| Date | 12 September 2007 |
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| Judgment | John F Hunt Demolition Limited – v – ASME Engineering Limited, TCC 27 June 2007 |
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| The Issue | Whether sums paid out in settlements are recoverable as damages. |
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| Implication |
Provided that a claim has sufficient substance that its settlement is reasonable, then sums paid out in settlement are recoverable as damages. |
printIt is not uncommon on construction contracts for one party to be facing a claim for damages when, at the same time, it is making a similar claim arising out of the same incident against another party. Typically this situation might arise where delays on a project lead to the main contractor facing a claim for liquidated damages in respect of a delay caused by one of its subcontractors, which it will be looking to recover from that subcontractor. Matters are rarely clear cut, and whilst the main contractor may settle the claim made by the employer, the subcontractor may seek to argue that the settlement was made at an inflated figure or that it should not have been made at all. For example, it might argue that had the main contractor argued its position more forcefully, then it would have been able to establish an entitlement to an extension of time. This more forceful pursuit of its position can be seen as a form of mitigation (i.e. reducing the level of damages incurred), and might potentially involve litigation or arbitration, both as regards liability and quantum. As a general principle, the English legal system encourages settlements, preferring the parties to resolve their differences between themselves rather than relying upon a judge to do so. Reflecting this general principle, rules of law have been developed that permit settlements to be recovered in the face of arguments that the original claim ought to have been more strongly contested, or even litigated, in order to precisely determine liability. The principle that it was not necessary to litigate in order to mitigate was first established in the case of Biggin – v – Permanite [1951] where Biggin sold defective adhesive to the Dutch government, settled the resultant claim and then sought to recover that settlement from Permanite who had supplied the defective adhesive to it. The Court of Appeal concluded that provided the settlement was reasonable, and even if it was at the upper limit of what might be considered to be reasonable, then it was relevant as a measure of the damages suffered by Biggin. This principle was recently considered by the TCC in the case of John F Hunt Demolition – v – ASME Engineering where the judge was invited to assume certain facts in considering a preliminary issue in order to establish certain legal principles. The actual facts may yet be the subject of a full trial. The assumed facts upon which the judgement was based included that Kier (Whitehall) was a developer who engaged Kier Building to construct a new development in Whitehall. In turn, Kier Building engaged Hunt as its demolition contractor who then hired ASME to construct a steel frame to support a retained façade. Whilst ASME was cutting steelwork on site it started a fire which caused damage. The two Kier companies made a claim for about £250,000 against Hunt, which was settled by Hunt for about £150,000. About £110,000 of this figure related to losses suffered by Kier (Whitehall), and the remainder (about £40,000) concerned losses suffered by Kier Building. When Hunt tried to claim the full amount of the settlement from ASME, ASME contended that because of the provisions of the particular JCT form of contract used on the project Hunt had no liability whatsoever to Kier Whitehall. This contention gave rise to the first batch of preliminary issues considered by the judge, who concluded that ASME’s position was correct. This aspect of the judgement was considered by John Dowse’s article on 29 August 2007. What then, was the relevance of the settlement between Hunt and the Kier companies to the dispute between Hunt and ASME? In reviewing the authorities the judge noted that it was not necessary to establish that a liability actually existed in respect of the settlement made, provided that it could be demonstrated that the settlement was reasonable in all the circumstances. Sometimes the costs and uncertainty associated with litigation meant that it may be reasonable to settle even a weak claim, provided it has “sufficient substance for the settlement of it to be regarded as reasonable”. In the light of this the judge held that it was not necessary, as a rule of law, for one party to be able to prove its liability to another before it could recover the sums paid out in damages, provided the settlement made was reasonable in all the circumstances. Whether the particular settlement reached between Hunt and the Kier companies was reasonable would depend upon all of the facts and the simple fact that Hunt did not actually have any liability to Kier (Whitehall) did not automatically render the settlement unreasonable. The reasonableness (or otherwise) of the settlement would only be determined in any subsequent trial and the judge was not willing to say, on the basis of the assumed facts, that the settlement made was unreasonable and hence irrecoverable. If however the settlement made was unreasonable then Hunt could only recover its actual losses flowing from ASME’s breach, which in this case were limited to the approximately £40,000 that was attributed to the losses suffered by Kier Building. This decision therefore upholds and clarifies a long succession of cases concerning settlements, maintaining the principle that it is not necessary to litigate to mitigate, provided that the settlement made was reasonable in all the circumstances.
CJ-0736
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