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

		Royal Courts of Justice Strand London, WC2
		11th May 2005

Wednesday, 11th May 2005.

1. LORD JUSTICE CARNWATH: This an action by Mr Wilks against his former solicitors for alleged negligent advice. The background can be stated shortly. Mr Wilks was a director and 50% shareholder of a company called Warwick Limited which traded in heating and plumbing supplies. The other 50% was held by Mr Chadwick, also a director. They fell out in autumn 2001. Mr Chadwick had de facto control because he had the support of the third director, Mr Franklin. One issue between the parties was the complaint that Mr Wilks had an alcohol problem and, in consequence, had been neglecting his duties as a director. There were disciplinary proceedings which led, in November 2001, to Mr Wilks being suspended from his duties as a director.
2. Before that, in September 2001, Mr Wilks had consulted Mr Mainman, the second respondent and a partner in the first respondent firm. The judge reviewed in detail the exchanges between them from that time until early in the following year, but I do not need to repeat that review for the purposes of this judgment.
3. The next significant date is April 2002 when there was a conference with leading counsel, Mr Chaisty QC, at which consideration was given to possible proceedings under section 459 of the Companies Act 1985. Counsel advised that it was a good case. That led to a letter to the other side, threatening proceedings.
4. I should note at this stage that in the instructions to counsel it was said that there was no proper justification for Mr Wilks' dismissal and Mr Chaisty, when sending the draft papers, noted that that factor was an important element in his advice. The Judge records it at paragraph 23 where he quotes Mr Chaisty's note, which said:

"It has, of course, been emphasised to Mr Wilks and, if necessary, should be repeated, that his case is dependent in part in establishing that there was no proper justification for his dismissal in November 2001, despite the allegations made, ie, that they are without substance."

5. At the time when Mr Mainman was alleged to have given negligent advice, it seems that he was still of the understanding that Mr Wilks had challenged the allegations. That later turned out not to be true. The Judge records that at a subsequent conference in October, to which I will come, Mr Wilks, having initially denied that he accepted the allegations, in the end accepted that there was substance in the allegations, and indeed, there was a letter in October referring to minutes in which he had indicated that he did not wish to dispute the allegation. I mention that as background to the significant events on which the appellant's case is based.
6. The next significant event comes towards the end of June 2002 when Mr Wilks had some discussions with the Acquisitions Director of a company called Jewson's, which led him to understand that they would be willing to pay some £1.5 million for the company as a whole, although they were not willing to put that in writing. That was reported to Mr Mainman and led to a letter being sent by him to the solicitors for Mr Chadwick. That noted that at that stage Mr Wilks had indicated that he would accept £300,000 for his shares in the company which had been rejected by Mr Chadwick, who had made a substantially reduced offer. The letter went on to refer to the discussions with Jewson's. It said:

"Jewson's have done a considerable amount of background work in examining the business and have put forward an offer to our client to buy the company for £1.5 million. Our client feels that with some careful negotiations the price may go up a little more."

7. The letter then refers to the papers being with counsel to commence possible proceedings, but suggests that Mr Chadwick may be interested in the offer from Jewson's. The letter says:

"They will not put it in writing until both shareholders agree to sell. You may come to the conclusion that a judge would be impressed by a third party offer when considering the valuation of the company."

8. There is an e-mail of 9th July 2002 from Mr Mainman to Mr Wilks, which provides the background to the crucial meeting of 11th July 2002 at which the allegedly negligent advice was given. In the e-mail, Mr Mainman says that the objective is "to achieve the maximum result with the minimum of fuss and expense without letting things slip." He says that the letter had been sent to Mr Chadwick, offering to purchase their shares for £750,000, but "experience has taught us that we will almost certainly get no, or no useful, response to that."
9. He refers to the draft petition which has been obtained from counsel and says that:

"... it is likely, unless anything spectacular happens over the course of this week, that we will issue proceedings next week."

10. He says that they will write a further formal letter to Mr Chadwick's solicitors, reiterating the £750,000 offer:

"... which will be designed to put more pressure on them, particularly on the question of costs, should we actually have to commence proceedings."

11. The letter ends:

"If we follow this route, I think we can both say, with considerable justification, that we have exhausted every conceivable avenue prior to lighting the litigation touchpaper. As I have mentioned to you on a number of occasions in the past, I would want to have a fairly serious talk to you about money before we actually do that."

