ORDER
Mr Justice Stuart-Smith:
- The Claimant ["Sainsbury's"] has brought this action against four Defendants arising out of the design and construction of a car park for its supermarket at North Cheam. The construction of the car park took place in 2006 with practical completion being in about November of that year. There was then a maintenance period which appears to have stretched to 2008. Sainsbury's alleges that the car park is defective as a consequence of inadequate design and construction and that it needs to be demolished. It accepts that the defects were apparent by 2008 and that, for the purposes of the law of negligence, its claim is a claim for pure economic loss.
- The Third and Fourth Defendants ["Mr Pashouros" and "CSL"] now bring applications pursuant to CPR 3.4(2)(a) to strike out the claims against them and pursuant to CPR 24 for summary judgment.
- At the end of the hearing I indicated that I would find for the Defendants and would give reasons later. This judgment sets out my reasons.
Factual Background
- Sainsbury's needs no introduction.
- Mr Pashouros is the inventor of a modular car park system known as the Condek system. The system's modular design enables it to be largely prefabricated and then speedily erected on concrete foundations. Speed of construction is appealing to Sainsbury's because the time taken to construct car parks leads to significant business disruption and loss of revenue when first building or later renovating a store. Although the precise extent of his design involvement would be in dispute at a trial, Mr Pashouros accepts for the purposes of his present application that he was the designer of the North Cheam car park. It is also clear that he conducted his business generally through limited companies called, successively, Rail Direct Ltd and Condek Holdings Ltd ["Condek"], the First Defendant in this action. The Second Defendant is another company associated with Mr Pashouros but was not involved with the North Cheam car park. Mr Pashouros also had a company called Condes Associates Ltd about which little is known.
- CSL is a limited company (number 2018542) and is a member of the Capita group of companies. It has been joined by Sainsbury's because of its connection with a company called Nickalls Roche McMahon Limited (company number 03235963) ["NRM"]. Its connection arises by virtue of a series of transactions which took place in 2008. On 3 April 2008 another company in the Capita group, Capita Business Services Ltd (company number 02299747) ["CBSL"] acquired the entire issued share capital of NRM. On 20 June 2008, CSL acquired the business and assets of NRM. Then on 21 August 2008 CSL acquired the entire issued share capital of NRM from CBSL. The effective date for the agreements made on 20 June and 21 August 2008 was 4 April 2008. The net effect of these transactions is that, with effect from 4 April 2008, CSL owned the business and assets of, and the entire issued share capital in, NRM. It is important to note at the outset that during the hearing Sainsbury's accepted that it has no claim against CSL in respect of anything done or omitted to be done either by NRM or by CSL on or after 4 April 2008. It is therefore central to Sainsbury's claim that any liability on the part of CSL to Sainsbury's must be a liability that was originally a liability of NRM for which CSL is now responsible.
- NRM is, so far as the Court is aware, still in existence. It has not been joined by Sainsbury's. Although there has been a suggestion that an application to join NRM may be made, no application has been made to date.
- The reason why Mr Pashouros and CSL have been joined is that Condek is in liquidation and, so far as is known, does not have any insurance cover because of late notification of the claim. Condek went into Creditor's Voluntary Liquidation on 29 April 2013. The report for the Meeting of Creditors revealed a company with minimal assets and a total deficiency of £7,822 without making any material provision for any liability to Sainsbury's. Sainsbury's therefore has good reason to believe that any judgment against Condek will be worthless and wishes to pin liability upon one or more Defendants with financial substance.
The Procedural History
- Sainsbury's engaged in pre-action correspondence with Condek, sending a Pre-action Protocol letter on 1 August 2012, which alleged that Condek had designed and constructed the car park pursuant to a contract with Sainsbury's. It says that Mr Pashouros was unhelpful in identifying which of his companies was directly involved with the North Cheam project and that he asserted (wrongly) that the contracting party was not Condek but the Second Defendant. It is not suggested that he said anything to indicate that he had ever acted relevantly in his personal capacity.
- Proceedings were issued against the four Defendants on 30 October 2012, without any steps having been taken to comply with the Pre-action Protocol for Engineering and Construction Disputes in relation to Mr Pashouros in his personal capacity or in relation to CSL. On 16 April 2013 the action was stayed until 31 July 2013 to allow time to the parties to comply with the Pre-Action Protocol. Sainsbury's then sent Pre-action Protocol letters to Mr Pashouros in his personal capacity and to CSL.
- In reply, Solicitors acting for Mr Pashouros denied that he had at any stage acted in his personal capacity, asserting that any representation or other dealings he had had with Sainsbury's had been as a representative of Condek or the Second Defendant. CSL's solicitors denied the existence of a duty of care and reserved their position on limitation.
- In addition to serving Defences on 11 November 2013, Mr Pashouros and CSL issued Part 18 Requests designed to elicit clarity about the nature of the cases being brought against them. Sainsbury's provided limited responses to those requests, frequently asserting that its case was sufficiently pleaded or that the request was a request for evidence. It also served Replies to the Defences of Mr Pashouros and CSL. Mr Pashouros was dissatisfied with the pleading of the case against him and therefore issued a further request for information which remained unanswered on the date of the hearing: the Court was told that Sainsbury's thought it better to set out its case in its skeleton argument.
The Principles to be Applied
- The principles to be applied on an application to strike out under CPR 3.4(2) and for summary judgment under CPR 24.2 are well known and are not controversial, though their application may be. The standard of proof is high. The phrase "no real prospect of succeeding" in CPR 24.2 is explained as meaning that the respondent must have a case which is better than merely arguable. Evidence is admissible on an application for summary judgment, with the overall burden of proof resting on the applicant. If the applicant adduces credible evidence in support of the application, the respondent comes under an evidential burden of proving some real prospect of success or some other reason for having a trial. In deciding whether the respondent has some real prospect of success the court should not apply the standard which would be applicable at trial, namely the balance of probabilities, to the evidence presented: and on an application for summary judgment the court should consider the evidence that could reasonably be expected to be available at trial. However, the Court is not required simply to take all evidence at face value or to accept without question any assertion that may be made: the question is whether the respondent's case carries some degree of conviction.
- The test to be applied on a strikeout reflects the fact that the question is whether the statement of case itself discloses no reasonable grounds for bringing a claim. So, if the pleaded facts do not disclose any legally recognisable claim against a Defendant, it is liable to be struck out. The Court will, however, consider whether a party should be given an opportunity to amend a legally deficient Statement of Case if it appears that the deficiency can be remedied without injustice to another party. In assessing whether or not permission to amend should be given the features that are likely to be taken into account include (a) whether the party has brought forward a coherent amendment to cure the deficiency, (b) whether there is reason to think that the coherent amendment is supportable, (c) whether the effect of the amendment will or may be to deprive a defendant of an accrued limitation defence and (d) whether the amending party has had reasonable opportunity previously to formulate a legally admissible claim.
- For the purposes of these applications I adopt the statement of principle provided by Peter Gibson LJ in Hughes v Colin Richards & Co [2004] EWCA Civ 266. There the Defendant had brought applications under both CPR 3.4 and CPR 24. Although the application under CPR 24 permitted the court to take account of evidence, none was relied upon and the applications proceeded on the basis that the facts alleged in the Claimant's pleadings were assumed to be true. At [22]-[23], Peter Gibson LJ said:
"The correct approach is not in doubt: the court must be certain that the claim is bound to fail. Unless it is certain, the case is inappropriate for striking out (see Barrett v Enfield London Borough Council [2001] 2 AC 550 at p. 557 per Lord Browne-Wilkinson). Lord Browne-Wilkinson went on to add:
"[I]n an area of the law which was uncertain and developing (such as the circumstances in which a person can be held liable in negligence for the exercise of a statutory duty or power) it is not normally appropriate to strike out. In my judgment it is of great importance that such development should be on the basis of actual facts found at trial not on hypothetical facts assumed (possibly wrongly) to be true for the purpose of the strike out."
