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Cite as: [2002] EWCA Civ 1077

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		Neutral Citation Number: [2002] EWCA Civ 1077
		Case No: A3/2002/0196

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (DEPUTY JUDGE
MICHAEL BRIGGS QC)

Royal Courts of Justice
Strand,
London, WC2A 2LL

25 July 2002

B e f o r e :

LORD JUSTICE AULD
LORD JUSTICE ROBERT WALKER
and
LADY JUSTICE ARDEN
____________________

Between:

	YOUNGER	Appellant
	- and -
	SANER	Respondent

____________________

(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

Mr Michael Green (instructed by Harris Cartwright) for the appellant
Mr Edward Bannister QC and Mr Nigel Gerald (instructed by Collyer-Bristow) for the respondent
____________________

HTML VERSION OF JUDGMENT
AS APPROVED BY THE COURT
____________________

Lord Justice Robert Walker:

Introductory

This is an appeal from an order of Mr Michael Briggs QC made on 17 December 2001 when he was sitting as a deputy judge of the Chancery Division. The deputy judge’s order dismissed an action by Miss Rachel Younger against Mr John Saner, a solicitor, for breach of his duty as administrator of the estate of the appellant’s father, Mr Lawrence Younger (“the deceased”). The deputy judge granted permission to appeal against part of his judgment but refused permission for an appeal on other grounds. The application for permission to appeal is renewed in respect of those other grounds.

In relation to the permitted grounds of appeal, an introductory paragraph in the appellant’s notice suggests that the deputy judge found in her favour on liability, mitigation and section 61 of the Trustee Act 1925, and that she lost only on the issue of causation. That is true in a limited sense, because the deputy judge did find one breach of duty established, that is Mr Saner’s failure to take steps to prevent a company which had been owned and controlled by the deceased from being struck off the register, and his failure to take control of the company sooner. But other alleged breaches of duty by Mr Saner were not established to the deputy judge’s satisfaction. The appellant has criticised that part of the deputy judge’s judgment as having gone into issues of causation before he had dealt properly with liability.

The deceased died intestate on 27 August 1996. He had been divorced in 1974. He was survived by three adult children, the appellant and her two brothers, Shane and Earl. Shane played an active and (as will appear) largely disruptive part in the administration of his father’s estate. Earl took much less interest in the administration but was on the whole inclined to support his brother against his sister. The appellant, Shane and Earl were entitled to the deceased’s estate in equal shares, although that was finally established only after the failure of Shane’s very unattractive attempt to raise doubts as to his sister’s legitimacy. Mr Saner found that he had taken on an administration which raised difficult problems, both on the business side and because of the antipathy between the beneficiaries. He had had some warning of what was to come, but he can hardly have foreseen just how difficult his task would be.

During the last decade of his life the deceased was occupied in the management of the Albert Hotel, 191 Queen’s Gate SW7. It appears (although as the deputy judge said, the evidence was not entirely clear) that a company called NPH Managements Ltd (“NPH”), of which the deceased was a director and the controlling shareholder, had a 20-year lease (from 29 September 1986) granted by the Commissioners for the Exhibition of 1851. But by 1992 NPH (and, it seems, the deceased himself) were in serious financial difficulties, and in June and July 1992 they entered into a series of transactions in order that he could continue to be concerned in running the business while no longer owning the lease (either directly or through a controlled company).

The 1992 reorganisation

The deputy judge described these as “a series of interlocking agreements, some of a rather artificial nature”. At first blush some of them seem not merely artificial but bizarre. However, they begin to make sense by reference to the character of the hotel business, the terms of the lease and the seriousness of the deceased’s financial embarrassment. The Albert Hotel seems to have been more of a hostel than a traditional Kensington hotel. Its residents were mainly students (largely from overseas) and, during vacations, backpackers and other young tourists. A tutorial company called Lansdowne Tutors Ltd (“Lansdowne”), owned and run by three brothers named Templeton, provided the most important source (averaging about 40 per cent) of the revenue.

Under the reorganisation made in June and July 1992 the lease was assigned to Lansdowne. The associated arrangements seem to have been intended to enable the deceased to continue to run the hotel business through one company, Ideal New Ltd (“INL”), without any breach of any covenant to which the landlord could object, and in such a way as to give the deceased through another company, Open Assist Ltd (“OAL”), a half-share in any profit on the eventual disposal of the lease and the hotel business. This was described as a “finder’s fee”, an expression which was at best incongruous and may have been a deliberate piece of camouflage. The whole arrangement reflects the rather paradoxical fact that (despite the deceased’s financial difficulties) the hotel (or hostel) business was potentially very profitable, with a high proportion of the turnover representing profit.

The “interlocking agreements” were in evidence only in the form of draft documents, at least one of which was incomplete. This added to Mr Saner’s difficulties in assessing the strength of the estate’s case against Lansdowne. But on the assumption that documents in the form of the drafts were completed, there were (apart from the assignment of the lease) four documents which contained the arrangements: a trading agreement (dated 17 July 1992) between Lansdowne and INL; a trust deed (evidenced by an approved draft dated 15 July 1992) by which Lansdowne declared trusts of its 99 per cent holding in INL; a loan agreement (again, evidenced by an approved draft) between Lansdowne and INL; and the so-called finder’s fee agreement (“the FFA”) (again, evidenced by an approved but apparently incomplete draft) dealing with entitlement to a share of profit on an eventual sale.

The trading agreement conferred on INL the right to occupy the hotel and run the business for three years, subject to earlier termination in various events, including INL’s failure to provide proper service or its failure to perform its obligations under the loan agreement. INL was to pay Lansdowne rent at the rate of £72,500 a year, and was to bear all outgoings. Later on a question arose as to whether the trading agreement created a tenancy protected by Part II of the Landlord and Tenant Act 1954. That issue was considered in proceedings which reached this court; but the deputy judge himself did not find it necessary to express a definite view about it.

As already indicated, Lansdowne was the registered holder of 99 of INL’s 100 issued shares. But the deceased was its only director, and by the trust deed Lansdowne declared itself trustee of the INL shares for the benefit of the other new company, OAL. OAL was in effect a corporate identity of the deceased, who owned its two issued shares and was its sole director. But the trust was qualified by various obligations undertaken by OAL, which in effect guaranteed the performance by INL of its obligations under the trading agreement. Clauses 3 and 4 of the trust deed were in the following terms:

“3 This Deed of Trust shall terminate upon the sale by [Lansdowne] of the Lease whereupon the shares shall vest absolutely in the beneficiary [OAL] subject only to the beneficiary having performed its obligations under this Deed hereinbefore referred to.

4 If for any reason the beneficiary fails to perform any of its obligations hereunder this trust shall forthwith upon any breach thereof by the beneficiary terminate and the beneficial interest in the said share[s] shall rest (sic) absolutely in [Lansdowne].”

In the course of the hearing below the deputy judge raised the question whether clause 4 of the trust deed might attract the equitable doctrine of relief from forfeiture or from a penalty, but the point was not taken up by either side. The deputy judge therefore treated the trust deed as taking effect according to its tenor.