12. I then come to the critical meeting of 11th July 2002. There is a full note of it, prepared by Mr Mainman, which is accepted to be accurate. The note says that some time was spent going through the various alternatives. It goes on:

"I told him he has got four choices: (1) he can do nothing; (2) he can hope that we are able to do some sort of deal; (3) he can litigate; (4) we can sell to Jewson's.

Doing nothing isn't an option. I do not know if we can do a deal and we do not know if Chadwick wants to sell so we can't guarantee on the Jewson's deal either. The only option, therefore, is to litigate, which is very unsatisfactory, but Mark does agree with me that we have exhausted every conceivable opportunity to avoid this."

13. There is then discussion about fees being provided up front. The note continues:

"We are all aware that this is not what anybody wants to do, but in the circumstances there doesn't seem to be any other way forward. We have not had any information or even acknowledgment from the other solicitors during the course of this week to our various correspondence."

14. Then the note records that Mr Wilks has been told that he:

"... must never forget that they just might decide to defend the petition on the basis that we are not entitled to relief in the first place. Our advice is that would be the wrong choice to make, but we can't dismiss it. Mark is aware of that."

15. A further significant point in the note is a reference to Mr Wilks' recognition that:

"The big problem that Chadwick is going to have is that even if we were able to sell for a global figure of £1.8 million, it would not be as much money as Chadwick and his family expected the business was going to earn for them during, say, the next five years. We believe that they have orchestrated Mark's removal from the business so that they can have it for themselves and use it as a source of income for the Chadwick family."

16. Following that meeting, the section 459 proceedings were commenced on 15th July 2002. There was, in fact, a response from Mr Chadwick's solicitors on 17th July to the earlier letters. Mr Chadwick apparently had no immediate plans to dispose of his shareholding in the company but was willing to look further into the offer, provided there was clarification of the nature and, indeed, existence of the offer.
17. There followed further exchanges and there is a further letter from Mr Chadwick's solicitor on 22nd August 2002, which suggests alternative dispute resolution as to the value of the interest in the company and, again, raises questions about the Jewson' offer. It is fair to say that there was no indication in the correspondence that the commencement of the section 459 proceedings in any way diminished Mr Chadwick's willingness to negotiate, nor, equally, is there any evidence that it improved it.
18. The next important event comes in October 2002 when advice was obtained from another counsel, Mr Potts. That is dealt with in the judgment. I have already referred to the disclosure before Mr Potts of the fact that the disciplinary proceedings against Mr Wilks had not been without foundation. In addition, Mr Potts made clear to Mr Wilks, Mr Wilks says for the first time, that the Jewson's offer would not be taken into account in any way by the court as influencing the value of the shares. Mr Potts, who gave evidence at the trial, recognised that that was something which came as a surprise to Mr Wilks, who had apparently thought that it was going to be a significant factor. It is also noteworthy that the problem with the Jewson's offer, namely that it had never been put in writing or confirmed in any tangible way, remained in October and, indeed, has never been resolved.
19. As a result of that advice, Mr Wilks decided to discontinue the section 459 proceedings. Again, the Judge has dealt with the circumstances in which that happened. At that stage, as the Judge recorded, there was no suggestion that Mr Wilks was complaining in any way of the advice which had led him to commence the proceedings.
20. However, since then, he has decided that he was badly treated in that respect and has commenced these proceedings to recover his abortive costs, which amount to the sum £15,000 plus interest, that representing his costs of commencing the proceedings and the costs thrown away by the other side. That is the amount he seeks to recover in these proceedings, based on the alleged negligence of his solicitors. It may seem surprising that an experienced businessman should be bringing these expensive proceedings, even to this Court of Appeal, for a sum of that amount. However, we have to deal with the case on its merits.
21. His case, as it is summarised in Ground 1 of the Grounds of Appeal was that he was given, effectively, two pieces of advice at the crucial meeting. First, that in the section 459 proceedings the court might take the Jewson's offer into account in valuing the Warwick shares, and secondly, that:

"... doing nothing was not an option. Every conceivable alternative to litigation has been exhausted and the only option to is to litigate."