- I therefore approach these applications on the basis that I must be certain that the claims against Mr Pashouros and CSL are bound to fail applying the principles that I have summarised at [13]-[14] above.
Mr Pashouros' Application
The Applicable Principles
- The principles to be applied when considering whether a person who has acted on behalf of another has assumed responsibility so that he is held to be subject to a personal duty of care to prevent economic loss were reviewed by Lord Steyn in Williams v Natural Life Ltd [1998] 1 WLR 830 at 834-838, a passage which requires to be read and borne in mind in full. Principles emerging from that review that are of particular relevance to the present case are:
i) The assumption of responsibility principle enunciated in Hedley Byrne v Heller [1964] is not limited to statements but may apply to any assumption of responsibility for the provision of services: 834E-F;
ii) Once a case is identified as falling within the extended Hedley Byrne principle, it is not necessary to embark on any further enquiry whether it is "fair, just and reasonable" to impose liability for economic loss: 834G;
iii) Reliance by the other party is necessary, otherwise causation cannot be shown. But proof of reliance is not of itself sufficient: the test is whether the Claimant could reasonably rely on an assumption of personal responsibility by the individual who performed the services on behalf of his company: 834G-H, 837B;
iv) Where a trader incorporates a company to which he transfers his business, personal liability under the extended Hedley Byrne principle will not be established in the absence of a special relationship between the erstwhile trader who is alleged to be a tortfeasor in his personal capacity and the Claimant. In other words, there must have been an assumption of responsibility such as to create a special relationship between the Claimant and the director or employee himself: 835B-C;
v) The test for an assumption of risk is an objective one, which means that the primary focus must be on things said or done by the defendant or on his behalf in dealings with the claimant (i.e. things that "cross the line") rather than upon the state of mind of the defendant: 835F-G;
vi) A director of a contracting party may only be held liable where it is established by evidence that he assumed liability and that there was the necessary reliance: 837F-G.
- What emerges with clarity from Lord Steyn's analysis is that it will not be sufficient to establish a special relationship or an assumption of responsibility if the director does no more than act in a way that is consistent with his position as director. So personal liability was not established in Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 where the New Zealand Court of Appeal concluded that there was merely "routine involvement" and "no singular feature which would justify belief that Mr Ivory was accepting a personal commitment, as opposed to the known company obligation." On the other side of the line, in Fairline Shipping Corporation v Adamson [1975] QB 180, the director of a warehousing company wrote a letter on his personal notepaper and in the first person singular offering to store the Claimant's goods in "his" premises because (as Kerr J found at 186G-H) the affairs of the limited company had reached a stage when the defendant wanted to treat the storage of the goods in his cold store as his own venture.[1]
- Sainsbury's submits that there is a tension between the principles outlined in Williams and those applied in Merrett v Babb [2001] 1 QB 1174, where an employed valuer who signed a mortgage valuation certificate was held to have assumed personal responsibility to the purchaser who relied upon the valuation. I am unable to detect any tension or conflict between the two cases. The terms of the certificate signed by the valuer are instructive: "I certify that I am not disqualified under Section 13 of the Building Societies Act 1986 from making this report." Section 13 requires the building society to make arrangements to ensure that the person making the assessment is a person competent to value the land in question and not disqualified from making a report on it. The personal standing of the individual valuer was therefore an integral part of the assurance available to the building society and the purchaser; and the terms of the certificate expressly referred to the report being the report of the individual signatory. In these circumstances, it is not surprising that the Court of Appeal held that the principles set out in Smith v Eric Bush [1990] 1 AC 831 (which referred to the valuer inferentially or in terms as the individual person who carries out the valuation) were directly applicable.
- The tension which Sainsbury's wishes to establish is that Williams says that a person cannot act in his personal capacity and on behalf of his company at the same time, whereas Merrett v Babb says that he can. In fact, Williams says no such thing: at 835B Lord Steyn said "Whether the principal is a company or a natural person, someone acting on his behalf may incur personal liability in tort as well as imposing vicarious or attributed liability upon his principal."[2]
Sainsbury's Pleaded Case Against Mr Pashouros
- Sainsbury's pleaded case is that Mr Pashouros carried on business under the trading name "Condes" and that he was at all material times the managing director and shareholder of Condek.[3] Condek holds the patent for the Condek modular car park system, with Mr Pashouros being listed as the inventor.[4] Mr Pashouros signed a completed tender offering to carry out the fabrication and erection of the North Cheam Car Park on 9 March 2006.[5] Sainsbury's then issued a letter of intent dated 19 April 2006 addressed to Condek, which identified Condek as the contractor, and which required Condek to proceed with the design, procurement and preparatory work necessary to enable it to comply with the programme and to proceed with the development of the car park.[6] Mr Pashouros signed the letter of intent and returned it under a letterhead of Condes. He signed the last page of the letter of intent "for and on behalf of" Condek.[7] Condek carried out the works in accordance with Mr Pashouros' design[8] but Condek was and remained the contracting party who had agreed to procure the design, construction and installation of the car park.[9]
- Sainsbury's alleges that there were express or implied terms of the contract between Sainsbury's and Condek that:
"(1) CHL would exercise reasonable care and skill in the design, procurement, construction and installation of the modular car-park system at the North Cheam store.
(2) The modular car-park system as designed and constructed would be appropriate for and external environment and traffic, would be safe, resistant to corrosion or other degradation, not give rise to excessive movement and noise, and would be of good and durable quality, durability being required for a minimum of 15 ad expected to last for 50 years as set out in the design parameters;
(3) The materials supplied would be of satisfactory quality, and reasonably fit for the purpose of a car-park in an external environment.
(4) The work would be carried out in a good and workmanlike manner.
(5) The work would be carried out in accordance with British Standards (in particular BS699 – Parts 1 and 2, BS5950 Part 1), Building Regulations, the Design Recommendations for Multi-Storey and Underground Car parks 3rd Edition published by the Institution of Structural Engineers June 2002 and good practice."
- As originally pleaded, Sainsbury's alleged that Condek owed a common law duty of care to Sainsbury's equivalent to the implied terms of the contract as set out above; and that Mr Pashouros also owed a duty in the same terms which extended to protecting Sainsbury's from economic loss and which "arose because Mr Pashouros, as the inventor and/or designer of the Condek modular car park system, promoted its use at the North Cheam store to the Claimant."[10]
- At [28] of the Particulars of Claim, Sainsbury's alleges that the car park as installed was "negligently designed, constructed and installed" as a result of which it was subject to ten categories of defects. At [29] it alleges that "by reason of the aforesaid matters, [Condek] was in breach of contract and its contractual and common law duties of care to carry out the works with the degree of skill and care to be expected of a reasonably competent designer and contractor in that the design and construction of the car park … fell below the standards reasonably to be expected of a reasonably competent designer and contractor installing a steel framed car park." It then alleges at [30] that "further or alternatively, Mr Pashouros was in breach of contract and/or negligent by reason of the matters set out in paragraphs 20-29." By the provision of Further Information in answer to a Request from Mr Pashouros, Sainsbury's abandoned the allegation that he was in breach of contract and confirmed that the contracting party was Condek and not Mr Pashouros.
- Sainsbury's pleading of loss and damage in the Particulars of Claim is, on any view, very lightly sketched.[11] Rather than identifying what is said to constitute the loss and damage giving rise to a cause of action in tort, or the basis for the damages which it claims, it merely asserts that "the appropriate remedy is to demolish the existing system and to replace it with a properly designed [one]…". It then lists the costs of installing the replacement system in the sum of £3,246,000, asserts that it will lose £3,600,000 in lost sales while the replacement works are carried out and claims an additional £160,000 for temporary repairs and associated professional and legal costs plus any other ongoing costs for further temporary repairs as may be necessary.
