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Cite as: [2002] EWCA Civ 1140, [2002] BPIR 1163, [2002] Lloyds Rep PN 584, [2002] Lloyd's Rep PN 584

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		Neutral Citation Number: [2002] EWCA Civ 1140
		Case No: A3/2001/0750

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEENS BENCH DIVISION
MANCHESTER DISTRICT REGISTRY
MERCANTILE LIST.
His Honour Judge Hegarty QC

Royal Courts of Justice
Strand, London, WC2A 2LL

31 July 2002

B e f o r e :

LORD JUSTICE MUMMERY
LORD JUSTICE CLARKE
and
LADY JUSTICE HALE
____________________

Between:


	MICHAEL ANTHONY PROSSER	Appellant/ Claimant
	and (1) CASTLE SANDERSON SOLICITORS (A FIRM) (2) GEOFFREY MARTIN & CO (A FIRM)	Respondents/Defendants

____________________

Anthony Elleray QC and Patrick Green (instructed by Shoosmiths) for the Appellant
Simon Monty (instructed by James Chapman & Co) for the First Respondent
Francis Bacon (instructed by Beachcroft Wansbroughs) for the Second Respondent
Hearing dates: 24 and 25 July 2002
____________________

HTML VERSION OF JUDGMENT : APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)
____________________

Lord Justice Clarke:

Introduction

This is an appeal from an order of His Honour Judge Hegarty QC dated 16 March 2001 in which he dismissed the appellant’s action against both respondents with costs. The order was made pursuant to a reserved judgment dated 30 November 2000 which was given after the trial of the action which lasted 15 days over a period from 2 May to 22 June 2000. The judgment runs to 186 pages and contains a very detailed analysis of the facts. The judge refused permission to appeal but permission was subsequently granted by Jonathan Parker LJ.

In the action the appellant claimed damages for negligence against both respondents, who are solicitors and insolvency practitioners respectively. The allegations were made against Mr Addlestone of the first respondents and Mr Sleight of the second respondents. In the case of Mr Addlestone the judge held that he owed a duty to the claimant and that he was in breach of duty but that the appellant had failed to prove that he suffered any recoverable loss as a result. In the appeal the appellant says that the judge should have held that he had suffered recoverable loss as a result of Mr Addlestone’s breach of duty. In the case of Mr Sleight the judge held that he did not owe a duty of care to the appellant. The judge did not therefore have to consider whether he was in breach of duty and did not do so. Nor did he consider the issues of causation or loss with particular reference to the case against Mr Sleight, but it is common ground that the questions of causation and loss should be determined in the same way in both cases.

In these circumstances the issues which potentially arise are whether Mr Sleight owed a duty of care to the appellant, whether, if so, he was in breach of that duty and whether the appellant suffered recoverable loss as a result of the breach of duty of either Mr Addlestone or Mr Sleight.

Although the trial lasted 15 days and the judgment is very long, it is not necessary to consider many of the issues analysed by the judge in order to determine the appeal. The negligence alleged against both Mr Addlestone and Mr Sleight is the same and occurred during a short adjournment of a creditors meeting on 23 March 1990. The meeting had been convened to consider the appellant’s proposal for an individual voluntary arrangement (“IVA”) under Part VIII of the Insolvency Act 1986 (“the 1986 Act”). The alleged negligence was failure to advise the appellant to seek an adjournment of the meeting. The judge held that, if he had been advised to seek an adjournment, the appellant would have done so and the meeting would have been adjourned for 14 days. The judge however held that he had failed to show that he had suffered recoverable damage as a result.

Background facts

The background to the issues between the parties is extensively set out in the judgment, to which reference should be made for points of detail. The position was shortly as follows. The appellant was a property developer. He operated for the most part through a company which was ultimately called Lakeside Holdings Limited. For convenience I shall refer to it as Lakeside throughout. The appellant initially owned all or almost all the shares in Lakeside. Subsequently some of shares were vested in the family trust of a Mr Paul Christie with whom the appellant went into partnership. Some time later there were disagreements between them which were settled by an agreement under which the trustees’ shares in Lakeside were transferred to MAP Developments Limited (“MAPD”) which had been formed by the appellant and in which he owned 98 shares and his then wife owned the other two.

As the judge put it, the result of the settlement was that in early 1987 the appellant controlled two property companies. He still held 98 of the 100 shares in MAPD, which in turn held 10 of the 22 shares in Lakeside. At least 11 of the remaining shares appear to have been held by the appellant personally, there being some uncertainty as to what became of one of the two subscriber shares originally vested in his wife.

In August 1986 MAPD purchased a property for development called Ford Mill at Holmfirth in West Yorkshire from Lynboard Limited (“Lynboard”) for £225,000. The purchase was financed by an advance from Allied Dunbar of £140,000, of which £100,000 was paid to Lynboard and the balance was retained by MAPD as working capital. The rest of the purchase price, namely £125,000, was left outstanding as a loan repayable by instalments. The claimant guaranteed repayment of the loan limited to £70,000. However, MAPD ran into difficulties and ceased to trade in November 1988. It subsequently went into creditors voluntary liquidation and Mr Peter Flesher of Grant Thornton was appointed liquidator on 8 February 1989.

A dispute arose between the appellant and the liquidator, as a result of which the appellant instructed the first respondents, who (in an earlier incarnation) had advised him in connection with the settlement of his dispute with Mr Christie. The liquidator asserted that the appellant was liable to MAPD for certain monies and on 5 December 1989 issued proceedings against him seeking to recover £125,994.57. The liquidator also asserted a wrongful trading claim against the appellant to the extent of the total estimated deficiency in the liquidation, which was later quantified in March 1990 as being in the region of £414,000, although in the event no proceedings were commenced against the appellant in this regard. As the judge put it, the whole matter was overtaken by events.

The appellant had also guaranteed MAPD’s liability to Lloyd’s Bank plc (“Lloyd’s”) and on 13 February 1989 the bank made a written demand under the guarantee for £113,642.24. The appellant had a number of other liabilities to Lloyd’s in addition to those which were the subject of the guarantee: see further paragraph 13 below.

On 10 October 1989 Lynboard commenced proceedings against the appellant for £70,000 plus interest and costs under the MAPD guarantee referred to above and on 11 December 1989 summary judgment was given against the appellant in the sum of £71,783.56. In addition Barclays Bank plc (“Barclays”) commenced proceedings to recover monies due on two current accounts and on 19 December 1989 obtained judgment against him for the total sum of £73,762.69. Further Mr David Turner, trading as Davward, claimed £3,500 under a promissory note but after he had issued a statutory demand he agreed to accept payment by instalments of £250 per month.

In summary, the judge held that the position as at the end of 1989 was that the appellant was faced with a number of personal liabilities. In particular, Lynboard and Barclays had obtained judgment for over £145,000 and the liquidator of MAPD had issued proceedings for nearly £126,000, quite apart from his claim for wrongful trading. There were also other creditors in the wings although, apart from Lloyd’s, the Inland Revenue and a Mr and Mrs Thornton, they were all family members or friends of the appellant. Their claims are summarised by the judge, but it is not necessary to set them out here because they were in due course to say that, if necessary, they would waive them. The appellant owed £6,500 to the Inland Revenue and £17,000 to Mr and Mrs Thornton.

Given the problems outlined above, the appellant not unnaturally sought advice. However, before giving a brief account of the advice sought, it is I think appropriate to consider shortly the assets of both the appellant himself and Lakeside since they form the backdrop to the issues in the appeal. The judge did the same between pages 8 and 37 of his judgment.

Personal assets

The appellant owned both Lakeside House, where he lived, and Lakeside Lodge. The judge ultimately held that their joint value as at 23 March 1990 was £415,000, although the appellant contended for £460,000, which, if necessary, he invites us to conclude was the correct value. The difference between them depends upon whether any premium would have been paid as a result of the grant of planning permission for a nursing home. Whatever the answer to that question, the judge held that the total amount owing to Lloyd’s and secured on Lakeside House and other properties owned by the appellant was £375,000. In addition the total amount owing to the Bradford and Bingley Building Society and secured on Lakeside Lodge was £55,000.

In addition the appellant and his wife owned Top of the Town Farm, which was valued at £170,000. They also owned a property called Hollybank in Huddersfield, which was valued at £165,000, although it was charged to Chase Manhattan for £60,000 with a second charge to Lloyd’s in respect of the indebtedness to which I have referred. Finally, the appellant owned two small properties in Dewsbury which were charged to Barclays by deposit of title deeds. Their joint value was agreed to be about £32,500.

Lakeside

The appellant also owned shares in Lakeside and therefore had an interest or potential interest in Lakeside’s assets. Lakeside owned some 16 properties in addition to its most valuable property which was called The Old Warehouse. The 16 properties were small houses which it was subsequently agreed were worth £337,500, although two of them, nos 21 and 23 Lowerhouses Road, were transferred to the appellant’s new company The Vending Revolution Limited in February 1990 at an undervalue, which reduced the agreed value from £337,500 to £297,500. Some of the houses were let and it was, as I understand it, agreed that it would take some two years to secure vacant possession of them.

