England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
(HIS HONOUR JUDGE HOWARTH
(sitting as a deputy High Court Judge))

		Royal Courts of Justice Strand London, WC2
		14th February 2003

1. LORD JUSTICE ALDOUS: His Honour Judge Howarth, sitting as a deputy judge of the Chancery Division, handed down a judgment dated 13th March 2002 which resulted in the defendants being ordered to pay to the claimants £135,844.58 by way of damages and interest. The judge only gave permission to appeal his judgment on interest. Applications to this court by both parties for permission to appeal on other issues were adjourned to be determined at the hearing of the appeal. Before dealing with those applications, I will set out the background which I will take from the clear, full and careful judgment.
2. The basis for the dispute arose in the spring of 1990. At that time Mr Knight, the first claimant, was a manufacturing jeweller, and Mr Keay, the second claimant, was engaged in the retail jewellery business. They had participated in a number of business ventures and were prepared to invest money if a suitable opportunity arose. Mr Knight became aware at that time that there was a clothing manufacturer called Wetheralls which was in administrative receivership and the existing management were trying to put together funding to complete a management buyout. The management were looking to a company called Harvey and Thompson Plc to provide money by way of loan stock with Mr Hodgkinson, a financial backer, putting in money and securing help from others. Any shortfall would come from F&S Ltd who were stock financiers.
3. Mr Knight was interested in the business venture and a meeting was arranged for 18th April 1990 to enable potential investors to visit the premises. Mr Knight attended this meeting with a Mr McIntosh who was an insurance agent from Allied Dunbar Insurance and a Mr Silk, a solicitor, who had acted as Mr Knight's business adviser for a number of years and Mr Hodgkinson.
4. The management buyout team of Wetherall's had engaged a firm of solicitors called Linnells to act as their solicitors in relation to the intended purchases of the Weatherill business. Mr Street was the partner in charge of this matter on behalf of Linnells. The management team had acquired an off-the-shelf company called Trimsoft which was intended to be the vehicle through which the purchase was to be made. Thus Linnells were to act for Trimsoft. They were not instructed by either of the claimants.
5. On 18th, or perhaps 19th, April 1990 Mr Knight, Mr Silk, Mr McIntosh and Mr Hodgkinson were shown around the Wetherall factory premises. There followed a meeting at which it was proposed that Mr Knight, Mr McIntosh and Mr Hodgkinson would subscribe for B shares in Trimsoft. It was proposed that the B shareholders would pay between them a total of £200,000 for these shares. The rest of the purchase price for Wetheralls was to be provided by the other companies and by the management buyout team. That team were to subscribe for the A shares and were to have service contracts as working directors which would give them substantial salaries. The B shareholders were to be investors only and return would only arise if Trimsoft were to be successful.
6. At the meeting Mr Ashby, who was part of the management of Wetheralls, explained the purpose of the meeting and how the money was to be raised to purchase Wetheralls with a proposed completion date of 30th April 1990. Thus the completion money would have to be in place by that date.
7. There were lengthy discussions about whether any form of protection could be put in place to safeguard the interest of the B shareholders. Mr Ashby suggested that there could be a transfer of the Weatherill trade name to the B shareholders who would in turn license Trimsoft to use that name. Concerns were expressed as to whether the arrangement contravened the provisions of the Companies Act.
8. Agreement was reached and the B shareholders were asked at the meeting to pay a deposit of £30,000. Mr Knight agreed to pay this. Mr Silk was concerned about what was to happen to this deposit pending completion of the purchase by Trimsoft. According to Mr Silk, Mr Street said that the sums should be paid into his firm's client account and it would only be used to complete the whole transaction which had been agreed between the parties. At some point Mr Knight left the room to make arrangements for the deposit of £30,000 to be transferred direct to Linnell's clients account. That was completed early the next morning.
9. The agreement that was reached was embodied in a written document entitled "Heads of Agreement". The document is expressed to be between Trimsoft on the one part and Messrs Hodgkinson, Knight and McIntosh of the other part. It was signed by Mr Hodgkinson and Mr McIntosh, Mr Knight and Mr Ashby, who signed on behalf of Trimsoft. It provided:

"1. On or before the 30th April 1990 (completion) the B shareholders will pay to the Company or its Solicitors the sum of £200,087 of which £30,000 has been paid by way of deposit, such payment to entitle the B shareholders to 33% of the issued share capital of the Company.

2. The Company will on completion assign to the B shareholders the exclusive right to use the trading name of 'Wetherall' subject to the conditions set out below for the consideration of one pound.