- By its Reply to Mr Pashouros' Defence, Sainsbury's alleges that Mr Pashouros in his personal capacity has been and is the owner of the design of the Condek car park system design and, as sole owner he is the only person who stood to benefit financially from putting his design into commercial use by having the car park built at North Cheam.[12] It also alleges that the communications with Sainsbury's about the car park were "with and through Mr Pashouros directly"[13]; that he signed the tender in his personal capacity[14]; and that Condek was a licensee used by Mr Pashouros at his direction as owner of the design to carry out the commercial implementation of his design so that he could personally financially benefit."[15] It then alleges that, in all the circumstances, "by reason of Mr Pashouros' ownership of the design of the Condek car park system, his direct involvement in promoting the use of the Condek car park system to [Sainsbury's] during his negotiations for the North Cheam contract, and his overall control of it during the course of its implementation, Mr Pashouros assumed a responsibility to [Sainsbury's] at common law for his design and its successful commercial construction at the North Cheam store."[16]
Further Factual Background
- Sainsbury's takes the point that full disclosure has not yet been given. However, Sainsbury's would have copies of all documents crossing the line between the parties; and the core documents are before the Court. They include the following:
i) On 27 July 2005 Mr Pashouros sent a letter to Mr Taylor of Sainsbury's. He signed the letter "for and on behalf of Rail Design Ltd" (which was Condek's previous name), informed Mr Taylor that Rail Design Ltd would be changing its name to Condek, and said that he could not provide any further information until Sainsbury's signed the attached Non-disclosure Agreement ["NDA"];
ii) On 3 August 2005 Mr Pashouros wrote to Mr Taylor again, this time signing the letter "for and on behalf of Condek". He attached specification notes for the Condek system and enclosing the NDA. The NDA was in terms between Condek as the disclosing party and Sainsbury's. It was signed by Mr Taylor "for and on behalf of" Sainsbury's on 10 August 2005 and by Mr Pashouros "for and on behalf of" Condek on 12 August 2005.
iii) On 5 September 2005, Mr Pashouros entered into an agreement with Condek by which he granted Condek an exclusive irrevocable licence for six years to exploit Mr Pashouros' inventions that would form the subject matter of future patents. The consideration payable by Condek was £2,000 plus a royalty payment of 1% of Condek's gross profit generated by the use of the invention, deferred for a period of 3 years to allow Condek to become established;
iv) The patent for the Condek system listed Condek as the proprietor and Mr Pashouros as the inventor;
v) The form of tender which was sent to Sainsbury's in March 2006 expressed all proposed contractual undertakings and obligations in terms that they would be performed by Condek (e.g. "Condek shall be responsible for the design of a suitable foundation and the provision of Structural Engineers calculations to support the design of such foundations."). The tender had the Condek banner logo on the front page. The first page stated "I, we the undersigned offer to carry out the fabrication and erection of [the car park] … for the sum of £1,640,676." The form then provided as follows "Signed ….. For ….. Dated ….." A signature appears after the word Signed, which is not obviously Mr Pashouros' signature. Before the word "For" is written "pp" and after it is written "A Pashouros". After the word "Dated" the date is written as 9 March 2006. Taken on its own, the manner in which the form is signed is unclear. Viewed overall, however, it appears clear that the Tender was submitted for and on behalf of Condek and that someone other than Mr Pashouros signed it on his behalf but, while stating the signature was per pro Mr Pashouros, did not state that it was also for Condek. Whether that was the intention of the signatory does not matter because Sainsbury's clearly took the tender as being from Condek and not as a personal tender by Mr Pashouros to carry out the works himself, as follows at (vii) below;
vi) Attached to the Tender was a Design Report by NRM Bobrowski "for Condek Demountable Car Park System." For present purposes the materiality of the report is that it was required by Sainsbury's because they wanted independent verification of the design calculations and were not prepared to rely upon Mr Pashouros' design on its own;
vii) The letter of intent dated 19 April 2006 was sent to Condek, signed by Mr Holloway for and on behalf of Sainsbury's and was signed by Mr Pashouros for and on behalf of Condek. As originally drafted, the Schedule to the letter of intent said that "Sainsbury's Terms and Conditions include amendments to the standard form JCT'98 Standard Form of Building Contract with Contractors Design 1998 (edition May 2003)". This sentence was deleted and Mr Pashouros wrote alongside it "As agreed with Chris Mayo the JCT contract will be applied to this project";
viii) Sainsbury's required a New Supplier's Form to be filled in. It is apparent from the documentation that it was filled in for and on behalf of Condek. There is no evidence or suggestion that any formal documents were entered into in the name of Mr Pashouros or that he signed any such document other than for and on behalf of Condek.
- In support of his applications, Mr Pashouros has submitted a witness statement which asserts that he only ever acted on behalf of Condek in his dealings with Sainsbury's; and he identifies the original letter of 27 July 2005, the subsequent letter of 3 August 2005, the NDA, the Tender, and the Letter of Intent in support of his assertions. In response, Sainsbury's has submitted a witness statement from Mr Tony Mars, who was employed as Sainsbury's Construction Interface Manager at the time. It is not clear why no statement has been provided by Mr Taylor, who appears to have conducted the early negotiations with Condek and Mr Pashouros, though it was suggested that he may no longer be with Sainsbury's. According to Mr Mars, Mr Pashouros told Mr Taylor that he had designed the Condek system and that he could deliver the system within a short frame of time and at a lower cost than competitors. He agreed to build a prototype and did so in Carlisle. Mr Pashouros pressed for the letter of intent to be agreed as soon as possible and told Sainsbury's that "he would be importing many of the materials from China." During his dealings "with Mr Pashouros and/or Mr Pashouros' companies" Mr Pashouros was the sole spokesman for the Condek System.
The Opposing Submissions at the Hearing
- Mr Pashouros submits that all of his actions are consistent with him acting as a director of Condek in a routine way and that there is no feature that crossed the line that either suggests or demonstrates that he assumed personal responsibility.
- In reply, it soon became apparent that Sainsbury's pleaded case does not reflect the case it really wishes to advance. Having previously confirmed that no claim is made against Mr Pashouros in contract, Sainsbury's also accepted that it did not allege that Mr Pashouros owed any duty to carry out the work himself: any case against him is advanced as designer and, possibly, supervisor. The contract terms that had been pleaded as setting out the scope of any duty of care accordingly would have to be amended as set out below:
"(1) [Mr Pashouros] would exercise reasonable care and skill in the design, procurement, construction and installation of the modular car-park system at the North Cheam store.
(2) The modular car-park system as designed and constructed would be appropriate for and external environment and traffic, would be safe, resistant to corrosion or other degradation, not give rise to excessive movement and noise, and would be of good and durable quality, durability being required for a minimum of 15 ad expected to last for 50 years as set out in the design parameters;
(3) the materials if supplied as designed by Mr Pashouros would be of satisfactory quality, and reasonably fit for the purpose of a car-park in an external environment.
(4) Mr Pashouros would exercise reasonable skill and care to ensure that [the] work carried out by others would be carried out in a good and workmanlike manner.
(5) The work if carried out in accordance with Mr Pashouros design would be carried out in accordance with British Standards (in particular BS699 – Parts 1 and 2, BS5950 Part 1), Building Regulations, the Design Recommendations for Multi-Storey and Underground Carparks 3rd Edition published by the Institution of Structural Engineers June 2002 and good practice."