By the loan agreement Lansdowne lent to INL the sum of £50,000 repayable by quarterly instalments of £6,250 over a period of two years from September 1993, and carrying interest at the rate of 11 per cent a year in the meantime. The deceased joined in the agreement to guarantee INL’s obligations. It seems very probable that INL did not promptly perform its obligations under the loan agreement and the trading agreement. (Some figures prepared by Shane in mid-1997, and sent to Lansdowne, indicated that the principal had been repaid but without interest which amounted to over £6000; according to these figures there was also a much larger sum due under the trading agreement.) There may possibly have been some indulgence shown by Lansdowne at a period when the deceased was very ill. That is one of several points in the case which are obscure, despite the numerous affidavits and witness statements which have been made in the different rounds of litigation which have occurred.

The last and potentially the most important of the interlocking agreements was the FFA. Its terms are set out in full in the deputy judge’s judgment. The parties to it were Lansdowne, OAL and INL. The basic obligation was for Lansdowne to pay OAL (defined as “the Finder”) a sum equal to half the profit on the sale of the lease as determined according to a formula in clause 5. Lansdowne preserved any right of set-off, and the fee might be reduced if INL had failed to perform its obligations in respect of dilapidations (clauses 6 and 7). As regards the timing of the sale, there was to be no sale for three years, except with mutual consent or if the management agreement were terminated (in which case Lansdowne could force a sale). After three years either side could require a sale, subject to an option for the other side to purchase at market value (clause 3(i)(d)). Clause 8 provided that OAL’s right to a fee should cease in various events, including INL’s failure to perform its obligations under the loan agreement or the trading agreement.

The deputy judge commented as follows on the FFA:

“Although the underlying commercial purpose of the FFA is reasonably clear, namely to give OAL a species of interest in 50% of the net commercial value of Lansdowne’s interest under the Lease upon sale, questions of construction arise as to its operation, and they are exacerbated by the somewhat artificial way in which OAL’s interest is dressed up as a “finders fee”. I shall have to return to those questions of construction in due course. It is sufficient for me to say at this stage that I was not addressed in detail on them, but their very existence as a complicating factor in the realisation of OAL’s rights under the FFA is itself relevant to the questions which I have to decide.”

Events of 1996 and 1997 (pre-grant)

The three year term of the trading agreement expired during the deceased’s lifetime, but at a time when he was already seriously ill. There were negotiations for a new agreement, but nothing was concluded. At a fairly early stage in her disputes with Shane the appellant made an affidavit (dated 27 January 1997) in which she described the position during the last year of her father’s life. She had since mid-1994 been assisting her father in running the business. She did not at that time know of the unusual legal structure which had been put in place. By April 1996 she was working full time at the hotel with assistance from her partner, Mr Jonathan Parnes. She was going on a short holiday to the United States and she agreed with her mother (the deceased’s former wife) that in her absence her brother Earl should take part in running the hotel (despite the fact that he was in course of rehabilitation from drug addiction). On her return she found that members of her family had fallen out with her partner and she absented herself from the hotel for a period. When she returned in mid-July she found that Earl was not coping. At this time Earl gave her a packet containing at least £30,000 in cash which passed through various hands and later became a source of contention. The cash probably belonged to INL and should have been paid to Lansdowne.

The appellant and Earl decided to bring Shane into discussions with the Templetons to secure the future of the business, and a meeting was arranged and held on 8 August 1996. The Templeton brothers were asking for management accounts of INL. They said that about £25,000 was owed to Lansdowne. The appellant and Shane arranged to make an immediate payment of £18,000, but the arrangements for that payment seem to have caused further difficulties between them.

That was the situation when the deceased died on 27 August 1996, after some time in hospital. The appellant wished to continue to be concerned in running the hotel, but only if matters were put on a proper footing. She said in her affidavit that she felt threatened by Shane. Shane evidently considered that the best way of strengthening his position (or the estate’s position – this is a recurring enigma) was by taking over the running of the business and filling the vacuum left by the death of INL’s sole director. Earl was again receiving treatment for his drug problems. There was a family meeting on 9 November 1996 which (according to the appellant) was dominated by Shane.

Apart from his indirect and imponderable interest in the hotel business, the deceased had few assets of any value: a BMW car, a valuable Rolex watch, some works of art which were valued at much less than the family expected, and securities worth about £6000. There was also a life policy, the existence of which was not known to the family. It produced about £16,800, paid in June 1999. The known liabilities of the estate were about £20,000. On any view it was not an estate with plenty of ready money to finance litigation.

Unfortunately, however, there has been a good deal of litigation. The first round was started by the appellant against Shane and Earl (Ch 1997 Y No.1, commenced on 2 January 1997 after the appellant had on 30 December 1996 obtained an ex parte injunction against Shane). In the proceedings the appellant was seeking an order for the estate to be administered by the court. The appellant and Shane both gave undertakings at a hearing before Jacob J on 15 January 1997, and after some further skirmishing the three beneficiaries agreed that the sensible course was for the estate to be administered by a single independent professional. It was in those circumstances that Mr Saner, the senior probate partner in Collyer-Bristow, was invited to act following on an exchange of solicitors’ letters in March and April 1997.

As already mentioned, Mr Saner had some warning of the problems which lay ahead. The deputy judge put it as follows:

“By the end of April, Mr Saner had been warned, in outline, that there was a possibility that OAL might be able to obtain some £300,000 in connection with the sale of the Hotel, subject to what was described by Gregory Rowcliffe [the appellant’s solicitors] as “many unknown factors”. It was specifically pointed out that the deceased had been the only director of OAL. Furthermore, Judge & Priestley [Shane’s solicitors] warned that, upon appointment as administrator, Mr Saner could expect to deal with “problems in this matter which are reasonably urgent”.”

From April 1997 Mr Saner began to interest himself in the matter and to inform himself about the estate’s problems, but it was not until 5 August 1997 that he was invested with the authority of a grant of letters of administration for the use and benefit of Shane, Earl and the appellant, limited until further representation should be granted.

It was not suggested that Mr Saner was dilatory in obtaining the grant and it is important to note that almost a year had by then elapsed since the deceased’s death. The Templetons had not been idle during that time. Their attitude, as found by the deputy judge, was that they were content for the appellant to take over the management of the business, but were implacably opposed to Shane taking it over. But it was Shane, not the appellant, who was in de facto control (the appellant’s evidence was that she left the hotel for the last time a few days before her father’s death, after finding Earl asleep in the office and a number of students wanting to complain about the lack of service).

In February and March 1997 the Templetons, through Lansdowne, took action with a view to ousting Shane. The first step was the appointment by Lansdowne of Mr Hugh Templeton as sole director of INL. Then on 17 March 1997 Lansdowne gave written notice terminating INL’s interest in the hotel (which Lansdowne contended was a licence at will). On 19 March 1997 Shane was given notice that he was a trespasser, and Lansdowne commenced proceedings against him in the Queen’s Bench Division under what was then RSC order 113 (97 L No.184). This action (supplemented by a further writ action started by Lansdowne) was eventually successful, but it was not until September 1998 that Shane was excluded from the premises.