The Old Warehouse was a substantial property which had been converted into flats with the assistance of a grant under the Housing Act 1974. This had the effect that some of that grant would or might have to be repaid together with interest, by way of what is called ‘clawback’, unless a sufficient period was allowed to pass before the sale of the properties. That period was five years. In 1989 and 1990 it was assumed that the five year period began only when the grant was paid and that it would not therefore expire until 1992, although the true position was that it ran from the certified date of completion of works and, according to the appellant’s case at the trial, expired in 1989. If the period had not expired, The Old Warehouse could be sold only as an investment property if clawback was to be avoided.

There was a dispute at the trial as to the value of The Old Warehouse as at March 1990. It was agreed that, if it was subject to clawback its value with its existing leasehold title was £325,000. If it was not subject to clawback, there was an issue as to its value which ranged between £620,000 and £345,000. The appellant stated in the statement of affairs produced for the IVA that the value was £500,000. In fact, the appellant and his wife owned 12 of the 22 shares in Lakeside, the other 10 shares being owned by MAPD. There was also another potential problem about realising the value of the Old Warehouse, namely that on 1 March 1989 the appellant had executed or purported to execute on behalf of Lakeside an option in favour of his wife to purchase Lakeside House for the sum of £250,000, although this option played no part in the thinking of the creditors in 1989 or 1990 because the appellant did not tell them about it until 1993.

The judge considered the total debts and liabilities of Lakeside in some detail between pages 21 and 37, saying that they were by no means easy to determine. No accounts had been prepared for any period after 31 December 1986 and the judge commented adversely upon the accounts which were produced until then. He said that the appellant’s record keeping was rudimentary at best and that no confidence could be placed in the accuracy of the books and records.

The judge concluded that Lakeside had unsecured liabilities of about £145,000 and secured liabilities of about £438,500. Its principal creditor was Allied Irish Bank, or Allied Irish Finance Limited, which was owed about £362,000 by November 1989, by which time it was pressing for the reduction of the indebtedness by sale of properties. In the result it was owed about £294,000 by 23 March 1990.

There were also potential liabilities to the Inland Revenue and to Customs & Excise, although there was considerable scope for argument as to what they were. The judge discussed these aspects of the case in some detail but it does not seems to me that it is necessary to do so in order to determine the issues on the appeal.

The judge of course considered not only Lakeside’s liabilities but also its income. After doing so, again in some detail, he concluded that it was unlikely that the actual rents receivable from Lakeside’s properties other than The Old Warehouse at the end of 1989 or the beginning of 1990 would have exceeded £50,000 on an annual basis. The figure for The Old Warehouse was agreed at £37,500 a year as at 23 March 1990.

Having considered the position in some detail the judge expressed these conclusions at page 34:

“It follows from this survey of the assets and liabilities of Lakeside that there was value within the company which could potentially have been unlocked in order to release monies which might have been used by Mr Prosser to pay off his personal debts and liabilities. The precise net asset position would depend upon the value properly attributable to The Old Warehouse. If this property is brought into account at the lower figure of £325,000, Lakeside would have total assets worth approximately £622,500 from which must be deducted the overall indebtedness of £438,850 comprising the amounts due and owing to AIB and to the Inland Revenue and other unsecured creditors, as adjusted in the way I have previously explained. This produces a net asset figure of £183,650. If, however, The Old Warehouse is brought into account in the sum of £620,000 as ultimately contended for on behalf of Mr Prosser, the net asset position of Lakeside would be represented by the substantially larger figure of £478,650.

But Mr Prosser would have faced very substantial problems indeed in unlocking this store of assets. For a start, as I have previously pointed, real property is not a liquid asset. It has to be marketed and sold with inevitable delay and associated cost. The market was fairly nicely poised in early 1990 and its future movements would not have been easy to predict. If sales were delayed in order to obtain vacant possession and the best price for the properties, Lakeside would continue to incur financing costs at the high rates of interest which were then prevailing.

Furthermore, any sales would almost certainly have given rise to additional tax liabilities, assuming that the properties were disposed of a profit.”

The judge then considered the potential tax liabilities and concluded that the factors which he had taken into account indicated that any liquidation of Lakeside’s property portfolio in late 1989 or early 1990 would have generated a significantly smaller net return than might be suggested by the arithmetical calculations of its net asset position.

The judge observed on page 36 that, since the appellant and his wife owned only 12 of the 22 shares in Lakeside and MAPD owned the remaining 10, the appellant would have to deal with the liquidator of MAPD and would be entitled only to his proportionate share of the assets on a return of capital. He added:

“No doubt there were various ways in which an orderly realisation and distribution of Lakeside’s assets might have been achieved. Various possibilities were raised in the course of the hearing, such as receivership, administration or a company voluntary arrangement, as an alternative to liquidation, though it seems to me that any realisation of the entirety of Lakeside’s assets by any of those routes would almost certainly have ended up with the liquidation of the company. Another possibility that was investigated was that of refinancing Lakeside’s property portfolio. But, whatever the merits of a refinancing operation, and even assuming that a lending institution would have been prepared to advance further monies for the purposes of enabling a distribution to be made to shareholders, there would still have been practical problems in effecting such a distribution. In any event, any of these methods of releasing monies from the company would have had significant cost implications, would have taken some time to implement and would have involved potential additional tax liabilities on the monies distributed.

No doubt it was in the light of considerations of this kind that a further possibility was pursued at trial, namely the marketing of Lakeside as a going concern by way of a sale of the shares by Mr Prosser and the liquidator of MAPD. Whether this would have been practicable is a matter to which I shall return later in my judgment, as is the question of the proper valuation of Mr Prosser’s shares in Lakeside. Once again, at this stage, it is sufficient to say that any such marketing exercise is also likely to have taken some time to have come to fruition, particularly having regard to the likelihood that any prospective purchaser would wish to see proper accounts for Lakeside and to satisfy himself as to its property portfolio and as to its value. I should add that, so far as I am aware, no consideration was given at the time to a possible sale of shares rather than a realisation of assets.”

Those considerations are directly relevant to the principal issues in this appeal and I will return to them after considering the advice sought by the appellant in late 1989 and early 1990.

Advice sought

The appellant first sought the advice of the first respondents who had advised him before. He was advised in the first place by Mr Bonfield and thereafter by Mr Addlestone. The judge summarised the reasons why such advice was needed on page 37 of his judgment as follows:

“In summary, therefore, at the end of 1989 and the beginning of 1990, Mr Prosser was faced with a liquidity crisis. He needed to raise about £145,000 as a matter of urgency, and, despite a positive net asset position, he had no immediate access to the necessary liquid funds. In saying that, I do not neglect the fact that he had, it would seem, about £35,000 available to him from funds provided by Colonel Bass [who was the guardian of his first wife], that he might have been able to borrow further funds from his brother and that, in February 1990, he managed to raise £50,000 or thereabouts from the sale of 21 and 23 Lowerhouses Road, in order to fund his Vending Revolution venture. He was, therefore, unable to meet his debts as they fell due; and he faced at least one creditor, namely Barclays Bank plc, which appears to have been intent upon making him bankrupt.”

On 22 November 1989 Mr Bonfield wrote to the appellant advising him that he had no defence to the actions brought by Barclays and Lynboard. He pointed out that, taking account of the debt owing to Davward under the promissory note, by close of business on 11 December 1989 he would have an immediate cash requirement of £145,000. He added that in his opinion both Barclays and Lynboard were likely to serve statutory demands and that, unless something was done, he would be made bankrupt in early 1990. Since it would take at least two months to explore the possibility of refinancing his property portfolio, he recommended that the appellant take the advice of an insolvency practitioner. He referred him to the second respondents.

On 7 December 1989 Mr Bonfield again wrote to the appellant reminding him that he had no defence to Barclays’ application for summary judgment which was listed for hearing on 19 December. He also told him that the Royal Trust Bank, who had been approached for assistance, was not prepared to assist in a remortgage of his property portfolio and that the only alternative would be “the planned liquidation of your assets to realise the cash required”. He added that “the only possibility you will have of having any control over such a situation would in my opinion be for you to enter into a voluntary arrangement”.

The appellant had in fact already been in touch with the second respondents, where he dealt with Mr Sleight. The judge held that he told him that, together with his wife, he owned a number of substantial properties in which there was considerable equity and that he was also a shareholder in Lakeside, which itself held a substantial number of properties, and he valued his interest in the company at about £500,000. Accordingly, while he had sufficient assets to pay his creditors he needed time in which to do so. He wanted to avoid bankruptcy. They discussed the options available to the appellant and Mr Sleight explained what would be involved in an IVA.

The judge said that while one could see that refinancing might be the most attractive option, the proposals made to the Royal Trust Bank had foundered and, although the appellant had other irons in the fire, it seemed that, whatever the merits of a refinancing package, that did not seem to the appellant or his advisers to be the immediate answer to his problems. The judge held that it was after their first meeting that Mr Sleight recommended an IVA. The judge expressed his conclusions thus at pages 41 and 42:

“Furthermore, of course, it was the view of Castle Sanderson that there was no defence to either of the actions and that the creditors were likely to be hostile [ie to refinancing]. In those circumstances, it is unsurprising that, within a fairly short space of time, Mr Prosser appears to have decided to enter into a voluntary arrangement. … I think it is likely that there would have been discussions between Mr Addlestone or his colleagues at Castle Sanderson and Mr Sleight, in his capacity as insolvency practitioner and probable nominee of a voluntary arrangement, as to whether this was the best route to take; and I think it is likely that he would have agreed.”

