Will a Court read down the general release in a settlement agreement for reasons of unconscionability? The Courts will have to grapple with this question as the Castleton litigation works its way through the justice system, and the early indications may be positive for claimants.
Why is Castleton v Post Office potentially significant?
The doctrine of unconscionability in the construction of settlement agreements, sometimes referred as the rule against sharp practice, is a somewhat murky legal principle. All signs suggest that we can expect interesting judicial development of that doctrine in the proceedings commenced last year by former sub-postmaster Lee Castleton (C) against Post Office Limited (POL) and Fujitsu Services Ltd. This is the first in a series of articles which will follow the Castleton litigation and discuss its importance for parties to settlement agreements and their legal advisers.
This series starts with the Court of Appeal’s recent ruling[1] on the case management orders made earlier in the year, which found serious practical difficulties with the High Court’s directions on how issues of unconscionability were to be resolved at a preliminary stage.
The background to Lee Castleton’s case
Lee Castleton (C) was one of the sub-postmasters affected by the Horizon IT scandal. In 2007, Post Office Limited (“POL”) secured judgment against C for over £25,000 (the “Original Action”).[2] The resulting judgment debt, once costs were accounted for, reached over £300,000 and a bankruptcy order against C followed shortly thereafter.
Along with over 550 other sub-postmasters, C joined the Bates v Post Office Ltd litigation which settled in late 2019. However, in March 2025, C initiated fresh proceedings against POL and Fujitsu alleging unlawful means conspiracy to abuse the process of the court and to deceive the court and C by dishonestly withholding evidence.
Castleton’s new claims against the Post Office and Fujitsu
C’s first substantive claim alleges that POL’s pursuit of the Original Action against him between 2005 and 2007 was for an improper collateral purpose – namely, that POL’s true purpose was not to make a commercial recovery, but rather to deter other postmasters from claiming in civil proceedings that the Horizon system was defective (the “Part B Claim”). The second substantive claim alleges that the 2007 judgment was obtained by fraud on the part of POL and by an unlawful means conspiracy between POL and Fujitsu with the purpose of dishonestly withholding evidence that would have undermined POL’s case (the “Part C Claim”).
C seeks the following remedies:
- that the 2007 judgment be set aside for having been obtained by fraud;
- damages of over £2 million; and
- an order against POL that the bankruptcy order against him likewise be cancelled and annulled for having been obtained by fraud.
Castleton’s arguments against enforcement of the 2019 settlement agreement
The 2019 Settlement Deed which brought the Bates litigation to an end, however, presents an obstacle to the Part B and Part C claims. It contains a widely drafted release of the claims in Bates and of other potential claims against POL, whether known or unknown and whether arising out of negligent, wilful or intentional conduct.
To overcome that problem, C claims that:
- as a matter of construction, the Settlement Deed does not apply to the Part B and Part C Claims;
- in any event, it would be unconscionable for POL to rely on the general release under the Settlement Deed (the “Unconscionability Issue”);
- POL fraudulently misrepresented the reasons for not calling one of its key witnesses in the Bates litigation – namely, that POL knew that the evidence of one of the Horizon software engineers, Gareth Jenkins, was unreliable but deceived the court and the Bates claimants as to the true reason for him not being called at trial. Furthermore, that the fraudulent misrepresentation induced the Bates claimants to enter into the Settlement Deed (the “Fraud Issue”).
This set of claims are referred to as the “Part A Claims”.
The High Court’s directions for resolving unconscionability as a preliminary issue
At a directions hearing in January 2026, the High Court was asked to decide whether the Part A Claims should be determined as a preliminary issue. It accepted they should be and made orders to that effect, releasing its written reasons on 30 January 2026.[3]
One of the reasons given for the court’s decision was that the Part A Claims on the one hand, and the Part B and C Claims on the other, are legally and factually distinct. The Court found that the Unconscionability Issue in particular [at para 40(iii)]:
“involves a discrete and confined inquiry into the Claimant’s knowledge (if any) of the Part B claims and the Part C claims as at the date of the Settlement Deed and the extent to which POL knew of his state of mind. It will also require an examination of the effect of the general release on the doctrine of unconscionability”.
The four conditions for the Unconscionability claim
It was common ground between the parties that, for C to succeed on the Unconscionability Issue, four elements must be established:
- The Part B and Part C claims are viable claims;
- POL knew this to be the case on 10 December 2019 when the Settlement Deed was agreed;
- C did not and could not reasonably have known of the Part B and C claims; and
- POL knew that C was unaware of the Part B and C claims.
Readers will observe that the “discrete and confined” inquiry referred to above touches only on conditions (3) and (4); the High Court’s Order envisages that the court would “provisionally assume” that conditions (1) and (2) were satisfied. The remaining questions for determination at the preliminary hearing would therefore be:
- Did C know of the Part B and Part C claims on 10 December 2019 when the Settlement Deed was agreed?
- If not, did POL know that C was so unaware?
- Can the doctrine of sharp practice apply given the terms and effect of the Settlement Deed?
C sought permission to appeal against the High Court’s order on several grounds but succeeded on only one: that the court wrongly relieved the Defendants of the requirement to plead a defence to certain parts of its claim. This is because the effect of the Order was that the Defendants would not need to plead as to the viability of the Part B and Part C claims, and its knowledge of those claims at the time the Settlement Deed was executed, in advance of the preliminary hearing.
