Venulum Property Investments Ltd v Space Architects Ltd & Ors

This is an application by the Defendants to strike out the claim on the grounds that it discloses no reasonable cause of action or has no realistic prospect of success. The Defendants fall into two groups. The First to Fourth Defendants have been referred to, in the face of mild protest, as the Developer Defendants. I shall, for convenience, adopt that term. The Fifth and Sixth Defendants are a chartered surveyor, Mr. Ungemuth, and a company that he controls. They have been referred to collectively as the Agent Defendants.

There were also before the court submissions by the Developer Defendants and the Agent Defendants opposing what they understood to be an application by the Claimant for relief from sanctions (because it had not served its Particulars of Claim in time). For reasons which I gave at the hearing, I allowed the Claimant a further extension of time in which to serve the Particulars of Claim. Very briefly, I came to the clear conclusion that the Claimant had made an application which was the subject of a consent order (extending time to 18 April 2013) that was before the court at the hearing on 11 April 2013. At that hearing I expressly, and advisedly, declined to make or approve the consent order, including the giving of necessary directions, pending the outcome of the application relating to the other defendants that was then currently before me. Through what I think was probably a misunderstanding, the Claimant did not serve its Particulars of Claim within the time to which the Defendants had agreed, which resulted in it making an application on 28 June 2013 for a further extension of time, and so the only prejudice upon which the Defendants could have relied was as a result of the few weeks that elapsed between 18 April 2013 and the actual date of service of the Particulars of Claim in June 2013. Apart from the omission of the word “draft”, the Particulars of Claim was served in its original form. No-one suggested that any of the defendants had been caused any prejudice by this additional delay, and so in those circumstances I concluded that the position adopted by the Developer Defendants and the Agent Defendants was misconceived.

The Claimant is a regulated mutual fund incorporated in Grand Cayman, Cayman Islands, licensed by the Cayman Island Monetary Authority. It is said that it operates as an open ended investment fund for private client personal pension funds. Investors buy shares in the company, which in turn invests in properties held and developments managed by Venulum Capital Ltd, a British Virgin Islands licensed investment manager. Mr. Giles Cadman is the director and principal driving force behind the Claimant. The main investors are high net worth individuals based in the United States of America.

The claim relates to a potential, but as yet unrealised, residential property development, known as Enterprise Square, Bective Road, Northampton (“the Site”).

The Developer Defendants were not in any contractual relationship with the Claimant. The proposal was that the Claimant would purchase the Site from Realacre Limited (“Realacre”) and then provide the funding for it to be developed by a team supplied by the Defendants. The majority shareholder in Realacre was a company known as MRP Developments Limited (“MRPD”). Realacre and MRPD were originally named as defendants in these proceedings but I was told that the claim against them is no longer pursued because both companies have been dissolved and no longer exist. Realacre and MRPD were in turn owned or controlled by Mr. Willmott and Mr. Anderson, the Third and Fourth Defendants, respectively. Mr. Willmott is an architect.

In 2005 the First Defendant (“Space”), which carries on practice as architects, prepared plans for the development of the Site on behalf of Realacre, allegedly using the plans prepared by a consultant architect previously retained by the Claimant. Those plans were based on there being 152 apartments with 171 parking spaces but, by November 2005, it was proposed that there would be 155 apartments with a basement car park containing 176 car parking spaces.

On 11 November 2005 Space made a planning application to West Northamptonshire District Council on the basis of these drawings. On 28 February 2006 it submitted amended plans. On 27 June 2006 planning permission for 155 units was granted. It was a condition of the grant of planning that “… the parking space(s) and/or garage(s) shown on the submitted plan shall be constructed prior to the first occupation of the buildings hereby approved and retained thereafter”. The permission was subject to 18 conditions and to the conclusion of a section 106 Agreement.

The Second Defendant (“MRPDS”) is a company that carried on business as architects and was owned or controlled by MRPD. Space was associated with MRPDS. It was anticipated that the architects that Space employed who had prepared the drawings (or their services) would at some stage be transferred to MRPD. MRPD was said by the Claimant to have been retained by Realacre.

The Agent Defendants were engaged by the Claimant directly and, indeed, Mr. Cadman and Mr. Ungemuth had apparently had a working relationship going back to about 1995. Since about 2005 Mr. Ungemuth has acted as the Claimant’s property agent, identifying proposed building projects and investments. It is alleged that, in the course of that role, he proposed the purchase of the Site by the Claimant.

On 20 July 2006 Mr. Willmott, acting on behalf of Space, wrote to Mr. Ungemuth enclosing a revised RIBA SAFA 99 Standard Form of Agreement for the Appointment of an Architect for the purposes of 24 months post-planning architectural services, noting that the “architectural corporate vehicle will be MRP Development Services Ltd” and that the architects working on the project for MRPDS would be those, or some of those, who had worked for Space.

The subsequent events are set out in my judgment dated 22 May 2013. In short, on 7 September 2006 the Claimant entered into a contract for the purchase of the Site, planning consent for which had been given in principle for the development of 155 flats together with 171 parking places. Final planning permission had not then been granted because the precise terms of the section 106 Agreement remained to be agreed. It was a term of the contract that if planning permission was not granted by 31 December 2006, either party would be entitled to rescind the contract and the deposit would be repaid to the Claimant with interest.

It is important to explain precisely how this contract worked because it is an aspect to which great importance has been attached. It was divided into two parts, Part A and Part B. Part B did not come into effect unless a certain condition was fulfilled. That condition was the grant of planning permission before 31 December 2006. Under the terms of Part A the Claimant’s only obligations were: a) to pay the deposit of some £450,000; and b) to do what was reasonably required to assist the seller, Realacre, in obtaining planning permission. If the condition was fulfilled, the Claimant was then obliged to complete the contract.

