Here’s a story about a flood in an office that caused millions of pounds of damage and gave rise to a six-party legal case. The question, of course, was who was going to pay

The ball valve in my outside lavatory came adrift recently. I think the nut and bolt worked loose. The overflow sort of worked; there was a bit of a flood. The midden became a tad smelly. The ball valve in the basement tank in a posh new office block occupied by solicitor Slaughter & May also came adrift recently. The nut and bolt worked loose. The overflow did its job. It flowed all night. The 600mm-high bund walls held the water back for a bit. Once it spilled over, it reached the electrics cupboard. The building management system yelled. Nobody heard, as the BMS panel is not watched at night.

The landlord called on contractor Skanska to pay. So did the tenant, Slaughter & May. Skanska pointed the bills at the M&E subcontractor, Haden Young. Haden Young pointed the bills at their sub-subcontractor, Siemens. Siemens pointed the bills at their sub-sub-subcontractor Supershield. Oh, one other point: the basement had drains in the tank room floor. They were, er, blocked by materials including packaging and the stuff you find in middens.

As you might guess, writs flew. There is a snag with these types of chain-gang actions. They cost a lot. Can you imagine the effort, time, and expense of accommodating six or more parties in a trial? So, they all volunteered to attend mediation. And lo! all but the row between Supershield and Siemens was settled. That left those two firms to press on to court. Meanwhile Siemens had paid out in the mediation agreement up the chain; a compromise figure.

At trial, Supershield was found to be responsible for fitting the ball valve. That meant tightening up the nut and bolt. Forensic investigation found that it was not done sufficiently well. Clever. You can no doubt see what’s coming next: Siemens held out its hand for all its costs and all the money it had paid those folk up the chain.

The issue now is whether the want of care in doing up the nut caused the losses claimed and then paid in the mediation deals? On the face of it, Supershield is liable to Siemens in breach of contract and will also be liable to it because it gave an indemnity to keep Siemens safe from certain types of loss. That being so, the question is whether Siemens is only claiming those losses and acted reasonably in compromising the claim.

Credit: Simone Lia

Ordinarily, the firm suffering the breach has to prove its actual loss. But when there is a chain of folk who claim losses and then, as here, they get dumped in the lap of the lowest link, there is a worry. The worry is whether the others up the line have proved their loss. When asking if the settlement was reasonable, the court looks at whether it was within the “range of settlements” that people might have made. Broad. Also, if those settlements were the result of legal advice. Also whether it was a reasonable settlement “given the uncertainties and expenses of litigation”. And also the benefits of settling rather than disputing. Broad again.

As for those losses for the floods and the mediated settlement, the employer claimed £3m but settled for £1.1m. The tenant claimed £1.5m and settled for £1.1m. The main contractor claimed £600,000 and settled for £463k. Haden Young wanted £170k and took £136k. So, Siemens negotiated the claims down by just under 50%. Be that as it may, said Supershield, it was unreasonable to settle because good defences were available. What about the blocking of the drains? What about the fact that nobody came running when the alarms rang? What about the maintenance duty to inspect ball valves? True, true the valve came adrift but the true cause of the water damage was these other points. In other words, said Supershield, not only did it have a complete defence, so did Siemens against those others.

Well, said the judge, “as a matter of common sense” the cause of the flood was the duff fitting of the nut and bolt. That was the effective cause. “The fact that the drains, or the alarms, or the maintenance might have prevented the flood but did not does not in my judgment, deprive the overflow of its causative potency.” So none of those was a complete defence to the claim. Moreover, the amount of settlement in the mediation was considered reasonable. Supershield would have to pay out all that Siemens had agreed.