England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBENF 94/0716 CMS1

IN THE COURT OF APPEAL (CIVIL DIVISION )

(HIS HONOUR JUDGE ASTILL

(sitting as a High Court Judge ))

Royal Courts of Justice

Strand

London W2A 2LL

Wednesday, 18th February 1998

B e f o r e

LORD JUSTICE SIMON BROWN

LORD JUSTICE WARD

MR JUSTICE MOORE-BICK

MOUNT

Appellant

v.

BARKER AUSTIN (A FIRM)

Respondent

(Transcript of the Handed-Down Judgment of

Smith Bernal Reporting Limited, 180 Fleet Street

London EC4A 2HD

Tel: 0171 404 1424

Official Shorthand Writers to the Court)

THE APPELLANT/PLAINTIFF appeared in person.

MR SIMON RUSSEN (instructed by Messrs Reynolds Porter Chamberlain, London WC1V 7HA) appeared on behalf of the Respondent/Defendant.

J U D G M E N T

(As approved by the Court )

©Crown Copyright

MR JUSTICE MOORE-BICK: This is an appeal from the order of His Honour Judge Astill, as he then was, sitting as a High Court Judge, made on 17 February 1994 whereby he assessed the damages recoverable by the plaintiff, Mr. Jack Mount, from his former solicitors Barker Austin in the sum of £22,074.53.

This appeal is the final chapter in a story which stretches back to 1973, the year in which the appellant, Mr. Mount, and his business partner, Mr. Claussen, went into the wine trade together for which purpose they formed a company called C & M Wineshippers Ltd. In the intervening period Mr. Mount has been involved in no fewer than four actions arising directly or indirectly out of a guarantee which he and Mr. Claussen gave to Lloyds Bank to secure the liabilities of the company of which they and their wives were the directors. In the course of those proceedings he was, as will become apparent, badly let down on not one, but two, occasions by solicitors whom he had instructed to conduct proceedings on his behalf. It is scarcely surprising, therefore, that in these proceedings he has chosen to act on his own behalf. Mr. Mount has presented this appeal with charm and courtesy and one can only marvel at his tenacity over so many years in seeking to obtain the remedies to which he considers he is entitled.

As I have indicated, the background to this appeal begins in May 1973 when Mr. Mount and Mr. Claussen formed the company called C & M Wineshippers Ltd. Its business was to import stocks of wine from growers abroad which it sold to large scale retail outlets in this country. The company needed to borrow money to buy stock and therefore approached the Bank. As is common the Bank required its borrowing to be supported by a personal guarantee of the directors and accordingly on 31st August 1973 Mr. Mount and Mr. Claussen entered into a joint and several guarantee in the total sum of £50,000 in respect of C & M Wineshippers' liabilities to the Bank. All the negotiations between Mr. Mount and the Bank appear to have been conducted with a Mr. Godfrey, the manager of the local branch in Craven Arms, Shropshire.

In May 1974, unbeknown to Mr. Mount or to Mr. Godfrey, a branch of the Bank in Birmingham obtained a charge over a house owned by Mr. Claussen in Birmingham. We have not seen a copy of that charge, but the security it provided appears to have extended to Mr. Claussen's liability to the Bank under the guarantee. The guarantee was expressed to be a continuing security until receipt by the Bank of notice in writing to discontinue. On 1st March 1975 Mr. Claussen gave notice to the Bank to discontinue the guarantee as far as he was concerned. That did not automatically cause it to be discontinued as regards Mr. Mount, but on 5th March the Bank wrote to him notifying him of the step taken by Mr. Claussen and for one reason or another, whether at the instigation of the Bank or Mr. Mount is unclear, the guarantee was called in. The company ceased trading on 13th March 1975 with an amount outstanding to the Bank of £49,604.92 which included accrued interest in the sum of £1,909.92. On 14th March 1975 the company went into voluntary liquidation.

Between October 1975 and November 1979 Mr. Mount paid various sums to the Bank in respect of his liability under the guarantee. There is a dispute about exactly how much he paid, but on any view it was in the region of £40,000 which was well over half the total amount recoverable under the guarantee. Accordingly, in May 1978 Mr. Mount commenced proceedings against Mr. Claussen to recover a contribution from him. The Bank did not consider it worthwhile to proceed against Mr. Claussen, but in December 1980 it entered into a compromise with him under which he paid £5,000. Meanwhile, Mr. Mount's action was proceeding towards a trial. On 4th February 1981 he obtained judgment against Mr. Claussen for £17,488.24 together with interest which was later assessed at £10,334.37 making £27,822.61 in all. He also obtained a declaration that he was entitled to recover from Mr. Claussen half of any further sums he might be called upon to pay to the Bank.

At some time after this the Bank released the charge which it had been holding over Mr. Claussen's property in Birmingham. Quite when or in what circumstances that occurred is unclear and does not matter for present purposes. Having obtained his judgment Mr. Mount set about enforcing it. In due course he filed a bankruptcy petition against Mr. Claussen and it was in the course of those bankruptcy proceedings that he discovered both that the Bank had obtained security over Mr. Claussen's house and that it had released it. Mr. Mount took the view that in releasing that charge the Bank was in breach of duty to him and so on 17th September 1982 he began proceedings against it. He instructed the firm of Elborne Mitchell to act on his behalf.