Planning permission was granted on 1 November 2006 (at least, no earlier). The Claimant issued proceedings on 31 October 2012, more than six years after it entered into the contract on 7 September 2006. However, if time under the Limitation Acts started running on the date when the planning permission was granted and the condition fulfilled, the Claimant is just in time. This is common ground.

The principles relating to an application to strike out or for summary judgment by a defendant against the claimant were very clearly set out by Lewison J (as he then was) in the case of Wetherspoon v Van de Berg & Co [2007] EWHC 1044 (Ch), where he said, at paragraph 4:

“Both the application to strike out and the application for summary judgment are summary applications. The application for summary judgment is made by defendants against a claimant, which is less usual than an application by a claimant for judgment against a defendant. The authorities deal mainly with applications by claimants. The correct approach on applications by defendants is, in my judgment, as follows:

i)

The court must consider whether the claimant has a ‘realistic’ as opposed to a ‘fanciful’ prospect of success: Swain v Hillman [2001] 2 All ER 91;

ii)

A ‘realistic’ claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8]

iii)

In reaching its conclusion the court must not conduct a ‘mini-trial’: Swain v Hillman

iv)

This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10]

v)

However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;

vi)

Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63;

vii)

The court should be especially cautious of striking out a claim in an area of developing jurisprudence, because in such areas decisions on novel points of law should be decided on real rather than assumed facts.”

Lewison J then went on to say that the same approach is warranted both in relation to allegations that causes of action are statute-barred and in relation to allegations that no valid cause of action had been pleaded against the defendants.

I, like Akenhead J (in Linklaters Business Services v Sir Robert McAlpine Ltd [2010] EWHC 1145), consider that Lewison J’s principles reflect a correct statement of the law. I therefore propose to apply them.

The Developer Defendants applied to strike out the claim on the grounds that it discloses no coherent case against them, and certainly not a case with any realistic prospect of success. In particular, they say that in relation to the central allegation of fact, namely the defects in the plans, the Claimant has not shown that it has any material to support its case so that it is bound to fail. Further or alternatively, it contends that the claim is statute-barred. The only claim against the Developer Defendants is in tort.

I should explain at this stage that Miss Anneliese Day QC, who appeared on behalf of the Claimant, did not appear in the earlier application against the former Miller Defendants for permission to extend time for service of the Particulars of Claim, nor did she draft that pleading. Since various criticisms of the Particulars of Claim have been made in the course of this application, some of them not unjustified, I wish to make it absolutely clear that it is not Miss Day’s handiwork that has been under fire. The Claimant’s present solicitors, Dentons, were also not instructed until after I had handed down the judgment of 22 May 2013.

Mr. Mark Sefton, who appeared on behalf of all the Developer Defendants, submitted that the contract did not provide for any assignment to the Claimant of any rights of action Realacre might have had against Space or anyone else. Realacre gave no warranties to the Claimant in the contract about the “feasibility” of the development for which planning consent had been sought. He submitted that, as with any other contract for the sale of land, there was no implied warranty (and none is alleged) that the property was fit for the buyer’s intended purpose. This was a matter on which the Claimant had to satisfy itself.

Indeed, Mr. Sefton pointed out that the Claimant agreed in the contract that:

“… it has not entered into this contract in reliance on any representation made by or on behalf of the Seller but not embodied in this contract except to the extent that the Buyer may be entitled to rely on any representation made by the Seller’s Solicitors on behalf of the Seller in any written reply to any enquiry made by the buyer’s Solicitors on behalf of the Buyer”.

Mr. Sefton said that it is not asserted that there were any relevant written replies made in response to enquiries by the buyers’ solicitors.

In relation to Space and MRPDS Mr. Sefton submitted that the only allegation of a duty of care was that pleaded in paragraph 25 of the Particulars of Claim. In that paragraph the duty was said to arise “by reason of the foregoing”. He therefore submitted, with impeccable logic, that the facts giving rise to the alleged duty of care had therefore to be found somewhere in the preceding 24 paragraphs of the pleading.

The principal allegation against Space as set out in the Particulars of Claim is that it prepared the plans, allegedly on behalf of MRPDS, who it is said was the architect retained by Realacre. Mr. Sefton submitted, correctly I think, that this was wrong as a matter of fact because Space was retained directly by Realacre.

At paragraph 7 of the Particulars of claim it is alleged that Space prepared a marketing brochure for the project in which it was asserted, amongst other things, that there would be a separate car parking space for the use of the owner of each apartment.

At paragraph 14 of the Particulars of Claim it is alleged that on about 26 June 2006 Mr. Willmott sent an e-mail on behalf of Space which was copied to, amongst others, Mr. Ungemuth enclosing a set of the drawings. In that e-mail he stated that the scheme “… could be built as timber, steel or concrete frame as well as traditional masonry structure”.

Paragraph 16 of the Particulars of Claim alleges that on 20 July 2006 Mr. Willmott wrote to Mr. Ungemuth putting forward a package for architectural services that would be carried out by MRPDS and saying that employees of Space would be amongst those working on the project. The proposed contract for sale provided that Realacre would take such steps as would be required, whether by assignment of copyright or otherwise, to allow the Claimant to make use of Space’s drawings. In relation to these points, Mr. Sefton pointed out that the architectural services in question were described as “post-planning architectural services”. He submitted that, even if MRPDS had instructed Space as the Claimant alleged that would not create a duty, without more, to take care to ensure that the plans were accurate.

