (recognising that no separate allegations had been made against it), it was clearly envisaged that Lohomij might be said to be liable for MRL’s alleged wrongdoings.

In that factual and commercial context, the widely worded release of all claims, no matter the cause of action, arising out of the above matters would naturally and obviously include claims that Bonhams’ actions amounted to deliberate and dishonest breaches of fiduciary duty in combination with others, including in particular Lohomij. I consider that to be the case with full regard to any cautionary principle that applies. To apply the test referred to in Satyam, if the parties, on entering the Settlement Agreement, had been asked whether MRL could thereafter bring claims for the matters referred to in the Spring Law letter, but reformulated as being part of an unlawful means conspiracy, the answer would surely have been that they could not. It would have been uncommercial and surely not intended that MRL would benefit from the waiver of a fee of €13.6m and the extension of its loan facility from Lohomij, but remain free to pursue the very same accusations merely by recasting them as having been unlawful acts carried out in combination.

It is true that the Settlement Agreement contained a standard “entire agreement” clause which excluded claims in fraudulent misrepresentation from its scope. Such a clause addresses a very different question than the scope of the release. But in any event, as Arnold LJ pointed out in the course of argument, the inclusion of that clause demonstrates that the parties were perfectly able to exclude fraud from the scope of the provisions if they intended to do so.

It follows, in my judgment, that the proper unitary exercise of construing the Settlement Agreement leads to the inevitable conclusion that claims in fraud, dishonesty and conspiracy were released.

Materially different is the case where the party to whom the release was given knew that the other party had or might have a claim and knew also that the other party was ignorant of this. In some circumstances seeking and taking a general release in such a case, without disclosing the existence of the claim or possible claim, could be unacceptable sharp practice. When this is so, the law would be defective if it did not provide a remedy.”

… On a principle of law like this, I think it is legitimate to go back to authority, to Lord Keeper Henley in Salkeld v Vernon 1 Eden 64, 69, where he said: ‘no rule is better established than that every deed obtained on suggestio falsi, or suppressio veri, is an imposition in a court of conscience.’

In principle, therefore, I agree with what I consider Sir Richard Scott V-C [2000] ICR 1410, 1421 to have meant in the passage in paragraph 30 of his judgment which I have quoted (ante, paragraph 11), and with Chadwick LJ, that a person cannot be allowed to rely upon a release in general terms if he knew that the other party had a claim and knew that the other party was not aware that he had a claim. I do not propose any wider principle: there is obviously room in the dealings of the market for legitimately taking advantage of the known ignorance of the other party. But, both on principle and authority, I think that a release of rights is a situation in which the court should not allow a party to do so. On the other hand, if the context shows that the parties intended a general release for good consideration of rights unknown to both of them, I can see nothing unfair in such a transaction.

It follows that in my opinion the principle that a party to a general release cannot take advantage of a suggestio falsi or suppressio veri, in other words, of what would ordinarily be regarded as sharp practice, is sufficient to deal with any unfairness which may be caused by such releases. There is no need to try to fill a gap by giving them an artificial construction”

…If there is any unconscionability, it seems to me rather to lie with MRL’s attempt to make substantially the same complaints under a very slightly different guise—and, moreover, when by the Settlement Agreement it freely gave up the opportunity of learning more about the background to the self-interested conduct of which it complained. Its complaints regarding the acquisition of the Collection, the financing of that acquisition, the Commercial Agreement and the sale of the Collection were all settled for substantial value in a contract reached by commercial parties with equal bargaining positions and legal representation. And that settlement expressly included a release of unknown claims in circumstances where MRL had (on its own case) objective grounds of knowledge of deliberate wrongdoing by the Bonhams Defendants and a combination involving Lohomij. Yet now it seeks to sue for precisely the same matters because of what it says is new information concerning the defendants’ motivations for doing the very things previously complained of. I regard this as a simple attempt to avoid the effect of a commercial contract freely entered into, and I unhesitatingly reject the suggestion that equity should relieve MRL of the consequences of its contract.”

make findings of fact which were not properly open to him; and

decide that it is not reasonably arguable that Lohomij, as a secured lender, owed duties (i) not to prevent or interfere with a disposition, (ii) to act in good faith and (iii) not to interfere with the release or potential release of security.

The challenge to the Judge’s fact-finding exercise

“I have not conducted a mini-trial. However, the issues on this part of the case turn in large measure on the plausibility of MRL’s factual case. Therefore a critical appraisal of the evidence is required, and it is necessary to refer to the statements of case and the evidence in considerable detail.”

First, the case pleaded in APOC, according to which all of the conduct complained of took place on the occasion of a single meeting on 2 June 2016, is inconsistent with Mr Sullivan’s own evidence advanced on these applications.

Second, what makes sense in the context of an allegation of a single meeting on 2 June 2016 (that is, that the conduct of Mr Louwman, Mr Schlumpf and Mr MacLean on that occasion caused FR-G to change its position) becomes implausible when the conduct is said to have occurred at two meetings some five weeks apart. MRL does not allege that FR-G pulled out of Sale 1 after the first meeting but only after the second meeting— indeed, the Heads of Terms were actually executed by both parties shortly after the meeting of 2 June 2016—so the inference that the alleged collapse of Sale 1 was due to Mr Louwman’s conduct becomes fanciful.