In May and June 1997, before his formal appointment, Mr Saner had separate meetings with Shane and the appellant and their respective solicitors. At some (unidentified) stage Mr Saner was provided with a copy of a marketing appraisal which Shane had obtained from Christie & Co, a firm of estate agents and valuers specialising in the hotel market. This suggested an asking price of £1.25m for the lease, based on figures (supplied by Shane) for current trading of an annual turnover of about £386,000 net of VAT, and a gross operating profit (before finance charges, directors’ remuneration and depreciation) of about £256,000 net of VAT. At the end of June 1997 Mr Saner obtained from Shane an assurance that he would provide accounts in respect of the business since the deceased’s death. But he did not get an assurance that Shane would account to the estate for the profit, and Shane has never done so.

Mr Saner also had some contact, before his formal appointment, with the Templetons through their solicitors, Judge Sykes Frixou. Mr Vassie of that firm telephoned Mr Saner on 24 June 1997. Mr Saner’s attendance note recorded the conversation:

“Lansdowne were happy to do either of the two courses of action which have been proposed, namely:

1 To appoint Rachel Younger as the manager of the hotel and enter into an agreement with her ...

2 For the hotel to be sold.

They recognise, off the record, without prejudice, etc etc that there probably was some agreement, whether it was in the terms of the finders agreement or whatever, to allow the Younger family to share the proceeds of sale of the hotel.

What Lansdowne were not prepared to do was to deal with Shane Younger or do any sale of which he got some benefit and they didn’t recognise that he had any benefit in or interest in the hotel or the business separate from the interests of the estate.

I said that once we had been appointed administrators I hoped very strongly that we could bang heads together this end so that there would be a unified approach and we could have some sensible negotiations.”

In fact a subsidiary or associated company of Lansdowne called Daymere Ltd had already entered into an agreement (dated 18 March 1997) with the appellant for her to manage the hotel on attractive terms, but it was expressly contingent on Shane vacating the hotel.

Coming to the matter simply on the documents, without having seen or heard any of the witnesses in any of the different strands of the litigation, I am struck by two apparently contradictory themes in Lansdowne’s attitude. On the one hand, there was resolute determination to have nothing to do with Shane (who had by that time been on the hotel premises, against Lansdowne’s wishes, for nearly a year and had been defending possession proceedings for three months). But on the other hand there is what strikes me as a generous attitude to the deceased’s family as a whole, and the appellant in particular. There may have been strong grounds for contending (indeed, Mr Edward Bannister QC for Mr Saner has submitted that it was perfectly obvious) that the terms of the FFA had been breached and that there was no longer any possibility of the estate becoming entitled, through OAL, to any part of the profit which might be realised on a sale of the hotel. The attitude adopted by Lansdowne in June 1997 (and for some months afterwards) was a good deal gentler than that, possibly because of the Templetons’ good opinion of the appellant’s management skills.

By the time of the grant of letters of administration Mr Saner could have been in no doubt about the width and the depth of the differences between the appellant and Shane. The deputy judge put it like this (referring to the appellant as Rachel):

“Their differences were not merely disagreements as to the best way of maximising the assets of the estate. Each of them had his or her own personal agenda, namely to secure (in Rachel’s case) and hold on to (in Shane’s case) the management of the Hotel. Both of them protested that their wishes in that regard were for the benefit of the estate. Rachel said that she would account for management profit pending the sale of the Hotel, if she were put in charge. Shane said that his occupation was an essential bargaining counter in achieving a satisfactory negotiation with Lansdowne for a payment, ultimately to the benefit of the estate, under the FFA. Each of them deeply distrusted the motivation of the other.

It is not necessary for me to reach any concluded view as to the rights and wrongs of the dispute between Rachel and Shane. Shane is not a party to this action and has not given evidence. For the purpose of resolving the issues which I have to decide, it is sufficient for me to describe the dispute, to record its consequences, and to take proper account of it as a factor both complicating Mr Saner’s task as administrator, and calling for action on his part.”

Events of 1997 (post-grant) 1998 and 1999

The deputy judge gave a detailed summary of events from the grant until the end of 1997 (which counsel agreed to be the critical period in respect of the allegations of breach of duty made against Mr Saner). He covered in a more summary fashion the events of 1998 and 1999 (the claim form in these proceedings was issued on 22 November 1999, the same day as Lightman J made an order for administration of the estate by the court). In the following briefer summary I gratefully follow the general lines of the judgment. It will be necessary to come back to the critical period in considering the criticisms made of the deputy judge’s judgment.

On the day after the grant Michaelides Warner & Co, the accountants who had acted for the deceased (and for INL and OAL), offered to prepare OAL’s statutory accounts (for the years to 30 June 1996 and 1997) for a fairly modest fee. After several weeks’ delay Mr Saner declined this offer, on the ground of shortage of funds. In due course this led to OAL being struck off the register and it lengthened the time which it took for Mr Saner to obtain control of OAL (an application for rectification of the register was in any case necessary following the death of the sole director and shareholder). OAL was restored to the register of companies on 13 March 1998 and its register of members was rectified on 1 October 1998.

Shane had made an affidavit dated 16 April 1997 asserting a subsisting tenancy and had avoided a summary order for possession. In August 1997 Lansdowne commenced new proceedings against him, by writ in the Queen’s Bench Division (97 L No.5425). The proceedings did not make rapid progress. Lansdowne applied for summary judgment under RSC O.14 but the summons was not heard until 10 August 1998, when Master Trench gave summary judgment in favour of Lansdowne for possession and an interim payment of over £125,000. An appeal was dismissed by Mr Robert Owen QC, sitting as a deputy judge of the Queen’s Bench Division, on 30 October 1998. On 18 January 2000 this court dismissed a further appeal by Shane, the only point argued being whether any protected tenancy enjoyed by INL had (after the appointment of Mr Hugh Templeton as a director and the service and acceptance of notice on 17 March 1997) been surrendered by operation of law. But by then Shane had been out of occupation of the premises for more than a year.

I have traced through the possession proceedings until their end because it is important to bear in mind that throughout the negotiations which took place in the autumn of 1997, Shane was in occupation and running the business, no doubt to the considerable annoyance of both the appellant, Mr Saner and the Templetons. On 12 August 1997 Mr Saner wrote to Mr Vassie observing,

“The only way in which this matter can be resolved to the reasonable satisfaction of all parties is for possession of the premises to be linked to the resolution of the valuation of the estate’s interest under the [FFA].”

He put forward a proposal based on the £1.25m appraisal figure which Shane had obtained.

At a meeting on 28 August the Templetons and their solicitor reiterated their wish to get Shane out. Their concerns were increased by the approach of the start of the new academic year. On 1 September Lansdowne offered £240,000 for the estate’s interest in the hotel business, subject to the cost of dilapidations and on condition that the appellant was reinstated as manager within a few days. The appellant supported acceptance of the offer but Shane opposed it. Mr Saner rejected it and it was withdrawn. Later Mr Saner made a counter-offer to sell for £350,000 without any deduction for dilapidations.

On 23 October Mr Vassie telephoned Mr Saner increasing Lansdowne’s offer to £350,000 less dilapidations (a schedule of which had been served on Lansdowne by the landlord; a copy was sent to Mr Saner but he did not instruct a surveyor to quantify the cost of the necessary repairs). Mr Saner’s attendance note recorded,

“The offer was on the basis that Shane Younger would deliver up vacant possession. I said that this was certainly a better offer than the previous one that had been on the table and I would consider it. I said that the only way that we could actually get a deal was to get Shane Younger to agree that he would give up vacant possession in return for a share of the capital.”

