Neutral Citation Number: [2009] EWHC 927 (TCC)
Case No: HT 07-177;HT 07-178
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 01/05/2009

Before :

THE HON. MR. JUSTICE RAMSEY
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Between :

	Siemens Building Technologies FE Limited	Part 20 Claimant	
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	Supershield Limited	Part 20 Defendant	

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Tim Lord QC (instructed by Watmores) for the Part 20 Claimant
Mark Cannon QC (instructed by Kennedys) for the part 20 Defendant

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Judgment

The Hon. Mr. Justice Ramsey: 
Introduction

1.	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.

2.	Originally proceedings were brought by claim forms dated 14 June 2007 against the Contractor, Skanska Construction Ltd (“Skanska”) formerly known as Kvaerner Construction Ltd, by three parties: Trucidator Ltd, the lessee of the premises and Slaughter and May, the occupiers, by claim form in case HT-07-177 and Deka Immobilien Investment GMBH (“Deka”), the freeholder/lessor, by claim form in case HT-07-178. 

3.	Skanska had constructed the new office building under a building contract dated 28 May 1999 (“the Building Contract”) entered into with a developer, Helical Bar (Chiswell Street) Ltd. They had also provided warranties to Trucidator Ltd, Slaughter and May and Deka, who I shall refer to, together, as the claiming parties.

4.	Skanska joined the mechanical and electrical subcontractor, Haden Young Ltd (“Haden Young”) into the proceedings. They had been retained by Skanska to install the sprinkler system as part of the mechanical and electrical works. In turn Haden Young joined Siemens Building Technologies FE Ltd, formerly Preussag Fire Protection Ltd (“Siemens”), into the proceedings. They had entered into a sub-contract with Haden Young to supply and install the sprinkler system.

5.	Siemens likewise then joined Supershield Ltd (“Supershield”) into the proceedings. They had a sub-contract with Siemens to install the sprinkler system.

6.	There was a mediation in June 2008 attended by all parties. This led to two Tomlin Orders by which Siemens settled the claims with the parties up the contractual chain but maintained its Part 20 claim against Supershield. That claim and the ability of Siemens to recover the settlement sum from Supershield form the subject matter of this Judgment.
 
The Flood

7.	There is little in issue between the parties as to the sequence of events that led to the flood.

8.	The water storage tank for the sprinkler system was located in the basement of the premises. It stored water which, in the event of the operation of sprinkler system in the building, would be pumped through the pipework serving the sprinklers. The tank was divided into two parts and the mains water supply was connected to each part of the tank. When the level of the water in one part of the tank dropped, a float valve would operate to refill the water tank. This float valve was an industrial version of the ball valve typically found in domestic water supply tanks.  The float device is connected to a lever arm which operates the valve lever which turns the water on and off. The lever arm was attached at one end to the float and at the other end to the valve lever. The connection to the float was by two nuts and bolts some centimetres apart. It was one of these connections which failed in the following circumstances, causing water to overflow.

9.	At about 5:00pm on 9 October 2001 a sprinkler pump was activated, the precise cause for this being uncertain. When a sprinkler pump operates it causes water to be drawn from and returned to the tank. In doing so, the float causes the valve to operate. In this case when one of two float valves operated in this way a nut and bolt connection failed and the bolt fell out. This meant that the valve was in the open position letting water into the tank. Without any fixed connection to the float at the end of the lever arm, the valve did not shut down when the tank reached the required level but continued to fill up.

10.	The water from the tank overflowed into a bunded area which contained a 600 mm high wall designed to retain any overflowing water. There were drains in the tank room floor within the bunded area but these became blocked or partially blocked by packaging, insulating or other material on the tank room floor.

11.	Water then overflowed the bund, passed over the door threshold to outside the tank room. The water reached electrical equipment in the basement which then suffered substantial damage. The Building Management System (“BMS”) was in the process of being installed and received a number of signals indicating conditions arising from the incident. Those would have been displayed as a signal on the panel and might have given an audible warning. However, at that time the BMS was not being monitored 24 hours a day.

Those involved in the installation of the float valve

12.	Under the sub-contract dated 23 December 1999 between Haden Young and Siemens, the Sub-Contract Works were described as 

“Supply and installation of fire protection sprinkler system inclusive of incoming fire main from point of connection, sprinkler tank, skid mounted pump set, and all associated design works.”

13.	That evidently included the work in supplying and installing the float valve. Siemens then entered into sub-contracts and supply contracts for the work to the sprinkler system.

14.	One was a sub-contract between Siemens and Supershield, also dated 23 December 1999. In that document there are three places where there are references to the work which was to be carried out by Supershield. First in Schedule 1 headed “The Subcontract Sum” paragraph (B) which is intended to contain “Details of the Prime Contract”, states as follows: 

“To supply site operatives for the installation of the sprinkler system complete with all sprinkler control valves, pumps and associated pipework, valves, starters and controllers. Floor zone valves with all equipment and risers.” 

15.	Secondly Schedule 2, headed “The Subcontract Works and Site Operations”, states: 

“To install the complete sprinkler system with all associated equipment, including testing and commissioning the electrical pumping units with all associated pipework valves, starters controllers. Including all small bore drains, controls pipework. Testing for the works, commissioning, marking up record drawings and compliance with the company quality control systems.”

16.	Thirdly, Schedule 4 contains a list of the Contract Documents which included drawing 68246-001.

17.	Siemens contend that the descriptions in Schedules 1 and 2 and the drawings in Schedule 4 make Supershield responsible for the installation of the float valve. Supershield dispute that and say that the effect of their obligation under the subcontract was that the reference to “complete sprinkler system” meant that they had to install and test the sprinkler pipework to and from the sprinkler tank. They say that the float valve and its arm were part of the sprinkler tank, just as the housing for the ball float valve and the valve plates were.

18.	The supply and installation for the sprinkler tank was subcontracted by Siemens to AC Plastics Industries Ltd (“AC Plastics”). They quoted for the supply, delivery and installation of the sprinkler tank by a quotation dated 12 October 1999. That quotation included provision for two ball valve boxes and two ball valve plates. On 6 December 1999 Siemens instructed AC Plastics to proceed with the manufacture and installation of the tank.

19.	The ball valve assemblies were the subject of a separate supply contract between Siemens and Lansdale Viking Ltd. They were manufactured by The Peter Smith Valve Company Ltd. The ball valve assemblies were delivered to the site with other valves which formed part of the sprinkler system.

20.	Within Siemens’ subcontract with AC Plastics, there were a number of connections which AC Plastics were to provide. In relation to pipes in the tank which were fitted with vortex inhibitors, these pipes terminated in stub flanges on the outside of the tank. In the case of the ball valve assemblies, AC Plastics were to provide holes in external plates to allow the end of the incoming water pipe to be connected through the plate to the ball valve. The end of this pipe consisted of a piece of pipe referred to as a “stool piece” which fitted between the valve at the end of the incoming water pipe and the wall of the tank.

The Issues

21.	The central question which I have to decide is whether Supershield is liable to Siemens for the sums which Siemens have agreed to pay to Haden Young in settlement of Haden Young’s claims against Siemens. This question raises a number of issues on the facts of this case:

(1)	Under the Sub-contract was Supershield obliged to install the ball valve and/or tighten up the nuts and bolts which held the ball valve float arm in place and/or to see that this was done?
(2)	Did Supershield perform that obligation?
(3)	Did the nut and bolt on the ball valve float arm become undone on 9 October 2001 because they were insufficiently tightened by whoever installed them or were they loosened at some stage between practical completion in December 2000 and the flood in October 2001?
(4)	In either event, are Supershield liable to Siemens for loss and damage sustained by the failure of the ball float valve arm to operate on 9 October 2001?
(5)	Alternatively, does Siemens have a claim against Supershield pursuant to the Civil Liability (Contribution) Act 1978 because Supershield was liable to Haden Young in tort in respect of the same damage as Siemens? Originally Siemens had also put their case on the basis of a contractual liability arising between Supershield and Haden Young by virtue of Clause 3.1 of the Subcontract and s.1.(1)(b) of the Contracts (Rights of Third Parties) Act 1999 but this was not proceeded with as the 1999 Act was not in force at the relevant time.
(6)	If so, is Supershield liable to Siemens for the sums which Siemens paid to settle the claim by Haden Young on the basis that Siemens entered into a reasonable settlement?

