Riley & Anor v National Westminster Bank Plc

Factual and Procedural Background

Plaintiff and Plaintiff's spouse appealed from the decision of Judge Freedman dated 29 September 2023, which granted reverse summary judgment in favour of Defendant Bank on Plaintiffs' claim for fraudulent misrepresentation. The judge held that the claims had been compromised and released by a Settlement Deed dated 12 November 2014. However, the judge also found that if the compromise had not been effective, the claims would not have been barred by limitation. The Bank challenged that finding by way of Respondent's Notice.

In 1997, Plaintiffs incorporated Company A, a building development company, with Plaintiffs as directors and Plaintiff as sole shareholder. Company A acquired a development site with permission for residential development. Another company, Company B, a subsidiary of Company A, operated as a design academy.

Between 2005 and 2008, the Bank made loans to Company A totaling £26.5 million, secured against a valuation of £41 million. In December 2008, the Bank replaced facilities with an on-demand loan of £32 million (the 2008 Facility). Management of Company A's banking was transferred to the Bank’s Global Restructuring Group (GRG) in 2009 to facilitate restructuring.

Plaintiffs alleged that between 2009 and 2012, the Bank made repeated false representations that it intended to restructure and support Company A, which Plaintiffs relied on, causing them to continue financial engagement. Plaintiffs claimed the Bank was pursuing a concealed agenda to designate Company A as "non-core" business, exit the relationship by 2013, and acquire assets at undervalue through a subsidiary, West Register (Property Investments) Limited.

In March 2012, the Bank demanded repayment and placed Company A into administration, which was later wound up and dissolved in 2015.

During 2013, solicitors for Plaintiffs sent letters alleging misconduct by the Bank, including irrational decisions, misstatements, malpractice, undervaluation of assets, and wrongful administration. These letters formed part of the factual background to the Settlement Deed.

In November 2013, the Tomlinson Report was published, criticizing the Bank's lending practices and treatment of businesses in distress, including allegations of deliberate distressing of viable businesses and profiteering by GRG and West Register. Plaintiffs were aware of this report and related allegations.

In 2014, the Financial Conduct Authority issued a Final Requirement Notice leading to the Promontory Report, which was more restrained but confirmed the existence of a "non-core" division within the Bank, tasked with managing down assets and exiting certain business relationships by 2013. Plaintiffs contend this report revealed for the first time the Bank’s fraudulent misrepresentations.

In 2014, Plaintiffs and the Bank entered into a Settlement Deed whereby Plaintiffs agreed to pay a reduced settlement sum in full and final settlement of all claims, releasing the Bank from all actions, known or unknown, present or future, connected with the facility agreements, Company B, Company A, and associated properties.

In 2022, Plaintiff acquired by assignment from the Crown the benefit of a claim in misrepresentation and deceit against the Bank relating to statements made about the 2008 Facility. The present claim was issued alleging various false and dishonest representations by the Bank from 2009 onwards.

The Bank denied the claim, asserted the Settlement Deed barred the claims, and raised limitation as a defence. The Bank applied for summary judgment and striking out of the claim, which was granted by the judge.

Legal Issues Presented

1. Whether the Settlement Deed released and barred Plaintiffs' claims for fraudulent misrepresentation, including unknown claims.
2. Whether the equitable sharp practice doctrine precludes the Bank from relying on the release due to alleged fraud concealed from Plaintiffs.
3. Whether the claims assigned to Plaintiff by Company A after the Settlement Deed fall within the release and are barred.
4. Whether the claims are statute barred by limitation.
5. Whether the judge erred in the construction of the Settlement Deed and in his conclusions on sharp practice, inducement, and limitation.

Arguments of the Parties

Appellants' Arguments

• The Settlement Deed should not bar claims based on unknown fraud concealed by the Bank which Plaintiffs could not reasonably have discovered before settlement.
• The Bank made fraudulent representations between 2009 and 2012 about restructuring intentions while intending to exit the relationship and profit from Plaintiffs’ companies.
• The Settlement Deed’s release clause does not explicitly cover claims acquired after the settlement, such as those assigned from Company A to Plaintiff.
• The equitable sharp practice doctrine should prevent the Bank from relying on the release because it concealed fraud from Plaintiffs.
• Plaintiffs only became aware of the Bank's true intentions and fraudulent conduct after the Promontory Report in 2018, thus claims are not time-barred.
• Relied on authorities including BCCI v Ali and Satyam Computer Services v Upaid Systems to argue that express words are required to release unknown fraud claims.
• Argued that the judge erred in concluding the claims assigned by Company A were released, relying on Kazeminy v Siddiqui to support that claims assigned after settlement may not be covered.