- Even with these proffered amendments, the pleading requires explanation. Sainsbury's wishes to maintain the allegation in sub-paragraph 1 that Mr Pashouros owed a personal obligation to exercise reasonable care in the procurement and installation of the car park, despite not being contractually responsible for its construction. It wishes to maintain sub-paragraph 3, not on the basis that Mr Pashouros had any contractual responsibility for supplying materials but on the basis that he was under a duty of care to ensure that if the supplied materials were in accordance with his design then they would be of satisfactory quality and reasonably fit for the purpose of a car park in an external environment. Sub-paragraph 4 is maintained on the basis that Mr Pashouros as a designer who also attended on site during construction had an obligation to ensure that the work was carried out by others in a good and workmanlike manner (i.e. he assumed personal responsibility for supervising the construction despite being under no personal contractual obligation to do so). Sub-paragraph 5 is maintained on a similar basis to sub-paragraph 3, namely that the materials as designed were to be in accordance with the relevant British Standards, Building Regulations and Design Recommendations. This brief review shows that the pleading of duty is tortuous to a degree that is unacceptable as the basis for establishing liability in a substantial claim; and, even with the proffered amendments, the pleading does not make clear to Mr Pashouros the case he has to meet so as to enable him to prepare his case without unfair disadvantage.
- Sainsbury's rightly accepts that the mere fact of designing a novel design does not impose an obligation upon the designer if he attends site in any capacity to check that the construction is in accordance with the design or to check the construction to see how it turns out. When pressed to identify any singular feature or anything that was not entirely routine that would justify imposing liability on Mr Pashouros on the basis of an assumption of responsibility, Sainsbury's was hard pressed to identify anything at all. Its submission in its final form was that an assumption of responsibility should be held to exist because he both promoted the use of the Condek system and would benefit financially from its commercial exploitation.
- I reject Sainsbury's submissions. It is a commonplace that a trader who transfers his business to a limited company will do so in order to benefit financially from its commercial exploitation: that and the benefits of separate legal personality and limited liability are the three obvious reasons for incorporation. If it were the case that an inventor who wants to make money will be taken to have assumed personal responsibility despite trading through a limited company, the main benefits of incorporation would be lost: that is not the law. Second, it is routine for a director of a company that he has incorporated to be the spokesman who promotes the company's business and, as Sainsbury's accepts, to use language which is consistent with his personal involvement without suggesting that he has personal responsibility over and above that of his company. So, in this case, the fact that Mr Pashouros promoted the car park and extolled its virtues is no more indicative of an assumption of responsibility than would be a statement that "he" would be importing the materials for the car park from China. Even if, pursuant to internal arrangements between him and Condek, he had personally imported materials from China, that did not affect who was to build the car park for Sainsbury's. Once again, if it were the case that an inventor or designer who wished to exploit his invention or design through a limited company would assume personal responsibility if he promoted the invention or device on behalf of his company, the benefits of incorporation would be lost: that is also not the law. Third, all of the contractual documents show that Sainsbury's contracted with Condek and that Mr Pashouros acted for and on behalf of Condek in his dealings with Sainsbury's, from the initial introductory letter to the signing of the letter of intent. Fourth, although it is evident from the terms of the letter of intent that Sainsbury's was familiar with the JCT'98 Standard Forms of Contract and Sainsbury's must be very experienced in the negotiating of construction contracts, Sainsbury's took none of the steps that could and would routinely be taken by an employer who wished to have the added security of an enforceable duty of care owed by someone other than the person who has contracted to procure the design and construction of the structure. It could have required Mr Pashouros to be a party to the contract that was primarily intended to be with Condek; or to have provided a duty of care deed or some form of free standing warranty in respect of the design: but it did none of these things. Instead, it was content to contract with Condek, and Condek alone. There is nothing in the evidence of what crossed the line to suggest that Sainsbury's relied (let alone reasonably relied) upon Mr Pashouros in his personal capacity rather than upon Condek with which it chose to contract.
- Sainsbury's submits that this is a case of a black hole which the law of tort should fill. I reject that submission. There is no legal black hole here as Sainsbury's has relevant legal remedies against Condek if the car park is defective. The fact that Condek is now in liquidation is a risk that Sainsbury's chose to take. It could have hedged its risk in a number of ways, including the obtaining of insurance or a bond that would answer in the event of defects in the car park. If it did not do so, that was a commercial choice by a major, knowledgeable and sophisticated commercial organisation which may now regret its choice – but it is not a legal black hole of the kind contemplated in White v Jones [1995] 2 AC 207
- On the materials that are available to me, I am certain that Sainsbury's claim against Mr Pashouros will fail. There is no good reason to suspect that further information might emerge on disclosure that would subvert the very powerful inference to be drawn from the contractual documents and the present weakness of Sainsbury's witness evidence. Nor are the legal principles relating to personal liability of employees a developing area of the law of the kind that may make a trial necessary or desirable to defer a decision until the actual facts are known. Taking them at their highest, the facts pleaded (even after the Reply, Further Information and proffered amendments at the hearing) do not disclose any reasonable grounds for bringing the claim against Mr Pashouros in his personal capacity. On all the information that is available, the Claimant has no real prospect of succeeding on its claim against Mr Pashouros, who acted in his capacity as a director of his companies at all material times.
- For the reasons I have given, the facts pleaded by Sainsbury's against Mr Pashouros do not sustain an allegation that he was subject to a personal duty of care to protect Sainsbury's from economic loss. Had I thought that they did, I would still have struck out Sainsbury's pleading of the duty alleged to have been owed by Mr Pashouros: simply repeating the alleged terms of the contract with Condek without taking into account the real nature of the complaints to be made against him and the fundamental difference between the position of Condek (which had contracted with Sainsbury's) and Mr Pashouros (who had not) is inappropriate and would not be a fair basis on which to proceed. I would also have ruled that there is no adequate pleading of any allegations of breach of duty by Mr Pashouros. However, because the deficiencies in the pleading are fundamental in failing to identify facts that could give rise to any duty of care, the question of partial strikeout does not arise.
- For these reasons I strike out the claim against Mr Pashouros pursuant to CPR 3.4(2) and grant him summary judgment in the action pursuant to CPR 24.
CSL's Application
- CSL raises four substantial issues in relation to the claim against it:
i) Did NRM (whose liability is said to have transferred to CSL) owe a duty of care in tort to Sainsbury's?
ii) If NRM incurred liability to Sainsbury's, is that liability capable of being transferred to CSL?
iii) On the proper interpretation of the agreements by which CSL became associated with NRM, did they cause any liability on the part of NRM to Sainsbury's to be transferred to CSL?
iv) Limitation.
Sainsbury's Pleaded Case against CSL
- Understanding Sainsbury's pleaded case against CSL is made difficult because it elides CSL and NRM, referring routinely to "Capita" when it should have referred to NRM and not discriminating between NRM and CSL. This may be because Sainsbury's did not appreciate the sequence of events by which CSL became connected to NRM in 2008. The difficulty would have been avoided if Sainsbury's had complied with the Pre-action Protocol before issuing proceedings as CSL would inevitably have furnished it with the information which makes the position plain. That information is now contained in the witness statement of Mr Case, an in-house solicitor who was involved with the acquisition and transfer of NRM's shares, business and assets.
- For the hearing, Sainsbury's produced a written summary of why it was owed a duty of care owed by NRM, which draws on the post-action letter of claim and its pleaded case as follows: Condek procured services from NRM to design or assist in the design of the works. NRM's design formed part of Condek's tender for the works which was provided by Condek to Sainsbury's. NRM was required to undertake structural inspections of the works during the course of the installation and undertook maintenance inspections for a period of 2 years after the completion of the works. Before Sainsbury's decided to procure the Condek system and enter into the contract with Condek, NRM attended various meetings with both Condek and Sainsbury's and provided design advice and assurances, which Sainsbury's relied upon when deciding to procure the Condek system: letter of claim 3.7-3.12[17]. NRM owed Sainsbury's a duty of care in tort to carry out the works, exercising the degree of skill and care expected of a reasonable competent designer. It was aware that Condek was going to use the Condek system at the North Cheam store. It was also aware that Sainsbury's relied upon NRM's advice and input at the various meetings both prior to entering into the Contract and during the Works. Sainsbury's was reliant upon NRM exercising reasonable skill and care in carrying out and reviewing the design of the Condek system. In particular it was incumbent upon NRM to ensure that its design for the works was such that when the works were constructed and installed the works were (a) appropriately designed for an external environment; (b) appropriately designed to cater for traffic; (c) safe for use by Sainsbury's and its customers' resistant to corrosion or other degradation; (d) did not give rise to excessive movement and noise; and (f) was of good and durable quality (durability being required for between 15 years to 50 years): letter of claim 4.1-4.3[18]. The car park was negligently designed and there were defects: Particulars of Claim [28]. As the structural engineer engaged by Condek or Mr Pashouros NRM should have checked and reviewed the design and taken steps to ensure that the car park was appropriately designed and installed in accordance with a reasonably competent design but failed to do so: Particulars of Claim [32].