Witness and Expert evidence

22.	I heard evidence from three witnesses each of whom provided witness statements. Mr Andrew Carr, currently the Contracts Manger of AC Plastics was called by Siemens. Supershield called Mr Stephen Anderson, a director of Supershield, a company he established in 1994 and Mr Stephen Tibble who was Supershield’s foreman for the work at the building in and after January 2000.

23.	Witness statements were also served by Siemens from Ian Smallbone and by Supershield from Thomas Tait, neither of whom was called and I have not taken their evidence into account. 

24.	I heard expert evidence from Mr Mark Phillips of Burgoynes, instructed on behalf of Siemens and Mr Douglas Oughton of Faber Maunsell, instructed on behalf of Supershield. Originally Mr Phillips had been instructed shortly after the escape of water in October 2001, first by loss adjusters and then by solicitors acting for the claiming parties. Mr Oughton was originally instructed on behalf of several of the defending parties but after the settlement was instructed only by Supershield.  

25.	In addition the parties instructed a joint expert, Mr Simon Clarke of Sandberg to examine the bolt to see what it showed as evidence of tightening.  

Supershield’s obligations under the Subcontract

26.	Recital A of the Subcontract states that Siemens wishes to have executed the works referred to in Schedule 2, the Subcontract Works. During the course of submissions and evidence it became clear that Supershield sought to contend that Schedule 2 of the Subcontract in fact described works to be performed by Siemens and that paragraph (B) of Schedule 1 which was supposed to contain “Details of the Prime Contract” in fact set out the scope of  the Subcontract Works. The drawings in Schedule 4 also formed part of the Supershield Subcontract and I was referred to drawing 68246-001 which showed the General Arrangement and Sections of the Sprinkler Fire Pumps and included details of the sprinkler system water tank as well as pipework and valves in that area.

27.	I consider that there is strength in Supershield’s submission that the contents of paragraph (B) of Schedule 1 and of Schedule 2 do not match the descriptions and have, effectively, been transposed. There are aspects of the work described in Schedule 2 which Siemens accept could not and did not form part of Supershield’s Subcontract Works, such as electrical work whereas they accept that the description in Paragraph (B) of Schedule 1 does not have those difficulties. 

28.	I consider that the Subcontract Works which Supershield had to perform are more appropriately described in paragraph (B) of Schedule 1. In the words of Lord Hoffmann’s fifth principle in ICS v West Bromwich [1998] 1 WLR 896 at 912, whilst words should be given their “natural and ordinary meaning”, if from the background one has to conclude that something must have gone wrong with the language: “the law does not require judges to attribute to the parties an intention which they plainly could not have had.” He added that “Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191 , 201: 
“if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.” ”

29.	However, I consider that it is not necessary to go as far as transposing the two schedules because, on analysis, so far as is relevant, both Schedule 2 and paragraph (B) of Schedule 1 contain similar obligations in respect of the matters relied on by Siemens. Under Schedule 1 the relevant party had to supply site operatives for the “installation of the sprinkler system complete with all … associated pipework, valves…”. Schedule 2 similarly provides that the relevant party had to “install the complete sprinkler system…with all associated pipework, valves…”. In my judgment, the two provisions, in their relevant terms, impose the same obligations. The question is whether that obligation included the installation of the ball valve, including the connection to the float lever arm.

30.	Supershield contend that the reference in both Schedules to a complete sprinkler system should be construed to exclude any work beyond the face of the tank. They point to the statement on the drawing showing that the tank was not within their Subcontract Works and to evidence from Mr Anderson, a director of Supershield, as to his view of what was meant. I do not consider that this evidence from Mr Anderson is admissible to construe the obligation. As Lord Hoffmann made clear in his third principle in ICS v West Bromwich BS at 912, such evidence of subjective intention is not admissible. I do not consider that Supershield can point to anything to establish that there was some common understanding between Siemens and Supershield as to the meaning of “complete sprinkler system”. Nor do I consider that Supershield can bring this within some special meaning established by trade or custom. Mr Anderson’s evidence does not establish that and, in any event, Mr Carr of AC Plastics did not agree with Mr Anderson on the extent of the obligations. In any event, such matters were not Supershield’s pleaded basis for establishing the obligations.

31.	In the absence of any special meaning derived from the background or any other similar basis for establishing a special meaning, the first matter to look at is the ordinary and natural meaning. On this basis, the description of Supershield’s work includes valves associated with the complete sprinkler system. That would, in my judgment, be apt to cover the ball valve in the water tank. The ball valve is connected to the incoming water main and supplies water to fill up the tank and to that extent is part of the complete sprinkler system. Supershield accept that they were under an obligation to install the pipework and valves between the incoming water main and the water tank. They accept that this includes the final piece of pipework, the stool piece, which is also bolted through the plate on the face of the ball valve box. To complete the pipework for the mains water the stool piece must be connected by bolting it through that plate from one side onto the ball valve on the other side of the plate. In other words the final connection between the stool piece and the tank is also the necessary connection between the tank and the ball valve. That shows, in my judgment, that the stool piece and the ball valve both form part of the complete sprinkler system which Supershield had to install. 

32.	Drawing 68246-001, which formed part of the Subcontract Documents in Schedule 4 to the Subcontract is also consistent with the ball valve forming part of Supershield’s work. That drawing shows the tank with a number of pipes and valves connected to it. There is a reference on that drawing alongside a plan of the tank saying that the tank is to be manufactured and installed by AC Plastics. 

33.	Under the terms of Recital (E) and Clause 2.2(e) of the Subcontract between Supershield and Siemens, Supershield were deemed to have made full allowance for all aspects affecting the execution of the Subcontract Works and were responsible for the co-ordination and integration of the Subcontract Works with any element of works carried out by any specialist contractor, subcontractor or supplier. I consider that the reference to the tank on the drawing is sufficient in itself to make the scope and extent of the work to be performed by AC Plastics relevant information in construing the obligation of Supershield under the Subcontract. I also accept the submission of Siemens that the effect of the Subcontract provisions meant that Supershield’s obligations had to make allowance for and take account of the scope and extent of the work to be performed by AC Plastics. As a result, in order to see what was included within the description of the tank, I consider that it is appropriate to look at the terms of the subcontract between Siemens and AC Plastics.      

34.	The documents setting out the scope of the work to be performed by AC Plastics show that the tank was supplied with a number of components and connections but that the ball valve did not form part of the scope of supply or installation by AC plastics. In relation to the ball valve all that AC Plastics had to do was to supply and install the ball valve box and provide for a plate in the tank for the ball valve to connect to.  This contrasts with the suction pipes in the tank which, complete with vortex inhibitors, were shown on the documents to part of the supply and installation by AC Plastics.

35.	I therefore find that, under the Subcontract, it was Supershield’s obligation to install the ball valve. This would necessarily require the ball valve float arm to be secured to the lever of the valve by the use of the two bolts. When AC Plastics had installed the tank it had to be tested. Before that could happen Supershield had to return to site and connect up to the tank by, for instance, fitting the pipework and valves to the flanges of the suction pipes, so that the tank was watertight and could be filled and tested. The water main also had to be connected to the tank so that water flowed to the ball valve. In this case, the tank was initially filled by hosepipe as the mains supply was not available. Supershield then returned on 11 June 2000 to make the mains connection. When the connection was made it was evidently necessary to confirm that the lever arm was operating correctly.
 
36.	I consider that under the Supershield subcontract, Supershield had an obligation both to install the ball float valve and lever arm and to carry out any adjustments to it which were necessary to ensure that it was operating correctly. 

