The Recoverability Of Settlements

The High Court has recently analysed the authorities on the circumstances in which amounts paid by way of settlement to a claimant can form the basis of a claim for recovery from third parties and should be taken as the measure of damages. In a decision handed down on 27 June 2007, the Court held that:

provided that a settlement is reasonable on the facts, it can be recovered from a third party even in the absence of liability in law; however,

in the event of an unreasonable settlement on the facts, recovery will be limited to the true measure of loss.

The case (John F Hunt Demolition Limited v ASME Engineering Limited) clarifies the proper application of the principles set down in Biggin & Co Limited v Permanite Limited, and provides useful guidance both to professionals seeking to recover, from their sub-agents or other third parties, sums paid to a principal, and to liability insurers acquiring rights of subrogation from their professional insureds, on the vexed issues of what is a reasonable settlement and what sums can properly be recovered from third parties following the settlement of an underlying claim.

In the same case, the Court also considered the issues of joint names insurance and risk allocation in construction projects - to read a Law Now article on this aspect of the judgment,

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Full Article

John F Hunt Demolition Limited v ASME Engineering Limited, a recent case in the Technology and Construction Court, considered the recoverability from third parties of sums paid in settlement to a claimant. It was held that whether a settlement is reasonable will depend on the facts of each case but, if a settlement is deemed reasonable, the amount paid can, in principle, be recovered in full. Further, to demonstrate that a settlement is reasonable, it is not necessary to show that the claim settled would probably have succeeded; it is enough to show that the claim had "sufficient substance" for a settlement of it to be regarded as reasonable. On the other hand, if, on the facts, the settlement is deemed unreasonable, the settlement becomes irrelevant in the calculation of the true measure of loss.

Background

On 30 June 2002, Kier (Whitehall Place) Limited ("KW") appointed Kier Build Limited ("KB") to design and construct commercial office premises, requiring the demolition of a number of existing buildings, whilst retaining certain facades of the existing property. By a sub-contract dated 27 March 2003, KB retained John F Hunt Demolition Limited ("Hunt") to carry out demolition works. By a sub-sub-contract made in December 2002, Hunt had engaged ASME Engineering Limited ("ASME") to construct temporary supports for the existing facades of the property. On 22 April 2003, sparks from welding work being carried out by ASME set light to the facades, causing significant fire...