3. The B shareholders will forthwith grant a licence to the Company for the exclusive use of the said trading name subject to the provisions as to determination as set out or referred to below.

4. The B shareholders will on or before completion be allotted between them in the proportions

[50% to the said David Hodgkinson

25% to the said Trevor Knight and

25% to the said Lee McIntosh.] 33% of the ordinary shares exclusively described as B shares such shares to carry the right to appoint a director but otherwise to rank pari passu with the other ordinary shares.

5. The said trading name shall forthwith be re-assigned to the Company (for the consideration of one pound) in the event of flotation of the Company or of a sale (as defined or referred to in clause 8(b)(i) in the Loan Stock Agreement between the Company and Henry & Thompson Plc [as drafted 18.04.90]."

10. Annexed to the heads of agreement was another document entitled "The conditions of assignment of trading name - clause 2" and a proposal. All three documents were signed. The circumstances surrounding the signing of those documents was central to the dispute in the case.
11. There followed negotiations to obtain the further loan finance needed to purchase Wetheralls and their stock-in-trade. On 19th April 1990 F&S sent Mr Ashby their formal offer of finance. It consisted of a letter, a facility letter and a document headed "Terms and conditions of business". Basically F&S were going to lend the sum of £245,000 for a term of 90 days which was to be secured by a debenture to be granted by Trimsoft which was to charge the company's plant and machinery and stock. In addition the directors of Trimsoft were to guarantee the loan.
12. On 20th April 1990 Mr Street had the heads of agreement typed up. Clause 2 was changed so it read:

"2. The Company will as soon as practicable after completion assign to the B shareholders the exclusive right to use the trading name of 'Wetherall' subject to the following conditions:- ..."

13. The typed version was sent by fax by Mr Street to Mr Silk on 20th April with a covering letter asking for "confirmation of approval or otherwise so that it could be engrossed for signature". It seems that Mr Silk did not see the typed version until about 25th May. He then showed it to Mr Knight. It was subsequently signed by Mr Hodgkinson, Mr Knight and Mr McIntosh and was sent by Mr Silk to Mr Street on 25th May 1990. It was signed on behalf of Trimsoft shortly that date.
14. On 27th April 1990 an F&S facility letter was signed on behalf of Trimsoft so as to provide the further finance required for completion.
15. It is to be noted that the second claimant, Mr Keay, did not sign the heads of agreement. His involvement started some time after 18th April 1990. He heard about what had taken place from Mr Knight and from Mr Hodgkinson and he arranged to meet Mr Ashby. At the meeting late in April 1990, Mr Keay was offered the opportunity to become a B shareholder on the same terms that had been offered to Mr Knight. He was offered the chance to subscribe for £66,667 worth of shares in Trimsoft. He was told that on completion the Wetherall trade name would be assigned to the B shareholders including himself. By the end of the meeting Mr Keay indicated that he would probably be interested in proceeding, but did not commit himself. He was supplied with Mr Street's name and telephone number. A short time after this meeting, around 27th April, Mr Keay phoned Mr Street and told Mr Street that he had decided to subscribe for the B shares and would also make further monies available on loan. Mr Keay said that he would be sending his cheque to pay for the B shares and Mr Street gave him the details of his firm's client account.
16. Completion of the purchase from the administrative receiver took place on or about 30th April 1990. The purchase was effected by means of an agreement of that date. A debenture was granted in favour of F&S. In order to be able to complete the purchase Linnells would have had to use the two loans from F&S, a loan from Harvey & Thompson, and also the money sent to the firm's client account by Mr Knight, Mr McIntosh and Mr Hodgkinson as well as other funds which are of no relevance to the dispute. Mr Knight had sent to Linnells' account the sum of £30,000 on 20th April 1990 and £36,667 on a later date. Mr Hodgkinson had supplied £66,667. Mr Keay sent the sum of £66,666 to Linnells' client account on or about 8th May 1990. The payment was made by cheque and was accompanied by a compliments slip, a copy of which said that the money sent with it was "for Trimsoft shares and trade name, as telephone conversation".
17. On completion of the purchase Trimsoft had assigned to it a wide-ranging group of assets which were the property of the old Wetherall business. They included the Wetherall trademark and the goodwill of the old business which included the right to trade under the name of Wetherall's. However, transfer of the trade name could not be made without the consent of F&S due to the debenture. The result was that the trade name was not transferred or assigned for the benefit of any of the B shareholders. That might not have mattered but Trimsoft was not profitable. Administrative receivers were appointed on 3rd October 1990 and on 5th March 1991 that company went into insolvent winding up. None of the shareholders have received any dividend in that winding up.
18. It seems that by 5th June Linnells had received from Mr Silk a draft proposal for an assignment of the trademark with a licence to Trimsoft, but it was not until 19th June 1990 that Linnells realised that the debenture could prevent a valid assignment. They said in a letter to Mr Ashby:

"You will recall that it was agreed that the Company would assign its trading name of Wetherall to the B shareholders and indeed 'Heads of Agreement' were signed by the relevant parties before completion and a typed up version of this has been signed since. I am under some pressure but not urgent pressure to complete this Assignment. I am not necessarily convinced that the Assignment will be totally valid because of the Debentures that have been created in favour of F & S Limited and subsequently Farnley Investments Limited although I suppose it can be argued that there was a contractual obligation for the Company to enter [into] the Assignment, arrangement before they created the Debentures. The solicitor Mr Silk who attended at Liverpool representing the B shareholders has submitted a draft Assignment to me but I have done nothing further on this score since I felt it appropriate that the revision of the B shareholding structure should be finalised before this aspect is pursued further."

19. In 1993 Mr Knight, Mr Hodgkinson and Mr Keay retained solicitors to advise them in relation to a possible claim against Linnells and to act on their behalf in relation to any such claim which might be brought. Proceedings were started by Mr Hodgkinson with the assistance of legal aid. The other B shareholders were content to await the outcome of that action. It was subsequently compromised and a writ naming Mr Knight and Mr Keay as plaintiffs was then issued on the 17th April 1996. That action proceeded at a leisurely pace. There was a period of over one year from October 1997 to November 1998 during which no steps were taken. This resulted in a summons being issued seeking an order that the action should be dismissed for want of prosecution and on 9th February 1999 the action was struck out for want of prosecution and for abuse of the process of the court. The present action is brought against the solicitors who acted in that case for professional negligence and breach of contract for their failure to conduct the proceedings in a manner which would prevent those proceedings from becoming vulnerable to being struck out and ultimately struck out.
20. Mr McIntosh did not take legal action, perhaps because he was made bankrupt. However it occurred to Mr Silk in November 1994 that his trustee in bankruptcy might be prepared to assign his claim against Linnells for a modest sum, particularly as Mr McIntosh owed a substantial sum to a company owned by Mr Knight. Mr Silk therefore wrote to the defendants to ask them to try and persuade the trustee to assign the cause of action in return for a waiver of the money owned by Mr McIntosh to Mr Knight's company. He said in that letter:

"It is strongly rumoured that McIntosh has been declared bankrupt.

Presumably the Official Receiver in Birmingham would be handling his affairs. ...

More significant is (my) suggestion that Bracelon [Mr Knight's company] (or Trevor Knight) take a (free) assignment of any rights McIntosh may enjoy against Linnells and Street on a similar basis to that relating to Hodge's assignment.

McIntosh has exactly the same rights as Trevor but may not be so aware. Counsel has already advised that Trevor's claim has the same chances of success as that of Hodge and further he regards Hodge's chances as 'good'.

Inasmuch as it took some time for the Official Receiver to finalise the assignment of cause of action to Hodge and in view of the passage of time since the cause of action arose can I ask you to contact Hodge's Receiver (who presumably is favourably disposed) to alert McIntosh's Receiver to the possible claim and to persuade him to assign the cause of action to Bracelon (or Knight) so that at the appropriate time Trevor (and/Bracelon) can present a united front.

If you want me to undertake the negotiations I shall be pleased to do so on the usual terms."

21. On 21st November 1994 the defendants replied. They said:

"I think the first step is to check whether it is in fact true that McIntosh has been declared bankrupt. The next step is to seek Trevor Knight's instructions that he does want McIntosh to transfer his rights of action to Bracelon and upon what basis. I can clarify the instructions from Trevor if you wish, but it sounds as though you may have already received from him some indication on that. For instance, I was wondering whether you had Trevor's agreement to the offered consideration. I am also a little bit sceptical as to there being any really material persuasary power over McIntosh who if he is bankrupt, must surely not be particularly bothered about his creditors at all now.

Anyway whilst I await your observations on this, I will get in touch with the Official Receiver to check whether McIntosh is bankrupt and to notify him of the claim and seek Proof of Debt form."

