Defenders Beware – Absolvitor precludes recovery from third parties

The Outer House decision in Loretto Housing Association v Cruden Building & Renewals and another confirms that contribution cannot be sought from a third party where decree of absolvitor has been pronounced against the defender following an extra-judicial settlement. Here, we discuss the case and the lessons learned to ensure that contributions can be sought.

The decision arose from a case originally brought against Cruden Building & Renewals & Another by Loretto Housing Association as a result of allegedly defective building works. Cruden denied liability and brought various third parties into the action one of whom was Shelia Bunton, the clerk of works on the building contract. Cruden claimed any loss sustained by Loretto had been caused or materially contributed to by Ms Bunton's breach of her contract with Loretto. In the event Cruden was found liable to Loretto it argued that it was entitled to a right of relief against Ms Bunton under section 3(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940, or alternatively under the common law of unjustified enrichment.

A settlement was reached between Cruden and Loretto prior to the Proof following which Cruden obtained decree of absolvitor in its favour, precluding any further claims against it arising from the same circumstances. Cruden continued to pursue recovery of a proportion of the settlement costs from Ms Bunton and it is that issue which Lord Braid required to consider.

The arguments

In relation to the 1940 Act Ms Bunton argued that s 3(2) allowed relief only where the relevant party had been 'found liable' for the damages in question. A decree of absolvitor did not constitute a finding of liability and therefore relief could not be claimed. Cruden argued the phrase 'found liable' had to be read "in a less than obvious way" to encompass a person who had been absolved of liability following an agreed settlement.

Cruden argued that the common law on unjust enrichment was such that where one of multiple wrongdoers settles a claim in excess of its share (either on a pro rata or per capita basis) that party can claim the excess from the others. Ms Bunton relied upon the decision of the Inner House (Scottish Civil Court of Appeal) decision in National Coal Board v Thomson 1959 SC 353 which authoritatively decided there was no right of relief where decree had not passed. Cruden sought to criticise the reasoning in Thomson and argued that in any event it ought to be distinguished on the basis that payment had been made on a voluntary basis before proceedings were raised. Here, payment was made pursuant to a binding settlement agreement to settle an ongoing litigation.

The decision

Lord Braid found in favour of Ms Bunton on both grounds. Decree of absolvitor could not be interpreted as a finding of liability, given that those two terms were diametrically opposed. On the common law argument, although commenting that the law in this area may be 'unsatisfactory', he was bound by the Inner House decision in National Coal Board and held that the current case could not be distinguished on the facts.

The key point for defenders is that to preserve a right of relief there must be a decree for payment against the defender for the settlement, both in terms of the principal sum and expenses. This should be carefully considered at the point of agreeing settlement where a party intends to seek any right of relief against another party at a later stage.