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The House of Lords has recently decided four cases together that were concerned with sharing the cost for a loss-making incident, and with settlement agreements. The result of these decisions is that it is harder for a firm that is liable for damages to reduce them by recovering a contribution from another firm that has also caused or contributed to the damages. The judgments also mean that it is harder for parties to settle claims safe in the knowledge that they have ended their exposure to further liability.

In a contribution claim there are two vital questions: who else can contribute? And for what can contribution be sought? Since a potential contributor might have agreed to settle its own liability to the victim a third question may arise as to whether that settlement will preclude a claim for contribution. All these questions are addressed by the quartet of cases cited here.

Contribution is governed by the Contribution Act 1978. This says that any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage. This leaves open the question of what constitutes the "same damage".

In the first decision, Royal Brompton Hospital vs Hammond, the House of Lords held that it related to the harm in question. The emphasis here is that a contribution can be claimed only from firms that caused the original harm.

This narrow definition excludes a claim for contribution by, or from, professionals in many situations where those professionals have participated in causing the overall loss.

In the Royal Brompton Hospital case the contractor was allegedly in breach of its contract because of late completion of a hospital, although an extension of time had been granted by the architect. It was later alleged by the client that this extension had been negligently granted. After the hospital was built, an arbitration arose: the contractor claimed for loss caused by the delay and the employer cross-claimed for damages. Because the contractor could rely on the architect's extension of time certificate, it was provided with an unmeritorious defence to the employer's claims and an equally unmeritorious prop for its own.

In the end the client had to pay the contractor damages, including some for the loss resulting from the (allegedly) negligent extension of time. The employer claimed from the architect for the causative negligent certification and the architect claimed a contribution from the contractor. However, it was held that the contractor could not claim a contribution from the architect because delay liability causes different damage to negligent certification liability.

This case confirms that a claim for contribution must be confined to cases where the third party contributed to the same primary damage, and is excluded in cases where it contributed to the damages suffered but not to the primary damage. For example, take the case of a car driver who is involved in an accident. He engages a solicitor to make a claim against the other driver but that solicitor fails to make the claim in time. Here, the damage caused by the solicitor was the loss of a damages claim; the damage caused by the other driver was the physical injuries originally suffered. So, the negligent solicitor is not liable for the same damage as the negligent driver, even though both contributed to the loss suffered by the victim.

The House of Lords then turned its attention to the question of who can be held liable to contribute to damages suffered by the victim.

It held in Co-op vs Taylor that the contributing party must have been liable or must have been capable of being held liable to the victim. The building owner suffered extensive fire damage during building works. The contract provided for the obtaining of the usual joint-names, all-risks insurance policy covering the employer and the contractor. This meant that the employer could not sue the contractor for the loss suffered by the fire, even though the contractor's negligence was a prime cause of it.

The architect could not as a result claim contribution from the contractor for the claim brought against it by the employer, even though, if liable at all, its responsibility for the fire was said to have been minimal.

The correct approach to contribution identified by the House of Lords in the Co-op case puts the principal emphasis on the contractual relationship of the parties.

The result of this is that a third party that has also been responsible for causing damage can be frozen out of a contribution claim by the agreement of other parties that have had the presence of mind to agree a form of words that protects them from such a claim.

Thus, parties to a joint-names policy, by necessary implication, have agreed not to sue each other for the loss covered by that policy. The result, for a third party, is that it cannot claim contribution from one of the contracting parties since the potential contributor has arranged with the victim that it will be deemed to have had no liability to it for the damage.

The architect could not claim a contribution from the contractor even though, if liable at all, its responsibility was said to be minimal

The remaining two cases, Heaton vs AXA and Cape & Dalgleish vs Fitzgerald, are concerned with situations where the victim has concluded a full and final settlement agreement with one party and proceedings then continue.

Those proceedings might be against the settlor or against other parties that then claim contribution from the settlor.

In such a case, the settlor might well consider that it is no longer liable to the victim, nor is it liable to pay a contribution towards anyone else's liability to the victim. Equally, the victim might well imagine it can continue against other guilty parties for its unrecovered loss.

However, it is clear from these two cases that neither the party that has admitted guilt and settled nor the victim can take such a relaxed attitude.

A guilty party can only escape further liability to the victim, or be protected from a contribution claim, if the settlement agreement clearly covers all loss. In other words, it must say that there is no further loss for the victim to pursue or that the victim has agreed not to pursue any third parties for surviving loss. Similarly, the victim can only continue against other parties if such continuing claims are not precluded by the language of the settlement.

So, to avoid further claims, including contribution claims, the guilty party that is settling must ensure that the language of the settlement agreement clearly and unequivocally covers the entire loss suffered by the victim.

Equally, a victim settling with one defendant must ensure that the agreement is not worded in a way that will be taken to cover the entire loss suffered, otherwise it might be later held that no continuing loss survived the settlement agreement, and therefore that it had no further claim against a second defendant.

In Heaton, complex claims were brought against two separate defendants for financial loss arising out of the acquisition of a company marketing investment products. A final settlement by one defendant with the claimant did not preclude the claimant from claiming part of its alleged loss from the other defendant since the agreement, when properly construed, did not cover some of those alleged losses.

In Cape & Dalgleish, a director was summarily dismissed by his employer for gross financial irregularity and soon afterwards settled the employer's claims against him for that irregularity.

The employer then sued the auditor for failing to spot these irregularities at an early stage and the auditor claimed contribution from the director, who argued that his settlement agreement precluded the auditor from any continuing liability and, in consequence, debarred it from claiming a contribution from him.

However, the language of the settlement agreement was held to be imprecise and open-textured. It did not, therefore, wipe out the loss suffered by the company or release the auditor from potential liability.

The auditor's contribution claim could, therefore, proceed against the recalcitrant employee.

These four decisions, taken collectively, can be regarded as bad news for contract breakers, particularly professionals. It is now harder for a party that has been held liable to a victim to claim contribution for loss, even where the potentially contributing party has much greater responsibility than the party claiming contribution. Equally, it is now much harder for a guilty party to rely on the terms of a settlement agreement to avoid contributing to the liability of a fellow defendant, or for other defendants to avoid continuing liability to the victim.