When may a contractor recover from a subcontractor after settling an employer defect claim?
A settlement with the employer does not bind a non-settling subcontractor or prove the amount recoverable downstream. The contractor must establish subcontract breach, causation and a reasonable sum attributable to that breach.
The contractor must prove an attributable and reasonable loss; a global settlement cannot simply be passed down
The subcontractor is not automatically liable because the contractor settled an employer's claim. The contractor must prove that the subcontract work was defective, that the defect caused recoverable loss and that the settlement, or the relevant allocated part, was reasonable. A global compromise with no allocation may create a serious evidential problem. The downstream claim must account for cross-claims, negotiated discounts, other parties' responsibility and any benefit received in the overall settlement.
| Issue | Position |
|---|---|
| Employer settlement | Does not bind the subcontractor automatically |
| Subcontract breach | Must be proved |
| Causation | Must connect breach to contractor loss |
| Global settlement | Requires supported allocation |
| Recoverable amount | Reasonable sum attributable to the breach |
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