Court of Appeal decision underlines need for caution in settling with one or more (but not all) potential defendants

The Court of Appeal has upheld a decision striking out a misrepresentation claim on the basis that (i) the cause of action against the present defendants had been released as a result of a previous settlement with others who were jointly liable; and (ii) in any event the claim was an abuse of process: Gladman Commercial Properties v Fisher Hargreaves Proctor and others [2013] EWCA Civ 1466.

The decision has a number of practical implications where a claimant brings proceedings or concludes a settlement against one or more of a number of potential defendants:

• If the claimant wants to ensure that it does not lose the right to pursue related proceedings, the issue should be referred to the court in the first action so that the judge can consider the appropriate course in case management terms. Otherwise there is the risk that the second action may be held to be an abuse of process.  
• Any settlement needs to be carefully structured to ensure that claims against the other potential defendants are not unintentionally released. 

Background

The claimant brought proceedings against the defendant surveyors in respect of alleged misrepresentations which had induced the claimant to purchase certain properties in Nottingham. The claimant had previously relied on the same misrepresentations in defending proceedings brought by the sellers of the properties for specific performance of the sale contracts (the First Claim), alleging that the sellers were liable for those misrepresentations as they had been made by the surveyors on the sellers' behalf.

The First Claim had been settled on terms that the payment to the claimant was "in full and final settlement of all and any existing or potential claims of any nature, whether or not contemplated" that the claimant had against the sellers.

The High Court struck out the claim on grounds that:

1. The sellers and the surveyors were all joint tortfeasors so that the release in the settlement agreement was effective to release the claimant's cause of action against them all.
2. The present claim was an abuse of process because it could and should have been brought with the First Claim, or at least been made the subject of an application for case management directions in the first claim following guidelines laid down by the Court of Appeal in Aldi Stores Limited v WSP Group PLC [2008] 1 WLR 748.

Decision

 The Court of Appeal (Longmore, Ryder and Briggs LJJ) dismissed the appeal. The court referred to the established common law principle that where a tort is committed jointly, so that there is effectively a single cause of action, the release of one (or more) of the tortfeasors releases them all. There are two recognised exceptions:

• Where the claimant merely covenants not to sue one or more of the joint tortfeasors, rather than giving a release of liability.
• Where the settlement agreement contains an express or implied reservation of the claimant's right to sue the others.

Here the sellers and the surveyors were plainly joint (rather than concurrent) tortfeasors, as there was a single alleged misrepresentation. There was plainly a release, rather than a covenant not to sue, and there was no express reservation of the right to bring claims against the surveyors. The question was therefore whether such a reservation could be implied.

The Court of Appeal agreed with the trial judge that there was no basis for implying a reservation of the right to sue the surveyors. The modern approach was to apply ordinary principles of construction in seeking to determine the intention of the parties; that however referred to the imputed common intention, rather than their subjective intentions. As the judge said, the intention of the parties means no more than the meaning of the agreement, objectively ascertained, read against the relevant background.

Here the fact that the sellers and the surveyors were joint, rather than concurrent, tortfeasors was "the cardinal aspect of the contextual background" - since the established legal consequence of a release of one or more joint tortfeasor is that there is a release of all of them, but the opposite is true for concurrent tortfeasors. Therefore the absence of a covenant not to sue the surveyors had no significance; there was no need for such a covenant when the ordinary effect of the settlement with the sellers was to prohibit any claim against the surveyors as joint tortfeasors.

The court also commented that it was altogether improbable that the sellers would have settled, part way through trial in lengthy and expensive proceedings, on the basis that they would give up their claims against the claimant and pay a further £2.7 million while at the same time exposing themselves to the likelihood of contribution claims from the surveyors if proceedings could be brought against them. This supported the conclusion that no common intention to reserve the right to sue the surveyors could be presumed.

The Court of Appeal also agreed with the trial judge that the claimant's failure to raise the possibility of a further claim for case management directions in the First Claim (in accordance with the mandatory guidelines set out in the Aldi case) meant that the present claim was an abuse of process. Briggs LJ commented:

"As has been repeatedly stated, the conduct of civil proceedings is a process in which the stakeholders include not merely the parties, but also other litigants waiting for their cases to be tried, and the public at large, who have an interest in the efficient and economic conduct of litigation. ... The shocking consequence of permitting the Second Claim to continue would be that precisely the same issues would fall to be litigated at two successive trials involving the waste of between four and six working weeks of court time and, no doubt, millions of pounds of wasted costs and lost management time, quite apart from the double jeopardy faced by Mr Bishop and Mr Hargreaves to which I have referred."

That wasteful duplication could have been avoided by complying with the Aldi guidelines. The failure to do so was inexcusable, and a primary candidate for identification as an abuse.