The action did not make rapid progress. On 29th November 1992 the Bank served a defence and counterclaim seeking to recover the sum of £18,512.48 alleged to be outstanding mainly by way of interest, but a reply and defence to counterclaim was not served until 13th April 1984 and by 3rd March 1986 no summons for directions had been issued. The Bank therefore issued a summons seeking to have the action dismissed for want of prosecution and also seeking leave to enter judgment on the counterclaim. In the event, when the matter came before the master on 26th March 1986 he made an order that the action should be struck out and that the Bank should have leave to enter judgment unless a summons for directions had been issued on or before 9th April.

Having had such a narrow escape one would have thought that Mr. Mount's solicitors would have been careful to ensure that the Bank was not given any further opportunity to make an application of this kind, but regrettably that did not turn out to be so. When the summons for directions was before the master there had apparently been some debate as to whether the Bank was entitled to apply to have part of the statement of claim struck out. The summons was adjourned to enable the Bank to take advice and make a further application within 14 days if so advised. In the event the Bank did not make any such application, but nothing further was done by Mr. Mount's solicitors to advance the progress of the action. On 28th October 1986 Elborne Mitchell came off the record. For a period Mr. Mount was without solicitors until Barker Austin agreed to act on his behalf in February 1987, but they had some difficulty in obtaining the documents from Elborne Mitchell which added further to the delay. On 16 July 1987 the Bank made a second application to strike out the action for want of prosecution and for leave to enter judgment on the counterclaim. That came before the master on 12th November when he granted the order which the Bank sought, striking out Mr. Mount's claim and giving judgment for the Bank on the counterclaim in the sum of £33,721 and costs. Having regard to the history of the matter one can well understand why the master struck out the claim. It is less easy, however, to see on what grounds he gave judgment for the Bank. Even if he did not think it appropriate to strike out the counterclaim as well as the claim for want of prosecution, the striking out of the claim would not of itself provide grounds for striking out the defence to counterclaim. The suggestion has been made that the Bank's summons was treated as an application for summary judgment on the counterclaim, but neither Mr. Mount nor Mr. Russen, who appeared for the defendants before us, was able to confirm that. At all events, judgment was entered against Mr. Mount in the sum I have mentioned. Mr. Mount appealed against that order and as a result there were negotiations between him and the Bank which led to a compromise under which he abandoned the appeal and paid the Bank £17,000 in settlement of all his outstanding liabilities, including costs. He was able to settle, therefore, at something less than half the amount of the judgment.

Mr. Mount then turned his attention to Elborne Mitchell. On 4th July 1989 he began proceedings against them seeking damages for negligence in allowing the action against the Bank to be struck out. Pleadings were served on both sides, but thereafter nothing was done to set the action down. On 1st October 1992 Elborne Mitchell applied to dismiss the action for want of prosecution and on 11th November 1992 they obtained an order to that effect. Thus it was that for the second time Mr. Mount's attempt to recover in respect of the loss stemming from the Bank's release of its charge over Mr. Claussen's house were frustrated by the inaction of the solicitors acting on his behalf.

Mr. Mount was not deterred. On 29th January 1993, now acting on his own behalf, Mr. Mount commenced proceedings against Barker Austin for negligence. The solicitors served a defence, but notwithstanding that Mr. Mount obtained summary judgment and in due course the matter came before HHJ Astill for damages to be assessed. Having heard evidence and argument over a period of four days he held that Mr. Mount's original claim against the Bank was bound to fail. As a result he had suffered no loss as a result of being unable to pursue that action to trial. However, the judge did award him damages in the sum of £9,683.50 representing costs thrown away both in the action against the Bank and in the second action against Elborne Mitchell, together with interest in the sum of £12,391.03 making £22,074.53 in all.

Mr. Mount now appeals against the judge's decision that he is entitled to recover nothing in respect of his lost claim against the Bank.

Barker Austin served a Respondents' Notice challenging the order below insofar as it related to costs incurred in the earlier proceedings. However, it was not pursued before us so that part of the judge's decision will stand in any event.

Nature of the Action

When a person sues his former solicitors for negligence in the conduct of proceedings which has led to his action being struck out his loss is normally measured by reference to his prospects of success in the primary litigation: see Kitchen v R.A.F. Association [1958] 1 W.L.R. 563. However, in order to recover for the loss of that kind the court must be satisfied that the plaintiff had at least a "real" or "substantial" chance that he would have succeeded in the primary action, not merely a speculative one: see Allied Maples Group v Simmons & Simmons [1995] 1 WLR 1602 per Stuart-Smith L.J. at 1614. If his prospects of success fall short of that, the court will ascribe no value to them, but provided the court can see that there were real prospects of success it will evaluate them notwithstanding the difficulties that may involve. The need to evaluate the prospects of success in that way usually arises because of uncertainty as to the final shape of the evidence which would have been before the court trying the primary action. In some cases, however, the outcome of the primary action is not in doubt, for example, if it can be seen that the claim is bad in law and could never have succeeded. In such a case, of course, there never were any prospects of success at all.

