Inner House restores further claim in legal firm saga

The settlement of a claim against one wrongdoer does not bar proceedings against another for the same loss unless it is clear from the terms of the settlement that it is intended to preclude further claims, the Inner House has ruled.

Lord Justice Clerk Lady Dorrian, Lord Malcolm and Lord Turnbull gave the decision in allowing a reclaiming motion by Robert Kidd against the decision of the commercial judge, Lord Clark, to dismiss as incompetent his action against Lime Rock Management and others seeking compensation for the loss of value of his shareholding in a company, ITS.

The pursuer had sold part of his shareholding to Lime Rock, instructing the then legal firm of Paull & Williamsons. The company's performance deteriorated and it went into administration. He raised an action against Paull & Williamsons and its successor firm Burness Paull, on grounds including breach of fiduciary duty, in that unknown to him the firm also acted for Lime Rock. He claimed $210m; the action eventually settled for £19m, in full and final settlement of claims between the parties.

The present action was brought against Lime Rock and another legal firm, Ledingham Chalmers, who the pursuer averred had been brought in by Paull & Williamsons to "front" the negotiations for Lime Rock, and certain individuals. The pursuer averred that all the defenders were aware of the breach of fiduciary duty and conspired to facilitate it. The commercial judge held that the settlement precluded the action, on the basis of two House of Lords cases, Jameson v Central Electricity Generating Board (No 1) (2000) and Heaton v AXA Equity & Law Life Assurance Society (2002), holding that the claim that had been settled was for the whole amount of the loss.

Lord Malcolm, who delivered the leading opinion, said that whether settlement in an action by A against B precluded an action by A against C for an alleged balance of the loss, depended on "the terms of the agreement construed in its context and any other relevant background circumstances".

He continued: "However it is important to be clear as to what it is that the agreement must demonstrate if a plea of preclusion is to be upheld. Is it enough that the settlement is in full and final settlement of the claim made against B for the whole loss, or must the agreement indicate that the amount payable was, or is to be taken as, full compensation for the loss, injury or damage sustained by A? The legal basis for preclusion is that after the agreed sum has been paid there remains no loss to be pursued against another party. This is a pointer to the second alternative."

Although in Jameson the question had been posed as "Has the claim been satisfied?", this risked conflating the two issues. In Heaton it was emphasised that a release of one wrongdoer did not release another, "and that, in itself, an agreement between A and B will usually have no impact on A’s rights against C. That A may no longer be able to pursue B has little bearing on whether the settlement represents the full measure of A’s loss".

Lord Malcolm considered that the majority in Jameson had adopted the wrong approach, and that the commercial judge had adopted the wrong approach by following Jameson. The correct question was "did the settlement agreement, when viewed in its surrounding circumstances, indicate that the pursuer accepted £19m in full and final satisfaction of all his claims for the harm allegedly done by the deal, not only against [Paull & WIlliamsons], but against Lime Rock and the others as well?".

On the Heaton approach the agreement "tells us nothing as to whether the sum was accepted as being or representing full value", Lord Malcolm stated. He continued: "There is nothing in the agreement, nor in the relevant circumstances, nor in averment which allows one to say with any confidence that, having been paid £19m inclusive of expenses, Mr Kidd has received all that he is entitled to receive in respect of the claim; in other words that there is now no loss or damage which can found a claim against the current defenders."

Lady Dorrian and Lord Turnbull delivered concurring opinions. The action was remitted to the commercial roll for further procedure.

Click here to view the opinions.