Paying for whose mistakes?

Have you ever wondered to what extent you can rely on an earlier settlement figure to establish the value of a claim against someone else? If you have, the case of John F Hunt Demolition v ASME Engineering has come to your rescue.

The employer was Kier (Whitehall Place), and it appointed the contractor, Kier Build, to design and construct commercial offices, including the demolition of some buildings on site. Only the facades were to remain.

The contractor appointed Hunt for the demolition work and Hunt, in turn, appointed ASME Engineering to construct a temporary steel structure to support the all-important facades during the demolition. However, those facades, which everyone had been working so hard to preserve, caught fire just as ASME was carrying out welding work to protect them. Life can be a pig.

The employer and contractor claimed jointly from Hunt. Hunt settled with them at £152,500, reassured by the warm and happy thought that it could recover the same sum from ASME.

However, at this point things got rather tricky for Hunt. ASME claimed that although Hunt was liable to the contractor, it had no legal liabilities to the employer, so Hunt should not have settled the joint claim to the extent of the employer’s share of the loss.

Certainly, Hunt had no liability in contract to the employer. Joint insurance was in place for fire damage which, by a complex but established legal principle, meant that the contractual chain of liability had effectively been broken in favour of the ability to recover through the insurance.

Tort offered nothing better as the courts are loath to imply a tortious liability in circumstances where liability has been negated by the effect of a contact. So, ASME argued, Hunt should not be trying to pass down the chain to them a loss that they should never have settled in the first place.

You might think ASME had a winning argument right there and that it could scribble out its cheque to Hunt for a relatively meagre £43,513 (the contractor’s share of the loss) and let Hunt whistle for the rest. However, Judge Peter Coulson explained that that was not necessarily the case. He was not going to be rushed into such a conclusion; there was much case law to be contemplated and legal musing to be done.

In the process he set out useful principles that might be summarised as follows.

Those facades, which everyone had been working so hard to
preserve, caught fire as ASME was carrying out welding work to protect them. Life can be a pig

• If a settlement is reasonable and not too remote, it could be taken as the measure of damages even if at the upper limit of the “reasonable range”.

• It is not necessary to prove that the settled claim would probably have succeeded, although it must be of sufficient substance to be reasonable to settle. After all, even a weak claim can be costly to defend.

• Perhaps surprisingly it might even be deemed reasonable to settle an original claim where there was no liability at all. However, the settling party would have to show the settlement was reasonably foreseeable to the third party against whom it subsequently claims.

• If, after all such analysis, the settlement is deemed unreasonable, the settlement figure becomes irrelevant to the claim.

Judge Coulson was at pains to emphasise that, although it was possible to utter such principles, the outcome in each case must be decided on the facts.

In this particular case he found that there was no liability owed by Hunt to the employer and there was insufficient substance to the claim to justify its settlement. Therefore, the maximum value of Hunt’s claim against its subcontractor, ASME was the contractor’s loss of £43,513.

The case has yet to be heard in full, this matter having been addressed as a preliminary issue. However, I would imagine that at this point Hunt is feeling rather green around the gills.

There is a lesson here. If you possibly can, bring into negotiations at an early stage any party from whom you hope to recover payment in respect of your settlement, so that you hear their angle. A simultaneous commitment would be ideal. Nasty surprises should be confined to the unavoidable.