House of Lords
|Session 2001- 02
Publications on the Internet|
|Judgments - Heaton and Others (Respondents) v. Axa Equity & Law Assurance Society Plc and Others (Appellants)
HOUSE OF LORDS
Lord Bingham of Cornhill Lord Mackay of Clashfern Lord Steyn Lord Hope of Craighead Lord Rodger of Earlsferry
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
HEATON AND OTHERS
AXA EQUITY & LAW ASSURANCE SOCIETY PLC AND OTHERS
(APPELLANTS) AND OTHERS
ON 25 APRIL 2002
 UKHL 15
LORD BINGHAM OF CORNHILL
1. The issue in this appeal may be expressed in this way: if A, having sued B for damages for breach of contract, enters into a settlement with B expressed to be in full and final settlement of all its claims against B, is A thereafter precluded from pursuing against C a claim for damages for breach of another contract to the extent that this claim is for damages which formed part of A's claim against B? Expressed in another way, the issue is whether the majority decision of the House in Jameson v Central Electricity Generating Board  1 AC 455, properly understood, laid down any rule of law and, if so, whether that rule applies to successive contract-breakers as well as concurrent tortfeasors.
2. The facts giving rise to these issues have been very fully recorded in the judgment of Chadwick LJ in the decision of the Court of Appeal reported at  Ch 173 at 180-188, paras 3-27, and are summarised in the opinion of my noble and learned friend Lord Mackay of Clashfern, whose summary I gratefully adopt and need not repeat. The issues in the appeal can, I think, be illuminated by resort to schematic examples.
3. A brings an action against B claiming damages for negligence in tort. The claim goes to trial, and judgment is given for A for £x. There is no appeal and the judgment sum is paid by B to A. £x will thereafter be taken, in the ordinary way, to represent the full value of A's claim against B. A cannot thereafter maintain an action for damages for negligence in tort against C as a concurrent tortfeasor liable in respect of the same damage for two reasons: first, such a claim will amount to a collateral attack on the judgment already given; and secondly, A will be unable to allege or prove any damage, and damage is a necessary ingredient for a cause of action based on tortious negligence. A cannot maintain an action against C in contract either, in respect of the same damage, for the first reason which bars his tortious claim. There is however no reason of principle, in either case, on the assumptions made in this example, why B should not recover a contribution from C under the Civil Liability (Contribution) Act 1978 as a party liable with him for the same damage suffered by A.
4. In a second example the facts are varied. A brings an action against B claiming damages for negligence in tort. The action does not proceed to judgment because B compromises A's claim by an agreement providing that he will pay A damages of £x, which he duly does. If £x is agreed or taken to represent the full value of A's claim against B, A cannot thereafter maintain an action against C in tort in respect of the same damage for the second reason given in the last paragraph, and although he is not precluded from pursuing a claim against C in contract in respect of the same damage he cannot claim or recover more than nominal damages. There is again, in the ordinary way, no reason of principle in either case, on the assumptions made in this example, why B should not recover a contribution from C under the 1978 Act as a party liable with him for the damage suffered by A.
5. There is, however, an obvious difference between the action which culminates in judgment and the action which culminates in compromise: that whereas, save in an exceptional case (such as Crawford v Springfield Steel Co Ltd, unreported, 18 July 1958, Lord Cameron), a judgment will conclusively decide the full measure of damage for which B is liable to A, a sum agreed to be paid under a compromise may or may not represent the full measure of B's liability to A. Where a sum is agreed which makes a discount for the risk of failure or for a possible finding of contributory negligence or for any other hazard of litigation, the compromise sum may nevertheless be regarded as the full measure of B's liability. But A may agree to settle with B for £x not because either party regards that sum as the full measure of A's loss but for many other reasons: it may be known that B is uninsured and £x represents the limit of his ability to pay; or A may wish to pocket a small sum in order to finance litigation against other parties; or it may be that A is old and ill and prefers to accept a small sum now rather than a larger sum years later; or it may be that there is a contractual or other limitation on B's liability to A. While it is just that A should be precluded from recovering substantial damages against C in a case where he has accepted a sum representing the full measure of his estimated loss, it is unjust that A should be so precluded where he has not.
