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Duty of disclosure and settlement negotiations

15 Dec 10 You’re a subcontractor who is owed 10 million euros by the contractor. The contractor takes the view that you are not entitled to payment until he is paid by the employer.

Despite the differences, you negotiate what you think is a binding settlement agreement, but then the contractor finds out that you have been talking to the employer and tries to withdraw from the settlement agreement because you have not told him about this. What’s your position? Is the agreement binding?

Silver Queen, a subsidiary of SeaBird Exploration PLC, was a supplier of specialist maritime seismic survey services. The defendant, PPS, provided services to the oil and gas industry, mainly in Iran. One of its subsidiaries, Keyhan Exploration and Production Services, KEPS, entered into a contract with the Iranian Offshore Oil Company, IOOC. IOOC was a subsidiary of the National Iranian Oil Company, NIOC. PPS subcontracted the marine survey work to Silver Queen under a written agreement dated 18 May 2008. Work began in August 2008, but invoices submitted after October 2008 were not paid. Silver Queen kept all the data which was not paid for pending settlement of its invoices. The sum in dispute was over 10 million euros.
After Silver Queen served its claim and PPS its defence and counterclaim, discussions commenced seeking to resolve the dispute. A settlement was reached, and this was contained in a Settlement Deed which PPS’ solicitors, Memery Crystal, e-mailed to Silver Queen. However, by a further e-mail on 22 July 2009, just a day later, PPS purported to withdraw from the Deed, alleging that there had been non-disclosure by Silver Queen. This non-disclosure related to meetings which had taken place between IOOC and Silver Queen in February and April 2009. Silver Queen took the view that it was too late for PPS to withdraw from the agreement. It executed the Deed and returned it to PPS’ solicitors by e-mail. There was further correspondence with the parties continuing to dispute the existence of a settlement.

On 25 August 2009 the parties met on with IOOC attending as an observer. The minutes of the meeting were signed for both parties. At the meeting Silver Queen indicated that it would be willing to accept the sum of 5.2 million Euros to resolve the dispute, provided this was paid by 30 September 2009, but that if this amount were not acceptable to PPS, it would “revert to the higher binding claim.” PPS made no payment.
PPS had made no express stipulation or indication that when the Settlement Claim was sent to Silver Queen on 21 July 2009 that it was anything other than what it purported to be i.e. a document which had been executed and delivered as a deed by PPS and which, in accordance with the e-mail from its solicitors to which it was attached, required only to be signed for Silver Queen and returned. Such intentions or qualifications about the status and effect of the document as may have been, or may now be privately entertained by PPS were not relevant. The evidence PPS gave about such intentions or qualifications could not assist it. It was the parties’ objective intentions which mattered, not their subjective intentions or beliefs. There was no objective evidence before the court to support the notion that there was, at any stage, a mutual understanding between the parties that the Settlement Agreement would be dealt with by means of an exchange.

The Settlement Agreement could not be rescinded for what PPS alleged was non-disclosure or fraudulent misrepresentation. The notion that the negotiation of agreements to settle hostile litigation generally gives rise to a duty of disclosure was misconceived. The existence of such a duty would not be consistent with the general position that parties negotiating for a contract do not owe duties of disclosure to each other. An agreement to settle litigation is not, or at least normally is not, a contract uberrimae fidei. In the present case, it certainly was not. On the facts of the present case, the court could not conclude that before entering into the settlement agreement, Silver Queen had been under a legal duty to disclose to PPS that it had made offers to IOOC in February 2009 and May 2009. There was no fiduciary relationship between the parties, nor did any agency arise under the May 2008 contract. Silver Queen had no duty of loyalty to PPS. PPS had itself defaulted on its own contractual obligation to pay Silver Queen. The fact that PPS was going to have to rely on IOOC or NIOC to resolve its liability to Silver Queen did not signify that when Silver Queen, at PPS’s invitation, dealt directly with IOOC and NIOC, it was therefore acting as PPS’s fiduciary.

Silver Queen Maritime Ltd. v Persia Petroleum Services Plc, [2010] EWHC 2867 (QB)

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