Impact of the failure to raise case management issues at first instance
Before the Court of Appeal, constituted of Peter Jackson, Popplewell and Zacaroli LJ, the Respondents argued that C had not raised this objection in the High Court and should not be permitted to do so now. The Court rejected that argument, providing this useful reminder that appellants are more likely to be allowed a second bite of the cherry when it comes to case management issues [at para 27]: “Whether or not parties identify particular problems with a proposed trial of preliminary issues, if it is likely to create difficulties of the trial of the action then that is a matter of concern to the court itself.”
On appeal – the challenges in resolving unconscionability as a preliminary issue
As to the substance of the appeal, the Court went on to find that the High Court’s order as to the issues for preliminary determination would have created insuperable difficulties in practice.
It found that there was no problem in principle with resolving a preliminary issue by a hybrid approach involving “a legal assumption unpopulated by any facts” together with a factual inquiry as to other elements. However, the problem in this case was that the kinds of facts which would have gone to the issue of POL’s knowledge (which was instead to be assumed) were also likely to be relevant to other elements of the Unconscionability Issue.
For example, there was likely to be significant overlap between the assumption that POL knew of the Part B and C Claims, and the question of POL’s knowledge that C was unaware of them. For example, the latter issue might turn on how and when POL’s personnel became aware of the matters giving rise to the Part B and C Claims, and any steps they took to keep that information confidential within POL.
Relatedly, it was unclear how the preliminary issues trial was to be managed. For example, would the assumption as to POL’s knowledge preclude disclosure, witness evidence or cross-examination on matters going to that knowledge, even though it may be relevant to determining C’s awareness or lack thereof, and POL’s knowledge of this? The uncertain scope of disclosure was highlighted as an issue which could prove especially problematic in the long run.
The roots of the doctrine of unconscionability in Bank of Credit – knowledge necessary but not sufficient
Further problems emerged when the Court drew its focus back to what is required by the doctrine of unconscionability. Starting with the House of Lords’ view in Bank of Credit and Commerce International SA v Ali[4] that the law could provide a remedy in cases of “sharp practice”, it quoted [at para 31] the following passage from Lord Nicholls’ speech in that case [at para 32]:
“Thus far I have been considering the case where both parties were unaware of a claim which subsequently came to light. Materially different is the case where the party to whom the release was given knew that the other party had or might have a claim and knew also that the other party was ignorant of this. In some circumstances seeking and taking a general release in such a case, without disclosing the existence of the claim or possible claim, could be unacceptable sharp practice. When this is so, the law would be defective if it did not provide a remedy.”
The words “some circumstances” and “could be” make it clear that the question of knowledge in the emphasised passage is a necessary, but not sufficient, condition. Those conditions did not replace “the overarching question” of “whether reliance on the settlement agreement would in all the circumstances be unconscionable”.
With that overarching question in view, the Court found “the precise nature and extent of POL’s knowledge may well be important”. Facts such as the seniority of the POL personnel concerned, precisely what they knew in 2018 about the Part B and Part C Claims, and to what extent active steps were taken to suppress information potentially relevant to such claims.
The Court of Appeal’s conclusion
For those reasons, the Court’s overall conclusion was that attempting to determine the Unconscionability Issue on the basis of the provisional assumption as to POL’s knowledge was unworkable in practice. It left the precise issues for remittal to the High Court for another day, to be decided with the benefit of further submissions from the parties.
Key takeaways for practitioners:
- Watch this space! – The Castleton litigation is posed to contribute to the developing doctrine of unconscionability in the construction and enforcement of settlement agreements.
- While the case is only at an early stage, and the Court’s discussion should be read in that light, one might detect a more receptive tone towards the doctrine of unconscionability than can be taken from the 2022 judgment of the (differently comprised) Court of Appeal bench in Maranello Rosso Ltd v Lohomij BV.[5] Far from expressing doubt about the existence and application of the doctrine, the Castleton Court expressly flagged as an issue for further consideration what is meant by “knowledge” for the purposes of three of the gateway conditions to be met for unconscionability.
- Necessary but not sufficient – In addition to the four gateway criteria, the courts will look at the facts in the round and make a finding as to overall unconscionability.
- Unconscionability as a preliminary issue – The ‘overall unconscionability’ assessment will complicate attempts to deal with this issue at a preliminary stage – careful thought needs to be given to the form of any directions.
- Lessons for case management strategy – More generally, this is a timely reminder that parties need to give detailed thought to the practical consequences of preliminary issue directions, especially those where any elements are to be assumed for the purposes of the preliminary trial.
Edmonds Marshall McMahon advises clients on complex fraud, commercial disputes and asset recovery matters, including disputes concerning the validity and enforcement of settlement agreements. If you require advice on any of the issues raised in this article, please get in touch with our team.
[1] [2026] EWCA Civ 577.
[2] [2007] EWHC 5 (QB).
[3] [2026] EWHC 158 (Ch).
[4] Bank of Credit and Commerce International SA v Ali [2001] UKHL 8.
[5] [2022] EWCA Civ 1667.