The judge held that it was probably at about this time that modest security was given to Barclays by way of deposit of the title deeds of the two properties in Dewsbury to which I referred above. However, he also observed that the appellant did not offer any further security to either Barclays or Lynboard, which “suggests that he did not consider that he was able or willing to do so”. The judge further found that at some stage the appellant told Mr Addlestone that Lakeside’s liabilities to the Inland Revenue were in the region of £30,000.

The decision to propose an IVA was taken by 18 December 1989 because on that day the first respondents wrote to Mr Jackson of Dibb Lupton saying that the appellant would consent to judgment but would seek a stay of execution for 21 days. They also informed him that on the advice of the second respondents he intended to enter into an IVA. Judgment was entered for Barclays and a stay for 21 days granted the next day. On 4 January 1990 Mr Addlestone met Mr Sleight to discuss the appellant’s affairs and on the same day he wrote to Dibb Lupton asking for further time in order to collate the information and discuss it with Mr Sleight, the proposed nominee. He added that it seemed likely that there may be full recovery by all creditors under the proposal being prepared.

The first proposal

Mr Addlestone prepared the necessary documentation and on 9 January the appellant swore his first affidavit. in which he stated that he was insolvent and to which he exhibited first the notice to Mr Sleight and Mr Sleight’s agreement to act as nominee and secondly the formal proposal including (I think) the statement of affairs drafted by Mr Addlestone. For some reason the proposal is not contained in the documents we have seen, but the judge described it as follows:

“The proposal itself referred to the collapse of MAPD and stated that, in his belief, his current predicament stemmed from the failure of that company. He then verified the details of his assets and liabilities, as set out in the accompanying statement of affairs. I will have some further comments to make on this statement of affairs and the related passages in the body of the proposal. But the essence of the proposal is set out at paragraph 9. It was proposed that a number of the residential properties owned by Lakeside should be sold and the proceeds of sale should be realised for the benefit of creditors by way of a members voluntary liquidation. It was specifically stated that he held 98 shares in Lakeside and his wife the remaining 2 shares. The supervisor of the voluntary arrangement was to be the liquidator in the members voluntary liquidation. It should, perhaps, also be noted that, at paragraph 14, it was proposed that the duration of the voluntary arrangement should be 12 months or such longer time as should be absolutely necessary for the realisation of the assets. It was therefore envisaged from the outset that it might take more than a year to bring the liquidation to a conclusion.”

The judge added that it was absolutely plain from the proposal that in early January 1990 the appellant had decided that the best way in which he could extricate himself from his current difficulties was to realise the assets of Lakeside by means of a members voluntary liquidation but that, by the same token, the properties which were vested in his own name, either solely or with his wife, would be retained. However, as the judge observed, within a short time he changed his mind.

The statement of affairs was much criticised at the trial and the judge discussed its deficiencies in some detail. It is not, however, necessary for me to consider them here save to note that, as the judge put it, the most obvious and striking inaccuracy in both the statement of affairs and the proposal was the assertion that the appellant in effect owned the entire share capital of Lakeside, whereas he in fact owned only a little more than half, because 10 of the 22 shares were owned by MAPD. He said in evidence that he was unaware of the true position until after the meeting of 23 March and the judge accepted his evidence in that regard, saying that it would not be right to conclude that the appellant misstated the position deliberately and dishonestly. As I read the judgment, the judge was of the view that Mr Sleight had carried out a search which revealed that only 12 of the 22 issued shares were held by the appellant and that Mr Sleight himself may have remained unsure as to what the true position was in spite of what he had been told by the appellant.

On 10 January the court made an interim order under section 252 of the 1986 Act which had the effect that no proceedings and no execution could be commenced or continued against the appellant without the leave of the court for 28 days.

Lakeside’s accounts

The judge said on page 55, to my mind with considerable force, that since the initial proposal involved the liquidation of Lakeside, one might have expected that arrangements would have been put in hand as a matter of urgency to ensure that Lakeside’s accounts were brought up to date. Although the matter was discussed with his accountants, Revell Ward, the appellant never put them in funds to carry out the work and it was not done.

Mr Elleray submitted that appropriate figures could have been obtained at any time through a Mr Schofield, who was an estate agent who collected the rents from the properties, or through the first respondents themselves, who had been concerned with the conveyancing. That is no doubt true, but the judge held in effect that no-one sought information from either source at the time. At a late stage of his evidence the appellant said that he believed that he had asked for statements of rents collected by Mr Schofield and for bank statements for the accounts with Lloyd’s, but the judge did not accept that evidence as true.

Both Mr Addlestone and Mr Sugden tried to obtain accounting information from the appellant without success. Thus in a note of a meeting with Revell Ward on 18 January Mr Sugden recorded that they were unable to establish the liabilities of Lakeside “as Mr Prosser has failed to provide information requested in order that accounts be prepared”. On 9 March Mr Addlestone wrote to the appellant emphasizing the importance of accounts and followed the letter up with a telephone conversation in which he noted that he explained to the appellant “for the umpteenth time” the urgency of obtaining certain documentation. The note also records that the appellant had not received the letter, but the judge commented (to my mind convincingly) that it seemed highly likely that Mr Addlestone would once again have explained to the appellant the need for him to attend to the various matters set out in the letter. On 16 March Mr Sugden also wrote to the appellant seeking accounting information.

The judge expressed his conclusions in this regard as follows on pages 56 and 57:

“So none of this documentation provides any support whatever for the proposition that Mr Prosser had provided any of the information required by Revell Ward in their letter of 12^th January 1990; and Mr Prosser was quite unable to point to any other documentation supporting his recollection. I am quite unpersuaded that any detailed information was provided by Mr Prosser, though much of it could probably have been supplied comparatively easily. Indeed, Mr Prosser emphasised that Revell Ward or his other professional advisers could have obtained the necessary documentation without any active involvement on his part. But, as it seems to me, the fact remains that Mr Prosser was asked for this information on a number of occasions and failed to take any steps to provide it, even though the importance of providing up to date accounts was emphasised to him on a number of occasions. No doubt, once the information was available, the accounts could have been prepared in a matter of weeks, since Lakeside’s business was a fairly simple and straightforward one. But, as Mr Sleight asserted in evidence, the accounts would have been a matter of considerable importance to Mr Prosser’s creditors in order to enable them to obtain a tolerably clear view of the company’s financial position, including its tax liabilities and any claim which it might have against Mr Prosser or vice versa. But Mr Prosser was either unable or unwilling to ensure that the accounts were in fact prepared and he cannot avoid responsibility for the consequences of that failure by sheltering behind his professional advisers.”

As appears below, those conclusions are important in the context of this appeal.

The second proposal

In the meantime, on 16 January Barclays maintained the pressure by refusing the request for an extension of the stay of execution on the ground that they had not received the appellant’s proposals. To that end Mr Sleight sought as much information as possible because, as nominee, it was his duty under section 256(1) of the 1986 Act to submit a report to the court stating whether in his opinion a meeting of creditors should be summoned to consider the debtor’s proposal. It was the duty of the debtor to provide the nominee with all relevant information. In the event Mr Sleight obtained a good deal of information about the values of the various assets, as set out on pages 57 and 58 of the judgment, but never received detailed accounts.

By 29 January the appellant had decided that he wanted to amend his first proposal. He therefore swore an affidavit in support of an application by Mr Sleight as nominee for an extension of the interim order. He explained that he had originally hoped to continue to live at Lakeside House but that Allied Irish Finance Limited, who held security over most of the properties in the name of Lakeside, had altered their approach to their security. They had originally been willing to divide their security between the various properties owned by Lakeside and secured by them and not to insist upon payment of the proceeds of each sale in full in reduction of the indebtedness. However, on learning of the proposed IVA, they said that they were no longer willing to continue that arrangement. The appellant added:

“It may therefore be necessary for me to dispose of all the company’s assets to discharge my liability to Allied Irish Finance Limited in full, before any remaining surplus becomes available to be paid for the benefit of my creditors.”

The appellant said in his affidavit that he would prefer not to pursue that option because it would be likely to result in substantial tax liabilities and it would take longer to sell all the properties rather than to sell his home. He therefore proposed two options. The first was to sell two of his personal properties and to raise finance on two others, which he said should release sufficient to meet his liabilities to his creditors. The second was that, if he encountered difficulties in implementing that option, he would be willing to dispose of his investment in Lakeside and suffer the necessary tax consequences.

It is important to note that the appellant expressly recognised in the affidavit that there were a number of matters which his nominee wished to investigate in order to ensure that, so far as possible, the proposal would be acceptable to his creditors. He identified four matters which needed to be dealt with. They included the obtaining of the following: a valuation of Lakeside House and Lakeside Lodge taking account of the planning permission to which I referred earlier, letters from some of his creditors waiving their claims and a letter from his wife releasing her share of the equity in Lakeside in favour of his creditors.