The present case is unusual in that negligence on the part of the first solicitors acting for Mr. Mount in relation to his claim against the Bank was followed by negligence of a similar kind on the part of the second firm in relation to the claim against the first solicitors, with the same result. That is no doubt a deplorable matter, but what underlies Mr. Mount's claim, and what he is really seeking to recover in this action, albeit at two removes, is the loss which he says he suffered as a result of the Bank's releasing the security over Mr. Claussen's house which would have been available to him in respect of his claim for contribution. Strictly speaking, what Mr. Mount is entitled to recover from Barker Austin in these proceedings in respect of his claim against the Bank is an amount of damages measured by the loss of his prospects of recovering against Elborne Mitchell in respect of the loss of his prospects of recovering against the Bank. It may well be that the prospects of Mr. Mount's succeeding in establishing that Elborne Mitchell were negligent were very high, but even so, this element of his loss ultimately depends entirely on the strength of his original claim against the Bank.

The judge was right, therefore, to begin by considering the merits of Mr. Mount's claim against the Bank. He concluded that on the true construction of the guarantee the Bank was under no liability to Mr. Mount for having released the charge over Mr. Claussen's house and that his claim was therefore bound to fail.

Mr. Mount's notice of appeal contains several grounds to which I shall come in a moment. He has also served Supplementary Grounds of Appeal based on a quite separate matter which arose during the course of argument before Judge Astill, but that has not been pursued.

I come then to consider the various issues raised by the Notice of Appeal and in doing so I find it convenient to group them under a number of heads.

The effect of clause 7

Mr. Mount submitted that the judge was wrong to reject his argument that the Bank owed him a duty to retain any security which it held from his co-surety Mr. Claussen.

The material parts of clause 7 of the guarantee read as follows:

"7. The Bank shall be at liberty at all times whether before or after any demand hereunder for repayment or before or after it has received any notice of discontinuance hereof without prejudice to this guarantee and without discharging or in any way affecting our liability hereunder to:

(a) determine, vary or increase any credit or facilities to the Customer in any manner whatever;

. . . . . . . . . .

(c) deal with, exchange, renew, vary, release, modify or abstain from perfecting or enforcing any securities, guarantees, or rights which the Bank may now or hereafter have from or against the Customer or any other person;

. . . . . . . . . .

(j) release, compound with, discharge or modify the liability of any of us hereunder or make any other arrangement with any of us as the Bank may decide without affecting or prejudicing the liabilities of the other or others of us with whom no such release, composition, discharge or modification shall have been made;

(k) demand and enforce payment from any one or more of us irrespective of whether or not it shall take similar action against the remainder of us."

In order to construe the guarantee properly it is necessary to bear in mind the general principles of law against the background of which it was made. In the ordinary way a surety who has been called upon to pay under his guarantee is entitled, once the full amount of the principal debt has been paid, to the benefit of any securities which the creditor may hold for the payment of the debt in question. Moreover, in a case where there are two or more sureties in respect of the same debt any one of them who has paid more than his share is entitled in equity to recover a contribution from the others.

In the present case Mr. Mount and Mr. Claussen were jointly and severally liable under the guarantee. In equity each was liable to contribute half of the total amount which they might be called upon to pay. The Bank obtained security from Mr. Claussen for the performance of his obligations under the guarantee in the shape of a charge on his house. It follows that if Mr. Mount was called upon to pay under the guarantee, and having paid off the debt to the Bank became entitled to obtain a contribution from Mr. Claussen, he would be entitled to the benefit of the security held by the Bank for the performance of Mr. Claussen's obligations under the guarantee in order to enforce his right of contribution against Mr. Claussen.

Where there are two or more co-sureties the release of one of them by the creditor will to that extent prejudice the right of the others to obtain a contribution. Accordingly, it will normally have the effect of releasing the others from their obligations, either wholly or pro tanto depending on the particular nature of their contracts. Similarly, the release by the creditor of securities which the surety would be entitled to benefit from on payment of the debt prejudices the position of the surety and will likewise operate to discharge him.

It is open to the parties, however, to agree that this position should be modified and there is clearly an incentive for a bank which takes a guarantee from two or more people to include in the guarantee a term allowing it to deal with each of the sureties separately without prejudicing its rights against the others. In this case the judge held that the Bank had done that by the inclusion of clause 7. In my judgment that is correct. Clause 7(j) permits the Bank to release one surety or to make any other arrangements with him as it may see fit without prejudicing the liability of the other. On the face of it, therefore, the Bank was entitled to release Mr. Claussen without affecting Mr. Mount's liability and I think it was also entitled to release the charge on his house which it had taken as security for his liability. This makes good sense since the Bank would have no reason to retain a security once it had released the debtor himself. However, if there were any doubt about that, it is in my view sufficiently covered by clause 7(c) which gives the Bank the right to release any securities which it may have from the Customer or "any other person". Although it could be argued that these words refer only to persons other than the sureties (who are generally referred to in the guarantee as "us"), I do not think that such a restriction makes sense, particularly having regard to the presence of clause 7(j).

Mr. Mount says the judge was wrong in his view of the effect of clause 7(j). First, he says that it did not exclude a duty of care which the Bank owed him in dealing with the charge over Mr. Claussen's house. In support of that submission he relied on Standard Chartered Bank v Walker [1982] 1 W.L.R. 1410. That was a case in which a company had issued a debenture giving a charge over its assets. The directors had also given personal guarantees for the company's debts. A receiver put in by the bank sold the stock but it raised far less money that the directors thought it was worth. When sued by the bank the sureties raised the argument that the bank was in breach of a duty of care to them by reason of the receiver's having sold the stock (which represented part of the security for the loan) at an under value. This court held that the receiver (though not the bank unless it had interfered in the sale) did owe a duty of care to the sureties in realising the company's assets.

