LORETTO HOUSING ASSOCIATION LTD AGAINST CRUDEN BUILDING & RENEWALS LTD AND OTHERS

Factual and Procedural Background

The Plaintiff, Company A, initiated an action seeking damages jointly and severally from Company B, the main contractor, and Company C, the structural engineers, concerning defective building works at a specified property. Company B denied liability but convened a third party, an individual trading as an independent consultant, alleging that any loss was caused or materially contributed to by the third party's breach of a separate contract with the Plaintiff. Prior to the scheduled proof, Company B settled with the Plaintiff, paying a substantial sum and obtaining a decree of absolvitor in its favor. Company C also settled and was assoilzied. No settlement was reached with the third party. Company B then sought to recover a proportion of the sum paid from the third party, asserting a right of relief under section 3(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940 or alternatively at common law. The court was asked to determine the relevancy and competency of Company B’s claims against the third party under both statutory and common law grounds.

Legal Issues Presented

1. Whether a person who settles a court action, obtaining a decree of absolvitor in their favor, has a right of relief against any joint wrongdoer under section 3(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940.
2. Failing a statutory right, whether such a person has a right of relief at common law.
3. Whether the precedent set by National Coal Board v Thomson 1959 SC 353, which held negatively on the common law right in similar circumstances, is distinguishable or should be overruled.

Arguments of the Parties

Third Party's Arguments

• A prerequisite for a right of relief under section 3(2) is that the person asserting it must have been found liable by decree in the action.
• The decree of absolvitor obtained by Company B is not a finding of liability but the opposite, thus disqualifying Company B from claiming contribution under the statute.
• Authorities including Farstad Supply AS v Enviroco Ltd and Comex Houlder Diving Ltd support the requirement for a decree of liability.
• At common law, the authoritative decision in National Coal Board v Thomson precludes a right of relief where the claimant has settled without decree against it.
• The decree of absolvitor here confirms Company B was not a wrongdoer and therefore cannot recover contribution.

Defender's Arguments

• The phrase "found liable" in section 3(2) should be interpreted broadly to include a party in whose favor a decree of absolvitor has been granted following settlement, as such decrees are effectively devoid of substantive court findings.
• This interpretation avoids arbitrary distinctions based on whether a defendant elects to have decree pass against it or not.
• At common law, a right of relief arises from unjust enrichment principles when one wrongdoer pays more than their share, regardless of whether a decree has been granted.
• The settlement agreement liquidates the debt and is equivalent to a decree or bond, thus satisfying requirements for a right of relief.
• The decision in National Coal Board v Thomson can be distinguished because the payment there was voluntary and pre-litigation, whereas here it was pursuant to binding settlement of ongoing litigation.
• Criticism of Thomson exists, and modern authorities suggest revisiting its reasoning.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by analyzing the statutory provision under section 3(2) of the 1940 Act, which requires that a party seeking contribution must have been found liable in the action and have paid the sum specified in the decree. The court emphasized that a decree of absolvitor is not a finding of liability but the opposite, and thus cannot satisfy the statutory requirement. The defender’s argument that such a decree should be treated equivalently to one giving effect to a settlement was rejected, as the statute’s language and authorities do not support this interpretation.

Turning to the common law, the court acknowledged that a right of relief exists in principle but held that the authoritative decision in National Coal Board v Thomson remains binding. That case established that a party who settles without decree against it cannot claim contribution from joint wrongdoers. The court found no valid distinction between that case and the present facts, noting that the settlement agreement does not equate to a decree or bond required by the statute or common law.

The court recognized the perceived inequity in the law whereby a party consenting to a decree against it preserves a right of relief, while one obtaining a decree of absolvitor does not. However, it emphasized the value of legal certainty and the binding nature of precedent, declining to overturn or distinguish Thomson. The court also rejected the defender’s contention that the amount recoverable should vary depending on whether decree was granted, as this would produce inconsistent and potentially unfair results.

Holding and Implications

The court held that the defender’s claims against the third party, both under section 3(2) of the 1940 Act and at common law, are neither relevant nor competent. The defender’s case was dismissed accordingly.

The direct effect of this decision is that a party who settles and obtains a decree of absolvitor cannot seek contribution from joint wrongdoers under the statute or common law. No new precedent was established; rather, the court reaffirmed existing authority, emphasizing the necessity of a decree of liability to preserve rights of relief among joint wrongdoers.