England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBENF 97/0063/l

IN THE COURT OF APPEAL (CIVIL DIVISION )

(MR JUSTICE CRESSWELL )

Royal Courts of Justice

Strand

London W2A 2LL

Wednesday 6th May l998

B e f o r e

LORD JUSTICE STUART-SMITH

LORD JUSTICE HOBHOUSE

LORD JUSTICE BUXTON

HILL AND ANOTHER Appellants

v.

MULLIS & PEAKE Respondents

(Handed down transcript of

Smith Bernal Reporting Limited, l80 Fleet Street

London EC4A 2HD Tel: 0l7l 42l 4040

Official Shorthand Writers to the Court)

MR TIMOTHY CHARLTON QC and MR MICHAEL PATCHETT-JOYCE (instructed by Messrs Wedlake Bell, London WC2E 9HF) appeared on behalf of the Appellants (Plaintiffs).

MR RICHARD SEYMOUR QC (instructed by Messrs Mills & Reeve, Norwich) appeared on behalf of the Respondents (Defendants).

J U D G M E N T

(As approved by the court)

©Crown Copyright

LORD JUSTICE STUART-SMITH:

l. This is an appeal from a judgment of Cresswell J., given on 6 December l996, by which he dismissed the plaintiffs' claims for damages for professional negligence against both defendants. The claim arose out of the sale of the plaintiffs' shares in their hotel business Hill Enterprises Ltd (HEL) and the sale of their adjacent property, Tewkesbury House. The professional advisers were the first defendants, Mullis and Peake (M&P), a firm of solicitors practising in Romford, and the second defendants BDO Binder Hamlyn, the well-known firm of accountants.

2. Mr Cedric Mullis, the senior partner of M&P was an old friend of the plaintiffs and had acted as their solicitor in personal and business matters for many years. He acted as their legal adviser in relation to the transaction, the subject of the action. Mr Derek Farquharson, a partner in the second defendants, had also acted as accountant for the plaintiffs for many years, advising them and looking after their personal and business affairs. The plaintiffs originally appealed the judgment in favour of both defendants; but by a consent order, dated 26 June l997, the second defendants are no longer involved in the appeal.

3. The plaintiffs were the owners of all the issued share capital of HEL, which in July l986 had purchased a hotel that became known as the Manor at Newlands at Guildford, the plaintiffs having been involved in a similar business previously in Gloucestershire. By the middle of l988 the Hills were hoping to retire and realise the value of their business as efficiently as possible. A potential purchaser, Mr Hancock, was found. This was not the result of any advertisement for sale of the business, but from a direct approach from an agent for Mr Hancock. The plaintiffs were anxious to avoid knowledge of the possible sale reaching the staff because of the unsettling effect this was likely to have upon them. The deal was negotiated by Mr Hill and Mr Hancock. Mr Mullis was engaged to deal with the legal aspects of the negotiations and Mr Farquharson with the tax and accounting matters.

4. The negotiations were protracted and complex with frequent changes. But they culminated in a share sale agreement dated 2l October l988 and in a sale of Tewkesbury House on the same day. The shares and the house were bought by a £l00 company set up by Mr Hancock and called HLM Developments Ltd (HLM); the consideration for the sale of the shares consisted of:

l. £l72,737 payable and paid in cash.

2. £950,000 to be paid pursuant to a loan note given by HLM to the plaintiffs, under which interest at l0% p.a. was to be paid quarterly and the principal sum was due on l November l993.

3. A provision for adjustment of the consideration up or down from the total of £l,l22,737 (the total of l &2), to reflect the amount of shareholders' funds established by completion of accounts.

5. In addition the plaintiffs received the sum of £l60,000 by way of dividend paid out of the accumulated profits of HEL just before completion and £l35,000 in cash for Tewkesbury House, which was also sold to HLM.

6. The financing of the purchase by Mr Hancock was achieved by two loans. The first for £l,050,000 from National Westminster Bank plc (the Bank); the second for £950,000 by the loan from the plaintiffs. The loan from the Bank was secured by a first charge on the Manor and Tewkesbury House. The security for the plaintiffs' loan was a matter of great concern to their professional advisers.

7. In the result there were a number of transactions, some of which the plaintiffs were party to and others to which they were not, but to which HLM, the Hancocks and the Bank were parties.