I do not think that this authority supports Mr. Mount's case. It is one thing to say that the creditor owes a duty of care to the surety under the general law in respect of the way in which he realises his security; it is quite another to say that under a contract of this kind the creditor owes the surety a duty of care when exercising rights which the contract specifically gives him, even though the contract is silent on the matter. Moreover, clause 7(j) permits the Bank to make any arrangements it thinks fit with one co-surety without affecting its rights against the other. I do not see how that can leave any room for the existence of a duty of care towards the other surety of the kind Mr. Mount relies on. One cannot simply impose a duty of care where that would be contrary to the intention of the parties, as I think it would be here: see the comments of Lord Templeman in China & South Sea Bank Ltd v Tan Soon Gin [1990] 1 AC 536, 543-544.

In this context Mr. Mount sought to argue that clause 7(j) should not be read in the manner which I have indicated because it contains an ambiguity which should be resolved in his favour by applying the contra proferentem rule of construction. He submitted that the words

"without affecting or prejudicing the liabilities of the other"

can be read as meaning

"provided it does not affect or prejudice the liabilities of the other"

so that the Bank's right to enter into arrangements with one of the two co-sureties is limited to those cases in which that will cause no prejudice to the other. For my part I think that the contract here is quite clear. It will rarely if ever be the case that arrangements with one surety of the kind contemplated by clause 7(j) will not affect or prejudice the position of the other. The clause is clearly intended to be read as if it referred to the liability of the other surety "hereunder". There is no ambiguity here which could properly call into play the contra proferentem principle of construction.

Next Mr. Mount submitted that the judge was wrong to reject his argument that the Bank had an equitable duty to pursue both guarantors. However, where a creditor has concurrent remedies against the debtor, a security and a surety it is matter for him which one he pursues, if indeed he pursues any at all: see China & South Sea Bank Ltd v Tan Soon Gin . In my judgment the position is no different if he has remedies against two sureties: again, he is entitled to choose whether to proceed against one or the other or both or neither. In the present case that is expressly provided for in clause 7(k).

If the Bank was entitled to rely on its rights under clause 7 of the guarantee, therefore, as in my opinion it was, I agree with the judge that Mr. Mount's claim was bound to fail. This was not one of those cases where the prospects of success were sufficient to warrant evaluation.

Mr. Mount's right to be subrogated to the Bank's security

Mr. Mount had an alternative way of putting his argument. He submitted that the Bank was under a duty to inform him of the security it had taken from Mr. Claussen and that once he accepted liability to pay the amount of the debt, or at any rate when he finally settled his liability to the Bank by paying the amount due under the compromise of its counterclaim, he became fully subrogated to the Bank's rights in any securities it had taken for the debt. Accordingly, the Bank came under a duty to make over to him any such security, and, by parity of reasoning, any security it had taken from his co-surety.

As to the first of these points, the judge held that the Bank was under no duty to inform him of the security it had obtained from Mr. Claussen and I think he was right about that. No authority was cited to us which suggests that the creditor is bound to give the surety notice of securities it obtains either from a co-surety or from third parties, but in any event clause 7(c) gives the Bank the widest powers to deal with securities. There is no express obligation to inform the other sureties of such dealings and in my view none can be implied. In these circumstances it would be odd if the Bank had to give notice to the other sureties when it originally obtained a security but not when it disposed of it, but in any event, I cannot see that a breach of any such obligation would advance Mr. Mount's case here.

In his Notice of Appeal Mr. Mount relies on clause 10 of the guarantee as obliging the Bank to retain securities after payment by the customer. However, his argument is based on a misunderstanding of the clause. Clause 10 gives the Bank the right to retain securities for 7 months after payment of all sums due under the guarantee, but I can see no basis for saying that it imposes any duty on it to do so.

There was a good deal of discussion about whether the whole of the amount due under the guarantee had been paid, and if so, when. That in turn raises the question whether the Bank had agreed not to charge interest as from the date the company ceased trading, or had waived its right to do so. That is a matter to which I shall have to return, but for present purposes I shall proceed on the assumption that it had done so and that the total amount due under the guarantee was no more than the sum of £49,604.92 which was outstanding at that date.

The question whether the full amount due under the guarantee had been paid in November 1979 when Mr. Mount made his last payment to the Bank was directed to the question whether he had become unconditionally entitled to the benefit of the security held by the Bank before it released Mr. Claussen's security. The evidence before the judge as to the payments made by Mr. Mount came from various sources which included the Bank, Mr. Mount and Mr. Mount's accountant, Mr. Baker. Apart from the evidence of Mr. Mount himself, it all pointed to the conclusion that after he had made his last payment on 6th November 1979 he had paid a total a total of £39,976.48. Mr. Mount said that he had previously made a further payment of £5,000, but no trace of that could be found in any of the documents and Mr. Baker was unaware of it. Moreover, in the proceedings against Mr. Claussen the judge, Mr. Harman Q.C., found that the total sum paid by both guarantors was £44,976.48, of which Mr. Claussen had paid £5,000. Judge Astill had the advantage of seeing Mr. Mount give evidence on this and other aspects of the case and he came to the conclusion that he had paid a total of only £39,976.48. On the material before the court I can see no grounds for thinking that Mr. Mount had any prospects of persuading the judge in his action against the Bank that he had paid a greater amount than that. If that is so, he had no prospects of persuading the judge that the whole of the principal sum due under the guarantee had been discharged.

