Catherine Mathews of Stephens Scown has published the following informative article on the above issue.
It is a well established legal principle that pure economic loss is not usually recoverable in a negligence claim. However, that rule is subject to limited exceptions where a party has assumed responsibility towards the claimant or there is a special relationship between them. The principles relating to claims for pure economic loss were reviewed by the court in the recent case of Sainsbury’s Supermarkets Ltd v Condek Holdings Ltd and others (2014)
Andres Pashouros invented a modular system that allowed a car park to be prefabricated and then erected quickly on site. He set up limited companies to exploit his invention. One such company was Condek Holdings Ltd (Condek). Sainsbury’s engaged Condek to design and build a car park for one of its supermarkets. The car park was completed in 2006.
In 2012, Sainsbury’s issued a claim against Condek and Mr Pashouros personally (amongst other parties). The claim alleged that the car park was inadequately designed and constructed, such that it needed demolishing and rebuilding. Sainsbury’s brought the claim against Mr Pashouros because Condek was subject to insolvency proceedings.
As there was no contractual relationship between Sainsbury’s and Mr Pashouros, Sainsbury’s could not claim damages for breach of contract. Instead Sainsbury’s alleged that Mr Pashouros was liable in tort for the pure economic loss suffered by Sainsbury’s, by virtue of Mr Pashouros’ assumption of responsibility or special relationship with Sainsbury’s. Mr Pashouros applied to strike out the claim against him.
- The court reviewed previous case authorities on the subject of the assumption of responsibility and found that there was no reason to treat an inventor who formed a limited company to exploit his invention differently from anyone else because:
- doing so would defeat the entire reason why he had formed a limited company (that is, to limit his personal liability);
- there was nothing unusual in a director who had incorporated his business being a spokesman promoting the business and using language consistent with his personal involvement (as long as he did not suggest a personal responsibility over and above that of the company);
- all of the contractual documents showed that the Sainsbury’s had contracted with the Condek.
The court therefore struck out the claim against Mr Pashouros.
This case illustrates the difficulty of claiming pure economic loss in tort in relation to individuals who form a limited liability company to carry out their business. Although the decision may seem harsh given that Condek was insolvent and therefore not worth pursuing, Sainsbury’s could have taken steps to protect itself by obtaining insurance or a bond when engaging Condek, or by contracting directly with Mr Pashouros.
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