37.	As a result on the first issue I find that Supershield was obliged under the Subcontract to install the stool piece and the ball valve and, as part of the installation had to tighten up the nuts and bolts which connected the ball valve lever to the float arm. It was one of those nuts and bolts which worked loose and fell out. 

Did Supershield perform that obligation?

38.	This is a straightforward question of fact which, in the absence of any documentary evidence, depends on the witness evidence. In the light of my finding on Supershield’s contractual liability for installing the ball valve, this issue may not matter but I deal with it for completeness. 
 
39.	Mr. Carr of AC Plastic who was called by Siemens was not involved in the physical work carried out at the building but was involved, at the time, in organising the delivery to site of the necessary components for the tank. He says that it would be inconsistent with the practice of AC Plastics at the time for them to install the valve and he says that it is inconceivable that, had they done so, they would not have charged Siemens for it and there is no evidence of this. 

40.	Mr Anderson, as a director of Supershield, was involved in tendering for the work at the building and corresponded with Mr Brian Smith, Siemens Contracts Manager. He refers to a copy of drawing which, with Mr Tibble, he marked up to show their view of the works which they were obliged to carry out under the Subcontract and which were carried out by Supershield. On that drawing he shows the stool piece and ball valve as not being in Supershield’s supply or installed by them. He says that the ball valve float arm is very important as it helps regulate the level of water inside the tank and is usually the responsibility of the tank manufacturers.

41.	Mr Tibble confirms in his statement that AC Plastics installed the tank. He adds “To my knowledge, this process always includes the internal parts, including the ball valve, being fitted while the tank is being built.” He says that he has marked up drawing with Mr Anderson to show the extent of Supershield’s works in the tank room. He says that “To the best of my knowledge, at no time in over 13 years of working at Supershield did I or any other Supershield employee install, fit or adjust the internal parts of a tank.” 

42.	Mr Tibble also says that he attended site on 11 June 2000  to connect the water supply. He says that he did so, turned on the water main, tested for leaks and opened the main pipe valve to allow the tank to fill. He says in his statement that “The tank filled to the preset level set by the ball valve which had been installed and adjusted previously, in my view, by AC Plastics.” 

43.	It can be seen in his statement that he makes general statements about what always happens and what his general experience was. He then expresses the “view” that AC Plastics installed and adjusted the ball valve.  

44.	In his oral evidence, he said that the number of Supershield’s employees varied between two and four, including himself and that they would not have installed the ball valve without his knowledge. He said that he had not installed it and he knew that no one else had installed it.

45.	The evidence in his witness statement dealt more with the general position than the particular situation on this project. It was only in his oral evidence that he said that he did not install the ball valve and that he knew that none of the other employees had done so.  Mr Tibble gave very little evidence of what happened prior to his visit in June 2000. On 11 June 2000 when he went back to site on a Saturday to deal with the connection to the water main, he was clearly keen to finish the work as soon as possible on the basis of what he described as “job and knock”, that is that he would be paid for a day even if the job took a shorter time. He seems to have paid very little attention to whether the ball valve was operating properly, this being the first occasion on which water flowed through it.  

46.	Whilst I make allowance for the fact that Mr Tibble was not used to giving evidence,  I found his evidence, particularly about what he and the other Supershield operatives had done, less than convincing. At one stage he came close to giving a detailed explanation of how the ball valve would have been fitted. Whilst he himself may not have fitted the ball valve and stool piece, I do not accept his evidence about what work had been carried out by the other Supershield operatives. I consider that this aspect of his evidence was an elaboration which, despite his assertion, was not based on what he knew.  

47.	In this case there are essentially only two possibilities as to which party fitted the ball valve: either it was fitted by Supershield’s operatives or it was fitted by operatives from AC Plastics. I reject any suggestion that Siemens themselves fitted it as they did not have labour on site and there is no possible reason why Siemens’ supervisory staff should fit the stool piece and ball valve. Nor is there any credible possibility that another third party fitted the ball valve.

48.	I have come to the conclusion that, given my view of Mr Tibble’s evidence, the probability is that Supershield’s operatives installed the stool piece and the ball valve rather than AC Plastics or any other party. I say this for the following reasons:

(1)	I do not accept Mr Tibble’s evidence as to his knowledge of what the other operatives were doing; 
(2)	The stool piece which, as Supershield accepted, was part of their work could only in practice be properly fitted by the same person who fitted the ball valve. A division of responsibility over the fitting of the two pieces would not have made practical sense and it is more likely that the person who fitted the stool piece also fitted the ball valve; 
(3)	There is no proper explanation of why Supershield did not fit the stool piece which evidently formed part of their work;
(4)	The ball valve, like the other valves was supplied by Lansdale Viking Ltd and Supershield installed the other valves;
(5)	AC Plastics would be expected to install the items which they supplied, including the connections contained within the scope of their contract. There was no reason for them to fit the stool piece and ball valve which were supplied directly by Siemens. The installation of those items did not form part of the work of AC Plastics, there is no evidence of an instruction for them to do so or of any request for payment which would be expected if they had carried out that work.
(6)	There was some evidence from Mr Tibble that AC Plastics had installed the ball valve at the previous project at Wood Street/Gresham Street. This arose in evidence after Mr Carr had given evidence. However, I do not think that it takes the matter any further. Without knowing the split of responsibilities within the contracts for that other project, I do not consider that the evidence assists in establishing what happened on this project. 

When was the nut and bolt not properly tightened

49.	The experts, Mr Phillips and Mr Oughton, provided a helpful statement which showed that they agreed on many matters. They agreed that the process by which the connection failed was that the nut and bolt became loose, the nut fell off and the bolt came out and that this was the result of the relevant nut and bolt not being tightened sufficiently. The two stages at which this lack of tightening may have happened were, first, at initial installation and then, secondly, at a subsequent occasion when the nut and bolt might have been loosened and not re-tightened.

50.	There is some evidence that the relevant nut and bolt were tightened at one stage. There is a mark around the hole through which the bolt passes indicating that the paint was scuffed by the nut being tightened and also the nut has some marks on it which are consistent with a degree of tightening. However, the experts are agreed that this evidence does not demonstrate anything other than some tightening. As the joint expert report of Mr Simon Clarke of Sandberg indicates this does not show that sufficient tightening or “torquing” of the nut and bolt took place. 

51.	Mr Phillips has ascertained that the valve and lever arm were usually delivered in two parts. This means that it is likely that the lever arm was connected to the valve on site. It is therefore at that stage that the nut and bolt connection would have been made initially.

52.	On my previous findings, I consider that it is likely that the stool piece and ball valve were installed by Supershield after AC Plastics had completed the tank installation. I also accept that it is likely that it was installed, as Mr Tibble started to explain, from inside the tank and obviously it would have been done before Mr Smyth, the Siemens Project Engineer, filled the tank using a hosepipe, a few days after completion of the tank installation. It is therefore likely that the ball valve was installed at about the same time as the valves to the suction pipes and the other connections which, as Mr Tibble said, Supershield installed so as to enable the tank to be filled.     
                                                                                                               
53.	Unless the nut and bolt connection was later loosened, the time when it was  insufficiently tightened would have been on the installation of the ball valve sometime in early 2000. This therefore raises the question of whether the connection was subsequently loosened. I have come to the conclusion that it was not for the following reasons:

(1)	The most likely reason to loosen the connections would be to remove or loosen the lever arm so as to adjust the level of water at which the float arm operated the valve to turn off the water supply.

(2)	There is evidence that on 1 October 2001 Haden Young wrote to Siemens to say that the capacity of the tanks needed to be increased to achieve the required capacity of 185,000 litres. That letter shows that additional work would be needed to raise the vents and overflow to allow the increase in capacity. There is no suggestion that anything was done in response to this letter by 9 October 2001 when the failure happened. In particular, I do not consider that any adjustment was made to the nut and bolt connection to the float because, from observing the photograph of that component, it is evident that the float was set at its lowest level when the failure occurred. As any adjustment in response to the concern in the letter of 1 October 2001  would necessarily have been  to increase the capacity of the tank from its original level, the float valve would not then be at the minimum level, as it was found after the failure. 

