(Sorry this is a bit long, but the question is straightforward. The broad situation described is real, however, although generalised.)


Alan buys a substantial and valuable income-producing asset from vendor Bob. Alan's approach is demonstrably cautious, he has checked everything, referred all issues to the vendor and lawyer, and has already withdrawn from other similar purchases when doubt arose. Alan hires professional assessor Charles to examine and report on the asset (due diligence if the asset is a company, surveyor if it's real estate, or whatever). The report shows no issues and describes the asset as being in fairly good condition with no major issues. Bob affirms the asset's condition and qualities in writing, and relying on Bob's statements and Charles' report, Alan buys the asset.

Alan finds evidence that Bob was a rogue/fraudster and that Bob's statements about the asset's physical condition had been knowingly untruthful to the point of probable criminality. Alan commissions an expert report which affirms appalling defects in the asset and dishonesty by Bob, and separately, concludes that Charles' report was also defective, as it missed clearly evident defects that Charles should have seen, and that it also missed other incongruous signs which, if followed up, would have on balance probably led to a negative conclusion about the asset. If Charles' report had been negative, Alan would very likely have withdrawn his offer (as he had with other assets), thus avoiding the entire saga.

Alan initially sues Bob under English law for the remediation costs/diminution in value, loss of income due to the lengthy remedial work, and for a couple of other heads (exemplary/aggravated damages, interest, costs). Bob's solicitor provides evidence that unfortunately Bob went on a gambling binge with the proceeds after the sale, and now has no additional substantial assets left beyond the sum offered. So Alan reluctantly accepts a "full and final" settlement from Bob before the trial, which leaves him greatly out of pocket, being between half and a third of what would have been expected in Court.

Alan now begins to draft his other case, against Charles, for the defective report.

My question

My own question is about how to work out what amount Alan may claim from Charles.

Before Bob settled, both Bob and Charles may have both been liable for some of the same losses. For example if the asset had a defective component that Bob said was newly replaced and in good condition (while knowing it was not replaced), and which Charles should have noticed but didn't, then both Bob and Charles may be liable - Bob because he knowingly lied about the asset's condition, Charles because he should have noticed the defect and reported it but he lapsed and didn't. In the worst case, both Bob and Charles could be liable for the entire loss sustained - Bob for inducement/misrepresentation, Charles under duty of care/foreseeability.

There were also losses for which Bob alone was liable (eg defects known to and not disclosed by Bob but "out of scope" of Charles' inspection), or for which Charles alone is liable (eg defects not caused by Bob that Charles should have noticed anyway).

The problem is that Alan can't claim against Charles for damage that Bob has already compensated him for. But as the case with Bob was settled by means of a negotiated "full and final" lump sum, there isn't any formal or notional allocation of how much relates to any specific head, or any specific cause of loss, remedial work, or to legal costs. It isn't clear to me how a party or the Court can go about working out the value of damages due.

Alan's award can in principle be calculated in one of two ways:

  • (1) total losses due to Charles' defective report,
    (2) any sum received from Bob in respect of matters for which Bob and Charles are both liable;


  • (1) total losses due exclusively to Charles's defective report and not due to Bob's misrepresentations,
    (2) unpaid losses for which both Bob and Charles are liable, and for which no reimbursement was received from Bob.

But at this point I'm stuck. What could possibly be a reasonable basis for the Court to notionally allocate Alan's settlement with Bob to various causes and heads, to decide how much of the loss in Alan v. Charles have already been reimbursed via his settlement with Bob? As there was never a formal trial, there is also no clarity which matters Bob was/was not liable for in law, and therefore which matters Bob might have been making his payment in respect of.

How on earth can the Court rule on a sum for Alan's claim against Charles, if the compensation from Bob cannot be matched to specific points of Alan's claim against Bob, and therefore a basis produced to estimate how much of Alan's claim against Charles has (or has not) already been settled via compensation from the third party? What might a reasonable Court do in such a situation?

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