- By its Reply to CSL's Defence, Sainsbury's referred to alleged evidence of CSL's involvement contained in pages on the Capita website. It pleaded that Mr Pashouros wanted and needed NRM to be involved so that it could answer technical design questions that Sainsbury's had and give comfort to potential customers that the design had been carried out by engineering professionals: Reply [7]. NRM had close involvement including involvement specifically with the deck: Reply [8] and [9].[19] CSL acquired and became responsible for the liabilities of NRM after 4 April 2008 pursuant to the transactions by which it acquired NRM's business, assets and issued share capital; and CSL assumed responsibility to Sainsbury's for the liabilities of NRM: Reply [12]-[15], [17].
- By its skeleton argument for the hearing, Sainsbury's submits that the following features of the case distinguish the position of NRM and CSL from "a run of the mill construction contractual chain case", namely:
" … this was a novel and untested design which had never been put into practice (Capita themselves describe it as 'revolutionary' and working in partnership with Condek). [Sainsbury's] was particularly concerned about, and was reliant upon the assurance that the car park was designed and backed by NRM. Without NRM's backing for that design [Sainsbury's] would not have proceeded with what was a novel and untested design. There is evidence that
(1) NRM themselves were aware that a prototype and model was built with [Sainsbury's] in mind, they had put together a design specification which they were aware would have used to market the design to others – specifically they became aware it would be for [Sainsbury's] see paragraph 4.4 of Mr Cutlack's statement;
(2) NRM rather than [Condek] were tasked with carrying out the design calculations – rather than [Condek]. On Mr Pashouros' case it was [Condek] that was actually doing the detail design for North Cheam;
(3) NRM were involved in meeting with [Sainsbury's] and answering any queries they had;
(4) and finally they were required to inspect the ongoing installation of the car park and, as Capita, did inspect it for defects and advised solutions in 2008."[20]
- This formulation does not include any mention of reliance by Sainsbury's upon NRM, as opposed to reliance upon the assurance (from Condek by Mr Pashouros) that the car park was designed and backed by NRM. The witness statement of Mr Mars is also extremely light on that subject. Although he refers to Mr Pashouros saying that NRM/Capita would "underwrite" the design, there is little to indicate any relationship at all between NRM and Sainsbury's save that he says that "Capita contributed to a number of these discussion points and their comments were not only limited to discussing the structural steel supports. This provided [Sainsbury's] with a degree of comfort around the design of the whole Condek system." Sainsbury's submits that Mr Mars' reference to Capita should be taken as a reference to NRM, though that is evidently not what Mr Mars says.
Did NRM (whose liability is said to have transferred to CSL) owe a duty of care in tort to Sainsbury's?
The Applicable Principles
- In Henderson v Merritt Syndicates [1995] 2 AC 145, 195 Lord Goff addressed the general approach taken by the law where an employer under a building contract contracts directly with a contractor who then enters into sub-contracts with others.
"Let me take the analogy of the common case of an ordinary building contract, under which main contractors contract with the building owner for the construction of the relevant building, and the main contractor sub-contracts with sub-contractors or suppliers (often nominated by the building owner) for the performance of work or the supply of materials in accordance with standards and subject to terms established in the sub-contract. I put on one side cases in which the sub-contractor causes physical damage to property of the building owner, where the claim does not depend on an assumption of responsibility by the sub-contractor to the building owner; though the sub-contractor may be protected from liability by a contractual exemption clause authorised by the building owner. But if the sub-contracted work or materials do not in the result conform to the required standard, it will not ordinarily be open to the building owner to sue the sub-contractor or supplier direct under the Hedley Byrne principle, claiming damages from him on the basis that he has been negligent in relation to the performance of his functions. For there is generally no assumption of responsibility by the sub-contractor or supplier direct to the building owner, the parties having so structured their relationship that it is inconsistent with any such assumption of responsibility." [Emphasis added]
- Although it may be said that this passage is strictly obiter, it accurately reflects the present state of the law which, in this respect, has been settled for a considerable time. Nor is it necessary that the contractual framework be structured in any particular way or with any particular degree of complexity. That is because it is for the person asserting the existence of a duty of care to prove the existence of the special relationship that is a necessary prerequisite to it; and a contractual structure which does not show any unusual or particular features indicating a special relationship of proximity between the employer and the independent subcontractor will be taken as conforming to the norm, as explained by Lord Goff.
- Lord Goff was referring expressly to the sub-contractor who provides work or materials in the construction of a building, and not to professionals such as NRM. However, once it is recognised that a claim in tort against a building professional who is not in a contractual relationship with the Claimant requires the existence of a special relationship of proximity as the foundation for the existence of a relevant duty of care, Lord Goff's statement of principle can be seen to be equally applicable to sub-contracted design professionals as to sub-contracted suppliers of work and materials. The scope for an employer to identify facts which justify the conclusion that there has been an assumption of responsibility towards it by a design professional differs from that in respect of a building sub-contractor supplying work and materials: but the underlying principle remains the same.
- I therefore respectfully agree with the decision of HH Judge Toulmin QC in Architype Projects Ltd v Dewhurst MacFarlane & Partners [2004] PNLR 38 on an application to strike out a claim by an employer against a supplier of civil engineering consultancy services who had been engaged as a sub-contractor by the employers' retained architect but who had not entered into any direct contract with the employer. The engineering subcontractor had attended at least one meeting with the employer and other members of the construction team (including the architect) and had responded to queries in letters from the employer that were passed on to it by the architect. The Judge struck out the claim despite concluding on the facts of that case that there was a relationship of proximity between the engineering sub-contractor and the employer. Adopting the three fold test as explained by Lords Bridge and Roskill in Caparo v Dickman [1990] 2 AC 604, 617, 628 he concluded that it was not fair just and reasonable to impose a duty of care on the engineering sub-contractor. In the light of the statement in Henderson v Merrett (at 181) that "once the case is identified as falling within the Hedley Byrne principle, there should be no need to embark upon any further enquiry whether it is "fair, just and reasonable" to impose liability for economic loss", I would prefer to express the conclusion as being that the employer had failed to identify facts giving rise to a special relationship of proximity so as to bring the extended Hedley Byrne principle into play. But, whichever analysis is correct, the result is the same.
- Sainsbury's relied upon passages[21] from Jackson & Powell on Professional Liability (7th Edition) which, taken on their own, may suggest that the mere fact that a person possessed of special skill knows that his work may be relied on by others is sufficient to give rise to a duty of care. In the course of analysing Denning LJ's dissenting judgment in Candler v Crane Christmas & Co [1951] 2 KB 164, the editors write:
"To Whom Is the Duty Owed? The duty is owed to the client and to those third parties with whom the professional person deals directly with a view to influencing their future conduct (e.g. by making an investment or loan). It also extends to third parties to whom the professional person knows his views will be conveyed by his client for the same purpose. This limits the class of those to whom the duty is owed. It recognises that there are limits to the extent to which it is reasonable to impose a duty of care on a professional person and so limits to the extent to which it is reasonable for a third party to rely on him."