Third, I am entirely satisfied that the revised case is factually incorrect, because Mr Schlumpf was not at the meeting on 6 July 2016. On this point there is a conflict between the evidence of Mr Sullivan and Mr Hilder, who say that he was present, and that of Mr MacLean and Ms Volf, who say that he was not. But MRL’s case on this point has been inconsistent, to the extent that it appears to be trying to find a way to salvage an original and untenable case, and the documents show the position clearly enough. On the morning after the meeting, Mr MacLean’s email to Mr Louwman, which was copied to Mr Schlumpf, identified those present at the meeting and they did not include Mr Schlumpf. Further, Mr Schlumpf had not intended to be at the meeting, as is shown by an email that he sent to Mr MacLean on Thursday 30 June 2016, expressing “Best wishes and success for next Wednesday’s meeting.” Therefore, if Mr Schlumpf and Mr MacLean said what they are alleged to have said at the same meeting, that must have been the meeting on 2 June 2016. That is actually consistent with APOC, but it is inconsistent both with Mr Sullivan’s evidence and MRL’s Reply and with the case being advanced that Sale 1 fell apart in the aftermath of what they are alleged to have said, as the Heads of Terms were signed after that meeting.

Fourth, MRL’s revised case is also factually incorrect in stating that FR-G changed the proposed terms after the meeting on 6 July 2016 (Reply, paragraph 55; Mr Sullivan’s first statement, paragraph 128). Mr MacLean’s email to Mr Louwman on the morning after the meeting records that it was at the meeting itself that Mr Rickert made it known that FR-G’s clients wanted a price reduction or some other alteration of the terms. This also renders it implausible to contend, as MRL does in its Reply and in Mr Sullivan’s witness statement, that Sale 1 collapsed after and in consequence of what was said at the meeting on 6 July 2016 and that the ensuing negotiations followed the collapse of Sale 1.

Fifth, the whole premise of MRL’s case concerning interference in Sale 1 is fanciful, not to say absurd [for 3 reasons the Judge proceeds to develop in detail].”

The Judge’s rejection of an implied term that Lohomij would not interfere with the Sales

“It was an implied term of the Amended Facility Agreement that Lohomij would not prevent and/or interfere with any proposed sale of the Cars and/or would act in accordance with an implied duty of good faith. Further or alternatively, Lohomij as a lender was precluded from interfering with the release (or potential release) of the security at common law.”

“1) In Marks and Spencer plc v BNP Paribas Services Trust Company (Jersey) Ltd [2015] UKSC 72, [2016] AC 742, the Supreme Court confirmed and approved the traditional approach to the implication of terms. A term will be implied into a contract only if it is necessary to give business efficacy to the contract (in the sense that, without the term, the contract would lack commercial or practical coherence) or—which will often amount to the same thing—if the term is so obvious that it “goes without saying”. A term will not be implied if it is incapable of clear expression, or if it is unreasonable or inequitable, or if it contradicts an express term of the contract.

2) MRL has not pleaded any matters that are said to justify the implication of the term contended for.

3) The Amended Facility Agreement is a detailed and carefully drafted commercial agreement between sophisticated parties who were both represented by lawyers. Clause 9 of the Amended Facility Agreement makes express provision in respect of dispositions of the Cars as Charged Property. Clauses 7 and 8 made provision regarding the sale of the Cars; I refer in particular to clause 7(c), set out above. The implied term contended for by MRL is neither necessary nor obvious. The contract works perfectly well without it.

4) An implied term that Lohomij would not prevent or interfere with a proposed sale of the Cars is unarguable for three further reasons. First, clause 9 of the Amended Facility Agreement gives Lohomij an express right to prevent or interfere with a sale, that is, by withholding consent to it. The implied term contended for would be inconsistent with the express terms of the contract. Second, an implied term preventing Lohomij from interfering with a sale is impossibly vague. By way of example, MRL has not suggested that Mr Schlumpf’s mere presence at meetings was an unlawful interference, although he was present only to represent the interests of Lohomij as secured creditor. It is unclear at what point his contribution to meetings would constitute interference. Third, Mr Schlumpf’s remarks, if made as alleged, and whether they were helpful or not, did no more than assert Lohomij’s rights under the Amended Facility Agreement and the Debenture, because MRL was in default after 30 June 2016. It is impossible, in my view, to see the justification for the implication of a term that would prevent Lohomij, at a meeting at which it was properly represented as secured creditor, from stating its entitlements as secured creditor.”

“There is no general principle of good faith in English contract law. See Chitty on Contracts, 33rd edition, paragraph 1-044 and the cases there cited.

No grounds for the implication of a term of good faith in the Amended Facility Agreement have been pleaded and, for reasons already discussed, general principles regarding the implication of terms do not justify such an implication.

The relationship between MRL and Lohomij was both debtor-creditor and chargor-chargee. That relationship is sufficiently regulated by the express terms of the contract between them and by the applicable equitable principles. See Yorkshire Bank Plc v Hall [1999] 1 WLR 1713, per Robert Walker LJ at 1728; Morley v Royal Bank of Scotland Plc [2021] EWCA Civ 338, per Males LJ at [59]-[64]. The equitable principles applicable to Lohomij’s status as chargee include its obligation to exercise its powers as chargee for proper purposes and in good faith. Nothing to do with Sale 1 involved the exercise of powers under the security, although Lohomij could have exercised them once MRL went into default; the equitable principles were not engaged.”

Conclusion on ground 6