On 9 October 2001 a nut and bolt connection on a float valve failed and water from a storage tank overflowed into the basement of a new office building for Slaughter and May in the City of London. The water caused a flood which led to extensive damage to the electrical equipment in the basement. A number of different parties were involved in the contractual chain. To cut a long story short, Siemens had entered into a sub-contract to supply and install the sprinkler system, a contract they had sub-let in part to Supershield to carry out the installation works. Following a mediation, Siemens settled the claims with the parties up the contractual chain but was left with its own claim against Supershield. At a hearing in the TCC, the judge found that the probable cause of failure of the nut and bolt connection between the lever arm and the ball valve was a lack of sufficient tightening when the ball valve was installed and that, under the Supershield subcontract, Supershield had an obligation both to install the ball valve and lever arm and to carry out any adjustments which were necessary to ensure that the ball valve was operating correctly. Those findings were sufficient to establish liability between Supershield and Siemens, but he also found on the balance of probability that Supershield had in fact installed the ball valve.

On the issue of damages, Supershield disputed Siemens’ claim that the sum for which Siemens had settled the claims made against it reasonably reflected the strength of the defences available to it. The judge found that overall the settlement was reasonable. He therefore gave judgment for Siemens on its part 20 claim for the amount of the settlement (£2.8million plus interest.) Supershield appealed that decision on a number of grounds including that the judge was wrong to find that the figure for which Siemens agreed to settle the claims against it was reasonable. Supershield argued that Siemens had straightforward and complete defences to the claims made against it arising from the flood, and that its settlement of those claims for just under 50% did not represent a reasonable attempt to mitigate the potential loss resulting from its exposure to the claims. LJ Toulson noted that:

Because of its uncertainty and expense, prudent parties usually try to avoid litigation where possible. It has to be borne in mind that the “settlement value” of a claim is not an objective fact (or something which can be assessed by reference to an available market) but a matter of subjective opinion, taking account of all relevant variables. Often parties may have widely different perceptions of what would be a fair settlement figure without either being unreasonable. The object of mediation or negotiation is then to close the gap to a point which each finds acceptable.

...The issue which the judge has to decide is not what assessment he would have made of the likely outcome of the settled litigation, but whether the settlement was within the range of what was reasonable. “

The reason Supershield argued, was that there were drains in the tank room, which had been designed to carry away overflowing water. These were blocked. Supershield thus said that the effective cause of water escaping from the tank room was the blockage of the drains or, if the overflow of the tank was a partial cause, that the escape was too remote a consequence for Siemens to have been liable.

Supershield did not suggest that Siemens’ causation and remoteness defences were so strong that it should have refused to enter any settlement, but submitted that, bearing in mind the failure of the drains to reduce the damage, their strength was not reasonably reflected in the settlement which was reached.

Both the ball valve and the drains were designed to control the flow of water involved in the operation of the sprinkler system. There was a simultaneous failure of separate protection measures. As the CA noted it is not uncommon in the case of a sophisticated engineering project for the designer to incorporate multiple safety devices in the reasonable expectation that the risk of simultaneous failure of both or all the protection devices will be minimal. But the fulfillment of that expectation will depend on those responsible for the protection devices doing as they ought. If those responsible fail to do so, and the unlikely happens, it should be no answer for one of them to say that the occurrence was unlikely, when it was that party’s responsibility to see that it did not occur. The reason for having a number of precautionary measures is for them to serve as a mutual back up, and it would be a perverse result if the greater the number of precautionary measures, the less the remedy available to the victim in the case of multiple failures.

Accordingly, whilst, it may have been right that a failure of the connection between the ball valve and lever arm was very unlikely to result in a flood, because the probability was that the water would escape through the drains, this did not make the loss resulting from the flood too remote to have been recoverable. Siemens was responsible for supplying and installing the sprinkler system in such a way that the water was properly contained, and it therefore assumed a contractual responsibility to prevent its escape. The ball valve was the first means of protection against water causing damage to other parts of the building and it failed. It was always possible that the second means of protection, the drains, might also fail. The flood which resulted from the escape of water from the sprinkler tank, even if it was unlikely, was therefore within the scope of Siemens’ contractual duty to prevent and it was reasonable for Siemens to settle the claims made against it as it did.