22. The defendants then wrote to the Official Receiver seeking information as to Mr McIntosh's bankruptcy. They asked that if it was true that Mr McIntosh had been declared bankrupt and whether it was handled from that particular office. Finally, there is the letter of 11th April 1996, written shortly before the limitation period expired. In that letter the defendants wrote to Mr Knight stating:

"I am aware that you would like to incorporate into your claim McIntosh's right of action against Linnells and Street. I am afraid that that is a little more complicated. Although I am aware that Silk has apparently been making some efforts to trace McIntosh to obtain his right to action over the last year or so, nothing concrete has been presented to me. In order to proceed with McIntosh's claim we would need to obtain his right of action from the Official Receiver. Being a bankrupt, any property that he has, including the right to pursue a debt belong to the Official Receiver or to the Trustee in Bankruptcy (who you may be aware takes over the role of an Official Receiver once a bankruptcy is properly underway). I cannot imagine that there would be too much difficulty in obtaining the Official Receiver's consent, as the right of action is probably worthless to him in the sense that in order to pursue it, he would have to risk losing the same as you would in costs. The main factor against us, in using McIntosh's right of action is the time involved. In Hodgkinson's case we were required to obtain from the Official Receiver a similar Assignment of Right, and that took many months to conclude. It may be possible to approach the Official Receiver for McIntosh, but it will almost certainly be after the expiry of the limitation period before we have the right to go ahead. The limitation period does not necessarily mean that McIntosh's right of action cannot be added to your own, but a Court will take persuading that it is fair and reasonable that you be entitled to do so. I wonder whether the Assignment is actually necessary in any event. According to Hodgkinson's statement you invested £66,667.00 on McIntosh's behalf because he did not have sufficient funds available. If McIntosh did not repay that money to you the claim for the lost investment is yours in any event. Could you please let me know whether McIntosh repaid you?"

23. In the defence in the action the defendants admitted that they had acted in breach of their contractual duty of care and/or negligently in allowing the action against Linnells to be struck out. As the judge said, the main points relied upon by the defendants were that the negligence or breach of contract did not cause the claimed loss, in that the claim against Linnells was worthless.
24. Having come to conclusions of fact, the judge turned to decide what was the legal position between the claimants and Linnells. He concluded that Linnells had held the money paid into their client account by Mr Knight and Mr Keay upon a trust to pay it to Trimsoft on completion of the whole contract to be found in the manuscript version of the heads of agreement, including assignment of the trade name to the B shareholders. By paying that money to Trimsoft without obtaining an assignment of the trademark, Linnells were in breach of trust. He went on to conclude that the negligence and/or breach of contract by the defendants had caused the claimants damages. He concluded that the amount of damages should be assessed upon the basis of a loss of a chance. He stood back and viewed the chances of success in the original action against Linnells and concluded that it was between 50-60%. Accordingly he assessed that chance at 55%. He went on to hold that success in the action against Linnells would have resulted in recovery of the money paid and concluded that judgment should be given against the defendants for 55% of those sums; that is to say, £36,000-odd in favour of Mr Knight and a further sum of £36,000-odd in favour of Mr Keay.
25. It was also alleged that the defendants were negligent in failing to progress the suggested assignment of Mr McIntosh's claim and thereafter to assert that claim against Linnells. The judge rejected that. He took the view that the claimants had failed to produce any evidence to support the claim.
26. In a second judgment the judge came to consider the question of interest. He recorded that the cause of complaint in the original action started at about the end of April 1990. He went on to hold that the claimants had deferred bringing proceedings in the original action until after the proceedings that had been brought by Mr Hodgkinson had been determined. He concluded that the defendants could not be blamed for a period prior to their being instructed. On the other hand, Linnells had had the money and it would have been Linnells that would have had to pay the interest. He said that the trial judge in that action would have been faced with a difficult decision in regard to interest prior to the commencement of the original action on 17th April 1996. He posed these questions: "Would he have given interest going back to April 1990? Would he have given interest prior to that period or would he have given it at a reduced rate?" The judge concluded that the answers to those questions were speculative. He went on to decide that interest should only start to run from 17th April 1993. It is against that decision that the judge gave permission to appeal.
27. The claimants accept the findings of fact made by the judge. However they sought permission to appeal so as to be able to submit, first, that upon those findings the assessment of 55% was too low. They submitted that it should be up around 100%. Second, they submitted that they should recover damage for loss of a chance that Mr McIntosh's claim would have been assigned to them. Third, they submitted, pursuant to permission to appeal granted by the judge, that interest should have been ordered for the whole period from the end of April 1990.
28. The defendants resist the submissions of the claimants. They submitted that the 55% figure should not be interfered with. The judge was right to reject the claim based on the loss of a chance on recovery on the McIntosh claim and the request for interest for the whole period. They went on to seek permission to appeal so as to be able to challenge the judgment on other grounds. First, they wished to submit that the action against Linnells would have failed in that there was no breach of trust. Second, if the claimants were entitled to damages, the judge was wrong to award compensation based on a direct repayment of the monies lent. The award should have been to compensate the claimants for what they had lost, namely the value of the Wetherall trademark. As there was no evidence as to its value, the recovery should be nil.

