ON APPEAL FROM THE QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Mr Justice Akenhead
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE RICHARDS
LORD JUSTICE TOMLINSON
| Rust Consulting Limited
|- and -
(formerly Kennedy & Donkin Limited)
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7404 1424
Official Shorthand Writers to the Court)
Mr David Streatfeild-James QC and Mr Christopher Lewis (instructed by Messrs Fenwick Elliott LLP) for the Appellant
Hearing date : 27 June 2011
Crown Copyright ©
Lord Justice Tomlinson :
"1. [Rust] warrants to [Rockeagle Shopping Limited] that it has exercised and will continue to exercise reasonable skill, care and diligence in the performance of its duties to [Rockeagle Limited]
. . .
3. [Rust] shall maintain professional indemnity insurance in an amount of not less than . . . £2,000,000 for any one occurrence or series of occurrences arising out of any one event for a period of twelve years from the date of issue of the final report provided always that such insurance is available at commercially reasonable rates . . ."
1.1 In this agreement, unless the context otherwise requires, the following expressions have the meanings set opposite them:-
"Assets": the whole of the property, undertaking, rights and assets of the Vendor whatsoever and wheresoever situate;
"Business": the business of the Vendor carried on by it as a going concern at the Effective Date and (if applicable) thereafter;
"Completion": the performance by the parties of their respective obligations under clause ;
"Contracts": all contracts, orders and commitments of the Vendor or any of its Subsidiaries 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 (including VAT thereon) 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 or any of its Subsidiaries as at the Effective Date;
"Market Value": the aggregate price reasonably obtainable at the close of business on the date of Completion on the open market on an arm's length basis for the purchase of the Assets and the assumption of the Liabilities;
. . .
2. Agreement to sell
2.1 Subject to the conditions set out in this Agreement the Vendor sold and transferred as legal and 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 except the Subsidiaries.
. . .
3.1 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 of 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, claims and demands in respect thereof (the "Consideration");
3.2 Each of the parties acknowledges that it believes that the Consideration equals the Market Value but if following the date hereof it can be reasonably shown that:-
3.2.1 The Consideration was worth less than the Market Value then the Consideration shall be increased by the sum of the shortfall; or
3.2.2 The Consideration was worth more than the Market Value then the Consideration shall be decreased by the sum of the excess.
. . .
Completion of the sale and transfer of the Business and the Assets shall take place on and with effect from the close of business on the date hereof when the following shall take place:-
5.1 The Vendor shall deliver to the Purchaser all of the assets capable of passing by delivery and shall allow the Purchaser to take possession of all other Assets hereby agreed to be sold;
5.2 The Vendor shall execute and deliver to the Purchaser all instruments of transfer necessary or desirable for the transfer of all of the Vendor's rights, title and interest in the Business and the Assets hereby agreed to be sold.
The Vendor and the Purchaser hereby acknowledge and agree that the Vendor has since the Effective Date been operating the Business as agent for the Purchaser and shall continue to do so until Completion so that all profits and losses relating to the Business arising between the Effective Date and Completion shall be for the account of the Purchaser and that any assets acquired or created by the Vendor relating to the Business between the Effective Date and completion shall have been acquired or created by the Vendor as agent for the Purchaser. The Purchaser shall indemnify and keep indemnified the Vendor in respect of any liabilities incurred since the Effective Date.
. . .
With effect from the Effective Date the Purchaser has, to the extent that they were not fully performed, assumed the obligations of and become entitled to the benefits of the Vendor under the Contracts. If consent to the assignment or novation of any of the Contracts is required from any person, until such consent is obtained:-
8.1 the Vendor shall continue to hold the benefit of the Contract on trust for the Purchaser and shall immediately upon receipt pay to the Purchaser any sums received by it under the Contract;
8.2 the Purchaser shall at its own cost and for its own benefit continue to perform the Vendor's obligations under the contract and shall indemnify the Vendor fully at all times from and against all costs, proceedings, claims, demands and expenses which may be incurred by the Vendor as a result of any act or omission by the Purchaser in relation to the Contract or any failure to obtain the relevant consent; and
8.3 the Vendor shall take such action as the Purchaser may reasonably require to obtain the necessary consents."
(1) whether Rust could advance a claim for indemnity under Clause 3.1 on the basis that its alleged liability or liabilities to the Eagle One Companies were "Liabilities";
(2) whether Rust could advance a claim for indemnity under Clause 3.1 on the basis that the November 1995 Agreement, the November 1996 Agreement and the Warranty were "Contracts";
(3) whether Rust could advance a claim for indemnity under Clause 8.2; and
(4) whether Rust could rely on the consent judgment such that it did not have to prove its liability to the Eagle One Companies (and the amount thereof) as against PB
"Guarantees and Bonds
The company has contingent liabilities in the ordinary course of business including guarantees and bonds. Any losses foreseen under these arrangements are provided in the accounts. With effect from 31 December 1996, the obligation to make good any contingent liability that crystallises has been assumed by Kennedy & Donkin Limited (formerly Rust, Kennedy & Donkin Limited)."
Note 18 to the accounts is headed "Subsequent Events". This provides:-
"With effect from 31 December 1996 the company's trade assets and liabilities were sold at net book value to Kennedy & Donkin Limited (formerly Rust, Kennedy & Donkin Limited), a sister subsidiary undertaking. The company ceased to trade from that date."
(1) A material contingent loss where it is probable that a future event will confirm a loss which can be estimated with reasonable accuracy at the date on which the financial statements are approved by the board of directors: this should be accrued in the financial statements;
(2) A material contingent loss which is not probable but where the possibility of loss is more than remote or which is probable but where the loss cannot be estimated with reasonable accuracy: this should be disclosed in the accounts by stating the following information by way of notes in the financial statements:
a) The nature of the contingency;
b) The uncertainties which are expected to affect the ultimate outcome; and
c) A prudent estimate of the financial effect, made at the date on which the financial statements are approved by the board of directors; or a statement that it is not practicable to make such an estimate;
(3) A contingent loss where the possibility of the ultimate outcome having a material effect on the financial statements is remote: here the guidance did not require disclosure.
(1) The secondary obligation to pay damages which replaces the primary obligation of service;
(2) An obligation to perform services on the basis that the allegation against Rust in the Eagle One proceedings was in part based upon non-performance rather than upon negligent performance;
(3) A continuing obligation to exercise reasonable skill and care as expressed in the Warranty.
(1) Consent to a novation whereby PB replaced Rust under the Warranty was required from the Eagle One Companies;
(2) PB failed to obtain such consent; and
(3) therefore PB must indemnify Rust in relation to the failure to obtain the relevant consent.
Lord Justice Richards :
Lord Justice Ward :