The position in relation to Mr. Mount's payments was said to be relevant to his right to take the benefit of Mr. Claussen's security because of the terms of clause 11 of the guarantee, the material parts of which provide as follows:

"11. Until all money and liabilities due or incurred by the Customer to the Bank shall have been paid or discharged in full notwithstanding payment in whole or in part of the amount recoverable from us hereunder or any purported release or cancellation hereof no one of us will by virtue of any such payment or by any other means or on any other ground:

. . . . . . . . . .

(d) be entitled to claim or have the benefit of any security or guarantee now or hereafter held by the Bank for any money or liabilities due or incurred by the Customer to the Bank or to have any share therein."

The guarantee covers all amounts which may become due from the Company to the Bank, but is limited in amount to £50,000 plus interest. It expressly contemplates that the Company's borrowing may increase (see clause 7(a)). The effect of clause 11 is that even when the full amount recoverable under the guarantee has been paid, the sureties are not entitled to the benefit of any securities held by the Bank in respect of liabilities incurred by the Customer until the whole amount due from the Customer has been paid. The purpose of this clause is to prevent the sureties from competing with the Bank for the benefit of securities while any debt remains outstanding from the Customer. It would not, therefore, assist the surety to have paid off the full amount due under the guarantee if there remained any money outstanding from the Customer. However, clause 11 does not purport to deal with securities given for the liability of the sureties themselves in relation to which different considerations apply. The charge on Mr. Claussen's house was given to secure his liability under the guarantee. It was not security for monies incurred by the company, save indirectly, and does not in my view fall within the scope of clause 11. Once the full amount due under the guarantee had been paid the Bank could have no further interest in that security, but subject to clause 7 it could be required to make it available for the benefit of Mr. Mount as security for a claim over against Mr. Claussen for contribution.

For the reasons I have given I do not think that there was any basis for thinking that Mr. Mount had in fact paid all the money due under the guarantee so as to become entitled to the whole benefit of the security provided by Mr. Claussen, but even if he had, I do not think that he would be entitled to succeed against the Bank in this case. It all comes back to clause 7 of the guarantee. Either Mr. Mount was entitled to the benefit of Mr. Claussen's security, in which case the Bank was not entitled to release it without his consent at any time, whether before or after he had made payment under the guarantee; or the Bank was entitled to release it by virtue of clause 7, in which case it could do so at any time, there being no restriction in clause 7 on the time at which it could exercise any of the rights which it obtained under that clause. In substance this part of Mr. Mount's argument is simply a different way of putting the point which I have already dealt with, namely that the Bank was not entitled as against him to release the security on Mr. Claussen's house. For the reasons I have given I think that clause 7 did permit the Bank to release Mr. Claussen's security at any time it chose to do so without affecting the liability of Mr. Mount.

Before leaving this part of the case I should mention that Mr. Mount drew our attention to certain correspondence between the Bank's solicitors and the solicitors acting for Mr. Claussen in which the Bank's solicitors acknowledged that he had an interest in the charge on Mr. Claussen's house. However, I do not think that takes the matter any further. Either the Bank was entitled as between itself and Mr. Mount to release the charge or it was not. For the reasons I have given I think it was.

I think the judge was right, therefore, to hold that Mr. Mount's claim against the Bank was bound to fail as a matter of law and so had no prospects of success.

The Bank's Counterclaim

I come next to two lines of argument by which Mr. Mount sought to show that the Bank had lost its right to claim interest from him under the guarantee. He relied on these primarily in support of the proposition that, having met his obligation in full, he had become entitled to receive the security provided by Mr. Claussen. However, they are also relevant to the question whether he had any real prospects of succeeding in his defence to the Bank's counterclaim.

Waiver

The guarantee provides in clause 2(a) that the sureties will pay interest in addition to the principal sum. However, Mr. Mount argued that the Bank had waived its right to interest because it had led him to believe that it would not rely on its strict rights and that he had acted in reliance on that understanding so as to make it unfair for the Bank to go back on its word. He relied on a passage in the judgment of Lord Denning M.R. in W.J. Alan & Co. Ltd v El Nasr Export and Import Co. [1972] 2 QB 189, 213 where he said

"The principle of waiver is simply this: If one party, by his conduct, leads another to believe that the strict right arising under the contract will not be insisted upon, intending that the other should act on that belief, and he does so act on it, then the first party will not afterwards be allowed to insist on the strict legal rights when it would be inequitable for him to do so."

This is a summary of the principles of equitable estoppel which is the basis of what is often referred to in these circumstances as waiver and which has been considered by the courts on many occasions. In order to establish this kind of waiver three factors must be present: a clear statement by one party, whether by words or conduct, that he will not insist on exercising his legal rights; some action by the party to whom the statement is made in reliance on it; and circumstances which make it inequitable for the first party to rely on his rights.

