As all HR practitioners know, the key feature of a settlement agreement is that the employee waives the right to pursue claims against the employer – usually (but not always) in return for a payment. The Court has recently considered the difference between waiving the right to pursue a fraud claim and entering into a settlement agreement which is based on a fraud.

What was the dispute about?

In Samir Arab v Raghida Ali Ghandour and others, Mr Arab commenced proceedings against the Defendants for fraudulent misrepresentation – Mr Arab claims that he was induced to enter into a settlement agreement (or a compromise agreement, as it was then called) and a share sale agreement by false representations made by Mr Basil Al-Rahim (who is deceased and thus represented by his Estate) as to the true value of one of the Defendant companies’ interest in a telecoms joint venture.  In turn, those representations affected the true value of Mr Arab’s shares in the Defendant companies.  Mr Arab says that had he known the true value he would not have entered into the agreements for the amounts he did – he would have been entitled to far more.

The Defendants applied for summary judgment (strike out) of Mr Arab’s claim on the basis that he had waived the right to bring the claim pursuant to the compromise agreement.  They argued that the claim was captured by the waiver and release clause and that the agreement intended there to be a ‘clean break’. Mr Arab argued that the compromise agreement did not expressly compromise claims of deceit, fraud or dishonesty.

What did the judge say?

The judge held that, in the absence of express words, it cannot be right that a compromise agreement also waives the right to assert that the compromise agreement itself has been procured by fraud.  In this regard, the judge noted that the waiver clause did not expressly refer to fraud claims, indicating to him that there was a lack of intention to include fraud claims within the compromise agreement. Mr Arab’s claim was therefore allowed to proceed to a full trial in Summer 2016.

What can employers learn from this decision?

The judge commented that the consequence of Mr Arab’s case is not that a fraud claim cannot be the subject of a compromise agreement (which it can be).

The judge found that Mr Arab’s case was that the deceit was in inducing him to enter into the compromise agreement.

If there was express wording in the compromise agreement that waived claims in fraud and deceit, including any known or unknown claims for deceit arising out of the agreement itself, then Mr Arab might have been barred from bringing his present claim.

When drafting settlement agreements, care should be taken by employers to ensure that all forms of potential claims are clearly and unambiguously waived if that is the parties’ intention.  Whilst employees may not be prepared to enter into an agreement which might be based on a fraud, it may still be worth seeing if you can get them to waive the right to claim the agreement was fraudulent.

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