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Last edited 25 Nov 2020

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Najma Dunnett Other Consultant

Sainsbury’s Supermarkets Ltd v Condek Holdings Ltd and Others

Sainsbury’s Supermarkets Limited v (1) Condek Holdings (2) Condek Manufacturing Limited (3) Andres Pashouros (4) Capita Symonds Limited [2014] EWHC 2016 (TCC)

This case involves claims brought in tort for breach of the duty of care against the designer of a novel car park system due to the liquidation of the contracting party, a limited company.

Sainsbury’s, the claimant (SSL) brought claims against Condek, (the company) the first and second defendants, through which Andres Pashouros (P) traded the modular car park system he invented (the Condek system), alleging defects in the car park but also joined into the action P in his personal capacity and Capita Symonds Limited (CSL) as the company which acquired the original engineers (NRM) engaged to verify the Condek design. The current action related to applications by P and CSL for a strike-out of SSL’s claims against them and summary judgment.

The reason for joining P and CSL to SSL’s action was due to Condek’s liquidation and lack of insurance due to late notification of the claim.

The car park constructed in North Cheam in 2006, was according to SSL, defective due to inadequate design and construction. The modular car park system enabled it to be prefabricated and speedily installed on site. SSL alleged that a number of defects appeared in 2008 and that its present claim was for pure economic loss of about £6 million pounds. This sum included installation of the replacement system, lost sales and professional/legal costs.

In respect of the claim against P, SSL alleged that he acted in his personal capacity signing the tender in his own name and promoting the Condek system to SSL; he must therefore have assumed a personal responsibility at common law for the design of the car park. SSL argued that the case of Merrett v Babb applied here: in that case an employed valuer who signed a mortgage valuation certificate was held to have assumed personal responsibility to the purchaser who relied on his valuation. The certificate was expressed to be signed by the individual signatory.

The judge examined the principles in the case of Williams v Natural Life to determine whether a personal responsibility arose and found that at all material times, P acted in accordance with his duties as a director of Condek. Where a trader forms a company to conduct business there will be no personal liability without a special relationship between the trader and the claimant. It was clear that:

The tender was submitted ‘for and on behalf of Condek’ which SSL accepted.
It was Condek, the contracting party and owner of the patent, who was to perform all the contractual obligations, not P.
The letter of intent was addressed to Condek and signed by P ‘for and on behalf of Condek’.
All formal documents were entered into in Condek’s name, not by P in his personal capacity.

P had only acted on behalf of Condek in his dealings with SSL and no feature of his dealings suggested P had ‘crossed the line’ and assumed a personal responsibility to SSL and upon which it relied. There was no evidence of reliance on P alone.

Indeed the judge held that it is common for a trader to “transfer its business to a limited company to benefit financially from its commercial exploitation.” This, together with the benefits of separate legal personality and limited liability are the main reasons for incorporation. If an inventor is to be taken to have assumed personal responsibility despite trading through a limited company the main benefits of incorporation would be lost. It is also routine for a director to be the spokesman promoting the company’s business.

The judge observed that all contractual documents were with Condek, P was not a party to the building contract and neither did it provide a warranty to SSL.

In respect of CSL’s application, it raised the following issues:

Did NRM owe a duty of care in tort to SSL?
If NRM incurred liability to SSL, is that liability capable of transfer to CSL?
Interpreting the sale and purchase agreement of NRM to CSL: did any liability of NRM to SSL actually transfer to CSL?
Limitation.

NRM was the engineer who produced a design report for the Condek system which was attached to Condek’s tender and was required by SSL for independent verification of the design as SSL were reluctant to rely on P’s design on its own.

Responding to the first issue, the judge held that NRM did not owe a duty of care to SSL because it did not actually rely on NRM only on the assurance from Condek that the car park was designed and backed by NRM. Neither was SSL able to establish a special relationship between it and NRM: a necessary ingredient of the duty of care, simply by NRM’s involvement in client meetings.

In respect of the second issue, SSL devised various arguments to claim that any tortious liability of NRM to SSL could be transferred to CSL, for example, vicarious liability, partnership law, subrogation and novation. The court held that none of these arguments were effective in alleging a transfer of liability and concluded that tortious liability cannot be transferred to another person so as to relieve the original tortfeasor of liability.

On the interpretation of the sale and purchase agreement of NRM’s business to CSL the court decided there was no agreement to sell or transfer any of NRM’s tortious liability to CSL.

As to limitation this issue was also not made out as the court found the inadequacy of SSL’s pleadings presented difficulties in determining when the defects were incorporated into the construction and therefore when the cause of action arose.

The claims against both P and CSL were struck out and summary judgment granted in their favour.

The claims against P and CSL arose due to the insolvency of Condek and lack of insurance cover. The judge noted that these were risks that SSL faced and could have protected against by joining P as a party into the building contract or by requesting a bond from Condek or warranty from P. It is also a reminder of the principles the court will use to determine whether a duty of care might arise against a director personally. It may result in inventors of novel designs risking personal liability by entering into duty of care deeds but what then would be the benefit of incorporation?