Siemens Building Technologies FE Ltd v Supershield Ltd

A party seeking recovery of a settlement payment from a contractual indemnifier need not prove that it was liable to the third party on the balance of probabilities. It must show that the underlying claim had sufficient strength reasonably to justify settlement and that the amount paid was within the range that reasonable people in its position might have paid. The assessment is made at the settlement date, using information then available. Relevant factors include the claim’s strength, legal advice, litigation uncertainty and expense, and the benefits of settlement. A failure causing an escape of water remains an effective cause of resulting flooding even where drains, alarms or maintenance might have reduced the damage. Such protective arrangements do not ordinarily make the damage too remote.

Siemens sought recovery from its sub-subcontractor, Supershield, of sums paid to settle claims arising from flooding at an office building. A nut and bolt connection on a sprinkler-tank float valve failed, allowing the tank to overflow. Water escaped from the tank room after drains were blocked and reached electrical equipment.

The court had to determine whether Supershield’s subcontract included installation and adjustment of the ball valve, whether Supershield’s workmanship caused the failure, whether contractual liability and an indemnity were established, and whether Siemens’ multi-party settlement was reasonable. The central issue was whether the settlement payment was recoverable as loss caused by Supershield’s breach.

1. Contractual obligation. The subcontract descriptions, drawings and coordination provisions showed that Supershield was obliged to install the ball valve, stool piece and float-arm connection, and to tighten and adjust the connection so that it operated correctly. The court construed the contract by its natural and ordinary meaning in its commercial context, applying the principles in ICS v West Bromwich [1998] 1 WLR 896 and Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] A.C. 191.
2. On the facts, Supershield’s operatives installed the valve and failed to tighten the connection sufficiently. Supershield was liable for breach of the subcontract, the contractual warranty and indemnity, and the implied term under section 13 of the Supply of Goods and Services Act 1982.
3. Following Biggin v Permanite [1951] 2 KB 314, Comyn Ching & Co (London) Ltd v Oriental Tube Co Ltd [1979] 17 BLR 56, General Feeds v Slobodna Plovidba Yugoslavia [1999] 1 Lloyd's Rep. 688 and John F Hunt Demolition Ltd v ASME Engineering Ltd [2008] 1 All ER 180, Siemens did not have to prove that it was liable to the settling parties. It had to establish that the claims were sufficiently substantial to justify settlement and that the amount paid was reasonable in all the circumstances. The assessment was objective and made at the date of settlement.
4. The settlement, made after legal advice in complex multi-party litigation, was within the range of reasonable settlements. The settlement costs were also reasonably incurred.
5. The overflow was an effective cause of the flood. The blocked drains, unmonitored alarms and maintenance issues did not remove its causative potency, applying the reasoning in Sahib Foods Ltd v Paskin Kyriakides Sands (2003) 93 Con LR 1.
6. The damage was not too remote. Under Hadley v Baxendale (1854) 9 Ex 341, flooding and water damage were consequences within the ordinary contemplation of the parties. Siemens could recover the reasonable settlement sum under the indemnity and as damages for breach of contract.

Judgment was therefore given for Siemens. The court invited submissions on the form of judgment and ancillary matters.