Finally, in paragraph 26 of the Particulars of Claim there was a general allegation that the reality of the arrangements was that the Developer Defendants were:

“… to be considered partners in a speculation for the planning and sale of the Enterprise Square scheme including the obtaining planning consent on the basis of plans and drawings which were feasible and could be used for a scheme which could in fact be constructed as illustrated.”

In these circumstances, it is alleged that they all owed the alleged duty of care to the Claimant.

Mr. Sefton submitted that it was not being said that Space prepared the plans in contemplation of a subsequent sale or assignment and there was no application to make any amendments to the Particulars of Claim.

Miss Day responded by submitting that the essence of what was being alleged was that Space was aware that its drawings were being or would be shown to and relied on by the Claimant when deciding whether or not to enter into the contract. In these circumstances, she submitted, Space would clearly have foreseen that if the drawings were prepared negligently, the Claimant would suffer a loss.

In relation to MRPDS, Miss Day submitted that it assumed responsibility for the services provided by Space or, at least, employees of Space. It too, therefore, assumed a duty of care to the Claimant.

As to Mr. Willmott and Mr. Anderson, it is alleged at paragraph 6 of the Particulars of Claim that they were both shareholders and directors of MRPD. Mr. Willmott was also a shareholder and director of Space, which it is said he “owned or controlled”. Miss Day pointed out that they were in fact directors of a significant number of related companies and invited the court to draw the inference that they would set up companies whenever they were needed but were themselves the real actors, rather than the companies. She submitted that the effect of Mr. Sefton’s submissions would be that no-one amongst the Developer Defendants could be liable to the Claimant and that that was just not a realistic state of affairs.

Miss Day referred me to the decision of the Court of Appeal in Partco Group Ltd v Wragg [2002] 2 BCLC 323. That was a case in which directors gave what were in effect personal assurances to the claimant and were held liable on that basis.

Mr. Sefton submits that this case comes nowhere near that type of situation. He submitted that there was no basis for imposing personal liability on Mr. Willmott or Mr. Anderson in circumstances where they acted only on behalf of companies of which they were directors. He submits that the circumstances in which the court will look behind the corporate veil are rare and that this case does not come close to it.

I am not persuaded by that submission: it seems to me that paragraph 14 of the Particulars of Claim, at least, is alleging an assurance given by Mr. Willmott which might be capable of being construed as a personal assurance.

Pausing there, and considering the position of Space, MRPDS and Mr. Willmott, it seems to me that this is just the type of situation where the court must consider, not only the material before it on this application, but also the evidence that might reasonably be expected to be available at trial: see Lewison J’s points (v) and (vi). I do not consider that it can be said that the Claimant’s case against Space and MRPDS is no more than fanciful. As presently pleaded it may not look very strong, but this is the sort of case that should not be determined without the full investigation into the facts that will take place at a trial. In the case of Mr. Willmott, it seems to me that the statements that he is alleged to have made in June and July 2006 may be capable of founding a duty of care to the Claimant. Much will depend on the precise circumstances in which they came to be made and that can only be determined at a trial. I accept that the case against Mr. Willmott is not without its difficulties, but in the circumstances I am not prepared to describe it as fanciful.

By contrast, it is notable that Mr. Anderson is not mentioned individually anywhere in the Particulars of Claim save for the assertion that he was a director of MRPD, a company against whom the claim is not being pursued. So far as he is concerned, therefore, I accept that there is no reasonably arguable claim against him. I do not consider that the general allegation that the Developer Defendants are to be considered partners in the scheme, without reference to any act done by Mr. Anderson, is sufficient, of itself, to support a claim against him. In Mr. Anderson’s case, therefore, I consider that the claim is fanciful.

However, the point that was in the forefront of Mr. Sefton’s submissions was that there is simply no truth in the central allegation made in these proceedings that the development illustrated in the plans used for the planning application was not “feasible” because “… the supporting posts and pillars [in the basement car park] could not support the residential units [on the upper floors]”. In support of this point the Developer Defendants put in evidence an expert report from a structural engineer, a Mr. Peter Smith, saying that there was no reason why the development could not be built.

Mr. Sefton submitted that this report showed that the development can be constructed without any difficulty at all, using entirely conventional building techniques. Further, he submitted (for reasons explained in more detail below), that the Claimant does not have proper grounds for making the allegation, and it is not an allegation to which the Claimant could properly have put a statement of truth. On this ground alone, Mr. Sefton submitted, the claim should be struck out.

It is true that Mr. Smith said that the “upper ground floor level transfer structure” could be built using traditional construction techniques, namely a cast in situ reinforced concrete transfer deck slab with integral down-stand cast in situ reinforced concrete beams spanning between cast in situ reinforced concrete columns. But, as Miss Day pointed out, Mr. Smith was postulating a transfer structure that would have to be provided at upper ground floor level in order to transfer the load of the building to the ground. It was far from clear from his report whether this was something that could be accommodated within the approved plans or represented a modification of them. Nowhere in his report did Mr. Smith say in terms that the building could be built in accordance with the approved plans. What he was saying was that it would be possible to build the structure so as to avoid the loss of any of the parking spaces.

It may well be that, with relatively modest modifications to the approved plans, for which permission could readily have been obtained, the building could be built so as to provide the required number of apartments and car park spaces, but that is a matter that can only be investigated after a proper inquiry into the facts.

For these reasons, therefore, Mr. Sefton’s primary submission fails. However, he developed other arguments in relation to the state of the evidence in relation to the alleged defects in the plans which do in my view give cause for concern. I will refer to them in more detail below, but at this stage it is sufficient to say that I do not consider that they would justify the striking out of the claim.

