UK: The Recoverability Of Settlements

Last Updated: 13 August 2007
Article by Liam O'Connell and Oliver Shestopal

The High Court has recently analysed the authorities on the circumstances in which amounts paid by way of settlement to a claimant can form the basis of a claim for recovery from third parties and should be taken as the measure of damages. In a decision handed down on 27 June 2007, the Court held that:

  • provided that a settlement is reasonable on the facts, it can be recovered from a third party even in the absence of liability in law; however,
  • in the event of an unreasonable settlement on the facts, recovery will be limited to the true measure of loss.

The case (John F Hunt Demolition Limited v ASME Engineering Limited) clarifies the proper application of the principles set down in Biggin & Co Limited v Permanite Limited, and provides useful guidance both to professionals seeking to recover, from their sub-agents or other third parties, sums paid to a principal, and to liability insurers acquiring rights of subrogation from their professional insureds, on the vexed issues of what is a reasonable settlement and what sums can properly be recovered from third parties following the settlement of an underlying claim.

In the same case, the Court also considered the issues of joint names insurance and risk allocation in construction projects - to read a Law Now article on this aspect of the judgment, Click Here

To view the article in full, please see below:

Full Article

John F Hunt Demolition Limited v ASME Engineering Limited, a recent case in the Technology and Construction Court, considered the recoverability from third parties of sums paid in settlement to a claimant. It was held that whether a settlement is reasonable will depend on the facts of each case but, if a settlement is deemed reasonable, the amount paid can, in principle, be recovered in full. Further, to demonstrate that a settlement is reasonable, it is not necessary to show that the claim settled would probably have succeeded; it is enough to show that the claim had "sufficient substance" for a settlement of it to be regarded as reasonable. On the other hand, if, on the facts, the settlement is deemed unreasonable, the settlement becomes irrelevant in the calculation of the true measure of loss.


On 30 June 2002, Kier (Whitehall Place) Limited ("KW") appointed Kier Build Limited ("KB") to design and construct commercial office premises, requiring the demolition of a number of existing buildings, whilst retaining certain facades of the existing property. By a sub-contract dated 27 March 2003, KB retained John F Hunt Demolition Limited ("Hunt") to carry out demolition works. By a sub-sub-contract made in December 2002, Hunt had engaged ASME Engineering Limited ("ASME") to construct temporary supports for the existing facades of the property. On 22 April 2003, sparks from welding work being carried out by ASME set light to the facades, causing significant fire damage.

KW and KB initiated a joint claim against Hunt for the damage and the subsequent repair work, claiming £248,145.04 in total. In August 2005, a quantity surveyor advised that the claim was only worth about £151,545 exclusive of interest. In the summer of 2006, Hunt offered to settle the claim for £152,500. This offer was accepted by KW and KB. Hunt then sought to recover the £152,500 from ASME (together with other legal costs and fees).

The parties agreed that, of the £152,500 settlement figure, £108,987.12 constituted the losses suffered by KW. The remaining part of the settlement (£43,512.88) represented KB’s losses. ASME contended that, under the terms of the contract and sub-contract, Hunt owed no duty of care to KW in respect of the repair and reinstatement required following the fire damage; since Hunt had no liability in law to KW, the maximum for which Hunt could be liable to both Kier companies was £43,512.88 (i.e. KB’s own losses), making the £152,500 settlement unreasonable. Hunt, on the other hand, sought to argue that it did owe a duty of care to KW under the terms of the contract and that, even if it did not (which the Judge found to be the case), Hunt ought to be able to recover the full £152,500 from ASME, based on their understanding at the time that the duty did exist or, alternatively, some lesser amount, still exceeding £43,512.88, which the Court considered might have represented a more reasonable settlement.


In his judgment, HHJ Peter Coulson QC referred to authorities on the question of whether it is necessary to show that a settlement is reasonable. In Biggin & Co Limited v Permanite Limited, the Court of Appeal held that, if a settlement is reasonable, even if at the upper limit, it should be taken as the measure of damages. In The Sargasso, Clarke J stated that Biggin v Permanite is authority for the proposition that "the plaintiffs must establish that the amount for which they settled was reasonable and that, if they do, they are entitled to recover that sum from the defendants provided that the loss is not too remote to be recoverable."

In General Feeds Inc Panama v Slobodna Plovidba Yugoslavia, Colman J noted: "In order to recover in respect of a settlement, it is not necessary to prove that the claim settled would have succeeded or would probably have succeeded. It is enough to establish that it had sufficient substance for the settlement of it to be regarded as reasonable."

A claim will usually have to be obviously hopeless before it could be said that settlement was unreasonable - the settlement of even an intrinsically weak claim may be reasonable if it avoids the uncertainty and expense of litigation. In Comyn Ching & Co Limited v Oriental Tube Co Limited, it was held that: "It is not necessary to prove that the claim settled...would probably have succeeded…it is enough to establish that [the claim] had sufficient substance for the settlement of it to be regarded as reasonable."


