Wrong first time

Success in a third-party recovery action may hinge on your legal team getting it right in the original action, as a recent case makes clear.

Plaintiffs are always free to choose whom they sue in cases where more than one party is to blame for loss or injury. The person sued can then attempt to make the other parties pay their share. This is a curious feature of joint and several liability. Linked to it is the Civil liability (Contribution) Act 1978, by which a contribution or indemnity against a claim for loss or damage can be sought.
This has recently been a popular legal issue before the courts in the construction arena.

From whom may a contribution be claimed? Section 1(i) of the act states that a contribution is recoverable from any person liable in respect of the same damage as the party seeking the contribution. The issue of "liability in respect of the same damage" has concerned a number of recent construction decisions. In Friends Provident Life Office v Hillier Parker, the Court of Appeal drew attention to the broad formulation of the act, which catches diverse claim scenarios.

In Birse Construction v Haiste and Newton, the court held that it should be construed as it stood, directly and simply. Thus "the same damage" can only refer to the damage suffered by the same person.

In J Sainsbury v Broadway Malyan & Ernest Green Partnership, Judge Humphrey Lloyd QC dealt with a case arising out of third-party proceedings brought by architect Broadway against Ernest Green concerning the design of retail premises for Sainsbury. Sainsbury had sued Broadway following a fire at a store. It alleged that the fire brigade could have contained the fire but for a design defect in a compartment wall. Sainsbury claimed the cost of reinstatement of the building. Curiously, Broadway did not challenge Sainsbury's assessment of its loss.
Broadway accepted it was in breach on what was essentially a loss-of-chance argument. Broadway brought a third-party action against Ernest Green on the basis that it was liable to contribute 50%.

Ernest Green strongly disputed the reasonableness of the settlement on the ground that Sainsbury's claim hinged on loss of chance to contain the fire, and should be discounted to reflect the chance the fire might not have been held in check.
The Official Referee found Ernest Green not liable. He held that the act did not prevent the court from considering the proper basis on which damages would have been assessed if the matter had been tried. Although the act states that the person who makes a settlement is entitled to recover a just and equitable contribution, this did not prevent argument as to whether the damages were reasonable.

In assessing contribution, the party liable to contribute should not be required to pay compensation for elements for which he could not have been held liable had he been sued directly. The judge ruled that the Sainsbury case was for loss of chance and depended on the hypothetical actions of the fire brigade: could they have put out the fire had the wall been competently designed? In the court's view that was not enough to make Ernest Green liable. The fact Broadway did not make this point did not mean Ernest Green was deprived of it.

The Sainsbury case has cast light on the intention of the act. The courts have settled the meaning of "the same damage" and considered causation and quantification of loss in connection with loss of chance where there is a claim for a contribution. The decision recognises a right of challenge based on causation or quantification arguments. It demonstrates that, although it is not necessary to prove that the settlement would have been the outcome had the matter been tried, the parties must be alert to issues affecting quantum or causation that might deprive them of a contribution remedy.

Those involved in closing a settlement and seeking a contribution will need to look over their shoulders rather carefully.