I turn now to the Agent Defendants. They also applied to strike out the claim on similar grounds, although as Mr. Richard Harrison, who appeared on their behalf, made clear, his real attack was based on limitation. Although his clients are sued in both contract and tort, he submitted that since no breach of contract was asserted after 7 September 2006, when the Claimant entered into the contract, the existence of the additional cause of action in contract effectively makes no difference. Miss Day submitted that this was not correct and that a continuing duty in contract was owed by the Agent Defendants up until completion. I should add that Mr. Ungemuth said in a witness statement that the grant of the planning permission was a mere formality.

In relation to the allegations in the Particulars of Claim, Mr Harrison made two principal complaints (in addition to adopting Mr Sefton’s submissions about the plans). The first was directed to paragraph 31 of the Particulars of Claim, which is in these terms:

“[Mr Ungemuth] and [Mr Miller] acted in breach of an obligation of good faith owed to the Claimant in that they precipitated the Claimant in to making the Contract of Sale whereas if it had had more time the Claimant would have had the opportunity of discovering that the plans and drawings were not feasible and could not be used for a scheme which could in fact be constructed … [They] put their desire to earn commission above their duties to the Claimant.”

It is said that these are grave allegations unsupported by any evidence in the witness statements. Miss Day had already expressly withdrawn an allegation of dishonesty against the Developer Defendants in paragraph 33 of the Particulars of Claim, and in a similar vein she accepted that this paragraph was not to be read as making any allegation of dishonesty: it was confined to an allegation of breach of a fiduciary duty, which, she said, would entitle the Claimant to the return of any commission paid.

Even with this concession, I do not regard this as a strong allegation but I do not consider that it is so weak that it ought to be struck out: but this is on the clear basis that it does not make any allegation of dishonesty. It must be limited to an allegation of breach of fiduciary duty and no more.

Mr Harrison submits also that there is no ground for asserting a claim against Mr Ungemuth personally. Mr Ungemuth asserts that the course of dealing was between the Claimant and Abbeyross (GB) Ltd, not Abbeyross Ltd, and that there is no room for an alternative claim against him personally. For much the same reasons as I have already given in relation to the Developer Defendants, I do not regard this as a point that it is appropriate to explore on a summary application. There has obviously been a long history of dealing between the Claimant and Mr Ungemuth and the precise capacity in which he was acting at the material time is an issue which can only properly be investigated at a trial.

I now turn to the question of limitation.

From what I have already said, it will be apparent that the issue here is whether time started to run against the Claimant on 7 September 2006 or 1 November 2006 (or shortly thereafter). The Defendants, unsurprisingly, submit that if the Claimant’s case about the state of the plans is correct, then the Claimant suffered actual damage when it entered into the contract on 7 September 2006 and so its claim against all the Defendants is statute-barred.

Miss Day’s submission is that when the Claimant entered into the contract on 7 September 2006 its obligations in relation to completion were contingent on the grant of planning permission. Until then Part B of the contract did not come into effect and it was not until it did that the Claimant suffered any loss. She submits that it is a principle of English law that an event which is purely contingent cannot amount to actual damage for the purposes of the Limitation Acts. Accordingly, no cause of action can accrue until the contingency has come about.

With these brief observations, I will turn at once to the authorities on limitation.

I was referred to a number of cases, of which perhaps the following are the most significant: Bell v Peter Browne & Co [1990] 2 QB 495; Nykredit Mortgage Bank v Edward Erdman [1997] 1 WLR 1627 (HL); Byrne v Pain & Foster [1999] 1 WLR 1849; The Law Society v Sephton [2006] 2 AC 543; Nouri v Marvi [2010] EWCA Civ 1107; Axa Insurance v Akther & Darby [2010] 1 WLR 1662 (CA) and Green v Eadie [2012] Ch D 363.

In Nykredit the claimant had made a loan to a borrower in reliance on a negligent survey of the property charged in support of the loan. The claimant would not have entered into the loan but for the negligent survey. In the House of Lords both Lord Nicholls and Lord Hoffmann, with whom the other members of the House agreed, considered that the loss might not occur until the borrower defaulted, although in that particular case it arose on the making of the loan since the borrower’s covenant to repay was worthless and he defaulted almost immediately.

This, then, was a case where the contingency - the borrower’s inability to repay or his default - was not an intended consequence of the transaction, although it was a consequence that was anticipated as a possibility because that is why the lender wanted to have sufficient security.

In relation to the question of what was meant by “actual damage”, the House of Lords agreed with the submission made by Mr. Murray Stuart-Smith QC to the Court of Appeal, which Stephenson LJ recorded in the following terms:

“What is meant by actual damage? Counsel for the defendants says that it is any detriment, liability or a loss capable of assessment in money terms and it includes liabilities which may arise on a contingency, particularly a contingency over which the plaintiff has no control; things like loss of earning capacity, loss of a chance or bargain, loss of profits, losses incurred from onerous provisions or covenants in leases. They are all illustrations of a kind of loss which is meant by ‘actual’ damage. It was also suggested in argument … that ‘actual’ is rarely used in contrast to ‘presumed’ or ‘assumed’. Whereas damage is presumed in trespass and libel, it is not presumed in negligence and has to be proved. There has to be some actual damage.”

In Sephton, the result of the accountants’ negligence was that the Law Society became under a contingent liability to pay money following a solicitor’s default. The object of proper performance by the defendants was to prevent such a liability arising, or at least to enable the Law Society to intervene in the practice in sufficient time to prevent or minimise the loss. Again, this was a case where any default by a solicitor was neither an intended nor a desired consequence and, indeed, was not (or should not have been) a probable consequence of entering into the arrangement with the defendants.