8. Those to which the plaintiffs were party consisted of the following:

l. The share sale agreement of 2l.l0.88 (already referred to in para 4). This included at clause 2(iii)e as undertaking to procure the acquisition by HLM of properties with an equity value of £400,000 by the 29 February l989 and to charge those properties in favour of the plaintiffs as security for the loan. In return the plaintiffs would release the charges on the shares and personal guarantees referred to before in sub-paragraphs 4, 5 and 6.

2. The loan note evidencing the loan of £950,000 (referred to in para 4(l)); this was dated 24 October l988 and not 2l October.

3. A second charge on the Manor and Tewkesbury House given to the plaintiffs by HLM to secure performance of the loan note obligation. This was also dated 24 October.

4. A charge on the share capital of HLM given by the owners of the shares, including Mr & Mrs Hancock, this was also dated 24 October.

5. A charge on the share capital of HEL, dated 24 October.

6. Personal guarantees given by Mr & Mrs Hancock for payment of the £950,000 loan; these were dated 24 October.

7. A contract of the sale of Tewkesbury House by the plaintiffs to HLM dated 2l October l988.

The charges on the shares were likely to be of little value as security unless the hotel business continued to prosper as the plaintiffs thought it would. The essential security for the loan was therefore the second mortgage on the property, ranking after the Bank's charge, and the personal guarantees of the Hancocks.

9. The transactions to which the plaintiffs were not party were as follows:

l. Transfer by HEL to HLM on 2l October l988 of the hotel at a value of £l.65 million, to be satisfied by a 'composition of cash' of approximately £650,000. In the event this turned out to be £694,304, the amount of HEL’s indebtedness to Lloyds Bank, the balance was to be paid by inter-company transfers over the ensuing twelve months.

2. A first charge on the Manor and Tewkesbury House, dated 2l October l988, given by HLM to the Bank to secure the loan of £l,050,000 plus interest.

3. A statutory declaration in the prescribed form, dated 2l October l988, by Messrs Hancock, Logan and McLean (the new directors of HEL) as to the assistance given by HEL in the purchase of its shares and the viability of the company for the next twelve months. Annexed to this was the auditors report as required by s. l56(4) of the Companies Act l985.

l0. The transaction proved to be disastrous to the plaintiffs. The purchaser defaulted on interest payments to the Bank and the plaintiffs. They failed to introduce unencumbered properties into HLM or to charge them to the plaintiffs. By l99l it was apparent that the purchaser's finances were in a parlous state. In March l992 HLM was placed in administrative receivership. The assets of HLM proved insufficient to cover the Bank's first charge. The Hancocks' guarantees proved worthless.

ll. There were four allegations of negligence and breach of contract made against the defendants:

l. That the defendants ought to have advised the plaintiffs that the proposed arrangements were unlawful under the Companies Act l985 s.l5l but failed to do so. Had they been so advised, it was said, the plaintiffs would not have entered into the transaction. This allegation was made by amendment for the first time on ll November l994, over two years after the issue of proceedings.

2. Against M & P only, that Mr Mullis negligently advised on l9 October l988 that his previously expressed doubts as to the commercial wisdom of the transaction had been overcome.

3. That the defendants ought to have advised the plaintiffs that in the absence of a Deed of Priority in their favour, the first charge to the Bank in respect of the principal and interest would rank in priority to the charge in their favour and that accordingly the proposed share sale agreement exposed the plaintiffs to very considerable risk that the net realisation might well be very substantially less than the £l million sought by them and was commercially unwise.

4. That after completion the defendants failed to advise the plaintiffs properly or at all as to what steps ought to be taken consequent upon HLM’s failure to introduce unencumbered properties by 28 February l989 or at all.

l2. The judge rejected all these allegations. Although the appeal relates only to the first, it is necessary to say something briefly in relation to the judge's direction in law, his assessment of the principal witnesses and his reasons for rejecting the other allegations. At pages 7-9 of his judgment he gave an impeccable direction as to the standard of care to be expected of a professional adviser. No criticism is made of that statement of law. As to the witnesses, he said that 'Mr Hills' evidence did not provide an accurate picture of his approach and state of mind in October l988'. He acquitted him of deliberately trying to mislead the court, but held that his endless reconstruction of events had 'led him to pursue a case against his professional advisers which does not accord with the reality at the time'. Mrs Hill impressed the judge as a truthful witness but her evidence had little bearing on the crucial issues.

