Rust Consulting Ltd ((in Liquidation)) v PB Ltd (No 2)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Akenhead |
| Judgment Date | 21 December 2010 |
| Neutral Citation | [2010] EWHC 3243 (TCC) |
| Docket Number | Case No: HT-10188 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 21 December 2010 |
[2010] EWHC 3243 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Before: Mr Justice Akenhead
Case No: HT-10188
David Thomas QC and Justin Mort (instructed by Clarke Willmott LLP)for the Claimant
David Streatfeild-James QC and Jennifer Jones (instructed by Fenwick Elliott LLP)for the Defendant
Hearing date: 11 November 2010
Mr Justice Akenhead:
The Eagle One Group are developers. In the late 1990s two of the group's companies, Eagle One (formerly Rockeagle) Festival Shopping Ltd (“Eagle Festival”) and its parent company Eagle One Ltd (formerly Rockeagle Ltd) (“Eagle One”) developed a shopping village on the former site of the National Garden Festival at Ebbw Vale, Gwent. That site had been reclaimed from an area formerly used for the deposition of steel waste products from the old Ebbw Vale steelworks.
On 13th November 2007 the Eagle One companies issued proceedings against Clarke Bond Partnership (“Clarke Bond”) and Rust Consulting Ltd (“Rust”), the current Claimant. Clarke Bond had been retained by the Eagle One companies as consulting engineer on the development and Rust carried out geotechnical engineering work. Particulars of Claim were served on 11 March 2008. The Eagle One companies alleged that in the period 1995/6 those Defendants gave advice as to the character of the land, adopted an earlier report by Ove Arup, advised as to the appropriate foundations to be used, and produced their own Report dated February 1996. Eagle One alleged that it purchased the land and carried out the development in reliance on that advice and that, following construction, the buildings began to suffer structural damage due to the presence of unstable steel slag waste. The Eagle One companies claimed that they suffered loss and damage selling the development at a reduced value and incurring additional costs in maintaining the operation of the buildings. They claimed their losses from Clarke Bond and Rust alleging breach of contract and negligence. Watson Burton acted for Rust. Rust went into creditors’ voluntary liquidation on 24 April 2008.
Rust was retained first by an agreement made in correspondence (“the 1995 Agreement”) with Eagle One and then an agreement by deed (“the 1996 Agreement”). Rust also entered a deed of warranty (“the Warranty”) dated 8 November 1996 for the benefit of Eagle One Festival whereby it warranted that it had exercised reasonable skill and care in the performance of its duties and promised to maintain professional indemnity insurance of at least £2million for 12 years from the date of Rust's Report. Breach of each of those agreements was alleged.
Subsequently the Eagle One companies also brought proceedings against Skanska Construction (Regions) Limited who had been the building contractors for the development of the shopping village. By order dated 28 November 2008 the two actions were ordered to be managed and tried together.
At the hearing on 28 November 2008 the liquidators of Rust, represented by Watson Burton, consented to judgment for a total sum of £8,069,822.32. This represents 100% of the maximum damages claimed.
The Eagle One companies investigated the circumstances of the liquidation and the insurance position of Rust. During this process they learnt of the existence of and obtained a copy of an Asset Purchase Agreement dated 5 September 1997 (“the APA”) and a linked set of accounts by which Rust had been taken over by Kennedy & Donkin Ltd. Kennedy & Donkin Ltd has changed its name on several occasions and is now known as PB Limited (“PB”), the Defendant to the current proceedings. As at the time of the APA, PB and Rust were companies within the same group, both owned by Kennedy & Donkin Holdings Limited.
The APA contains two indemnity clauses whereby PB (1) by Clause 3.1 assumed “responsibility for the satisfaction, fulfilment and discharge of all of the outstanding Liabilities and Contracts of [Rust's] Business” and indemnified Rust “against all proceedings, claims and demands in respect thereof”; (2) by Clause 8, until any consent to any necessary novation of a “Contract” was obtained, indemnified Rust “against all costs, proceedings, claims, demands and expenses which may be incurred… as a result of any act or omission by [PB] in relation to the [particular] Contract or any failure to obtain the relevant consent [to novation]”.
The Eagle One companies pressed the liquidators of Rust to claim on the indemnities in respect of the consent judgment but they refused stating that they were legally advised that the indemnities in the APA did not cover the judgment because they were not in respect of either a Liability or a Contract as defined. The Eagle One companies maintained that the indemnities did apply to the judgment.