(3)	Further, the corrosion patterns on the float connection would indicate that there had not been an adjustment of the setting. Mr Oughton pointed out a mark on the area of the holes for the highest setting but I am not persuaded that this is anything more than staining.  It certainly does not coincide with the location of the lever arm if secured in those holes. Neither do I accept that the areas which can be seen to remain coated with paint indicate that the arm was once connected to a different hole, so that the painted area was protected. The location of other such areas elsewhere would tend to suggest otherwise. I therefore find that no adjustment was made to the float level.

(4)	Supershield referred to that fact that, at some stage, there was a leak to one panel in the tank. There was no satisfactory evidence of where the leaking panel was or what effect it had. A document dated 22 January 2000, but in fact created in 2001, refers to work being carried out from 8:00 to 17:00 hours on  5 February 2001 to replace a panel. The method statement refers to the draining down and refilling of the tank but does not provide for any work the ball valve. I do not consider that it is likely that the lever arm was removed on this occasion as there is no reference to it being removed in the method statement and there is no satisfactory reason why it should have been removed.

(5)	It is evident from the timesheets and other records that Supershield continued to be involved  carrying out work for Siemens in relation to the Sprinkler System right until commissioning in about September 2000. If any adjustment to the float or lever arm was required up to and including commissioning then I consider that it is likely that Supershield would have been carried out the work because of their continued involvement. There is, however, no evidence of any  activity related to the lever arm in this period.

(6)	After completion of the installation work in December 2000, the work carried out at the office building to fit out the premises did not require any work to be done to the tank. 

(7)	There is no reason why anyone should otherwise carry out any work involving the removal of that arm.

54.	In these circumstances, I consider that the probability is that the nut and bolt connection between the lever arm and the ball valve was not sufficiently tightened when it was initially installed by Supershield in early 2000, rather than at a later stage.

Is Supershield liable to Siemens?
55.	On the basis of these findings it follows that the installation of the ball valve, including the connection to the float lever arm, formed part of the Supershield Subcontract, that Supershield carried out that installation and that the failure was caused by Supershield’s failure to tighten the nut and bolt sufficiently when it was initially installed.

56.	As a result, Supershield is liable to Siemens on the  following grounds:

(1)	That Supershield was in breach of Clause 2.1 because Supershield failed to fulfil its obligations diligently and in accordance with the terms of the Subcontract.
(2)	That Supershield was in breach of the warranty under Clause 2.3(b) of the Subcontract under which they warranted and undertook to Siemens that they would exercise reasonable skill, care and diligence so that the Subcontract Works would be carried out using best up to date practice appropriate to the Subcontract Works and to the standards expressed in the Prime Contract and Subcontract.
(3)	That Supershield was in breach of Clause 3.1 of the Subcontract under which Supershield agreed, to the extent that they relate to the Subcontract Works or any part thereof, to be bound by and shall observe, perform and comply with all the obligations of Siemens under the Prime Contract and the Subcontract.
(4)	That Supershield were liable to indemnify Siemens against and from any loss, damage, expense or liability due to or resulting from the breach, non-observance or non-performance by Supershield of the provisions of the contract between Haden Young and Skanska or the contract between Haden Young and Siemens or the Subcontract.
(5)	That Supershield was in breach of the implied term under s.13 of the Supply of Goods and Services Act 1982 in failing to carry out their services with reasonable care and skill.

57.	Siemens also put their case on the basis that they were entitled to a contribution pursuant to the Civil Liability (Contribution) Act 1978 because Supershield and Siemens were liable to Haden Young in respect of the same damage. This involved  Siemens in establishing that Supershield owed a duty of care in tort to Haden Young for the damage caused by the flood. This raised potentially difficult questions on the scope of any duty of tort by a sub-sub-sub-contractor to a sub-contractor for the sums that the subcontractor has to pay to settle a claim for damage caused by a flood. In the light of my findings as to Supershield’s contractual liability to Siemens, I do not need to resolve those questions.    

Siemens’ claim against Supershield
          
58.	Siemens contend that, on the basis that liability is established they are entitled to recover the settlement which they entered into with Haden Young on the basis that it was a reasonable settlement and that the sum paid to Haden Young was reasonable. 

59.	Siemens relies on the following analysis of the settlement which was reached in the mediation which took place on 16 June 2008 and involved all parties:

(1)	Deka presented their claim for loss of rent of £1,563,816.94; for flood damage to the base build of £464,300.91 and for interest of £888,006.90, totalling about £2.92m which was settled for £1.1m representing 38%. Costs of £500,000 were settled at £300,000 or 60%. The overall settlement of £1.4m out of the claim for £3.42m amounted to 41%.
(2)	Slaughter & May presented their claim for damages of £808,024.15 and for interest of £323,209.66, totalling about £1.13m which was settled for £470,000 or 42%. Costs of £290,000 were settled at £250,000 or 86%. The overall settlement of £720,000 out of a claim for £1.42m amounted to 51%
(3)	Skanska presented their claim for legal costs of £600,000 and also claimed interest at a commercial rate. They were paid £463,000 or 77% of their legal costs.
(4)	Haden Young presented their claim for legal costs of £170,000 and also claimed interest at a commercial rate. They were paid £136,552 or 81% of their legal costs.  
60.	Overall, the claims as presented in June 2008 amounted to £5.61m and were settled by a payment of £2.72m or 48% of the sum claimed. Siemens submit that this was a reasonable settlement.

61.	Supershield contend that if liability is established it was unreasonable for Siemens to settle with Haden Young at the figures that they did. In essence they say that an overall settlement at just under 50% did not properly take into account the merits of the legal arguments, in particular concerning liability, causation and remoteness.
  
Reasonable settlements: the legal principles

62.	Where a party, A, pays an amount to settle a claim made against it by another party, B, then the ability of A to recover that amount from a third party, C, depends, in principle, upon three stages:

(1)	That C is liable to A, typically for damages for breach of contract or for payment of a sum under an indemnity;
(2)	That C is liable to pay A damages or pay A a sum under an indemnity in respect of A’s settlement with B;
(3)	That C is liable to pay A the amount paid to B as damages for breach of contract or a sum due under an indemnity.

63.	Once the court is satisfied, on the usual principles, that C is liable to A, that raises the question of the extent to which the settlement between A and B can be used to establish that C is liable to A at the second and third stages. What are the principles to be applied to such settlements?

64.	The starting point for the analysis is usually taken as Biggin v.  Permanite  [1951] 2 KB 314 and its reference at 320 to the direction to the jury in Fisher v. Val de Travers (1876) 45 LJ (CP) 479 by Lord Coleridge CJ which elicited a two stage response from the jury: that the plaintiffs had acted reasonably in compromising the claim and that the sum paid as compensation was reasonable. In Biggin v. Permanite at 320 Somervell LJ said that those two questions were really one as “It would seem to be difficult to say that, if the answer to the second question was "Yes", the answer to the first question could be "No"”.

65.	In Biggin v. Permanite there had been a settlement between Biggin and the Dutch Government in relation to bitumen products which had been supplied by Biggin and proved to be defective. Biggin had obtained the products from Permanite and sought to recover the sum paid by way of settlement. At first instance both liability and quantum were in issue. It was held that Permanite was liable to Biggin but could not recover the sum agreed in the settlement sum between Biggin and the Dutch Government. The judge held that the settlement was irrelevant. On appeal only quantum was in issue and the question was whether Biggin had to prove that its loss was equal to or exceeded the settlement sum so that the settlement sum would be recoverable or whether, if the settlement sum was reasonable, it should be taken as the recoverable sum.
           