l3. The judge found Mr Mullis to be an impressive witness; he preferred his evidence to that of Mr Hill where there was a conflict. Likewise he found that Mr Farquharson was a precise and impressive witness who had adopted a highly professional approach to the work he did for the plaintiffs. The judge preferred his evidence where it conflicted with that of Mr Hill.

l4. Expert accountancy evidence was called on behalf of all three parties. Mr Corson gave evidence for the plaintiffs. He had much experience with the international hotel and leisure industry but apart from this had far less relevant experience than Mr Sidwell, a partner of Robson Rhodes called on behalf of the second defendants and Mr Moss, a partner of Coopers and Lybrand, called on behalf of M & P. In particular Mr Corson had no experience of transactions involving section l5l of the Companies Act l985. I shall have to revert later in this judgment to the significance of the expert accountancy evidence.

l5. The judge said that the allegation that Mr Mullis had said on l9 October l988 that his previously expressed reservations had been overcome failed on the facts. His previous reservations had been expressed orally and in two letters dated 26 September and 7 October. On l9 October Mr Mullis told Mr Hill that if and to the extent that the additional properties with an equity value of £400,000 were introduced this would improve the plaintiffs' security position. But otherwise he made it clear that he did not alter his repeated reservations about the risks of the transaction. In l989 Mr Hill recognised that the problems which Mr Mullis had predicted had come to pass.

l6. The judge found that Mr Mullis had from an early stage explained that the plaintiffs' charge over the property would rank behind the Bank's charge both as to principal and interest. Mr Hill was well aware of this, which in any event would be obvious to a man of Mr Hill's business experience.

l7. As to the alleged negligence in relation to enforcing the agreement to introduce unencumbered properties or the loan agreement, the judge held that the plaintiffs were well aware of the situation; they never gave instructions to enforce the agreement about introducing further properties; they were inclined to give Mr Hancock and HLM more time to comply and were disinclined to take legal proceedings against the Hancocks, who they trusted.

l8. Section l5l (l) of the Act provides as follows:

"Subject to the following provisions of this Chapter, where a person is acquiring or is proposing to acquire shares in a company, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of that acquisition before or at the same time as the acquisition takes place."

The expression 'financial assistance' is defined in section l52(l) of the Act and it is common ground that the transfer by HEL to HLM of the hotel amounted in the circumstances, to the provision of financial assistance. This was recognised by everyone throughout. There is a somewhat similar provision in s.l5l(2) relating to financial assistance given by a company in retaining or discharging liabilities incurred by a person acquiring its shares. But it is common ground that in this case we are concerned with sub-section (l).

l9. S.l5l(l) and (2) are subject to s.l55(l) and(2) which provide as follows:

"(l) Section l5l does not prohibit a private company from giving financial assistance in a case where the acquisition of shares in question is or was an acquisition of shares in the company or, if it is a subsidiary of another private company, in that other company if the following provisions of this section and sections l56 to l58, are complied with as respects the giving of that assistance.

(2) The financial assistance may only be given if the company has net assets which are not thereby reduced or, to the extent that they are reduced, if the assistance is provided out of distributable profits."

20. 'Net assets' are defined as the 'amount by which the aggregate of the company's assets exceeds the aggregate of its liabilities (taking the amount of both assets and liabilities to be as stated in the company's accounting records immediately before the financial assistance is given) (section l54(2)).

By paragraphs 22 and 23 of Schedule 4 of the Act it is provided:

"22. Subject to paragraph 23, the amount to be included in respect of any current asset shall be its purchase price or production cost.

23. (l) If the net realisable value of any current asset is lower than its purchase price or production cost the amount to be included in respect of that asset shall be the net realisable value."

2l. The director of the company proposing to give the financial assistance must, before the financial assistance is given make a statutory declaration in the prescribed form complying with the requirements of the Act (s.l55(6)). This was the statutory declaration made by Messrs Hancock, Logan and McLean referred to in para 9(3).

22. The critical question was whether the saving in s.l55(2) applied. There had been some difference of opinion about the matter. An earlier proposed lender to Mr Hancock, namely the Portsmouth Building Society, had withdrawn from the transaction on the grounds that it did not comply with s.l5l(l). That was known to Mr Mullis. On ll October he instructed Mr Edward Davidson of counsel to advise on the transaction. His letter of instruction did not specifically mention the section; but Mr Davidson raised the matter in conference on l2 October. He and Mr Peter Curry QC were asked to advise. In a written opinion they advised that the transaction contravened s.l5l(l). A copy of this opinion was sent to the plaintiffs, reaching them on l8 October.

