Supershield Ltd v Siemens Building Technologies FE Ltd

When a party reasonably settles a claim arising from another party’s breach, the recoverable settlement need only fall within the range of reasonable outcomes. The court does not substitute its own valuation, and an appellate court intervenes only for an error of principle or an assessment incapable of justification.

Contractual remoteness ordinarily depends on whether a reasonable contract-breaker would have regarded damage of the relevant kind as not unlikely. That standard reflects the responsibility reasonably assumed under the contract. The contract’s purpose and commercial background may therefore exclude ordinarily foreseeable loss or, conversely, include unusual loss within the contractual duty. The failure of an independent protective measure does not necessarily displace the causative potency of the original breach.

A defective nut-and-bolt connection caused a sprinkler storage tank to overflow. Floor drains intended to carry away overflowing water were blocked, so water escaped from the tank room and damaged electrical equipment.

Siemens settled claims made against it by parties higher in the contractual chain and recovered the settlement sum from Supershield in Part 20 proceedings. Ramsey J held that Supershield’s subcontract included installation and adjustment of the ball valve, that Supershield had installed it defectively, and that Siemens’ settlement was reasonable.

Supershield appealed on the construction of its subcontract, responsibility for installing the valve, and the reasonableness of the settlement. The final issue required consideration of causation and contractual remoteness, particularly whether the blocked drains rendered the flood too remote.

1. The appeal was dismissed unanimously. The subcontract, read as a practical whole and with the incorporated drawing, required Supershield to install the ball valve. The valve, its lever arm, the stool piece and associated pipework were integral parts of the complete sprinkler system. The drawing’s statement that another contractor would install the tank did not exclude installation and adjustment of equipment attached to it. The factual issue concerning who installed the valve therefore fell away.

2. A settlement value is an evaluative judgment, not an objectively ascertainable fact. A judge considering its reasonableness must ask whether it fell within the range of reasonable settlements, rather than decide what outcome the judge would personally have predicted. An appellate court should not interfere unless the judge erred in principle or reached a conclusion incapable of justification on any reasonable view.

3. The overflowing tank remained an effective cause of the flood. The blocked drains did not remove the overflow’s potency to cause damage; they failed to reduce it. Siemens could not confidently have expected to defeat the underlying claims on causation.

4. The ordinary contractual-remoteness rule asks whether, when the contract was made, a reasonable person in the contract-breaker’s position would have regarded damage of the relevant kind as not unlikely. The rule is grounded in the responsibility reasonably attributable to the contracting party. Remoteness must therefore be considered with the contract’s purpose, the scope of its obligations and its commercial background.

5. The reasoning in South Australia Asset Management Corp v York Montague Ltd and Transfield Shipping showed that contractual scope may exclude loss even though loss of that kind was not unlikely. Logically, the principle may also operate inclusively: loss within the scope of the contractual duty may be recoverable despite its unusual occurrence.

6. Siemens had undertaken responsibility for containing the sprinkler system’s water. The valve and drains were mutually supporting protective measures. It would be perverse if adding protective measures reduced the remedy when several measures failed. Toulson LJ therefore considered that the flood fell within the scope of Siemens’ duty despite its improbability, although that conclusion went further than necessary because Siemens needed to establish only that its settlement was reasonable. Richards and Mummery LJJ agreed.

• Court of Appeal (Civil Division): By [2010] EWCA Civ 7, unanimously dismissed Supershield’s appeal.
• High Court, Technology and Construction Court: Ramsey J gave judgment for Siemens on its Part 20 claim for £2,864,080 and interest, holding that Supershield was liable for the defective installation and that Siemens’ settlement was reasonable. No neutral citation is stated.