Rust Consulting Ltd (in Creditors' Voluntary Liquidation) v PB Ltd (Formerly Kennedy & Donkin Ltd)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Edwards-Stuart |
| Judgment Date | 24 June 2011 |
| Neutral Citation | [2011] EWHC 1622 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Case No: HT-10-188 |
| Date | 24 June 2011 |
[2011] EWHC 1622 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Edwards-Stuart
Case No: HT-10-188
David Thomas QC and Justin Mort (instructed by Squire, Sanders & Dempsey (UK) LLP) for the Claimant
David Streatfeild-James QC and Christopher Lewis (instructed by Fenwick Elliott LLP) for the Defendant
Hearing dates: 23 rd– 25 th May 2011
Introduction
In this case the claimant ("RCL"), a company in Creditors' Voluntary Liquidation acting by its liquidators, sues the defendant for an indemnity in respect of its liability under a consent judgment that was entered on 28 November 2008 in favour of Eagle One Festival Shopping Ltd and Eagle One Ltd (to whom I shall refer collectively as "Eagle One"). It is alleged that the judgment was entered at the instigation of the defendant with the result that the defendant cannot now challenge the existence or the amount of RCL's liability to Eagle One. These proceedings are brought essentially for the benefit of Eagle One.
The judgment is for a substantial sum: £8,069,822.32. RCL used to carry on business as geotechnical consultants and in 1995 it was engaged by Eagle One Ltd to provide geotechnical engineering services in relation to the proposed development of a shopping centre near the former Ebbw Vale steelworks.
Eagle One proceeded with the development which was built between November 1996 and September 1997, but the buildings subsequently sustained substantial structural damage which Eagle One contends was the result of negligent advice given by RCL. The first that RCL knew about the claim was when it received a letter dated 28 September 2007 from solicitors acting for Eagle One.
RCL and the defendant were both wholly owned subsidiaries of a company called Kennedy & Donkin Holdings Ltd. All these companies are now members of the Parsons Brinckerhoff group of companies ("the PB Group"). By an asset purchase agreement dated 5 September 1997 ("the APA") the defendant, which was then known as Kennedy & Donkin Limited, purchased and took over the whole of the business and assets of RCL as a going concern for the sum of £1,000. By 1997 RCL had already ceased to trade. The notes to RCL's accounts for the financial year ended 24 October 2007 recorded that the company was planning to close prior to 24 October 2008.
At the end of 2007 RCL's only asset was an inter company debt of £1,000, which represented the consideration under the APA. In early 2008 it incurred legal costs in relation to the threatened claim by Eagle One in the sum of about £1,500, but these were in fact paid by another company in the PB Group leaving RCL with an equivalent debt to that company. Since RCL's liabilities exceeded its assets, in March 2008 the decision was taken to put it into Creditors' Voluntary Liquidation, and liquidators were appointed on 24 April 2008.
Since RCL had a negative equity, so that there was no prospect of the payment of any dividend, it was agreed that the PB Group would take over the conduct of the defence to the claim by Eagle One which had served a claim form, together with its Particulars of Claim, on 11 March 2008. By the consent order of 28 November 2008 that claim was compromised for its full value, together with negotiated figures in respect of costs and interest.
The defendant's case is that the reason for the compromise was quite simply that the PB Group wished to ensure that any claim against RCL, which was then insured under the PB Group worldwide professional liability insurance arrangements, would be compromised in an amount that did not exceed the deductible under the worldwide cover of US$ 15 million. Against a background of a fluctuating £ sterling/US dollar exchange rate it was seen as important to ensure that the settlement figure, when converted into US dollars, did not exceed the deductible.
All those concerned within the PB Group, save possibly for the liquidators of RCL, had been advised, both by their solicitors and by leading counsel, that the defendant was under no liability to indemnify RCL under the terms of the APA. So in the light of this legal advice the view was taken that, since RCL had no assets, the amount of any settlement was irrelevant except to the extent that the amount might exceed the deductible under the PB Group worldwide insurance cover. That is said to be why the PB Group was content to compromise the claim by Eagle One at its claimed value without any regard for its likely true value.