- In a later chapter[22], the editors give fuller consideration to the position of construction professionals:
"Greater difficulties can be expected to occur in deciding when construction professionals owe duties to persons other than their clients to prevent economic loss on the grounds that such persons are entitled to rely upon the professionals or are in a sufficiently close relationship that a duty of care should be imposed, even although no misleading communication is made by a professional to the claimant. In Junior Books Ltd v Veitchi Co Ltd, nominated flooring subcontractors were found liable to a building owner for the costs of remedying a defective floor which they had laid. In Murphy, Lord Bridge stated:
"There may, of course, be situations where, even in the absence of contract, there is a special relationship of proximity between builder and building owner which is sufficiently akin to contract to introduce the element of reliance so that the scope of the duty of care owed by the builder to the owner is wide enough to embrace purely economic loss. The decision in Junior Books Ltd v Veitchi Co Ltd can, I believe, only be understood on this basis."
As has been pointed out on many occasions, such an explanation for the decision in Junior Books is difficult to justify. The building owner in Junior Books chose to enter into a single contract with a main contractor, presumably relying on the competence and financial solvency of that contractor. The use of nominated sub-contractors is (or was) generally thought to give the owner some of the benefits of choice of sub-contractor without the burdens of a direct contract. It is difficult to see why the law should decide to provide further benefits to the owner.
The increasing popularity of design and build contracts in the procurement of construction projects prompts the question whether a construction professional appointed by the design and build contractor owes a duty of care to avoid causing economic loss to the employer. Such a claim will rarely succeed. In Henderson v Merrett Syndicates, Lord Goff emphasised that the existence of a contractual chain which has been structured so as not to include a contract between claimant and defendant will commonly prove inconsistent with such a duty of care." [The passage from page 195 of Henderson v Merrett cited above is then set out.]
- I respectfully agree with the thrust of this more extensive analysis.
Did NRM owe Sainsbury's a duty of care?
- Reasonable reliance by Sainsbury's and knowledge on the part of NRM that Sainsbury's would rely upon its expertise and advice are necessary building blocks for the imposition of a duty of care owed to Sainsbury's by NRM. Furthermore, it is incumbent upon Sainsbury's, as the party alleging the existence of a duty of care, to specify the scope of the relevant duty with precision so that it may be understood by others. That being so, there are two powerful points in support of CSL's application on this issue. The first is that Sainsbury's pleadings are presently inadequate in relation to reliance; the second is that the scope of the duty alleged is unjustifiably wide.
- The first of these points is well made. The Particulars of Claim is silent on whether and to what extent NRM knew that Sainsbury's (as opposed to Condek) relied upon its work; and it fails to plead either direct interaction between NRM and Sainsbury's or any other facts from which an assumption of responsibility or the existence of a special relationship of proximity could reasonably be inferred. The most that is said is at [19] of the Particulars of Claim which alleges merely that Sainsbury's "was reliant on" Capita (meaning NRM) exercising its skill and care in reviewing the design of the car park and in providing its services to Condek in the course of installation of the car park. The Reply takes matters no further than a repetition of the bald assertion of reliance at [17]. On the pleadings as they presently stand, therefore, I would hold that they disclose no legally admissible basis for the imposition of a duty of care on NRM and I would strike out the pleading on that basis.
- The second point is also well made. Even adopting the most generous view of the matters alleged by Sainsbury's in its Statements of Case, no coherent basis is pleaded to justify the broad scope of duty alleged at [19] of the Particulars of Claim or [17] of the Reply.
- Sainsbury's has attempted to make good the deficiencies in its pleading by referring to the reformulation of its case as set out in the post-action letter of claim. In general, if a party wishes to reformulate its pleaded case, it should do so by amendment of its pleadings. No amendment has been put forward. It is also difficult to see how Mr Mars' evidence supports or justifies the reformulation that appears on the letter of claim.
- To my mind, there are only two features of Sainsbury's current contentions that tend to support the possible existence of a duty of care owed by NRM to Sainsbury's. The first is that NRM's report was annexed to Condek's tender. If it were the case that (a) this was done with NRM's knowledge and (b) NRM knew the purpose of annexing it was to validate the design of the car park so that Sainsbury's would accept it, then that could be taken as evidence of an assumption of responsibility by NRM towards Sainsbury's, NRM's position being similar to that of the valuer in Smith v Bush who gave the valuation knowing that it was likely to be relied upon by the purchaser. The analogy is not exact because it is neither pleaded nor shown that NRM would have known that Sainsbury's would rely upon its report and that Sainsbury's would not rely upon alternative expertise – if indeed that was the case. But for the purposes of a strikeout application, the analogy is instructive.
- The second feature of Sainsbury's current contentions that tends to support the existence of a duty of care is the allegation that NRM attended meetings and dealt with technical questions that were raised. At present this is inadequately pleaded or evidenced. In particular, no attention has been given to the scope of the questions that were asked of NRM, by whom the questions were asked, or the scope of NRM's advice in response. However, in principle, active involvement in meetings at which the client was present could support the existence of an assumption of responsibility, though it will not necessarily do so, as the decision in Architype shows.
- At this point I bear in mind that NRM is not formally a party to the present proceedings or application. It is therefore possible that if NRM were directly involved now and in the future, further information might emerge in support of the existence of a duty of care. Though possible, this seems unlikely since Sainsbury's has had every opportunity to formulate a coherent basis of claim in relation to NRM and has failed to do so.
- I therefore resolve this issue by concluding that Sainsbury's pleadings do not at present disclose a legally admissible basis for a finding that NRM owed a duty of care to Sainsbury's and that the evidence that has been adduced does not remedy the deficiency. I would therefore strike out Sainsbury's pleading that NRM owed a duty of care to Sainsbury's and grant summary judgment on the issue. However, because I am conscious of the remote possibility that further evidence might emerge if NRM were directly involved, and also in case I am simply wrong in my conclusion on this issue, I turn to the remaining issues making the assumption that NRM did in fact owe a duty of care to Sainsbury's. The difficulties of defining the scope of any such duty remain, but I ignore those difficulties for the purposes of the following issues.
If NRM incurred liability to Sainsbury's, is that liability capable of being transferred to CSL?
- Although Sainsbury's devoted considerable ingenuity to this issue, it can in my judgment be answered shortly. It is axiomatic that, in general, a personal liability in tort cannot be transferred so as to relieve the original tortfeasor of liability and to impose the original tortfeasor's liability upon another person instead. This is settled law and there appears to be no prospect of the law changing materially in the foreseeable future.
- No case directly on point has been identified. Sainsbury's referred to Martin v Lancashire County Council; Bernadone v Pall Mall Services Group CA Unreported 16 May 2000. This case provides no support for Sainsbury's position. The Court of Appeal held that, where the Transfer of Undertakings (Protection of Employment) Regulations 1981 ["TUPE"] apply, a liability of a transferor to an employee in tort, which has accrued before the transfer, is transferred by TUPE to the transferee. The fact that Parliament has the power by statute or regulation to effect the transfer of a tortious liability does not mean or imply that tortious liabilities can be transferred where no statute or regulation so provides. Although Peter Gibson LJ referred to the existence of a provision in the Transfer Scheme and Business Agreement that the transferee should indemnify the transferor against all liabilities in respect of any act or omission on the part of the transferor before the transfer, he recorded that the Court had not heard argument about those clauses and expressly said nothing about them. Sainsbury's can derive no comfort from nothing being said on the point.
