Settlements with Multiple Defendants

Settlements with Multiple Defendants

Settlement negotiations should never be undertaken without comprehensive legal advice. A decision of the Supreme Court last year showed that even the best made settlements can have unforeseen consequences.

The facts of the case arose following the collapse of Bernie Madoff’s investment schemes. Defender Limited had invested well over $500 million with a Madoff company and, when the company was liquidated, they reached a settlement agreement with the company’s trustee in liquidation.

Defender then focused on HSBC, who had advised Defender in relation to the investment with Madoff’s company. When the case was heard in the High Court it was held that pursuant to s.17 of the Civil Liability Act 1961, a concurrent wrongdoer may avoid liability through an absolute defence where another (wrongdoer / co-defendant) has reached settlement with the plaintiff. In simple terms, where one co-defendant acknowledges partial liability and reaches a settlement for the cost of same, the other co-defendant(s) may be entitled to a full defence.

The High Court added that where a party acted fraudulently, they then assume 100% of the liability. Accordingly, the court found that HSBC had an absolute defence.

On appeal, The Supreme Court was critical of the Civil Liability Act 1961 and its rigidity, noting that it may discourage settlement in the future, however it was held that HSBC had a preliminary defence to the claim, pursuant to s.17. With regard to the fraud element, the Supreme Court disagreed with the High Court judge’s views and as a result, the case has been remitted to the High Court for a full plenary hearing.

While this case is yet to be fully resolved the Supreme Court, decision confirms that plaintiffs who agree a settlement with one defendant may be prevented from pursuing another defendant for the balance.

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