For present purposes, the most important was, however, the following:

“Up to date accounts need to be prepared in relation to Lakeside … . I am therefore making arrangements for the Company Accountants, Messrs Revell Ward, to complete the accounts and to liaise with Mr Sleight. This will reveal whether there are any hidden liabilities which may affect the valuation of my investment in the company.”

I set out under the heading ‘Lakeside’s accounts’ above the efforts made by the respondents to obtain details of the accounts. The significance of this passage is that it shows two things. First, it shows the importance which was attached to the accounts by the respondents as the appellant’s advisers at the time. Secondly, it shows the reason why the accounts would be regarded as important by a creditor, namely that they would reveal whether there were any hidden liabilities of which they should be aware before making a decision as to what attitude to take to the proposal or any future modification of it. The importance of that information was stressed again at the end of the appellant’s affidavit.

The amended proposal was exhibited to the affidavit. The time-scale proposed was that the appellant would have three months to arrange a re-mortgage of Top of the Town Farm and Hollybank and a further nine months to achieve a sale of Lakeside House and Lakeside Lodge. If he was unable to comply with that timetable or to obtain the necessary funds to enable his creditors to be paid in full, he proposed, once again, that Lakeside would be put into members voluntary liquidation in order to release the necessary funds. He again asserted that he owned 98 shares in Lakeside and that his wife owned the other two.

On the basis of that evidence Mr Sleight sought an extension of time and swore an affidavit in support on 31 January. A 28 day extension was granted on 6 February. The order of the court directed that the nominee’s report be delivered to the court not later then 28 February. On 27 February Mr Sleight made his report recommending a meeting of creditors to be held on 23 March. His report included a number of what are described as nominee’s comments, which made it clear that the appellant was still to provide a good deal of further information and included the following:

“As yet, however, I do not have up to date information as to the true financial position of the Company, although the Debtor has indicated that he will be providing certain information to the Company’s auditors to enable them to bring the accounts up to date. From the information supplied by the Debtor, it would appear that there are substantial assets within the Company, although I understand that the Company may have certain outstanding tax liabilities and may be a creditor of Mr Prosser in respect of his Directors Loan Account. I have therefore advised the Debtor to provide every assistance to the auditors to ensure that this information is made available in time for the Creditors’ Meeting.”

On 5 March the court extended the period until 14 May to enable a creditors’ meeting to be held on 23 March.

Notice of the meeting was given on 8 March. As stated earlier, Mr Addlestone wrote to the appellant on 9 March. In addition to the accounts he expressly stated that he required firm unconditional written offers of refinance of Top of the Town Farm and Hollybank, signed waivers and signed documents from himself and his wife regarding the proceeds of sale of Lakeside House and consenting to the appointment of Mr Sleight as liquidator. He enclosed a copy of both the amended proposal and the nominee’s comments and asked the appellant to read them “very carefully”. He concluded as follows:

“It is absolutely essential that all of the above information is provided in time for the Creditors Meeting, since your creditors will wish to know that the proposal is a realistic one and since your creditors will be aware that considerable time has elapsed since we first obtained an Order from the Court, giving you plenty of opportunity to obtain this documentation in time for the meeting. Any suspicions which may be raised by the creditors could jeopardise the arrangement and leave you open to the possibility of a Bankruptcy Petition being issued against you.

There is a procedure allowing for the Meeting of Creditors to be adjourned but this procedure is rarely adopted and ordinarily the proposal is either approved by the creditors or rejected. If there is an adjournment of the meeting it must reconvene within fourteen days and there can be no further adjournment. If the creditors cannot agree the proposal by that time it will be rejected and a new proposal will not be entertained by the court.”

That advice was in my opinion very sound. There had indeed been a long time since the order was first made, let alone since the date when the judgments were obtained against the appellant in late 1989. It was likely that the creditors’ patience was running out. Mr Addlestone was right to say that any adjournment could be for a maximum of 14 days: see rule 5.19 of the Insolvency Rules 1986. The judge held that if the appellant had not received that letter within a short time of the telephone conversation which followed it (and to which I referred earlier), a further copy would almost certainly have been provided to him and, in any event, Mr Addlestone would have repeated what he said in the letter in the course of the telephone conversation. There is no doubt that the appellant knew the score because Mr Sleight wrote to him in similar terms on 16 March.

We have also seen an internal Lloyd’s document dated the same day showing no little impatience. As the judge put it, Lloyd’s was becoming restive. It had previously indicated to the appellant that it expected him to find a buyer for Lakeside House or Lakeside Lodge within three months, failing which it would take action. The judge said, in my view correctly, that it seemed extraordinary that in these circumstances the appellant did not inform Lloyd’s of the proposal for an IVA. Nor did he tell Mr Addlestone or Mr Sleight of the pressure he was under from the bank.

Also on 16 March, Mr Addlestone had a meeting with Miss Kavanagh of Hammond Suddards, who represented the liquidator of MAPD. As the judge found, Miss Kavanagh had done her homework and was aware that Lakeside House was in the sole name of the appellant. She subsequently wrote a letter dated 21 March in which she made it clear that, quite apart from the loan account action, the aim of the liquidator was to seek a contribution from the appellant such that the unsecured creditors would be paid in full. Thus the appellant would have to agree that the whole of the liquidator’s claim would be admitted to proof. Further the proposal would have to be amended so as to provide for the realisation of sufficient assets to pay all creditors in full, which would require the realisation of some of the appellant’s shareholding in Lakeside.

The letter also made it clear that the liquidator would expect the appellant to produce Lakeside’s accounts, together with other relevant documents before the meeting, and that he would expect the appellant to agree that interest would be paid at the rate appropriate to a bankruptcy, which at the time was at the high rate of 15 per cent. Mr Addlestone replied on 22 March, making a number of points on behalf of the appellant. He referred to the possibility of an adjournment of the meeting for no longer than 14 days and expressed his view that it would be preferable to put an IVA in place on appropriate terms rather than to put it off any longer.

The creditors meeting

The meeting took place at 11am on Friday 23 March 1990 in Leeds. The judge thought it likely that there was a preliminary meeting between the appellant, Mr Addlestone and Mr Sleight before the creditors meeting itself in order to discuss the modifications which Mr Sleight was to put to the meeting. At the meeting itself Mr Sleight presided in his capacity as nominee and the appellant attended with Mr Addlestone. Four creditors were represented as follows. Miss Kavanagh represented the liquidator of MAPD, Mr Jackson of Dibb Lupton represented Barclays and Mr King attended as a solicitor for Lynboard. Mr Atkinson of Lynboard also attended. In addition the appellant’s brother Clive was present throughout the meeting. Three creditors who did not attend had submitted proxy forms to Mr Sleight. The accountants Revell Ward were willing to vote in favour of the arrangement subject to certain amendments and Masterway Ltd, a company owned by David Prosser, one of the appellant’s brothers, voted in favour without qualification. However, the Inland Revenue cast its vote against the proposal.

At the outset Mr Sleight put modifications to the meeting which the judge held had presumably been agreed by the appellant. There were four. First, Lakeside House and Lakeside Lodge were to be marketed for a period of six months and, if no suitable offers had been received within that period, would then be sold by tender. Secondly, Top of the Town Farm would also be marketed for the same period and, if necessary, sold by tender once the period had expired. Thirdly, if the properties had not been sold within six months, Lakeside would be placed in members voluntary liquidation. Finally, re-finance would be sought on Hollybank with a view to raising £200,000.

The judge heard evidence from the appellant, Mr Addlestone, Mr Sleight, Mr Sugden (who was also from the second respondents), Mr Jackson, Miss Kavanagh, Mr Clive Prosser and Mr Atkinson. He said that, unsurprisingly, none of the witnesses had a detailed recollection of what had occurred and some had virtually none. The meeting had after all occurred some ten years before the trial. Only Mr Sugden and Mr Jackson apparently made a contemporaneous note of the meeting, although the judge said that there was a further document from an unknown source which bore the appearance of being such a note. The judge, however, held that certain features of the meeting were reasonably clear as follows.

The meeting became heated and in large measure hostile to the appellant. Mr Jackson had received clear instructions from Barclays that he should vote against the proposal with a view to making the appellant bankrupt. He led the opposition to the proposal. He provided Mr King (for Lynboard) with a blank form of statutory demand. In short, both Barclays and Lynboard were threatening immediate bankruptcy proceedings.

The judge expressed his findings of fact as to what occurred at the meeting before it was adjourned on pages 72 and 73 of his judgment as follows:

“Mr Jackson appears to have concentrated particularly on Lakeside. According to Mr Sugden’s note, he pointed out that the original statement of affairs showed a deficit as regards unsecured creditors unless the value of his shareholding in Lakeside was brought into account; and he effectively confirmed this assessment in his witness statement. The position might well, of course, have been different if Lakeside House and Lakeside Lodge could have been sold at £550,000, if £200,000 could have been raised by way of a re-financing arrangement over Hollybank, and if the connected creditors had been willing formally to waive any claims to repayment. But, there was no valuation evidence to support such a value for Lakeside House and Lakeside Lodge; nor were there any formal offers of re-finance of Hollybank. Furthermore, there were no formal letters of waiver, save for a rather nondescript document produced by Mr Prosser at the meeting which appears to constitute such a waiver from Mrs Rayghi. Mr Clive Prosser stated that he told the meeting that both he and Masterway Limited would waive their claims, though there was no formal document to that effect. I accept Mr Clive Prosser’s evidence on this point, though, interestingly, Mr Sugden’s note appears to suggest that “Mr Prosser” said that Hi-Spek Limited and Masterway Limited “may or may not waive their claims”.