In the meantime, Mr Saner had decided to apply to the court for directions. He was assisted by Miss Lisa Ayling of Collyer-Bristow who drafted documents and also drew to his attention (in a note dated 24 September) the likely adverse consequences if either OAL or INL were to be struck off. (Shane’s solicitors had also been pressing for the appointment of new directors of OAL; on 22 August they had written to Mr Saner, “It is only when [OAL] is up and running that any action whatsoever can be taken against Lansdowne ...”.) Mr Saner asked chancery counsel, Mrs Penelope Reed, to review the drafts (apparently on a ‘speculative’ basis) and the originating summons (Ch 1997Y No.5987) was issued on 3 November 1997. As well as a general request for an administration order (if necessary) it asked for specific relief under various heads, including (i) an order for Shane to furnish an account of profits from the hotel business; (ii) an order for the exercise of the estate’s voting rights in OAL so as to effect the appointment of a new director or directors; and (iii) the exercise of the same voting rights so as to achieve a sale of the lease of the hotel, if necessary by means of an action brought by OAL against Lansdowne, or by assisting Lansdowne in its action against Shane.

On 4 November Mr Peter Templeton discussed the matter with Mr Saner by telephone. Mr Saner was looking for £300,000 net for the estate and there was discussion about putting a cap on the dilapidations. According to Mr Saner’s file (which, as the judge observed, contains clear and detailed attendance notes which assist in following the various threads) the exchanges with Lansdowne then went rather quiet (although Mr Saner said in his witness statement that Lansdowne’s offer was repeated on the telephone on several occasions for which we have not seen attendance notes). That is not to say that Mr Saner was not kept busy with the administration. Apart from his application to the court there was continuous correspondence about the sale of the BMW, missing chattels, the deceased’s unpaid tax liabilities and even the undertakers’ invoice for his funeral (this was finally paid by Mr Saner on 3 December 1997).

When Mr Saner did hear from Lansdowne’s solicitors on 4 December it was by way of service (on a ‘without prejudice’ basis) of a notice under section 25 of the Landlord and Tenant Act 1954, opposing a new tenancy on grounds (a), (b), (c) and (g) in section 30(1). Mr Saner served a counter-notice to protect his position and this led to some further exchanges which, although polite, seemed to show some entrenchment of Lansdowne’s position and a determination to pursue its action against Shane. There was a warning that the administrator might be made a party if he claimed any interest in the hotel.

Mr Saner’s and the appellant’s views at the end of 1997 appear from their respective affidavits made in the chancery proceedings. Mr Saner stated at the end of his affidavit dated 3 November 1997:

“Accordingly I now believe that the right course of action for me to take as administrator is to obtain an order of the court for the following relief:-

1. That Shane Younger, (or Rachel Younger, if she becomes the manager of the Hotel,) accounts to me as administrator for the money that he (or she) has had and received (or will have and receive) during the course of his (her) occupation of the Hotel and that any profit over running expenses accrues to the benefit of the estate.

2. That I be authorised to exercise my powers as shareholder of [OAL] to appoint directors thereof and to enable that company to procure a sale of the Hotel

3. That I be authorised, if necessary, to take proceedings on behalf of [OAL] against Lansdowne to require them to sell the Hotel and to implement the [FFA]

4. That I be authorised to negotiate with Lansdowne to implement the [FFA]

5. That I be authorised to compromise any litigation

6. That I be authorised to assist Lansdowne in its litigation to obtain possession of the Hotel.

7. In the event of it becoming necessary for me to take legal proceedings that it be a condition that the defendants should put me in funds before the commencement of any proceedings.

8. In so far as the Defendants have not already delivered up all the assets of the estate, that they be ordered to do so or to account for those items that have been in their possession.

9. In the event that the Defendants do not put me in sufficient funds I will be at liberty to apply to the court for a termination of my appointment as administrator without prejudice to my position as to costs incurred to date.”

It is apparent that some of these courses might not be consistent, especially the alternative possibilities of co-operation with, or hostile litigation against, Lansdowne.

The appellant stated at the end of her affidavit:

“In conclusion, I support what Mr Saner says in ... his affidavit as to the right course of action now to be taken by him save that I ask that I should not be required to put Mr Saner in funds in respect of any litigation that might be necessary against Lansdowne. I do not believe that, if Mr Saner is authorised to assist Lansdowne in its attempts to obtain possession of the Hotel, any such action will be necessary because Lansdowne have always been prepared to negotiate in good faith with the Estate provided Shane vacates the Hotel.”

On 24 December Mr Saner sought to reactivate negotiations with Lansdowne asking for “a figure around which we can negotiate”. On 30 December OAL was, unknown to Mr Saner, struck off the register. His originating summons had been adjourned by the master into court, but had not yet been heard. So 1997 ended with Shane still in occupation at the hotel and little perceptible progress towards realising the estate’s increasingly problematical and indirect interest in the hotel.

On 20 January 1998 Mr Saner’s assistant discovered that OAL had been struck off and they set about rectifying that. On 19 March Mr Saner again tried to reactivate a dialogue with Mr Vassie, but there seems to have been no reply. On 20 March Shane raised the temperature of the chancery proceedings with an affidavit challenging the appellant’s legitimacy, on the strength of an affidavit sworn by their own mother.

On 19 May the originating summons was heard by Rattee J. We were told that Rattee J was very concerned about the case and put pressure on Shane to give an undertaking to deliver to Mr Saner on or before 16 June 1998 (i) an audited account of his receipts from the hotel during the period from 27 August 1996 to 31 August 1997; and (ii) an unaudited account of his receipts from 1 September 1997 to 31 May 1998, to be followed by further unaudited accounts on a quarterly basis. Rattee J ordered an inquiry as to who were beneficiaries. He directed Mr Saner to appoint himself as a director of OAL, but pointed out practical difficulties arising from undertakings given to the Companies Court when OAL was restored to the register. He directed Mr Saner not to incur further expense in pursuing missing chattels. He adjourned the rest of the originating summons.

Shane did not comply with his undertaking to deliver audited accounts by 16 June, or indeed at all. He produced unaudited accounts for the first period and a profit and loss account for the next. Mr Saner prepared a notice of motion to have Shane committed for contempt of court, but after some changes of mind he ultimately decided not to proceed with the application for committal. In that decision he was following the advice of his counsel, Mrs Reed, whose advice the deputy judge regarded as correct.

I have already summarised the course of Lansdowne’s proceedings in the Queen’s Bench Division against Shane. After the master had given summary judgment Mr Saner wrote a hopeful letter to Mr Vassie:

“Now that an order for occupation of the hotel has been obtained, please confirm that your clients will honour their commitment to abide by the [FFA].”

Again, there seems to have been no reply. Mr Saner was acutely aware that the estate had no funds with which to embark on litigation against Lansdowne, and he doubted the beneficiaries’ ability to offer a reliable indemnity against his costs. Shane also seems to have taken a gloomy view. Mr Saner’s attendance note of 8 October 1998 recorded him as saying,

“Lansdowne have moved back into the hotel and were spending quite a lot of money on it and he knew that they were never going to offer any money to us and would resist any claim made based on the agreements with [INL] because [INL] was in breach of all the agreements in any event.”

