Are "full and final" settlements really final?

Wednesday 7 December 2016

Authors: David Friar and Nick Moffatt

​​​​​​When parties enter into "full and final" settlement agreements, they expect that agreement to be final. However, one party to the agreement often suffers from buyer's remorse, and may later seek to re-open the settlement.  

Prattley Enterprises sought to do exactly that in litigation against Vero Insurance New Zealand. 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 decided that it had settled for too little, and that the real value of its claim was NZ$3.388 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 that the full and final settlement clause released Vero from any further liability to Prattley, as the broad terms of the release in the settlement agreement placed the risk of a mistake about the interpretation of the insurance policy on Prattley, rather than Vero.

The Supreme Court dismissed Prattley's appeal, ruling that Vero and Prattley were not mistaken about the proper interpretation of the insurance policy: Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZSC 158​.

However, the Supreme Court chose not to decide 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".

Our view

The Court's decision not to address the issue is disappointing, especially given that it had specifically given leave to appeal on this issue. Further, insureds and insurers have entered into many thousands of settlement agreements in relation to Canterbury earthquake damage, and the litigation has been closely watched by the industry. It would have been helpful to both insurers and insureds to have certainty on this issue.

In our view, the High Court and Court of Appeal were right. The "full and final" settlement agreement in this case was exactly that – full and final. Parties enter into settlement agreements for certainty and finality, and those agreements should not be subject to parties who subsequently fall victim to buyer's remorse.


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • David Friar

    Partner Auckland
  • Nick Moffatt

    Senior Associate Auckland
Related areas of expertise
  • Insurance
  • Litigation and dispute resolution