Building contractor that settled action out of court unable to exercise right of relief against clerk of works

Cruden Buildings and Renewals Ltd had been the first defender in an action originally raised by Loretto Housing Association which was settled prior to proof in August 2021. It was argued by Cruden that the case of National Coal Board v Thomson (1959), which authoritatively decided there was no common law right of relief in this type of case, could be distinguished or alternatively that it was wrongly decided.

The case was heard by Lord Braid. Howie QC appeared for Cruden and Manson, advocate, for the third party, Sheila Bunton, from which relief was sought.

Empty of content

The action by Loretto Housing Association arose in respect of allegedly defective building works carried out by Cruden Buildings and the second defender at a development site in Glasgow. Ms Bunton was convened as a third party to the case as she, trading as John Arnott Associates, had been the clerk of works on the building contract. A full and final settlement of £971,250 was paid by Cruden to Loretto in the summer of 2021, after which Cruden was assoilzied from the conclusion of the summons.

It was averred that any loss sustained by Loretto had been caused or materially contributed to by Ms Bunton’s breach of her separate contract with Loretto, and thus the defender was entitled to a right of relief against her under section 3(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940. Alternatively, it was averred that Cruden had a common law right of relief of one third of the sum paid.

Counsel for Ms Bunton submitted that it was plain from the wording of section 3(2) that a person seeking a right of relief required to be found liable to the injured party. Since a decree of absolvitor had been pronounced in respect of the defender, the opposite was true and thus no statutory right of relief could be exercised.

In its own submissions, the defender argued for the phrase “found liable” to be interpreted as to encompass a person in whose favour decree of absolvitor had been granted following an agreed settlement. A decree which merely gave effect to an agreed settlement was empty of content, and a façade; no less so was a decree of absolvitor following an agreed settlement.

Alternatively, it was submitted for the defender that Thomson could be distinguished from the present case on the basis that the payment there was regarded as a voluntary one, made before proceedings had been raised. In this case, payment was made pursuant to a binding settlement agreement to settle an ongoing litigation, which had the effect of liquidating the debt.

Unsatisfactory state of affairs

In his decision, Lord Braid began: “The opening words of section 3(2) make clear that the party relying on that provision should have paid the sum specified in the decree – the sum ‘in which he has been found liable’. That requirement cannot be satisfied in the case of a decree of absolvitor, which by definition, contains no reference to any sum, let alone does it find the defender liable to pay any sum.”

Turning to the common law case, he observed: “In some respects the law may be thought to be in an unsatisfactory state, in that the defender who consents to a decree passing against it for an agreed sum will have a right of relief; whereas one who reaches the same settlement but who pays it to the injured party prior to decree, thus obtaining decree of absolvitor, will not. That may be perceived to have no basis in logic and to be contrary to the principle first enunciated in [Stair’s Institutions].”

However, he went on to say: “Nonetheless it has the advantage of certainty, in that defenders know that to preserve a right of relief a decree must be granted; and recovery will always be of such amount as is just. The position contended for by the defender would also lead to an unsatisfactory state of affairs, since, if correct, the basis of recovery from any joint wrong-doers would vary according to whether decree was obtained.”

Noting that the decision in Thomson had attracted some minor criticism over the years, Lord Braid added: “It is true that in two Inner House cases the view was expressed in passing that it may have to be reconsidered one day, but that hardly amounts to trenchant criticism. But whether it is an unsatisfactory decision or not, I am bound by it. It is not open to me to prefer the dissenting opinion of Lord Strachan, strongly founded upon by senior counsel for the defender.”

He concluded: “There is no valid basis for distinguishing the facts in Thomson from those in the present case, since an extrajudicial settlement is just that, whether it is reached before or after proceedings have been raised. In neither case does a decree of payment pass. Indeed, as counsel for the third party submitted, on one view the defender here is in a weaker position than the pursuer in Thomson since there is a court finding to the effect that it is not liable.”

Lord Braid therefore dismissed the defender’s action directed against the third party.