23. On the other hand Mr Farquharson, and evidently the Bank, its legal advisers and the new auditors of HEL clearly thought that it was legal, because the net assets were not diminished. This had been Mr Farquharson's view throughout. It is to be inferred. as the judge did that the Bank's legal advisers must have thought there was no contravention of s.l5l of the Act, since if there was, the transaction would have been void ( Heald v O'Connor [l97l] l WLR 497) and their mortgage unenforceable ( Carney v Herbert [l985] AC 30l). The new accountants were prepared to and did advise the Bank specifically that the new arrangement was permitted under s.l55(2) of the Act.

Did the transaction comply with s. l55(2) of the Act ?

24. The dispute between the parties turned on the valuation of HEL’s net assets before and after the transaction. The plaintiffs case at trial was as follows:

(i) Before the transaction HEL had a hotel valued in its books at £973,264 and net assets of £ll6,70l.

(ii) After the transaction it no longer had the hotel. That had been sold for £l.65 million. It had received cash to discharge its liability to Lloyds Bank in the sum of £694,304 and a debt from HLM of £955,696.

(iii) Although on the face of it its net assets had increased to £793,437 (an increase of £676,736) the debt from HLM etc was in fact valueless, since HLM would not be able to sustain the heavy interest payments to the Bank and the plaintiffs on the borrowing and accordingly provision should have been made for the debt in full.

25. The defendant's case was that although HEL’s assets were different before and after the transaction, the debt from HLM was properly taken at par, there was no need for a provision against this. Because HEL made a profit on the sale, its assets were increased by £67l,056. The profit on this transaction could have been regarded as unrealisable at £67l,056 without the net assets of the company being reduced at all. A further cushion was provided by the £72,70l of distributable profits. Thus the question was whether it was likely that the outstanding amount payable in respect of the hotel would be unrealised to a greater extent than £743,757 (ie. £67l,056 plus £72,70l). There would have to be a provision of over 77.82% against the possibility that the £955,695 left outstanding would not be paid before the transaction was unlawful. In other words for the financial assistance to be lawful the realisable debt from HLM must be worth at least £2ll,939 (ie. £955,696 less £743,757).

26. The judge said that the question whether the saving in s.l55(2) applied was essentially a question for accountants. In as much as the question as to what was the 'net realisable value' of the debt from HLM to HEL is concerned, I have no doubt that he was correct. The judge preferred the evidence of Mr Moss and Mr Sidwell to that of Mr Corson and he gave cogent reasons for doing so. In the result he accepted the defendants' analysis of the situation and held that the transaction did comply with s.l55(2).

27. Mr Charlton QC. who appeared in this court for the plaintiffs, but did not appear at the trial, criticises the judge's conclusion on two grounds. First he submits that it was obvious that HLM could not meet its obligations in the next twelve months. These consisted of interest on the bank loan at 9% on £l,050,000 = £94,500: £95,000 interest to the Hills and the repayment of the £955,696 to HEL. Mr Charlton derives the obligation to repay HEL within twelve months from the fact that the statutory declaration signed by the new directors of HEL describe the balance of the purchase money (other than the amount paid in cash to discharge the Lloyds Bank overdraft) as payable over 'the ensuing twelve months by inter-company transfers'.

28. This point was not fully developed until Mr Charlton's oral submissions to this court. It seems to me at best an attempt to counter Mr Moss's evidence that provided the hotel was generating sufficient funds to service the external borrowings the debt could have remained in place indefinitely. He said that it is common to find such debts between companies within the same group of companies which remain in place, often interest free until such time as all or part of the group is sold on. S. l55(2) is concerned with the valuation of the assets at the time of the transaction. What had to be valued was the net realisable value of the debt; time of payment was not equated to this. In my judgment the terms of the statutory declaration have no bearing on the value of the asset. The judge was entitled to accept the evidence of the defendant's accountants and neither he nor the accountants made any error of law.

29. Secondly Mr Charlton criticised the evidence of Mr Moss and Mr Sidwell that it was normal accounting practice to value inter-company debts at par. This is a reference to the judge's recital of the evidence at page 29. Mr Charlton submitted that the accountants were in error to approach the matter on a rule of thumb basis. It is quite clear however that they did no such thing. Both witnesses gave reasons why, based on the fact that the business was a going concern, expected to make profits and in a buoyant market, it was reasonable not to make any provision for the debt and certainly not to value it at less than £2ll,939.