According to Mr Sugden’s note, Mr Jackson also asked how any re-financing package was to be financed, and pointed to the absence of any cash-flow forecasts. He also asked how it had come about that Mr Prosser had become a 98% shareholder in Lakeside, having regard to the information contained in its returns. There was also discussion, during the course of the meeting, about the absence of any up-to-date accounts for Lakeside, though, according to Mr Sugden’s note, Mr Sleight pointed out that a valuation of its properties showed assets of £1.1million. There appears also to have been a reference to cash-flow problems experienced by Lakeside; and some consideration appears to have been given to the "tax implications of Lakeside.”

In the light of these matters, and, no doubt, also in view of the bank's assessment of Mr Prosser, Mr Jackson argued forcefully for an immediate liquidation of Lakeside. That was very much against the wishes of Mr Prosser. Miss Kavanagh, on behalf of the liquidator of MAPD, however, was willing to agree to the modifications put forward at the outset by Mr Sleight, so that Mr Prosser would have six months’ grace in which to realise his personal assets before having to put Lakeside into liquidation. Mrs Kavanagh was, therefore, willing to cast the liquidator’s vote, in respect of both his loan account claim and his wrongful trading claim, in favour of Mr Prossers’s proposal, subject to certain other, less fundamental, modifications. But Mr Jackson objected to any vote being allowed in respect of the wrongful trading claim. As chairman of the meeting, Mr Sleight was called upon to rule on this question and he decided that Miss Kavanagh should be admitted to vote only in respect of the loan account claim, though he proposed that provision should be made in the voluntary arrangement for the amount claimed by the liquidator on the grounds of alleged wrongful trading. This decision to make provision for the wrongful trading claim was the subject of criticism on behalf of Mr Prosser during the course of the trial. In those circumstances, it is somewhat ironic that Mr Prosser appears to have supported Miss Kavanagh’s right to vote for the entirety of the liquidator’s claim. Mr Jackson’s note of the proceedings records that Mr Prosser was “keen to admit the whole wrongful trading claim to save his bacon.” Furthermore, Miss Kavanagh herself, in cross-examination confirmed that this was so. I am satisfied that this is correct.

Now, at some stage in the course of the debate as to whether Lakeside should be put into immediate liquidation, there was a short adjournment during which Mr Prosser, Mr Addlestone and Mr Sleight retired to discuss these developments.”

The advice

According to Mr Sugden’s note, there was an adjournment for five minutes at 12 o’clock. During the adjournment the appellant, Mr Addlestone and Mr Sleight retired to discuss the position. It was the advice given or not given in the course of this short discussion that has led to this action. The judge expressed his conclusions as follows at pages 73 to 77. His conclusions include the following:

“Inevitably, it is impossible to determine precisely who said what to whom during the few minutes which they had to discuss developments. But Mr Prosser had clearly been unwilling to agree to the immediate liquidation of Lakeside and I am quite satisfied that, in the presence of both Mr Addlestone and Mr Sleight, he asked whether he had any alternative to immediate liquidation. It is equally clear that he was told that he had no alternative. It is plain that this view was shared by both Mr Addlestone and Mr Sleight . Furthermore, that view appears to have been correct, in the sense that it must have seemed that Mr Prosser could not have obtained the requisite 75% majority for his proposal, if it had been put to the vote there and then, unless he had been willing to agree to the further modification. Both Barclays Bank plc and Lynboard Limited were intent on voting against the unmodified proposal, and the Inland Revenue had lodged a proxy vote against it. Despite the support of Miss Kavanagh, therefore, once Mr Sleight had ruled that she could not cast a vote for the full amount of the liquidator’s claim, it must have seemed inevitable that the proposal would have been voted down unless Mr Prosser had agreed to the immediate liquidation of Lakeside.”

There was a conflict of evidence as to what happened during this discussion. For present purposes it is sufficient to set out the findings made by the judge since they are not challenged in this appeal. They are set out as follows on pages 76 and 77 of the judgment:

“It seems to me that Mr Sleight was not present during these brief discussions simply to hear what decision Mr Prosser had come to. An impasse had been reached at the meeting which needed to be resolved. Mr Sleight was an experienced insolvency practitioner and was seemingly willing to answer any questions. On balance, I think it is likely that he either gave or expressly associated himself with the advice that there was no alternative to placing Lakeside in immediate liquidation. That was his view, and I think it unlikely that he would not have expressed it. But I have no real doubt that the advice to this effect was intended to be understood as meaning that Mr Prosser had no alternative if he wished to secure approval from his creditors to his proposal for a voluntary arrangement, and thus avoid bankruptcy.

It is common ground that the discussions did not touch upon any other possible course of action. Neither Mr Sleight nor Mr Addlestone raised the possibility that he might seek an adjournment of the meeting for up to 14 days in order to allow further time to respond to the demand for immediate liquidation. Nor were the precise potential consequences of an adverse vote spelt out to him. He was not told, for example, that he would have up to 21 days to respond to a statutory demand, whether by payment or by the provision of security. Nor did Mr Prosser ask for any advice about the implications for the wrongful trading claim asserted by the liquidator of MAPD; and none was given.”

The creditors meeting then resumed.

The resumed meeting

The judge held that initially the appellant maintained his refusal to agree to Lakeside being put into members voluntary liquidation and only changed his mind when he appreciated that neither Barclays nor Lynboard was likely to change its mind. He then reluctantly agreed that the proposal be modified to include the liquidation of Lakeside. As a result of that agreement Lynboard agreed to the proposal. Mr Jackson maintained his objection, as did the Inland Revenue, but (as the judge put it) the defection of Lynboard was sufficient to ensure that the modified proposal was approved. By rule 5.18(1) of the Insolvency Rules 1986 a majority of three-quarters in value of the creditors present in person or by proxy and voting on the resolution was required to approve the modification. The agreement of the debtor was also required under section 258(2) of the 1986 Act.

In the result Mr Sleight was appointed to act as supervisor as envisaged by rule 5.20 and made a report in his capacity as chairman of the meeting in accordance with section 259 of the 1986 Act. His report was dated 26 March 1990. It set out the agreed modifications including the following. Lakeside House, Lakeside Lodge and Top of the Town Farm would be marketed for six months following which, if no suitable offers had been received, there would be a sale by tender. Mrs Prosser waived any right she might have in them. Provision would be made for a claim by the liquidator of MAPD against the appellant for alleged wrongful trading. The claims of Masterway Limited, Hi-Spec Roofing and Mrs Raygi were to be excluded from the IVA because they had been waived. The appellant agreed to place Lakeside into members voluntary liquidation with immediate effect.

Duty of care

Mr Addlestone

The first respondents conceded at the trial that Mr Addlestone owed the appellant a duty of care, both in contract and in tort, during the discussion when the meeting was adjourned. That concession was plainly correctly made and is common ground in this appeal.

Mr Sleight

No such concession was made in the case of the second respondents and the judge held that Mr Sleight did not owe the appellant a duty of care in either contract or tort at that time. It was and remains common ground that when Mr Sleight initially gave advice to the appellant in late 1989 he did so pursuant to a contract and that he owed him a duty of care in both contract and tort at that time. The same is true in early 1990 when he gave the appellant further advice as described above. However it was submitted that he owed no such duty when he was acting as either nominee or as chairman of the creditors meeting. Reliance was placed upon the decision of this court in King v Anthony [1998] 2 BCLC 517, where it was held that a person acting as a supervisor under section 263 of the 1986 Act did not owe individual creditors a duty of care because when so acting he was an officer of the court and Part VIII of the Act contained a self-contained statutory scheme which included express powers of the court to give appropriate directions if complaint was made to the court about a supervisor’s conduct. It had been conceded in King v Anthony that a person owes no such duty as nominee or chairman of the meeting, by reason of section 262 of the 1986 Act.

Mr Elleray’s submission before the judge, as it has been before us, was that even though Mr Sleight acted as nominee and chairman of the meeting (and indeed subsequently as supervisor) that was not the capacity in which he was acting during the short adjournment of the meeting. Mr Elleray submitted that whether or not Mr Sleight owed the appellant a duty at that stage was to be determined in accordance with ordinary principles. He submitted that it was reasonably foreseeable that the appellant might suffer loss as a result of inadequate advice and that the relationship was clearly sufficient to satisfy the test of proximity. He further submitted that there was either a contract between the parties which remained on foot during the short adjournment or the relationship between them was as close as it would have been if there had been a subsisting contract between them.

In the circumstances he submitted that it was fair just and reasonable to impose a duty of care and relied, for example, upon Caparo Industries plc v Dickman [1990] 2 AC 605. He pointed to the fact that Mr Sleight must have realised that both Mr Addlestone and the appellant were looking to him for guidance, as the person with the greatest practical experience of insolvency matters in general and IVAs in particular. There was nothing which might have led the appellant to think that a duty of care was being limited or excluded. On the contrary, Mr Sleight has previously given advice in relation to the appellant’s options and as to the IVA which was contemplated.