The defendants' applications for permission to appeal

29. The defendants accepted that the money paid by the claimants was held on trust by Linnells. However they submitted that the sole term of the trust was that Linnells would retain the money and only pay it out for the purchase of the B shares. That purchase had taken place and therefore there had not been a breach.
30. Mr Pooles QC, for the defendants, submitted that not every instruction to a solicitor concerning money held by him constituted a term of the trust. In the present case clause 2 of the heads of agreement was not a term of the trust and in any case did not require the money to be held pending acquisition of the assignment of the trade name. Clause 2 did not provide sufficient certainty to be a term of the trust. That, he submitted, was borne out by what had happened after the money was paid out. The correspondence showed that Mr Silk contemplated that the assignment of the trademark would follow after the shares had been paid for. Mr Pooles submitted that was even clearer in the case of Mr Keay, who paid out money after the assets of Wetherall's had been purchased. He had handed over his money for the B shares with the assignment to follow. It must have been within the contemplation of Mr Silk and Mr Street that the B shares would be issued before the assignment. Thus payment of the money did not constitute a breach.
31. I cannot accept those submissions and in my view it would be wrong to grant permission to appeal for those submissions to be put forward. It is quite clear that those who were going to get the B shares were worried about security for the money they would put into Trimsoft. The supply of the money for the transfer of the B shares and the trademark was all one transaction. As the judge said in paragraph 90 of his judgment:

"90. Thus I conclude that Mr Knight agreed to pay the money for the B shares in Trimsoft to Linnells on condition that those solicitors did not part with that money except in return for three things, firstly the allotment of the requisite number of B shares in Trimsoft, secondly the completion of the purchase of the Wetherall assets from the receiver who was offering them for sale and thirdly the execution by Trimsoft of an assignment of the Wetherall trade name in favour of the B shareholders in accordance with the terms of the manuscript version of the Heads of Agreement. These three conditions had to be satisfied all at the same time. Mr Street either expressly agreed to these conditions as did the management buy out team or he and they agreed to them by implication by remaining silent and later (in the case of Mr Street) by accepting the money into the firm's client account and using it on compilation on 30 April 1990."

32. The case for Mr Keay is, I believe, also clear. As recorded by the judge, Mr Keay in his evidence stated:

"Mr Keay formed the impression that Mr Street was expecting his phone call. Mr Keay explained that he would subscribe for B shares in Trimsoft on precisely the same terms as Mr Knight had done. Mr Keay told Mr Street that he would be sending a cheque for the amount needed to acquire the B shares and Mr Street told him the account number of Linnells' client account (and presumably the sort code of the branch of the bank at which it was maintained). Mr Street said that this money would be held in the client account and would only be released when the Wetherall trade name was assigned to the B shareholders. On or about 8 May 1990 Mr Keay sent his cheque with a compliments slip to Mr Street at Linnells. The slip explained that the money which would be transferred after presentation of the cheque was 'For Trimsoft shares and trade name'."

33. The judge recorded that Mr Keay was asked in cross-examination about the telephone call. As the judge held, Mr Keay said:

"... that Mr Ashby and Mr Birtley had told him that Mr Street was arranging for the completion of everything, namely the issue of shares in Trimsoft, the purchase of the Wetherall business assets and the assignment of the trade name to the B shareholders. He explained to Mr Street that he intended to invest in B shares in Trimsoft and the trade name on the same terms as Mr Knight. There was no mention of a debenture. He was 100% certain that he discussed the trade name with Mr Street and had no doubt whatsoever about this. What he was doing was telling Mr Street what he had been told by Mr Knight, Mr Hodgkinson and everyone else.

Mr Ashby and Mr Birtley had told Mr Keay that they would have to obtain the consent of the other B shareholders to the assignment of the trade name to Mr Keay in addition to them. From this Mr Keay inferred that the name had already been assigned to Mr Knight and Mr Hodgkinson. In his conversation with Mr Knight it appeared that Mr Knight believed that he already had the right to the benefit of the trade name. Everybody was telling him that Mr Street would give undertakings as to the use of money only for the acquisition of shares and for the assignment of the trade name. Later on Mr Ashby and Mr Birtley told him that they had discussed matters with the other B shareholders and it was all sorted out. The promise of the assignment of the Wetherall trade name persuaded Mr Keay to invest in B shares."