In Axa, there was a legal expenses scheme for the provision of ATE insurance which enabled members of the public to bring personal injury claims on a no-win, no fee basis which was underwritten by the insurer. The rights conferred on the insurer by the policy included the right to receive and retain the premium and the right to discontinue cover if it considered that reasonable prospects for the recovery of damages had ceased to exist. A panel of solicitors was retained under the scheme to act in relation to claims and, under the funded solicitors agreement, they were required to vet claims which members of the public wished to pursue and to accept into the scheme only claims which had prospects of success of at least 51% and were likely to meet a minimum value threshold of £1,000. In addition, panel solicitors were required to conduct cases with reasonable care thereafter and to notify the insurer for withdrawal of indemnity of those claims where the success rate had fallen below 50% and/or where it became clear that the damages would not exceed £1,000. An action was brought against the panel solicitors for negligent vetting and conduct of claims. The solicitors raised a limitation defence.

The Court of Appeal held by a majority that for the purpose of the accrual of a cause of action in negligence, damage would not be constituted by the incurring of a purely contingent liability. There had to be a measurable loss additional to the incurring of the contingent liability for time to begin to run for limitation purposes. In relation to the vetting breaches, it was held that the insurer’s book of business carried liabilities as soon as the respective policies had been underwritten so as to incur liabilities in excess of those which would have been incurred if the vetting breaches had not occurred. In relation to the conduct claims, it was held that damage occurred at the time when the breaches had taken place if and in so far as the insurer was thereby exposed to larger liabilities than it would have been but for the failure to notify.

Miss Day relied on a passage in the speech of Lord Hoffmann, quoted at paragraph 18 of the judgment of Arden LJ, that “A contingent liability is not as such damage until the contingency occurs”. I was referred also to an important passage in the judgment of Saville LJ (as he then was) in First National Commercial Bank v Humberts [1995] 2 All ER 673, at 679, which was quoted by Arden LJ at paragraph 19 of her judgment. It is as follows:

“In all those cases, however, the court was able to conclude that the transaction then and there caused the claimant loss, on the basis that if the injured party had been put in the position he would have occupied but for the breach of duty, the transaction in question would have provided greater rights, or imposed lesser liabilities or obligations than was the case; and that the difference between these two states of affairs could be quantified in money terms at the date of the transaction.”

At paragraph 57 of her judgment Arden LJ said:

“Likewise, the principle that the incurring of a purely contingent liability is not itself damage does not apply where the claimant acquires a contingent liability as a part of a package of rights under a bilateral transaction and the value of that package has been diminished by the negligence of the defendant: see the Sephton case [2006] 2 AC 543, paras 30 and 45, per Lord Hoffmann and per Lord Walker respectively.”

At paragraphs 62 and 63 of her judgment Arden LJ said:

“62.

Furthermore, in my judgment, it is correct to treat NIG as incurring loss and therefore as suffering damage for the purposes of the accrual of its causes of action in tort as soon as it issued ATE insurance even if [counsel] is correct to say that the measure of damage in this case is on a ‘no transaction’ basis. The measure of loss is then the difference between its financial position having issued the policies and its financial position if it had not issued them. The fact that it had incurred loss is relevant to the first part of that equation. The additional loss was the fact that the liabilities under those policies to policyholders were more burdensome, and a package of rights which they required under the policies was less valuable, than they should have been if the vetting breaches had not occurred. This was measurable loss additional to the incurring of purely contingent liabilities under the policies of insurance. The liabilities arose at the date of the issue of the policies and can be valued as at the date of the issue of the policies. The loss did not result from subsequent events, such as fluctuations in the value of the property, the event considered in the Nykredit (No 2) case [1997] 1 WLR 1627.

63.

The judge inclined to the view that the measure of damage did not determine the question when loss was incurred which was a question of fact: see for example paragraph 59 of his judgment. In my judgment, there must be a correlation between the measure of damages and the incurring of loss for the purposes of the accrual of a cause of action. This is because loss must be recoverable loss if its incurring is to be relevant for accrual purposes: see per Lord Nicholls in the Nykredit (No 2) case [1997] 1 WLR 1627, 1630 F. I would however agree with the judge that damage can be incurred when a transaction is entered into even if damages fall to be assessed on the ‘no transaction’ basis. In this case, on the assumed facts, loss was incurred by NIG when it wrote the relevant policies.”

Longmore LJ reached a similar conclusion to that of Arden LJ. Lloyd LJ dissented.

A simplistic approach to the problem presented by Nykredit, Sephton and Axa might be to ask whether at the time of entering into the relevant transaction the occurrence of the contingent liability was a probability or only a possibility. In the case of Nykredit and Axa, this test would have been satisfied: in Nykredit the covenant was worthless at the time when the transaction was entered into, and in Axa the claims accepted into the scheme had to have, by definition, a probability of success (because that was a condition precedent to their acceptance). If claims were accepted where the probability of success was less than 50%, then in those cases a loss to the insurer would be more probable than not. The situation seems to me to be a fortiori where the contingency is not only a probability, but an event that the parties have contracted to bring about if they can.

In Sephton, by contrast, a loss of the type that occurred was no more than a possibility at the time when the transaction was entered into.

If this is a correct approach, then it is certainly arguable that, as at 7 September 2006, the grant of planning permission was more probable than not (even if it was not the formality that Mr. Ungemuth said it was).

Some assistance can, I think, be drawn from a case referred to in the report of the Axa case, Watkins v Jones Maidment Wilson [2008] EWCA Civ 134, a court consisting of Arden LJ, Longmore LJ and Thomas LJ (as he then was). In that case the claimant entered into a building agreement involving the acquisition on a 999 year lease of a plot of land and an obligation on the defendant to build a house on it. If the house was not completed by 31 August 1998, by clause 21 of the agreement the claimant could terminate it and pay for the work completed by that date, the value of which was to be determined, in default of agreement, by an expert. On advice from their solicitors, the defendants, the claimants wrote to the builder on 6 August 1998 agreeing to waive the completion date of 31 August 1998. In the claim against their solicitors the claimants alleged that the work contained serious defects and they should not have been advised to waive their rights under clause 21.