The judge accepted the submission that an individual acting as nominee or supervisor may choose, as the judge put it at page 112, to lay aside that capacity and deprive himself of any statutory immunity in contract or tort. He recognised the strength of the point that Mr Sleight had previously given advice with regard to the IVA and the appellant’s options. Moreover he accepted that there was nothing to suggest that he made it plain to the appellant that he would cease to act in an advisory capacity once he became an office holder. The judge said that that was an unfortunate omission which might well have created the impression in the appellant’s mind that Mr Sleight was continuing to act in an advisory capacity, at least in tandem, so to speak, with the fulfilment of his duties as a nominee. Further Mr Sleight was content to discuss matters with the appellant and Mr Addlestone during the short adjournment and to answer any question which might be put to him. That put Mr Sleight in a difficult position which the judge said it would have been better if he had not embraced.

Despite those considerations, the judge concluded that it would not be fair just and reasonable to impose a duty of care on Mr Sleight. His reasons can be seen from these two paragraph on pages 113 and 114 of the judgment:

“But on the other hand, it seems to me to be plain that, whatever the position may have been in the run up to the creditors’ meeting, Mr Sleight was now acting as chairman of the creditors meeting with responsibilities to all involved, rather than as a private adviser to Mr Prosser. This can, in the sense, be illustrated by the way in which the claim is formulated. It is said that Mr Sleight should have advised Mr Prosser to apply for an adjournment of the meeting. But that was clearly a matter in relation to which Mr Sleight might be called upon to exercise his statutory discretion under rule 5.19 of the Insolvency Rules 1986. Now, I do see that Mr Sleight could have been said to have assumed a duty of care if he had simply informed Mr Prosser of the options which were in fact open to him, whether that was done in the course of the meeting itself or during a private discussion with Mr Prosser during a short adjournment of the meeting, when he might also have wished to ascertain from Mr Prosser how he wanted to proceed. But in fact, on my findings, he went somewhat further than that and gave, or associated himself with, positive advice that he had no alternative but to agree to the modification advocated by Mr Jackson.

It is, I think, a fine line. However, I have come to the view that, in this particular case, it would not be fair just and reasonable to impose a duty of care upon Mr Sleight in these circumstances. I do not think that the courts should be too ready to detect a change of capacity on the part of the chairman of the meeting, if, in the heat of the battle, he expresses an opinion which could be regarded as constituting advice to the debtor. To impose such a duty would potentially place an insolvency practitioner in a position where his duties to the debtor and to the other participants were in conflict. In particular circumstances of this case, I place significant weight on the fact that Mr Prosser was, in any event, attended by his own solicitor, who had some experience of insolvency matters. I consider that both Mr Sleight and Mr Prosser were entitled to expect that advice should be given by the person retained for that purpose rather than the chairman of the meeting, even though he may have temporarily left the chair and may, perhaps unwisely, have expressed an opinion as to how Mr Prosser should proceed. I therefore conclude that Mr Sleight did not owe a duty of care to Mr Prosser and that the claim against him, therefore, fails.”

Mr Elleray submitted that the judge was wrong to reach those conclusions. The judge said that it was a fine line. I have reached a different conclusion from the judge on this point. I agree that the courts should be careful not to impose duties upon nominees or chairmen of creditors meetings when they are acting in that capacity. However, to my mind Mr Sleight was not acting in that capacity during the discussion with the appellant and Mr Addlestone during the short adjournment. He was acting in precisely the same capacity as he had when he gave advice in the period before the meeting. Moreover, it was advice on the very same questions, namely what options were available to the appellant.

In the absence of a clear indication to the appellant that he was no longer acting in that capacity but as nominee or chairman it would be fair just and reasonable to impose a duty upon him. Indeed, to my mind he was then acting pursuant to the contract just as he had been before. Both the appellant and Mr Addlestone were no doubt looking to him as the expert insolvency practitioner just as they had before. In all the circumstances I would hold that Mr Sleight owed a duty of care to the appellant during the short adjournment. As the judge said in a passage which I have already quoted, he did not stand idly by. On the contrary, he either gave or expressly associated himself with the advice that there was no alternative to placing Lakeside in immediate liquidation.

Finally in this regard I would add this. I do not think that this view creates difficulties for nominees or chairmen of creditors’ meetings. It merely emphasizes the importance of their making it clear to the debtor in what capacity they are acting at any time, which in my opinion is very desirable.

Breach of duty

Mr Addlestone

The judge held that Mr Addlestone was in breach of duty in one respect. He held (at page 117) that he ought reasonably to have advised the appellant of the possibility that he could seek and obtain an adjournment in order to consider the demands which were being made upon him, to seek to answer them and make out a reasoned case against them and to provide any necessary further information, before a vote was taken. The judge said that, although he may have had serious reservations as to whether the appellant could produce the material which might satisfy Mr Jackson in particular, that would be a matter for his client rather than him.

The judge finally expressed his conclusions on this question in this way on page 118:

“It seems to me, therefore, that Mr Prosser’s case against Mr Addlestone reduces to the contention that he was negligent in failing to advise him that he could ask for an adjournment of the meeting for up to 14 days. I am very conscious of the fact that the meeting had become somewhat fraught and that Mr Addlestone is likely to have had only comparatively limited time for reflection. But, in a sense, that underlines the very reason why, in my judgment, a reasonable practitioner in his position should have advised his client that there was one obvious alternative, namely to seek an adjournment. That would have given Mr Prosser and his advisers an opportunity for reflection so as to enable them to deal with the various points which had arisen during the course of a meeting and to put forward a reasoned response. I bear in mind that this was a course of action which he had expressly considered only the previous day when he wrote to Miss Kavanagh. I take the view, therefore, that, in failing to advise Mr Prosser that he might ask for an adjournment of the meeting, Mr Addlestone did not discharge the duty of care which he owed to his client.”

As appears below, it is important to note that the only respect in which Mr Addlestone was held to be in breach of duty or negligent was in failing to advise him that he could ask for an adjournment of the meeting for up to 14 days. The first respondents have not sought to challenge that conclusion in this appeal so that it is not necessary for us to consider whether we would have reached the same conclusion. I therefore accept it as correct for the purposes of the appeal.

Mr Sleight

Mr Elleray submitted that Mr Sleight was in breach of duty for essentially the same reasons as in the case of Mr Addlestone. Indeed, he submitted that the case was stronger against Mr Sleight because it was he, and not Mr Addlestone, who was the experienced insolvency practitioner. Mr Bacon submitted, on the other hand, that Mr Sleight was not in breach of duty for failing to advise the appellant that he could seek an adjournment. He submitted that that was so whether or not Mr Addlestone was in breach of duty, but he recognised that there would be difficulties in persuading the court that Mr Sleight was in a better position than Mr Addlestone and he therefore submitted that, contrary to the judge’s conclusion, Mr Addlestone was not in breach of duty or negligent.

The judge did not have to consider this question in the case of Mr Sleight and did not do so. In these circumstances, I would be reluctant to consider it unless it were necessary to do so in order to determine the outcome of the appeal. In this regard, unless we are persuaded to reverse the judge’s conclusions on causation, it is common ground that the appeal must fail against both respondents. Since, as appears below, I for my part would dismiss the first respondents’ appeal on the basis that the judge’s conclusions on causation are justified and not findings with which we should interfere, it is not necessary to consider whether Mr Sleight was in breach of duty and I shall not further lengthen this judgment by doing so.

Causation

The legal principles

It is common ground that the relevant principles are to be derived from the decision of this court in Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602. This is a case in which the appellant says that there was a substantial chance that the outcome of the IVA would have been different if the meeting had been adjourned because the creditors would or might have acted differently and not have insisted that Lakeside be put into members voluntary liquidation. It is thus a case in which the appellant’s case depends at least in part upon the actions of independent third parties, namely the creditors.

It also depends in part upon what the appellant would have been done. In so far as it depends upon what the appellant would have done, the appellant must show what he would have done on the balance of probabilities. In so far as it depends upon what the creditors would have done, the question is whether the appellant has lost a real and substantial, as opposed to a speculative, chance that the creditors would have acted in such a way that the appellant would have achieved a better outcome and, if so, the evaluation of that chance is a question of quantification of damages: see eg per Stuart-Smith LJ at page 1611B-C, per Hobhouse LJ at page 1621A and per Millett LJ at page 1623E.

The chance of a better outcome

The judge analysed in considerable detail the course of the IVA and showed how the ultimate result was disastrous for the appellant. He held that in terms of their avowed objectives both the IVA and the liquidation of Lakeside were lamentable failures. The unsecured creditors of Lakeside received only 20.11 pence in the pound and there was nothing to distribute to shareholders. As the judge put it, the appellant’s personal creditors were less fortunate, there being no dividend for those who had no security.

The judge’s analysis is at pages 86 to 106 of the judgment. It is not, however, to my mind necessary for us either to repeat the analysis or to allude to the detail of it because the question is simply whether the appellant had a real and substantial chance that the creditors would have been willing to agree to a different and more beneficial arrangement if the appellant had been advised to seek an adjournment of the meeting. The judge answered that question in the negative. The question is whether he was right to do so or, more accurately, whether there are any sufficient grounds upon which this court should interfere with that decision.