On the facts of the case, HHJ Peter Coulson QC held that, as there was clearly no duty of care owed by Hunt to KW, there was insufficient substance for the settlement of £152,500 to be regarded as reasonable. Since the settlement was unreasonable, the maximum value of the claim against ASME was £43,512.88, namely the maximum value of KB’s claim against Hunt.

HHJ Peter Coulson QC rejected Hunt’s argument that the Court could identify a hypothetical reasonable figure, greater than the sum actually due from one party to the other, but less than the sum actually paid in settlement, as a recoverable measure of loss. The judge considered that such an approach would be contrary to the existing case law, although particular cases may turn that way on their facts.


Even though, in this case, the settlement was deemed unreasonable, it should be emphasised that, even in a case where investigation of the underlying facts demonstrates that there was no liability at all, the settlement of a claim can still be found to be reasonable in all the circumstances. For this to be the case, it must be reasonably foreseeable, at the time that the contracts were made between A and C, that A might settle a claim brought by B arising out of the same subject matter, even if, on a detailed analysis, A’s legal liability to B might actually be hard or even impossible to establish.

This contrasts with the general insurance law position relating to the recovery by a defendant insured of settlement funds from its liability insurer. In Structural Polymer Systems Ltd v Brown (The Baltic Universal), Moore-Bick J held that, in order to reclaim from its insurer amounts paid in a settlement, a claimant must establish that:

  • the claimant was legally liable to another party; and,
  • that liability was covered by the insurance policy; and,
  • the settlement of that liability was reasonable (in that the sum of the settlement was equal to or less than the sum of the liability).

Under the wording of its policy with the claimant, Brown agreed to "indemnify the Assured against all sums which the Assured may become legally liable to pay." As such, legal liability was required to trigger the policy coverage. The settlement would then only be covered by the policy if it was adjudged to be reasonable - i.e. if the insured was actually liable for an amount not less than that paid under the settlement agreement. This is a further point of potential contrast with the decision in Hunt v ASME, where it was envisaged that a settlement’s reasonableness should be judged on all the circumstances of the case; under the principle in Hunt v ASME, a settlement for an amount much higher than the claimant’s actual liability may still be reasonable.

In Enterprise Oil Ltd v Strand Insurance Co Ltd, Aikens J confirmed that to demonstrate liability to a third party, it is not sufficient simply to rely on the fact that a settlement was reached. In order to recover settlement amounts from its insurer, an insured must prove the presence of both actual liability to the third party and a reasonable settlement (i.e. a settlement that was not in excess of the amount for which the insured would have been liable to the third party).

The apparent contradiction between the two lines of case law can be explained as follows. In the cases of Structural Polymer v Brown and Enterprise Oil v Strand, the relevance and recoverability of the settlement was determined by reference to the precise wording of the liability policy from which coverage was sought. The policies in question required a "legal liability" in order to trigger coverage (as do most policies of this type) and it is long established law that a settlement containing a non-admission of liability does not establish a legal liability; liability can only be established by virtue of the judgment of a Court or arbitration or an admission of liability. In the cases culminating with Hunt v ASME, on the other hand, any insurance coverage issue has been removed, either because there was no relevant policy in the first place, or because the claimant’s liability insurers - who subsequently decide to pursue the third party in a subrogated claim brought in the name of the insured - confirm coverage to the claimant prior to the settlement being reached. Whether the legal liability of a claimant to a party with whom it settled must be established in order to succeed in any recovery action against a third party will depend, therefore, upon whether or not that action is made in the context of seeking recovery under an insurance policy (i.e. whether or not the third party is the claimant’s liability insurer).


A liability insurer who has confirmed coverage to its insured and given its blessing to a settlement of the claim against its insured in return for rights of subrogation will not need to establish, when bringing a claim against a third party pursuant to such rights, that the underlying claim which was settled would have been successful against the insured, as long as the settlement was reasonable on the facts; however, if the third party is successful in establishing that the settlement was unreasonable on its facts, the liability of the insured to the underlying claimant will become relevant and any subrogated recovery will be limited to the sum of that liability.

To avoid the time and expense involved in seeking to argue the reasonableness of a settlement already reached, insurers should consider the practicalities of seeking to involve the prospective third party defendant in the negotiation of the underlying settlement so as to tie the third party into the deal. In circumstances where this is not possible, insurers should proceed with caution and be aware of the implications in terms of any possible subrogated recovery action, if settling wholly unmeritorious claims on a commercial basis.

However, an insured seeking recovery from its liability insurers in respect of a settlement reached with a third party claimant without the insurers’ consent will still have to prove, if it is to succeed in recovering under the policy, that it was truly liable to the third party claimant and that the sum of the settlement reached did not exceed the sum of the insured’s liability. An insured that settles an unmeritorious claim for commercial reasons, in the absence of any perceived liability and without the backing of its liability insurers, does so at its own peril.

Further reading: John F Hunt Demolition Limited v ASME Engineering Limited [2007] EWHC 1507 (TCC)

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 10/08/2007.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.