66.	Somervell LJ said this at 321 in relation to the effect of the settlement:

“I think, though it is not conclusive, that the fact that it is admittedly an upper limit would lead to the conclusion that, if reasonable, it should be taken as the measure. … The law, in my opinion, encourages reasonable settlements, particularly where, as here, strict proof would be a very expensive matter. …if there is evidence at the end of the matter of the kind which I have indicated, on which the court can come to the conclusion that this was a reasonable settlement in the circumstances, then I think that it should be the measure. Parties, Bowen, L.J., said, have been held to contemplate litigation in the sort of circumstances which have arisen here. It would, I think, be unfortunate if they were not also held to contemplate reasonable settlements in the type of circumstances which have arisen here.”

67.	The reference by Somervell LJ in that paragraph to what parties had been held to contemplate was a reference to a passage in the judgment of Bowen LJ in Hammond & Co v. Bussey (1887) 20 QBD 79 at 94 where he found that a party should reasonably contemplate having to pay costs of proceedings arising from a sub-sale on the basis of the second limb of Hadley v Baxendale (1854) 9 Ex 341.  Bowen LJ said:   

“The defendant knew for what purpose the plaintiffs were purchasing the coal, namely, to resell it to the owners of steamers, and he must have known as a business man what damages might naturally result to the sub-vendees if it was not reasonably fit for the purposes of steamships, and therefore could not be used by the sub-vendees for such purposes. He may therefore be reasonably supposed to have contemplated, if the warranty were broken, that claims for damages would be made against the plaintiffs by the sub-vendees, and also, if he thought about it, he must have known that the plaintiffs, if such claims were made, would be in a position of difficulty: …

… if the plaintiffs succeeded in their defence, there would be no occasion for their making any claim over; but if they failed the defendant must in reason be taken to have contemplated that they would have to pay damages and costs. All these matters I have mentioned seem to me to be matters that may reasonably be supposed to have been within the contemplation of the parties at the time they made the contract, and therefore the question whether the case comes within the second branch of the rule in Hadley v. Baxendale seems to me to be answered….”

68.	In Biggin v.Permanite Singleton LJ said this at 325:

“Before the court can award a sum as damages, there must be evidence on which it can act. Therefore, in a case such as this, the plaintiffs must call evidence to establish their case. If the evidence which they call satisfies the judge or jury that the settlement was a reasonable one, the damages awarded will be the amount of the settlement and the costs reasonably incurred.”

69.	In relation to the court’s approach to proving that a settlement was reasonable, Somervell LJ said this at 321:

“The question, in my opinion, is: what evidence is necessary to establish reasonableness? I think it relevant to prove that the settlement was made under advice legally taken.… The plaintiff must, I think, lead evidence, which can be cross-examined to, as to facts which the witnesses themselves prove and as to what would probably be proved if, as here, the arbitration had proceeded, so that the court can come to a conclusion whether or not the sum paid was reasonable. The defendant may, by cross-examination, as was done here, seek to show - and perhaps successfully show - that it was not reasonable. He may do so, or call evidence which leads to the same conclusion. He might in some cases show that some vital matter had been overlooked.”

70.	Singleton LJ at 325 said on this aspect:

“The plaintiffs must establish a prima facie case that the settlement was a reasonable one. If the defendants fail to shake that case, the amount of the settlement can properly be awarded as damages.”
 
71.	In Comyn Ching & Co (London) Ltd v. Oriental Tube Co Ltd [1979] 17 BLR 56 mechanical services sub-contractors, Comyn Ching, who installed a specified make of piping sought and obtained an indemnity from the manufacturers of the piping, Oriental. The pipework failed and the employers commenced proceedings against consulting engineers, who specified the material, against Comyn Ching and against the main contractors. The main contractors sought an indemnity from Comyn Ching who counterclaimed for the cost of repairing the leaks. The proceedings were settled and Comyn Ching paid the employer one-third of the damages claimed and costs, abandoned their counterclaim and paid their own costs and a contribution towards the main contractor’s costs.

72.	The Court of Appeal held that the wording of the indemnity given by Oriental to Comyn Ching extended to liabilities or claims having a reasonable prospect of success and covered Comyn Ching’s liability even if due to their own negligence. Goff LJ at 83 held that there was “a serious claim which could well have succeeded” in respect of Comyn Ching’s liability in negligence. He added: “If in order to succeed in this case [Comyn Ching] had to prove that they were negligent, of course, they must fail because they did not even try. Their evidence was to opposite effect, but in my judgment what they have to show is that the [employer] had a case or might reasonably have established a case…. It seems to me that Ching were facing a serious claim and an appreciable risk of failing on that issue…. ” 

73.	At 89 Goff LJ said that Comyn Ching could recover provided the settlement was reasonable and in relation to the proper approach to determining that issue said: 
“It is clear that in Fisher v Val de Travers, Lord Coleridge, CJ, put two questions to the jury: (1) Was it reasonable to compromise, and (2) Was the sum paid reasonable (see page 480). In Biggin v Permanite Somervell LJ said (at p.320) the two questions are really only one, and so of course, for his purpose they were because in his case the defendant admitted that he was liable to indemnify the plaintiff and the only issue was that of quantum. In practice I think they will generally be found to merge into one another, although for example, if the point was one which could be speedily and cheaply determined, it might not be reasonable as against the indemnifier to settle, though if there were going to be a settlement, the amount might be perfectly reasonable.
I will consider the problem in the present case on the basis that there are two separate questions which are the most favourable to the defendants. So far as the first question is concerned, it has in my judgment only to be asked to be seen to require an affirmative answer. Ching were advised to settle by competent and experienced legal advisers. That is not conclusive, but clearly important. Ching were facing long and complex litigation which was bound to be costly, and the outcome of which they could not foresee with any certainty.” 

74.	In General Feeds v. Slobodna Plovidba Yugoslavia [1999] 1 Lloyd's Rep. 688 Colman J had to consider a case in which shipowners had settled a claim brought by cargo insurers in relation to a cargo damaged by fire alleging that the fire was caused by bad stowage. The owners argued that the fire was caused by the condition of the cargo but settled the claim and then sought to recover the sum from the charterers. The owners contended that, in breach of the charter, the cargo did not correspond to its description and the settlement payment was caused by that breach, the settlement was reasonably entered into and for a reasonable amount. In an arbitration it was held that the heating was caused by the breach by the charterer and not by bad stowage and the arbitrators reduced the sum from $600,000 to $400,000 because the damage had been increased by the owners’ failure to take proper care of the cargo once it overheated.

75.	Colman J reviewed Biggin v Permanite and concluded at 691 that the effect of the judgments was that “assuming that loss attributable to a payment in settlement is not too remote, the plaintiff must prove that the fact and amount of the settlement were reasonable in all the circumstances. Unless he proves that, he fails to establish that the loss was caused by the relevant breach of contract by the defendant, for if and to the extent that an unreasonable settlement has been entered into, the loss has been caused not by the breach but by the plaintiff's voluntary assumption of liability under the settlement.”
   
76.	Colman J then referred to Comyn Ching and said at 691 that “when properly analysed, the overall exercise which the Court must do is to consider whether the specified eventuality (in the case of an indemnity) or the breach of contract (in a case such as the present) has caused the loss incurred in satisfying the settlement. Unless the claim is of sufficient strength reasonably to justify a settlement and the amount paid in settlement is reasonable having regard to the strength of the claim, it cannot be shown that the loss has been caused by the relevant eventuality or breach of contract. That is not to say that unless it can be shown that the claim is likely to succeed it will be impossible to establish that it was reasonable to settle it. There may be many claims which appear to be intrinsically weak but which common prudence suggests should be settled in order to avoid the uncertainties and expenses of litigation. Even the successful defence of a claim in complex litigation is likely to involve substantial irrevocable costs. …Unless it appears on the evidence that the claim is so weak that no reasonable owner or club would take it sufficiently seriously to negotiate any settlement involving payment, it cannot be said that the loss attributable to a reasonable settlement was not caused by the breach by reason of which the goods are in a damaged condition.”