The Court of Appeal agreed with the conclusion of the judge that the claimants had a cause of action which accrued on 6 August 1998. At paragraphs 31 and 32 of her judgment Arden LJ said this:

“31.

The judge accepted the argument of [counsel]. He held that the fact that clause 21(ii) could not be used before 31 August 1998 and could only be used if [the builder] failed to complete by that date did not mean that it did not have a value prior to 31 August 1998. In his judgment, although its value depended on a number of factors including the likelihood of the Watkins being able to exercise it after 31 August 1998, it had a value before 31 August 1998 and thus Sephton was distinguishable.

32.

In my judgment, the judge was correct for the reasons he gave. When the Watkins entered into the building agreement they acquired a bundle of rights. That bundle of rights was of lesser value than they were on their case led to believe that it would be. Those rights were an asset capable of valuation. Thus, the Watkins suffered measurable loss when they acted on the allegedly negligent advice to enter into the later transaction. Accordingly, the claim is statute-barred.”

So although in that case the contingency was the builder’s failure to complete the works by 31 August 1998, the court held that a cause of action accrued at the time when the claimants wrote their letter of 6 August 1998. The rights exercisable under clause 21 had a value prior to the date on which they could be exercised.

By parity of reasoning it can be argued in this case that when it entered into the contract on 7 September 2006 the Claimant acquired a bundle of rights to which a value could be attributed, as evidenced by the fact that a third party was prepared to buy the land for more than the Claimant had paid. It is said on behalf of the Claimant that the buyer refused to proceed with the transaction once he learned of the potential difficulties with the plans. This suggests that the rights acquired by the Claimant when it entered into the contract may well have been diminished if the true position was that the building could not be developed in accordance with the plans, or at least not at a viable cost.

There is a line of cases dealing with the sale or purchase of property where, as a result of a solicitor’s negligence, the buyer has entered into a transaction which is worth less than it should have been (for example, a husband who transferred a property to his wife without an appropriate deed of trust in his favour, or purchasers who acquire a property worth less than it should have been). In such cases it has been held that the cause of action accrues on the date of the transaction, and not at the later date when the purchase was completed or action was taken to the detriment of the client. I agree with Miss Day that these cases do not provide the answer in the instant case, because it is plain that the purchaser suffers damage the moment that he enters into an unconditional transaction for a benefit which is worth less than that which he should have received.

The Defendants relied on a decision of Mark Cawson QC, sitting as a deputy High Court judge, in Green v Eadie [2012] Ch 363. In that case the claimant purchased a freehold property from the vendors, having retained solicitors to act for her on the purchase. She claimed that one of the vendors had incorrectly told her that the property included a strip of land which was in fact part of the adjoining property on the faith of which she entered into the purchase. More than six years after the exchange of contracts but less than six years after completion, the claimant brought proceedings against the vendors for damages for misrepresentation, and against the solicitors for damages in negligence and for breach of contract, alleging that in failing to check the boundaries of the property they were in breach of their duty to exercise all reasonable care and skill.

The judge held, striking out the claims, that the buyer who became committed to buying something of a lesser quality than it should have been, or subject to something to which it ought not to have been subject, would suffer a loss on his entering into the flawed transaction, even if the transaction were capable of remedy through rescission. Accordingly, the claimant had suffered more than trivial loss on entering into the contract to buy the property, even though, on her case, she might have rescinded the contract on grounds of misrepresentation at any time before completion.

It was submitted to the judge by counsel for the claimant, correctly, that if the right to rescind exists, it can be exercised simply by notice and not by action. Therefore he submitted that the claimant could not be said to have suffered any loss at any time prior to completion because she had a right to get out of the flawed contract.

At paragraph 47 of his judgment, the judge said this:

“I am not persuaded that there is in the general principle that a party to a flawed transaction will only suffer a loss when and if the relevant transaction unconditionally binds that party. In the cases referred to in para 45 (sic) above, the contracts in question were in fact irrevocable, and so it could be said that loss had been suffered on the entry into the same. These cases did not, however, specifically consider the effect of entering into a flawed transaction that might be capable of being remedied by rescission.”

At paragraph 53, the judge said:

“This to my mind explains why as a matter of logic that very entry into a flawed transaction should be seen to give rise to damage, even if capable of remedy. Firstly there is the practical inconvenience of having to rectify the position; secondly, there is the practical point that until the breach of duty was discovered (here the fact that false representations had been made, and that the solicitors had failed to ensure that the filed plan represented what were understood to be the physical boundaries) the flawed transaction would not be remedied, but rather the contract would be completed.”

The reasoning of the judge in this case, if I may say so, seems to me to be correct: at the time of entering into the contract the claimant acquired a package of rights that were worth less than that for which she thought she was contracting. Whilst at one level the observations of the judge support the Defendants’ position in the current application, the position in the present case is different because this contract was not revocable from the outset. It would only become so if the planning permission was not granted by the stipulated date.

I have to say at once that I do not consider that any of the authorities cited to me provide the answer to this case. However, applying the authorities to the facts here it seems to me that the position must first be considered at the time when the Claimant entered into the contract on 7 September 2006. At that stage its only obligations were: a) to pay the deposit; and b) to assist or co-operate in bringing about the grant of planning permission. If the contract was rescinded for want of planning permission, the deposit was repayable with interest at 2% over base from date of payment. So, unless Realacre was not good for the money, it is hard to see how the payment of the deposit in these circumstances could on its own amount to a loss.