30. In my opinion the learned judge was perfectly entitled to hold on the basis of the accountancy evidence which he preferred, that the transaction satisfied s.l55(2) of the Act and was right to do so. This being so, whatever advice Mr Mullis gave, the plaintiffs fail to establish that it was wrong advice and the appeal must fail. However out of deference to the argument that has been advanced to us, I consider the advice that was given.

3l. On l8 October l988 there was a long meeting at Mr Farquharson's office attended by the plaintiffs and Mr Mullis. By the end of the meeting the matter of the legality had not been resolved. But Mr Mullis arranged to speak to Mr Davidson the next day on the telephone. There were two such telephone calls on l9 October. Mr Davidson was not called to give evidence and Mr Mullis, not surprisingly, could not recall in detail the conversations although he had an attendance note.

32. The judge's finding in connection with the advice given by counsel was as follows (at page 42):

"I find on the balance of probabilities that the dating of the transactions illustrated on Table l (2l and 24 October) [see paras 8&9] was as a result of junior counsel's advice. Although the notes provide some support for the first defendant's contentions I consider it likely that in modifying his previously expressed views junior counsel had regard to Mr Farquharson's opinion as to section l55(2). I find that counsel was probably told of Mr Hancock's offer to charge further properties (subsequently reflected in clause 2(iii)(e) of the Share Sale Agreement). I find that counsel advised that this would serve to increase the Hill's security. It would not have affected the analysis as to section l5l."

And later on at page 43 he said:

"I find that Mr Mullis accurately reported to Mr Hill junior counsel's advice on l9 October and, relying on that advice, Mr Hill decided to proceed. It is important to point out that the defendants did not warrant a perfect result. Legal advice is seldom a matter of black and white. Lawyers habitually express opinions as to legal risks by reference to carefully considered phraseology. I cannot at this remove be confident of exactly how counsel phrased his advice but I am confident that however his advice was put, it was accurately reported by Mr Mullis."

33. Mr Charlton criticises these findings. He submits that the judge was in error in relation to the three elements of Mr Davidson's advice that he found to have been given. Two of these, he submits, namely the post-dating of certain transactions and the introduction of subsequent security under clause 2(iii)(e) could not affect the legality of the transaction, though the latter would increase the Hill's security. Mr Charlton submitted that there was no warrant for the third reason, namely that Mr Davidson had modified his views having regard to Mr Farquharson's opinion.

34. The evidence as to what transpired between Mr Mullis and Mr Davidson, and Mr Mullis and Mr Hill, on l9 October and the day or two following is not entirely satisfactory. In his statement Mr Hill said that the effect of the advice given to him was that counsel felt that the introduction of the further securities would make the difference on the question of legality (paragraph 66). But the judge had serious reservations about Mr Hill’s evidence and he specifically rejected his evidence that Mr Mullis had on l9 October retracted his reservations as to the commercial wisdom of the transaction.

35. In his statement Mr Mullis said that he had very little recollection of the conversations with Mr Davidson and he does not deal with the advice he gave Mr Hill following the telephone conversation with Mr Davidson. Moreover he appears to have been confused as to the notes that he took. He did not think at that stage that he had made a note in relation to his conversations with counsel on the telephone on l9 October. He appears to have thought that the one he did produce related to the conference on l2 October; and it is right to say that Mr Mullis certainly interpreted the advice he received on that occasion from Mr Davidson as being unfavourable.

36. Mr Mullis’s oral evidence-in-chief was very limited, his statement being put in. He was asked about this matter and he said at 3F:

"Q. Can you recall what counsel said about it?

A. Counsel's view was that if a sufficient property was introduced to HLM it would of course value that company, give it greater assets, and might cure the section l5l point that he was concerned about.

Q. You told his Lordship that following your conversation with counsel, in your conversation with Mr Hill that you recall, you reported on your conversation with counsel?

A. I did.

Q. Can you assist his Lordship as to the terms of your report to Mr Hill?"

A. I passed on counsel's view.

Q. Can you help his Lordship about what terms you passed on?

A. Clearly eight years later I don't recall the words I used, but I was passing on counsel's view that if sufficient property was introduced it might well overcome the difficulty because, having passed on counsel's view .....

