Heaton and Others v. Axa Equity & Law Assurance Society Plc and Others

The House held that a prior settlement will extinguish a claimant's subsequent claim against another wrongdoer only if the settlement, properly construed in its factual context, was intended to be in full satisfaction of the claimant's loss. The judgment clarifies that Jameson v Central Electricity Generating Board [2000] 1 AC 455 does not establish an absolute rule extinguishing subsequent claims whenever a claimant accepts a sum described as "full and final"; instead the effect of a compromise depends on construction of its terms and the surrounding matrix of facts. The court emphasised that the release of one wrongdoer does not in law release another, and that a defendant who wishes protection against later claims may obtain an enforceable undertaking or an indemnity. The appeal was dismissed because the settlement with Target was not to be construed as intended to be full satisfaction of the respondents' claims against Equity & Law.

The respondents (former directors/shareholders of Glyne Investments Ltd trading as Inter City) sued AXA Equity & Law for damages for breach of contract and negligence arising from the termination of an appointed representative agreement. Inter City had earlier pursued proceedings against Target Life Assurance Co Ltd, and those rights were assigned to the respondents. That action settled for £10 million by a Tomlin order in April 1998. The preliminary issue before the High Court (Laddie J) was whether the Target settlement precluded the respondents from pursuing their separate claims against Equity & Law. Laddie J held that the settlement did preclude the respondents; the Court of Appeal allowed the respondents' appeal; the House of Lords dismissed the appellants' appeal.

Nature of the claim:

• The respondents sought damages for breach of the Equity & Law agreement, damages in tort and/or contract for publication of alleged unfair and untrue reports and references, declarations and a corrective statement, and payment of commissions.

Issues framed:

• Whether the settlement with Target operated as full satisfaction of the respondents' loss and thus extinguished their claims against Equity & Law;
• How Jameson v CEGB should be applied (whether it extends beyond concurrent tortfeasors to successive contract-breakers and overlapping contractual claims);
• Whether construction of the settlement agreement and the surrounding circumstances supported a finding of full satisfaction.

Court's reasoning (concise):

• The House reiterated the principle from Jameson that a settlement can have the same effect as a judgment if it was intended to be in full satisfaction of the claimant's loss, but emphasised that this is a matter of construction of the settlement in its factual matrix rather than a rule of automatic extinguishment.
• The judges noted that release of one wrongdoer does not automatically release another and that rights against third parties survive unless the claimant has in some way agreed to forgo them or the agreement is enforceable by the third party.
• Applying these principles, the House concluded the Target settlement did not show an intention to extinguish the respondents' separate claims against Equity & Law: Equity & Law were not party to the settlement, did not contribute to the £10m, Target had not accepted full responsibility for all aspects of the asserted loss, and the settlement terms and surrounding circumstances did not demonstrate that the respondents treated the payment as full satisfaction of any claims against Equity & Law.
• The House therefore dismissed the appeal and allowed the respondents to continue their claims against Equity & Law subject to appropriate credit for sums recovered from Target; it also restricted an order for a corrective statement to a declaration remedy if proved.

Appeal dismissed. The House held that whether a compromise extinguishes claims against other wrongdoers depends on construction of the settlement agreement in its factual context; on that construction the Target settlement was not intended as full satisfaction of the respondents' loss so as to bar their claims against Equity & Law.

First instance: preliminary-issue trial before Laddie J (8 July 1999) — proceedings dismissed. Court of Appeal: respondents' appeal allowed (19 May 2000) ([2001] Ch 173). House of Lords: appeal dismissed (25 April 2002) ([2002] UKHL 15).