[BUG] --settings argument is disreguarded

Preflight Checklist

• [x] I have searched existing issues and this hasn't been reported yet
• [x] This is a single bug report (please file separate reports for different bugs)
• [x] I am using the latest version of Claude Code

What's Wrong?

When I run Claude code with the --settings argument, the provided settings are ignored. It's ignored whether it's a JSON string OR a path to a JSON file.

Example:
claude --settings=/tmp/gitbutler-claude-settings.json

/tmp/gitbutler-claude-settings.json

{"hooks":{"Stop":[{"hooks":[{"command":"osascript -e 'display notification \"Nailed it\" with title \"Claude Code\" subtitle \"AI assistant\" sound name \"Glass\"'","type":"command"}],"matcher":""}]}}

It seems like this regression was introduced in 1.0.94. The last working version we've found is 1.0.93.

The issue is prevalent when used with our streaming arguments in GitButler as well as passing --settings and using it through the TUI like in the provided example.

What Should Happen?

With this example hook, it should send a notification when claude has finished responding.

Error Messages/Logs

Steps to Reproduce

1. Write {"hooks":{"Stop":[{"hooks":[{"command":"osascript -e 'display notification \"Nailed it\" with title \"Claude Code\" subtitle \"AI assistant\" sound name \"Glass\"'","type":"command"}],"matcher":""}]}} into /tmp/gitbutler-claude-settings.json
2. Run claude --settings=/tmp/gitbutler-claude-settings.json

Claude Model

None

Is this a regression?

Yes, this worked in a previous version

Last Working Version

1.0.93

Claude Code Version

1.0.109

Platform

Anthropic API

Operating System

macOS

Terminal/Shell

Other

Additional Information

_No response_