It appears that at one point Mr. Mount was arguing that the second part of clause 9 itself contained or gave rise to some kind of waiver, but I confess that this is an argument which I find difficult to understand. Clause 9 reads as follows:

"9. The Bank may at all times place and keep to the credit of a separate or suspense account any moneys received under or by virtue of this guarantee for so long and in such manner as the Bank may determine without any obligation to apply the same or any part thereof in or towards the discharge of any money or liabilities due or incurred by the Customer to the Bank. Notwithstanding any such payment, in the event of any proceedings in or analogous to bankruptcy, liquidation, composition, or arrangement the Bank may prove for and agree to accept any dividend or composition in respect of the whole or any part of such money and liabilities in the same manner as if this guarantee had not been given."

This clause simply gives the bank the right to hold any money received under the guarantee in a suspense account rather than being obliged to credit it immediately against the debt owed by the Customer . Insofar as the surety had paid, interest would not continue to run against him under clause 2. The second part of the clause simply allows the Bank to prove in a liquidation or analogous procedure for the full amount of the claim even though it may have received money under the guarantee which it has placed in a suspense account. Even if that could be viewed as some kind of right to "waive" the effect of the guarantee under those circumstances, as Mr. Mount suggested, I do not see how it could assist him.

Apart from that, Mr. Mount also argued that the Bank had waived its right to interest by the way in which it dealt with its rights of set-off under clause 12. Clause 12 gives the Bank the right to set off any amounts due under the guarantee against money standing to the account of the surety in any account with the Bank. In this case the Bank did not exercise that right. Mr. Mount drew our attention to certain correspondence between himself and the Bank and in particular to a letter of 17th January 1980 in which the Bank confirmed that it would not arbitrarily (by which I think it meant without prior consultation) exercise rights of set-off against a new joint account which Mr. and Mrs. Mount were proposing to open. If, as seems to have been the case, Mr. Mount paid money into that account in reliance on the Bank's assurance that it would not exercise rights of set-off against it without prior warning, I can well see that the Bank may to that extent have waived its right to rely on clause 12. But Mr. Mount seeks to take the matter much further. He submitted, if I understood him correctly, that by giving up its right to collect interest by exercising rights of set off against the new account and by failing previously to exercise such rights against money in other accounts when it could have done so, the Bank waived its right to interest altogether. I cannot accept that. In order for an argument of this kind to succeed it would be necessary for Mr. Mount to show that the Bank had by its conduct clearly represented to him that it would not insist on his paying interest and that as a result he had conducted his affairs on that basis so as to render it inequitable for the Bank now to insist on its rights. However, the correspondence does not begin to bear out the proposition that the Bank did make any such representation, and apart from that there is no evidence that Mr. Mount acted in reliance on any such statement in a way which would make it unfair for the Bank to rely on the strict terms of the guarantee.

The agreement with Mr. Godfrey

Before the judge it was part of Mr. Mount's case that Mr. Godfrey had agreed that the Bank would not charge him interest under the guarantee. Having reviewed the evidence the judge rejected that part of his case in these terms:

"I accept that Mr. Godfrey would have no authority to come to such an arrangement with the plaintiff and it is beyond reasonable belief that the Bank would have come to such an agreement.

. . . . . . . . . . . .

I conclude therefore that there was no such agreement . . . . . ."

As I read this the judge was deciding on the evidence then before him that there had in fact been no such agreement and that even if there had been, Mr. Godfrey had no authority to bind the Bank. With great respect to the judge, I think he may at this point have lost sight of the question which he had to consider and which he had quite properly asked himself at the outset of his judgment, namely, whether Mr. Mount had had any real prospects of succeeding in defeating the Bank's counterclaim if the action had been tried at the appropriate time on the evidence which could then be expected to have been available. If there were any prospects of success Mr. Mount would be entitled to ask the court to evaluate them and to assess the amount of his loss. However, in the light of the evidence before the judge I am satisfied that in truth there was no real prospect of Mr. Mount's succeeding in defeating the Bank's claim.

The fundamental question would have been whether in fact there ever was an agreement between Mr. Mount and Mr. Godfrey that the Bank would not charge interest provided Mr. Mount kept up regular payments of capital, but before I come to that it is convenient to digress for a moment to deal with another of Mr. Mount's submissions, namely, that in an action of this kind it is for the negligent solicitor to prove that the plaintiff would not have succeeded fully in the action, rather than the plaintiff to establish the likelihood of success. In support of that proposition Mr. Mount relied on a passage in the judgment of Diplock L.J. in Allen v Sir Alfred MacAlpine & Sons Ltd [1968] 2 Q.B. 229 at page 256F-257B where he said:

"It is true that if the action for professional negligence were fought, the court which tried it would have to assess what those chances were. But on this issue the plaintiff would be in a much more advantageous position than if he had sought, despite the inordinate delay, to establish liability against the defendant in the action which had been dismissed. Not only would there be available to him any advice or material which had been given or obtained by his solicitor in support of his case in the dismissed action, but the principle of Armory v Delamirie (1722) 1 Stra. 505 would apply and would impose upon the solicitor the onus of satisfying the court that the plaintiff's claim in the dismissed action would not have succeeded had it been prosecuted with diligence. This would be a heavy onus to sustain after so a great a lapse of time."

