What Happens When Pre-Action Protocol is Not Followed

This High Court decision from the case of Sainsbury’s Supermarkets Limited v Condek Holdings & Others by The Honourable Mr Justice Stuart-Smith provides a useful insight and a timely reminder into what happens when the pre-action protocol is not followed.

The Facts

The claimant, Sainsbury’s brought an action against the Defendants arising out of the design and construction of a car park for its supermarket at North Cheam. Sainsbury’s alleged that the car park was defective as a consequence of inadequate design and construction and that it needed to be demolished. The third and fourth defendants [“Mr Pashouros” and “CSL”] brought applications pursuant to CPR 3.4(2) (a) to strike out the claims against them and pursuant to CPR 24 for summary judgment.

The reason why Mr Pashouros and CSL have been joined is that Condek is in liquidation and, so far as is known, does not have any insurance cover because of late notification of the claim. Condek went into creditor’s voluntary liquidation on 29 April 2013. Sainsbury’s therefore has good reason to believe that any judgment against Condek will be worthless and wishes to pin liability upon one or more defendants with financial substance.

Sainsbury’s engaged in pre-action correspondence with Condek, sending a pre-action protocol letter on 1 August 2012, which alleged that Condek had designed and constructed the car park pursuant to a contract with Sainsbury’s.

The Contents of the Pre-Action Protocol Letter

It says that Mr Pashouros was unhelpful in identifying which of his companies was directly involved with the North Cheam project and that he asserted (wrongly) that the contracting party was not Condek but the second defendant. It is not suggested that he said anything to indicate that he had ever acted relevantly in his personal capacity.

As a Result

Proceedings were issued against the four defendants on 30 October 2012, without any steps having been taken to comply with the pre-action protocol for engineering and construction disputes in relation to Mr Pashouros in his personal capacity or in relation to CSL. On 16 April 2013 the action was stayed until 31 July 2013 to allow time to the parties to comply with the Pre-Action Protocol. Sainsbury’s then sent Pre-action Protocol letters to Mr Pashouros in his personal capacity and to CSL.

In Reply

Solicitors acting for Mr Pashouros denied that he had at any stage acted in his personal capacity, asserting that any representation or other dealings he had had with Sainsbury’s had been as a representative of Condek or the Second Defendant. CSL’s solicitors denied the existence of a duty of care and reserved their position on limitation.

In addition to serving defences on 11 November 2013, Mr Pashouros and CSL issued Part 18 Requests designed to elicit clarity about the nature of the cases being brought against them. Sainsbury’s provided limited responses to those requests, frequently asserting that its case was sufficiently pleaded or that the request was a request for evidence.

It also served replies to the defences of Mr Pashouros and CSL. Mr Pashouros was dissatisfied with the pleading of the case against him and therefore issued a further request for information which remained unanswered on the date of the hearing: the Court was told that Sainsbury’s thought it better to set out its case in its skeleton argument.

The Issues

This case raises many issues, but for the sake of clarity this article focuses on those that are relevant to the decision that led to the award of indemnity costs.

The test to be applied on a strikeout reflects the fact that the question is whether the statement of case itself discloses no reasonable grounds for bringing a claim. So, if the pleaded facts do not disclose any legally recognisable claim against a defendant, it is liable to be struck out. The Court will, however, consider whether a party should be given an opportunity to amend a legally deficient statement of case if it appears that the deficiency can be remedied without injustice to another party.

In assessing whether or not permission to amend should be given the features that are likely to be taken into account include

  • (a) whether the party has brought forward a coherent amendment to cure the deficiency
  • (b) whether there is reason to think that the coherent amendment is supportable
  • (c) whether the effect of the amendment will or may be to deprive a defendant of an accrued limitation defence
  • (d) whether the amending party has had reasonable opportunity previously to formulate a legally admissible claim.

In reply, it became apparent that Sainsbury’s pleaded case did not reflect the case it wished to advance. Sainsbury’s had previously confirmed that there was no claim against Mr Pashouros in contract, Sainsbury’s also accepted that it did not allege that Mr Pashouros owed any duty to carry out the work himself: any case against him is advanced as designer and, possibly, supervisor. The contract terms that had been pleaded as setting out the scope of any duty of care accordingly would have to be amended.

The Judge carried out a brief review of the pleadings and commented that

… the pleading of duty is tortuous to a degree that is unacceptable as the basis for establishing liability in a substantial claim; and, even with the proffered amendments, the pleading does not make clear to Mr Pashouros the case he has to meet so as to enable him to prepare his case without unfair disadvantage.

Sainsbury’s submited that this was a case of a black hole which the law of tort should fill. The Judge rejected that submission. There was no legal black hole as Sainsbury’s had relevant legal remedies against Condek if the car park proved defective. The fact that Condek is in liquidation is a risk that Sainsbury’s chose to take. The Judge commented further by stating that Sainsbury’s could have hedged its risk in a number of ways, including the obtaining of insurance or a bond that would answer in the event of defects in the car park.

If it did not do so, that was a commercial choice by a major, knowledgeable and sophisticated commercial organisation which may now regret its choice – but it is not a legal black hole of the kind contemplated in White v Jones [1995] 2 AC 207 .

The Law

The principles to be applied on an application to strike out under CPR 3.4(2) and for summary judgment under CPR 24.2 are well recognised, and their application may be contentious. The standard of proof is high. The phrase “no real prospect of succeeding” in CPR 24.2 is explained as meaning that the respondent must have a case which is better than merely arguable. Evidence is admissible on an application for summary judgment, with the overall burden of proof resting on the applicant. If the applicant adduces credible evidence in support of the application, the respondent comes under an evidential burden of proving some real prospect of success or some other reason for having a trial.