Mrs Reed advised in a conference on 13 November 1998. Shane and the appellant and their respective solicitors were present. There was discussion of the possibility of obtaining legal aid. On 17 November Mr Saner gave notice to Lansdowne under clause 3(i)(d) of the FFA requiring the leasehold interest in the hotel to be sold. But on 1 December 1998, after she had read the judgment of Mr Robert Owen QC, Mrs Reed expressed the view that the prospects of success in a claim against Lansdowne would not justify an application for legal aid.

However Mr Saner persevered with an application for legal aid. As he was applying in a fiduciary capacity he had to give particulars of his beneficiaries’ means. But he ran into difficulties with the appellant’s new solicitors, Bray Walker, who took four months to provide the necessary information after a reminder on 26 February 1999. During that period the appellant herself obtained legal aid to sue Mr Saner. Since these proceedings were started there have been various steps taken to enable one or more of the beneficiaries to take action against Lansdowne. But they have so far achieved nothing.

The deputy judge ended his statement of the (largely undisputed) facts with the following observations, which I would gratefully adopt in relation to my own summary:

“The above summary should not be taken as anything like a full description of the administration of this modest estate. Controversy attended virtually every step in the process and, as Mr Saner graphically described it, shuttle diplomacy was required to achieve unanimity even on the most trivial matters, such as the sale of the deceased’s car. There were various offers made by beneficiaries (or entities connected with beneficiaries) for the interests of the other or others in the estate, and for the estate’s interest in OAL. These were generally received with distrust in their genuineness, and all of them came to nothing. I have not recorded the conduct of Shane’s paternity challenge, but it should be noted that it failed, or the resolution of Shane’s much later claim that he had discovered a declaration of trust made by the deceased in his lifetime in relation to the shares in OAL, which Shane abandoned shortly before the hearing of an inquiry as to the authenticity of the relevant documents. None of these matters relate directly to the issues of breach of duty which I have to decide, but they add colour to the picture of total mistrust, hostility and lack of co-operation between the beneficiaries which has, on any view, at least contributed to what Mr Saner frankly acknowledged in evidence to have been the wholly unsatisfactory outcome of the administration for all concerned.”

The judgment below

After his statement of the facts the deputy judge recorded that the appellant was limiting her claim to her beneficial one-third share, and that he was not concerned with questions of quantum which would be resolved, if necessary, by accounts and enquiries. He also recorded that the live issues on the pleadings were whether Mr Saner had been in breach of his duty by his acts or omissions (as the deputy judge said, the main emphasis was on omissions) in failing to secure for the estate income which Shane had derived from running the business after the deceased’s death, and in failing to obtain any ‘finder’s fee’ from Lansdowne, despite the offers made by Lansdowne in September and October 1997; and (in each case) whether the estate suffered loss as a result. The allegation of overcharging by Mr Saner’s firm was not pursued at trial. Mr Saner applied for relief, if necessary, under section 61 of the Trustee Act 1925.

The deputy judge referred to three points of law on which there was no significant difference between counsel. First, Mr Saner as a professional trustee was required to show the degree of care and skill to be expected of an experienced solicitor. Second, he was under no obligation to use his own money, or his firm’s money, on financing the administration, or to expose himself to the risk of personal liability without adequate protection. Third, questions of causation and loss should be dealt with on the same principles as would apply in contract or tort, especially as regards questions of causation involving predictions as to the conduct of third parties (as explained by this court in Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602).

The only exception to the last-mentioned consensus was in relation to whether a beneficiary making a claim against a personal representative could be under a duty to mitigate his loss (in the sense of being unable to recover equitable compensation if he failed to do so). The deputy judge did not find it necessary to rule on this point of law, but it has been raised in a respondent’s notice.

The deputy judge then considered the first main limb of the claims against Mr Saner, his alleged failure to obtain from Shane an account and payment of his profits from running the business after the deceased’s death. The deputy judge carefully analysed whether the estate did indeed have the right which Mr Saner was said to have failed to enforce. He observed that the estate’s asset was two shares in OAL, which in turn had a defeasible interest in 99 shares in INL. INL, if its interest in the hotel continued after the deceased’s death, must still have been subject to the obligations imposed by the trading agreement, with the consequence that OAL’s interest continued to be defeasible as a result of a breach of the loan agreement or the trading agreement.

In short, the train of argument which asserted that the estate had an interest in the business could be likened to ‘a long and rusty chain’. (It was at this point that the deputy judge referred to the possibility of relief from forfeiture, which neither side took up.) Even if the argument did not fail at some earlier point, it could not (until sale of the hotel) lead to OAL being entitled to the income of INL, as opposed to income from INL, that is dividends lawfully declared by INL. INL was under the control of Lansdowne, and there were several perfectly respectable reasons why INL should not, at that stage, declare any dividends.

Having discussed these points in detail the deputy judge concluded that the appellant’s claim that Mr Saner was in breach of duty in this respect was hopeless. The claim would have followed a ‘tortuous and uncertain route’ beset by a number of practical problems:

i) It would have involved a hostile claim against Lansdowne. This would have antagonised Lansdowne with the probable result of involving the estate as a party in Lansdowne’s proceedings against Shane.

ii) It was a course which, at the only time when it might have been a realistic possibility, would not have received support from any of the beneficiaries.

iii) Equally the possibility of the estate joining forces with Lansdowne against Shane (in requiring him to pay income into a blocked account) was of doubtful feasibility or advantage.

The deputy judge also rejected the specific attack on Mr Saner’s ultimate decision (after some wavering) not to launch a committal application against Shane. That decision had been arrived at on the advice of counsel, and the deputy judge thought that the advice was correct. For these reasons the deputy judge rejected this part of the claim, and refused permission to appeal.

He then turned to Mr Saner’s alleged breach of duty in failing to enforce the FFA. He said that the appellant’s case on this point had been put in increasingly sophisticated ways. Originally it had focused on Mr Saner’s decisions not to accept Lansdowne’s successive offers in September and October 1997. Later (and perhaps as it became apparent that Mr Saner was vulnerable as to the striking-off of OAL, especially as his assistant had warned him about the risk) the attack was centred on Mr Saner’s failure to obtain control of OAL, his failure to obtain a professional valuation of the hotel and to have the dilapidations costed, and his failure to accept the October offer (£350,000 less dilapidations), which was said not to have depended on Shane first going out of occupation of the hotel.

That was the way the claim was ultimately put in Mr Michael Green’s closing submissions. Mr Green set out a detailed scenario of how Mr Saner might, with greater energy and determination, have put greater pressure on Lansdowne at a time when Shane was still in occupation, and Lansdowne’s attempts to secure his summary eviction seemed to have run into the sand.

The deputy judge said that those arguments had been attractively presented, but he rejected them. His central reason for doing so was that he was entirely satisfied that both offers by Lansdowne (£240,000 less dilapidations at the beginning of September, and £350,000 less dilapidations at the end of October) were clearly conditional on Shane vacating the hotel. The earlier offer was plainly expressed in those terms. The later offer was made orally, but both Mr Saner’s attendance note and his letter to Shane (describing the offer) made clear that Shane’s departure was a requirement.

