Beware settlement of claims against joint tortfeasors
25 July 2017
Settlement with one tortfeasor resulted in claims against another tortfeasor being released too, which was not what the claimant had intended. In this regard, the Court of Appeal highlighted the distinction between a settlement with a joint tortfeasor concluded by a consent order, and one concluded through a freestanding settlement agreement or Tomlin order. Inadvertent settling of claims against joint tortfeasors can be avoided and this article explains how: Vanden Recycling Ltd v Kras Recycling BV  EWCA Civ 354.
Vanden Recycling Ltd (Vanden) had settled litigation with two out of three defendants. The remaining defendant then tried to argue that the settlements had also released all claims against it too.
Vanden had sued a former employee and two waste management companies, Kras Recycling BV (Kras) and Bolton Brothers Limited (Bolton) in relation to allegations that the ex-employee had been providing confidential information to Kras and Bolton, who had tortiously induced the breach of duty by the ex-employee, and that all three defendants had conspired to divert business away from Vanden with a view to the ex-employee setting up a competing business.
Vanden had settled with the ex-employee and one of the corporate defendants (Bolton) using consent orders. Kras then applied for summary judgment, claiming that the claims against it had also been released by virtue of the consent orders.
The consent order with the ex-employee recorded that she admitted all of the allegations against her and provided for judgment against her for damages to be assessed. The consent order with Bolton provided that Bolton would pay damages of GBP 176,000 and a contribution towards Vanden’s costs of GBP 99,000 “in full and final settlement of [Vanden’s] claims against [Bolton] in this action”. At first instance, Cox J agreed with Kras that satisfaction of a judgment against a joint tortfeasor discharged the tort and, given that the judgment by consent entered against Bolton had been satisfied, there was no claim left to bring in respect of Kras.
Vanden appealed. It argued that the Bolton's consent order was not a consent judgment, but was simply an order giving effect to a compromise agreement. As such, Bolton argued, it would only extinguish Vanden’s claims against Kras if the order was intended to fix the full measure of Vanden’s loss, which Vanden contended it did not.
Is a consent order a judgment or settlement?
Hamblen LJ, delivering the sole judgment of the Court of Appeal, stated that:
− a satisfied judgment ordinarily bars claims against other tortfeasors who are liable for the ‘same damage’ (Jameson v CEGB  1 ACC 455); but
− satisfaction of a settlement agreement, as opposed to a judgment, will only have this effect if 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  2 AC 329).
Consent order should be treated as a satisfied judgment
The Court held that the consent order should be treated as a satisfied judgment, not a satisfied settlement agreement.
The consent order was in similar terms to a Tomlin order, e.g. payment was made by Bolton “in full and final satisfaction of [Vanden’s] claims” and purported to stay proceedings “except for the purpose of enforcing and carrying out the terms of this settlement”. However, notwithstanding this similarity, the Court concluded that, in substance, the consent order was not a Tomlin order. A Tomlin order stays proceedings except to the extent necessary to give effect to a contractual settlement agreement. In a consent order, the terms of the settlement form part of the order, so enforcement does not require reviving stayed proceedings – it can be achieved via a direct application to the court for enforcement of that order.
Although the consent order purported to stay proceedings, in the same manner as a Tomlin order, there were, in fact, no continuing proceedings to be stayed; Vanden already had an order which it could enforce for payment of its claim. It could not, therefore, be said that the consent order operated in substance in the same manner as a Tomlin order. The consent order should consequently be treated as a satisfied judgement, rather than a satisfied settlement agreement. Therefore the judge at first instance had been correct to conclude that the question of whether or not the parties intended to fix the full measure of loss did not arise; “[t]he judgment [i.e. the consent order] fixes the loss regardless of what may have been intended”.
‘Same damage’ – what claims were barred by the consent order?
Having decided that the consent order should be treated as a satisfied judgment, the Court considered next which of Vanden’s claims were barred, i.e. which claims related to the ‘same damage’:
− Injunctive relief (eg delivery of confidential information) – these were not released by the consent order, which only settled damages claims.
− Damages for conspiracy – although the consent order referred to settlement of all Vanden’s claims, it did not attribute the sum paid (by Bolton) between the different claims. Vanden’s claim for damages against Kras for conspiracy was a claim for the same damages and was, therefore, barred.
− Other damages claims (for inducing or procuring a breach of contract and for breach of confidence). These claims had been made individually against Kras and Bolton and the particulars of claim had identified confidential information being passed separately to Kras and Bolton. The losses alleged by these separate acts were not necessarily the same and did not necessarily fall within the conspiracy and therefore Vanden’s claims against Kras were not barred.
Where there are joint tortfeasors, great care must be taken when settling with just one, not to inadvertently affect claims against the other(s). The Court of Appeal’s ruling helpfully identifies the differences between the various methods of settling a claim, and how these differences operate as far as preserving claims against joint tortfeasors.
Any claimant who wishes to preserve its right to sue other tortfeasors should use a freestanding settlement agreement, or a Tomlin order, when recording the terms of any settlement with one of the tortfeasors. When drafting any settlement agreement, care should be taken to ensure that the terms of any settlement accurately reflect the intentions of the parties as regards what claims are settled and which defendants are released from liability.
Finally, the judgment highlights the importance of ensuring that claims against joint tortfeasors are carefully pleaded. Proper particularisation of breach, loss and damages, and other remedies claimed in respect of each joint tortfeasor will aid a claimant in demonstrating that any settlement reached with one tortfeasor, howsoever expressed, only acts to extinguish the torts committed by that particular tortfeasor.
This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication. For more information please contact Amy Edwards at firstname.lastname@example.org.