The starting point is that the judge found that, if such advice had been given, the appellant would have accepted it and sought an adjournment. He further found, as a matter of fact, that Mr Sleight would have acceded to an application for an adjournment against the likely objections of the creditors. Mr Sleight had a discretion to adjourn the meeting, even against the wishes of the creditors, but only for up to 14 days. The finding that he would have exercised that discretion is not challenged. It follows that the question is essentially whether there was a real and substantial chance that the creditors or some of them would have changed their minds at or before the adjourned meeting and agreed that Lakeside should not be put in immediate members voluntary liquidation.

Mr Elleray submitted that the creditors learned two particular facts after the meeting and before the expiry of the 14 days. The first is that the liquidator of MAPD learned that MAPD was the owner of 10 of the 22 shares in Lakeside. It is common ground that the liquidator did in fact learn that fact after the meeting and the judge so held. He discovered the position by 29 March.

The second fact is that it was realised that there was a potential problem with clawback. The judge held that the necessary resolutions to put Lakeside into members voluntary liquidation were passed after the meeting on 23 March was over. The documents dated 23 March and prepared after the meeting included a Declaration of Solvency made by the appellant which included a figure for contingent liabilities of £320,000. There was much debate at the trial as to what liabilities were included. The judge held, contrary to the evidence of Mr Sleight, that the figure of £320,000 was included as a potential liability for clawback. He held (at page 83) that the appellant was familiar with the conditions to which grant aid was subject and that there seemed little doubt that he shared the common apprehension at that time that the liability to clawback continued for five years from the date on which the grant was paid. The judge therefore held that, if the appellant had been asked to give an estimate of contingent liabilities immediately after the creditors meeting, he would have included clawback

The appellant’s case was advanced on a similar basis both at the trial and on appeal, although the argument was I think somewhat refined before us. It may be summarised in this way, as the judge did at pages 107 and 108. The effect of the liquidation of Lakeside was to lock the appellant into a costly and long drawn out process, with escalating interest charges and the belated realisation of its property portfolio at disadvantageous prices. It also deprived the appellant of a source of income which would have enabled him to service his personal indebtedness and to have avoided the enforcement of their security by his secured creditors in such a way as again to achieve only belated and disadvantageous sales. If an adjournment had been granted he would have used the opportunity to provide the information required by the creditors and would have presented them with a reasoned case as to why the immediate liquidation was unlikely to be in everyone’s interest including their own.

In particular once the liquidator of MAPD and his advisers learned of MAPD’s shareholding in Lakeside, he would see the benefit of selling its properties without putting the company into liquidation, thus saving costs while retaining control over the sales. He would retain control because the appellant would in practice have to agree to the sales and to yielding control to the liquidator of MAPD as the price of avoiding the liquidation of Lakeside. Further, it was submitted that when the creditors became aware of the potential liability for clawback they would have investigated the true position and discovered before the expiry of the 14 days that it did not raise a problem because the five years had already expired, which would be a further reason for selling the properties and not putting Lakeside into liquidation.

It was accepted on behalf of the appellant that the most aggressive creditors were Barclays and Lynboard, but it was submitted that once the liquidator of MAPD had agreed to such a strategy, both Barclays and Lynboard would also have agreed because they could be offered security and it would be apparent to everyone that it was in all their interests to proceed in that way.

It was submitted that another possibility which should be taken into account was the sale of the shares in Lakeside rather than its properties. That would have the advantage of avoiding liability for capital gains tax twice, once on the sale of the properties by Lakeside and once on the sale of the shares in Lakeside.

The judge approached the matter in this way. He considered first what steps would have been taken by the appellant himself if an adjournment had been granted. As to clawback, he said (at page 122) that the potential problems with clawback would have provided the appellant and his solicitors with an additional argument against the liquidation of Lakeside and would have provided a basis for discussions with the liquidator of MAPD with a view to seeing whether a solution other than the liquidation of Lakeside might be found to what the judge described as the conundrum of exacting maximum benefit for the shareholders from Lakeside. He held that it was quite likely that these would have been matters which would have been explored in correspondence or discussions between Mr Addlestone and those acting for the creditors.

However the judge added this on pages 122 and 123:

“On the other hand, I am perfectly satisfied that no accounts for Lakeside would have been prepared within the short period of time available. Mr Prosser appears to have shown reluctance bordering on obduracy in providing the material needed for the preparation of those accounts. He also appears to have been unwilling to pay the necessary fees to Revell Ward, though it may conceivably have been possible to have reached some arrangement by which they would have been paid in the voluntary arrangement. It may be that Mr Addlestone or, for that matter, Mr Sleight, might have been able to chase Mr Prosser’s letting agents or his bankers in order to extract additional documentation as to the rent-roll of Lakeside’s properties and its bank borrowings. But, without proper accounts, the creditors would hardly have been in a position to form a view as to the actual or potential tax liabilities of Lakeside, or its liabilities to trade creditors or as to the existence of any claims by or against Mr Prosser himself or whether it would be feasible for it to continue to operation as a going concern.

Without proper accounts, and without some alternative proposal for extracting value from Lakeside, I think it is extremely unlikely that there would have been any change in the attitude of Mr Jackson and his client, Barclays Bank plc. As I have already said, the bank had taken a dim view of Mr Prosser and his activities, and would have been most reluctant to agree to any step which would have left him, in effect, in control of Lakeside even for a comparatively limited period. Its sole commercial interest as a creditor was to ensure that there were sufficient realisations from Lakeside to ensure that it, and the other creditors, were paid in full. The rudimentary information contained in the statement of affairs annexed to Mr Prosser’s proposal indicated that there was substantial equity in the company. That would have remained the case even if substantial provision had to be made for potential clawback. If that were so, from the bank’s standpoint, the equity could best and most rapidly be released by way of a liquidation, even if that meant that there would be less for the shareholders. If, on the other hand, Lakeside’s position was not as it had been represented in the statement of affairs, that, in itself might be regarded as a reason for immediate liquidation. ”

Those conclusions as to what the appellant would probably have done were based in part at least on the view which the judge formed of him as a witness over the five days or so that he was in the witness box. The judge said at pages 98-9:

“I was unimpressed by Mr Prosser, whether as a man of business, as a debtor dealing with his creditors and professional advisers or as a witness. He appears to have had scant regard for his obligations as a company director to keep proper accounting records.”

The judge said that he had “many reservations as to the way in which Mr Prosser conducted his affairs”. He found that he had a “cavalier approach to the need to ensure certainty and accuracy in the information placed before the court and the creditors”. He held that he did not emerge with “any great credit” from the inaccuracies in the statement of affairs. He found it extraordinary that he did not tell Lloyd’s about the IVA. Nor did he tell either of the respondents about the pressures he was under from Lloyd’s. As the judge put it on page 99, this lack of openness with creditors was nothing new. I have set out under the heading ‘Lakeside’s accounts’ in paragraphs 35 to 38 above the attempts made by the respondents to persuade the appellant to produce accounts, when, as the judge said in a passage quoted in paragraph 38, the appellant was either unwilling or unable to ensure that accounts were in fact prepared.

I have also set out the contemporary documents which evidence the importance of accounts to the creditors in this case: see in particular paragraph 43 above. In particular I noted there the appellant’s own statement in his affidavit that accounts will reveal whether there are any “hidden liabilities”. See also the importance attached to accounts in the nominee’s comments quoted in paragraph 45 above.

In all these circumstances, I see no reason to differ from the views expressed by the judge in the passage quoted in paragraph 86 above. Barclays did indeed take a dim view of the appellant and his activities. I can see no reason why Mr Jackson should have changed his mind in the absence of proper accounts. Mr Elleray sought to meet that point in argument by saying that the liquidator of MAPD would have obtained sufficient financial information from Mr Schofield and/or from the first respondents as Lakeside’s solicitors, but even if such information was provided, which seems to me to be very speculative indeed, there is no support for the suggestion that Barclays and Lynboard would have been persuaded to change their minds.

It is true that Mr Jackson said in evidence that, if Barclays had been offered security it would have considered its options. Mr Atkinson was of the same view. However, as stated in paragraph 29 above, the appellant did not offer any further security to either Barclays or Lynboard when he had deposited the two title deeds, which, as the judge put it, “suggests that he did not consider that he was able or willing to do so”. The appellant has not to my mind shown that it was probable that he would have provided security to Barclays and Lynboard if the meeting had been adjourned. On the contrary the suggestion that he might have done so seems to me to be no more than speculation.

The judge expressed the position of the liquidator of MAPD in this way on pages 124 and 125:

“The position of the liquidator of MAPD is, however, somewhat different. Once it had become apparent that MAPD held a substantial shareholding in Lakeside, he would obviously have been interested in maximising the return to members, rather than simply ensuring that sufficient assets were brought into the voluntary arrangement to discharge his claims. In itself, however, it does not seem to me that the mere realisation of the fact that MAPD had an equity interest in Lakeside is likely to have altered the liquidator’s approach to the voluntary arrangement. As a matter of fact, Miss Kavanagh, on behalf of MAPD, was willing to cast its vote in favour of the proposal, as amended at the outset of the meeting, thus giving Mr Prosser a period of six months grace before Lakeside would be placed in liquidation. But against the combined votes of Barclays Bank plc, Lynboard Limited and the Inland Revenue, the liquidator had insufficient voting power to secure the necessary majority without the amendments proposed by Mr Jackson.

