Syedur Rahman ofRahman Ravelli examines this month’s judgment in the case of Nitron Group BV vNitron Group BV & Ors , which centred on the tort of deceit andnegligence in contract negotiations.
On 19 May 2020, judgment was handed down in the case of Nitron Group BV v Nitron Group BV & Ors EWHC 1244 (Comm) after a trial for claims for damages for deceit andnegligent misstatement by Nitron Group BV (the claimant) against Mr VladimirVasilyev and Sarsso Ltd.
The case explored the law in relation to a director’s role,considering the tort of deceit and negligence in the negotiation of contracts.It is difficult to bring a claim in deceit. This is due largely to the issue ofwhether a wrong arises out of a false statement of fact that has been madeknowingly or recklessly, with the intention that it should be acted upon byanother (who suffers damage as a result). This judgment explores circumstances whereinit can be established.
Background to the Case
In this case, Vasilyev owned two companies, Sarsso Ltd andBarington Alliance LLP (together referred to as the defendants). Following anumber of successfully-completed contracts between the claimant and BaringtonAlliance LLP (Barington), five further, larger-value contracts were agreedbetween the parties. According to the claimant, these latter contracts weremade on the back of the following five representations made by Vasilyev:
· 1 – That the goods that would be used to fulfilthe contracts were already paid for and acquired by the defendants.
· 2 – That the goods in question were sitting inthe warehouse of the defendants’ supplier (Sarsso Ltd) and were ready to beshipped as soon as the contracts were signed.
· 3 – That, accordingly, Mr Vasilyev believed thatthere was no risk of Barington failing to deliver the proposed cargos toNitron.
· 4 – Vasilyev was a man of considerable wealth,owning various assets.
· 5 – Vasilyev intended Barington to perform itsobligations under the contracts.
Nitron then made a contract with a company called Granosa AGto sell goods of the same type and quality, with delivery to take place inAugust / September 2017. The required pre-payments were made by Nitron toBarington. Five incomplete shipments of goods under the contracts then tookplace. Complaints were subsequently made by Nitron and Granosa about the timeBarington was taking to effect complete delivery of the goods as per the fivecontracts.
Arbitration proceedings commenced and Nitron was awarded EUR1,298,928 euros plus interest and costs. The claimant, Nitron, also had toenter into a settlement agreement with Granosa in respect of non-delivery ofgoods under the terms of their separate contract, as a result of Barington’spartial delivery.
At trial, the issues were:
· Whether the representations relied upon by the claimantwere knowingly made by Mr Vasilyev in negligence or deceit
· Whether the defendants were, therefore, liablefor the damages for the loss the claimant suffered as a result of thedefendants’ breaches of contracts.
In order to bring a claim in deceit, it is necessary for theclaimant to show that the defendant has made a representation which is falseand dishonestly made – and intended to be – that it is relied on and the claimantsuffers damage as a result.
The judge was satisfied that representations 1 and 2 weremade by the defendant(s). No findings were made against representations 3, 4and 5.
It was found that Representations 1 and 2 were untrue at thedate they were made. Barington had not acquired the proposed cargos and theywere not sitting in a warehouse where they were ready to be shipped immediately.
The judge was satisfied that the defendant knew therepresentations made were untrue and that making them was not something whichcould conceivably have been the subject of a mistake. It would have been knownthat the proposed cargoes which were the subject of the contracts had not beenacquired and were not available to be shipped immediately. It would have beenknown, therefore, that Mr Vasilyev was overstating Barington’s readiness to immediatelyship the cargoes for which it sought and obtained payment in advance.
It was accepted that Nitron would not have entered into thecontracts requiring it to make pre-payments (and would not have made them) butfor the representations 1 and 2.
The claimant sought damages due to the losses it incurred asthe direct result of steps taken in reliance on the representations made by Vasilyev,such as pre-payments, liability to Granosa, arbitration and legal costs.
The claim in deceit against Vasilyev succeeded. The claim innegligence against him failed: Vasilyev did not voluntarily assume a personalduty of care to Nitron when negotiating the terms of the contracts on Barington’sbehalf (see William v Natural Life Health Food Stores Ltd  1 WLR 830).
The claims in deceit and negligence against Sarsso bothfailed: It was found that there were never any direct dealings between Nitronand Sarsso and that Vasilyev was not acting for Sarsso (as well as forBarington) while making the representations; despite Vasilyev owning Sarsso.
Accordingly, Nitron was awarded damages of 1,236,503.18 eurosand £22,932.76, together with interest to be assessed.
This case highlights the difficulties of bringing a claimfor deceit and negligent misstatement – particularly in relation to theimportance of the role of the person making the representations in thenegotiations and their relationship with the company itself. In decidingliability in deceit, the court will go into great detail to assess the agencyof the individual making the representations and the precise communicationsbetween all parties to evaluate each parties’ knowledge and understanding ateach point in the case.
Another point to be gleaned from this case is the importanceof a proper defence. The defendants chose not to participate in any stage ofthe proceedings. But regardless, the judge found that the issue of service wassatisfied on the facts and was satisfied that the defendants were properlybefore the court at trial. It was pointed out by the judge that, had the defendantschosen to participate in the trial, there may well have been ample scope forcross-examination on the issue of what representations were made by referenceto the parties’ communications after the contracts were signed or as to theposition taken by Nitron in the arbitration.