34. The judge went on to hold that the compliments slip was genuine. He then came to his findings of fact in paragraphs 93 and 94 of his judgment. He said:

"Accordingly I accept Mr Keay's evidence as to the detail of this phone call and of the events which preceded it. I accept that Mr Ashby and Mr Birtley asked Mr Keay to subscribe £66,667.00 for B shares in Trimsoft and told him that if he did so then on completion he would become one of the B shareholders who would then have had the Wetherall trade name assigned to them. I also accept that in the telephone conversation with Mr Street, Mr Keay told him he was going to subscribe for that number of B shares in Trimsoft and it had been agreed between Mr Ashby, Mr Birtley and him that he should do so on precisely the same terms as applied to Mr Knight's subscription for B shares. I accept that on the balance of probabilities Mr Keay told Mr Street during the course of the telephone call that he was not only subscribing for B shares in Trimsoft but was also taking the Wetherall trade name on the same terms as Mr Knight.

94. ... In other words Linnells received the sum of £66,667 on the basis that they would only release it to Trimsoft at the same time as Trimsoft did two things, firstly issue B shares in Trimsoft to Mr Keay and secondly caused the completion of the assignment of the Wetherall trade name to Mr Keay and the other B shareholders. Mr Keay and the other B shareholders would in return have had to grant to Trimsoft the exclusive licence to use the trade name."

35. Having accepted Mr Keay's evidence, it was clear that the terms upon which the money was paid required that it should only be released upon provision of both of the shares and the assignment. The two were intimately bound together. Thus release of the money without the assignment was a breach of trust.
36. The position was just the same for the claimants. Clause 2 of the heads of agreement was clear. It is accepted that Linnells held the money on trust and in my view there was a clear breach of trust when the money was released without an assignment.
37. The second ground upon which the defendants sought permission to appeal was that the judge had wrongly concluded that the breach of trust had caused the applicants loss. They submitted upon the basis of the speech of Lord Browne-Wilkinson in Target Holdings Ltd v Redferns [1996] 1 AC 421, that the remedy for the breach of this trust was not reconstitution of the trust fund, but to put the claimants in the position that they would have been in but for the breach. In the present case the breach had been the failure to obtain the assignment. To remedy that breach Linnells needed to compensate the claimants for the loss of that assignment. In the present case that loss was negligible in that the trade mark had proved to be valueless or there was no evidence to prove that it was of substantial value.
38. I reject that submission for two reasons. First, in the present case the breach was the release of the money. The trust required the money to be held against provision of both the shares and the assignment. As there had been no assignment, the money should not have been paid out. Second, the principle in Target only applies where the underlying transaction covered by the trust had been completed. As Lord Browne-Wilkinson said at page 436B:

"Thus, the circumstances under which the solicitor can part with money from client account are regulated by the instructions given by the client: they are not part of the trust on which the property is held. I do not intend to cast any doubt on the fact that the moneys held by solicitors on client account are trust moneys or that the basic equitable principles apply to any breach of such trust by solicitors. But the basic equitable principle applicable to breach of trust is that the beneficiary is entitled to be compensated for any loss he would not have suffered but for the breach. I have no doubt that, until the underlying commercial transaction has been completed, the solicitor can be required to restore to client account moneys wrongly paid away. But to import into such trust an obligation to restore the trust fund once the transaction has been completed would be entirely artificial. The obligation to reconstitute the trust fund applicable in the case of traditional trusts reflects the fact that no one beneficiary is entitled to the trust property and the need to compensate all beneficiaries for the breach. The rationale has no application to a case such as the present."

39. In the present case there was a trust fund made up of money supplied by Mr Knight, Mr Hodgkinson, Mr McIntosh and subsequently Mr Keay. The transaction had not been completed. The breach was the payment and the remedy for that breach is reconstitution of the trust fund. The judge was right to reject this submission and there are in my view no grounds for giving permission to appeal.

