PARTCO GROUP LTD. AND ANOTHER v. WRAGG AND SCOTT [2002] EWCA Civ 594

A director does not assume a personal duty of care to a bidder merely by supplying information in a takeover or by being subject to regulatory duties. The issue is whether, viewed objectively, the director gave words or conduct amounting to a personal assumption of responsibility and whether the bidder reasonably relied on it.

Under CPR 3.4(2)(a), a claim should not be struck out unless it is bound to fail. A fact-sensitive claim in an uncertain or developing area of law should proceed where oral evidence may clarify allegedly personal assurances and the relevant facts have not been fully established.

During UGC Ltd's acquisition of Partco Group Ltd, UGC alleged that Partco's executive directors, Mr Wragg and Mr Scott, failed to disclose a serious deterioration in trading and profitability. It claimed fraud or, alternatively, negligent misstatement. Partco relied on substantially the same conduct to justify the directors' dismissals and to seek an indemnity.

Leveson J refused the directors' application to strike out the negligence claim, reported at [2002] 1 Lloyds Rep 320. The directors appealed. The claimants cross-appealed on the footing that the application was unsuitable for summary determination. The central issue was whether the pleaded facts could arguably establish a personal duty of care owed by the directors to the bidder and, if so, whether the claim should nevertheless be struck out.

1. Appeal and cross-appeal dismissed. Lord Justice Potter held, with whom Lord Justice Kay and Dame Elizabeth Butler-Sloss agreed, that the negligence claim was not a plain and obvious case for strike-out.

2. The court accepted that the regulatory obligations arising from the takeover regime did not, without more, found a common-law duty of care owed personally by a target company's directors to a bidder. Nor did a general allegation that the directors held themselves out, by their conduct, manner and demeanour, as professional directors complying with the rules. The anticipated continuation of their employment after the takeover was also insufficient by itself. Nevertheless, the statutory and regulatory context could be highly relevant when assessing the scope of a responsibility otherwise undertaken.

3. The correct inquiry, consistently with Williams v Natural Life Products [1998] 1 WLR 830, was whether the directors objectively assumed personal responsibility and whether UGC reasonably relied upon that assumption. The pleaded statements that the directors gave personal assurances concerning compliance with the offer conditions and the attainability of the profit forecast were arguably capable of amounting to such an assumption. Their meaning and effect required oral evidence.

4. The confidentiality agreement was a substantial obstacle to reasonable reliance and to establishing a duty. It was not, however, a conclusive answer at the strike-out stage, since the claimants' challenge to its reasonableness under the Unfair Contract Terms Act 1997 had not been determined.

5. For CPR 3.4(2)(a), the court had to treat the claim as bound to fail before striking it out. That stringent approach is particularly appropriate where the law is developing and the pleaded case is fact-sensitive. The material facts had not been fully identified or tested, and the negligence issues would in any event overlap substantially with the fraud and employment claims. The judge was therefore entitled to refuse summary disposal.

• Court of Appeal (Civil Division): The directors' appeal against the refusal to strike out the negligence claim was dismissed. The claimants' cross-appeal concerning the suitability of summary disposal was also dismissed.
• High Court, Queen's Bench Division (Leveson J): The court dismissed the strike-out application and the directors' summary judgment application. The judgment was reported at [2002] 1 Lloyds Rep 320.