Q. Do you recall how Mr Hill reacted to that information?

A. He was pleased to learn it.

Q. Did he give you any instructions as a result of what you said?

A. Effectively the transaction has never stalled, despite my reservations earlier on, until he came to this hurdle and then he had to overcome this hurdle, but he wanted to do so if he could."

37. Mr Charlton submits that Mr Mullis was muddled, he confused counsel's views on the commercial improvement with what he says must have been his continued opposition to the legality of the transaction. I would have expected this matter to have been explored in cross-examination, if that was to be the submission. We are told that it was; but we have no record of the cross-examination. This is unfortunate since the judge said he was more impressed by Mr Mullis's oral evidence than his witness statement. It must have been the cross-examination and any re-examination that impressed the judge, since there was virtually no examination-in-chief.

38. It must be borne in mind that this allegation was not made until six years after these conversations took place. In these circumstances it is hardly surprising that Mr Mullis had no clear recollection of them. On the other hand if the only reason given by Mr Mullis as to what counsel's advice was related to the introduction of further security, I would have expected some complaint to have been made by the plaintiffs at an earlier stage than it was, since this reason obviously could not affect the legality but only the commercial aspect, of the transaction. In these circumstances it seems to me that the judge was justified in drawing inferences based on the balance of probability as to what must have happened. I can see no reason to impugn his finding that Mr Mullis accurately reported counsel's further advice to Mr Hill, whatever it was. Mr Mullis had grave reservations as to the commercial wisdom of the transaction throughout which was only to some extent ameliorated by the provision for the introduction of further securities. If counsel really had not modified his view on the legality, then it would have been the easiest and most effective way of pulling the plug on the whole deal, to have told Mr Hill that this was still counsel's view.

39. Equally in my opinion the judge's finding in the second passage I have cited in paragraph 32 is justified. Mr Hill knew counsel's view as expressed in the joint opinion. He also knew that others, notably Mr Farquharson, the Bank's legal and accounting advisers and presumably also Baldocks, the purchaser's solicitors, took a different view. It is quite likely that Mr Davidson had expressed some modification of his view as to the legality of the transaction and if this was accurately conveyed to Mr Hill, the latter was capable of weighing the conflicting advice and reaching his own conclusion.

40. We have been told by Mr Seymour QC for M & P that Mr Mullis was extensively cross-examined and that it was evident that his recollection of events improved as he was taken through the detail of the documents. It was this oral evidence that impressed the judge rather than his witness statement. The judge had a difficult task. He did not regard Mr Hill's evidence as reliable; Mr Mullis's recollection not surprisingly was less than perfect after so long. I think the judge was entitled to draw inferences based on the probabilities. I am not persuaded that we should interfere with his findings, especially when we do not have available to us important parts of the oral evidence. And I do not think we would be justified in concluding that Mr Mullis was confused and muddled as to the advice he received from counsel and passed on to Mr Hill.

4l. In the light of my conclusions on the first two issues it is unnecessary to deal at any length with the question of reliance. It was the plaintiffs' case, that if Mr Mullis had told them that the transaction was illegal as contrary to s. l5l(l) of the Act, they would not have entered into the transaction. The judge made no finding on this point. In the light of his conclusions on the other issues, there was no need for him to do so. I can only say that I am by no means convinced that the plaintiffs could surmount this hurdle. The judge said that Mr Hill's evidence did not provide an accurate picture of his approach or state of mind in October l988 and his reconstruction of events did not accord with reality. No doubt it would have depended to some extent on the terms in which Mr Mullis had advised. If he had said what the judge concluded he had said, effectively accurately reporting Mr Davidson's view, and leaving it to Mr Hill to make up his mind as to the risk of the transaction being illegal, I am by no means persuaded that Mr Hill would not have gone ahead. Even if contrary to my view, the transaction was illegal, Mr Mullis would not have been negligent in giving advice in this form.

42. In these circumstances I do not find it necessary to deal with the further argument of law as to whether, even if other matters had been established, the loss was recoverable. The judge, basing himself on Lord Hoffmann's speech in Banque Bruxelles SA v Eagle Star [l997] AC l9l at 2l3 & 2l4, held that it was not.

I would dismiss the appeal.

LORD JUSTICE HOBHOUSE: I agree.

LORD JUSTICE BUXTON: I also agree.

Order: Appeal dismissed; order nisi against

legal aid fund with Mr Hill's contribution

assessed at £400 and Mrs Hill's at nil;

legal aid taxation of appellants' costs.