Court of Appeal warns claimants to tread carefully when faced with multiple tortfeasors

In Gladman Commercial Properties, the Court of Appeal has upheld a High Court decision to strike out a second claim, brought against joint tortfeasors who were not parties to an earlier claim which had been compromised by a settlement agreement.

The first claim

The underlying dispute centred on a contract for the sale of a disused fire station owned by Nottingham Fire Authority and adjoining land owned by Nottingham City Council (the 'Sellers'). The Sellers jointly retained two firms of surveyors (the respondents in the Court of Appeal) to market the properties together.

In August 2006 the surveyors wrote to Gladman Commercial Properties ('Gladman'), identifying the site of the properties as being most appropriately used for the provision of keyworker/student accommodation. Gladman claimed that these letters induced it to bid for and purchase the properties. On 19 September 2007 Gladman entered into contracts to buy the two properties at a total price of £6 million and paid a 10% deposit.

Subsequently, having discovered that there were planning problems with the proposed redevelopment, Gladman declined to complete either contract. Notices to complete were served on Gladman in January 2009, and a claim for specific performance was brought by one of the Sellers in May 2009.  Gladman counterclaimed, seeking rescission of the contracts and damages on the basis that the surveyors' letters of August 2006 contained fraudulent misrepresentations. The other Seller, but neither of the surveyors, was then joined to the action as a Part 20 defendant.

The hearing was subject to a series of adjournments to allow the parties to negotiate.  A settlement agreement was entered into under which the Sellers made a net payment to Gladman of £2.1 million.  A Tomlin order annexing the settlement agreement was made on 5 October 2011.

The second claim and application for strike out

In May 2012, Gladman brought a second claim, this time against the surveyor firms and the partners at those firms responsible for marketing the properties.  The surveyors applied for the claim be struck out, on the grounds that:

1. because the surveyors were joint tortfeasors with the Sellers, the settlement agreement released Gladman's cause of action against all of them;
2. even if the surveyors were concurrent, rather than joint, tortfeasors, by the settlement agreement Gladman had received full satisfaction for all its loss;
3. the second claim was an abuse of process, because it should have been brought with the first claim, or at least made the subject of case management directions, pursuant to the guidelines in Aldi Stores Limited[1]; and
4. having regard to the sum paid to Gladman in settlement, it could not plead (or had failed to plead) an intelligible case with a real prospect of success that it had suffered any greater loss.

The judge decided that had the parties been concurrent rather than joint tortfeasors, the surveyors would have failed on ground (2).  The surveyors otherwise succeeded with their application, which was then appealed by Gladman to the Court of Appeal.  Following a concession by Gladman that the surveyors were joint tortfeasors, ground (2) was not considered further on appeal.

Court of Appeal decision

The Court of Appeal considered the common law rule to be that, subject to certain exceptions, where a claimant was a victim of a single tort by joint tortfeasors, if the claimant enters into a settlement agreement releasing one tortfeasor from liability, he thereby so releases the others.

The two exceptions, which the Court drew from earlier authorities, were where:

• the claimant merely covenants with one party not to sue, but leaves the cause of action intact; or
• the settlement agreement contains an express or implied reservation of the claimant's right to sue the other tortfeasors.

The surveyors were "plainly" joint rather than concurrent tortfeasors with the Sellers. Crucially, there was a single alleged misrepresentation, i.e. that made by the surveyors in the August 2006 letters. The settlement agreement was in the form of a release rather than a covenant not to sue, and there was no express reservation of Gladman's right to sue the surveyors.

It therefore fell to the Court to consider whether such a reservation could be implied. In doing so, the Court applied ordinary principles of construction to the settlement agreement, and sought to determine the parties' imputed common intention. Given the "established legal consequence" outlined above, it was of no significance that the Sellers did not seek to protect themselves from being sued for contribution by the surveyors; there was no need for the Sellers to do so.

The settlement had been reached "at the end of lengthy and extremely expensive litigation".  For the reservation of a right to sue the surveyors to be implied, the Sellers would be "giving up a specific performance claim worth £6 million less the value of the Properties, paying a further £2.7 million and nonetheless … [be] exposing themselves to the likelihood of contribution claims from the [surveyors]".  This was an "altogether improbable hypothesis", so the High Court's decision was upheld on ground (1).

In relation to ground (3) the Court of Appeal considered whether the claim represented an abuse of process under the principles in Henderson[2], as amplified by the Aldi Stores case.  Following Henderson, a claimant who wishes to preserve the opportunity to bring further claims against the same or other parties should apply for directions at the earliest opportunity in the existing proceedings.  Despite having material sufficient to advance a claim against the surveyors in October 2010 it was only in March 2011, just before trial, that Gladman had first intimated a claim against the surveyors.

The Court of Appeal said that to permit the second claim to continue would mean the "shocking consequence" that "precisely the same issues would fall to be litigated at two successive trials", with the consequent waste of time and costs, and the double jeopardy faced by the respondent partners in being the subject of hostile cross-examination for a second time. This was "inexcusable".

As to ground (4), Gladman had maintained throughout the second claim that its loss was in excess of £30 million "for the opportunities it has lost to develop other student accommodation schemes".  By the time of the commencement of the second claim it had been compensated by the Council a net amount in excess of £1.3 million for the same misrepresentation on which it relied in the first claim, making this "on any view an ambitious assertion".  Moreover, Gladman's amended particulars of claim failed to set out any causative link between Gladman's decision to contract to purchase the properties and an alleged inability to develop other schemes.

Further particulars outlined a revolving credit facility of £30 million, which had been reduced by £7 million, set aside in the event that Gladman needed to complete the disputed sale.  This earmarking, Gladman said, meant that the student accommodation division had to be put on hold and subsequently mothballed, so that the whole of its anticipated profit from the development of seven planned sites was lost.  That this point remained inadequately pleaded was made plain by the Court of Appeal's rhetorical question: "Why should a reduction in Headroom from £30 million to £23 million lead to the student division not merely being less profitable, but unviable?"  Consequently, the appeal on ground (4) also failed.

Comment

The case is a stark reminder to claimants engaged in litigation who are contemplating a further claim against the same or other defendants which would essentially amount to re-litigation of the case in hand, to follow the Aldi guidelines and seek directions from the court at the earliest opportunity, to avoid the risk of a later claim being struck out as an abuse of process.

Claimants who are the victims of a jointly committed tort must bear the rule on release of joint tortfeasors in mind when compromising their claim. Although it has previously been described as a "trap for the unwary" and a "judicial relic", Lord Justice Longmore took the opportunity to challenge this view, suggesting that where the parties are represented by sophisticated legal teams, the criticism is "much less powerful".  Straightforward application of the rule could in this instance have saved significant time and cost.

The Court's findings on Gladman's pleadings highlight the importance of statements of case, which must provide "a sufficient written explanation of the case which has to be met". This cannot be remedied merely by oral submissions, and again leaves claims liable to being struck out.

This blog was written by Nigel Brook.

[1] Aldi Stores Limited v WSP Group PLC [2008] 1 WLR 748.

[2] Henderson v Henderson [1843-1860] All ER Rep 378.