In deciding whether the respondent has some real prospect of success the court should not apply the standard which would be applicable at trial, namely the balance of probabilities, to the evidence presented: and on an application for summary judgment the court should consider the evidence that could reasonably be expected to be available at trial. However, the Court is not required simply to take all evidence at face value or to accept without question any assertion that may be made: the question is whether the respondent’s case carries some degree of conviction.

An important issue that Mr Pashouros had to address concerned the principles to be applied when considering whether a person who has acted on behalf of another has assumed responsibility so that he is held to be subject to a personal duty of care to prevent economic loss. This was reviewed by Lord Steyn in Williams v Natural Life Ltd [1998] 1 WLR 830 at 834-838

  1. The assumption of responsibility principle enunciated in Hedley Byrne v Heller [1964] is not limited to statements but may apply to any assumption of responsibility for the provision of services;
  2. Once a case is identified as falling within the extended Hedley Byrne principle, it is not necessary to embark on any further enquiry whether it is “fair, just and reasonable” to impose liability for economic loss;
  3. Reliance by the other party is necessary, otherwise causation cannot be shown. But proof of reliance is not of itself sufficient: the test is whether the claimant could reasonably rely on an assumption of personal responsibility by the individual who performed the services on behalf of his company;
  4. Where a trader incorporates a company to which he transfers his business, personal liability under the extended Hedley Byrne principle will not be established in the absence of a special relationship between the erstwhile trader who is alleged to be a tortfeasor in his personal capacity and the claimant. In other words, there must have been an assumption of responsibility such as to create a special relationship between the claimant and the director or employee himself;
  5. The test for an assumption of risk is an objective one, which means that the primary focus must be on things said or done by the defendant or on his behalf in dealings with the claimant (i.e. things that “cross the line”) rather than upon the state of mind of the defendant;
  6. A director of a contracting party may only be held liable where it is established by evidence that he assumed liability and that there was the necessary reliance.

CSL’s Reason’s Against It

CSL raised four substantial issues in relation to the claim against it:

  1. Did NRM (whose liability is said to have transferred to CSL) owe a duty of care in tort to Sainsbury’s? Answer: No
  2. If NRM incurred liability to Sainsbury’s, is that liability capable of being transferred to CSL? Answer: No
  3. On the proper interpretation of the agreements by which CSL became associated with NRM, did they cause any liability on the part of NRM to Sainsbury’s to be transferred to CSL? Answer: No
  4. Limitation. Answer: Impossible to reach a reliable conclusion.

Discussion

The Judge in this case commented extensively on the case that was pleaded by Sainsbury’s in that they were inadequate in relation to reliance and that the scope of the duty alleged as it is unjustifiably wide when considering question 1 above.

The particulars of claim were silent on whether and to what extent NRM knew that Sainsbury’s (as opposed to Condek) relied upon its work; and it failed to plead either direct interaction between NRM and Sainsbury’s or any other facts from which an assumption of responsibility or the existence of a special relationship of proximity could reasonably have been inferred. The Judge stated that

…the pleadings as they presently stand … disclose no legally admissible basis for the imposition of a duty of care on NRM and I would strike out the pleading on that basis.

Sainsbury’s attempted to make good the deficiencies in its pleading by referring to the reformulation of its case as set out in the post-action letter of claim. In general, if a party wished to reformulate its pleaded case, it should do so by amendment of its pleadings. No amendment has been put forward or permission sought.

As Sainsbury’s pleadings did not disclose a legally admissible basis for a finding that NRM owed a duty of care to Sainsbury’s and that the evidence that had been adduced did not remedy the deficiency; the Judge struck out Sainsbury’s pleading that NRM owed a duty of care to Sainsbury’s and granted summary judgment on the issue.

Sainsbury’s pleading of loss and damage was also inadequate. It was inadequate in failing to identify either the loss or damage that was alleged to have been suffered, when it was suffered or the causative nexus between any specified allegation of negligence on the part of NRM and the damage that was alleged to have flowed from it.

Additionally, as a result, it became impossible for the Judge to reach a reliable conclusion about limitation on the information that was available. Given the overall inadequacy of the pleading of breach, causation, loss and damage in the particulars of claim the pleading was said to be incoherent and prejudicial to CSL because of the impossibility of identifying and joining issue with the case being advanced. The Judge exercised his discretion to refuse permission to apply to amend (no application having in fact been made) and would strike out relevant aspects of the Particulars of claim so far as they relate to CSL.

Comments

Mr Justice Stuart-Smith allowed the first application, noting that no good reason had been shown for the failure to implement the Protocol before issuing the claim. Had Sainsbury’s done so; the Judge was of the view that it would have obtained all the relevant information it needed to reassess whether proceedings should have been brought against that party. The second application was allowed in part. Here the Judge felt that the party seeking indemnity costs had himself not engaged in the pre-action correspondence “as constructively” as he might have done and had further given inaccurate information during that process. However, the position changed once a defence had been served.

Sainsbury’s ought to have reassessed its position. Had it done so, it should have realised that its claim was liable to be struck out or be the subject of an adverse summary judgment application. The Judge made it clear he was not saying that a party automatically has to accept assertions made in a defence, but it must consider them in terms. Accordingly, the second party was allowed its costs on an indemnity basis but only from the date of the first case management conference. Furthermore, the Judge also commented on how risk can be transferred in a construction context against defects.

About Richard Ryan

Richard is an Executive Director and barrister with Willis, responsible for strategic relationships and complex cla…
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