On 28 July 2010 this Court directed the hearing of certain preliminary issues relating to the true meaning and effect of the APA. That hearing took place on 11 November 2010 before Akenhead J and on 21 December 2010 he handed down judgment. One of the issues determined by Akenhead J was whether or not the defendant was liable to indemnify RCL against claims made against RCL and, in particular, the claim by Eagle One. He held that by clause 3.1 of the APA the defendant had agreed to indemnify RCL against " all proceedings, claims and demands" in respect of actual liabilities. Thus this Court has held that the legal advice received by the PB Group at the time in relation to any potential indemnity in favour of RCL under the APA was wrong.
The issue raised at this trial is whether or not the defendant, if that is the company that undertook the conduct of RCL's defence to the claim by Eagle One, is estopped from disputing that RCL is liable to Eagle One for the sums set out in the consent order.
Although the court has heard from four witnesses and been referred to a significant number of documents, the basic facts giving rise to the dispute are not really very much in issue. The real question for the court is what legal consequences flow from those facts.
The background
The Parsons Brinckerhoff group of companies operates worldwide and has its principal headquarters in the United States. The ultimate holding company is Parsons Brinckerhoff Inc. One of the subsidiary companies in the United Kingdom is Parsons Brinckerhoff Overseas Holdings Ltd, which was formerly Kennedy & Donkin Holdings Ltd. Within the PB Group it is known as company 402. For convenience, I shall refer to it hereafter as "402". The two immediate subsidiaries of that company are the defendant, now called PB Ltd and known within the PB Group as "401", and RCL. The principal operating company of the PB Group in the UK is Parsons Brinckerhoff Ltd, company "303".
On 24 April 2008 there was a creditors' meeting in relation to the liquidation of RCL. This was held at the offices of RMT, an insolvency practice that had carried out a lot of work for the PB Group in the past. The statement of the company's affairs showed that it had one asset which was the £1,000 owed to it by the defendant and one liability in the sum of £1,531.59. This was in respect of fees for legal advice given by Watson Burton, who acted as the UK solicitors to the PB Group, in relation to the claim by Eagle One. Since RCL had no assets Watson Burton's invoice was paid by company 303 which was then shown as a creditor of RCL.
The PB Group was, unsurprisingly, concerned as to how it should deal with the claim by Eagle One. One alternative was to defend it. Another alternative was to do nothing. A third alternative was to attempt to compromise it.
During the first few months of 2008 no-one involved within the PB Group had managed to locate a copy of the APA, although it had been provisionally concluded that it probably did not give RCL any right of indemnity against claims by third parties. The problem that seemed to be of more concern was that if the claim was not defended Eagle One might enter judgment in default for a sum that would exceed the deductible under the PB Group professional liability policy with Zurich American Insurance Company ("the Zurich"). Initially, there was some confusion as to what the deductible was under the Zurich policy and the extent to which part of that deductible may have been eroded.
In about mid April 2008 the brokers to the PB Group, Marsh, explained that there was a US$ 15 million deductible that would have to be reached before the Zurich cover was exposed. However, this was at a time when the US dollar was relatively weak compared with sterling and so it was thought that any claim in excess of £7 million plus costs could reach the deductible.
Matters became more complicated in May 2008 because the Zurich appeared to be taking the position that if a default judgment was entered against RCL the wording of the group policy meant that Parsons Brinckerhoff Inc and other members of the group would be liable to meet the claim on RCL's behalf up to the level of the deductible.
Meanwhile, the liquidators wanted an indemnity from the PB Group against any exposure to costs that the liquidators might have personally if the claim by Eagle One was defended. Watson Burton prepared a draft indemnity which was to be given by the defendant, company 401. During the course of his oral evidence Mr Davidson, the company secretary and director of RCL, suggested that Watson Burton had made a mistake in choosing the defendant as the party to give the indemnity to the liquidators. He said that the obvious company to give the indemnity would have been the main UK trading company, company 303, and that he did not understand why Watson Burton had chosen the defendant.
For reasons that will become clear later in this judgment, I regard this as irrelevant. But, to the extent that it matters, I do not accept Mr Davidson's evidence on this point. In a letter dated 4 May 2008...
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