However, on entering into the transaction the Claimant acquired rights. It acquired the right, and came under an obligation, to complete if planning permission was granted before 31 December 2006. The grant of planning permission was not just a possibility: on the material presently before the court it is arguable that it was a strong probability. At first sight it does not look as if there were likely to be any real difficulties about negotiating the section 106 Agreement. However, in a witness statement of Mr. York, served on behalf of the Claimant, there is a suggestion that the requirements of one of the conditions of the s 106 Agreement might have been difficult to achieve.

If that is correct, the question becomes whether the package of rights and obligations acquired by the Claimant on 7 September 2006 was worth less if the plans were defective (in the sense claimed by the Claimant) than it would have been worth if the plans had been sound.

Intuitively, my provisional answer to this question is yes. But Miss Day cautions me that the court should not make assumptions about the value of the Claimant’s rights on entering into the contract in the absence of any evidence. She submits, correctly, that there is no evidence before the court as to the existence of any diminution in value of the Claimant’s rights on entering into the contract. In those circumstances she says that the court should not assume this to be the case. Counsel for the Defendants say, by contrast, that it is self evident that the value of a property with prospective planning permission based on defective plans must be worth less than the value of the same property where the plans are sound.

The submissions on behalf of the Defendants are seductive, but this is a summary process and the consequence for the Claimant of a conclusion that its claim is statute-barred is draconian. Miss Day has persuaded me, albeit against my instincts, that it would not be appropriate to decide this application in the absence of any evidence as to the diminution in value of the Claimant’s rights on entering into the contract, including the question of the likelihood of planning permission being granted. I merely observe that the Claimant should be very grateful to Miss Day for her thorough and tenacious submissions on this aspect of the application.

Miss Day submitted that the company that should have been sued is Abbeyross (GB) Ltd, not Abbeyross Ltd. It is clear that Mr. Ungemuth worked using the names of a number of companies - another was Abbeyross Property Consultants - and the documents revealed plenty of scope for confusion. It seems to me that this was an understandable mistake as to the name of a party and, given Mr Ungemuth’s own assertion that the dealings were with Abbeyross (GB) Ltd, I consider that no injustice will be served by allowing this amendment.

For these reasons I have concluded, albeit not without hesitation, that, save for Mr. Anderson, the Defendants’ applications to strike out the Particulars of Claim fail. However, this is on the basis of Miss Day’s assurance that no allegation of dishonesty is being made in the Particulars of Claim against Mr Ungemuth.

Nevertheless, the Defendants invite me to impose strict conditions on the continued pursuit of the claim. The court has power to do this under CPR 3.1(3) which gives the court the power when making an order to make it subject to conditions. Miss Day did not dispute this or that the court had jurisdiction to order a payment into court as such a condition.

In my judgment of 22 May 2013 I expressed my concern at the complete absence of any explanation as to why the Claimant had not instructed solicitors until September 2012. It might have been thought that this would provoke a full and satisfactory explanation this time round. To entertain that thought would have been a mistake.

In the course of this application Mr. Cadman made four witness statements. The first was dated 27 June 2013. In that statement Mr. Cadman recited the facts set out in my judgment with some elaboration. In relation to the defects in the plans that were discovered in February 2007, Mr. Cadman simply said this:

“The Claimant alleges that in about February 2007 it became aware that the supporting posts/pillars in the underground car park shown on the original plans were not of the size indicated on the amended plans and would not support the building. Further revisions resulted in the loss of about 30% of the parking spaces, with the consequence that the development could not be built in accordance with the planning permission. As a result, the Claimant alleges that the value of the property with the existing planning permission was worth far less than the sum that it had paid.”

I note in passing that it is rather curious that Mr. Cadman is here referring to what is being alleged in the Particulars of Claim, as allegations, rather than confirming that those allegations are correct.

In relation to the comments made in my judgment, Mr. Cadman said this:

“51.

The principals at the Claimant are commercial people and are not litigious by nature. Before issuing the Claim Form, every effort was being made to ameliorate the damage done by the Defendants. In fact, a planning application was in development that is now before Northamptonshire County Council. The alternative development will restore decent value to the property at Enterprise Square if planning permission is granted. This involves a proposal to construct student accommodation instead of flats. It is a step in mitigation taken at great expense both in terms of management time and money spent.

52.

The Claimant initially sought permission to build 450 units. This went to a planning meeting in February 2012. Unfortunately, that application was rejected on the grounds of density. The proposal has now been scaled back to 300 units. I am told by the planning officers that permission would likely have been granted for the reduced proposal in 2012, had been made in those terms at that time. The court will appreciate that our obligation is to maximise any development return, so we had to make the application for the best realistically achievable planning permission. Obviously, this did not work out for the Claimant this time, but it does explain why the Claim Form was only issued shortly before limitation passed.

…

54.

The Claimant was progressing the alternative development for most of the time before it issued the Claim Form. A decision is not expected from the planning committee on the scaled-down proposal until at least September 2013.”

This account shows a remarkable propensity for disclosing as little information as possible. Nothing whatever was said by Mr. Cadman in this statement about the circumstances in which the Claimant came to discover that the plans were defective or what initial steps the Claimant took in the light of it. For example, who it was that looked at the plans and reached this conclusion? Or what the Claimant did in the years 2007 to 2011 - all Mr. Cadman mentioned was a planning application that was turned down in 2012, saying that bringing an alternative scheme forward had taken nearly six years.