6. The majority decision of the House in Jameson v Central Electricity Generating Board  1 AC 455 appears to have been understood by some as laying down a rule of law that A, having accepted and received a sum from B in full and final settlement of his claims against B in tort, is thereafter precluded from pursuing against C any claim which formed part of his claim against B. I do not think that my noble and learned friend Lord Hope of Craighead, in giving the opinion of the majority of the House, is to be so understood.
7. Mr Jameson (A) had contracted lung cancer as a result of exposure to asbestos dust during his employment by B. He brought an action in negligence against B claiming damages. Very shortly before his death the claim was settled for £80,000, which was paid just after his death. It was appreciated that his claim on a full valuation was worth £130,000 but also that the outcome of the litigation was uncertain. About a year after his death, a claim on behalf of his widow was brought under the Fatal Accidents Act 1976 for damages for her loss of dependency. This second action was brought against C, in whose premises A had worked during some of the time when he had been exposed to asbestos dust during his employment by B. Section 4 of the 1976 Act, as substituted by section 3(1) of the Administration of Justice Act 1982, had the effect that the widow did not have, in estimating the value of her dependency, to give credit for the damages of £80,000 which she had inherited from A on his death. Thus, if the claim was maintainable, C would be potentially liable to the widow for a substantial sum and could look to B for contribution under the 1978 Act, and B would be potentially liable to contribute without any requirement that credit should be given for the £80,000 it had already paid. The widow could only maintain her claim against C if A, had he lived, would have been able to do so and it was held that A could not have done so because, by accepting £80,000 from B in full and final settlement of his claim, he had extinguished it and so had no claim which he could have pursued against C.
8. This conclusion was reached by a number of steps which included the following:
(1) Proof of damage is an essential step in establishing a claim in tortious negligence ( 1 AC 455, 472A-C).
(2) Such a claim is a claim for unliquidated damages (473D, 474A).
(3) Such a claim is liquidated when either judgment is given for a specific sum or a specific sum is accepted in a compromise agreement (473D, 474B, 474E).
(4) A judgment on such a claim will ordinarily be taken to fix the full measure of a claimant's loss (473E, 474B).
(5) A sum accepted in settlement of such a claim may also fix the full measure of a claimant's loss (473E, 474E-F): whether it does so or not depends on the proper construction of the compromise agreement in its context (473B, 476E, 474H).
(6) On the facts of A's case, the sum accepted from B in settlement was to be taken as representing the full measure of A's loss: it followed that A's claim in tortious negligence was extinguished and he had no claim which could be pursued against C (476E).
I do not think the first four of these steps are controversial. The fifth proposition may perhaps have been stated a little too absolutely in Jameson, but as expressed above I do not think it can be challenged. There was clearly room for more than one view, as the division of judicial opinion in Jameson showed, whether the sum accepted in settlement by A was to be taken as representing the full measure of his loss, but if it did the conclusion followed: A could not have proved damage, an essential ingredient, in his action against C, and that was fatal to the widow's Fatal Accidents Act claim against C.
9. In considering whether a sum accepted under a compromise agreement should be taken to fix the full measure of A's loss, so as to preclude action against C in tort in respect of the same damage, and so as to restrict any action against C in contract in respect of the same damage to a claim for nominal damages, the terms of the settlement agreement between A and B must be the primary focus of attention, and the agreement must be construed in its appropriate factual context. In construing it various significant points must in my opinion be borne clearly in mind:
(1) The release of one concurrent tortfeasor does not have the effect in law of releasing another concurrent tortfeasor and the release of one contract-breaker does not have the effect in law of releasing a successive contract-breaker.
(2) An agreement made between A and B will not affect A's rights against C unless either (a) A agrees to forgo or waive rights which he would otherwise enjoy against C, in which case his agreement is enforceable by B, or (b) the agreement falls within that limited class of contracts which either at common law or by virtue of the Contracts (Rights of Third Parties) Act 1999 is enforceable by C as a third party.
(3) The use of clear and comprehensive language to preclude the pursuit of claims and cross-claims as between A and B has little bearing on the question whether the agreement represents the full measure of A's loss. The more inadequate the compensation agreed to be paid by B, the greater the need for B to protect himself against any possibility of further action by A to obtain a full measure of redress.