In due course it was agreed that the Eagle One companies’ actions against Clarke Bond and Skanska would be stayed pending the outcome of what turned into these current proceedings. The stay is currently due to expire on 14 January 2011. On 29 September 2009 the Eagle One companies, as the principal creditor of Rust, replaced the liquidators and the new liquidators appointed Clarke Willmott to act for them.
The present proceedings issued on 28 May 2010 are therefore brought by the liquidators of Rust (but effectively for the benefit of the Eagle One companies as principal creditor) to enforce the indemnity. The proceedings were issued under Part 8 as it did not appear likely that there would be a substantial dispute of fact. The Particulars of Claim alleged that PB was obliged to indemnify Rust against the judgment, setting out why as a matter of construction the judgment was covered by the indemnity under Clauses 3 and/or 8 of the APA. It also alleged that PB conducted the Defence of the proceedings brought by the Eagle One companies against Rust, relying on correspondence from Watson Burton in which they said that they were instructed by PB limited to conduct Rust's Defence including the letter dated 22 March 2010 and a draft Deed of Indemnity signed by the liquidators.
The Defence served by PB on 30 June 2010 sets out PB's case on construction in relation to Clauses 3 and 8 of the APA. Paragraph 19 denies any agreement between the liquidators and PB that PB would conduct the Defence. PB asserts that it was not bound in any way by the consent judgment and alleges that Rust must prove its liability to the Eagle One companies and further or alternatively that the settlement embodied in the judgment was reasonable.
At the CMC on 28 July 2010 the parties were required to attempt agreement of preliminary issues of construction and this was done. PB was ordered to plead a positive case as to why it was not bound by the judgement. The Amended Defence was served on 31 August 2010. Further facts pleaded by PB were:
(1) that its position prior to the consent judgment was that it was under no obligation to indemnify and the Claimant knew this; and
(2) that the decision to consent to judgment was caused by the decision of other group companies not to fund a defence.
A Rejoinder was served on the same day and this admitted that PB Limited had notice of the Eagle One proceedings.
The agreed schedule of issues runs to some 11 sub-issues. However, there are two broad issues to resolve:
(1) whether PB is obliged to indemnify Rust against its liability to the Eagle One companies; and if it is
(2) whether PB is obliged to indemnify Rust against the Consent Judgment in favour of the Eagle One companies.
The APA
The APA, dated 5 September 1997, is headed “Intra-Group Assets Purchase Agreement” and in broad terms this was clearly what was intended by the two members of the same corporate group, showing the same office address. The second recital, referring to Rust as the Vendor and PB as the Purchaser, says:
“The Vendor agreed with the Purchaser to sell to the Purchaser the whole of its property, undertaking business and assets (except its subsidiaries) and the Purchaser agreed to assume all of its liabilities and obligations, all with effect from 31 December 1996, upon the terms of this agreement.”
There is no suggestion that this sale and purchase was anything other than a legitimate and bona fide transaction.
The Definitions clause, Clause 1.1, is important:
““Assets”: the whole of property, undertaking, rights and assets of the Vendor whatsoever and wheresoever situate;
“Contracts”: all contracts, orders and commitments of the Vendor…under which the obligations of all the parties thereto had not at the Effective Date been fully performed ;
“Effective Date”: close of business on 31st December 1996;
“Liabilities”: the book debts and other liabilities…owing by the Vendor at Completion insofar as they are attributable to the Business, the Assets, the Subsidiaries or the Contracts and insofar as they are reflected in the accounts of the Vendor…as at the Effective Date…”
Clause 2.1 states:
“Subject to the conditions set out in this Agreement the Vendors sold and transferred as legal beneficial owner and the Purchaser purchased and took over as a going concern with effect from the Effective Date the whole of the Business and Assets of the Vendor…”
Clause 3.1 is a key term of the APA:
“The consideration for the sale and transfer by the Vendor referred to in clause 2 is (i) the sum of £1,000 and (ii) the Purchaser assuming responsibility for the satisfaction, fulfilment and discharge of all the Liabilities and the Contracts of the Business outstanding at the Effective Date and the Purchaser hereby indemnifies and covenants to keep indemnified the Vendor against all proceedings,...
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Table of cases
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