England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(His Honour Judge Bradbury)

		Royal Courts of Justice Strand London WC2 Friday, 30th November 2001

1. LORD JUSTICE RIX: This is an application for permission to appeal made by Excelsior Commercial & Industrial Holdings Limited ("Excelsior") from the judgment of His Honour Judge Bradbury given on 18th July 2001. Excelsior had brought its claim against, amongst other defendants, the fifth defendant, Betesh & Company, the firm of solicitors which it had used for the purposes of a purchase of shares in a company whose primary asset was a fire damaged mill. The company in question had been doing badly and the only way in which it could be valued for a purchase of its shares was on a net asset value.
2. The principal of Excelsior was a Mr Smith. There was a rival bidder in the wings, a consortium led by a Mr Blackwood. Both these potential purchasers were clear that the only way forward was on a net asset value. For these purposes the critical figure (against which liabilities, when fully ascertained, would have to be set) was what was to be bid for the mill in its damaged condition together with the insurance claim which that fire damage had given rise to in support of its value. Both Mr Smith and Mr Blackwood were willing to bid £1.4m, but it was Mr Smith's bid which carried the day.
3. Ultimately, after an 11-day trial, the learned judge came to the following conclusions so far as Betesh, the solicitors, were concerned. He found that they had been negligent in failing to ascertain that the mill was not fully insured for reinstatement purposes while advising Mr Smith that it was. However, the judge went on to hold that Excelsior had nevertheless suffered no damage. He therefore awarded only nominal damages against Betesh. His reasoning on that latter point (which is the point on which permission to appeal is sought) was that, even if Mr Smith had known the true situation with respect to the insurance of the mill, he would not have sought to renegotiate the purchase but would have proceeded nevertheless. The learned judge went on to give an additional reason, which was that, even against the assumption that he would have withdrawn from the purchase with that information, there had been no loss because at the end of the day, some 18 months or so later, he did negotiate a settlement with the insurers. The relevant figure for these purposes is £1.325m. This was an adequate and acceptable settlement, which gave to Excelsior all that it had wanted and indicated that the value of the company shares was the £1.4m paid and nothing less.
4. In his helpful submissions Mr Nicholas Davidson QC has emphasised the following factors. He has emphasised that it is plain on the documentary evidence that Mr Smith was concerned about and insistent upon checking out the insurance situation. He has referred to a number of documents which support that, amongst them a letter from the solicitors to the loss adjusters of 26th May 1992, in which the solicitors accept that they had investigated the insurance to ensure that it was valid and that the property was fully insured for its reinstatement value. I do not pause to recite all the relevant evidence, but I bear it in mind. In those circumstances Mr Davidson submits that, against that background of Mr Smith's interest and the liability in negligence which the judgment finds, the natural inference is that Mr Smith would have been importantly influenced by finding out that the mill was significantly underinsured for reinstatement purposes. The relevant figures were, I think, that full reinstatement value would require some £13m, whereas the insurance provided only for something under £9m. He submits, therefore, that the information regarding the true position of the reinstatement insurance would inherently have been likely to influence Mr Smith either to renegotiate the £1.4m price or to walk away from the deal.
5. As regards the value of the shares sold on the basis of the true insurance position as distinct from the price paid, Mr Davidson submits that the judge was wrong to find that there was no loss in a comparison of those values because what the judge did was to look down to the end of the day, after a satisfactory insurance settlement of £1.325m was obtained. The judge thought that that enabled Mr Smith to do what he wanted to do with the property. Mr Davidson submits that the correct position is to ask the question, not after a worrying 18 months period of difficulty and negotiation with the insurers, but on the day after the purchase had been completed if the truth about the insurance had then emerged: what value Excelsior would have received in the market for those shares if it had sought to sell them with the insurance position disclosed.
6. The case is essentially one of fact and the correct inferences to draw from the factual findings made by the judge. It is only at the critical point when the judge is considering the question of damages that Mr Nicholson brings his criticisms to bear. He seeks to mitigate the general difficulty which a factual based appeal finds on review in the Court of Appeal by submitting that at the relevant part of his judgment the judge was really concerned, not with primary facts, but with inferences from the primary facts. On the primary facts, Mr Davidson has no essential complaint, as far as I understand his submission. He recognises that, even in the context of an appeal against inferences of fact, he faces what he describes as an uphill struggle on appeal. But that, he submits, is not the point: the point is whether there is no realistic prospect of success. That is the test upon such an application.