(4) While an express reservation by A of his right to sue C will fortify the inference that A is not treating the sum recovered from B as representing the full measure of his loss, the absence of such a reservation is of lesser and perhaps of no significance, since there is no need for A to reserve a right to do that which A is in the ordinary way fully entitled to do without any such reservation.
(5) If B, on compromising A's claim, wishes to protect himself against any claim against him by C claiming contribution, he may achieve that end either (a) by obtaining an enforceable undertaking by A not to pursue any claim against C relating to the subject matter of the compromise, or (b) by obtaining an indemnity from A against any liability to which B may become subject relating to the subject matter of the compromise.
In my consideration of this matter I have gained much assistance from the clear and illuminating judgments of the New Zealand Court of Appeal in Allison v KPMG Peat Marwick  1 NZLR 560 and from the perceptive critique of Jameson in Foskett, The Law and Practice of Compromise 5th ed, (2002), pp 119-125, paras 6-42-6-57.
10. For reasons given by my noble and learned friend Lord Mackay of Clashfern I do not conclude, on construing the compromise agreement made in this case, that it is to be taken as representing the full measure of the respondents' loss agreed between the parties to the compromise. The liquidator of Inter City had assigned to the respondents Inter City's claims against Equity & Law as well as against Target, but on terms that Inter City's creditors and the liquidator's costs were to be paid out of any sums recovered in preference to the respondents' claims. Target never withdrew its denial that it was responsible for loss caused by termination of the Equity & Law agreement. When the compromise agreement was made, Equity & Law was not a party to it and did not contribute to the £10 million paid in settlement, and no reference to the respondents' claims against it was made in the compromise agreement although the Equity & Law agreement (dealing with new business) was much more significant than the Target agreement. The respondents had notified Equity & Law of their intention to plead claims for damages for wrongful termination of the Equity & Law agreement in the action commenced by Equity & Law, and it cannot have been thought that they intended to leave themselves defenceless in that action. Equity & Law had never accepted that its summary termination of the Equity & Law agreement had been unjustified: it must have been apparent that the rehabilitation in business of the respondents depended on their showing or securing agreement that it had. There was nothing in the terms of the compromise agreement or in the relevant surrounding circumstances to suggest that the respondents entered into that agreement in full and final satisfaction of all their claims not only against Target but against Equity & Law as well. It follows that the compromise agreement did not extinguish or exhaust the claims which the respondents were entitled to pursue against Equity & Law. I agree with my noble and learned friend Lord Mackay that for the reasons he gives, with which I fully agree, and also for the short reasons given above, this appeal should be dismissed.
LORD MACKAY OF CLASHFERN
11. This is an appeal against the decision of the Court of Appeal dated 19 May 2000 allowing the respondents' appeal against the decision of Laddie J on 8 July 1999 dismissing, on a trial of a preliminary issue, the respondents' action against the appellants.
12. The respondents are the shareholders, and were formerly the directors, of Glyne Investments Ltd, which traded under the name of "Inter City". Inter City was engaged in the sale of investment products to members of the public as agent or representative for Target Life Assurance Co Ltd ("Target") and Target's associated company National Financial Management Corporation plc ("NFMC").
13. By agreement dated 25 April 1991 the first appellant purchased the sales and marketing division of Target and NFMC. Pursuant to that agreement, and by special arrangement with Lautro (the Life Assurance and Unit Trust Regulatory Organisation) the appellants established a joint marketing group with Target and NFNC ("the marketing group").
14. Following Lautro's approval of the joint marketing group, Target and NMFC closed to new business on 30 June 1991 and on 4 July 1991 Inter City entered into appointed representative agreements with Target ("the Target agreement") and with the appellants ("the Equity & Law agreement").
15. Under the Equity & Law agreement, Inter City was made an appointed representative of the appellants with a view to selling the appellants' financial products to members of the public. Under the Target agreement, Inter City was made an appointed representative of Target and NFMC with a view to enabling its representatives to continue to service Target/NFMC clients (since Target and NFMC had closed to new business there were no further Target/NFMC financial products to sell). The Target agreement, which referred to the fact that the appellants, Target and NFMC were members of the joint marketing group, incorporated the terms of the Equity & Law agreement, save in relation to three specified matters which are not relevant to the present appeal. Also on 4 July 1991 the respondents were each appointed by the appellants, Target and NFMC to be company representatives of the appellants, Target and NFMC for the purposes of the Lautro rules, and were separately appointed as company representatives by Inter City.