Mr. Cadman then made a second witness statement dated 19 July 2013. Most of this was devoted to criticising the position taken by the Defendants on this application and justifying the allegations made in the Particulars of Claim. He described the expert report of Mr. Peter Smith as questionable and pointed out that the timing of its service had not given the Claimant and its advisers sufficient time to consider the report or to instruct a separate expert. But it is instructive to note that he still gave no information whatever as to how it was the Claimant came to learn that the plans were defective.

Mr. Cadman then dealt with an application for security for costs that was also being made by the Defendants. He said, at paragraph 45 of his second witness statement, that the Claimant had another property in the UK which had been recently valued at £400,000, which he believed to be an under valuation. This property was Manor Works, Church Street, Cogenhoe.

Mr. Cadman made a third witness statement on 8 November 2013. This dealt largely with the position of Mr. Ungemuth and his company, the Sixth Defendant, Abbeyross Limited. But it also contained some further observations about the application for security of the costs and the financial position of the Claimant, as reflected in its accounts for the four years ending 31 December 2012.

Finally, Mr. Cadman made a fourth witness statement on 13 November 2013. This dealt in part with queries raised by the Defendants’ solicitors about the transfer of Manor Works. It transpired that it had been sold to an associated company, Venulum Manor Works Ltd, on 3 September 2013. Mr. Cadman said that this had been done in the “ordinary and proper course of business”. He explained in some detail why this was.

For the purposes of this application, I am prepared to accept that Mr. Cadman’s explanation and justification for this sale are correct. However, in his second witness statement he had put this property forward as evidence that the Claimant was a company with resources in this country so it is of very great concern that he did not think it proper to mention that it had been disposed of when he made his third witness statement in November 2013. But for the industry of the Defendants’ solicitors, the court would have been left with the assumption that the Claimant still owned this property. This is wholly unacceptable.

The Claimant served a witness statement, dated 8 November 2013, by a Mr. York, who was a property development project manager employed by an associated company (Venulum Ltd) between November 2006 and March 2011. He is not an architect, engineer or quantity surveyor and so he is not a person who can give any expert evidence about the feasibility of the designs prepared by Space. Indeed, his expertise lay in the field of landscape gardening.

Mr. York said that he was asked to look at A3 copies of the plans in about January or February 2007. He said that he was concerned in particular about the inadequacy of the support for the building. He said that no supporting posts/pillars were shown in the underground car park, with the result that the installation of appropriate columns would take up space that should have been available for car parking. He says that he was concerned also about the extent to which the Claimant would have to dig down to accommodate the basement car park.

As a result of these concerns Mr. York said that he decided to approach an architect whom he knew, John Whittaker, in order to seek his comments on the plans. According to a note dated 29 July 2013, Mr. Whittaker raised various points of concern about the drawings. These included the following:

Mr. Whittaker’s note referred also to the terms of the section 106 Agreement, which required that the apartments should all comply with the Eco Homes “Very Good” environmental rating. He thought that this might be difficult to achieve.

I observe in passing that the date of this note, 29 July 2013, is hardly consistent with the Claimant’s case and Mr. York’s evidence that the defects in the plans were discovered in about February 2007. During the course of the second day of this hearing Miss Day felt compelled to disclose that in fact Mr. Cadman had been advised about the existence of the defects in the plans by a firm of engineers whose name he did not wish to divulge, although in fact Miss Day reluctantly gave it. The reason for this, the court was told, was that these engineers did not carry appropriate professional indemnity insurance and so had obtained an express undertaking from Mr. Cadman not to reveal their name and that they would not be involved in any litigation.

Assuming this to be correct, it provides no excuse whatever for the Claimant’s failure to reveal that this is what had happened. It would have been open to Mr. Cadman to explain at the outset, without revealing any names, that this was how he first became aware of the claimed defects in the plans. He did not do so.

It is remarkable also that, if this is how Mr. Cadman came to learn about the defects in the plans, he did not immediately arrange to instruct other engineers who did carry appropriate professional indemnity insurance to provide him with a formal report that could have been used in support of any claim and which, one might have thought, he would have needed in any event. If he did instruct other engineers, the court has not been told about it.

To describe this state of affairs as unsatisfactory is an understatement. Mr. Cadman has, in short, been thoroughly “economical with the truth”. Even with this additional disclosure by Miss Day, I am far from satisfied that the court has been given anything remotely approaching the whole truth.

This, coupled with Mr. Cadman’s failure to mention the disposal of the Cogenhoe property, demands in my judgment that the court should impose strict conditions on any order that it makes on this application.

I consider that if I am to allow this action to continue by refusing to strike it out I should only do so on condition that the Claimant is made to pay a substantial sum of money into court. The Defendants are facing a claim that has avoided being struck out by a very narrow margin and their position should in my view be protected in the event that the claim is either abandoned or fails.

I have examined the unapproved costs budgets submitted by the Defendants and I consider that the Claimant should be ordered to make a payment into court of an amount that reflects the Defendants’ likely costs up to but excluding preparation for trial and the trial itself, and excluding the costs of any possible alternative dispute resolution. In the case of the Developer Defendants, the relevant costs are said to be £317,041. In relation to the Fifth and Sixth Defendants, the figure is £220,233. Rounding those down by 15% to reflect the fact that they have not been approved produces an overall figure of about £450,000. This is the sum that the Claimant is to pay into court pursuant to CPR 3.1(3) within 28 days of this judgment being formally handed down (or such longer period as the court may order). To avoid any possibility for misunderstanding, the actual date for payment will be stated in the order to be drawn up following the handing down of the judgment. If that payment is not made in full by the required date, the action will be dismissed.

I will hear counsel on any questions of costs arising out of this judgment (the amounts allowed in the costs budgets for these applications have been excluded from the calculations referred to above) and any other matters in relation to the form of relief.