The deputy judge concluded his consideration of this part of the case as follows:

“The whole of the relevant background only reinforces that view. True it is that in subsequent discussions, Mr Saner and Mr Vassie of Judge Sykes Frixou talked money without referring to vacant possession, but that was in my judgment because they both regarded the vacant possession condition as too obvious to require further express mention. Mr Saner’s negotiating position, as he himself recognised was relatively straightforward. If he could persuade Lansdowne to offer a sum under the FFA which was sufficient to persuade Shane to vacate, there would be a settlement. Otherwise, there would not, and there was nothing whatever that he could do to force Shane to leave. After the £350,000 offer (subject to dilapidations), Lansdowne made no further offer. It is clear, albeit with the benefit of hindsight, that thereafter Lansdowne’s enthusiasm for a settlement under the FFA as a means to procure the eviction of Shane steadily decreased, no doubt as its possession proceedings advanced. Settlement was missed by the unquantified amount of the dilapidations, since Shane would have vacated for £350,000. But that gap was substantial, and in all probability the dilapidations would not have been settled by Lansdowne for a sum much less than £100,000, which was unacceptable to Shane.”

The deputy judge also rejected the argument that Mr Saner was in breach of duty in not obtaining a valuation of the hotel and costing of the dilapidations. Both would have cost money, and the estate was very short of money. Neither the appellant nor Shane was pressing for a valuation or for costing the dilapidations. The deputy judge considered that Mr Saner’s decision not to incur these expenses was within the range of reasonable decisions open to him.

He then went on to consider the striking-off of OAL. He decided that it was a breach of duty for Mr Saner to have allowed OAL to be struck off the register. Mr Saner frankly acknowledged his mistake in the course of his evidence. But the deputy judge considered that Mr Saner was not obliged to take on the directorship of OAL without the sanction of the court, and that even in the absence of any delay caused by the striking-off he could not in all the circumstances have expected to be in effective control of OAL before the end of January 1998 (and perhaps considerably later). The striking-off was not, in the deputy judge’s judgment, an effective cause of the estate’s failure to realise value from the FFA:

“Put more precisely, the chance that, had [Mr Saner obtained control of OAL sooner] a satisfactory settlement could have been obtained from Lansdowne is in my judgment no more than speculative or fanciful.”

The deputy judge’s reasons for this conclusion can be summarised as follows:

i) The main reason for the slow progress of the originating summons was not the striking-off of OAL but the distrust and enmity between the appellant and Shane (which was of long standing, but exacerbated by Shane’s decision to raise the issue of his sister’s paternity).

ii) The estate had no funds with which to embark on hostile litigation against Lansdowne (and if OAL had been claimant it would inevitably have been ordered to provide security for costs).

iii) Legal aid did not provide a satisfactory answer to the problem, especially as the appellant and Shane were unable to co-operate.

iv) Without a legal aid certificate, any threat of litigation made by Mr Saner would have been empty.

v) The service of notice under clause 3(i)(d) of the FFA, while Shane was still in occupation of the hotel, might have enabled Lansdowne to exercise its option and so acquire the hotel at an artificially low price.

Mr Saner’s breach of duty was therefore “nothing more than an inconsequential delay in the unfolding of events which would otherwise simply have taken the same unhappy course which in fact they did”. This part of the appellant’s claim also failed.

Had the issue arisen, the deputy judge would not have granted relief under section 61 of the Trustee Act 1925 because although there was no doubt as to Mr Saner’s honesty, he had not (as a professional trustee) acted reasonably in relation to OAL. On the issue of mitigation, the deputy judge held that it did not arise on the facts. He did not therefore need to consider whether the concept had any application to a claim for breach of duty against a personal representative.

The grounds of appeal and the submissions in this court: introductory

In the course of his reply Mr Michael Green (appearing in this court, as below, for the appellant) suggested that the arguments in this court had been (especially on the side of the respondent, Mr Saner) different from the arguments below. That often happens in the Court of Appeal, and is often to be welcomed: the issues and the arguments are restricted and refined. However Mr Green made particular comment on Mr Bannister’s emphatic submission that the FFA had ceased to be enforceable before Mr Saner ever came into the story. That point should, he said, have been pleaded.

I have some sympathy with that point. The spirit and letter of the new Civil Procedure Rules (which were coming into force as this action got under way) require the parties’ statements of case to clarify the real issues, rather than concealing them (in the case of a defence) behind a formulaic series of non-admissions and denials. It would have been much better if Mr Saner’s case as to the lapse of the FFA had been spelled out clearly in his defence. But the question whether or not it had lapsed was an issue at the trial. Mr Green did not say that he had been taken by surprise, and I cannot attach much weight to the suggestion that more evidence could usefully have been deployed if the point had been pleaded. Mr Bannister for his part uncomplainingly dealt with a number of points, raised by members of this court, which were not merely unpleaded but were also not obviously included in Mr Green’s grounds of appeal.

There are also some matters, common to both main issues, which have received rather more attention in this court than they did below. One is the standard of skill to be expected of Mr Saner as a professional administrator whose firm was charging for his services. (It may not, in the end, get its bills paid, but it was common ground that that was irrelevant to the nature of Mr Saner’s duty.)

Without resiling from what was common ground below, that Mr Saner had to show the degree of care and skill to be expected of an experienced solicitor, Mr Bannister submitted that Mr Saner was not in breach of duty merely because he failed to show exceptional initiative, or exceptional negotiating skills. His duty was to act as a diligent administrator, not as a high-flying entrepreneur.

That submission must be right in principle, but I would not accept all the conclusions which Mr Bannister sought to draw from it. Even a non-professional trustee or personal representative is under a duty to take action in relation to a company in which he has a significant holding (Bartlett v Barclays Bank Trust Co [1980] Ch 515, 532-4), especially if there is no proper management in place. In particular, I think that the appellant has reason to feel deeply disappointed that Mr Saner (who was appointed in order to avoid the delay and expense of an administration by the court, and started off with brave words about banging heads together) decided to incur the delay and expense of referring his problems to the court, and let nearly six months go by before he obtained a substantive hearing. It is certainly true that he had warring beneficiaries to deal with, but he had known that from the outset. He had also known from the outset that the estate was going to be very short of ready cash.

That leads to the point, pleaded in the defence, that Mr Saner had “at all material times acted on the advice of specialist chancery counsel”. Mr Bannister did not rely on this point in his submissions and he was right not to do so, because it was apparent that the facts did not really justify it. Mr Saner himself made the decision to apply to the court, although counsel (who gave evidence at the trial) said that she would have given that advice if asked. Mrs Reed’s only task, during 1997, seems to have been to approve (apparently for no fee) the drafts prepared by Mr Saner and Miss Ayling. She did not advise generally, nor did she attend at the appointment before the master. She gave some written advice about OAL, but not until April 1998. She gave written advice in November 1998 about a possible claim against Lansdowne, but soon afterwards modified her advice after reading Mr Owen’s judgment.