The claimants' applications for permission to appeal

40. The claimants submitted that the judge's assertion that the claimants' loss should be valued at a 55% chance of success was plainly wrong. There was no doubt as to the legal position and it was therefore inappropriate to make any deduction upon the basis that a court might come to a different decision on the law. As to the facts, the result would have depended mainly upon the documents, in particular the heads of agreement. In so far as any decision depended upon the evidence, the judge had found the claimants' witnesses to be reliable and truthful. In so far as there was a risk that a different judge could have come to a different conclusion, that risk was negligible. The fact that a breach of trust had not been pleaded was irrelevant, in that it was negligent of the solicitors not to have pleaded that cause of action and that was the fault of the solicitors.
41. Mr Pooles submitted that this court should not interfere with the judge's decision as to the chances of success unless he had been plainly wrong or had erred in principle. I agree. He submitted that the conclusion of the judge was a decision of degree of the type considered by Lord Hoffmann in Biogen Inc v Medeva Plc [1997] RPC 1 at 45 and Designers Guild Ltd v Russell Williams (Textiles) Ltd [2001] FSR 11 at 27 and should not be interfered with.
42. However I cannot accept the submission of Mr Pooles that the judge had not erred in principle. In paragraph 112 of his judgment the judge said this:

"Whilst I have formed a favourable view of the prospects of success of the Original Action, I have to accept that it would have been decided on the evidence which would have even called in that action and not on the evidence called before me, though, of course, some of it is likely to have been very similar. In addition the Original Action would have been tried before a different tribunal and the judge presiding over it may have held different views as to the law. For these reasons Mr Knight and Mr Keay cannot recover the full sum which they would have been awarded in the Original Action if it had been completely successful. I must discount such sum to reflect the respective chances of success and failure of the Original Action."

43. It cannot be right to make allowance for a judge coming to a different view as to the law. I have concluded that the law is clear. In any case the correct approach to such considerations were set out by Swinton Thomas LJ in Charles v Hugh James Jones & Jenkins [2000] 1 WLR 1278 at 1294:

"However, Mr Jackson submits that the court should take into account as a matter of generality the prospects of settlement, the risks of litigation, the possibility of a payment into court and the risks attendant on it, the risk that an expert witness may change his mind ... In a personal injury case when a judge comes to assess damages, in nearly every case it is he who achieves the compromise, arriving at a figure somewhere between that claimed by the claimant and the figure put forward by the defendants. I would accept Mr Jackson's general submission that if there is evidence to support the contention then the judge should, on the facts of a particular case, make an allowance for the risks attendant on litigation and the risk of failure to recover damages at all if such a risk exists, but there must be facts and evidence which support such a deduction being made and, subject to the point which I will come to now, there was no such evidence in this case."

44. In the present case there was nothing upon which the judge could conclude that a court would arrive at a different conclusion on the law. There is a risk in litigation that the facts would not have been presented in the same way, but there is force in Mr Cousins' submission that the crucial evidence in this case was documentary.
45. The judge said in paragraph 142:

"I think that the time has now come when I have to stand back and view the case in the Original Action (either as it was pleaded or as it ought to have been pleaded) as a whole. It seems to me that it is at this point in particular that a broad brush has to be used, with the aid of over 40 years experience of the law. Doing the best I can I have concluded that the Original Action, if correctly constituted and tending towards a generous assessment (as directed by Sharif v Garrett & Co) where that is permissible, would have stood a chance of success (if it had been brought to trial or to a compromise agreement) of between 50 and 60 per cent. Accordingly I assess that chance at 55 per cent."

46. In my view he was right to stand back and look at the case as a whole, but he was wrong to take into account that there might have been a different view as to the law. That error must have depressed the answer that he gave, that the chance of success was only just better than evens. In my view that was clearly too low. The chances of success must have been good and I believe the correct figure should be 75%. I would therefore give permission to appeal on this point and allow the appeal and substitute a 75% chance of success for the 55% of the judge.
47. The second matter upon which the claimants sought permission to appeal concerned the failure to obtain an assignment of the McIntosh share from the trustee in bankruptcy.
48. Mr Cousins referred us to paragraph 91 of the judgment in which the judge summarised the facts. He also referred us to the letters to which I have referred earlier in this judgment. Mr Cousins then drew our attention to the finding of the judge in paragraph 92 that:

"It is my view of the facts that there is a clear case of professional negligence on the part of the Solicitors in doing as little as they did in relation to the proposed assignments."

Against that background, Mr Cousins submitted that the judge had gone wrong in principle when he came to his conclusion in paragraph 111 of his judgment. There he said:

"It seems to me that there is a startling omission in the evidence before me. There has been no evidence from the trustee in bankruptcy of Mr McIntosh. Would he have been prepared to assign such claim? If he had been prepared to do so, what terms would have applied to any such assignment? For example, would he have demanded a share of any money recovered, and, if so, what would that share have been? I can, of course speculate on these matters, but they do not seem to me to be matters of which the Court can take judicial knowledge. In the end the burden of proof rests on Mr Knight and Mr Keay to prove on a balance of probabilities that as a result of the professional negligence of the Solicitors they have suffered at least a certainly quantified sum by way of damages in respect of that cause of action. In this case, I take the view that the Claimants have failed to produce any evidence in this regard and so this part of the claim must inevitably fail."

