Legal Developments In Construction Law

• Published date: 03 July 2023
• Subject Matter: Real Estate and Construction, Construction & Planning
• Law Firm: Mayer Brown
• Author: Mayer Brown

1. Settling an employer's claim; what does a main contractor have to do to recover a contribution from a subcontractor?

If a main contractor settles a claim by an employer and wants to recover a contribution from a subcontractor, what does it have to prove? Must it prove its own liability to the employer? In Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd, the court noted that case law says it does not, but that it can seek recovery by proving that:

• the employer's claim was not so weak that no reasonable party would take it sufficiently seriously to negotiate any settlement that involved making a payment;
• the settlement amount paid was reasonable, having regard to the strength of the claim, being within the range of settlements which reasonable parties in the main contractor's position might have made in all the circumstances;
• the subcontractor's breach of duty caused the loss incurred in satisfying the settlement; and
• (as will generally be the case) where a subcontractor is in breach of contract and a claim by the employer is in the parties' reasonable contemplation, the possibility of a reasonable settlement of the claim was also within the reasonable contemplation of the parties to the subcontract.

The court also noted that the Civil Liability (Contribution) Act 1978 provides a statutory basis for no longer requiring the main contractor to prove its own liability to the employer, but warned that the main contractor still has to prove the subcontractor's breach of contract.

While, however, it may be proportionate not to require a main contractor who has settled the employer's claim to provide strict proof of its liability to the employer, but only the reasonableness of its settlement, conversely, in the court's view, once a case has been pleaded and tried on the basis that such proof was required, it is not proportionate to require the matter to be reopened and proved on a different basis because of a post-trial settlement (as had happened in this case). And, while not essential to the court's decision, its view was that the case law did not, in any event, prevent a main contractor from avoiding the shortcut of seeking to prove the reasonableness of the settlement and instead seeking simply to prove its liability to the employer and then, in turn, its claim for contribution.

The judge added that, even where a contribution claim is not pursued on the basis of a settlement, it might be capped by the settlement terms in the event that the main contractor successfully mitigated its loss by settling the employer's claim at a discount. The burden of pleading and proving that the main contractor's loss was successfully mitigated, and therefore the...