7. The only case put before me in this respect - and it is a helpful one - is Pride Valley Foods Ltd v Hall & Partners [2001] EWCA Civ 1001; [2001] 76 Con LR 1, where the relevant considerations can be found set out in the judgment of Dyson LJ at paras 26 and 41-44. In that case Dyson LJ emphasised, by citation from Lord Hoffmann's speech in Piglowska v Piglowski [1999] 3 All ER 632 at 643-644, the difficulty and need for appellate caution in reversing a trial judge's evaluation of the facts, even where inference is concerned, at any rate against the background of what is in effect a witness trial where questions of credibility are concerned. In a later passage of his judgment Dyson LJ emphasises that, were it not for one striking feature of the judgment below and the facts of that case, the Court of Appeal there would not, in an analogous case, have allowed the appeal. The striking fact there was that the judge had simply failed to deal with the point that there appeared to be no reason why the insured in that case would have failed to spend a relatively small sum of money on additional fire protection if he had been given the information which the negligent defendant had failed to provide him with.
8. In this case there is no similar striking fact. On the contrary, in the relevant part of his judgment the judge appears to have considered in a perfectly adequate manner all the relevant facts and the submissions and counter-submissions which counsel had, on their respective sides, brought to bear upon those facts. In the end, he had to consider whether Mr Smith would have walked away or continued with the bargain, or would perhaps have attempted to renegotiate it, if he had known the real position. It is clear on the judge's own judgment that the insurance position was of importance to Mr Smith. But was it a great priority, and was it essential to the deal that the mill was fully insured for reinstatement purposes? The judge did not think so.
9. The judge had to evaluate Mr Smith's own evidence against the background of all his findings in the case. In certain respects the judge did not find Mr Smith to be a reliable witness and he had to make certain criticisms of his evidence - in one respect, a serious criticism. At an earlier stage, long before the matter got to trial, Mr Smith had instructed his own counsel that if he had known the true position he would have sought to renegotiate. In his evidence to the judge Mr Smith was absolutely adamant in his cross-examination that he would not have sought to renegotiate: he would simply have walked away. The judge did not believe him. In my judgment, he was entitled to come to that conclusion. Indeed, it might be said that, against the background of that evidence, in considering whether he would have renegotiated the judge was reasoning in a manner that was very favourable to Mr Smith.
10. The judge considered that Mr Smith would at any rate have asked himself the question whether he should attempt to renegotiate (and I can understand why he says that), but he concludes that he would have rejected the possibility. The judge says that that would have been to reopen the door to a rival and enthusiastic bidder (and it seems to me that that is a perfectly good answer), in addition to the fact that on his own evidence, as I have mentioned, Mr Smith said that he would not have sought to renegotiate. As for whether he would have continued or walked away, the judge thought that he would have continued. He did not consider that in the end full insurance for reinstatement costs would have been a great priority. He had a valuation from his own lenders of £1.8m. His own assessment, as also emerges from his lenders' report, for reinsurance recovery was £1.2m. In the end, he did better than that: he obtained payment of £1.325m. There was also evidence from Mr Blackwood that he himself would have viewed a recovery of £1.325m on the insurance as being perfectly satisfactory and as justifying payment of £1.4m.
11. In those circumstances it seems to me that the judge was perfectly entitled to come to the conclusion he did: that if Mr Smith had known the true position he would have continued with the deal. It seems to me that, not only would Excelsior have an uphill struggle to persuade the Court of Appeal otherwise (Mr Davidson accepts that, as I have mentioned) but that, against the rich factual background of this 11-day trial, which the judge had to evaluate, there is no real prospect that Excelsior would succeed on appeal on this question. There is no glaring error or omission, as in the Pride Valley Foods case, by means of which the reasoning of the judge can be undermined.
12. In those circumstances it does not matter what the answer to the separate question would be as to whether there would be any loss at all at the end of the day. If that had been a live point, I can see that there might well be a short point of law rather than of fact as to whether the judge was right to say that the £1.325m obtained at the end of the day was, as I understand the logic of his judgment, to be taken as good evidence of what the value of the mill plus insurance was at the time of purchase. In other circumstances, therefore, it might have been that I would be amenable to a short question of law on such a subject matter. That is not this case, however. As I have already indicated, one does not reach that separate question in the light of the findings of the judge and my own view as to the essential question of whether the deal would have been jettisoned or persevered with. That question is not a short question of law, but ultimately a question of evaluation of the whole factual background of the case, which only a judge who has heard the witnesses give evidence is really in a position to determine. I would be repeating myself if I returned to that question.
13. For the reasons which I have given, I am not satisfied that the test which is needed for permission to appeal, namely a real prospect of success on appeal or some other compelling reason to grant appeal, has been satisfied in this case. I must therefore dismiss this application.
Order: application for permission to appeal dismissed.