Law Report: Libel settlement not full release: Watts v Aldington; Tolstoy v Aldington. Court of Appeal (Lord Justice Neill, Lord Justice Steyn and Lord Justice Simon Brown), 15 December 1993

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An agreement whereby the plaintiff in a libel action, having won substantial damages against two defendants, accepted, subject to certain conditions, a much smaller sum of money from one of the defendants in 'full and final settlement of the judgment', did not amount to a release of all the plaintiff's rights against that defendant, but was merely an agreement not to sue him so long as he kept the conditions, and certainly did not release or discharge the other defendant from liability.

The Court of Appeal dismissed appeals by Nigel Watts and Count Nikolai Tolstoy Miloslavsky against the decision of Mr Justice Morritt on 22 May 1992, that a settlement agreement between Lord Aldington and Mr Watts did not constitute a release of the liability of Mr Watts or Count Tolstoy for a joint judgment debt of pounds 1.5m.

The judgment debt was an award of damages, made on 30 November 1989, in a libel action brought by Lord Aldington against Mr Watts and Count Tolstoy, arising out of their publication of a pamphlet on the repatriation of Russian troops to the Soviet Union at the end of the Second World War. Neither defendant could pay the debt and both were duly adjudged bankrupt. Mr Watts appealed against his bankruptcy and offered Lord Aldington pounds 10,000 in settlement.

On 20 March 1991, an agreement was reached, under which, subject to certain conditions, Lord Aldington accepted pounds 10,000 from Mr Watts in 'full and final settlement of the judgment . . . and any liability howsoever arising before today's date which could involve any payment by (Mr Watts) directly or indirectly to Lord Aldington' (clause 6).

By clause 9, any breach of the agreement by Mr Watts would leave Lord Aldington free to pursue him for the whole of the judgment debt.

On 20 September 1991, Mr Watts applied for a declaration that the agreement constituted a release by Lord Aldington of all his rights against either Mr Watts or Count Tolstoy arising out of the libel judgment.

On 27 November 1991, Count Tolstoy's trustee in bankruptcy brought a claim against Mr Watts for a contribution, pursuant to section 1 of the Civil Liability (Contribution) Act 1978, towards Count Tolstoy's liability.

The judge held that the settlement agreement did not constitute a release of Mr Watts but was merely an agreement not to sue him, and that neither Count Tolstoy nor his trustee in bankruptcy had been discharged by it.

Jon R Turner (David Price & Co) for Mr Watts; Count Tolstoy in person; Amanda Michaels (Bretherton Price & Elgoods, Cheltenham) for Count Tolstoy's trustee in bankruptcy; Charles Gray QC and William Trower (Allen & Overy) for Lord Aldington.

LORD JUSTICE NEILL said the argument hitherto had been directed to the question whether the agreement amounted to a release or discharge, or was merely an agreement not to sue or enforce the judgment against Mr Watts.

But in trying to fit the agreement into a particular category, one might lose sight of the true inquiry: What was the meaning and effect of the agreement, having regard to the surrounding circumstances and taking into account not only the express words used in the document but also any terms which could be properly implied?

Looking at the matter objectively, his Lordship found that it was impossible to conclude that Lord Aldington and Mr Watts intended that Count Tolstoy should forthwith be discharged from all further liability.

Though it was legitimate to imply into such an agreement a term as to the reservation of rights against Count Tolstoy, there was no basis for making any implication regarding rights of contribution.

In his Lordship's judgment, the agreement was plainly subject to an implied term that Lord Aldington's rights against Count Tolstoy would be reserved.