What is "reasonable" when making a recovery?
Recovering sums paid out in settlement through court proceedings is an area of law where the Court's ability to resolve a dispute according to what is fair, proportionate and commercially sensible is alive and well.
In the recent case of 125 OBS Nominees (1) and anr v Lend Lease Construction (Europe) and anr  Stuart-Smith J reiterated and expanded upon the principles of recovery developed in earlier case law.
The case, in which RPC represented the Claimants, concerned the widely publicised failure of numerous panes of glass on the facade of the building at 125 Old Broad Street, some of which fell into the street below. Both liability and elements of the quantum were in dispute. The failures occasioned losses to the Claimants including settlement payments made to tenants and third parties affected by the falling glass, the protective scaffolding that was erected following the failures and the subsequent reglazing works.
In his judgment, the Judge reiterated now well-established principles relating to the reasonableness of a settlement and went on to add:
- The Court encourages reasonable settlements, particularly where strict proof would be very expensive;
- The test of reasonableness is generous, reflecting the fact that the paying party has been put in a difficult situation by the breach;
- Reasonableness is evaluated as at the time of the settlement;
- A claim will generally have to be so weak as to be obviously hopeless before it can be said that settling it is unreasonable;
- The evidential burden of proving unreasonableness falls upon the Defendants.
Applying those principles to the facts before him, the Court had no time for a forensic, retrospective audit of the initial third parties claims to assess their merits. The Judge took a commercial approach to assessing whether a settlement should have been made and whether the amount it settled for was reasonable; deciding it was not proportionate to test the merits of the claim as rigorously and forensically as if that particular dispute was before the Court. Contemporaneous evidence of an attempt to mitigate loss and reach a sensible commercial agreement in order to buy off risk was held to be sufficient and the Claimants put forward compelling evidence about the difficulties faced by them, their tenants and third parties due to the Defendants' breaches. The witness evidence documented circumstances where claims had been intimated but had been resolved through negotiation or management of the relationship. In this context, it was clear from the settlements that the Claimants did seek to recover from the Defendants that they were not weak or hopeless which made it easier to assess the reasonableness of the compromise.This case reiterates the Court's reluctance to go behind commercial settlement agreements when a party seeks to recover them from a paying party. The paying party will need to demonstrate either that settling the claim at all, or the value at which the claim was settled for was unreasonable.