49. Mr Cousins submitted that, as found by the judge, there was negligence. The judge on that basis had to conclude that there was a lost chance. Thereafter the judge should have applied the principles enunciated by Tuckey LJ in Sharif v Garrett & Co [2001] New Law at pages 6 and 8 which was cited by the judge in paragraph 141 of his judgment. If that was done then the judge should have concluded that there was at least a 50% chance.
50. I reject that submission. Swinton Thomas LJ pointed out in the passage I have read from the Charles case that there must be facts established to enable a court to make a deduction. Similarly there must be facts established for the court to conclude that there was a substantial chance of success. In the present case it was established that Mr McIntosh paid his share and that he was made bankrupt and that there was no assignment by the trustee to the claimants. There was no evidence as to Mr McIntosh's insolvency. There was nothing upon which this court could decide whether the trustee would have assigned Mr McIntosh's claim, nor if he had decided to do so what consideration he would have sought, nor whether the consideration sought would have been acceptable to the claimants. That last matter, as Mr Pooles submitted, would have been a consideration as there could have been a lump sum offer of settlement which if accepted would have required a payment to the trustee.
51. The result sought by Mr Cousins cannot in my view be arrived at on the evidence. It is pure speculation as to whether an assignment would have been achieved, and so if what would be the terms. The judge was right not to speculate and he was right to conclude that the claimants had not proved the necessary facts to establish a substantial chance of success. I therefore would refuse permission to appeal on this issue.

Interest

52. Finally I come to the matter upon which the judge gave permission to appeal. The claimants sought interest upon the sum payable back to the breach of trust at the end of April 1990. The judge concluded that interest should only run from 17th April 1993 to April 1998. His reasons for exceeding the three-year period between April 1990 and April 1993 were, first, that the claimants had delayed starting the proceedings against Linnells until after the Hodgkinson action had been settled. Second, Linnells had not had the benefit of the money. He said:

"The original trial Judge would have been faced with a difficulty, it seems to me, in regard to interest prior to the commencement of the original action on the 17th April 1996. Would he have given interest going back to April 1990? Would he have given interest for part of the period or would he have given it at a reduced rate? All of it, it seems to me, is speculative."

The judge then went on to consider whether it would be appropriate to grant interest back to April 1990 and concluded that it would not have been.

53. Mr Cousins submitted that the reasoning of the judge was incorrect. First, the trial judge of the action against Linnells would not have known of the decision to delay proceedings. Second, the claimants were entitled to start the proceedings when they did and that there was no culpable delay. In those circumstances they were entitled to claim interest upon the money which had been paid out in breach of trust. There was, he submitted, every reason to compensate the claimants by requiring repayment of the money and interest for loss of its use.
54. Mr Pooles submitted that the judge had exercised his discretion having heard the evidence. He had not failed to take into account anything, nor had he taken into account something which he should not have done, nor was his decision plainly wrong. It followed that this court should not interfere. The judge was in just as good a position as the judge in the Linnell proceedings would have been and his conclusion should be respected.
55. I agree that it would not be right to interfere with the judge's conclusion unless he has erred in principle or went plainly wrong. However I have come to the conclusion that he did err in principle when considering the original proceedings, and in particular the task that the judge would have been faced with when considering whether interest should be awarded. Linnells had unlawfully paid out the claimants' money in April 1990 and there was no proper reason why interest should not have been paid between April 1990 and April 1996. I can see no difficulty in the original judge's way in coming to such a conclusion. The claimants had been deprived of their money for that period. So far as they were concerned it did not matter that the money had been spent in acquiring the Wetherall business or for some other reason. The original trial judge would have realised that interest was the appropriate remedy. Further if delay had been such as to deprive the claimants of some interest, then I would have expected that interest would have been refused for the last few years not the first few. I conclude that the appropriate order was to grant interest at the judgment rate from the end of April 1990 and I would allow the appeal for that purpose.
56. LORD JUSTICE KAY: I agree.
57. LORD JUSTICE JONATHAN PARKER: I also agree.

ORDER: Applications for permission to appeal refused; appeal of the claimants allowed; order that the sum of £15,000 paid in on behalf of the defendants on 20th September 2002 is paid out in partial satisfaction of this judgment, with the interest accrued thereupon; the respondents to pay 95 per cent of the appellants' costs; a draft minute of order to be lodged by counsel.

(Order not part of approved judgment)