Steven Smart: The second order effects of settlements

Steven Smart: The second order effects of settlements

Steven Smart

Particular complications can arise in claims involving multiple parties, not least when some of those involved wish to reach a settlement but others do not. Three recently issued judgments have highlighted some of the pitfalls to be avoided.

In Loretto Housing Association Ltd v Cruden Buildings and Renewals Ltd and Others, a defender in an action for damages arising from allegedly defective construction works introduced other contractors whom they considered were ultimately responsible if the claim was proved. The defender eventually agreed settlement with the pursuer to end the dispute between them, intending to continue the action against the contractors to recover the sum paid.

The defender obtained decree of absolvitor as part of the settlement, a judgment the effect of which is to find that it had no legal liability to the pursuer. This proved to be fatal to seeking recovery from the other contractors. Whether recording a determination by the court or the terms of a settlement agreed, a judgment establishing the liability must be obtained to then pursue recovery from others.

Ward v Morrison Supermarkets and Another involved a common scenario in which the pursuer advanced the same claims of fault and sought identical damages from two defenders following an accident. At a settlement meeting, the pursuer reached agreement with the first defender only. He wished to continue with the action against the second defender, who argued the settlement agreed concluded the entire action.

It was held the action had been settled in full and the second defender could no longer be pursued. There was no qualification in the settlement reached concerning the second defender. The first defender had agreed to pay the entire legal costs of the action, not those incurred solely insofar as the case was directed against them. This was thought to be particularly relevant as the pursuer put forward proposals at the meeting to allow the second defender to be released from the action. while the sum agreed was not the full value claimed, the court should not speculate on what that full value was to decide whether there might be further damages to be recovered from the other defender.

The Inner House of the Court of Session had to consider similar issues in Kidd v Lime Rock Management LLP and Others. the question to be determined was whether settlement of an earlier action against another party prevents a pursuer raising a separate action against other defenders. The judge who heard the case originally held that it should, applying a similar approach to that adopted in Ward.

However, the appellate court overturned his decision. it held that each case falls to be determined by the specific terms and context of any settlement agreed. The key question is whether a full and final settlement was reached in respect of the full claim against a specific party, or whether any sum paid was, or is to be taken as, full compensation of the damages the pursuer is entitled to. It is only the latter scenario that precludes someone from seeking further damages from others. Importantly, it was held that there was no need for a pursuer reaching agreement with one party to expressly reserve their right to seek damages from another.

There are many valid reasons in claims involving a number of participants why specific parties may agree to compromise. The clear thread from the decisions summarised above is that if one of those parties wishes to seek further damages, relief or a contribution from others thereafter, it is essential that attention is paid to the detail of any agreement reached and necessary steps are taken top reserve the right to do so.

The economic benefits and convenience of resolving one issue may be outweighed by the inability to recover sums due otherwise. 

Steven Smart is a partner at Horwich Farrelly

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