Where one settles a legal dispute with one or more wrongdoers how might one best preserve the right to pursue others who may also be legally responsible?
There follows a Glossary of the definitions or concepts to which this Article refers.
A civil wrong which results in loss or damage: A Tort
A party who commits a tort: Tortfeasor
Two or more parties who are Tortfeasors: Joint Tortfeasors
The reported case of Gladman Commercial Properties v Fisher
Hargreaves Proctor and Others (2013): Gladman
A party who brings legal proceedings: A Claimant
The party sued by the Claimant: The Defendant
A claim by a Defendant against a Third Party for a
contribution, indemnity or some other remedy: A Third Party
(also known as a Part 20 Defendant)
The body of written case law which has been developed
over the centuries to assist Judges in deciding cases today: The Common Law
- The Common Law Rule:
Until 1978 if A claimed that they were the victim of a Tort committed by Joint Tortfeasors (i.e. persons jointly liable to A for the Tort) and A obtained either a Judgment against one or more of them or compromised their claim against say one Tortfeasor then (apart from one or two exceptions) A thereby released all other Tortfeasors who else were potentially liable.
Section 3 of the Civil Liability (Contribution) Act 1978 abolished the Rule affecting Joint Tortfeasors where a Judgment was obtained. In other words a Judgment by A against one no longer operated automatically to release all other Tortfeasors.
However the Common Law Rule (that a compromise of a Tort with one Tortfeasor relieved all others from a potential liability) still remained.
It is worthy of mention that, where there are current Tortfeasors (i.e. those liable for separate kinds of Tort) but the separate Torts occasion the same damage, then settlement of a claim against some – but not all – does not release the other Tortfeasors from liability.
- Main Exceptions to the Common Law Rule:
There are two.
- The first exception is where there is a covenant (i.e. Agreement) not to sue Joint Tortfeasors who are party to a Settlement Agreement. This leaves the door open for the Claimant to sue all remaining Tortfeasors outside the covenant: Duck v Mayey (1892).
- The second exemption occurs where a Settlement Agreement contains an express or implied reservation of the Claimant’s rights to sue other Tortfeasors.
This aspect was considered in the reported case of Watts v Aldington (1999).
When looking at whether an implied reservation might exist, the Court in Watts decided that it was essential to take full account of the factual background – and anything which might have affected the way in which the language of the Compromise Agreement would be understood by the reasonable person in the street.
- Gladman and the Common Law Rule:
The facts were these.
Gladman (G) was a Claimant property company.
It intended to acquire a disused fire station owned by the Fire Authority [FA] for £6m.
Its intention was to redevelop the site into student accommodation.
After exchange of contracts – but before completion of sale – G discovered planning problems and refused to proceed to completion.
FA and the Council (who were involved on the planning side) served G with Notices requiring them to complete. G refused to comply.
As a consequence FA issued proceedings against G. It required an Order from the Court compelling G to complete the contract for sale (this is known as an Order for Specific Performance).
G defended the claims by FA.
They alleged that G had been guilty of misrepresentation. In short it was G’s case that they had been misled into an exchange of contracts as a result of misrepresentations made by surveyors who were the agents of both G and the local council.
G counterclaimed for rescission (i.e. an Order overturning the contract for sale and enabling G to obtain a refund of their deposit). G claimed damages also.
As a result of G’s Counterclaim, the Council were also joined to the legal proceedings as Third Party.
The nub of G’s case was that they had suffered by reason of misrepresentations made by the surveyors as agents of both FA and council.
Subsequently this legal dispute between all parties (G, FA and the Council) was settled.
- The Settlement Agreement:
The Settlement Agreement between the parties stated as follows: –
“The Third Party (i.e. the Council) shall pay to the Defendant (FA) the sum of £2.7m within 7 days .. in satisfaction of all claims by the Defendant (FA) against the Claimant (GA) and the Third Party (the Council) in respect of damages interest costs .. and is in full and final settlement of all and any existing or potential claims of any nature whether or not contemplated, that the Defendant (FA) has against the other parties”.
About £1.318m of the Settlement sum was viewed as damages for alleged misrepresentation by the surveyors as agents for FA and the Council; the remainder related to G’s costs and their 10% deposit (£0.6m).
The Settlement took place in September 2011.
- Fresh Proceedings:
In May 2013 G started a fresh legal action against the surveyors FHP and Others [FHP].
This new claim was based upon the very same alleged misrepresentations asserted in the original proceedings brought against FA and the Council.
It was said that the surveyors had made fraudulent and negligent misrepresentations in order to induce G to enter into the contract of sale.
FHP applied to strike out G’s claim. They relied upon a number of grounds.
That ground apposite to this Article asserted that even if the FA and Council were concurrent Tortfeasors (alongside the FHP) nonetheless the effect of the Settlement Agreement was such as to ensure that the Claimant’s claims for loss had been fully satisfied and – accordingly – there was no room left nor scope to sue any other perceived Tortfeasors.
- The Court of Appeal’s Decision – Gladman:
The case went as far as the Court of Appeal.
The Court of Appeal decided that it was clear from the wording of the Settlement Agreement that there had been a release (as opposed to a covenant not to sue) and – as there had been no express reservation of the right to bring a further claim against the surveyors – the only way in which such a claim could now be maintained was if such a reservation had been implied.
On this point the Court of Appeal agreed with the Trial Judge in the Court below. It held that on the facts of the case there was no basis on which a reservation to sue the surveyors could be implied into the Settlement Agreement.
What appeared to have resounded in particular with the Court of Appeal was the fact that the surveyors were joint (rather than concurrent) Tortfeasors.
This was “the cardinal aspect of the contextual background” because the established legal consequence of a release of one or more Joint Torfeasors was such as to release of all of them.
The opposite is true for a concurrent Tortfeasor who remains potentially liable notwithstanding.
It follows that any Compromise Agreement of disputes involving multiple potential Joint Tortfeasors needs a prudent and a cautious approach.
If there is the intention to preserve the possible right to sue remaining Tortfeasors (not a party to the compromise) care must be taken to ensure that they are not unintentionally released.
This is achieved by one of two means: –
Either a covenant not to sue parties to the Settlement Agreement will operate to enable claims against other Tortfeasors not party thereto.
Alternatively an express or implied reservation of the right to pursue remaining Tortfeasors will be the answer.
Added force for the statements of law in paragraph 9 is to be found in the subsequent authority of Bryanston Finance Limited v de Vries (1975) where Lord Diplock stated: –
“Courts nowadays are reluctant to construe an agreement with one Tortfeasor as a release rather than a covenant not to sue him, unless it is plain that the Agreement was intended by the (Claimant) to operate also as a release of the other Joint Tortfeasors from their liability”.
Gladman fortifies the Common Law position.
Having regard to the precepts in paragraph 9, when negotiating a Settlement Agreement with one or more Joint Tortfeasors it is essential to ensure that the Claimant remains free to pursue other Joint Tortfeasors not party thereto and thus avoid the Elephant Trap of an unintentional release.