Representative of a Russian oil company have been blocked from claiming £70m in damages, due to a settlement agreement signed with their lawyers.  The Court of Appeal has ruled that the terms of the settlement agreement prevented a negligence claim being brought against the law firm several years later.

Oil company, Irtysh Petroleum, had retained Forsters LLP until 2010 to advise on a share purchase deal.  A dispute arose between the firms over an unpaid fee invoice for £130,000.  One of the Irtysh Petroleum directors provided a personal guarantee of almost £75,000 to cover the fees, but in 2012 Forsters started proceedings to recover the debt.

Forsters, Irtysh and the director eventually negotiated a settlement of £75,000 for the outstanding fees. One of the terms of the agreement was that neither side would sue the other for any matter ‘arising out of or in connection with’ the action for the unpaid fees.

Later Irtysh Petroleum discovered that the share transfer was ineffective, and subsequently the company was put into liquidation. A recoveries company acquired Irtysh’s claim from the liquidator and sued Forsters for £70m.  It alleged that the law firm had provided negligent advice on the share transfer.

The Court of Appeal had to decide whether the settlement agreement prevented the negligence claim being brought.  It concluded that, while the agreement would not cover all claims against Forsters, the settlement for unpaid fees was ‘in connection’ with the work the firm had done on the share transfer.  As a result, the court stopped the negligence claim from proceeding.

“Care is needed in drafting settlement agreements as it is not always clear what claims may arise some years down the line,” said James Burgoyne, Director – Claims & Technical, Brunel Professions. “In this case the Court said that a claim for negligence some years later was conceivable.  As a result, this agreement has been very successful for the law firm involved, but less so for its former clients.”

Reports on the case have published by the Law Society Gazette, Litigation Futures and law firm Hugh James.

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