Picture the scenario: sparks from welding equipment used by a steelwork sub-sub-contractor set light to bitumen felt weatherproofing on the retained facades of office premises, causing a fire. The employer and main contractor claim against the sub-contractor and the claim is settled. The sub-contractor then seeks recovery of that sum from the sub-sub-contractor.
This set of facts occurred in the case of John F Hunt Demolition –v- ASME. The first point covered in the judgment was that the combined effect of the insurance provisions in the JCT 1998 Contract WCD and the DOM/2 Contract meant that the sub-contractor owed the employer no duty of care in relation to fire damage negligently caused to the existing structures.
The second, and more interesting, point concerned the recoverability of reasonable, or parts of unreasonable, settlements. Judge Coulson confirmed that when X settles with Y and wants to claim the settlement sum as part of the damages claimed against Z, X does not have to prove that it was liable to Y. The logic is that provided it can be shown that Z's breach of contract or duty put X in the position such that it was faced with claims from Y, there is a legal link between the settlement and the breach. X might pay over the odds simply as a result of being put in that position.
The judge stated "Unless the claim was of sufficient strength reasonably to justify a settlement, and the amount paid in settlement is reasonable having regard to the strength of the claim, it cannot be shown that the loss has been caused by the relevant breach of contract. On the other hand, the settlement of an intrinsically weak claim in order to avoid the uncertainties and expenses of litigation may well be reasonable; a claim will usually have to be so weak as to be obviously hopeless before it could be said that the settlement of the claim was unreasonable".
The question of the reasonableness of a settlement is to be judged at the time of the settlement.
If the settlement was not reasonable it had no evidential value and was irrelevant to the calculation of the true measure of loss. He also commented that a "near-miss" theory in which a party who had paid out pursuant to an unreasonable settlement might instead ask the court to identify a hypothetical reasonable figure as the measure of loss recoverable would generally not be allowable.
In this case, the total settlement of £152,500 was unreasonable as there was no duty of care owed by the sub-contractor to the employer. The maximum value of the claim against the sub-contractor, and therefore the current claim against the sub-sub-contractor, was £43,500 which represented the main contractor's own losses as a result of the fire.
As dealing with a claim based on a settlement is extremely common, and whilst the judge's comments may be seen as a "thumbs up" to recovery of a settlement payment, the best course is, as ever, to seek early professional advice when negotiating any settlement.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