Subject to these general points, I turn to the grounds of appeal and the way they have been developed in this court. The two main issues on appeal have been whether the deputy judge was right on what I will call the ‘income stream’ issue (on which he did not give permission to appeal) and on the ‘finder’s fee’ issue (on which he did give permission). I will address them in that order, but I do not think they can be treated as wholly discrete points, since Shane’s unlawful occupation of the hotel was at the heart of Mr Saner’s problems on both.

The income stream issue

On the income stream point Mr Green has in his skeleton argument and his oral submissions pointed out that Mr Saner did, rightly or wrongly, assume that Shane was accountable to the estate for the profits which he was deriving from the hotel business. That appeared most clearly from paragraph 17 of his affidavit in his chancery proceedings (and it was also implicit in paragraph 1 of the originating summons). Yet Mr Saner failed to take any urgent action to intercept and secure the income stream, as he might have done by an urgent application, made by notice of motion, for the appointment of a receiver (a course which Shane and Earl had earlier been preparing to take in relation to OAL in yet another action, Ch 1997 Y No.1461, which had been compromised at the same time as the appellant’s chancery action).

As I have said, the deputy judge came to the conclusion that such a claim would have depended on ‘a long and rusty chain’ and would, as a matter of practicality, have been hopeless. He took the view that Mr Saner could not have enforced the claim without the co-operation of Lansdowne, and that it would not have been in Lansdowne’s best interests to co-operate. He reached that view by a careful analysis of the estate’s rights, which I have summarised at paragraph 50 above.

The deputy judge’s analysis was, if I may say so, impeccable as far as it went, but in my respectful view it may have overlooked a rather simpler and more direct route to accountability. To my mind the notion that Shane could pocket thousands of pounds a week from the hotel business, without being accountable to the estate, offends common sense. It seems like a form of piracy which Shane should not have been able to get away with. Part of the answer is that in the long term he may not have got away with it, since he was ordered to make an interim payment of over £125,000 to Lansdowne, with the balance of mesne profits to be assessed at trial. But the mesne profits would represent a market rent as from 19 March 1997. They would not cover the whole of Shane’s net profit from the business since he took it over on the deceased’s death.

Ought not Shane to have been accountable to the estate for that net profit (that is, the surplus after paying what was due to Lansdowne and others for rent, rates, wages and other outgoings)? It seems to me that it would have been arguable that he was accountable, on the basis that he had interfered in the affairs of the estate in such a way as to make himself accountable as a fiduciary. He did not actually take over any asset of the estate, so he may not have been an executor de son tort in the strict sense of section 28 of the Administration of Estates Act 1925. But he certainly used the trust affecting the INL shares, and the estate's interest in the OAL shares, as a ground for resisting Lansdowne’s claims (see paragraph 10 of his affidavit dated 16 April 1997 and – rather more ambiguously – paragraph 6 of his defence dated 15 September 1997). It would have been arguable that he was acting as a sort of self-appointed fiduciary who is just as accountable for an unauthorised profit as a properly appointed fiduciary (as Bowen LJ said in Soar v Ashwell [1893] 2 QB 390, 367, “a man who assumes without excuse to act as a trustee ought not to be in a better position than if he were what he pretends”; see also Phipps v Boardman [1967] 2 AC 46 and English v Dedham Vale Properties Ltd [1978] 1 WLR 93).

However that line of argument has not been put forward by Mr Green, and he may well have had good reasons for not putting it forward. Still less (so far as appears from the appeal bundles) was it in the minds of Mr Saner and his counsel when they were considering, in the autumn of 1997, what (if any) form of legal proceedings would be appropriate in an attempt to solve the problems of this underfunded estate. It would be wrong for this court to form its own ideas, with the invaluable benefit of hindsight, as to what more effective course of action Mr Saner might have taken, and to hold him in breach of duty because he did not take it.

That is an obvious point, but it is worth enlarging on it a little. The extraordinary facts of this case leave me, and perhaps other members of the court, with the feeling that something must have gone quite badly wrong, somewhere in the system, for Shane to have remained in occupation (and apparently lucrative occupation) of the hotel for as long as he did. Either the machinery of civil justice was defective, or Mr Saner and Lansdowne did not operate it correctly. The court must however resist any temptation to conclude too readily that the machinery cannot have been at fault, and that therefore the user must have been to blame.

Having studied all the papers in the case, but without the benefit of having seen and heard the witnesses (who did not include anyone from the Lansdowne camp) I am convinced that the deputy judge was right in his view that Mr Saner could not at any stage afford to antagonise Lansdowne and the Templetons. Lansdowne held a very strong hand but in 1997 had not, it seems, had occasion to take detailed advice as to how strong it was (just as Mr Saner in 1997 seems not to have realised, or received advice, as to how weak the estate’s hand was). Aggressive action towards Lansdowne was likely to lose its sympathy and to lead to it taking fuller advice as to its position. I am not persuaded by Mr Green’s submission that it was Mr Saner’s duty to ‘pressurise’ or ‘harry’ Lansdowne, even if he had had the funds available to embark on hostile litigation.

Asking myself how Mr Saner might have done better, I have reflected that he might have been more active in making common cause with Lansdowne against Shane, in an attempt to secure the income stream for their common benefit (on terms which could be settled later). Mr Vassie had (in a without prejudice letter dated 26 August 1997) stated that the support of the estate in its litigation against Shane would be useful. A joint application for a receiver launched by Lansdowne and Mr Saner would have had at least a reasonable prospect of success and might in practice have led to Shane’s departure from the hotel, since it was access to ready cash which kept him there. This course would have required Mr Saner to make a firm decision and to act on it, no doubt in the face of Shane’s outraged protests. It might also have required difficult negotiations with Lansdowne, which might or might not have been prepared to meet all or the bulk of the legal costs. It would in my view have had a better prospect of achieving something useful for the estate than was ever achieved by the proceedings which Mr Saner actually took.

But as I have said, the court must not take advantage of hindsight to say how things could or might have been better managed. The task of the trial judge was to decide whether the pleaded breaches of duty had been established (and had caused loss) and the task of this court is to review that decision. On the grounds argued before the deputy judge, I think that he was right to conclude that legal proceedings based on the ‘long and rusty chain’ would not have been a practical possibility. The chain was not only long and rusty but very probably fractured in at least one link.

Four grounds of appeal (numbered 6 to 9 in Mr Green’s skeleton argument) have been argued on the income stream issue. In the first place Mr Green has submitted (ground 6) that the case put below was wider than that which the deputy judge dealt with. Had Mr Saner acted more speedily and energetically in 1997, Shane would have been removed, the appellant would have been installed as manager in his place, and the estate would have benefited (the appellant stated in her affidavit of 5 December 1997 that the estate would have benefited from her appointment as manager, presumably after an appropriate allowance for her own time and trouble).

Mr Green has also submitted (ground 7) that since INL was (at least arguably) entitled to a protected tenancy, its shares were a valuable asset (despite the deputy judge’s metaphor of a long and rusty chain) and that Mr Saner could not properly abandon this asset. The deputy judge had, it was said (ground 8) put the cart of causation before the horse of breach of duty. Moreover (ground 9) he had not allowed Mr Saner’s application for a late amendment to plead an estoppel arising out of the proceedings between Lansdowne and Shane, but he had in effect relied on an estoppel.