77.	The authorities have recently been reviewed by His Honour Judge Peter Coulson QC, as he then was, in John F Hunt Demolition Ltd v. ASME Engineering Ltd [2008] 1 All ER 180. He summarised the effect of the authorities in this way at paragraphs 61 and 63:

“61 In addition, I consider that the judgment of Colman J in General Feeds  provides a cogent explanation of the proper approach in cases of this sort, where A's liability to B may be difficult, if not impossible, to establish. The court must consider whether the breach of contract caused the loss incurred in satisfying the settlement. Unless the claim was (or was reasonably considered to be) of sufficient strength reasonably to justify a settlement, and the amount paid in settlement is reasonable having regard to the strength of the claim, it cannot be shown that the loss has been caused by the relevant breach of contract. On the other hand, the settlement of an intrinsically weak claim in order to avoid the uncertainties and expenses of litigation may well be reasonable; on Colman J's analysis (with which I respectfully agree) a claim will usually have to be so weak as to be obviously hopeless before it could be said that the settlement of the claim was unreasonable. In my view, in the passages of his judgment in the General Feeds case that I have cited above, Colman J provided an answer to preliminary issue 3 (“it is not necessary to prove that the claim settled … would probably have succeeded”) and provided the clearest guidance as to the appropriate test to be applied (“it is enough to establish that [the claim] had sufficient substance for the settlement of it to be regarded as reasonable”). 
… 
63 The authorities cited above do not demonstrate any rule or principle of law that A must prove that he was liable to B before recovering against C the sums which he paid to B by way of settlement. Of course, that is not to deny that, in the vast majority of cases, that liability will either be agreed by A and C or will, on investigation, be demonstrated. But there will be some cases, like the Comyn Ching case  and the General Feeds case where, even though investigation of the underlying facts demonstrated that there was in truth no liability at all, the settlement of the claim that had been made was found to be reasonable in all the circumstances. Furthermore, it seems to me that this is entirely in accordance with normal rules of foreseeability and remoteness of damage. It must be reasonably foreseeable, at the time that the contracts were made between A and C, that A might settle a claim brought by B arising out of the same subject matter, even if, on a detailed analysis, A's legal liability to B might actually be hard or even impossible to establish.” 

78.	In this case the parties agree that the question of whether the settlement was reasonable is to be determined at the date of the settlement in June 2008. I consider that this is consistent with the authorities. In Biggin v. Permanite there are passages in the judgments of both Somervell and Singleton LJJ which might be thought to suggest that the question of reasonableness was to be determined on the basis of facts which were not known at the date of the settlement. However, as Clarke J, as he then was, said in The Sargasso [1994] 1 Lloyd's Rep. 412 at 423, when analysing the judgment of Singleton LJ in Biggin v. Permanite: 
“If this were a settlement case I would regard myself as bound to hold that the plaintiffs would have to prove that the amount for which they had settled was reasonable. It is not clear to me how far the Court of Appeal thought that the plaintiffs must go in establishing that fact. Nevertheless, the Court of Appeal appears to have thought that it would not be sufficient merely to produce the settlement and that some examination of the underlying facts would be required, although it is not entirely clear whether they thought that the Court should consider facts which were not known (and could not reasonably have been known) to the plaintiffs at the time when the settlement was made. Mr. Nolan submits that the statement of Lord Justice Singleton that the defendant might in some cases show that some vital matter had been overlooked shows that he thought that it was open to the defendant to rely upon evidence which was not available to the plaintiff at the time. I do not so read it. It seems to me that Lord Justice Singleton may have meant no more than that if the plaintiff overlooked a point which he ought to have taken, the amount of the agreement would not be regarded as the correct measure of damages in the subsequent action.”
 
79.	In General Feeds Colman J agreed with this analysis and added: “As a matter of principle, given that the purpose of the investigation of whether the settling party acted reasonably is to ascertain whether the settlement loss was caused by the breach or by the settling party's decision to enter into the settlement, it must be those facts upon which he could be expected to base his decision to settle rather than facts which later come to light which are material for this purpose. It is the facts available to him at the time by reference to which this question of causation has to be determined.” I respectfully agree.

80.	In my judgment the following principles can, in summary, be derived from the authorities:

(1)	For C to be liable to A in respect of A’s liability to B which was the subject of a settlement it is not necessary for A to prove on the balance of probabilities that A was or would have been liable to B or that A was or would have been liable for the amount of the settlement. 
(2)	For C to be liable to A in respect of the settlement, A must show that the specified eventuality (in the case of an indemnity given by C to A) or the breach of contract (in the case of a breach of contract between C and A) has caused the loss incurred in satisfying the settlement in the manner set out in the indemnity or as required for causation of damages and that the loss was within the loss covered by the indemnity or the damages were not too remote. 
(3)	Unless the claim is of sufficient strength reasonably to justify a settlement and the amount paid in settlement is reasonable having regard to the strength of the claim, it cannot be shown that the loss has been caused by the relevant eventuality or breach of contract. In assessing the strength of the claim, unless the claim is so weak that no reasonable party would take it sufficiently seriously to negotiate any settlement involving payment, it cannot be said that the loss attributable to a reasonable settlement was not caused by the eventuality or the breach. 
(4)	In general if, when a party is in breach of contract, a claim by a third party is in the reasonable contemplation of the parties as a probable result of the breach, then it will generally also be in the reasonable contemplation of the parties that there might be a reasonable settlement of any such claim by the other party.    
(5)	The test of whether the amount paid in settlement was reasonable is whether the settlement was, in all the circumstances, within the range of settlements which reasonable people in the position of the settling party might have made. Such circumstances will generally include:
(a)	The strength of the claim;
(b)	Whether the settlement was the result of legal advice;
(c)	The uncertainties and expenses of litigation;
(d)	The benefits of settling the case rather than disputing it.  
(6)	The question of whether a settlement was reasonable is to be assessed at the date of the settlement when necessarily the issues between A and B remained unresolved.

Supershield’s liability to Siemens 

81.	In the light of my findings as to Supershield’s breach of contract and liability to Siemens under the indemnity and the principles set out above, it follows that provided that the settlement was reasonable, Siemens can, as a matter of causation and remoteness, recover from Supershield as damages or under the indemnity, sums which it paid out in the settlement to Haden Young and parties up the chain, provided that the settlement was reasonable. Whilst I consider that Siemens is correct in submitting that liability under the indemnity for “any loss, damage, expense or liability due to or resulting from the breach, non-observance or non-performance by Supershield” could impose wider liability than liability for damages for breach of contract, on my findings on the facts that issue does not arise. Rather, it is sufficient to say that both under the indemnity and as damages for breach of contract Supershield will be liable to Siemens if the settlement was reasonable.

Was the settlement reasonable?

82.	Mr Lord QC, on behalf of Siemens, in submitting that the settlement was reasonable relies on a number of points, many of which are accepted by Mr Cannon QC, on behalf of Supershield. In particular, Mr Lord QC relies on the fact that:
(1)	There were claims made against Siemens that the failure properly to install the nut and bolt caused the flood;
(2)	Siemens was the sub-contractor who would be responsible if those claims were established;
(3)	The claims were made in proceedings in which reputable lawyers and insurers were involved and the claims were verified by statements of truth;
(4)	There were widely drawn contractual provisions by which any liability would flow down to Siemens;
(5)	The events took place in 2000 and 2001 and gave rise to evidential difficulties in relation to the facts;
(6)	The claiming parties had a respectable expert engineer, Mr Phillips, who had investigated the incident just after the incident and was of the opinion that the most likely cause was the inadequate tightening at the time of installation and Siemens had access to an expert, Mr Oughton, who could not provide a credible or robust case against the opinion of Mr Phillips;
(7)	Contractual liability for installing the nut and bolt rested on Supershield (as I have now held) and Supershield were denying that it ever carried out the installation;
(8)	Siemens were therefore caught between the claiming parties and Supershield;
(9)	Siemens were advised by reputable lawyers;
(10)	The claims with costs were settled at just under 50% of the sums claimed which more than compensated for the defences relied on by Supershield.

