Recovery of loss following settlement agreements

In 1997, Bovis Lend Lease entered into a heavily amended JCT 1981 With Contractor's Design form of contract with a company called Braehead Glasgow Limited for the construction of a large shopping and leisure centre in Glasgow. The contract sum was in excess of £184m.
The performance of this contract gave rise to wide-ranging disputes between Braehead and Bovis. Bovis claimed loss and damages of approximately £37m and Braehead counterclaimed for overpayment, delay damages and defective works of approximately £65m.
These proceedings were eventually compromised between the parties by a settlement agreement made in January 2002. This was a global settlement under which all the claims and counterclaims in the proceedings were comprom-ised on terms that Braehead would pay £15m to Bovis and the parties would enter into a potential construction contract in relation to another development.
Although the contract had been based on the JCT 1981 form, in reality Bovis had acted more in the manner of a management contractor for the project. The works were subdivided into works packages entered into by Bovis, and the payments that Bovis received under the main contract were in part determined on the amounts payable to each works contractor.
One of those packages was for fire protection work, and a company called Baris UK had been appointed by Bovis to undertake this particular work. However, Bovis had progressively removed parts of this work from Baris and had appointed a second company, RD Fire, to complete the fire protection works. In the event, Baris carried out approximately 90% of the fire protection works and RD Fire approximately 10%, but RD Fire had provided Bovis with a warranty in respect of all the fire protection works.
The counterclaims that Braehead had raised against Bovis included complaints that the fire protection works were defective or incomplete. That counterclaim was quantified at approximately £4.8m, a sum that was made up of costs that were mainly those described as being reasonably necessary to remedy the alleged defects.
Unsurprisingly, Bovis had joined RD Fire as a defendant to the Braehead counterclaim, essentially claiming an indemnity for any loss or damages it might incur as a result of Braehead's allegations of defective or incomplete fire protection works.
Having made its settlement agreement with Braehead, Bovis continued its outstanding claims against RD Fire and certain other third-party defendants. Bovis argued that its settlement should essentially have no direct bearing on the case against RD Fire. It elected not to produce any evidence of the circumstances of the settlement, of negotiations leading up to the settlement, or of the make-up or contents of the settlement.
RD Fire argued on the contrary that the settlement with Braehead was of critical importance and that it had the effect of extinguishing the entirety of Bovis's claim against it. His Honour Judge Thornton QC was therefore asked to try a series of preliminary issues as to whether the settlement extinguished Bovis's claim or was relevant to that claim.
Judge Thornton recalled the 1951 case of Biggin & Co -v- Permanite and made certain conclusions that could be deduced from that case. First, he noted that a defendant such as RD Fire was to be taken to have foreseen that a consequence of its breach of contract would be that Bovis might be liable to third parties, such as the employer, and that that liability might give rise to litigation and settlement under which Bovis would incur financial loss.
Second, where a settlement had occurred in respect of such a third-party claim, the relevant component of that settlement would be taken as the upper limit of what would be recoverable from RD Fire.
Third, Bovis would, in principle, be able to recover the sum paid in settlement if it could establish that the settlement was reasonable and that it was reasonable to settle. To the extent that the settlement was unreasonable it would be irrecoverable since the loss would not be caused by the defendant's breach.
And finally, Bovis would be required to establish by normal methods of proof that RD Fire was in breach of contract and that the breach caused the claims being made.
Judge Thornton noted that, had the Biggin principles merely been rules of evidence, they could be disregarded by Bovis and it would then have been for RD Fire, if it wished to contend that a ceiling had been placed on Bovis's possible recovery by the settlement, to have established what that ceiling was.
However, Judge Thornton was clear that the Biggin principles were also rules that governed and affected causation and remoteness of damage in settlement cases. As such, they vitally shaped the loss that the law allowed Bovis to recover. These rules imposed a burden on Bovis to establish what, if any, financial detriment occurred as a result of the settlement.
Bovis had not sought to present any evidence as to the circumstances and breakdown of its settlement with Braehead. That being so, Bovis could not establish any relevant loss that was attributable to the alleged breaches of contract by RD Fire. The burden was on Bovis to establish that relevant loss and Bovis was not entitled to ignore or bypass the settlement agreement in discharging that burden.