Settlement Amounts.

The issue examined by Coulson J in John F Hunt Demolition Limited v ASME Engineering Limited [2007] EWHC 1507 (TCC) was whether a settlement amount at one level of a chain of contracts is recoverable as the measure of damages further down the chain.

The work was the construction of a building which required the demolition of the existing building. The Owner was Kier Whitehall. The contractor Kier Build sub-contracted the demolition to Hunt who in turn sub-sub-contracted to ASME the construction of a temporary steel structure to support the existing facades of the property during the course of the demolition works.

Sparks from ASME’s welding work set light to the bitumen felt weather-proofing on the retained facades. The facades caught fire and it took more than 45 minutes for the fire to be extinguished.

Hunt and the Kier companies settled the Kier’s claims at £152,500. Hunt then sought to recover that amount from ASME for the breach of contract by ASME. For the purposes of the issue before Coulson J it was assumed that the fire was due to ASME's culpable default.

The principle is that it is not necessary to prove that the claim settled would probably have succeeded, in this case the claims by the Kier companies against Hunt. It is enough to establish that the claim had sufficient substance for the settlement of it to be regarded as reasonable. A claim will usually have to be so weak as to be obviously hopeless before it could be said that the settlement of the claim was unreasonable. Even though later investigation of the underlying facts demonstrates that there was no liability at all, the settlement of the claim may still be considered to be reasonable.

It was held that if on the facts the amount paid by Hunt to the Kier companies was an unreasonable settlement then, prima facie, it was not recoverable against ASME.

What This Means

In many situations it will make little commercial sense to prove each and every claim to the detail required in formal dispute resolution process and settlements will be made on few details. Even claims which appear to be intrinsically weak will be settled to avoid the uncertainties and expenses of litigation.

A breach of contract will not be considered to have caused the loss incurred in satisfying the settlement of a claim, unless the claim was of sufficient strength reasonably to justify a settlement. The amount paid in settlement must be reasonable having regard to the strength of the claim. On the other hand, the settlement of an intrinsically weak claim in order to avoid the uncertainties and expenses of litigation may still be reasonable.

The best course therefore is to record the evidence necessary to establish that the settlement was reasonable. This may include an evaluation by a quantity surveyor, and indeed that was the approach taken in the above case. This should sensibly include an opinion from a lawyer on the issue of liability and particularly the prospects of success in any formal dispute resolution process. The opinion should include advise on the appropriate level of settlement.