22. He refers to the first of those as Advice 1 and the second as Advice 2. The Judge rejected the case on Advice 1. That rejection is not challenged in the appeal. He found that the alleged advice had not been given. The appeal is directed to the Judge's treatment of, or failure to treat, the complaint in relation to Advice 2. Grounds 1 to 4 of the Grounds of Appeal are addressed to that question. Ground 5 of the Grounds of Appeal is in these terms:

"The Judge's decision on the issue referred to at Ground 3 above, namely that the Defendants were not in breach of duty in failing to advise the Claimant that no admissible evidence was available to support a valuation of his shares in Warwick materially above £350,000, was in any event wrong."

23. It is suggested before us that that, effectively, raises a separate and more general point than Grounds 1 to 4, and I will come to that in a moment.
24. As to the legal principles, there is no dispute. It is sufficient to refer to the words of Lord Scott in Pickersgill v Riley [2004] UKPC 14 at paragraph 7. He said:

"It is plain that when a solicitor is instructed by a client to act in a transaction, a duty of care arises. But it is also plain that the scope of that duty of care is variable. It will depend, first and foremost, upon the content of the instructions given to the solicitor by the client. It will depend also on the particular circumstances of the case. It is a duty that it is not helpful to try and describe in the abstract. The scope of the duty may vary depending on the characteristics of the client, in so far as they are apparent to the solicitor. A youthful client, unversed in business affairs, might need explanation and advice from his solicitor before entering into a commercial transaction that it would be pointless, or even sometimes an impertinence, for the solicitor to offer to an obviously experienced businessman."

25. Mr Wilks, as the Judge found, was an experienced businessman.
26. Before turning to the treatment of Advice 2, it is relevant to note how the judge dealt with what has been called Advice 1, namely the allegation that advice was given that the court might or would take the Jewson's offer into account in valuing the Warwick shares. The judge dealt with the allegations in paragraph 63 to 69 of the judgment and noted that it was denied in the defence that the advice had, in fact, ever been given. He goes on to consider the likelihood that any such positive advice had been given. In particular, he notes that there is nothing to that effect in the notes of the meeting which Mr Mainman was meticulous in keeping. On the contrary, there is a note of him telling his accountant that the offer was not worth very much if it was not in writing. At paragraph 81 he said he had had the opportunity of seeing both Mr Wilks and Mr Mainman in the witness box and had no doubt at all in preferring the evidence of Mr Mainman on this issue.
27. So in conclusion, he simply rejected the idea that positive advice had been given by Mr Mainman that the Jewson's offer would be taken into account and, as I say, that part of the judgment is not challenged.
28. Turning to Advice 2, the first question is whether this issue was before the judge in a way which put him under a duty to deal with it substantively in his judgment. The simple answer, as I see it, is that, although the point was raised in the pleading which was drafted by Mr Gerrans of counsel, who has appeared before us, it did not form a material part of the case advanced at the trial by Mr Lander, the counsel then appearing, and it seems to me there can be no criticism of the judge for not treating it as part of that case. It may well be that Mr Lander did not think that it was a case which was likely to succeed. However that may be, as I will show in a moment, it was not part of the case that was eventually put before the judge.
29. One starts with the pleadings. In paragraph 18 of the claim, there is a reference of the meeting of 11th July. The paragraph is in effect a summary of the minute to which I have already referred. It records that Mr Mainman advised the claimant, among other things, that the only option was to litigate. Paragraph 18 is admitted by the defence, no doubt because it was indeed based on Mr Mainman's own note. Paragraph 19 purports to set out the advice which should have been given. It sets out at some length the factors which the pleader suggests ought to have been taken into account. Then it says in paragraph 19C why the advice given by Mr Mainman was wrong. It is said that it was wrong in the following respects:

"(1) doing nothing was a realistic alternative, at least in the short-term; (2) as it had not yet become apparent that a deal could not be done either with Mr Chadwick or Jewson's in corroboration with Mr Chadwick, these also remained realistic alternatives; (3) litigation was not the only available option; (4) it was not the case that every conceivable alternative to litigation had been exhausted; (5) he failed to consider or advise the claimant about the likely quantum if the client chose to issue and proceed with the petition, ie, that no admissible evidence was available to support a valuation of the shares materially above £350,000; (6) instead, as alleged in paragraph 13 above, he wrongly advised the court might take the Jewson's offer into account on the valuation issue."