16. On 29 January 1993 Target (incorporating NFMC) gave notice to Inter City terminating the Target agreement with immediate effect under clause 8.1.2, which permitted summary termination if the appointed representative or a company representative engaged in conduct which in the absolute opinion of Target/NFMC was or was likely to be prejudicial to the business of Target/NFMC. As a result of this termination, Inter City lost its status as an appointed representative of Target/NFMC, and the respondents lost their status as company representatives of these companies. Target sought to justify this summary termination on the grounds that Inter City had been "churning" business. The letter of termination alleged that Inter City had "consistently failed to comply with Lautro regulations and have used sales techniques which in our opinion bring into disrepute the name of and the goodwill of Target". Notice of the termination of the Target agreement was given to Lautro and to the appellants. Churning is a description of a technique by which clients are persuaded to terminate an existing financial product and replace it with a new product as a result of which the commission payable to the person who made this arrangement on behalf of the seller of the financial product receives higher commission than he would do if the existing financial product had been continued.
17. By letter dated 8 February 1993, the appellants summarily terminated the Equity & Law agreement under clause 8.1.2. of the Equity & Law agreement. The letter did not identify any particular provision under clause 8.1.2. or give any reason for the termination. As a result of this termination, Inter City lost its status as an appointed representative of the appellants and the respondents lost their status as company representatives of the appellants.
18. By writ issued on 1 March 1993 Inter City sued Target for a declaration that Target remained liable to Inter City for commission under the Target agreement notwithstanding the purported termination of the Target agreement. The appellants were never made parties to the Target proceedings.
19. On 8 April 1993 Target served a defence and counterclaim in the Target proceedings alleging that Inter City had been caught "churning" business. Target purported to justify the summary termination of the Target agreement on the grounds of Inter City's alleged churning, and Target counterclaimed £3,330,000 (later reduced to about £1,765,000) which it said it would be required by Lautro to offer as compensation to those investors who had been subjected to "churning" by Inter City.
20. On 20 February 1996 the court ordered the trial of preliminary issues in the Target proceedings. The preliminary issues ordered to be tried were (1) whether Target's termination of the Target agreement was unlawful; (2) whether Target's refusal thereafter to pay renewal commissions earned by Inter City was unlawful; and (3) whether Inter City was liable in damages to Target for breach of the Target agreement. The central question for purposes of determining these preliminary issues was whether Inter City and the respondents had engaged in churning as alleged by Target.
21. Before the hearing of the preliminary issue in the Target proceedings, Inter City had on 18 July 1996 commenced a creditors' voluntary winding up on the basis that by reason of its liabilities it was insolvent and unable to pay its debts. Inter City was unable to continue trading because its income from renewal commissions had been withheld and serious allegations of mis-selling were being pursued against it and its company representatives.
22. Also on 18 July 1996 Inter City, acting by its liquidator, assigned to the respondents (who were its directors and shareholders) the full and exclusive benefit of all Inter City's rights of action against Target arising out of or in connection with the termination of the Target agreement, and against the appellants arising out of or in connection with the termination of the Equity & Law agreement. The assignment was made on terms that any monies received by the respondents in pursuance of their rights under the assignment should first be applied in full satisfaction of Inter City's creditors and the liquidator's costs, with the balance being available to the respondents for their own benefit. On 29 July 1996 the respondents were substituted for Inter City as plaintiffs in the Target proceedings. The respondents were granted legal aid to pursue the Target proceedings.
23. The trial of the preliminary issues in the Target proceedings came before Moses J in June 1997. On the tenth day of the hearing, Target unreservedly withdrew all of its allegations of churning and serious misconduct and conceded liability. In his judgment Moses J was highly critical of Target and observed that the result of Target's allegations and the termination of the Target agreement was that Inter City had gone into liquidation, that many dependent on Inter City had lost their jobs and that the respondents were placed in great personal difficulties as well as having difficulties in finding further work. Moses J ordered that the preliminary issues be determined in the respondents' favour and that Target's counterclaim be dismissed and that Target should pay the respondents' costs of the Target proceedings on an indemnity basis.
