Reasonableness of settlements revisited

The judgment in DIPT Ltd & Ors v Sanglier Ltd; Sanglier Ltd v Apollo Chemicals Ltd [2023] handed down by the Technology and Construction Court (TCC) reminds us that a pragmatic approach should be adopted when considering the reasonableness of settlements.

Background

The TCC presided over the trial of two claims arising from a product liability dispute concerning a liquid adhesive called A8660 manufactured by Apollo Chemicals Limited (Apollo) and sold to Sanglier Limited (Sanglier).

Sanglier mixed the adhesive with a propellant before packaging it in gas cannisters and naming the product PRO33 NFA. D.I.P.T Ltd and others procured the product for onward sale to its end user customers which was mostly utilised by fabricators to bond laminates to substrates when constructing furniture and interior fittings.

A significant number of delamination events occurred, allegedly due to defects in the product, necessitating remedial works by the fabricators. Upon receipt by claimants of complaints in connection with the failure of the product, their insurers investigated and settled the claims. A recovery against Sanglier was pursued and, due to the large volume of claims, the TCC found it appropriate for matters to proceed on a test case basis comprising a class of six end users.

Sanglier sought to pass to Apollo any liability it owed to the claimants and to claim additional sums on the basis that the adhesive was defective or that the development of the adhesive was negligent. The claim against Apollo was discontinued after the trial but prior to judgment being handed down, with Sanglier agreeing to pay a large portion of Apollo’s costs.

Judgment

DIPT v Sanglier

The claimants were successful in persuading the court that Sanglier’s breach of contract caused the losses it incurred.

Judge Pelling KC helpfully summarised the applicable test when analysing the reasonableness of settlements which is whether, at the date of settlement, the claimant is able to demonstrate the settlements are within the range which reasonable people in the position of the claimant might have made. The following circumstances may be taken into account when determining if the test is met:

1. The strengths and weaknesses of the third party claim settled.
2. Whether supportive legal advice was obtained to justify the settlement.
3. The cost of litigation if the third party claim had been defended.
4. The benefits of settling the claim rather than disputing it.

The TCC highlighted that the claimants’ insurers had funded the settlements, which had a commercial interest in securing settlements at the lowest possible level. It was noted that a commercial insurer would have considered all of the factors detailed above when negotiating settlements.

In the judgment, emphasis was placed on the generosity of the test which was justified by the difficult position the claimants had been placed in as a consequence of Sanglier’s breach. The TCC concluded that it was sufficient that the claimants obtained early expert evidence confirming a defect was present in the product and legal advice in respect of quantum.

As the claimants had successfully established that the quantum settlements achieved with the end users were on the face of it reasonable, the evidential burden rested with Sanglier to prove that the contested settlements fell foul of the test. However, Sanglier had failed to adduce any evidence from an adjuster or similar to the effect that the quantum agreed with the end users fell outside of the justifiable range of settlements.

Sanglier v Apollo

Whilst the TCC was ultimately not required to decide the issues between Apollo and Sanglier, Judge Kelling KC commented that Apollo’s decision defend its position was correct. Apollo had conducted a thorough analysis of the factual background and satisfied itself that its expert evidence persuasively explained the partial failure of the product. Sanglier’s theory premised on universal failure was difficult to sustain as failure did not occur in the same way in all instances.

Comment

This case highlights that the test for reasonableness is generous and that the court will continue to adopt a pragmatic approach when considering whether settlements are justifiable.

Parties will always be encouraged to adopt a constructive approach and to seek to achieve early settlement of claims where possible, particularly in circumstances where the cost of litigation or a full investigation would be disproportionate.

The comments made by Judge Kelling KC regarding Apollo’s decision to defend the claim to trial serve as a reminder of the importance of forensically scrutinising the factual findings against the expert evidence relied upon prior to advancing technical arguments. An expert’s opinion cannot be considered in a vacuum.