Court of Appeal finds settlement with contract breaker did not release claims against others who induced the breach

The Court of Appeal has held that a claimant's previous settlement with a contract breaker did not discharge his claims against the present defendants for inducing the breach of contract: Anthony McGill v Sports & Entertainment Media Group & 8 Ors [2016] EWCA Civ 1063.

This case provides helpful guidance on when a settlement with one defendant will also discharge claims against other defendants. It suggests that, where the causes of action against the different defendants are separate (ie there is no joint liability), a court will not lightly conclude that settlement with one will discharge the others – unless it is clear that the effect of the first settlement was to extinguish the claimant's loss.

However, claimants who wish to settle with only one (or some) of a number of potential defendants should tread carefully, including because the position will differ where the defendants are jointly liable (see for example this blog post) – a distinction which may not be clear in all cases. Any such settlement should be carefully structured to ensure other potential claims are not unintentionally released, for example by including an express reservation of the right to pursue other defendants.

A clear statement as to why the claimant is prepared to accept the settlement amount may also be of assistance, given the Court of Appeal's suggestion that the claimant's motivation in settling may be relevant in determining whether it should be taken to represent the full measure of the claimant's loss.

James Leadill, an associate in our dispute resolution team, considers the decision further below.

Factual background

The background to this case is more fully set out in our previous blog post, which looks at other aspects of the decision (concerning the circumstances in which a party can be awarded damages on a "loss of a chance" basis).

By way of summary, in November 2007 the claimant brought a claim against former professional football player Gavin McCann (the "Player") for breach of an oral contract appointing him as the Player's exclusive agent for the negotiation of a new contract. The claimant claimed damages in the region of £300,000. This claim was settled on the first day of trial, with the Player agreeing to pay the claimant £50,000 in full and final settlement of all claims arising out of the matters set out in the statements of case in the action, including any outstanding orders as to costs. The claimant was willing to settle on this basis, even though his own legal costs were (he said) around £155,000.

In July 2012, the claimant brought claims against the present defendants alleging that they had induced the Player's breach of contract. The High Court dismissed the claims for a variety of reasons. Although it was not necessary to his decision, the judge considered and rejected the defendants' argument that any liability they owed had been discharged by the claimant's settlement with the Player.

The claimant appealed the decision dismissing his claims, as set out in our previous blog post (see link above). The defendants asked the Court of Appeal to uphold the judge's order on a number of grounds, including that the settlement discharged any liability they owed to the claimant.

Legal background

The law on whether a settlement with one defendant has the effect of releasing others from liability differs depending on whether there is a single and indivisible cause of action (as with joint tortfeasors or contract breakers) or the causes of action are separate (as with concurrent tortfeasors or successive contract breakers – ie where there are separate torts, or breaches of contract, but they cause or contribute to the same damage).

Where there is a single cause of action, the starting point is that a release of one defendant will release all (subject to certain exceptions). Where there are separate causes of action, however, there is no such principle of law; the question is whether the effect of the first settlement is that the claimant has no remaining loss, so that a claim for damages against the other defendants cannot succeed.

The two leading cases on the effect of a settlement as against concurrent tortfeasors or successive contract breakers (ie separate causes of action causing the same damage) are the decisions of the House of Lords in Heaton v Axa Equity and Law Life Assurance Society Plc [2002] UKHL 15 and Jameson v Central Electricity Generating Board (No.1) [2000] 1 A.C. 455.

Jameson concerned whether a settlement agreement entered into with the claimant's former employer (for negligent exposure to asbestos causing malignant mesothelioma) had also discharged the defendant's liability (for separate negligent exposure to asbestos). The settlement agreement was expressed to be "in full and final settlement and satisfaction of all causes of action in respect of which [Jameson] claims in the statement of claim". It was found that the terms of the settlement extinguished his claim against the defendant.

Giving the leading speech for the majority, Lord Hope stipulated that the test was "not whether the plaintiff has received the full value of his claim but whether the sum which he has received in settlement of it was intended to be in full satisfaction of the tort". Lord Hope clarified that this was an objective test.

Heaton established that the same principle applies to successive contract breakers as to concurrent tortfeasors. The true question is whether, by settling the earlier action, the claimant has fixed the full measure of his loss, so that he has no remaining loss to recover from anybody else. The answer to that question depends on the proper construction of the compromise agreement, placed in its factual and legal context.

Decision

Having found (contrary to the High Court's conclusion) that the claimant was entitled to damages on a "loss of a chance" basis, the Court of Appeal went on to agree with the trial judge's view that the settlement with the Player did not discharge the defendants' liability to the claimant.

Commenting that he had not found it an easy question, Henderson J (with whom Lloyd Jones LJ agreed) said he had concluded that it would be unfair and unjust to the claimant to hold that his settlement with the Player precluded him from pursuing the present action. In principle, the claimant had two quite separate types of claim arising from the breach of contract: first, a claim for breach of contract against the Player; and, secondly, claims for inducing the breach of contract and conspiracy against the present defendants. It would be unfortunate if, by pursuing those claims sequentially, the claimant were to expose himself to the risk of finding his second claim barred "unless it was absolutely clear that, by reaching a settlement with the contract breaker, he has left himself with no remaining loss to recover".

Here, the court said, it would be wrong to conclude that there was no remaining loss, despite the substantial identity of the loss claimed in the two actions and the comprehensive terms of the settlement. As Henderson J said, "The claims in tort against the [defendants] are of such a different character from the claim in contract against the Player that clear language would in my view have been needed if, by settling with the Player, [the claimant] were to be taken to have also satisfied his claim against the [defendants]".

Although it was not essential to the court's conclusion, Henderson J also expressed the view that the claimant's motivation in agreeing to accept a settlement sum representing less than the full measure of his estimated loss – namely that (as the judge found) he saw the present defendants as the real perpetrators and agreed to take £50,000 to leave the Player alone – was also relevant. Although subjective considerations of this nature did not sit easily with the essentially objective nature of the question posed by Jameson and Heaton, the court could not sensibly form a view on whether the sum accepted in settlement represented the full measure of the claimant's loss without knowing why the claimant entered into the settlement.