83.	Supershield contend that it was unreasonable for Siemens to settle with Haden Young at the figures that they did. In essence they say that an overall settlement at just under 50% did not properly take into account the merits of the legal arguments concerning causation and remoteness.

84.	Supershield submits that there were good defences to the claims made against Skanska, Haden Young and Siemens on the basis of causation and remoteness and that those defences applied equally to causes of action under the warranties and the indemnities as well as for damages for breach of the other contractual obligations.   

85.	In relation to causation and remoteness Supershield say that the following matters prevented the overflow from the tank being an operative cause or made the damage caused by the overflow too remote:
 
(1)	The blocking of the drains in the tank room. The drains had been designed to prevent any such flood by disposing of any escape of water; 
(2)	A failure to respond adequately to the escape of water from the tank in response to the alarm signals on the Building Management Systems (BMS) which had been designed to warn of any escape of water;
(3)	A failure to inspect the ball valve float arm as part of a proper system of building maintenance. 
 
86.	Supershield submit that, as a matter of causation, whilst the failure of the nut and bolt was the cause of the escape of water from the tank, it was not the cause of the escape of water from the tank room because that was caused by the blockage of all three drains, the failure to respond in a timely manner to the various alarms and signals and a failure properly to carry out periodic maintenance. Further, as a matter of remoteness, it was not within the contemplation of the parties to any of the contracts that a breach of contract which resulted in the escape of water from the sprinkler tanks would cause any damage to the building because the building was designed to cope with such an escape without suffering any damage.

87.	Supershield contend that the arguments on causation and remoteness provided or should have provided Skanska, Haden Young and Siemens with complete defences. In such circumstances Supershield submit that where there were straightforward, strong and complete defences which were short and could have been determined quickly and cheaply, a settlement at just under 50% was not reasonable. As a result, the settlement is irrelevant.

88.	In any event Supershield submit that if Siemens are correct and there was nothing in the arguments on causation and remoteness then, it was not reasonable to incur such substantial costs in defence of the claims and the costs incurred by Skanska, Haden Young and Siemens were not the result of any breach of contract but were incurred because those parties chose to deny liability.

89.	Siemens submit that whilst Supershield’s causation and remoteness arguments would apply to claims for damages for breach of contract, they do not affect claims under the contractual indemnities and warranties in the contractual chain.   

90.	Siemens submit that the defences on grounds of causation or remoteness relied on by Supershield would count for something in settlement negotiations but were never going to be strong enough to warrant risking a full trial on liability with all the necessary parties being involved. Siemens say that the claims being made by the parties further up to contractual chain, ultimately against Siemens, were not so weak or the defences of causation and remoteness so strong that it was unreasonable for Siemens to settle. Siemens submit that the settlement was reasonable give that those points on causation and remoteness, if taken and lost, would have left Siemens being liable for 100% of the quantum and for costs.

91.	Siemens submits that the arguments on causation and remoteness were unlikely to be successful as the causative potency of the escape of water remained and it was foreseeable that there might be circumstances where the arrangements to prevent or limit any overflow would be compromised or inoperative. 

92.	I now turn to consider the arguments on causation and remoteness which are relied on by Supershield to assert that the claims were so weak that they did not justify an overall settlement for just under 50% of the sums claimed. Before I do so, I need to consider the impact of causation and remoteness on the claims under the warranties and indemnities, in particular those given by Skanska at the top of the chain.

Warranties and indemnities

93.	Siemens contend that Supershield’s arguments on causation and remoteness would have an impact on any cause of action against Skanska, Haden Young and Siemens for damages for breach of contract but not under the warranties or indemnities. Supershield submit that the same arguments as to causation and remoteness apply.  

94.	The obligations of Skanska to Trucidator Ltd and Slaughter and May  were contained in a Warranty made by deed dated 27 June 2000 by which Skanska essentially warranted in Clause 1 that it had complied and would comply with the obligations under the Building Contract. In Clause 2.1 there was also effectively an indemnity in these terms:    

“in the event of any breach of an obligation under this deed, [Kvaerner] shall be liable to [Trucidator] and [Slaughter & May] for (i) the reasonable costs of repair, renewal and/or reinstatement of any part  or parts of the Project to the extent that [Trucidator] or [Slaughter & May] incurs such costs and/or [Trucidator] or [Slaughter & May] is or becomes liable either directly or by way of financial contribution for such costs and (ii) the reasonable additional costs to [Trucidator] or [Slaughter & May] of alternative accommodation and/or the net loss of rent together with the cost of relocation to and/or from alternative accommodation to the extent that such costs, loss or relocation were necessarily incurred as a result of a physical defect in or damage to the Development or Property for which [Skanska] is liable to [Trucidator] or [Slaughter & May] or the imminent threat of such defect or damage.”

95.	In relation to Deka, the obligations of Skanska were set out in a Warranty made on 14 January 2002 under which, at Clause 1, Skanska essentially again warranted that they had complied or would comply with the obligations under the Building Contract.

96.	The form of the warranties given to the claiming parties by Skanska impose on Skanska contractual obligations and the claims made by Skanska and Deka were generally for breach of those obligations. I see no reason why the same questions of causation and remoteness should not apply to these collateral warranties. The obligations in the warranties are intended to provide the tenants and freeholder with contractual rights against Skanska for breach of contract to avoid difficulties which might arise in claims in tort. A claim against Skanska under the Building Contract for a failure to tighten the nuts and bolts and a claim under the warranties for that failure would, I consider, give rise to the same considerations of causation or remoteness as claims for damages for breach of contract. 

97.	In relation to the liability under Clause 2.1 of the Warranty given by Skanska to Trucidator Ltd and Slaughter and May, that liability was for the reasonable costs of repair, renewal and/or reinstatement which had to be necessarily incurred because of a defect or damage for which Skanska was liable on the basis of a breach of contract. This I consider set out a requirement for causation and imposed a requirement which did not provide a wider basis for recovery than the remoteness test.

98.	In those circumstances, I do not consider that there were reasonably arguable grounds for Siemens to be able to settle without taking account of the requirements for causation and remoteness in relations to those claims.

Causation
99.	Questions of causation are matters of fact. In this case, the question posed by Supershield’s argument is whether the failure of the available means of avoiding the flood in terms of drains, alarms and maintenance meant that the flood was not caused by the overflow but by the failure of those systems. 

100.	I was referred to passages in Chitty on Contracts (30th Edition) at paragraphs 26-032 to 26-037 and  the Court of Appeal decision in Sahib Foods Ltd v. Paskin Kyriakides Sands (2003) 93 Con LR 1 in relation to causation. The passage in Chitty at 26-032 sets out the general position. 

101.	In this case, Supershield relies on the blockage of the drains, the failure to monitor the alarm system and the failure to carry out routine maintenance as being intervening acts which broke the chain of causation. 

102.	In Sahib Foods there was a fire which started in a room at a food factory as a result of the claimant’s fault. The fire spread and it was held that the defendant architects were liable because they had failed to advise the claimants to fit fireproof panels which would have prevented the spread of the fire. In giving the judgment of the court, Clarke LJ, as he then was, said this at paragraph 72

“There is no doubt that the spread of the fire beyond room G49 was caused in part by the fact that the fire began. One approach would be to say that that was no more than what used to be called a causa sine qua non and not a causa causans. However, we do not accept that that fairly reflects the true position. It seems to us that there were two effective causes of the spread of the fire, the fault of Sahib in causing the fire and the fault of both PKS and Sahib (see above) in failing to install fire resistant panels which would have prevented its spread.”