24. On 29 September 1997 Target (by then known as Hill Samuel Life Assurance Ltd) wrote to the Personal Investment Authority ("the PIA") to notify the PIA of the outcome of the trial of the preliminary issues and to withdraw unreservedly all allegations which had been made by Target against Inter City.
25. Meanwhile on 8 September 1997 the respondents had amended the re-amended statement of claim in the Target proceedings to include claims under the heading "Destruction of the Plaintiff's Business". They pleaded that Target's unlawful termination of the Target agreement was the "effective and dominant" cause of amongst other things, the termination of the Equity & Law agreement by the appellants and their refusal to pay any further commissions to Inter City. This was denied by Target who contended that the appellants had "conducted their own investigation" and had "exercised an independent judgment in deciding to terminate the Equity & Law Agreement". The respondents set out the losses said to have been suffered by Inter City as a result of the unlawful termination of the Target agreement. The losses pleaded included the loss of the value of the business of Inter City as a going concern, which included the loss of the commissions which had been withheld by the appellants consequent upon the termination of the Equity & Law agreement.
26. With a view to identifying the whole of the claim with which Target was faced, the respondents prepared a draft statement of claim in a further proposed action against Target which they sent to Target's solicitors on 3 February 1998. This statement contained claims by the respondents acting both in their own right and as assignees of Inter City's rights for damages in tort and for breach of contract in connection with the preparation and publication by Target of reports and references concerning Inter City and the respondents after the termination of the Target agreement. In that draft statement it was further alleged that it was foreseeable, by reason of the publication by Target of untrue references and reports, that amongst other things (1) the respondents would be unable to obtain employment in the financial services industry or elsewhere in responsible management positions and (2) Equity & Law would terminate the Equity & Law agreement. In paragraph 37 it was alleged that these things in fact occurred, and in paragraph 38 it was alleged that by reason of the termination of the Target agreement and the Equity & Law agreement and the provision of untrue and inaccurate references, the respondents each suffered substantial personal losses and damages.
27. By written agreement dated 23 April 1998 which was incorporated as a schedule to a consent order in the Target proceedings staying the Target proceedings, the respondents and Inter City acting by its liquidator agreed terms of settlement with Target, which had by then become Abbey Life Assurance Co Ltd ("the settlement agreement"). The appellants were not parties to the settlement agreement. The terms of this agreement are crucial to the decision of the issue between the parties in this appeal.
28. On 4 November 1993 and consequent upon the termination of the Equity & Law agreement on 8 February 1993, the first appellant commenced High Court proceedings against Inter City and the respondents for the repayment of advance commissions in the sum of £25,012.02 (plus interest) which had been paid pursuant to the Equity & Law agreement.
29. In a letter dated 2 November 1993 the respondents' solicitors had said that whether or not the advance commissions were repayable, Inter City and the respondents had a substantial set-off and counterclaim against the appellants for the wrongful termination of the Equity & Law agreement, with the result that Inter City and the respondents denied liability to the first appellant in the 1993 action.
30. On 22 December 1993 the first appellant erroneously obtained judgment in default against Inter City and the respondents in that action and this judgment was set aside by consent on 1 September 1997. No defence and counterclaim was served in this action and it became dormant. Nevertheless, the first appellant made a claim in Inter City's liquidation based on the judgment debt (since set aside), and the first appellant's claim for repayment of the advance commissions is, as confirmed by the liquidator, still a contingent claim in Inter City's liquidation. The claim for repayment advanced in the 1993 action which with interest now totals over £32,000 was incorporated into the appellants' counterclaim in the present proceedings. The appellants have confirmed that if the respondents are not entitled to pursue the present proceedings the appellants will not pursue the 1993 action nor their counterclaim in these proceedings, and the appellants will not seek to prove or continue to prove in Inter City's liquidation.
31. Following inconclusive correspondence the present proceedings were commenced by writ issued on 23 November 1998. The respondents claim on their own behalves and as assignees of Inter City. The validity of the assignment was challenged by the appellants, with the result that a protective writ in the name of Inter City was issued on 3 February 1999. By order dated 26 April 1999 the two sets of proceedings were consolidated.