If, therefore, Mr Prosser’s proposal, in the form in which it was placed before the meeting on 23^rd March 1990, had been brought back before an adjourned meeting within, at most, 14 days, the result would have been no different unless Barclays Bank plc or Lynboard Limited had changed their views in the meantime. For reasons which I have already given, I think that is rather unlikely. Furthermore, it is a matter of established fact that, in the event, the liquidator ratified the decision to place Lakeside into immediate members’ voluntary liquidation, once it became apparent that MAPD was a substantial shareholder. Accordingly, I take the view that, no matter what arguments might have been raised during the period of any adjournment, it is unlikely that the result would have been any different, so long as Mr Prosser remained wedded to his proposal in the form in which it was presented to the creditors by Mr Sleight at the outset of the meeting on 23^rd March 1990. To the extent, therefore, that the purpose of an adjournment was to persuade the creditors to accept the proposal in that form, I think it would have failed to achieve its purpose.”

Again, I see no reason to differ from the judge. Mr Elleray criticised that last passage on the basis that it does not express the prospects in terms of a chance. However, as I see it, the position in summary is this. The appellant would not have provided the accounting material which would have been required by the creditors in time, just as he had not done so over the months before the meeting despite pressure from his advisers. Without the accounts there was no realistic chance of the creditors changing their minds. The suggestion that Miss Kavanagh or the liquidator of MAPD would have sought and obtained sufficient material from Mr Schofield or some source other than the appellant is no more than speculation.

So is the suggestion that, whatever view the liquidator of MAPD took, the appellant would have produced security to Barclays or Lynboard sufficient to persuade them to change their minds. It must also be borne in mind that, even if the approach of the liquidator of MAPD had changed, he did not have sufficient voting power to outvote Barclays and Lynboard. In short I entirely agree with the judge that there was no realistic chance of the decision of the creditors meeting being any different if the meeting was adjourned for 14 days.

The only other possibility canvassed at all seriously was the suggestion that once the liquidator appreciated that MAPD was a substantial shareholder in Lakeside, the liquidator would have assessed the value of the shares, would have persuaded the other creditors to hold their hand and would have investigated the marketing of the entire share capital of Lakeside as a going concern. However, the liquidator did not take any steps to this end once he discovered the true position, although it is fair to say that that occurred only after the company had been put into liquidation.

In any event the judge carefully considered this possibility, although no-one suggested it at the time. Thus it was not, so far as I am aware, suggested by the appellant in 1989 or 1990. Miss Kavanagh initially expressed scepticism about it, although she naturally accepted that if the appellant proposed a share sale the liquidator would have explored it. However, she said that it was likely that he would have wanted to sell the property portfolio of the company.

The judge dismissed this suggestion in trenchant terms. He said at page 126:

“None of this gives a great deal of comfort to Mr Prosser. I think that there would have been major problems in finding a purchaser for the company, rather than its property portfolio, within a short time-scale. The problems of finding a purchaser would be particularly acute in the absence of proper accounts. Mr Prosser’s record in relation to such matters inspires no confidence whatever that, even in these altered circumstances, he would have put things right within a short period of time. An investor in the company would be buying a pig in a very large poke. Whilst, no doubt, he could quickly ascertain the capital value of its assets and its rent-roll, and could similarly obtain a reasonably clear picture of its borrowings and financial costs, he would be likely to have only a very general idea of its actual and potential liabilities, whether in respect of tax or otherwise. Given Mr Prosser’s record and financial circumstances, I consider that it is bordering on the fatuous to suggest that these uncertainties could be adequately addressed by way of personal warranties from Mr Prosser; and I think it is most unlikely that the liquidator would have been willing to give suitable warranties. A prospective investor would, in any event, need to have a much more precise idea of the company’s financial position in order to determine whether it could carry on trading, either in the long term, or even for a sufficient period to realise its portfolio, without the injection of further capital, and to decide how much further capital would be required. In fact, it is difficult to see how the liquidator of MAPD could have committed himself to a joint marketing exercise of the kind suggested, without satisfying himself that Lakeside was solvent and capable of continuing to trade.. In reality, on the material before me, I think that Miss Kavanagh’s initial perception of such a proposal, as being “wholly unrealistic” was a fairly accurate assessment. Whatever the theoretical attractions of such an approach, I think it is most unlikely that it would have constituted a practical answer to the problem of extracting value.”

I entirely agree. This proposal seems to me to fall at the same fence as the others, namely that the appellant has not shown that it is more probable than not that he would have produced sufficient accounts to persuade the creditors to change their minds within 14 days. If such accounts had been produced it remains, in my view, no more than a matter of speculation what would have happened.

I agree with the judge that the appellant would have faced the same dilemma at the adjourned meeting as he did on 23 March. He would either have had to agree to the immediate liquidation of Lakeside, in which case the IVA would have proceeded just as it did, or he would have had to refuse to agree to the IVA and be left with the same situation as had faced him at the beginning of 1990. In short he would have been made bankrupt.

I should add that the judge also considered the suggestion that he would have refused to agree to the IVA with a term requiring the liquidation of Lakeside and would have pursued an alternative strategy. Although the judge considered each ingredient of that alternative strategy, he also said that he was far from convinced that, in the end, the appellant’s decision would have been any different from the one which he reluctantly took at the beginning. I entirely agree. Indeed, I did not understand Mr Elleray to resurrect this part of the case on appeal. In any event, for my part I entirely agree with the judge. The appellant has not shown that it is more likely than not that, if the meeting had been adjourned for 14 days and the creditors had refused to agree to an IVA without the liquidation of Lakeside, he would have acted any differently from the way in which he in fact acted on 23 March after the short adjournment. On the contrary it seems to me to be much more likely than not that he would have taken the same decision, Lakeside would have been put into liquidation and all the same consequences would have ensued.

These conclusions make it unnecessary to consider any of the remaining issues considered by the judge in his judgment. I would only add this. Mr Elleray made a sustained attack on the approach of the judge by seeking to distance the appellant’s case from the probable actions of the appellant himself. He thus focussed on what he submitted that the liquidator of MAPD and the other creditors would have done regardless of the action or inaction of the appellant.

Much of his approach was to my mind based on speculation. An example is the suggestion that, although everyone in 1990 thought that there was a liability to clawback on the facts, the liquidator would have ascertained the true position in a very few days, which seems to me to be very unlikely indeed.

Many of Mr Elleray’s suggestions do not seem to me to have the air of reality, but his essential problem is that to my mind they face the difficulty that the appellant failed to produce any proper accounts, that the judge held that he would not have done so and that, in the light of that continued failure, the creditors would not know what “hidden liabilities” there were and would not have changed their minds within 14 days. The position would have been just as it was and Lakeside would have been put into liquidation some 14 days later than it was. The judge so held in his conclusions on page 155 of his judgment and I entirely agree with him.

Between pages 156 and 162 of his judgment the judge considered many different possibilities, which seem to me to arise only if, contrary to his conclusion, the appellant would have taken appropriate action. He expressed his ultimate conclusions thus at pages 161 to 162:

“In the events which happened, Mr Prosser entirely lost the value of the shares which he held in Lakeside. That was, undoubtedly, an unfortunate result for him, since I accept that, on any view, the company’s assets exceeded its liabilities. But this was brought about by his personal insolvency, the doubtful viability of Lakeside, the perceived need to put it in liquidation and the difficulties experienced in realising its assets. For my part, I remain unpersuaded that he would have had any real prospect of a better outcome than that which actually resulted from the chain of events set in motion on 23^rd March 1990, even if he had been given different advice and adopted a different approach. Similarly, it seems to me that it was well nigh inevitable that his own personal property portfolio would have had to be realised in much the same inauspicious circumstances as actually occurred. Once again, I see no real prospect of a significantly better outcome in relation to those properties. I conclude, therefore, that Mr Prosser has not satisfied me that he has suffered loss by reason of any negligence on the part of Mr Addlestone for which he is entitled to be compensated by an award of damages.”

I entirely agree with those conclusions.

Conclusions

In these circumstances I would dismiss the appeal against the dismissal of the appellant’s claim against the first respondents on the ground that the judge was correct to hold that the appellant had not shown that Mr Addlestone’s negligence or breach of duty caused him any recoverable loss. If the creditors meeting had been adjourned for 14 days the appellant had no realistic chance of being in any better position than he was in as a result of the decision on 23 March 1990.

I would also dismiss the appeal against the second respondents. Although I would hold that Mr Sleight owed the appellant a duty of care when he attended the discussion with Mr Addlestone and the appellant during the short adjournment of the creditors meeting, I would dismiss the appeal for the same reasons as in the case of the appeal against the first respondents. This conclusion makes it unnecessary to consider whether Mr Sleight was in breach of duty and I express no view upon that question.

Lady Justice Hale: I agree.

Lord Justice Mummery: I also agree.