- Sainsbury's also attempted to construct arguments based upon the law in relation to vicarious liability, partnership and subrogation. None of these doctrines provide support for the proposition that liabilities in tort may be transferred from the original tortfeasor to a third party:
i) Vicarious liability does not involve a transfer of liability: the person who commits the tort remains liable, with vicarious liability being a mechanism by which the law imposes liability additionally upon someone else (typically an employer) although he is himself free from blame: see Lister v Hesley Hall [2002] 1 AC 215;
ii) Shared responsibility for the acts of a partner is now the subject of ss. 9 and 10 of the Partnership Act 1890, which codified the law in relation to joint liability of partners for the debts and obligations of the partnership incurred while they are partners (S. 9) and liability of the firm for the wrongful acts or omissions of the partners (S. 10). Section 10 is derived from the common law of vicarious liability and does not involve a transfer of liability: see Dubai Aluminium v Saleem [2003] 2 AC 366 at [19]-[21], [39] per Lord Nicholls, [70] per Lord Hobhouse, and [95], [104] per Lord Millett;
iii) Subrogation is not concerned with the transfer of liabilities. It operates to enable a person (typically an insurer who has indemnified his insured or someone who has discharged another's debt) to exercise another person's rights to receive compensation from a third party and carries the right to bring a claim in the name of the person he has indemnified or whose debt he has discharged. It is not the same as assignment, as subrogation is dependant upon the operation of law rather than upon agreement which forms the basis of assignment, and has no relevance to the question of transferring liabilities.
- Sainsbury's also referred to the doctrine of novation in contract. To my mind, this is more instructive but does not assist Sainsbury's. First, novation of a contract requires the agreement of all original contracting parties and the party to whom the contract is to be novated. There is no equivalent mechanism in tort. While it would be open to a tortfeasor, his victim and a third party to agree for consideration that, as a matter of contract, the victim will look to the third party (and not the tortfeasor) to discharge the tortious liabilities of the tortfeasor, no such agreement is alleged here. Sainsbury's rightly accepts that mere notice of a transfer of liabilities from the original tortfeasor to another would not be sufficient. There are sound policy reasons for this, which distinguish the suggested transferring of tortious liabilities from the transferring of rights of action or other assets. The nature and value of a cause of action will not change to the disadvantage of the obligor if it is transferred from the original obligor to another; conversely, the effective value of a tortious liability to the victim may change dramatically if it is transferred from A to B. This case illustrates the point. Sainsbury's wishes to establish that NRM's liabilities have been transferred from NRM (whose solvency is unknown) to CSL (which is thought to be solvent); but if transfer were possible in the circumstances alleged in the present case, it would be equally open to an unscrupulous but solvent tortfeasor to transfer his tortious liabilities to an insolvent third party, to the extreme disadvantage of the victim.
- For these reasons I conclude that any liability to Sainsbury's which NRM may have incurred in tort was not capable of being transferred to CSL.
On the proper interpretation of the agreements by which CSL became associated with NRM, did they cause any liability on the part of NRM to Sainsbury's to be transferred to CSL?
- For the reasons set out above, this question is academic. However, I reject Sainsbury's submission that the various agreements by which CSL became associated with NRM should be interpreted as meaning that any liability on the part of NRM to Sainsbury's was intended to be transferred to CSL.
- Sainsbury's now accepts that the transfer of the issued share capital in NRM to CSL does not operate as a transfer of any liability that NRM had incurred to Sainsbury's. It bases its argument on the terms of the Asset Purchase Agreement by which CSL acquired the business and assets from NRM. The agreement is in conventional form and includes the following terms:
"WHEREAS:
(A) The Seller carries on the business of structural and civil engineering consultants (the "Business").
(B) The Seller has agreed to sell and the Purchaser has agreed to purchase the Business as a going concern with effect from close of business on 4 April 2008 (the "Effective Date") upon the terms and for the consideration set out in this Agreement.
NOW IT IS HEREBY AGREED as follows:
1. SALE OF BUSINESS
1.1 Subject to the provisions of this Agreement, the Seller as beneficial owner shall sell and transfer or procure the sale and transfer (which expression shall where appropriate include an assignment) free from all liens, charges, encumbrances equities (except reservation of the title claims by the suppliers) and the Purchaser shall purchase the Business as a going concern and with effect from the Effective Date such right, title and interest as the Seller has in the Business and the following assets:
1.1.1 all tangible assets owed by the seller …
1.1.2 any industrial and intellectual property rights…
1.1.3 the benefit of any contracts of whatever nature…
1.1.4 the goodwill of the Business as at the Effective Date (the "Goodwill");
1.1.5 all trade debts and amounts owing to the Seller in respect of goods and services supplied by the Seller in the ordinary course of carrying on the Business on or before the Effective Date, and which are due at or become due after completion…
1.1.7 all other assets of the Seller of whatever nature (including without limitation any securities issued by any other body corporate)
(all together the ("Assets").
1.2 The Business and the Assets are sold together with all rights attached to them at the Effective Date or subsequently becoming attached to them.
2. CONSIDERATION
2.1 Subject to clause 2.2, as part of the consideration for the sale of the Business and the Assets (the "Sale") the Purchaser shall:
2.1.1 undertake, pay, satisfy, discharge and indemnify the Seller against all liabilities ad obligations of the Seller as at the Effective Date; and
2.1.2 adopt, perform, fulfil and indemnify the Seller against all liabilities and obligations relating to the Business and Assets after the Effective Date;
2.2 The residue of the consideration for the Sale (the "Cash Consideration") shall be the payment by the purchaser to the Seller, in accordance with clauses 2.3 and 2.4, of a sum equal to the aggregate of the amounts at which the Business and the Assets appear in the books of the Seller as at the Effective Date after deduction therefrom of the amounts at which the Liabilities appear in such books as at the Effective Date. …
…
9. THIRD PARTY RIGHTS
No term of this agreement is enforceable under the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this Agreement. "
- Clause 1 set out what NRM was to sell and transfer to CSL and it did not include liabilities that NRM had incurred in tort to third parties. Clause 2 identified the consideration payable by CSL. This included a commitment that was personal to CSL to indemnify NRM against all NRM's accrued liabilities and obligations; but it does not relieve NRM of those liabilities and make them CSL's by transfer or any other mechanism. The obligation on CSL to indemnify NRM is, in my judgment, incompatible with a transfer of the liabilities against which NRM is to be indemnified. Seen in this light, the agreement that CSL would "undertake, pay, satisfy [and] discharge" NRM's liabilities is an agreement to do so on NRM's behalf, not as the transferee of the liabilities.
- The other evidence upon which Sainsbury's relies is the current content of the Capita website. The Pleading is inaccurate because it alleges that the website acknowledges CSL's involvement in the design of the car park. Once it is appreciated that the webpage was written after CSL had acquired NRM, it is apparent that it is written in language that would typically be adopted by a parent or group to refer to activities of a company that is now a group member but was not at the relevant time. I would therefore accept that the webpage is evidence that NRM had an involvement in the designing of the car park, but not that it is evidence of any involvement on the part of CSL.
- I therefore conclude that the agreements by which CSL became associated with NRM did not purport to cause any liability on the part of NRM to Sainsbury's to be transferred to CSL.
Limitation
- Sainsbury's pleading of loss and damage is inadequate. Having alleged various defects in the car park at [28] of the Particulars of Claim which are said to be "as a result of the negligent design and/or construction and installation" of the car park, its pleading as against CSL is:
"[32] … Capita was in breach of its common law duty of care owed to the Claimant. The design of the Condek modular car park system at North Cheam was seriously flawed. As the structural engineer engaged by [Condek], Mr Pashouros or [the Second Defendant], Capita should have checked and reviewed the design and taken steps to ensure that the car park was appropriately designed and installed in accordance with a reasonably competent design but failed to do so. The Claimant relies on the matters set out in paragraphs 20-29 [i.e. the paragraphs listing the alleged defects in the car park as constructed] hereinabove.
[33] By reason of the Claimant [sic] has suffered loss of damage. The said loss and damage is caused by the negligent acts or omissions of the Defendants or each of them in that the car park at North Cheam is seriously defective."