Speaking for myself, I find it difficult to accept that the legal burden of proof in cases of this kind lies on the defendant, and with respect I wonder whether that is what Diplock L.J. really meant. Mr. Russen submitted that it would be contrary to principle and to the approach demonstrated in Kitchen v Royal Air Force Association which proceeds on the assumption that it is for the plaintiff to prove his loss. He also drew our attention to a passage in Jackson & Powell on Professional Negligence , 4th ed, para. 4-232 where the editors suggest that it should be regarded as a comment reflecting what as a matter of common sense is a significant evidential burden which naturally lies on the solicitors.

For my own part I think that that is the correct view, but I do not think that this is a case in which the burden of proof is of significance in the final outcome. Evidence of what passed between Mr. Mount and Mr. Godfrey could have been available from four principal sources: Mr. Mount and Mr. Godfrey themselves, Mrs. Mount, insofar as she accompanied her husband at meetings with Mr. Godfrey, and the contemporaneous documents. Mr. Mount's case, which would no doubt have been supported by his evidence, is helpfully summarised in the further and better particulars served in the action against the Bank. These indicate that there were meetings between Mr. Mount and Mr. Godfrey in April and July 1975 at which Mr. Godfrey said that the Bank would not charge interest if Mr. Mount made regular payments of capital, starting in the near future, but that Mr. Mount was not willing to make any payment until the Bank confirmed the agreement in writing. That of itself would suggest that the two of them never did reach the point of a concluded agreement. However, since Mr. Mount did in fact make his first payment to the Bank in October 1975, despite there being no written confirmation of the terms agreed, it might be said that evidence along these lines would be capable of leading to the conclusion that the terms offered by Mr. Godfrey were accepted at that stage. In fact, however, the documents tell a very different story. In the first place, although we have seen a fair amount of correspondence passing between Mr. Mount and the Bank during the years from 1975 and 1982, in none of the letters is there any hint of an agreement of the kind described by Mr. Mount. That is quite striking in itself, but it is all the more striking when one realises that on a number of occasions there are references in that correspondence to Mr. Mount's outstanding liability in terms which make it clear that the Bank was asserting a right to recover interest. In January 1976 when he wrote to the Bank to make proposals for settling his liability Mr. Mount made no reference to the agreement which he says he had made with Mr. Godfrey only a few months earlier. In a letter written in January 1980, that is, at a time after Mr. Mount says he thought he had paid off the whole of the principal sum, Mr. Godfrey said that he was looking forward to receiving his proposals for dealing with the balance of the guarantee liability, and in another letter written in February 1980 Mr. Godfrey said that the Bank was willing to consider some compromise to settle the remaining interest, but still reserved its rights in full. As the judge observed, if Mr. Mount was right, that must have represented a treacherous change of position by the Bank, but it did not elicit any letter of protest from Mr. Mount. This would be enough of itself to cast considerable doubt on the existence of any such agreement, but the matter does not end there because we have also been shown a letter written by Mr. Mount to Elborne Mitchell in September 1993 (which was also before the judge and formed the basis of this part of his evidence) in which he sets out his recollection of his various meetings with Mr. Godfrey. It is not necessary to describe its contents in any detail, but one thing which does appear clearly from that letter is that discussions over terms went on for many months and that Mr. Mount was aware that Mr. Godfrey was referring his proposals to his superiors in London for their decision. By the beginning of December the people in London had still not come to any decision and there was a suggestion that Mr. Mount should visit London himself. It does not appear that Mr. Mount did go to London, but in any event, the discussions continued into the spring of 1976 without reaching a satisfactory conclusion. This letter therefore further supports the conclusion that there was no agreement between Mr. Mount and Mr. Godfrey as described in the further and better particulars, and also that Mr. Mount was aware that Mr. Godfrey did not purport to have authority to bind the Bank himself without obtaining the approval of the London office.

Taking all this evidence together I find myself driven to the conclusion that Mr. Mount had no real prospect of establishing that the Bank had entered into a legally binding agreement with him to forego its right to interest and that he therefore had no realistic prospect of defeating the Bank's claim on this ground. In the event, however, although judgment was entered against him, Mr. Mount was able to reach a compromise with the Bank on terms which were much more favourable than he might reasonably have expected. Despite the failure on the part of his solicitors to conduct his case with the care he was entitled to expect of them, I am satisfied that in reality he suffered no loss as a result of judgment being entered against him on the Bank's counterclaim.

For these reasons I would dismiss this appeal.

LORD JUSTICE WARD: I have had the opportunity to read in draft the judgments of Moore-Bick J and Simon Brown LJ. Although it will no doubt baffle Mr Mount that two firms of solicitors could have failed to discharge their professional duties to him without that negligence sounding in damages, nevertheless that is the regrettable conclusion to which I am driven for the reasons given by my Lords and I, too, would dismiss his appeal.

LORD JUSTICE SIMON BROWN: I agree with all that Moore-Bick J has said but wish to add a few words of my own with regard to that most regrettable feature of this appeal's background, the fact that two firms of solicitors successively allowed the appellant's claims to be struck out for want of prosecution. Whether or not the case is on that account unique I do not know; certainly, however, it makes one even more resistant than usual to the respondents' plea that their negligence in fact cost the appellant nothing: that in the first action his claim against the bank and his defence to their counter-claim were in any event doomed to inevitable failure, as too therefore was his claim against Elborne Mitchell in the second action. One's resistance becomes stronger still on learning that neither firm of solicitors in fact advised the appellant as to the hopelessness of his position whilst respectively they were acting for him. What could be more unattractive than solicitors charging for their work in the conduct of litigation, failing to advise the client to settle at any price - indeed to discontinue if necessary - and then, having negligently lost him the opportunity of a hearing on the merits, asserting that he was bound to have lost anyway?