103.	At paragraph 73 Clark LJ added “both parties were thus responsible for the damage caused by the spread of the fire, which was partly the result of Sahib's own fault in starting the fire and partly due to the fault of both PKS and Sahib which caused the failure to fit fire resistant panels as discussed above…”

104.	In this case I consider that, as a matter of commonsense, the cause of the flood was the overflowing water from the sprinkler tank which was caused by the valve failing to turn off the water because the nut and bolt were not properly tightened.  I therefore consider that the failure to tighten the nut and bolt and the resulting overflow were an effective cause of the flood. The fact that the drains or the alarms or maintenance might have prevented the flood but did not do so does not, in my judgment, deprive the overflow of its causative potency any more than the failure to install fireproofing in Sahib Foods took away the causative potency of the initial fire. The drains, alarms and maintenance might have but failed to prevent the natural course of the overflow but in doing so did not reduce the causative potency of the overflow as an effective cause of the flood.

105.	In any event, even if a different view could be taken on causation, I do not consider that the question of causation was, as Supershield submit, a straightforward, strong and complete defence to the claims.

Remoteness
106.	In this case, I consider that because of the arrangements under the Building Contract and subsidiary contracts this is a case where under the second limb, if not the first limb, of the rule in Hadley v Baxendale, Supershield and Siemens would reasonably be supposed to have in contemplation at the time that the contract was made that the probable result of a breach of contract by Supershield might be a claim against Siemens by a third party which Siemens might reasonably settle.

107.	In this case, Supershield submit that the knowledge which the parties would have as to drains, alarms and maintenance would mean that the parties would not reasonably be supposed to have in contemplation that a flood would be the probable result of a failure to tighten the nut and bolt as it would be expected that the drains, alarms and maintenance would prevent any overflow giving rise to damage by causing a flood.

108.	Siemens submit that a flood was still the probable consequence of the overflow and that the failure of the drains, alarms and maintenance did not make damage caused by a flood too remote.

109.	In this case I consider that the probable result of a breach of contract in failing properly to install the nut and bolt would be that there would be an escape of water through the overflow which would, according to the usual course of things, cause a flood and lead to water damage. I do not consider that any imputed knowledge of the existence of drains, alarms or maintenance could reduce what would otherwise be recoverable under the first limb of Hadley v. Baxendale. As ventilated in argument what Supershield was effectively submitting was that the damages which might be recoverable under the first limb can be reduced by knowledge relevant to the second limb. As set out in Chitty at paragraph 26-060 “In general, it is necessary to consider the actual knowledge of the defendant (the promisor) only where he would not have been liable without that knowledge; normally the imputed knowledge of the defendant will be at least as great as (if not greater than) his actual knowledge.” Whilst as the editors then state actual knowledge may occasionally operate to the advantage of the defendant, I do not consider that this is such a case.

110.	In addition as Chitty point out at paragraph 26-058 the “loss” in the formulation of the test for remoteness is contemplation of a type of loss or head of damage not contemplation of the precise manner in which the loss was caused or the precise details of the loss.

111.	I have come to the conclusion that the test for remoteness in this case does not depend on the existence of drains, alarms and maintenance but rather it depends on what was reasonably contemplated as the likely consequences of the overflow. I consider that would include the fact that a breach could lead to an overflow and damage by a flood “according to the usual course of things”. In my judgment, the fact that knowledge of the drains, alarms or maintenance might have reduced the likelihood of the flood being so extensive or causing as much damage, does not make the scope and extent of the actual damage too remote. In those circumstances I do not consider that the arguments on remoteness would have defeated the claims.

112.	I consider that the existence of methods which might reduce damage have to be treated with caution in terms of the policy of limiting recovery of damages through the test of remoteness. Drains block or drain pumps malfunction, building management systems do not operate or warnings are not acted upon and maintenance is not always effective. Those considerations would tend to confirm that questions of remoteness should not turn on issues of the likelihood of damage being reduced or limited by particular devices or methods which might not be effective.  I should also add that, in any event, despite what was pleaded in the underlying proceedings, I consider it unlikely that routine maintenance would have included the checking of the tightness of the nut and bolt connection which failed. Access was difficult and this was not a part which would normally require servicing.       

113.	In any event, even if a different view could be taken on the issue of remoteness, I reach the same conclusion on this issue as on the issue of causation and do not consider that the question of remoteness was, as Supershield submit, a straightforward, strong and complete defence to the claims. 

Conclusion on the settlement
                                                                
114.	Whilst, as indicated above, there are in principle two questions to be answered in this case they amount to one question: was the settlement reasonable? Supershield effectively accept that it was reasonable to settle these claims but not at a level of just under 50% of the amounts claimed for damages and costs.    

115.	In any case, I consider that the points relied on by Mr Lord inevitably lead to the conclusion that it was reasonable to settle this case. Indeed, it is difficult to think that there will be many cases where it would not be reasonable to settle a case. The overriding objective in CPR r1.1 and the case management powers in CPR r 1.4(2)(e) and (f) support that view, as does experience in the TCC. This case is no exception. It was a multi-party dispute arising out of events in 2000 and 2001 where factual and expert evidence was going to be necessary and where there were conflicts of evidence. The claims made against Siemens alleged that a failure properly to install the nut and bolt caused the flood and Siemens was the sub-contractor who would be responsible if those claims were established and was at the receiving end of claims coming down the contractual chain. The claims against Siemens were made in proceedings in which reputable lawyers and insurers were involved, with the claims being verified by statements of truth. Siemens were therefore caught between the claiming parties and Supershield. They were advised by reputable lawyers and settled the dispute in mediation. 

116.	The main issue between the parties is, in my judgment, whether the strength of the claims was properly reflected by a settlement of just under 50%. This is not a case where precise mathematical calculations can be made. The views of different lawyers on the comparative strengths and weaknesses of a case are necessarily divergent. It is though necessary to decide whether the settlement was reasonable given those difficulties. There will be cases where a settlement of a weak claim at the full value will be unreasonable or where it may be unreasonable to settle a particular head of claim.   

117.	In this case I have concluded that the arguments on causation and remoteness which have been relied on by Supershield whilst arguable and attractively argued would not, on analysis, have succeeded. The claim was, in my view, strong and the defences weak but, on any view, the strength of the case would have justified a settlement in the mid range of around 50% of the sums claimed. The claim was settled on the basis of legal advice. In the light of what Siemens knew or ought reasonably to have known at the time of the settlement as to the strength of the claim, of the uncertainties and expenses of litigation and of the benefits of settling the case rather than disputing it, I consider that the settlement was within the range of settlements which reasonable people in the position of Siemens might have made.  

118.	I do not accept that Supershield can resist liability for the costs of the parties paid within the settlement on the basis that Siemens should not have incurred those costs because the arguments on causation and remoteness would not have succeeded and Siemens should therefore not have contested liability and incurred such  costs. Supershield contends that the costs were therefore not incurred as a result of the breach of contract but by the subsequent decisions by Skanska, Haden Young and Siemens to deny liability. 

119.	In my judgment, as set out by Bowen LJ in Hammond & Co v. Bussey, in the passage referred to by Somervell LJ in Biggin v Permanite, a party in the position of Siemens, or indeed any other party in the centre of the contractual chain, is put in a difficult position by this type of proceedings. In my judgment, a person in the position of Siemens when faced with contested liability from Supershield cannot be said to act unreasonably by incurring costs in the litigation. This is particularly so where Supershield has unsuccessfully argued that the case against Siemens was so weak that it did not justify the settlement and so, logically, Siemens should have contested the proceedings rather than settled them on that basis. I consider that the costs were reasonably incurred and the amount within the overall settlement is reasonable.

Overall Conclusion
120.	For the reasons set out above I have found that Supershield is liable to Siemens for breach of contract and under the indemnity for the failure of the nut and bolt connection on the ball valve lever arm which caused the overflow and the flood. As a matter of causation and remoteness, Siemens can recover from Supershield for the sums paid in respect of a reasonable settlement of claims by third parties arising as a result of the flood. I find that the settlement entered into by Siemens was a reasonable settlement and therefore Siemens can recover that sum from Supershield. 

121.	I invite submissions as to the form of judgment and as to any ancillary matters.