When seeking to settle a claim involving multiple defendants (or potential defendants), there are a number of traps for the unwary.
- Joint, and joint and several, liability can arise in both contract and tort. In tort, severally liable defendants can become jointly and severally liable where their tortious acts combine to cause the same damage (these defendants are also known as “concurrent tortfeasors”).
- Why is this significant? Because a claimant is entitled to recover all of its losses from any one of multiple defendants where their liability is joint, or joint and several (but not where the liability is merely several).
- A satisfied judgment obtained against one defendant will ordinarily bar a claim against other defendants with joint, or joint and several, liability.
- The satisfaction of a settlement agreement, however, will bar such claims only where the sum agreed and paid was intended to fix the full measure of the claimant’s loss.
- After settlement, parties often file with the court a "Tomlin" order, which stays the proceedings for the purposes of carrying out the terms of settlement (usually set out in a separate settlement agreement retained by the parties’ solicitors).
In the courts
- In Vanden Recycling Limited v Kras Recycling BV:
- The claimant’s claims were diverse and included claims in conspiracy, for breach of confidence and for inducing or procuring breach of contract. The claimant sought damages, an account for profit, as well as permanent injunctions.
- The claimant settled with two of the three defendants. Instead of filing a Tomlin order referring to contractually agreed terms of settlement, the parties agreed and filed draft consent orders which set out in full the terms of settlement. The court duly granted the orders on the terms sought.
- The Court of Appeal decided that the terms of the consent order amounted to a judgment of the court (by consent).
- On that basis, the judgment (by consent) against one of the defendants would bar a claim against the others but only to the extent they caused the same damage (making them jointly and severally liable for that damage, but otherwise severally liable).
- In a partial reversal of the High Court decision, whilst the Court of Appeal agreed that the damages claim for conspiracy was barred (because it amounted to the same damage), it did not agree that all the claims should be barred (because they resulted in separate and distinct claims for damages or account of profits).
What this means
- If you are in a multi-defendant situation, but only one defendant is (or some defendants are) settling, it is important to consider whether claims against other defendants need to be preserved at the time of agreeing the order.
- A Tomlin order, as opposed to a consent order setting out the terms of settlement (as in Vanden), not only keeps the terms of settlement confidential, but it will mean that a claimant’s claims against other defendants for the same damage are not (necessarily) barred.
- Further, the terms of the settlement agreement should be clearly drafted to reflect the parties’ intentions, for example, whether the settlement is intended to fix the full measure of the claimant’s loss.