Respondent's Arguments

• The Settlement Deed was intended to release all claims, including unknown and future claims relating to the subject matter, including fraud.
• The Nabarro correspondence and Tomlinson Report showed Plaintiffs were aware of serious allegations of misconduct at the time of settlement.
• The case is analogous to the binding decision in Maranello Rosso Ltd v Lohomij BV, which supports wide release clauses covering fraud claims.
• The sharp practice argument fails because Plaintiffs were aware of alleged misconduct and deliberately settled for valuable consideration.
• The release clause expressly covers claims Plaintiffs "may have or hereafter can, shall or may have," including claims assigned by Company A to Plaintiff.
• Kazeminy is distinguishable; the present Settlement Deed explicitly refers to Company A and includes a broader release clause than in Kazeminy.
• On limitation, the Bank argued that Plaintiffs had reasonably credible material to plead fraud well before 2016, including the Nabarro letters and Tomlinson Report, and the limitation defence should be upheld.
• Relied on recent authority Persons Identified in Schedule 1 v Standard Chartered PLC to support the limitation position and the need for reasonably credible material to plead fraud.

Table of Precedents Cited

Court's Reasoning and Analysis

The court adopted the factual narrative set out by the trial judge and carefully examined the Settlement Deed’s wording and the factual matrix surrounding its execution. The Settlement Deed contained very broad release clauses covering "any and/or all actions, claims, rights, demands, disputes and set-offs," whether known or unknown, present or future, relating to the facility agreements, Company B, Company A, and associated properties.

The court found that the background included serious allegations of misconduct and fraud made in the Nabarro letters and the Tomlinson Report, which Plaintiffs were aware of before entering the Settlement Deed. The "non-core business" allegations raised later added little beyond this context.

Relying on binding authority, especially the Maranello decision, the court held that wide release clauses can cover unknown fraud claims and that there is no requirement for express words to exclude fraud claims if the construction of the release and context indicate such an intention.

The court rejected the equitable sharp practice argument, finding that Plaintiffs were aware of alleged misconduct and deliberately chose to settle for valuable consideration, making it unconscionable for them to avoid the release on grounds of fraud concealed at the time.

Regarding claims assigned by Company A to Plaintiff after the Settlement Deed, the court held that the release clause’s wording, referring to claims Plaintiffs "may have or hereafter can, shall or may have," includes such assigned claims. The argument that these claims fall outside the release was dismissed as having no real prospect of success, distinguishing the Kazeminy case on its facts and clause wording.

On limitation, the court noted that the trial judge had allowed a real prospect of success for Plaintiffs to resist limitation on the basis that knowledge of the "non-core business" categorisation was required to plead fraud properly. However, the appellate court disagreed, concluding that the material available before 2016, including the Nabarro letters and Tomlinson Report, provided reasonably credible material to plead fraud. The limitation defence could have been upheld on summary judgment, but this was not determinative of the appeal.

Ultimately, the court emphasized the importance of upholding clear and wide settlement agreements and that the intention of the parties, objectively ascertained, is paramount. The court found no error in the trial judge’s construction or conclusions on the Settlement Deed and sharp practice, though it differed on the limitation issue, which was not decisive.

Holding and Implications

The court DISMISSED the appeal, affirming the trial judge’s decision to strike out the claim and grant summary judgment in favour of the Bank.

The direct effect is that Plaintiffs' claims for fraudulent misrepresentation are barred by the Settlement Deed’s wide release provisions, including claims assigned to Plaintiff after the settlement. The equitable sharp practice doctrine does not provide relief to Plaintiffs given their awareness of alleged misconduct and decision to settle. Although the court differed on limitation, it was unnecessary to decide that issue given the release.

No new precedent was established beyond applying existing authorities on settlement construction, sharp practice, and limitation. The decision underscores the importance of carefully drafted release clauses and the finality of settlements in commercial disputes, particularly where fraud claims are alleged.