I don’t know if this has also been your experience, but for some reason the workings of the Civil Liability (Contribution) Act 1978 (the Act) always seems to cause consternation.

I’m not sure why this is. The basics are pretty straightforward; where two parties (D1 and D2) are both liable to a third party (C) for the same damage, then they can bring contribution claims against each other to allow the court to determine what would be a fair split between the two in all the circumstances. What could be easier?

Well, there is often a debate about whether or not the two parties are really liable for the same damage. Although that has generated a fair amount of case law, the principles are clear. You need to show that both parties are liable to the same third party in relation (to some extent) to the same loss. The cause of action need not be the same and the exact amount of damages need not be identical.

By contrast, one aspect, which I think is genuinely tricky, concerns the extent to which a party can bring a contribution claim, even though they have never, and will never, establish that they were liable to the third party at all.

That might sound a bit counter-intuitive, but it is actually a crucial aspect of making the contribution process work. D1 needs to be able to compromise a claim brought against it by C and then seek a contribution from D2, who was liable to some extent for the same damage to C.

The good news is that the Act expressly provides for this.

  • Section 1(2) states that a person can recover a contribution under the Act even if, by the time they seek a contribution, they have ceased to be liable to C because he has paid out the claim to C “…provided that he was so liable immediately before he made or was ordered or agreed to make the payment…”.
  • Section 1(3) clarifies that a person must make a contribution “…unless he ceased to be liable by virtue of the expiry of a period of limitation… which extinguished the right on which the claim against him in respect of the damage was based”. It is important to spot that this is talking about an extinguishment of the right not the remedy. Most limitation defences bar the remedy only. That makes sense because otherwise D1 would never be able to claim a contribution against D2 if they only found out about C’s claim on the cusp of limitation.
  • Finally, section 1(4) provides that:

“A person who has made or agreed to make any payment in bona fide settlement or compromise of any claim made against him in respect of any damage… shall be entitled to recover contribution… without regard to whether or not he himself is or ever was liable in respect of the damage, provided, however, that he would have been liable assuming the factual basis of the claim against him could be established”.

Section 1(4) is intended to prevent the need for D1 to prove it was liable to C as a pre-requisite to bringing a claim for contribution against D2. Otherwise, as well as militating against any settlements being made, D1 would be put in the bizarre position of having to prove its own liability. The tricky bit is working out the breadth of the proviso at the end: what is the factual basis of the claim?

In particular, how do you deal with a situation where, by the time C brings their claim against D1, the claim is in fact time barred? Can D2 rely on that fact to fend off D1’s contribution claim? If you have to show that there would have been liability if the factual basis of the claim could be established, how does limitation factor in that analysis?

That was the question considered very recently by the Court of Appeal in WH Newson Holding Ltd v IMI plc.

IMI settled a claim brought against it by Newson and then sought to bring a contribution claim against Delta. In the Newson/IMI pleadings, IMI had alleged that the claim was statute barred. Newson had denied this, and in its defence had relied on section 32(1) of the Limitation Act (concealment).

At first instance the judge had applied the decision of Chadwick J in Arab Monetary Fund v Hashim. Chadwick J took the view that section 1(4) required the court to presume that the facts set out in the particulars of claim were made out, but did not require the court to assume that a collateral defence would fail. A collateral defence was one which was consistent with the claim, but raised a new reason why, nevertheless, there was no liability; limitation being a good example.

The Court of Appeal in Newson rejected this approach as “allowing the tail of section 1(4) to wag to dog”. All you needed to do was look at C’s claim and decide whether that claim, if established, would make D1 liable. If it did, then any bona fide settlement of that claim would suffice. There was no need to scamper about the other pleadings trying to find a “collateral defence” at all.

This is a sensible and welcome clarification and simplification of the applicable rule. There is, it seems, now one less element of the Contribution Act to worry about. Whilst it may seem odd that D2 can be lumbered even if the claim by C was always statute barred, that is no more odd than permitting recovery if any other element of liability was likely to fail.

It also provides a yet further incentive to compromise the primary claim. As long as that claim is settled bona fides, D2 is stuck with that decision. That is in keeping with the law’s approach to claims brought for third party losses following Biggin v Permanite, where a party can recover losses as long as there is a reasonable settlement without the need to prove that they were actually liable.

This article was first published in the Practical Law Dispute Resolution Blog.