Wed 26 Jan 2022

Extra-judicial settlement: A cautionary tale

This action was raised by Loretto Housing Association Ltd for damages in respect of defective work carried out at 243 Duke Street, Glasgow. The two defenders in the action, Cruden Building & Renewals Ltd and Cameron + Ross Ltd, were jointly and severally sued.

Cruden argued that there were four other parties relevant to the action in that they were, in part, also responsible for the defective work. The four other parties were competently convened as third parties to the action. Ultimately, the action against Cruden and Cameron + Ross settled before proof. Loretto accepted an undisclosed six-figure sum in settlement and decree of absolvitor was granted on behalf of both defenders. Settlement was not reached with the four other, now convened, defenders.

Subsequent to settlement, Cruden sought to recover the sums paid to Loretto from one of the aforementioned “additional” parties under the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940 (the “1940 Act”). The question for the Court then was whether one party had the right to claim a right of relief against another party under the 1940 Act after settlement.

The court came to a brief and very succinct decision in this case. Lord Braid determined that for any party to be able to seek a financial contribution from any other party, there must be a court decree issued that expressly finds that said party is liable for the claim. In this case, no party had been found liable.

The terms of the settlement agreement (or any extra judicial settlement) that was agreed between Loretto and Cruden did not meet the requirements of the 1940 Act. Accordingly, Cruden could not competently pursue any monetary contribution from any other party without that party having been found liable by the court. The court also added that a decree of absolvitor was in no way an admission of liability; in fact, it is the opposite.

Settlement is an attractive, and often preferred, route for resolving court actions between parties. Settlement can lead to fractured relationships being repaired, it can reduce the overall costs which can span across a variety of individual disputes between parties, and it is often the most commercially sensible option in terms of resolution.

However, settlement ought to be undertaken with caution. The way in which a formal court action is brought to an end by way of settlement can have long term and wide ranging consequences as shown by this case. While settlement may be the most efficient and straight forward route out of dispute, legal advice should always be taken before a binding settlement agreement is signed.

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