30. As will be seen, the only part of that which was pursued in any way by counsel at the hearing was (5). The skeleton argument of Mr Lander before the judge deals with the question, "Was the advice negligent in paragraph 30 and 31?" in this way:

"C's case is simple. The advice about whether the offer was relevant in valuing the shares was wrong. This analysis must be right. When valuing shares, the prospect of any court taking into account an unwritten, non-specific offer from a third party is so remote as to be discounted. In addition, the advice given on 11th July 2002 that there was no option but to litigate was also wrong. Had C been told that litigation would necessarily result in him receiving significantly less than he would do in the event of a deal being done with a third party, there was every incentive to try and resolve the matter by consent, or put another way, C was denied the opportunity to take into consideration one of the most important factors to be weighed in the balance when making his decision."

31. It can be seen that this is, in fact, not the same issue as is being made in the pleadings, which was that there were alternatives to litigation which were not explained. It is simply saying that, on the merits, had Mr Wilks been given better information about the valuation of the shares, then he might have taken a different view.
32. In cross-examination of Mr Wilks, it was put to him that insofar as there was an allegation that he should have been advised that there was some other option, Mr Mainman's advice was entirely correct. At page 56 of the transcript he is asked about the previous e-mail in which Mr Mainman said:

"We have followed this route. I think we can both say we have exhausted every conceivable avenue",

to which he answered, "Yes".

33. Then he was asked about the background in which there had been correspondence and the other side had been dragging their heels and spinning it out, with which he agreed. He went on:

"Q. 'Walking you round the park', I think the expression was used, was it not, in one of the documents?

A. Yes.

Q. So doing nothing is not an option, is it?

A. No."

34. Then a similar answer is given over the page. That exchange, which represented Mr Wilks' own view of the matter, was not corrected or altered in re-examination. Nor in his closing did Mr Lander attempt to suggest that that answer somehow misrepresented the view of a lay client, or should not represent the view of the court. On the contrary, in closing his case, Mr Lander focused on the theme which was made in his opening skeleton, that the issue was really whether proper advice had been given as to the amount.
35. At page 29 of the transcript of his closing submissions, he is recorded as saying:

"The question is whether in the light of the Jewson's offer further advice should have been given on quantum."

36. At the end of his submissions, he is recorded as saying this:

"Now, your Honour, in my submission, at that meeting, if not before, it should have been made clear to Mr Wilks that the valuation that would be taken into account on the petition was unlikely to take into account the offer from Jewson's. If that had been done at that meeting there could have been no criticism at all. Your Honour, the absence of that, in my submission, is negligent in circumstances where Mr Wilks, as a result of what had been said to him, and as a result of reading correspondence, might legitimately have thought that that offer would have been taken into consideration."

37. So there is counsel for Mr Wilks making it quite clear that his case rests on the advice which has been given about the offer from Jewson's and that, apart from that, no criticism is made.
38. Finally, after the judge had given his judgment, Mr Lander applied for permission to appeal, which was refused. Mr Lander explained the point on appeal:

"In all the circumstances, it should have been plain to him [that is Mr Mainman] that Mr Wilks was labouring under the impression that he would receive substantially more than the accountant's valuation for his shares and in those circumstances he should have disabused him of that position."

39. So Mr Lander was not making any complaint about the Judge's failure to deal with the "no option but to litigate" issue. That surely would have been the time for him to have raised the point that the Judge had failed to deal with an important issue in the case, if he had believed that to be the position. If he had done that, of course, the judge might have been able to consider the point at that stage.
40. I have reviewed that sequence in some detail because it seems to me to make it unnecessary to go into the merits of this point, had it been raised. I make clear that I do not think, on what I have heard, that it would have had any likelihood of success. What is quite clear to me is that, on the case as put to the Judge, he was perfectly entitled to take the view that the "no option but to litigate" point was not an issue which needed to be dealt with separately. In my view there is no basis for criticising him and no basis for the appeal on that point.
41. That then leaves the other point which emerges, somewhat obscurely, from Ground 5, but which Mr Gerrans has extended in his skeleton argument. What it comes down to is this: even if it is accepted, as it is, that Mr Mainman did not give any positive advice that the Jewson's offer would be taken into account, he failed in his duty to give advice as to what matters the Judge would take into account on valuation.
42. Mr Gerrans has referred us to the relevant Law Society code, which indicates that generally there is a duty to inform a client considering litigation of the potential outcome. He also relies on the letter of 28th June 2002, to which I have already referred. In that letter Mr Mainman was saying to the other side that a judge might well be impressed by a third party offer, clearly referring to the Jewson's offer. Mr Gerrans says that, if the other side were likely to think that a judge would be impressed by that, why should not Mr Wilks think the same? If Mr Wilks could reasonably have thought the same, why was Mr Mainman not under any duty to disabuse him of that?
43. Mr Mainman's evidence on this was clear. He said that, had he realised that this was in Mr Wilks' mind, he would have disabused him of it. He said at page 131 of the transcript:

"If I had come to the conclusion or had found out or it had been suddenly brought to my attention that Mr Wilks was embarking on this litigation in the expectation, for whatever reason and whatever point in time, that he was going to get £750,000 out of it, then I would most certainly have told him that that was something that he should quickly dismiss from his mind. Secondly, I would have written to him, saying, 'Look, if this is what you are thinking you are going to get out of this, then this is the advice I have to give you.' But I was never in a situation where I was under the impression or thought there was a risk that he thought that the issue of the 459 petition was going to produce £750,000."

44. He says that the first time he got that indication was when Mr Wilks' solicitor wrote to him in the run-up to the present litigation.
45. The Judge clearly accepted Mr Mainman's evidence. He did so against the background of having heard both Mr Wilks and Mr Mainman and having reviewed with some care the course of dealings between them. It may well be that in general terms a solicitor would expect to advise a client contemplating litigation of the likely range of potential outcomes. However, this was somewhat different. This was a case in a very difficult dispute between the two owners of a company. It was necessary to make a judgment as to how best to procure from the other side what Mr Wilks would have regarded as a more realistic offer. Although Mr Mainman noted the possibility that the petition might be carried forward to full trial, it is clear that that was being seen as the least attractive option, and that the principal purpose of the exercise was to put pressure onto Mr Chadwick's side. In those circumstances, the Judge understood that Mr Mainman's purpose in writing the letter to the other side and referring to the offer was, indeed, to put pressure on them to try and improve the offer, but it by no means followed that that was something which he was advising his client was a likely outcome, or that he expected his client to think was a likely outcome. It is clear that they were working very closely on this, and the tenor of all the notes of the meetings is that they were agreeing the strategy on the basis of full understanding between them.
46. The Judge concluded on this point at paragraph 104:

"It seems to me that, frankly, if a client who is a businessman, a successful businessman, a man who apparently has hundreds of thousands of pounds at his disposal and does not need to sell his shares in a business which he no longer controls or works in and is content to sit on them as an investment in the hope that ultimately the goose will lay a large golden egg, is not the sort of client who is going to be reticent when seeking advice from his solicitor or any other professional man. If he does not tell the solicitor what he is thinking and allow the solicitor the opportunity to disabuse him, if that be the appropriate thing to do, then it seems to me that the client has no-one to blame but himself for the predicament in which he then alleges he has found himself to be. I do not believe there is any evidence to support the view that Mr Mainman ought to have suspected that Mr Wilks believed the court would order the purchase of his shares of £750,000 or any other amount. I do not think this is a case of professional negligence at all. I do not think there is any advice which should have been given which was not given and, accordingly, it seems to me that this is not a case which can succeed in any shape or form."

47. That is the view of an experienced judge, having heard the witnesses. I can see no basis on which this court can or should interfere and I would dismiss this appeal.
48. LORD JUSTICE JONATHAN PARKER: I agree.
49. LORD JUSTICE WARD: I also agree. I am afraid, Mr Gerrans, your appeal is dismissed.
50. MR CAMPBELL: My Lords, I invite your Lordships to dismiss the appeal and I ask that the appellant pay the respondent's costs of the appeal.
51. LORD JUSTICE WARD: And you cannot resist that.
52. MR GERRANS: I cannot resist that.
53. LORD JUSTICE WARD: No, you cannot. So the appeal is dismissed with costs to be assessed if not agreed. Thank you for your help.