Court of Appeal decision reiterates need for care when settling with one of a number of defendants

The Court of Appeal has held that a claimant who settled a conspiracy claim against one defendant by recording the terms in a consent order, which was satisfied, could not continue its claim against another defendant who was liable for the same damage. However, the settlement did not prevent the claimant pursuing claims against the other defendant in relation to separate losses or for remedies other than damages, such as injunctive relief: Vanden Recycling Limited v Kras Recycling BV [2017] EWCA Civ 354

The decision underlines that where a claimant settles a claim against only one or more of multiple defendants the settlement needs to be carefully structured. In particular, where the terms of settlement are recorded in a consent order, this is likely to be treated as a judgment by consent which fixes the full amount of the claimant's loss, whether or not that was the parties' intention. Where such a judgment has been satisfied, this will prevent the claimant from pursuing other defendants who are liable for the same damage.

If the claimant wishes to preserve its right to sue other defendants who are liable for the same loss, the settlement terms should not be recorded in the body of a consent order. Instead the parties should enter into a freestanding settlement agreement, or alternatively a Tomlin order – ie a consent order staying the proceedings on agreed terms and granting the parties permission to apply to the court for the purpose of enforcing those terms, which are set out in a schedule or separate agreement referred to in the order. The agreement should expressly reserve the claimant's right to sue the other defendants, which will be particularly important where the liability is joint (see this blog post for further detail).

Gary Horlock, an associate in our dispute resolution team, considers the decision further below.

Background

The claimant brought proceedings against three defendants in respect of allegations that: (a) the first defendant, who was an employee of the claimant, was providing confidential and commercially sensitive information to the other defendants; and (b) all three defendants had conspired to divert business away from the claimant and set up the first defendant in a competing business.

The claimant settled with the first and second defendants, and consent orders were made in relation to both claims. The consent order with the first defendant recorded that the first defendant admitted all the allegations of misconduct against her and provided for judgment to be entered against her for damages to be assessed. The consent order with the second defendant provided that the second defendant would pay £275,000 in full and final settlement of the claims made against it (for inducing breach of contract, breach of confidence and conspiracy) and that the proceedings would be stayed save for the purposes of enforcing compliance with the terms of settlement, as set out in the order.

The third defendant then applied for the claims against it to be struck out on a number of grounds, including that the consent order with the second defendant amounted to a judgment by consent which fixed the measure of the claimant's loss, and satisfaction of that judgment extinguished the claimants' claims.

The first instance judge, Cox J, granted the application and struck out all of the claims against the third defendant. .

The claimant appealed to the Court of Appeal.

Decision

The Court of Appeal (Black and Hamblen LJJ) allowed the appeal in part. The central issue for the court was the interpretation of the consent order between the claimant and the second defendant.

Did the consent order prevent the claimant from pursuing claims against the third defendant?

The court noted that it is clear that satisfaction of a judgment against one defendant ordinarily bars claims against other tortfeasors who are liable for the same damage. On the other hand, satisfaction of a settlement agreement will only have this effect if, on the proper interpretation of the agreement, the sum agreed and paid was intended to fix the full measure of the claimant's loss (Heaton v Axa Equity & Law Life Assurance Society plc [2002] UKHL 15).  

The Court of Appeal agreed with the judge that the consent order with the second defendant should be treated as a satisfied judgment for these purposes rather than a settlement agreement.

The consent order was expressed in similar to terms to a Tomlin order in that it referred to the second defendant being required to pay sums "in full and final settlement of the Claimant's claims" and purported to stay the proceedings "except for the purpose of enforcing and carrying out the terms of the settlement".

However, in substance, the consent order was not a Tomlin order. It was not staying the proceedings to give effect to a contractual settlement agreement, but instead ordered the second defendant to pay a specified sum in respect of the claimant's claims. It had the same effect as an order that would be made following a judgment.

In these circumstances the consent order was a bar to claims against the third defendant for the same damage. It was not necessary to consider whether the sum agreed was intended to fix the full measure of the claimant's loss. That was its effect regardless of what was intended.

Which claims did the consent order prevent the claimant from pursuing?

The claimant claimed various forms of injunctive relief against the third defendant, eg for delivery up of the confidential information, and it was accepted that these claims could not be barred by satisfaction of a damages claim. The third defendant argued that the injunctions sought would be of no practical utility in light of undertakings that the third defendant had already provided but the Court of Appeal did not consider this a sufficient reason for summarily dismissing the claim for injunctive relief.

As regards the claims for damages, the claimant was prevented from pursuing the conspiracy claim against the third defendant but it was not prevented from pursuing the claims for inducing breach of contract and breach of confidence. 

The conspiracy claim related to a single conspiracy causing the same damage. In contrast, the claims for inducing breach of contract and breach of confidence were made individually against the second and third defendants and the claimants provided separate particulars for each breach. The losses occasioned by these claims were not necessarily the same and did not necessarily fall within the alleged conspiracy.