| Date | 27 January 1999 |
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| Judgment | The Royal Brompton Hospital -v- Hammond & Others, TCC 8 January 1999 |
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| The Issue | Measure of damages in third party proceedings following negotiated settlement of a claim. |
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| Implication |
The principle in Biggin -v- Permanite extends to issues of liability as well as of quantum. |
printIn Contract Journal of 11 November 1998 I reported the case of P&O Developments Ltd -v- The Guy's and St Thomas' National Health Service Trust. That case concerned the extent to which a sum agreed by an employer in negotiated settlement of claims from a contractor could form the proper measure of damages in a subsequent action against the professional team. The judgment involved an interpretation of the 1951 case of Biggin -v- Permanite in which it was stated that where a client can show that the settlement with its contractor is reasonable, the amount of that settlement may be taken as the correct measure of damages in the third party proceedings. Judge Bowsher had emphasised that the question was not whether the client had acted reasonably in settling the claim, but whether the settlement was a reasonable one. In other words, a client seeking to rely on a settlement figure as the proper measure of damages under the Biggin principle, would remain under an obligation to prove that its liability to the contractor was for a sum equivalent to or greater than the amount of the settlement. The settlement itself was no more than evidence which would go towards that proof, and of itself might not be conclusive. Where however a client did prove reasonableness of the settlement with its contractor,that settlement would then act as an upper limit of the measure of damages in the third party proceedings. These matters have again come before the Technology and Construction Court in the recent case of Royal Brompton Hospital -v- Hammond & Others. Between 1987 and 1990 the Royal Brompton Hospital in Chelsea underwent major building works. The judge commented that, in common with many hospital developments, this project had given rise to disputes of lamentable dimensions and cost. The main contractor, Taylor Woodrow, had commenced arbitration proceedings against the employer claiming extra payments and loss and expense for variations, delay, disruption and other matters. In the event that arbitration was settled on the basis that the employer would pay the contractor some £6 million. The settlement compromised issues of liability as well as quantum. The employer then turned its attentions towards its project managers, architects, mechanical and electrical engineers and structural engineers. It argued that these consultants had failed to exercise the skill and care which reasonably competent members of their respective professions or disciplines would exercise in the circumstances. As a consequence the employer sought to recover from those consultants the sums paid out in settlement with the contractor. The consultants attacked this case on a number of fronts. Firstly, they complained that the employer appeared to be claiming the full cost of the settlement from each consultant notwithstanding that many of the allegations in the action were directed to the acts or omissions of the individual firms. His Honour Judge Hicks QC confirmed that in principle each defendant was entitled to know how much was claimed against it, and on what basis, and accordingly the employer's pleaded case would require to be particularised in that manner. Secondly it was argued that the principle in Biggin would only apply where the third party had given an indemnity in respect of the loss or damage which had been the subject of the settlement. In the 1995 case of DSL Group Ltd -v- Unisys International, Judge Hicks had earlier concluded that the application of Biggin was not to be confined in that way. He remained of this view. Next the defendants argued that the Biggin principle was one which should be applied only to the measure of damages, and did not extend to an assumption of liability. In other words, the employer cannot recover settlement money attributed to any head of the contractor's claim without proving, on the balance of probabilities, that it was actually liable to the contractor on that claim. Judge Hicks was unhappy with this proposition. It would allow the defendants to cherry pick the claims being made against them on each and every head. A 49% chance of the contractor's success on one of its claims would leave the employer unable to recover anything in respect of the part of the settlement money attributable to that claim. Where however the employer succeeded in proving that the contractor had a valid head of claim against it, the consultants would still be able to rely on the relevant components of the settlement figure to limit the employer's entitlement. Clearly the employer must prove that the consultant's breach has caused a legal liability by the employer to the contractor. However this does not mean that that liability has to be proven afresh item by item in a subsequent action to which the contractor would not be a party. Judge Hicks held that the principle in Biggin & Permanite would extend to cases in which the settlement involved a compromise of issues of liability on the claim and counter-claim as well as of quantum. Accordingly, an employer relying upon the principle will be required to prove the legal validity of the contractor's claims against it in the context of the information it had at the time of the settlement . A full re-analysis of the individual components of that liability in the subsequent third party action will not be required.
CJ-9904
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