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Settle down and sharp practice what you preach

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Where the true interpretation of a contractual release covers unknown claims in fraud, there is little scope for parties to allege that this release should not be given effect due to the other party’s ‘sharp practice’. The normal principles of interpretation apply equally to contractual releases.

Maranello used finance from Lohomij to purchase classic cars. Under the financing arrangement, Maranello was required to sell the cars through an auction house (Bonhams) and was prohibited from selling the cars without Lohomij’s consent. The parties entered into a settlement agreement following complaints by Maranello that Lohomij and Bonhams negligently sold the cars.

At first instance, the court held that the claims brought by Maranello for, among other things, fraud, dishonesty and unlawful means conspiracy were compromised and released. On appeal, the court agreed that the normal principles of contractual interpretation apply to settlement agreements and that there is no legal rule that express words are required within the settlement agreement to release claims in fraud.

The court also dismissed Maranello’s argument that even if the claims were released, the settlement agreement should not be given effect as Lohomij and Bonham had sought, by way of sharp practice, to exclude liability for claims they knew about but which Maranello did not. The court held that Maranello was fully aware (and had in fact alleged) that Bonhams had deliberately acted in breach of its duties as agent in connection with Lohomij, and that Maranello had chosen not to investigate the extent of any wrongdoing in favour of settling the claims.

Interestingly, the court observed that where the true interpretation of a release covers unknown claims in, among other things, fraud and dishonesty, this interpretation requires a finding that the parties intended to settle such claims. As such, there is very little scope for a court to find that one party was guilty of sharp practice in relation to the existence of such a claim.

Judgment: Maranello v Lohomij

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