Syedur Rahman of Rahman Ravelli examines this month’s judgment in the case of Nitron Group BV v Nitron Group BV & Ors , which centred on the tort of deceit and negligence 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 and negligent misstatement by Nitron Group BV (the claimant) against Mr Vladimir Vasilyev 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 of whether a wrong arises out of a false statement of fact that has been made knowingly or recklessly, with the intention that it should be acted upon by another (who suffers damage as a result). This judgment explores circumstances wherein it can be established.
Background to the Case
In this case, Vasilyev owned two companies, Sarsso Ltd and Barington Alliance LLP (together referred to as the defendants). Following a number of successfully-completed contracts between the claimant and Barington Alliance LLP (Barington), five further, larger-value contracts were agreed between the parties. According to the claimant, these latter contracts were made on the back of the following five representations made by Vasilyev:
- That the goods that would be used to fulfil the contracts were already paid for and acquired by the defendants.
- That the goods in question were sitting in the warehouse of the defendants’ supplier (Sarsso Ltd) and were ready to be shipped as soon as the contracts were signed.
- That, accordingly, Mr Vasilyev believed that there was no risk of Barington failing to deliver the proposed cargos to Nitron.
- Vasilyev was a man of considerable wealth, owning various assets.
- Vasilyev intended Barington to perform its obligations under the contracts.
Nitron then made a contract with a company called Granosa AG to sell goods of the same type and quality, with delivery to take place in August / September 2017. The required pre-payments were made by Nitron to Barington. Five incomplete shipments of goods under the contracts then took place. Complaints were subsequently made by Nitron and Granosa about the time Barington was taking to effect complete delivery of the goods as per the five contracts.
Arbitration proceedings commenced and Nitron was awarded EUR 1,298,928 euros plus interest and costs. The claimant, Nitron, also had to enter into a settlement agreement with Granosa in respect of non-delivery of goods under the terms of their separate contract, as a result of Barington’s partial delivery.
At trial, the issues were:
- Whether the representations relied upon by the claimant were knowingly made by Mr Vasilyev in negligence or deceit
- Whether the defendants were, therefore, liable for the damages for the loss the claimant suffered as a result of the defendants’ breaches of contracts.
In order to bring a claim in deceit, it is necessary for the claimant to show that the defendant has made a representation which is false and dishonestly made - and intended to be – that it is relied on and the claimant suffers damage as a result.
The judge was satisfied that representations 1 and 2 were made by the defendant(s). No findings were made against representations 3, 4 and 5.
It was found that Representations 1 and 2 were untrue at the date they were made. Barington had not acquired the proposed cargos and they were not sitting in a warehouse where they were ready to be shipped immediately.
The judge was satisfied that the defendant knew the representations made were untrue and that making them was not something which could conceivably have been the subject of a mistake. It would have been known that the proposed cargoes which were the subject of the contracts had not been acquired and were not available to be shipped immediately. It would have been known, therefore, that Mr Vasilyev was overstating Barington's readiness to immediately ship the cargoes for which it sought and obtained payment in advance.
It was accepted that Nitron would not have entered into the contracts requiring it to make pre-payments (and would not have made them) but for the representations 1 and 2.
The claimant sought damages due to the losses it incurred as the 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 in negligence against him failed: Vasilyev did not voluntarily assume a personal duty of care to Nitron when negotiating the terms of the contracts on Barington's behalf (see William v Natural Life Health Food Stores Ltd  1 WLR 830).
The claims in deceit and negligence against Sarsso both failed: It was found that there were never any direct dealings between Nitron and Sarsso and that Vasilyev was not acting for Sarsso (as well as for Barington) while making the representations; despite Vasilyev owning Sarsso.
Accordingly, Nitron was awarded damages of 1,236,503.18 euros and £22,932.76, together with interest to be assessed.
This case highlights the difficulties of bringing a claim for deceit and negligent misstatement - particularly in relation to the importance of the role of the person making the representations in the negotiations and their relationship with the company itself. In deciding liability in deceit, the court will go into great detail to assess the agency of the individual making the representations and the precise communications between all parties to evaluate each parties’ knowledge and understanding at each point in the case.
Another point to be gleaned from this case is the importance of a proper defence. The defendants chose not to participate in any stage of the proceedings. But regardless, the judge found that the issue of service was satisfied on the facts and was satisfied that the defendants were properly before the court at trial. It was pointed out by the judge that, had the defendants chosen to participate in the trial, there may well have been ample scope for cross-examination on the issue of what representations were made by reference to the parties' communications after the contracts were signed or as to the position taken by Nitron in the arbitration.
This article was also featured on Lexology.com.
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