The appellant has, of course, recovered in full his costs and expenses incurred in both actions and, as a result of the settlement reached following the striking out of his action against Lloyds, he was relieved of his costs liability to them and of an appreciable part of his interest liability too. He lost, however, the opportunity to litigate his claim against the bank under the guarantee and his defence against any interest liability whatever.

What, then, are the principles by which such claims for loss of opportunity should be determined? My Lord has already cited a passage from Diplock LJ's judgment in Allen v Sir Alfred MacAlpine & Sons Ltd [1968] 2QB 229 at 256-257, and I do not repeat it. I do, however, cite the following two sentences:

"The probabilities are that in any case in which the plaintiff had been advised to bring the action which had been dismissed and had never been advised to discontinue it, his subsequent action against his solicitor for negligence would be settled. One would hope that, for the good name of the profession, it would be settled promptly."

Like my Lord, I do not think that Diplock LJ in that case (a case concerning striking out proceedings for want of prosecution rather than loss of opportunity claims as such) was really suggesting that the legal burden of proof in a loss of opportunity case lies on the defendants. Such a view would in any event have been obiter and, as I think, clearly contrary to binding authority in Kitchen v Royal Air Force Association [1958] 1 WLR 563. More important, however, to my mind is this: the legal burden in these circumstances is of altogether less significance than the evidential burden and what Diplock LJ was recognising is that the evidential burden lies on negligent solicitors, in particular where they have acted for a claimant in litigation and not advised him of the hopelessness of his cause. There is this point too emerging from Allen v MacAlpine : generally speaking - indeed almost without exception - cases are not struck out for want of prosecution unless the culpable delay has prejudiced the possibility of a fair trial.

With these considerations in mind I would state the applicable principles as follows:-

1. The legal burden lies on the plaintiff to prove that in losing the opportunity to pursue his claim (or defence to counter-claim) he has lost something of value i.e. that his claim (or defence) had a real and substantial rather than merely a negligible prospect of success. (I say ´negligible' rather than ´speculative' - the word used in a somewhat different context in Allied Maples Group Limited v Simmons & Simmons [1995] 1 WLR 1602 - lest ´speculative' may be thought to include considerations of uncertainty of outcome, considerations which in my judgment ought not to weigh against the plaintiff in the present context, that of struck-out litigation.)

2. The evidential burden lies on the defendants to show that despite their having acted for the plaintiff in the litigation and charged for their services, that litigation was of no value to their client, so that he lost nothing by their negligence in causing it to be struck out. Plainly the burden is heavier in a case where the solicitors have failed to advise their client of the hopelessness of his position and heavier still where, as here, two firms of solicitors successively have failed to do so. If, of course, the solicitors have advised their client with regard to the merits of his claim (or defence) such advice is likely to be highly relevant.

3. If and insofar as the court may now have greater difficulty in discerning the strength of the plaintiff's original claim (or defence) than it would have had at the time of the original action, such difficulty should not count against him, but rather against his negligent solicitors. It is quite likely that the delay will have caused such difficulty and quite possible, indeed, that that is why the original action was struck out in the first place. That, however, is not inevitable: it will not be the case in particular (a) where the original claim (or defence) turned on questions of law or the interpretation of documents, or (b) where the only possible prejudice from the delay can have been to the other side's case.

4. If and when the court decides that the plaintiff's chances in the original action were more than merely negligible it will then have to evaluate them. That requires the court to make a realistic assessment of what would have been the plaintiff's prospects of success had the original litigation been fought out. Generally speaking one would expect the court to tend towards a generous assessment given that it was the defendants' negligence which lost the plaintiff the opportunity of succeeding in full or fuller measure. To my mind it is rather at this stage than the earlier stage that the principle established in Armory v Delamirie (1722) 1 Stra. 505 comes into play.

With some regret, however, I conclude that the application of these principles cannot avail the appellant here. He would inevitably have lost his claim against Lloyds Bank: that is plain as a matter of law on the unambiguous wording of the guarantee. Similarly, he would have failed to defeat the Bank's counter-claim for interest: the contemporary documents were wholly inconsistent with his case that Mr Godfrey, the local bank manager, had committed the Bank to waive all interest due to it under the guarantee. The passage of time has in no way increased the appellant's difficulties in this regard; if anything, Mr Godfrey's death in January 1985 had removed one obstacle from his path. The plain fact is that the documents and surrounding circumstances were insuperable. Surprising and highly unsatisfactory though it is, I must conclude that both firms of solicitors were negligent not merely in allowing the appellant's successive claims to be struck out but also in not having properly advised him as to their worthlessness. Heavy though it was, the respondents here discharged the evidential burden upon them.

I too, therefore, would dismiss this appeal.

ORDER: Appeal dismissed; appellant to pay costs of the appeal on respondents undertaking not to seek to enforce those beyond the extent of the money paid into court following successful application for security for costs, together with accrued interest.