In my judgment Mr Green has not demonstrated that the deputy judge was wrong on this part of the case as it was argued before him. He carefully analysed the complex situation arising out of the trading agreement, the trust deed, the loan agreement and the FFA. INL was an important link in the chain, but from March 1997 (long before Mr Saner received his grant) its rights had come to an end by surrender (as this court found when it dismissed Shane’s appeal in the possession proceedings). A claim that the surrender involved a breach of fiduciary duty (by Lansdowne as trustee of the INL shares and by Mr Hugh Templeton as the new director of INL) would have been difficult, expensive and sure to drive Lansdowne into the stance of an antagonist. Alternative scenarios as to the appellant being installed as manager were fanciful so long as Shane was in occupation and the possession proceedings were a long way from trial.

In my view the deputy judge did not put the cart before the horse; he looked closely at the facts and concluded (on the submissions made to him) that there was nothing Mr Saner could usefully have done to secure income from the business, which belonged not to the deceased or his estate, but (down to the time of the surrender) to INL. Mr Green’s skilful and well-crafted submissions have at times in the course of argument led me to question this conclusion, and indeed I have to say that I think Mr Saner might have done more. But there were many mitigating factors, including the absence of original documents, the complexity and delicacy of the problems, the hostility and mistrust between the beneficiaries, and the lack of funds. He must not be judged with hindsight, or by too demanding a standard. In my view the deputy judge was right to dismiss the claim for breach of duty on this part of the case.

Nor do I accept that the judge blew hot and cold about estoppel. He rejected a late amendment based on the principle in House of Spring Gardens v Waite [1991] 1 QB 241, but then (not surprisingly) reached the same conclusion, on largely undisputed facts, as this court had reached. I would grant permission to appeal on the grounds relating to the income stream issue, because this court heard full argument on them and because they do to some extent overlap with the grounds on which permission was granted. Nevertheless I would dismiss the appeal on the income stream issue.

The finder’s fee issue

The appellant’s notice contains five grounds of appeal relating to the finder’s fee issue, which can be summarised as follows:

i) (grounds 1 and 4) that the deputy judge erred in considering causation before he had properly considered the question of breach of duty, and failed to identify breaches of duty;

ii) (ground 2) that he was wrong to find as a fact that Lansdowne’s October 1997 offer (£350,000 less dilapidations) was conditional on Shane vacating the hotel;

iii) (ground 3) that he failed properly to consider the whole of the appellant’s case on breach of duty, and in particular Mr Saner’s inaction towards Lansdowne, and failure to put pressure on it, after he had started his chancery proceedings at the beginning of November 1997; and

iv) (ground 5) that he failed, in relation to his finding of breach of duty over the striking-off of OAL, to analyse correctly the hypothetical course of events as it would have been had there been no breach of duty.

On this part of the case also Mr Green laid stress on his submission that the deputy judge had put the cart of causation before the horse of breach of duty. But I am not persuaded by that criticism. The judgment proceeded from a full and clear statement of the facts (ending at paragraph 68) to a summary of the appellant’s case at trial and observations on the law (ending at paragraph 75). Then the deputy judge addressed the income stream issue and, for reasons which I have already summarised and considered, found no breach of duty established.

The deputy judge then set out the appellant’s case “as ultimately refined” at trial. This covered not merely Mr Saner’s failure to obtain control of OAL and to obtain a professional valuation of the hotel and costings of the dilapidations but also Mr Saner’s failure to accept the October 1997 offer (whether or not it was conditional on Shane’s departure) and his failure to put pressure on Lansdowne (paragraph 89). The deputy judge considered all these points and he rejected them (paragraphs 91 and 92). In the course of doing so he made his important finding about the offer being conditional. I must say at once that that finding seems to me completely unassailable. I have already set out part of his reasoning (see paragraph 56 above) and I can see no error in it.

It is true that in reaching his conclusion on no breach of duty the deputy judge considered a hypothetical sequence of events, that is Mr Green’s scenario as to what a more determined and resourceful administrator might have achieved. But that was not an Allied Maples exercise on third-party causation. It was part of the reasoning which led him to the conclusion that Mr Saner had not been in breach of duty in failing to achieve what Mr Green argued that he should have achieved.

It was only then that the deputy judge went on to find that Mr Saner had been in breach of duty in allowing OAL to be struck off, but that that breach was not causative of loss (paragraphs 93 to 97). I would accept that the first sentence of paragraph 93 of the judgment is rather convoluted, and it could have been omitted without damaging the reasoning of the judgment. But that is to my mind a very trivial blemish in an otherwise conspicuously clear judgment. It certainly does not lead me to conclude that the deputy judge was wrong in his whole approach.

In my view the deputy judge did consider the whole of the appellant’s case, including the attack on Mr Saner’s alleged inaction and failure to press Lansdowne harder during the autumn of 1997, and in particular during the period when the October offer (even if conditional) was on the table. Was the deputy judge right in his conclusions? On this issue also Mr Green’s excellent advocacy has caused me real doubts. I cannot help feeling that Mr Saner’s cut-price application to the Chancery Division may actually have made matters worse. Not only did it distract his attention from other matters; it also sent them into suspended animation, because having decided to seek guidance from the court, Mr Saner put himself in a position where he had to wait for that guidance. The guidance was a long time coming, and when it did it was incomplete (for reasons which involve no criticism of Rattee J).

Again, however, I must remind myself of the handicaps under which Mr Saner was working. He must not be judged with hindsight, or by an unrealistically high standard, or by a case which was not pleaded against him. The pleaded case concentrated on an alleged failure to put pressure (and if necessary to resort to hostile litigation or the threat of it) against Lansdowne. I agree with the deputy judge that that would not have helped. I consider that Mr Saner was not in breach of duty, except for his limited failure in respect of OAL.

I also agree with the deputy judge that that failure was not causative of loss. OAL was a link in the chain, but its only two assets (a defeasible equitable interest in 99 shares in INL, and a conditional contractual right to the finder’s fee) were assets of a very speculative and doubtful nature, because of OAL’s and INL’s multiple breaches of their obligations. Probably both assets were worthless at the deceased’s death, or from soon after it. Mr Saner’s delay in obtaining control of OAL was indeed inconsequential in terms of loss to the estate.

I should perhaps add that in opening the appeal Mr Green made a passing reference, in an apparent departure from what was common ground below, to the possibility that rather different principles of causation may apply to a claim for equitable compensation for breach of fiduciary duty. But he did not seek to develop the point. Mr Bannister submitted (in another departure from what had been common ground) that the claim was not, when properly understood, a claim for loss of chance within the Allied Maples principle. I need say no more than that the expression ‘loss of a chance’ can bear a narrower (and perhaps more correct) or a wider meaning (see McGregor on Damages, 16^th edition para 375). At least within the wider meaning, this was potentially a claim for loss of a chance.

It is therefore unnecessary to consider the issue of mitigation in relation to a claim for equitable compensation. English and Commonwealth authorities with some bearing on this point were considered by Carnwath J in Corporacion Nacional del Cobre de Chile v Sogemin Metals Ltd [1997] 1 WLR 1396.

I would therefore dismiss this appeal.

Lady Justice Arden:

I agree.

Lord Justice Auld:

I also agree.

Order: Appeal dismissed with costs. Permission to appeal refused.

(Order does not form part of the approved judgment)