- It may be deduced from this pleading that the negligence alleged against NRM is in relation to designing the car park and then carrying out inspections during construction. No separate case is articulated to suggest that further inspections after practical completion were causative of any loss. No information is provided about when the various defective elements were incorporated into the construction, which would at least arguably be when actionable damage flowed from the alleged original failures of design, save that it would have been before practical completion in November 2006. Similarly no case is articulated about what damage was caused by the alleged failure to review the design if (which is not at all clear) it is being alleged that there was a continuing obligation to review the design during construction and a negligent failure to do so. If such a case is being advanced, there is nothing to suggest that any cause of action would have become complete after practical completion, and it is readily conceivable that it may have become complete earlier than that.
- Viewed overall, there are two things that can be said with confidence about this pleading. First, it is inadequate in failing to identify either the loss and damage that is alleged to have been suffered, when it was suffered or the causative nexus between any specified allegation of negligence on the part of NRM and the damage that is alleged to have flowed from it. Second, as a result, it would be quite impossible to reach a reliable conclusion about limitation on the information that is available.
- Given the overall inadequacy of the pleading of breach, causation, loss and damage in the Particulars of Claim, [32] and [33] are liable to be struck out so far as they relate to CSL as disclosing no reasonable grounds for bringing the claim: it is incoherent and, as it stands, prejudicial to CSL because of the impossibility of identifying and joining issue with the case being advanced. If this were the only criticism to be made of the pleading, it might be reasonable to allow Sainsbury's one more chance to plead a coherent and properly particularised claim. However, for the reasons set out earlier, there are other serious deficiencies in the pleading which, in combination, militate against giving Sainsbury's relief on this part of the pleading alone. Weighing on the one side the overall deficiencies in the pleading and on the other the prospects (which seem remote) that Sainsbury's could plead a proper case identifying breach, causation and loss and damage with reasonable particularity, I would exercise my discretion to refuse permission to apply to amend (no application having in fact been made) and would strike out [32] and [33] of the Particulars of Claim so far as they relate to CSL.
- Drawing all these strands together I grant summary judgment for CSL against Sainsbury's and strike out the claim against it as disclosing no reasonable grounds for bringing the claim. Even assuming that NRM owed a duty of care to Sainsbury's, neither the Statements of Case nor the evidence served on behalf of Sainsbury's raises an arguable case that any liabilities in tort of NRM were transferred to CSL. There is no reasonable prospect that further evidence at trial will lead to a different conclusion. An additional reason for striking out the pleading is the inadequacy of the pleading of breach, causation and loss and damage as against CSL.
Conclusion on the Applications
- For these reasons, the applications brought by Mr Pashouros and CSL are granted.
Costs
- It is inevitable that Sainsbury's must pay the costs of the applications brought by Mr Pashouros and CSL and of the actions it has brought against them. Each Defendant applies for its costs to be paid on the indemnity basis:
i) Mr Pashouros points to the lack of particularity in the claim pleaded against him. On 11 November 2013 he served his Defence and a Request for Information. His defence set out in detail the relevant documents (as described above) and the fact that he had expressly acted for and on behalf of Condek when engaging in steps leading to the contract, which Sainsbury's acknowledged from the outset was a contract between it and Condek. Sainsbury's replied to the Request for Information on 16 December 2013, by which time it would have had the opportunity to reassess the claim against Mr Pashouros. In reply, Sainsbury's contends that the case is complicated and that Mr Pashouros failed to give proper information during the pre-action correspondence. It also relies upon the fact that no notice of the claim was given to Condek's insurers so that, as a company that has now been put into liquidation, it is a Defendant of no substance;
ii) CSL points to Sainsbury's failure to follow the Pre-action Protocol before issuing the claim form and Particulars of Claim against it; and of the lack of particularity in allegations made against it. It also relies upon the fact that it appended the relevant documents showing the nature of CSL's connection with NRM to its Defence; and that, when it served an extensive Request for Further Information on 2 April 2014 that was designed to clarify the matters that were inadequately pleaded in the Particulars of Claim, Sainsbury's attempted to fob off the request by alleging that the claim was sufficiently pleaded and that the matters requested were matters of evidence. In reply, Sainsbury's reiterates that this is a difficult claim and that it was reasonable to join CSL as it did.
- The claim by Mr Pashouros for indemnity costs before 16 December 2013 is not made out. There is substance in Sainsbury's complaint that Mr Pashouros (then acting for Condek or the Second Defendant) did not engage in the pre-action correspondence as constructively as he might have done and that he gave inaccurate information about the involvement of the Second Defendant. Although the information provided did not suggest that he had been acting in his personal capacity, I do not consider that joining him in the first place of itself merits an order for indemnity costs. However, on and from 16 December 2013 the position changed because Sainsbury's had Mr Pashouros' Defence, which made the position clear. I am not suggesting that a Claimant automatically has to accept that assertions in a Defence are well founded – far from it; but the terms of Mr Pashouros' Defence should have led Sainsbury's to reassess the position as against him. Had it done so, it should have concluded that the claim against Mr Pashouros in his personal capacity was hopeless to the extent that it was liable to be struck out or the subject of an adverse summary judgment. At the latest, this should have been appreciated by the time of the CMC on 9 May 2014. In these circumstances I award the costs of the action in favour of Mr Pashouros from 10 May 2014 including the costs of and occasioned by the strike out and summary judgment application on the indemnity basis.
- Turning to CSL's application, no good reason has been shown for Sainsbury's failure to implement the terms of the Pre-action Protocol against CSL. It knew of NRM's involvement from the time of receipt of the Condek tender and could have requested any necessary information from 2008 at the latest, when the defects became apparent. Had it done so, and had it made relevant enquiries, it would have been told that NRM still existed as a separate legal entity. If it had pursued the possibility that CSL might now be the correct Defendant I am certain that it would have been provided with the information that would (or should) have disabused it of that notion. As it was, it had all relevant information when it was served with CSL's Defence on 11 November 2013. To my mind, the complete and unexplained failure to attempt any compliance with the Pre-action Protocol as against CSL and the failure to reassess the position when provided with the relevant documents on 11 November 2013 is sufficiently out of the ordinary to justify an order that CSL's costs of the action from 25 November 2013 including the costs of and occasioned by the present application should be paid by Sainsbury's on the indemnity basis.
Claim No. HT-12-360
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
THE HONOURABLE MR JUSTICE STUART-SMITH
BETWEEN
SAINSBURY'S SUPERMARKETS LTD
Claimant
– and –
(1) CONDEK HOLDINGS LIMITED (in liquidation)
(2) CONDEK MANUFACTURING LIMITED (in liquidation)
Defendants
(3) ANDREAS PASHOUROS
(4) CAPITA SYMONDS LIMITED
_____________________________________________________________________
ORDER
_____________________________________________________________________
UPON hearing Counsel for the Claimant, Third Defendant and Fourth Defendant at the hearing of the Third and Fourth Defendants' applications for strike out and/or summary judgment on 11 and 12 June 2014
AND UPON the First Defendant and Second Defendant not appearing and having indicated they do not participate in this action
IT IS ORDERED that
- The Claimant's claim against the Third Defendant be dismissed.
- The Claimant's claim against the Fourth Defendant be dismissed.
- The Claimant do pay the Third Defendant's costs of and occasioned by the application on an indemnity basis, summarily assessed in the sum of £21,021.36, by 4pm on 26 June 2014.
- The Claimant do pay the Fourth Defendant's costs of and occasioned by the application on an indemnity basis, summarily assessed in the sum of £38,616.00, by 4pm on 26 June 2014.
Order made on 12 June 2014
AND
- The Claimant do pay the Third Defendant's costs of the action, including costs on an indemnity basis from 10 May 2014, to be subject to detailed assessment if not agreed.
- The Claimant do pay the Fourth Defendant's costs of the action, including costs on an indemnity basis from 25 November 2013, to be subject to detailed assessment if not agreed.
Order made on 24 June 2014
