Be careful who you deal with.
The High Court makes clear that owners and Directors of companies can usually safely hide behind the corporate veil Mr Pashorous is the inventor and designer of the Condek modular car park system. Its modular design enables it to be mainly prefabricated and then speedily installed on concrete foundations. Mr Pashorous licensed his invention to his company, Condek, and Condek held the patent for it.
In 2006, Mr Pashorous negotiated with Sainsbury’s for the sale and installation of his car park system at their store at North Cheam. He did so in the name of Condek and signed all contractual documentation upon behalf of Condek.
The North Cheam Car Park was duly constructed and installed under Mr Pashorous’s supervision but Sainsbury’s claim it was negligently designed, constructed and installed and has to be demolished and replaced. It claims it will cost £3,246,000 to install a replacement and that it will lose sales of £3,600,000 whilst the replacement works are undertaken.
Unfortunately for Sainsbury’s, Condek is in liquidation and has no insurance cover because of late notification of a claim. In addition,. Sainsbury’s procured no warranties nor bonds nor any other form of security. Accordingly, to seek to recover some of its substantial losses, it sought to sue Mr Pashorous personally as well as Condek’s sub-contractor.
Against Mr Pashorous, Sainsbury’s claimed that he is the true owner and designer of the Condek car park system and the only person who stood to benefit financially from putting his design into commercial use. He promoted his system and spoke of it as his own and dealt with all negotiations and documents and supervised the construction works. As a result, it was claimed he assumed a duty of care to Sainsbury’s.
The Court made clear it is commonplace for an inventor or designer to trade through a limited company and to benefit financially whilst enjoying the benefits of the separate legal personality and limited liability of the company. If it were the case that, despite trading through a limited company, an inventor or designer would be personally liable, the main benefits of incorporation would be lost.
It is only in exceptional circumstances that an owner or Director or employee of a company can owe a personal duty to another party. There has to be some form of special relationship whereby it can be said that the individual has accepted personal responsibility nad that the other party has relied upon this.
In this case, the Court said it was clear there was no special relationship or assumption of personal liability. Mr Pashorous simply acted upon behalf of Condek and Sainsbury’s only contracted with Condek and, despite being very experienced in this field, Sainsbury’s chose not to make Mr Pashorous a party to the contract or obtain any design or other warranty from him. Instead, they chose to rely entirely on Condek and thereby took the risk that it might default.
The Court also held that Sainsbury’s had no claim against the sub-contractor either as, once again, it had no contract with that party and the sub-contractor, therefore, only had duties to Condek.
So the claims against Mr Pashorous and the sub-contractor were struck out and Sainsbury’s will, seemingly, be unable to recover any of its losses.
A party will normally only have remedies against the party it contracts with.
A party should ensure that the other party is of substance or seek security if it is not.
Directors and owners of companies will not usually have any personal liability.