The tortious liability for pure economic loss of traders, sub-contractors and businesspeople…

… and the need for complying with the pre-action protocol

When issuing claim proceedings against another party, it is important to bear in mind that the court has wide-ranging case management powers, as shown in the recent case of Sainsbury’s Supermarkets Ltd v Condek Holdings Ltd and others [2014] EWHC 2016 (TCC). On the other had this case will also provide comfort to individuals who set up a limited liability company to carry out their business.

Condek Holdings (the Contractor) was set up by Andres Pashouros to exploit a car park building system he had invented. Sainsbury’s employed the Contractor to build a car park at one of its south London supermarkets. The Contractor engaged a consultant to advise on the design and construction of the car park. The Consultant also made inspections and carried out maintenance work on the car park for 2 years after it was built.

The Consultant’s share capital, business and assets were subsequently acquired by Capita Symons Ltd.

In 2012 Sainsbury’s issued a claim against the Contractor, Capita, Mr Pashouros, in his personal capacity, as well as against another of Mr Pashouros’ companies (CML), although it was not involved in the building of the car park. Mr Pashouros and Capita were pursued because the Contractor and CML were subject to insolvency proceedings.

Apart from sending a pre-action letter Sainsbury’s made no attempt to comply with pre-action protocol.

As Sainsbury’s had no direct relationship with Mr Pashouros or Capita it could not claim for breach of contract. Instead it claimed they were liable in tort for its pure economic loss, arguing there was the requisite “special relationship” between Sainsbury’s, Mr Pashouros and Capita as well as the “assumption of responsibility”, both of which are needed to have any chance of claiming for pure economic loss in tort.

Mr Pashouros and Capita in turn applied to have Sainsbury’s claim struck out on the grounds that the statement of case disclosed no reasonable grounds for bringing the claim and for summary judgment in their favour on the grounds that the claim had no real prospect of success nor was there any other compelling reason to go to trial.

Stuart-Smith J granted the applications to dismiss the claim and ordered Sainsbury’s to pay costs on an indemnity basis.

In the case of Mr Pashouros, the court held that the claim was “tortuous” and purported to treat Mr Pashouros differently from anyone else who had set up a limited liability company to carry out their business. To allow the claim would have defeated the reason for forming the limited liability company. Mr Pashouros’ various roles within the company, for example as spokesman, designer or supervisor did not change the fact that Sainsbury’s had contracted only with the contractor and that Mr Pashouros owed it no personal duty of care.

In deciding whether Capita owed a duty of care, the court noted that there is usually no assumption of responsibility by a sub-contractor to the building owner however it also recognised that a person with a special skill may come under a duty of care if he knows that his work may be relied on by others. However the court held that the Sainsbury’s inadequately explained how it had relied on the Consultant’s conduct. Further, the court confirmed that any liability in tort for pure economic loss would be a personal liability and, as such, could not be transferred to Capita via the sale of shares, business and assets “so as to relieve the tortfeasor and impose the liability upon another person instead.”

So, although this case broke no new ground, it may provide relief to traders, businesspeople and professionals in highlighting the reluctance of the courts to allow claims in tort for pure economic loss especially as regards sub-contractors, consultants and individuals trading through limited liability companies. For litigators, this case also serves as a handy lesson in the need for complying with the pre-action protocol and the embarrassing consequences of not doing so.