Sainsbury's Supermarkets Ltd v Condek Holdings Ltd & Ors

A director or employee who performs services through a company incurs personal liability for pure economic loss only where, viewed objectively, words or conduct communicated to the claimant establish an assumption of personal responsibility and reasonable reliance upon it.

Similarly, a construction professional engaged within a contractual chain does not ordinarily owe the employer a duty to prevent economic loss. The claimant must establish a special relationship of proximity, including reasonable reliance known to the professional.

A tortfeasor cannot ordinarily transfer an accrued personal liability in tort to another person without statutory authority or an agreement involving the victim. An agreement by an asset purchaser to discharge and indemnify the tortfeasor against liabilities does not itself transfer those liabilities.

The claimant alleged that a modular supermarket car park was defectively designed and constructed. It sought damages for pure economic loss from the system's inventor and designer, who had acted through the contracting company, and from a company which later acquired the business, assets and shares of an engineering consultant involved in the design.

The third and fourth defendants applied under the Civil Procedure Rules 1998 for strike-out and summary judgment. The principal issues were whether the designer had assumed personal responsibility, whether the engineering consultant owed the claimant a duty of care, and whether any tortious liability of that consultant could or had passed to the fourth defendant.

1. The applications were granted. The claims against the third and fourth defendants were struck out and summary judgment was entered in their favour. The pleaded cases disclosed no reasonable grounds for the claims and had no real prospect of success.

2. The third defendant had not assumed personal responsibility for the design or construction. Under the extended Hedley Byrne principle, reliance was necessary but insufficient by itself. The objective question was whether his words or conduct towards the claimant justified reasonable reliance upon a personal assumption of responsibility. His promotion of the system, financial interest as inventor, and involvement as the company's spokesman were routine incidents of acting through a limited company. All contractual documents identified the company as contractor, and nothing communicated to the claimant suggested personal responsibility.

3. The claimant had remedies against its contracting company. That company's insolvency did not create a legal lacuna requiring tort law to impose personal liability. The claimant was a sophisticated commercial organisation which could have required a collateral warranty, duty-of-care deed, bond or insurance.

4. The pleaded case did not establish that the engineering consultant assumed responsibility towards the claimant. In a construction contractual chain, a subcontracted professional does not ordinarily owe the employer a duty to prevent economic loss. The claimant had to plead a special relationship of proximity, including reasonable reliance known to the professional, and define the duty precisely. The consultant's report accompanying the contractor's tender and its alleged participation in technical meetings could in principle contribute to such a relationship, but the pleaded facts and evidence were inadequate.

5. Even assuming that the consultant owed and breached a duty, its personal tortious liability could not ordinarily be transferred to the fourth defendant. Vicarious liability imposes additional liability rather than transferring it; partnership liability and subrogation likewise provide no transfer mechanism. Novation requires agreement among the relevant parties, and no equivalent agreement involving the claimant was alleged.

6. The asset purchase agreement did not transfer the consultant's tortious liabilities. The fourth defendant's promise to undertake, discharge and indemnify the consultant against liabilities was an obligation owed to the consultant and was incompatible with a transfer relieving it of liability. The pleading of breach, causation and loss against the fourth defendant was independently incoherent and insufficiently particularised.

This was a first-instance action. Proceedings were issued against four defendants on 30 October 2012 and were subsequently stayed to permit compliance with the applicable pre-action protocol. The present judgment determined the third and fourth defendants' applications for strike-out and summary judgment.