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Understanding the impact of settlement agreements makes good business sense

3 October 2014

In the case of Starlight Shipping Co v Allianz Marine & Others the court held that where a claimant issued proceedings against a company (as well as individuals within the company), the claimant had compromised its ability to bring proceedings against the individuals by entering into a settlement agreement with the defendant company.

Starlight issued proceedings in the English courts against two insurance companies and a Lloyds syndicate together with individual employees of each. These proceedings were settled by way of settlement agreements providing the settlement of claims against the ‘underwriters’.

After entering into these agreements Starlight sought to issue claims against the defendants’ employees in Greece. The defendants applied to the English court for a declaration that these proceedings breached the settlement agreements.

The court held that it was to prefer the construction of the settlement agreements that was consistent with business common sense and, as it was clear that the agreements were to provide a clean break from litigation, reading the term ‘underwriters’ to exclude the employees defied business common sense.

This case goes to show the importance of understanding the full impact of a settlement agreement before signing.

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