Settlements between A&B without joining C - A False Economy

Lessons learned form the case of John F Hunt Demolition Ltd v ASME Engineering Ltd [2007]

In 2002 a company called Kier Limited acquired buildings in need of restoration in London’s Whitehall Place.

Kier Limited then engaged the services of Kier Build Limited (“KBL”), to design and construct office space within those buildings.

KBL was instructed to demolish much of the existing buildings while retaining their original facades. It sub-contracted this work to John F Hunt Limited (“Hunt”) in March 03, which then sub-sub-contracted the supporting of the facades to ASME. This sub-sub-contract was evidenced only by correspondences between Hunt and ASME. No reference was made to the JCT contracts which were agreed in the rest of the contractual chain.

On Tuesday 22nd April 2003 there was a fire in SW1. Sparks from the welding of steel constructions by ASME had set light to its bitumen weather-proofing.

The Kier companies issued proceedings against Hunt for damages in the sum of £248,145.04.

Hunt worked with ASME and jointly engaged a quantity surveyor to assess the value of the claim. This valuation came in at £152,545.

In 2006 Hunt offered to settle with the Kier companies for £152,500. This offer was accepted.

Hunt sought reimbursement from ASME. This was not forthcoming so Hunt issued proceedings against ASME for the full amount.

Approximately two thirds of the settlement figure represented losses suffered by Kier Limited, with one third representing losses sustained by KBL. The Court looked at the extent of ASME’s liability as a preliminary issue.

It was accepted that KBL had no liability to Kier Ltd for its losses under the main contract. This was due to the indemnity and insurance provisions. The maximum that KBL could recover from Hunt under its sub-contract was KBL’s losses (approximately one third of the settlement).

ASME argued that it was unreasonable for Hunt to have settled more than this one third of the total damages for which it had liability, and on this basis denied that it had any liability to Hunt over and above that one third.

The question therefore was whether or not Hunt owed a duty of care to Kier Ltd in respect of the damage. The Court had to consider the relationship between contractual terms and the existence (or otherwise) of duties of care at common law. It summarised its findings on these as follows:

Where, the damage consists of physical damage to property, the starting point is that if foreseeable, there will be a duty of care.
If the contractual provisions negate the existence of this duty, then there will be no such duty. Whether or not the sub-contractor owed the employer a duty of care at common law must turn on the precise terms of the main and sub-contracts.

Following detailed analysis of the contractual terms, Coulson J ascertained that Hunt owed no duty of care to Kier Ltd and that its maximum liability was the one third of the settlement which represented KBM’s losses.

He then looked at the question of whether the settlement was reasonable in the circumstances. He found that if there was no duty of care owed by Hunt to Kier Ltd, then the settlement was unreasonable, and the maximum value of the original claim against Hunt and the current claim against ASME was £43, 512.88. He went on to say that Hunt’s claim against ASME would be for those sums for which they were liable to KBM, and that their liability should not be increased by negotiations in which they did not participate.

Coulson J then concluded that;

‘A sum paid by A to B pursuant to an unreasonable settlement is, prima facie, not recoverable against C, and, in such an eventuality as in the present case, the maximum value of Hunt’s claim against ASME would be £43,512.88.’

This meant that Hunt was down £108,987.12, with no ability to recover that amount from the party who caused the damage.

The words of Coulson J should be etched in the minds of anyone who could find themselves in the position of Hunt. While it may be tempting not to join additional parties, and to settle a case as quickly and cheaply as possible, this may prove to be a very false economy.

If you are sued and you think another may be responsible, you should ensure that that party is brought into the proceedings as soon as possible.

If you would like to discuss any of the issues raised in this article, please contact Barbara Creed, Associate Solicitor, Dispute Resolution, on Belfast 028 9055 3300 or by email, barbara.creed@tughans.com.

The content of this article is provided for information purposes only and does not constitute legal or other advice.