Inner House reverses commercial judge’s decision to bar damages action against investment group



Lord Malcolm
Lord Malcolm

The Inner House of the Court of Session has allowed a reclaiming motion by the director of an oil company who sought millions of dollars in damages for the loss of value of his shareholdings after part of his shareholding was bought by the Lime Rock Group.

It was held by the Lord Ordinary that Robert Kidd was barred from making an action against eight defenders, including members of the Lime Rock Group and Ledingham Chalmers LLP, as the entire damage had already been repaired in full by another party as a result of a settlement agreement following a previous commercial action.

The appeal was heard by the Lord Justice Clerk, Lady Dorrian, sitting with Lord Malcolm and Lord Turnbull. All three judges gave opinions, with the leading judgment being delivered by Lord Malcolm.

Final settlement

The pursuer had been the sole shareholder of an oil company, ITS, who wished to sell part of his shareholding. This ultimately resulted in the transfer of 36% of his shares to the Lime Rock Group, after which the operational performance of the company deteriorated, causing it to go into administration. The total loss suffered by the pursuer was claimed to be around US $210 million.

A commercial action was raised against Burness Paull LLP, a predecessor of which, P&W, had represented the pursuer in the transaction, on the basis that Lime Rock had been an existing client of theirs and it had not revealed it had arranged for Ledingham Chalmers to “front” the negotiations for Lime Rock. A “full and final” settlement agreement was reached following commercial proceedings in which BP agreed to pay the pursuer £19 million without admission of liability.

The pursuer raised an action against Lime Rock and Ledingham Chalmers intending to recover the remainder of the loss after accounting for the contribution made by BP. He averred that all the defenders were aware of the wrongdoing and conspired to facilitate a breach of fiduciary duty and deliberately deprive the pursuer of the knowledge that he could not trust his solicitors.

The Lord Ordinary upheld a plea by the defenders that the payment of the £19 million by BP precluded the present action, based on authority from two English House of Lords cases, Jameson and anr v Central Electricity Generating Board (2000) and Heaton and others v AXA Equity and Law Life Assurance Society plc and anr (2002). Both the pursuer’s actions had concerned the same loss, and the settlement with one alleged joint wrongdoer was to be regarded as full and final settlement for all claims for that loss.

It was submitted for the pursuer that the Lord Ordinary had wrongly interpreted the settlement as fixing the measure of his loss in the same manner as a court judgment. On a proper interpretation, all the agreement did was release BP from further proceedings, with no effect on the current defenders. The defenders disputed this proposition and adopted the reasoning of the commercial judge.

Correct question

In his opinion, with which Lady Dorrian and Lord Turnbull agreed, Lord Malcolm began by noting: “When does settlement of a claim by A against B prevent A from pursuing C for an alleged balance due in respect of the same loss? The short answer is that it depends on the terms of the agreement construed in its context and any other relevant background circumstances. However it is important to be clear as to what it is that the agreement must demonstrate if a plea of preclusion is to be upheld.”

Assessing the effect of the House of Lords cases, he said: “An English court could perhaps live with both Jameson and Heaton by reference to certain peculiarities of English common law. However it has to be said that two of the majority in Jameson were Scottish judges, and reference was made to some Scottish decisions. Nonetheless I consider that the majority in Jameson adopted the wrong approach.”

He continued: “They did not ask the correct question which, to echo Lord Bingham in Heaton, is: did the settlement agreement, when viewed in its surrounding circumstances, indicate that the pursuer accepted £19m in full and final satisfaction of all his claims for the harm allegedly done by the deal, not only against P&W/BP, but against Lime Rock and the others as well? If this is the correct question, the commercial judge also adopted the wrong approach and asked the wrong question by following Jameson.”

Entitled to prosecute

Analysing the wording of the BP settlement agreement, Lord Malcolm said: “The wording shows that the agreement was intended to release P&W/BP from any claim made by the pursuer relative to the deal done with Lime Rock. On Jameson reasoning, which was adopted by the commercial judge, absent anything pointing to the contrary, that is sufficient for the agreement being taken as extinguishing the loss thereby precluding a claim for an alleged balance against other parties. However, on the Heaton approach it tells us nothing as to whether the sum was accepted as being or representing full value.”

Lord Malcolm then applied Scottish authority to the question, concluding: “If it is plain from the agreement construed in its context that the loss has been extinguished by the settlement, there can be no claims against alleged co-delinquents. If that cannot be said, the opposite is not furthered by any reference to matters, necessarily speculative, which do not appear in the pursuer’s pleadings. To put it another way, the pursuer is entitled to prosecute the claim unless it can be established that he has already been indemnified.”

In her own judgment, Lady Dorrian added: “[The Lord Ordinary] should have approached matters by asking whether the terms of the agreement made it plain that the pursuer had accepted the sum of £19 million as reflecting the whole of the loss attributed by him to the sale of his shares. […] Had the Lord Ordinary approached matters this way, making the terms of the settlement agreement the primary focus of attention, and considering it both as a whole, and in its appropriate context he would have been unable to answer either of these questions in the affirmative.”

The reclaiming motion was therefore allowed, and the case remitted to the commercial roll for further procedure.

Representation:

Pursuer and Reclaimer: Lord Keen of Elie QC, Manson; Harper Macleod LLP

Defenders and 1st to 5th Respondents: McBrearty QC, McKenzie; Gilson Gray LLP

6th to 8th Respondents: Dean of Faculty QC, Paterson; CMS Cameron McKenna Nabbarro Olswang LLP

© Scottish Legal News Ltd 2021



Other judgments by Lord Malcolm