When parties enter into “full and final” settlement agreements, they expect the agreement to be just that. The general rule in New Zealand and the United Kingdom, is settlement agreements are to be upheld as a matter of principle. If there is due cause to divert from the settlement agreement then, “unless the most natural meaning of the words produces a result so extreme as to suggest that it was unintended, the court must give effect to that meaning”.[1]

Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd[2]

Prattley owned a building in Christchurch that was damaged and then destroyed in the Canterbury earthquakes. Like many thousands of Christchurch property owners, Prattley entered into a “full and final settlement” agreement with its insurer, Vero, which settled all claims, whether known or unknown, under its insurance policy. The settlement amount was NZ$1.05 million.

Two years later, however, Prattley suffered from “buyer’s remorse” and decided that it had settled for too little, and that the real value of its claim was NZ$3.38 million. Prattley argued that both it and Vero were mistaken as to the correct interpretation of the insurance policy, and that as a result, it was entitled to relief under the Contractual Mistakes Act. It sought an order requiring Vero to pay it the full amount of its claim.

Both the High Court and the Court of Appeal rejected Prattley’s claim. Both courts ruled that the full and final settlement clause released Vero from any further liability to Prattley.

The Supreme Court also dismissed Prattley’s appeal, ruling that Vero and Prattley were not mistaken about the proper interpretation of the insurance policy.

However, the Supreme Court chose not to decide on the issue of whether, if the parties had been mistaken, Prattley would have been able to re-open the settlement agreement on the basis of the mistake. The Court said that this raised “issues of some complexity” and that it had “some reservations” about whether Prattley had assumed the risk of a mistake as a result of the broad settlement clause. The Court concluded: “working out how to resolve all of this may not be easy and we see it as a task best deferred until a case arises where such resolution is critical to the result”.

The Supreme Court’s decision confirms that courts in New Zealand will be reluctant to reopen a settlement agreement unless there has been deception, duress, or misleading conduct during negotiations or formation of the agreement.

Whilst there is nothing surprising or new in the analysis the Supreme Court took, it reminds us of the proper approach to construction of settlement agreements and how important it is to document any settlement with language which clearly indicates what rights are being compromised and what rights, if any, are being preserved.

If you are in the process of settlement and would like advice, please contact Talbot Law today.

[1] Rainy Sky v Kookmin [2011] UKSC 50 at [20]

[2] [2016] NZSC 158