Bovis Lend Lease Ltd v RD Fire Protection Ltd

A contractor who settles an employer’s claims cannot recover from a subcontractor more than the loss attributable to that settlement. The settlement ordinarily creates a ceiling on recovery, and the contractor must prove what part of the settlement relates to the subcontractor’s breach. The contractor cannot bypass the settlement by claiming the full hypothetical cost of reinstatement. Where no remedial work will be undertaken, that cost may cease to be a direct and foreseeable loss. A performance-interest claim requires the conditions identified by the majority in Alfred McAlpine Construction Ltd v Panatown Ltd, including actual or intended remedial expenditure or an obligation to account to the party suffering the loss. A contractual scheme contemplating direct rights for the employer may exclude such a claim.

The judgment determined preliminary issues arising from two related construction disputes concerning fire-protection and dry-lining works at a major shopping and leisure centre. Bovis had settled extensive claims and counterclaims with the employer, Braehead, by a global settlement. It then pursued claims against RD Fire and Baris for indemnities, damages for breach of subcontract, impairment of contractual payment rights, and loss of its performance interest.

The parties agreed assumed facts, including that remedial work was reasonably necessary but would not be undertaken by Bovis or Braehead, and that Bovis could not identify the part of the settlement attributable to the fire-protection defects. The central questions concerned the effect of the settlement on causation, quantification and recoverability, and whether Bovis could maintain performance-interest claims despite having incurred no remedial expenditure.

1. Settlement and direct claims. The principles in Biggin & Co Ltd v Permanite Ltd applied to indemnity claims and contractual damages. A reasonable settlement may be recovered where the claimant proves breach, causation and the reasonableness of the settlement. The settlement amount is the ceiling for the loss attributable to the settled claims. In a multi-issue settlement, the claimant must establish a reasonable allocation to the relevant breach. The court may make a rough assessment where the available material is limited, but Bovis had provided no evidence enabling such an assessment.
2. Bovis could not elect to ignore the settlement and recover the full cost of hypothetical reinstatement. Its pleaded claims therefore failed on the assumed facts because it had not proved any recoverable loss. The settlement did not automatically break causation: it could contain recoverable loss attributable to the defects. But where no repairs would be undertaken, the estimated repair cost was no longer a direct and foreseeable loss. Any unreasonable part of a settlement would be irrecoverable; if the settlement wholly broke the causal chain, nothing would be recoverable.
3. The proposed 22 per cent arithmetical allocation was unsupported and inconsistent with Bovis’s case that the loss could not be identified. The relevant parts of the replies were struck out. Amendments were permitted except those relying on that unsupported allocation.
4. The impairment claim could in principle include interest on delayed payment or other direct and ascertainable loss. The pleaded repair-cost claim remained subject to the settlement ceiling and failed on the assumed facts.
5. Performance interest. The majority reasoning in Alfred McAlpine Construction Ltd v Panatown Ltd required substantial loss through remedial expenditure, or an obligation to account to the party bearing that loss, and no direct contractual remedy for that party. The principles could apply to a management contractor. They did not assist Bovis because the contractual scheme contemplated direct employer-subcontractor agreements, no remedial expenditure would be incurred, and the settlement relieved Bovis of any obligation to account to Braehead. Issue 5 was answered “No”.